DREAM Unlimited
Annual Report 2018

Plain-text annual report

2018 Annual Report Dream (TSX:DRM) is an award- winning Canadian real estate company with approximately $15.0 billion of assets under management in North America and Europe. Dream is one of Canada’s leading real estate companies with approximately $15.0 billion of assets under management in North America and Europe. The scope of the business includes asset management and management services for four Toronto Stock Exchange (“TSX”) listed trusts and institutional partnerships, condominium and mixed-use development, investments in and management of Canadian renewable energy infrastructure and commercial property ownership, and residential land development, housing and multi-family development. Dream has an established track record for being innovative and for its ability to source, structure and execute on compelling investment opportunities. Letter to Shareholders We are very pleased that the diversification of our asset base over the last few years has enabled us to introduce a regular quarterly dividend commencing in the first quarter of 2019, supported by the growth of our recurring income generating assets. One of our primary objectives over the last few years has been to remain focused on building a safer and more valuable company. In doing so, we have grown our pre-tax recurring income to $82 million in 2018, which exceeds our corporate general & administrative expenses and interest expense by nearly double. Over the last few years, our asset management business has become more valuable through increased and diversified fee streams. We have increased the quality of our land by owning significantly more in the best locations in downtown Toronto which is the driver of the Canadian economy. Arapahoe Basin has benefited financially from our capital investments, its location in the centre of the best ski market in North America and the growth in population and GDP of the Denver area which has made it a premier quality ski area. Finally, we have received many approvals in Western Canada which increases the value of our lands, most notably the recent approval of our Providence community in Calgary. Altogether, we have a much higher quality business than we did five years ago. Our investments in the Greater Toronto Area, either through direct equity investments or indirectly through our ownership in Dream Office REIT and Dream Alternatives, offer incredible development opportunities. As of December 31, 2018, we have approximately 10,000 residential and purpose-built rental units and 1.6 million square feet of retail/commercial space either under construction or in our development pipeline on incredibly valuable sites across the GTA, which is significantly higher than our historic levels. This includes our Port Credit development, the West Don Lands development, Riverside Square and various phases at the Canary District and Distillery District in downtown Toronto. We are committed to building the best communities which will translate into increased value for shareholders over the long-term. As we build rental and commercial properties within these communities, our recurring income sources will also increase. As of December 31, 2018, Dream owned over $457 million in the Dream Publicly Listed Funds, inclusive of units in Dream Office REIT, Dream Alternatives and Dream Global, which accounted for over 60% of Dream’s market capitalization and generated over $20 million of distributions this year. Although the environments in which our land and housing divisions operate experienced softer market conditions throughout 2018, Dream continued to generate strong earnings due to the strength of our other business lines. Given the diversification of our business, we expect income driven by Western Canada to represent a smaller proportion of our earnings relative to historical results. For context, net margin from Western Canada operations in 2018 accounted for approximately 34% of total net margin for the Company, compared to 70% in 2013. This year, we advanced a number of important approvals on our Western Canada lands, which make our lands more valuable now and over the long term. Since going public in 2013, our book equity value per share has increased by a compound annual growth rate of 18% which is quite positive considering the decline of activity in Western Canada and the increased competition. We will continue to improve our positioning and quality of our earnings by adding more valuable income properties, grow our recurring income through changes at A-Basin, our asset management contracts, developments for sale and our development fee business as well as continually improving our active management of our assets and developments. We thank you for your continued support and interest in our business. Sincerely, Michael J. Cooper President & Chief Responsible Officer February 26, 2019 Distillery District Toronto, ON Dream Unlimited At-a-Glance $15.0 Billion IN ASSETS UNDER MANAGEMENT AS AT DECEMBER 31, 2018 ~$27 Billion OF REAL ESTATE & RENEWABLE POWER TRANSACTIONS COMPLETED ~11,800 CONDOMINIUM AND PURPOSE-BUILT RENTAL UNITS UNDER CONSTRUCTION OR IN OUR DEVELOPMENT PIPELINE $457.5 Million OF EQUITY HELD IN DREAM PUBLICLY LISTED FUNDS Financial Highlights Dream Standalone(1) Revenue Earnings before income taxes Earnings per period Basic earnings per share(2) Dec. 31, 2018 Dec. 31, 2017 $294,071 $109,334 $83,093 $0.76 $356,964 $115,576 $82,839 $0.76 Total equity (excluding non controlling interests)(3) $1,001,317 $919,394 (1) Dream standalone represents the standalone results of Dream, excluding the impact of Dream Alternatives’ equity accounted/consolidated results. Refer to the “Non-IFRS Measures” section of our MD&A for further details. (2) Basic earnings per share is computed by dividing Dream’s earnings attributable to owners of the parent by the weighted average number of Dream Subordinate Voting Shares and Dream Class B shares outstanding during the period and has been adjusted to include the non-controlling interest relating to Sweet Dream Corp. (3) Total equity (excluding non-controlling interests) excludes $43.9 million of non-controlling interest as at December 31, 2018 ($38.1 million as at December 31, 2017) and includes the Company’s investment in Dream Alternatives as at December 31, 2018 of $72.7 million ($48.3 million. as at December 31, 2017). For further details refer to the “Segmented Assets and Liabilities” section of our MD&A. Total equity per share* ($ in millions) $7.39/share $8.42share $9.33/share $800 $6.38/share $600 $5.21/share $400 $200 $0 Riverside Square Toronto, ON 18% CAGR IN TOTAL EQUITY TO 2018 Dec. 2014 Dec. 2015 Dec. 2016 Dec. 2017 Dec. 2018 *Total equity per share is calculated based on total shareholder’s equity, including SDC’s non-controlling interest for years prior to December 31, 2018. Note: We issued $55.0M of equity in 2014 Our Values Integrity Teamwork Dealing with stakeholders Social responsibility Opportunities Fun These values provide the foundation for our corporate culture – acting as a strong platform on which to build sustainability into Dream’s DNA. Building Better Communities Sustainability is ingrained in how we run our business both internally and externally. It fits naturally with Dream’s purpose to Build Better Communities and with our values. Building better communities guides how we think, live and work. In doing this, we strive to make positive impacts on the natural environment and the communities in which we operate, work and live. Canary District Canary District in an award-winning, sustainable, master-planned community in Toronto’s east end. Canary was built to Leadership in Energy and Environmental Design (LEED) Gold standards and designed on the principles of green living with generous public spaces, and high walkability. Canary District Toronto, ON Sustainability Focus on sustainability Our sustainability strategy guides us in how we run our business and how we manage our environmental and social obligations, including managing our brand, business risks and operating costs. We strive to integrate sustainability at both the corporate and property/ development levels focusing on internal and external initiatives to benefit all stakeholders. We believe that a long-term sustainable approach is imperative to create value. As property owners, operators and developers, we are well positioned to implement sustainability as a core pillar of our guiding philosophy. This can be demonstrated through our reputation for building communities that are leaders in sustainable design and our focus on improving the communities in which we live and work. Zibi in Ottawa/Gatineau, Port Credit West Village in Mississauga, the Canary District and the West Don Lands in Toronto are all examples of communities that have integrated sustainability into every aspect of their design. For example, Zibi is being built to be one of the most sustainable communities in the country. Our Arapahoe Basin ski resort in Colorado is a leader in sustainability, taking their responsibility as a steward of an exceptional natural environment seriously and embracing multiple sustainability initiatives. In Western Canada we are incorporating best practices for sustainability into our master-planned communities. We are using technology and working with environmental consultants to reduce the environmental impact of our communities and integrate natural wetlands and habitats into our design. As a company, we also support the communities in which we live and work through our charitable partnerships and commitments. In 2018, Dream donated close to $1 million to charities. In addition, our employees also prepared and donated over 1,800 shoeboxes to The Shoebox Project for Women’s Shelters and over 400 gifts through our Tree of Dreams. Whether building new communities, investing in renewable energy, or operating our existing buildings, we strive to be a leader in sustainability. We will continue to implement strategies to promote the highest standards of sustainability throughout our organization. We have highlighted a few examples over the next few pages. Arapahoe Basin Ski Resort Colorado Arapahoe Basin - a leader in sustainability Arapahoe Basin: Summit Solar Array In the fall of 2017 we installed a new renewable energy project at the top of the mountain at our Arapahoe Basin ski resort in Colorado. The 8.25 kW PHQ (Patrol Headquarters) Solar Array consists of 30 roof-mounted panels that, in the time they’ve been operational, have produced more energy than the building uses. The panels have fared well despite the extreme conditions encountered at the top of the mountain, with winds regularly approaching 100 MPH and heavy snow loading a constant issue. Also, at an elevation of 12,456 feet, this solar array is the second highest solar project in the United States and the highest renewable energy project at any ski area world-wide (as far as we can tell). Strategic Sustainability Plan: 7 Goals in 7 Years Last spring the Arapahoe senior leadership team worked with the Brendle Group, a sustainability consulting group located in Fort Collins, CO, to identify a strategic sustainability plan for Arapahoe as a whole. The plan took into consideration current utility usage, continued improvements to the power grid and fuel supply, and future plans for growth to identify seven sustainability goals to be achieved in seven years, by 2025. These goals address all aspects of the business from waste reduction, to renewable electricity, to ecosystem stewardship and transportation – cumulating in the primary goal of becoming completely carbon neutral by 2025. Leader in building sustainable communities Zibi Zibi, located in Ottawa and Gatineau, is envisioned as one of the most environmentally conscious and sustainability- focused development projects in Canada’s history. Under the guidance of the One Planet Action Plan, a holistic ten-principle sustainability framework, Zibi will make it easy for residents, visitors and workers to lead low impact and healthy lifestyles all while living in comfort and style on the waterfront in the heart of the National Capital Region. This past year was a momentous year at Zibi; we completed construction on our first phase of infrastructure including the decontamination of soil, and the installation of all civil services. We completed our first residential building “O” and welcomed residents into their new homes in time for the holidays. This provided the first opportunity for our One Planet Ambassador, an individual who is responsible for promoting and inspiring sustainable lifestyles within the community, to begin rolling out programming. We are also building the first phase of our District Energy system, which is a vital step toward zero-carbon heating and cooling at Zibi. Sustainability is also engrained in our construction practices. This past year, we’ve had the opportunity to meet with many of our trade partners to educate them on the One Planet Action Plan. Momentum is only increasing as we prepare to welcome more residents and commercial tenants to our community. O will submit for LEED Platinum later this spring as a further third- party verification of Zibi’s green building commitments. We will also continue to strengthen our construction practices, setting the bar high for corporate responsibility in the region. Finally, we will continue to work with our Algonquin Anishinabe partners who are providing invaluable direction on the design of our public realms and green spaces which will allow Zibi to continue to be a leader in social sustainability in the region. Zibi Ottawa, ON / Gatineau, QC West Don Lands - affordable housing built to LEED Gold standards Dream and Dream Alternatives, together, have a 33.3% ownership interest in the West Don Lands development located in Toronto’s east end. West Don Lands will be a vibrant community that will offer purpose-built rental apartments that include a 30% affordable housing component in support of the Province’s Fair Housing Plan. With a vacancy rate of less than 1% and some of the highest rental rates in the country, we believe that Toronto is in need of rental options. West Don Lands will feature 1,500 units, in a family friendly community that incorporates sustainability into its core. It will be built to achieve Leadership in Energy and Environmental Design (LEED) Gold certification. West Don Lands will be a complete community where residents can raise families, live, work, play, and shop. In addition, residents can take advantage of the many neighbourhood amenities in the adjacent Canary and Distillery Districts, notably the 82,000 square foot Cooper Koo YMCA and 18-acre Corktown Common park. Having successfully co-developed over 3,000 units in Toronto’s downtown east end, including the award-winning LEED Gold Canary District and historic Distillery District, Dream has a vested interest and deep commitment to the area and the West Don Lands development. We look forward to completing the West Don Lands development to meet the growing rental needs of our city while meeting Dream’s return objectives. West Don Lands Toronto, ON Sustainability Highlights Environmental — Dream’s West Don Lands community will offer purpose-built rentals that include affordable options — Zibi is 1 of 10 endorsed One Planet communities in the world based on 10 sustainable principles — Canary District is a sustainable LEED GOLD village and received the ULI Global Award for Excellence as part of the West Donlands development — Dream’s ski hill, Arapahoe Basin, is a leader in sustainability, having recently completed a sustainability plan focusing on attaining 7 sustainability related goals in 7 years — 239 MW of renewable capacity (enough to power 50,000 Canadian homes for a year) has been installed by Dream and its joint venture partners — Dream’s Elan community in Edmonton is working with an environmental consultant to create an enhanced storm water management system Governance — 50% of Dream Unlimited Board members are women — 75% of Dream Unlimited Board members are independent — Embedded elements of sustainability in Board mandates Social* — ~1,800+ shoeboxes were donated to The Shoebox Project for Women’s Shelters by Dream — Close to $1 million was donated to charities and communities — ~$325,000 in tuition and professional development fees was reimbursed to employees — 420 gifts were donated to seniors through the Tree of Dreams — National sponsor of The Shoebox Project for Womens Shelters and partner with Women’s College Hospital Highlights are as at December 31, 2018 *Social highlights are based on all Dream entities combined Since Dream became the National Sponsor for The Shoebox Project for Women in 2014, Dream and our employees have donated over 5,000 shoeboxes to women in shelters. The Shoebox Project for Women, supported by Dream, collects and distributes gift-filled shoeboxes for women impacted by homelessness in communities across Canada and the U.S. Each thoughtfully created and decorated shoebox is filled with items that can enhance self-esteem and reduce feelings of isolation for women in need. Dream Unlimited Tax Contribution* The Company is subject to a range of federal, provincial, municipal and other local taxes, fees, charges and levies. The following chart summarizes amounts paid by the Company in the normal course of operations. We highlight our contribution because we see this as an important measure of our specific financial contribution to the overall Canadian economy. 1. Income Taxes** $ 15,237,000 $ 29,151,000 2. Property Related Taxes 7,527,000 8,853,000 2018 2017 Taxes paid on leased and owned property, school taxes, provincial/municipal land transfer tax or property registration taxes paid on the purchase of real property 3. Development & Other Charges 62,528,000 74,531,000 Development charges/fees paid, building permits, levies and the cost of municipal services installed on lands related primarily to the Company’s land and housing business in Western Canada 4. People Taxes 3,189,000 2,870,000 Company’s share of various payroll taxes including government pension, employment insurance, government health costs and workers’ compensation Total $ 88,481,000 $ 115,405,000 *Represents Dream on a standalone basis **The amount reported in 2018 includes payments of $1.4 million made by the Company in February 2019 for 2018 income taxes payable (The amount reported in 2017 includes payments of $25.3 million made by the Company in February 2018 for 2017 income taxes payable). Alate Partners, using technology to rethink real estate Dream along with Dream Office REIT, entered into a strategic partnership with Relay Ventures to create Alate Partners to invest in technology companies that are rethinking how real estate is designed, built, and managed. In addition to capital, Alate provides entrepreneurs with unique access to real estate expertise, customers, and partners that can help accelerate their growth. To us, real estate is about more than physical buildings—it’s about the people who live, work, shop, and play in them. By working with creative and visionary companies, we can leverage software and hardware solutions to enhance the sustainability of our buildings and make our homes and workplaces more personalized, efficient, and sustainable, from reducing energy use and waste consumption in buildings and on job sites to creating healthy and inviting workplaces that inspire employees and enhance productivity. By embracing emerging technologies and new approaches to how we build and manage real estate, we can reduce our environmental impact and improve the quality of life in our communities. Zibi Ottawa, ON / Gatineau, QC Table of Contents Management’s Discussion and Analysis Asset Management, Management Services and Investments in Dream Publicly Listed Funds Urban Development - Toronto & Ottawa Renewables and Recreational Properties Western Canada Development Dream Alternatives Management’s Responsibility for Consolidated Financial Statements Independent Auditor’s Report Consolidated Financial Statements Notes to the Consolidated Financial Statements Directors & Management Team Corporate Information 1 14 16 19 20 24 47 48 50 55 IBC IBC Management’s Discussion and Analysis The Management’s Discussion and Analysis ("MD&A") is intended to assist readers in understanding Dream Unlimited Corp. (the "Company" or "Dream"), its business environment, strategies, performance and risk factors. This MD&A should be read in conjunction with the audited consolidated financial statements ("consolidated financial statements") of Dream, including the notes thereto, as at and for the years ended December 31, 2018 and December 31, 2017, which can be found in the Company’s annual filings on the System for Electronic Document Analysis and Retrieval ("SEDAR") (www.sedar.com). The financial statements underlying this MD&A, including 2017 comparative information, have been prepared in accordance with International Financial Reporting Standards ("IFRS"). Certain disclosures included herein are non-IFRS measures. Refer to the "Non-IFRS Measures" section of this MD&A for further details. All dollar amounts in tables within this MD&A are in thousands of Canadian dollars, unless otherwise specified. Unless otherwise specified, all references to "we", "us", "our" or similar terms refer to Dream and its subsidiaries. This MD&A is dated as of, and reflects all material events up to, February 26, 2019. Business Overview Dream is one of Canada’s leading real estate companies with approximately $15.0 billion of assets under management in North America and Europe. The scope of the business includes asset management and management services for four Toronto Stock Exchange ("TSX") listed trusts and institutional partnerships, condominium and mixed-use development, investments in and management of Canadian renewable energy infrastructure and commercial property ownership, and residential land development, housing and multi-family development. Dream has an established track record for being innovative and for its ability to source, structure and execute on compelling investment opportunities. From the outset, we have successfully identified and executed on opportunities for the benefit of the business and shareholders, including the creation of Dream Asset Management Corporation ("DAM", formerly Dundee Realty Corporation) in 1996 as a public company, its subsequent privatization in 2003, the creation of Dream Office REIT (formerly Dundee REIT) in 2003, the establishment of our asset management business, and the creation of Dream Global REIT (formerly Dundee International REIT), Dream Industrial REIT (formerly Dundee Industrial REIT) and Dream Hard Asset Alternatives Trust ("Dream Alternatives" or "DAT") in 2011, 2012 and 2014, respectively. Effective January 1, 2018, Dream has consolidated the results of Dream Alternatives and has also reported its results as a standalone segment herein. Dream Unlimited Corp. – December 31, 2018 | 1 Summary of Achievements – Fourth Quarter and Year Ended 2018 Asset Management, Management Services and Investments in Dream Publicly Listed Funds As at December 31, 2018, fee-earning assets under management across the Dream Publicly Listed Funds (Dream Global REIT, Dream Industrial REIT, Dream Alternatives and excluding Dream Office REIT, which is not subject to an asset management agreement) were approximately $6.7 billion, up from $6.2 billion as at December 31, 2017. Fee earning assets under management across private institutional partnerships, development partnerships and/or funds were $1.6 billion, relatively consistent with the prior year. Total fee-earning assets under management were approximately $8.4 billion at December 31, 2018. In the three and twelve months ended December 31, 2018, the asset management division generated net margin of $10.9 million and $33.3 million, respectively, compared to $7.0 million and $36.2 million in the comparative periods. Fluctuations year-over-year were driven primarily by transactional activity or the achievement of development milestones in the period. Our asset management segment is a key source of recurring income for our business. For further details, please see the “Sources of Recurring Income” section of this MD&A. In 2018, Dream acquired 3.3 million units in Dream Office REIT for $76.5 million and approximately 2.5 million units in Dream Alternatives for $12.2 million. Subject to market conditions and our investment strategy, the Company intends to further invest in Dream Office REIT and Dream Alternatives on an opportunistic basis as both vehicles refine their portfolios and focus on core Toronto assets, which is aligned with Dream’s expanding real estate and development footprint across downtown Toronto and the Greater Toronto Area ("GTA"). As at December 31, 2018, the total fair value of units held in the Dream Publicly Listed Funds (including Dream Office REIT) was $457.5 million, representing 60% of the Company’s total market capitalization. Within this total, Dream had $323.6 million at fair value invested in Dream Office REIT (a 22% interest or 24% interest inclusive of units held through Dream’s Chief Responsible Officer ("CRO")) and $75.7 million at fair value invested in Dream Alternatives (a 17% interest). Urban Development - Toronto & Ottawa At December 31, 2018, Dream’s condominium projects consisted of 1,631 condominium units (691 units at Dream's share) in various stages of pre-construction or active construction. Approximately 99% of these projects (including Riverside Square and Canary Block Commons that will commence occupancy in 2019) were either sold or pre-sold as of February 25, 2019. In addition to these projects, we have 10,200 condominium or multi-family rental units and 3.3 million square feet (“sf”) of retail/commercial space (4,600 units and 2.5 million sf at Dream’s share) in our development pipeline. Our pipeline includes: the West Don Lands, future phases of Zibi, the Distillery District, Canary District - Block 13, Port Credit and the Frank Gehry-designed Mirvish King West development. For further details on our project pipeline, refer to the “Urban Development Pipeline and Results of Pre-sale Activity” section of this MD&A. In the three months ended December 31, 2018, Zibi, our 34-acre waterfront development along the Ottawa River in Gatineau, Quebec and Ottawa, Ontario progressed with the commencement of occupancy at the project's first condominium building "O", comprising 70 units, which are 83% sold. In addition to O, land servicing on both the Ontario and Quebec lands is well underway and construction has started on the project's next residential building, Kanaal, comprising 71 units, along with 105,000 sf of commercial space. Construction for Phase 1 of Riverside Square is progressing steadily, with first occupancies expected to commence in the second quarter of 2019. Riverside Square is a 5-acre, two-phase, mixed-use development located in Toronto’s downtown east side on the south side of Queen Street East and immediately east of the Don Valley Parkway. Dream has a 32.5% interest in the project and its residual partners include Streetcar Developments and an automotive group. The first phase of the project consists of 688 residential condominium units, a state-of-the-art multi-level auto-plex and approximately 20,000 sf of retail gross floor area ("GFA"). The second phase is planned to consist of approximately 36,000 sf of multi-tenant commercial space with a proposed grocery-anchored component together with 224 condominium units. In the three months ended December 31, 2018, fair value changes on our Urban Development investment properties were $12.0 million, an increase of $7.4 million relative to the comparative period driven by fair value gains at the Distillery District, which was attributable to increases in net operating income. The Distillery District is comprised of 395,000 sf of gross leasable area ("GLA") and is located in downtown Toronto, adjacent to our Canary District and West Don Lands developments. Western Canada Development In the year ended December 31, 2018, our land and housing division generated a combined $159.4 million of revenue and $23.8 million of net margin, comprised of 767 lot sales, 20.1 acre sales and 215 housing occupancies (December 31, 2017 - $225.6 million of revenue and $51.1 million of net margin, comprised of 913 lot sales, 33.5 acre sales and 300 housing occupancies). The decrease in revenue and net margin, relative to the comparative period was driven by the specific sales mix and lower volumes achieved in 2018. With continued challenging market conditions in Western Canada and increased pressures from government policies, we are closely monitoring customer demand, pricing trends and inventory supply across the division. As of today, assuming no material change in market conditions, we expect our earnings from the land and housing divisions to increase again come 2020, as we commence earning income from land sales in Providence, our most valuable land position in Western Canada. For further details on this segment refer to the "Western Canada Development" section of the MD&A. Dream Unlimited Corp. – December 31, 2018 | 2 In the year ended December 31, 2018, net operating income increased to $6.0 million from $4.5 million in the prior year due to increased rental income generated from our retail properties under development, partially offset by the impact of asset dispositions in 2018. We are currently developing and planning 526,200 sf of retail and commercial space across our Western Canada communities, of which 396,200 sf are under development. Strong Liquidity Position & Normal Course Issuer Bid ("NCIB") Activity As at December 31, 2018, we had up to $179.1 million of undrawn credit availability on Dream’s operating line and margin facility, compared to $166.6 million as at September 30, 2018 and $123.1 million as at December 31, 2017. Subsequent to December 31, 2018, we amended our operating line and non-revolving term facility, extending the maturity dates to January 31, 2021 and February 28, 2022, respectively. The Company is focused on maintaining a conservative debt position and has ample excess liquidity even before considering unencumbered or under-levered assets. As at December 31, 2018, our debt to total asset ratio was 33.3%, compared to 33.5% as at September 30, 2018 and 32.4% as at December 31, 2017 (34.9% as at December 31, 2018, compared to 35.2% as at September 30, 2018 and 33.2% as at December 31, 2017, on a Dream standalone basis). In the three and twelve months ended December 31, 2018, the Company purchased for cancellation 0.8 million Class A Subordinate Voting Shares for $5.6 million and 1.9 million Class A Subordinate Voting Shares for $16.0 million, respectively, under its NCIB. Subsequent to December 31, 2018, as part of our long-term strategy to maximize shareholder value, the Company's dividend policy was approved. In 2019, the Company will pay an annual dividend of $0.10 per Class A Subordinate Voting Share and Class B Common Shares, payable quarterly. Dream Unlimited Corp. – December 31, 2018 | 3 Our Operating Segments and Strategy We expect that our growth in profitability and total equity per share will be driven primarily by opportunities within our existing operating segments, as detailed below. Segment Key assets/contracts Description/strategy Asset management, management services and investments in Dream Publicly Listed Funds Asset management and advisory services agreements $8.4 billion in fee earning assets under management $457.5 million of equity held in units of the Dream Publicly Listed Funds at fair value We provide asset management and management services to the Dream Publicly Listed Funds and on behalf of various institutional partnerships/third-party real estate and development assets. We expect fees generated from the Dream Publicly Listed Funds (excluding Dream Office REIT, which is not subject to an external management contract) to increase over time, as we manage each company's portfolio and pursue various growth strategies for each Fund. We also expect that development and other management fees will continue to increase in future years. In addition, asset management fees are generated from Dream Alternatives which are eliminated on consolidation but included in Dream standalone results. As at December 31, 2018, Dream held approximately $323.6 million or 14.5 million units in Dream Office REIT (approximately 22% of units outstanding of Dream Office REIT). Subject to market conditions and our investment strategy, we intend to further invest in Dream Office REIT on an opportunistic basis as the REIT focuses on core Toronto assets. As at December 31, 2018, Dream's investment in Dream Global REIT (inclusive of deferred trust units) totaled $58.1 million. Refer below under "Dream Alternatives" for our strategy regarding our investment in Dream Alternatives. Urban development - Toronto and Ottawa Renewables and recreational properties Over 10,300 condominium units, 1,500 purpose-built rental units and approximately 3.5 million sf of retail and commercial development 20% equity interest in Firelight Infrastructure and 3 operational recreational properties, including Arapahoe Basin ski hill Our core development business consists of predominantly large scale developments in Toronto and Ottawa. We expect our profitability to increase as we commence developing these sites in phases. Renewables are a key source of recurring income to Dream's business. Recreational properties have historically been a growing source of income through active operational and asset management of Arapahoe Basin ski hill in Colorado. Income generated from renewables and recreational properties is stable and not considered to be correlated with Dream's other core business lines. Western Canada development Approximately 10,000 acres comprising 9 master-planned communities with over 80,000 lots and multi-family units and 1.4 million commercial sf Dream actively develops land in the cities of Saskatoon, Regina, Calgary and Edmonton, converting unentitled raw land to the stage where homes and commercial properties can ultimately be constructed on the land by Dream and other third parties as part of master-planned communities. We expect to increase our profitability by increasing the amount of development on our own lands by bringing new communities online such as Providence in Calgary. We have expanded our operations over recent years to include the development of our owned lands by (i) building homes in Saskatoon, Regina and Calgary; and (ii) developing income producing retail and commercial properties within our master-planned communities. We continue to assess land and housing market conditions in Saskatchewan and Alberta, including absorption rates, inventory levels and pricing trends. With our land bank, market share, liquidity position and extensive experience as a developer, we are able to closely monitor and have the flexibility to increase or decrease our inventory levels to adjust to market conditions in any year. Dream Alternatives (TSX: DRA.UN) Diversified portfolio of real estate development, real estate lending, real estate and renewable power with net asset value ("NAV") over $635 million 17% of units owned in Dream Alternatives or $75.7 million at fair value Subject to market conditions, we intend to further invest in acquiring the units of Dream Alternatives on an opportunistic basis in the public market as Dream Alternatives' strategy continues to focus on core Toronto assets. Approximately $139 million or 22% of Dream Alternatives' NAV is comprised of co-owned development investments with Dream and are accordingly common to the Urban Development segment discussed above. These are only some of the levers through which we expect to generate higher profitability within our Company. Our management team is strong and experienced. Dream has a proven track record of creating value. We believe that as a public company, we benefit from increased profile awareness, which will lead to even more opportunities for profitability and growth in the periods ahead. We intend to continue growing our business by seeking out new opportunities where we can use our experience, expertise, relationships and capital to achieve attractive risk-adjusted returns. Historically, we have sought new areas of investment that look attractive. Traditionally, we invest small amounts of capital and, as we develop expertise in an industry we find attractive, we invest more capital. We will actively seek other opportunities to grow our business by employing our expertise and capital to create high returns and, where appropriate, increase our returns by co-investing with others. In connection with the acquisition of control of Dream Alternatives on January 1, 2018, we have changed our presentation of information for financial reporting and management decision making. Our management team views Dream Alternatives as a separate segment managed on a fair value basis. As a result, management reviews financial information and operational results of Dream on a Dream standalone basis (as defined in the "Non-IFRS Measures" section of this MD&A). Dream Unlimited Corp. – December 31, 2018 | 4 Key Financial Information and Performance Indicators Selected Financial Information – Consolidated Dream (in thousands of dollars, except per share and outstanding share amounts) Revenue Gross margin Gross margin (%)(1) Net margin Net margin (%)(2) Earnings before income taxes Earnings for the period Basic earnings per share(3) Diluted earnings per share(3) Weighted average number of shares outstanding, basic Total issued and outstanding shares Total earnings for the period attributable to: Shareholders(4) $ $ $ $ $ $ $ $ For the three months ended December 31, For the year ended December 31, 2018 153,955 57,905 37.6% 46,414 30.1% 70,660 56,622 0.52 0.50 $ $ $ $ $ $ $ 2017 144,586 63,357 43.8% 50,000 34.6% 68,191 50,268 0.46 0.45 $ $ $ $ $ $ $ 2018 339,873 134,782 39.7% 87,668 25.8% 213,492 192,053 1.76 1.71 $ $ $ $ $ $ $ 2017 356,964 144,016 40.3% 98,235 27.5% 115,576 82,839 0.81 0.79 107,679,021 107,331,005 109,230,724 109,235,622 108,450,962 107,331,005 98,452,162 109,235,622 55,742 $ 50,672 $ 190,948 $ 79,645 Total assets Total liabilities Total equity (1) Gross margin % (a non-IFRS measure) represents gross margin as a percentage of revenue. For additional details, refer to the "Non-IFRS Measures" section of this MD&A. (2) Net margin % (a non-IFRS measure) represents net margin as a percentage of revenue. For additional details, refer to the "Non-IFRS Measures" section of this MD&A. (3) See Note 38 of the Company’s consolidated financial statements for the year ended December 31, 2018 for further details on the calculation of basic and diluted earnings per share. (4) Total earnings attributable to shareholders excludes the portion allocated to non-controlling interests. $ $ $ $ $ $ December 31, 2018 2,751,566 1,631,986 1,119,580 December 31, 2017 1,904,007 946,523 957,484 The Company evaluates its Western Canada land and housing and urban development results using net margin, and net operating income for investment properties within each segment as well as recreational properties. The asset management segment is evaluated using net margin. Stated as a percentage to evaluate operational efficiency, these margins are used as fundamental business considerations for updating budgets, forecasts and strategic planning. Overview of Consolidated Results In the year ended December 31, 2018, the Company was deemed to have acquired control of Dream Alternatives based on the increase in the Company's exposure to variable returns resulting from increased ownership through units held in Dream Alternatives and from new real estate joint venture agreements. As a result, the Company has consolidated Dream Alternatives' financial results effective January 1, 2018. Refer to the "Dream Alternatives" section of this MD&A for a discussion of Dream Alternatives' results. Revenue for the three months ended December 31, 2018, increased by $9.4 million relative to the prior year, primarily due to condominium occupancies, and increased contributions from Dream Alternatives upon consolidation, partially offset by decreased contribution from our land and housing development business in Western Canada as a result of lower sales volumes. In the three months ended December 31, 2018, on a consolidated basis, the Company recognized earnings of $56.6 million, an increase of $6.4 million from the prior year. The increase in earnings on a consolidated basis was primarily driven by the increased contribution from the consolidation of Dream Alternatives results, which included fair value adjustments on the Dream Alternatives trust units of $25.9 million, partially offset by decreased earnings from our land and housing business in Western Canada. For similar reasons, in the year ended December 31, 2018, on a consolidated basis, the Company generated revenue of $339.9 million, a decrease of $17.1 million from the prior year. Net earnings for the year ended December 31, 2018 increased by $109.2 million relative to the prior year. Dream Unlimited Corp. – December 31, 2018 | 5 Reconciliation of Basic Earnings per Share A reconciliation of basic earnings per share between Dream's consolidated results and Dream standalone(1) results (as discussed in the "Selected Financial Information - Dream Standalone" section of this MD&A) is included below: (in thousands of dollars, except per share amounts) Dream Consolidated basic earnings per share Dream Alternatives income attributable to shareholders Gain on acquisition of Dream Alternatives Adjustments related to Dream Alternatives trust units(2) Other consolidation adjustments Dream standalone basic earnings per share $ $ For the three months ended December 31, 2018 Total 55,742 (6,753) — (25,918) 4,972 28,043 Per unit 0.52 (0.07) — (0.24) 0.05 0.26 $ $ $ For the year ended December 31, 2018 Total 190,948 (13,160) (117,437) 19,680 2,017 82,048 Per unit 1.76 (0.12) (1.08) 0.18 0.02 0.76 $ $ $ For the three months ended December 31, 2017 Total 50,672 Per unit 0.46 $ $ For the year ended December 31, 2017 Total 79,645 Per unit 0.81 Dream Consolidated basic earnings per share Share of earnings from equity accounted investment in Dream Alternatives Other consolidation adjustments(3) 3,598 Dream standalone basic earnings per share 84,264 (1) Dream standalone represents the standalone results of Dream, excluding the impact of Dream Alternatives’ equity accounted/consolidated results. For a further description of the Dream standalone — 49,080 (0.06) 0.76 — 0.45 (1,592) (0.01) 1,021 0.01 $ $ $ $ $ $ (2) results, refer to the “Non-IFRS Measures” section of this MD&A. In accordance with the Company's accounting policy described in Note 3 to the consolidated financial statements for the year ended December 31, 2018, Dream accounted for the 83% interest in Dream Alternatives trust units held by other unitholders as a financial liability measured at fair value through profit and loss. Accordingly, we expect adjustments related to Dream Alternatives trust units to vary period to period, based on fluctuations in the listed market price and changes in the outstanding number of trust units at period end. Refer to Note 24 of the consolidated financial statements for the year ended December 31, 2018 for a continuity of the liability related to the Dream Alternatives trust units. (3) Other consolidation adjustments for the year ended December 31, 2017 includes the weighted average number of shares and share of income attributable to Sweet Dream Corp. For further details refer to the "Shareholders' Equity" section of this MD&A. Timing of Income Recognition and Impact of Seasonality The Company’s housing and condominium operations recognize revenue at the time of occupancy and, as a result, revenues and direct costs vary depending on the number of units occupied in a particular reporting period. The Company’s land operations recognize revenue generally when a 15% deposit has been received from the third-party purchaser, ultimate collection of the full purchase price is reasonably assured and certain other development milestones are substantially met. Revenue from land is deferred until occupancy by a third-party customer, when the land is sold as part of a home constructed by our housing division. Certain marketing expenses for condominiums are incurred prior to the occupancy of these units and accordingly are not tied to the number of units occupied in a particular period as they are expensed as incurred. Prior to 2018, commissions (which are a material component of marketing expenses) were expensed as incurred. Effective January 1, 2018, commissions are capitalized as contract assets, and expensed when condominium revenue is recognized. Refer to Note 3 in the consolidated financial statements for the year ended December 31, 2018 for further details. Based on our geographic location, most of our development activity in Western Canada takes place between April and October due to weather constraints, while sales orders vary depending on the rate at which builders work through inventory, which is affected by weather and market conditions. Traditionally, our highest sales volume quarter for our land and housing divisions has been the fourth quarter, while our lowest has been the first quarter. As a result of the above, the Company’s results can vary significantly from quarter to quarter. Due to the seasonal nature of wind and solar assets within the renewable power segment, we expect higher returns on our investment in Firelight in the spring and summer months, compared to the fall and winter, although the annual income level is recurring in nature. Refer to the "Supplemental Segmented Information" section of this MD&A for further details. Growth in Asset Management Services Fees generated within our asset management operations relating to the Dream Publicly Listed Funds (excluding Dream Office REIT, which is no longer party to an asset management agreement) are generally contractual in nature. It is important to note that fees earned on acquisition and disposition activity in a period are not recurring in nature and accordingly will impact related margins. Fees related to development activities and partnerships included within this segment can fluctuate depending on the number of active projects and on Dream meeting certain milestones as the development manager. Quarterly Business Trends - Consolidated Dream A summary of revenue, earnings (loss) and basic and diluted earnings (loss) per share for the previous eight quarters is presented below. (in thousands of dollars, except per share amounts) Revenue Earnings (loss) for the period Basic earnings (loss) per share Diluted earnings (loss) per share Dec 31, 2018 $ 153,955 $ 56,622 0.52 0.50 Sep 30, 2018 64,497 $ 15,279 0.14 0.14 Jun 30, 2018 61,600 $ (26,906) (0.25) (0.25) Dream Unlimited Corp. – December 31, 2018 | 6 Mar 31, 2018 Dec 31,   2017 59,821 $ 144,586 $ 115,305 $ Sep 30,   2017 147,058 1.35 1.30 50,268 0.46 0.45 19,132 0.18 0.17 Jun 30, 2017 45,425 $ 2,001 0.02 0.02 Mar 31, 2017 51,648 11,438 0.10 0.10 Selected Financial Information – Dream Standalone(1) Based on how we operate our business and evaluate our economic ownership of Dream Alternatives, we believe reviewing Dream's standalone results excluding Dream Alternatives is more relevant information for a user to understand the value and performance of Dream's assets. Accordingly, unless otherwise noted, all segment discussions hereafter are presented on this basis. Refer to the "Reconciliation of Basic Earnings per Share", "Segmented Assets and Liabilities" and "Segmented Statement of Earnings" sections in this MD&A for a reconciliation of Dream standalone to the consolidated financial statements as at December 31, 2018. (in thousands of dollars, except per share and outstanding share amounts) Revenue Gross margin Gross margin (%)(2) Net margin Net margin (%)(2) Earnings before income taxes Earnings for the period Basic earnings per share(3) Diluted earnings per share Weighted average number of shares outstanding(4) Total issued and outstanding shares Total earnings for the period attributable to: Shareholders $ $ $ $ $ $ $ $ For the three months ended December 31, For the year ended December 31, 2018 143,756 54,150 37.7% 42,659 29.7% 40,881 29,908 0.26 0.25 107,679,021 107,331,005 $ $ $ $ $ $ $ 2017 144,586 63,357 43.8% 50,000 34.6% 66,599 48,676 0.45 0.44 109,230,724 109,235,622 $ $ $ $ $ $ $ 2018 294,071 113,013 38.4% 65,899 22.4% 109,334 83,093 0.76 0.75 109,230,724 107,331,005 $ $ $ $ $ $ $ 2017 356,964 144,016 40.3% 98,235 27.5% 116,597 83,860 0.76 0.75 110,460,880 109,235,622 28,043 $ 49,080 $ 82,048 $ 84,264 December 31, 2017 1,904,007 Total assets 946,523 Total liabilities Total equity (excluding non-controlling interest)(5) 919,394 Total equity per share 8.42 (1) Dream standalone represents the standalone results of Dream, excluding the impact of Dream Alternatives’ equity accounted/consolidated results. Refer to the “Non-IFRS Measures” section of this MD&A for further details. Total assets as of December 31, 2018 and December 31, 2017 includes approximately $72.7 million and $48.3 million, respectively, relating to the Company’s investment in Dream Alternatives. December 31, 2018 2,056,028 1,010,776 1,001,317 9.33 $ $ $ $ $ $ $ $ (2) Gross margin (%) and net margin (%) are non-IFRS measures. Refer to the "Non-IFRS Measures" section of this MD&A for further details. (3) Basic earnings per share is computed by dividing Dream’s earnings attributable to owners of the parent by the weighted average number of Dream Subordinate Voting Shares and Dream Class B common shares in the capital of Dream ("Class B Shares") outstanding during the period and has been adjusted to include the non-controlling interest relating to Sweet Dream Corp. (4) Weighted average number of shares for the year ended December 31, 2017 has been adjusted to include the non-controlling interest relating to Sweet Dream Corp. For further details refer to the "Shareholders' Equity" section of this MD&A. (5) Total equity (excluding non-controlling interests) excludes $43.9 million of non-controlling interest as at December 31, 2018 ($38.1 million as at December 31, 2017) and includes the Company's investment in Dream Alternatives as at December 31, 2018 of $72.7 million ($48.3 million. as at December 31, 2017). For further details refer to the "Segmented Assets and Liabilities" section of this MD&A. Dream Unlimited Corp. – December 31, 2018 | 7 Sources of Recurring Income Historically, a large proportion of our pre-tax income was driven by our Western Canada development business. We anticipate that the proportion of income driven by Western Canada will decrease over time due to the increased diversification of our business and growth in recurring income generating assets. Our Urban Development - Toronto and Ottawa segment is a source of recurring income, although it is subject to more volatility from period to period. Income generated from our condominium projects is based on the number of units available for occupancy. In addition to this business, the Company has several non-development business lines, which it considers to be sources of stable recurring annual income. Below is a summary of income from the Company's significant assets generating recurring income and their applicable fair value or carrying value, as at and for the years ended December 31, 2018 and 2017. The Company views recurring income on a Dream standalone basis as a source of funds to meet ongoing interest and fixed operating costs of the business. Asset Balance sheet measure Pre-tax income measure(1) IFRS asset value at December 31, 2018 IFRS asset value at December 31, 2017 2018 pre-tax income 2017 pre-tax income Asset management, management services and investments in Dream Publicly Listed Funds: Asset management contracts and arrangements(2) Book value of intangible asset Net margin $ 43,000 $ 43,000 $ 33,313 $ 36,185 Direct equity investments in Dream Publicly Listed Funds(3) Fair value of equity holdings Urban development: Urban development income properties(4) Fair value of investment property Renewables and recreational properties: Total distributions 457,492 367,304 20,424 17,305 Net operating income 121,707 146,293 6,974 6,820 Recreational properties Firelight Infrastructure(5) Western Canada: Book value of recreational property Net equity accounted investment Net operating income Net earnings 49,241 38,475 40,617 40,517 10,100 5,213 10,278 5,055 Western Canada investment properties(4) Fair value of investment property Total assets and recurring income Net operating income 56,248 95,684 5,985 4,476 $ 766,163 $ 733,415 $ 82,009 $ 80,119 Total general and administrative expenses and interest expense, Dream standalone Total debt outstanding(4) 188,235 (1) Refer to the "Non-IFRS Measures" section of this MD&A for definitions of non-IFRS measures, including net operating income. (2) Excludes fees earned from Dream Office REIT, which is no longer party to an asset management agreement. Balances include fees earned from the asset management contract with Dream Alternatives, 183,805 44,478 35,018 $ $ $ $ which is included in Dream standalone results, but eliminated in the consolidated results. (3) Refer to the "Investments in Dream Publicly Listed Funds" section of this MD&A for further information on the IFRS accounting treatment of these equity investments. (4) The IFRS asset value and total debt outstanding exclude balances related to certain properties classified as assets held for sale. Pre-tax net operating income is inclusive of amounts attributable to assets held for sale. (5) The Company's investment in Firelight is held through equity accounted investments and accordingly the IFRS value represents the Company's proportionate share of net assets. Real Estate Inventory and Properties A summary of changes in our real estate inventory on a Dream standalone basis in the year ended December 31, 2018 is included below. Balance sheet measure Balance, December 31, 2017 Acquisitions Development/additions Sales/units occupied Transfers Dispositions Fair value changes of investment properties Amortization and other adjustments Balance, December 31, 2018 $ Condominium inventory Cost 171,513 $ 694 85,817 (18,403) — — — — $ 239,621 $ Investment properties Fair value Recreational properties Cost 40,617 $ — 9,557 — — — — (933) 49,241 $ Land held for development(1) Cost 419,583 $ 960 10,483 — (1,566) — — — 241,977 $ 3,381 7,040 — (47,491) (48,000) 20,902 146 177,955 $ Land under development(1) Cost 155,315 $ — 76,278 (62,955) (22,202) — — — 429,460 $ 146,436 $ Housing inventory Cost Total — 23,992 (44,533) 17,527 — — — 59,619 $ 1,088,624 5,035 213,167 (125,891) (53,732) (48,000) 20,902 (787) 56,605 $ 1,099,318 Project-specific debt, December 31, 2018 (1) The Company's land inventory development is primarily funded through our corporate debt facilities. 146,736 $ 79,251 $ $ 15,644 $ — $ 2,894 $ 38,357 $ 282,882 Dream Unlimited Corp. – December 31, 2018 | 8 Segmented Key Operating Metrics The purpose of the following tables is to highlight the operating performance of our major segments, some of which are held through both direct ownership and equity accounted investments. For further details, refer to the individual segment operating results of this MD&A. For the three months ended December 31, 2017 2018 For the year ended December 31, 2017 2018 $ $ $ $ $ $ $ $ $ $ n/a $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 26,066 (1,112) n/a $ $ $ $ 13,727 13,727 11,690 32,402 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 23,567 $ (3,971) $ 19,742 1,040 5.3% 10,971 (386) n/a 3,656 1,944 1,628 44.5% 2,813 1,557 1,272 45.2% 7,896,000 8,547 1,552 10,099 6,965 69.0% 367,304 3,508 696 n/a 7,896,000 36,341 9,482 45,823 36,185 79.0% 367,304 17,305 2,554 7,550 8,356,000 37,683 6,351 44,034 33,313 75.7% 457,492 20,424 3,388 n/a 8,356,000 10,614 2,973 13,587 10,856 79.9% 457,492 5,487 959 n/a (in thousands of dollars, except units and per share amounts) ASSET MANAGEMENT & INVESTMENTS IN DREAM PUBLICLY LISTED FUNDS(1) Total fee-earning assets under management(2) Fees earned on Dream Publicly Listed Funds Development and other asset management fees Total asset management revenue Net margin Net margin (%)(2) Fair value of units held in Dream Publicly Listed Funds Distributions received from Dream Publicly Listed Funds Income from investments in Dream Publicly Listed Funds - Dream Global REIT Income from investments in Dream Publicly Listed Funds - Dream Office REIT(3) Share of earnings from equity accounted investments - Dream Office REIT(3) URBAN DEVELOPMENT - TORONTO & OTTAWA CONDOMINIUM & MIXED-USE DEVELOPMENT Revenue attributable to Dream - directly owned Net margin Net margin (%)(2) INCOME PROPERTIES Revenue Net operating income(2) Net margin Net margin (%)(2) RENEWABLES AND RECREATIONAL PROPERTIES RECREATIONAL PROPERTIES Revenue Net operating income(2) Net margin Net margin (%)(2) RENEWABLES Share of earnings (losses) from equity accounted investments - Firelight Infrastructure WESTERN CANADA DEVELOPMENT LAND DEVELOPMENT Land revenue(4) Net margin(4) Net margin (%)(2) Lots sold Acres sold HOUSING DEVELOPMENT Housing units occupied Revenue Net margin Net margin (%)(2) INCOME PRODUCING AND DEVELOPMENT PROPERTIES Revenue Net operating income(2) Net margin Net margin (%)(2) DREAM ALTERNATIVES Share of earnings (losses) from equity accounted investments - Dream Alternatives(5) Net income(5) (1) Results include total fee-earning assets under management, fees earned from the asset management contract, distributions, and fair value of units attributable to Dream Alternatives. (2) Net margin (%), net operating income and fee-earning assets under management are non-IFRS measures. Refer to the "Non-IFRS Measures" section of this MD&A for further details. (3) Effective October 1, 2017, the Company's investment in Dream Office REIT was recorded in equity accounted investments. Prior to this, the investment was recorded in other financial assets with 107,458 29,679 27.6% 767 20.1 146,955 48,582 33.1% 913 33.5 81,963 30,253 36.9% 561 17.7 74,290 36,042 48.5% 393 26.5 47 11,795 $ (1,574) $ 215 51,898 $ (5,903) $ 45,889 10,100 5,644 12.3% 12,259 6,974 5,694 46.4% 11,601 1,561 338 2.9% 40,283 10,278 6,447 16.0% 11,016 1,988 979 8.9% 12,553 6,820 5,715 45.5% 300 78,610 2,529 3.2% 137 32,100 4,245 13.2% 8,966 5,985 1,443 16.1% 2,255 1,484 474 21.0% 2,454 1,533 527 21.5% (875) $ 13,902 5,213 6,995 1,592 5,055 6,674 4,476 (111) n/a (1,021) (717) $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ n/a n/a n/a n/a n/a n/a $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ distributions recognized in investment income, net of amounts considered to be a return of capital. (4) Results include housing land sales to external customers, which are recognized in the land division results. (5) Effective January 1, 2018, the Company's investment in Dream Alternatives was consolidated within Dream's financial statements and accordingly, equity accounted earnings are no longer recorded. Dream Unlimited Corp. – December 31, 2018 | 9 Segmented Information In order to present segmented information in a manner consistent with management's view of the Company, certain adjustments have been made to present these balances on a segmented basis and to align Dream Alternatives' statement presentation with that of Dream. Dream standalone represents Dream's results, excluding the consolidated impact of Dream Alternatives. It includes 12.1 million units in Dream Alternatives presented in Other Financial Assets as at December 31, 2018 with a carrying value of $72.7 million, which is eliminated upon consolidation. Refer to footnote 2 below for further details. Segmented Assets and Liabilities Asset management Urban development - Toronto & Ottawa Renewables and recreational properties Western Canada development Corporate and other Dream standalone Dream Alternatives Consolidation and fair value adjustments Consolidated Dream December 31, 2018 Assets Cash and cash equivalents $ 138 $ 9,583 $ 3,129 $ 3,047 $ 1,547 $ 17,444 $ 46,730 $ 119 $ 31,846 4,546 120,567 Accounts receivable Other financial assets Lending portfolio Housing inventory Condominium inventory Land inventory Investment properties Recreational properties Renewable power assets Equity accounted investments Capital and other operating assets Intangible asset Goodwill Assets held for sale Total assets Liabilities Accounts payable and other liabilities Income and other taxes payable Provision for real estate development costs Customer deposits Project-specific debt Corporate debt facilities Preference shares, series 1 Dream Alternatives trust units Deferred income taxes 8,329 58,123 — — — — — — — — — — 233,974 1,742 121,707 — — — — — — 843 — 49,241 — 342,415 46,153 41,793 114 18,705 3,942 43,000 — — — 13,576 8,308 — — — 12,646 103,019 — — — — — — — — 6,180 — — — 177,934 161,142 — 56,605 239,621 575,896 177,955 49,241 2,821 122,908 144,095 — — — (3,341) (1) (71,699) (2) — — — — 224,921 — 9,895 (3) — — 132,251 11,037 (4) 64,293 177,414 212,351 144,095 56,605 239,621 575,896 412,771 49,241 143,288 435,985 132,528 (18,753) (4) 549,760 35,042 43,000 13,576 72,587 5,023 3 — — — (43,000) (4) — — 40,068 — 13,576 72,587 $ 452,119 $ 485,594 $ 103,494 $ 891,429 $ 123,392 $ 2,056,028 $ 811,277 $ (115,739) $ 2,751,566 $ 13,662 $ 24,851 $ 10,974 $ 30,208 $ 19,321 $ 99,016 $ 25,888 $ 1,938 (1) (3) $ 126,842 — — — — — — — — — 3,338 31,647 183,309 — — — — — — 597 15,644 — — — — — 51,236 51,236 (1,707) — — — 373,026 28,672 33,853 34,111 315,200 373,026 28,672 — — — — 195,492 — — — — — — 3,888 (4) — — 377,234 (5) 49,529 33,853 34,111 514,580 373,026 28,672 377,234 94,139 75,662 75,662 (323) 18,800 (6) — — 56,605 5,647 573,311 56,248 — — 5,624 6,101 — — 64,279 30,515 1,867 116,247 — — — — Total liabilities $ 13,662 $ 243,145 $ 27,215 $ 178,837 $ 547,917 $ 1,010,776 $ 219,350 $ 401,860 $ 1,631,986 Non-controlling interest — 43,935 — — — 43,935 1,669 (29,275) (7) 16,329 Total shareholders' equity (1) Adjustment primarily relates to the elimination of intercompany receivables and payables between Dream and Dream Alternatives. (2) Adjustment primarily relates to the elimination of Dream Alternatives' units presented in the Dream standalone balance, net of amounts considered to be a return of capital on distributions. (3) Adjustment primarily relates to the gross up of Dream Alternatives' interests of a co-owned investment in Toronto (refer to Note 12 of the consolidated financial statements for the year ended 1,001,317 $ (424,525) $ 438,457 $ 712,592 $ 198,514 $ 590,258 $ 76,279 $ (488,324) 1,103,251 $ $ December 31, 2018 for further details). (4) Adjustment primarily relates to fair value and other consolidation adjustments on January 1, 2018 relating to the acquisition of control of Dream Alternatives. Refer to Note 5 of the consolidated financial statements for the year ended December 31, 2018 for further details. (5) Refer to the "Overview of Consolidated Results" section of this MD&A and Note 24 of the consolidated financial statements for the year ended December 31, 2018 for details on the IFRS treatment of the Dream Alternatives trust units. (6) Adjustment primarily relates to the differences between the net assets of Dream Alternatives and the tax basis of Dream's investment in Dream Alternatives. (7) Adjustment relates to the reduction in the Company's non-controlling interest in Zibi upon consolidation of Dream Alternatives. Dream Unlimited Corp. – December 31, 2018 | 10 Asset management Urban development - Toronto & Ottawa Renewables and recreational properties Western Canada development Corporate and other Dream standalone Dream Alternatives(1) Consolidation and fair value adjustments Consolidated Dream December 31, 2017 Assets Cash and cash equivalents $ — $ 9,411 $ 3,178 $ 10,529 $ 2,290 $ 25,408 $ — $ — $ Accounts receivable Other financial assets Housing inventory Condominium inventory Land inventory Investment properties Recreational properties 6,933 57,635 — — — — — Equity accounted investments 247,274 39,590 5,058 118,350 — — 165,866 1,619 146,293 — 56,444 9,055 — 13,576 9,076 — — — 717 — 40,617 44,509 3,536 — — — — 59,619 5,647 572,562 95,684 — 6,109 5,668 — — 25,042 27,536 21,408 — — — — — — 1,840 — — — 197,467 79,043 59,619 171,513 574,898 241,977 40,617 354,336 20,099 43,000 13,576 34,118 — — — — — — — 48,336 — — — — — — — — — — — — — — — — — 43,000 — — 25,408 197,467 79,043 59,619 171,513 574,898 241,977 40,617 402,672 20,099 43,000 13,576 34,118 $ 354,842 $ 450,930 $ 97,615 $ 899,210 $ 53,074 $ 1,855,671 $ 48,336 $ — $ 1,904,007 $ 13,558 $ 40,206 $ 8,377 $ 33,088 $ 23,736 $ 118,965 $ — $ — $ 118,965 — — — — — — — — 2,926 32,249 157,947 — — — — — 518 17,137 — — — — 77,143 77,143 31,830 6,254 105,143 — — — — — — 308,024 28,668 59,719 34,756 39,021 280,227 308,024 28,668 59,719 — — — — — — — — — — — — — — 77,143 34,756 39,021 280,227 308,024 28,668 59,719 Capital and other operating assets Intangible asset Goodwill Assets held for sale Total assets Liabilities Accounts payable and other liabilities Income and other taxes payable Provision for real estate development costs Customer deposits Project-specific debt Corporate debt facilities Preference shares, series 1 Deferred income taxes Total liabilities $ 13,558 $ 233,328 $ 26,032 $ 176,315 $ 497,290 $ 946,523 $ — $ — $ 946,523 Non-controlling interest — 38,090 — — — 38,090 — — 38,090 Total shareholders' equity 919,394 (1) The Company's investment in Dream Alternatives was consolidated effective January 1, 2018. As at December 31, 2017, the investment was accounted for using the equity method and has been (444,216) $ 871,058 $ 341,284 $ 722,895 $ 179,512 $ 71,583 $ 48,336 $ — $ $ segregated from Dream standalone results for comparability purposes. Dream Unlimited Corp. – December 31, 2018 | 11 Segmented Statement of Earnings Asset management Urban development - Toronto & Ottawa Renewables and recreational properties Western Canada development Corporate and other Dream standalone(1) Dream Alternatives Consolidation adjustments Consolidated Dream For the three months ended December 31, 2018 Revenues $ 13,587 $ 22,555 $ 11,601 $ 96,013 $ — $ 143,756 $ 13,194 $ (2,995) (2) $ 153,955 Direct operating costs Asset management expenses Gross margin Selling, marketing and other operating costs Net margin Fair value changes in investment properties Investment and other income Share of earnings from equity accounted investments — (17,310) (10,040) (59,525) (2,731) 10,856 — 10,856 — 379 9,335 — 5,245 (2,933) 2,312 11,994 990 632 — 1,561 (1,223) 338 — 27 (893) — 36,488 (7,335) 29,153 (3,209) 655 91 — — — — — — 720 — (86,875) (2,731) 54,150 (11,491) 42,659 8,785 2,771 (6,002) — 7,192 — 7,192 505 610 (341) (101) (3,437) — (3,437) (47) 25 9,165 1,315 (1,138) (3) Net segment earnings (loss) $ 20,570 $ 15,928 $ (528) $ 26,690 $ 720 $ 63,380 $ 9,622 $ (4,597) $ (93,218) (2,832) 57,905 (11,491) 46,414 9,243 3,406 9,342 68,405 General and administrative expenses Fair value changes in financial instruments(5) Interest expense Adjustments related to Dream Alternatives trust units Income tax expense Net earnings (loss) (6) (3,232) (3,232) (3,962) 2,728 (2) (4,466) $ 20,570 $ 15,928 $ (528) $ 26,690 $ (32,752) $ 29,908 $ 6,995 $ (11,237) (8,030) (11,237) (8,030) — — (10,973) (10,973) 2,208 (2,190) — 1,317 — 52 25,918 (4) (4,382) 19,719 $ (9,029) (10,168) 25,918 (14,038) 56,622 Asset management Urban development - Toronto & Ottawa Renewables and recreational properties Western Canada development Corporate and other Dream standalone(1) Dream Alternatives Consolidation adjustments Consolidated Dream For the three months ended December 31, 2017 Revenues $ 10,099 $ 14,627 $ 11,016 $ 108,844 $ — $ 144,586 $ — $ — $ 144,586 Direct operating costs Asset management expenses Gross margin Selling, marketing and other operating costs Net margin Fair value changes in investment properties Investment and other income Share of earnings from equity accounted investments — (10,284) (3,134) 6,965 — 6,965 — 420 — 4,343 (3,101) 1,242 4,586 14,020 (9,028) — 1,988 (1,009) 979 — — 13,773 (719) (734) (58,783) — 50,061 (9,247) 40,814 393 459 — — — — — — — (5,940) (78,095) (3,134) 63,357 (13,357) 50,000 4,979 8,959 — — — — — — — — 12,320 1,592 — — — — — — — — Net segment earnings (loss) $ 21,158 $ 19,129 $ 245 $ 41,666 $ (5,940) $ 76,258 $ 1,592 $ — $ General and administrative expenses Fair value changes in financial instruments Interest expense (3,432) (3,432) (29) (6,198) (29) (6,198) — — — — — — (78,095) (3,134) 63,357 (13,357) 50,000 4,979 8,959 13,912 77,850 (3,432) (29) (6,198) Income tax expense Net earnings (loss) (6) (1) Dream standalone does not include any net earnings impact relating to the Company's investment in Dream Alternatives. Refer to the "Dream Alternatives" section of this MD&A for further (33,522) $ 48,676 $ 19,129 $ 21,158 $ 41,666 $ 1,592 $ (17,923) (17,923) 245 $ — $ — — $ (17,923) 50,268 details. (2) Adjustment relates primarily to asset management fees and cost recoveries charged to Dream Alternatives that are eliminated on consolidation. (3) Adjustment relates primarily to the elimination of Dream Alternatives' share of earnings from Zibi which are fully consolidated in the Dream standalone results. (4) Refer to the "Overview of Consolidated Results" section of this MD&A and Note 24 of the consolidated financial statements for the year ended December 31, 2018 for details on the IFRS treatment of the Dream Alternatives trust units. (5) Refer to Note 36 of the consolidated financial statements for the year ended December 31, 2018 for details on fair value changes in financial instruments. (6) Includes earnings attributable to non-controlling interest. Dream Unlimited Corp. – December 31, 2018 | 12 34,924 (13,155) Asset management Urban development - Toronto & Ottawa Renewables and recreational properties Western Canada development Corporate and other Dream standalone(1) Dream Alternatives Consolidation adjustments Consolidated Dream For the year ended December 31, 2018 Revenues $ 44,034 $ 35,826 $ 45,889 $ 168,322 $ — $ 294,071 $ 57,596 $ (11,794) (2) $ 339,873 — (23,633) (35,789) (110,915) (170,337) (22,672) Direct operating costs Asset management expenses Gross margin Selling, marketing and other operating costs Net margin Fair value changes in investment properties Investment and other income Net gain on acquisition of Dream Alternatives Gain on disposition of assets Share of earnings from equity accounted investments (10,721) 33,313 — — 12,193 10,100 (10,470) 1,723 19,271 3,154 — 9,422 (4,456) 5,644 — 237 — — — 33,313 — 1,292 12,555 — 30,198 — 57,407 (32,188) 25,219 (1,767) 1,530 — — — — — — — — 3,108 — — — (10,721) 113,013 (47,114) 65,899 17,504 9,321 12,555 9,422 34,625 — 34,924 — (2,195) 3,313 — — 813 (918) (443) (13,155) — (47) 68 117,437 (2) — (193,927) (11,164) 134,782 (47,114) 87,668 15,262 12,702 129,992 9,422 (253) 5,164 (484) 1,591 (3) 37,029 Net segment earnings $ 77,358 $ 33,317 $ 11,045 $ 24,498 $ 3,108 $ 149,326 $ 36,855 $ 105,894 $ 292,075 General and administrative expenses Fair value changes in financial instruments Interest expense Adjustments related to Dream Alternatives trust units Income tax expense Net earnings (loss) (6) (15,277) (15,277) (15,411) 10,293 (2) (20,395) $ 77,358 $ 33,317 $ 11,045 $ 24,498 $ (63,125) $ 83,093 $ 13,902 $ 4,486 4,486 (29,201) (29,201) — — (26,241) (26,241) 2,106 (8,964) — (684) (7,169) (4) 234 (19,680) (5) 5,486 95,058 (577) (37,931) (19,680) (21,439) $ 192,053 Asset management Urban development - Toronto & Ottawa Renewables and recreational properties Western Canada development Corporate and other Dream standalone(1) Dream Alternatives Consolidation adjustments Consolidated Dream For the year ended December 31, 2017 Revenues $ 45,823 $ 38,619 $ 40,283 $ 232,239 $ — $ 356,964 $ — $ — $ 356,964 Direct operating costs Asset management expenses Gross margin Selling, marketing and other operating costs Net margin Fair value changes in investment properties Investment and other income Share of earnings from equity accounted investments Net segment earnings (loss) General and administrative expenses Fair value changes in financial instruments Interest expense — (26,124) (30,005) (147,181) (9,638) 36,185 — 36,185 — 1,386 13,926 — 12,495 (7,892) 4,603 3,672 14,960 — 10,278 (3,831) 6,447 — — (915) 5,088 — 85,058 (34,058) 51,000 10,473 1,732 — — — — — — — 3,546 — (203,310) (9,638) 144,016 (45,781) 98,235 14,145 21,624 18,099 — — — — — — — (1,021) — — — — — — — — (203,310) (9,638) 144,016 (45,781) 98,235 14,145 21,624 17,078 $ 51,497 $ 22,320 $ 11,535 $ 63,205 $ 3,546 $ 152,103 $ (1,021) $ — $ 151,082 (13,419) (13,419) (488) (488) (21,599) (21,599) — — — — — — (13,419) (488) (21,599) Income tax expense Net earnings (loss) (6) 22,320 $ (1) Adjustment relates primarily to asset management fees and cost recoveries charged to Dream Alternatives that are eliminated on consolidation. (2) Dream standalone does not include any net earnings impact relating to the Company's investment in Dream Alternatives except for the $12.6 million deemed gain on disposal of the Company's (64,697) $ 83,860 $ 51,497 $ 63,205 $ 11,535 $ (1,021) $ (32,737) (32,737) — $ — — $ (32,737) 82,839 equity accounted investment in the year ended December 31, 2018. Refer to the "Dream Alternatives" section of this MD&A for further details. (3) Adjustment relates primarily to equity accounted earnings attributable to Dream Alternatives' investment in Dream Office REIT, offset by the elimination of Dream Alternatives' share of earnings from Zibi which are fully consolidated in the Dream standalone results. (4) Adjustment relates to elimination of fair value changes on Dream Alternatives' units held in Dream Office REIT (which are equity accounted for on a consolidated basis) and fair value losses on certain participating mortgages in the current period. (5) Refer to the "Overview of Consolidated Results" section of this MD&A and Note 24 of the consolidated financial statements for the year ended December 31, 2018 for details on the IFRS treatment (6) of the Dream Alternatives trust units. Includes earnings attributable to non-controlling interest. Dream Unlimited Corp. – December 31, 2018 | 13 Asset Management, Management Services and Investments in Dream Publicly Listed Funds As the asset manager or management service provider of four Dream Publicly Listed Funds and numerous development partnerships, we are on the front line and well-positioned to observe, in real time, the impact of economic trends on the drivers of demand for real property, such as demand for space, urbanization trends and employment levels in each of the markets in which we operate. We also provide asset management services to various institutional partnerships and our renewable power business. The majority of our asset management fees in 2018 were derived from our asset management contracts with the Dream Publicly Listed Funds, excluding Dream Office REIT, which is no longer subject to an asset management contract. Our asset management and management services team consists of real estate and energy/infrastructure professionals with backgrounds in architecture, urban planning, engineering, development and redevelopment, construction, finance, accounting and law. The team brings experience from a range of major organizations in Canada; is actively involved with internal training opportunities; and has expertise in capital markets, structured finance, real estate investments, renewable power and management across a broad spectrum of property types in diverse geographic markets. We carry out our own research and analysis, financial modelling, due diligence and financial planning, and have completed approximately $27 billion of commercial real estate and renewable power transactions over the past 22 years. We made a strategic decision to increase our ownership position in both Dream Office REIT and Dream Alternatives in 2017 and 2018, as both businesses have been transformed and are focusing on owning core assets primarily in downtown Toronto and the GTA, both through dispositions of assets outside of these markets and new investments. As of December 31, 2018, we own approximately $457.5 million of equity at fair value across the Dream Publicly Listed Funds (including Dream Office REIT) and anticipate, over time, that our ownership will continue to increase on an opportunistic basis. As at December 31, 2018, Dream managed assets with a total value of approximately $15.0 billion (December 31, 2017 – $13.9 billion), including fee earning assets under management of approximately $8.4 billion (December 31, 2017 - $7.9 billion). Breakdown of Fees Earned The following table summarizes the breakdown of fees earned from Dream Publicly Listed Funds (excluding Dream Office REIT, which is no longer party to an asset management contract with Dream) and from third-party arrangements. Results include total fee-earning assets under management and fees earned from the asset management contract with Dream Alternatives, which are eliminated from the consolidated financial results. For the three months ended December 31, 2017 2018 For the year ended December 31, 2017 2018 Fee-earning assets under management – Dream Publicly Listed Funds(1) Fee-earning assets under management – third party partnerships(1) Total fee-earning assets under management $ $ 6,747,000 $ 6,217,000 $ 6,747,000 $ 6,217,000 1,609,000 8,356,000 $ 1,679,000 7,896,000 $ 1,609,000 8,356,000 $ 1,679,000 7,896,000 Total fees earned from asset management agreements with Dream Publicly Listed Funds Development and other asset management fees from third-party arrangements Total revenue (1) Refer to the "Non-IFRS Measures" section of this MD&A for the definition of fee-earning assets under management. 13,587 $ 10,614 $ 2,973 $ $ 8,547 $ 1,552 10,099 $ 37,683 $ 6,351 44,034 $ 36,341 9,482 45,823 In the three and twelve months ended December 31, 2018, fees earned from asset management agreements with the Dream Publicly Listed Funds (excluding Dream Office REIT) were $10.6 million and $37.7 million, respectively, up by $2.1 million and $1.3 million from the prior year. The increase in fees earned in the three months ended December 31, 2018 was primarily a result of transactional activity, along with growth in fee earning assets under management. Base asset management fees from asset management agreements are a stable source of recurring income for the Company, whereas fees earned on transactional activity in a period may not be recurring in nature and will fluctuate from period to period. In the three and twelve months ended December 31, 2018, fees earned from development and other management arrangements with third parties was $3.0 million and $6.4 million, respectively, compared to $1.6 million and $9.5 million in the comparative periods. The changes in fees earned relative to prior periods were the results of milestones achieved on differing projects. We anticipate fees from third-party arrangements to fluctuate period over period, as they are dependent on the varying terms of each arrangement and the timing of development, sales, construction and/or financing milestones. Results of Operations – Asset Management and Management Services Revenue Asset management and advisory services expenses Net margin Net margin (%) $ For the three months ended December 31, 2017 10,099 (3,134) 6,965 69.0% 2018 13,587 (2,731) 10,856 79.9% $ $ For the year ended December 31, 2017 45,823 (9,638) 36,185 79.0% 2018 44,034 (10,721) 33,313 75.7% $ Dream Unlimited Corp. – December 31, 2018 | 14 In the three months ended December 31, 2018, net margin increased by $3.9 million from the prior year primarily due to the timing in recognition of fees earned from the Dream Publicly Listed Funds (excluding Dream Office REIT) and from third party arrangements. In the year ended December 31, 2018, net margin decreased by $2.9 million from the prior year due to an overall decrease in acquisition activity, development and other management fees from third- party arrangements and increased transactional support costs, partially offset by growth in fee-earning assets under management. Investments in Dream Publicly Listed Funds As at December 31, 2018, the Company held $457.5 million in the Dream Publicly Listed Funds, up from $367.3 million at December 31, 2017. Although for accounting purposes the treatment of these investments may differ, management believes the equity value and distributions generated from holding these investments are important disclosures to include herein. Dream Global REIT is an unincorporated, open-ended real estate investment trust that provides investors with the opportunity to invest in commercial real estate exclusively outside of Canada. Dream Global REIT units held by the Company are presented within Other Financial Assets on the Company's statement of financial position and held at fair value through profit and loss. Distribution income earned on these units is recognized in investment income, net of the portion considered to be a return of capital. Dream Office REIT is an unincorporated, open-ended real estate investment trust. It is focused on owning, leasing and managing well-located, high-quality central business district and suburban office properties. Effective October 1, 2017, the Company's investment in Dream Office REIT was recorded in Equity Accounted Investments. Effective January 1, 2018, the Company's investment in Dream Alternatives was consolidated within Dream's financial statements and accordingly, the investment and any distribution income is eliminated. Refer to Note 5 of the consolidated financial statements for the year ended December 31, 2018 for further details. Details of the Company’s investments in Dream Publicly Listed Funds are presented below. As at December 31, 2018 (in thousands of dollars, except unit and per unit amounts) Included within Other Financial Assets Dream Global REIT Dream Global REIT, deferred trust units Included within Equity Accounted Investments Dream Office REIT Dream Office REIT LP B Consolidated Dream Alternatives Annual distribution per unit Current annual pre-tax cash flow distributions(1) Total distributions received Units Ownership % $ $ $ $ 0.80 n/a 1.00 1.00 0.40 $ $ $ $ 2,506 $ n/a 9,285 5,234 4,855 $ $ $ 2,460 n/a 8,113 5,234 3,132,727 2,081,517 9,284,938 5,233,823 2% $ n/a 22% $ 22% $ 4,617 12,138,723 17% $ 6.24 Market price 11.90 n/a 22.29 22.29 Fair value 37,279 20,844 206,961 116,662 75,746 457,492 $ $ $ $ $ $ 20,424 (1) Annualized pre-tax cash flows are based on the respective distribution rates and units held as at December 31, 2018. 21,880 $ $ Refer to Note 36 of the Company's consolidated financial statements for the year ended December 31, 2018 for details on the fair value measurement approach and the vesting schedule for the Dream Global REIT deferred trust units. In the twelve months ended December 31, 2018, investment income earned on distributions from the investments in Dream Publicly Listed Funds decreased by $6.7 million relative to the comparative periods, primarily due to the reclassification of the Company's investment in Dream Office REIT to equity accounted investments in the fourth quarter of 2017. Prior to this, the investment was recorded in other financial assets with distributions recognized in investment income, net of amounts considered a return of capital. Total distributions received from the Dream Publicly Listed Funds in the twelve months ended December 31, 2018 were $20.4 million, $3.1 million higher than prior year due to our increased equity ownership position. Share of Earnings from Equity Accounted Investment - Dream Office REIT As at December 31, 2018, Dream held approximately $323.6 million or 14.5 million units in Dream Office REIT (approximately 22% of units outstanding of Dream Office REIT). In the three months ended December 31, 2018, net income was generated from net rental income, fair value adjustments on investment properties and financial instruments and income from Dream Industrial REIT, partially offset by interest expense and general and administrative expenses. In the year ended December 31, 2018, net income was generated from net rental income, fair value adjustments on investment properties and income from Dream Industrial REIT, partially offset by interest expense, general and administrative expenses and fair value adjustments on financial instruments. Dream Unlimited Corp. – December 31, 2018 | 15 Urban Development - Toronto & Ottawa We are continuously looking for unique investment opportunities that will further grow our development business in Toronto. We also believe there is potential for significant growth within Dream Alternatives and Dream Office REIT's core Toronto development portfolios. We anticipate that over time, our ownership in both entities will continue to increase on an opportunistic basis. Significant investments we have acquired on a 25/75% basis with Dream Alternatives include the Frank Gehry development, the Lakeshore East development, Port Credit and West Don Lands, in which Dream will act as co-developer alongside its partners for each of these sites. The following discussion excludes Dream Alternatives' investment in the aforementioned developments. Significant Pipeline Projects Riverside Square Riverside Square is a 5-acre, two-phase, mixed-use development located in Toronto’s downtown east end on the south side of Queen Street East and immediately east of the Don Valley Parkway. Dream has a 32.5% interest in the project and its residual partners include Streetcar Developments and an automotive group. The first phase of the project consists of 688 residential condominium units, a state-of-the-art multi-level auto-plex and approximately 20,000 sf of retail GFA. The second phase is planned to consist of approximately 36,000 sf of multi-tenant commercial space with a proposed grocery-anchored component together with 224 condominium units. Construction for Phase 1 is progressing steadily, with first occupancies expected by mid-2019. Canary District - Stage 2 Our Stage 2 lands in the Canary District, developed in 50/50% partnership with Kilmer, comprise Canary Block Condominiums, Canary Commons Condominiums and a future residential block currently referred to as “Block 13". We expect to develop over 1,000 condominium units and 30,000 sf of retail on the Stage 2 lands, which is in addition to the completed 810 condominium units and 30,000 sf of retail in Stage 1, which initially served as the Pan Am Athletes’ Village in 2015. In addition to retail amenities, the Canary District includes the 18-acre Corktown Common Park and the 82,000 sf Cooper-Koo YMCA. Canary Block Condominiums is currently under construction with initial occupancies expected to commence in late 2019. Zibi Zibi is a 34-acre mixed-use waterfront development along the Ottawa River in Gatineau, Quebec and Ottawa, Ontario. The project is a multi-phase development that includes over 4 million sf of density consisting of over 1,800 residential units and over 2 million sf of commercial space. In the three months ended December 31, 2018, we commenced occupancy at the project’s first condominium building, “O”, comprising 70 units, which are 83% sold. In addition to O, land servicing on both the Ontario and Quebec lands is well underway and construction has started on the project’s next residential building, Kanaal, comprising 71 units, of which 87% are pre-sold as of February 25, 2019. Frank Gehry Development The Frank Gehry development is located at the intersection of King Street West and Duncan Street in downtown Toronto and managed by Dream and Great Gulf Corporation. This landmark site is slated to be redeveloped to include two residential towers, each in excess of 80 storeys, and over 80,000 sf of multi- level luxury retail opportunities, including a potential hotel component and an art gallery. The development is currently in the planning stage. Port Credit Port Credit is a 72-acre waterfront property for development in Mississauga’s Port Credit area. The partnership is working with the Port Credit residents and stakeholders on a plan to transform the site into a complete, vibrant and diverse waterfront community. The site is expected to be redeveloped into a large master-planned residential/mixed-use community. Highlights of the draft master plan proposal include approximately 3,000 residential units and 400,000 sf of retail and commercial space. The proposal is subject to various approvals, and initial vertical construction is anticipated to begin in 2020. Remediation work on the site is currently underway. West Don Lands West Don Lands is a residential rental apartment community in Toronto's downtown east end. The partnership entered into 99-year land leases with Infrastructure Ontario for land parcels that will be developed into approximately 1,500 rental units including an affordable component, as well as ancillary retail and potential office space. The first fully-zoned block slated for development features approximately 750 rental units and 10,000 sf of retail space, and construction is expected to commence in 2019. Urban Development Pipeline and Results of Pre-sale Activity The results of our sales or pre-sales activity for urban development projects that are in the marketing, development or construction phases is summarized below. We currently have 1,631 units in inventory, or held through equity accounted investments as at December 31, 2018 (691 units at Dream's share) that have achieved a market launch. Approximately 99% of these projects (including Riverside Square and Canary Block Commons, which are expected to commence occupancy in 2019) were either sold or pre-sold as of December 31, 2018. In addition to these projects, we have an additional 10,200 condominium or multi- family units and 3.3 million sf of retail/commercial space (4,600 units and 2.5 million sf at Dream’s share) in our development pipeline. Refer to the tables on the following page for a listing of our major projects within the Toronto and Ottawa/Gatineau areas, on a Dream standalone basis. Inventory may be developed as condominium units or purpose-built rental as supported by market demand, targeted studies, and return objectives. High-rise condominium development typically does not commence until a substantial number of units have been pre-sold, thereby meeting requirements to secure construction financing. A few months after substantial completion and customer occupancy of the building, the developer obtains all necessary approvals and the building is registered, purchasers pay the balance of the purchase price and title is transferred. Dream Unlimited Corp. – December 31, 2018 | 16 Direct ownership Project Location Status(1) Projects currently in inventory: Riverside Square - Phases 1 and 2 BT Towns Zibi - Kanaal(5) Pipeline projects: Riverside Square - future phases Distillery District Zibi - future blocks(5) Other projects Toronto Toronto Ottawa Under construction Under construction Under construction Pre-construction Pre-construction Toronto Toronto Gatineau/ Ottawa Dream's standalone ownership % Dream's consolidated ownership %(2) Inventory value(3) Total units Commercial and retail GFA (sf) First occupancy(4) % Units sold or pre-sold as at February 25, 2019(4) Average selling price per pre-sold unit 32.5% 50.0% 40.0% 25.0% 50.0% 32.5% 50.0% 80.0% 25.0% 50.0% $ 73,319 8,809 5,939 4,149 13,202 912 60 71 250 450 210,000 — 8,500 2019 2019 2019 99% 98% 87% $385,000 696,000 508,000 26,000 300,000 Pre-construction 40.0% 80.0% 122,406 1,700 2,000,000 Total Total related debt outstanding as at December 31, 2018 (Dream's standalone share)(6) Total related debt facilities as at December 31, 2018 (Dream's standalone share) $ $ $ 11,797 200 — 239,621 3,643 2,544,500 136,936 217,339 Equity accounted investments Project Location Status(1) Projects currently in inventory: Dream's equity ownership % Dream's managed ownership(2) Net assets of investment(3) Commercial and retail GFA (sf) Total units First occupancy(4) % Units pre- sold as at February 25, 2019(4) Average selling price per pre-sold unit Canary Block Condominiums Canary Commons Condominiums Pipeline projects: Canary District - Block 13 Frank Gehry Lakeshore East Port Credit Toronto Under construction 50.0% 50.0% $ 3,289 Toronto Under construction 50.0% 50.0% 1,051 Toronto Toronto Toronto Pre-construction Pre-construction Pre-construction Mississauga Pre-construction 50.0% 6.25% 12.5% 7.75% 8.33% 50.0% 25.0% 50.0% 31.0% 33.0% West Don Lands Toronto Pre-construction Other projects Total Total related debt outstanding as at December 31, 2018 (Dream's standalone share)(7) $ $ 5,644 7,130 4,192 10,617 512 7,498 39,933 47,710 187 401 470 1,500 1,100 3,000 1,500 — 7,000 2019 100% $470,000 15,000 2021 100% 626,000 8,000 260,000 32,000 400,000 275,000 — 8,158 997,000 Total related debt facilities as at December 31, 2018 (Dream's standalone share) (1) Pre-construction encompasses projects in the planning and pre-construction phases. (2) Dream's consolidated/managed ownership includes ownership interest of Dream Alternatives, where applicable. (3) Inventory value or net asset of investment relates to the Company's proportionate share in the asset or project on a Dream standalone basis, with the exception of Zibi, which is fully consolidated. (4) Revenue recognition for condominium inventory occurs at the time of unit occupancy. Refer to Note 3 of the consolidated financial statements for details on the Company's revenue recognition 67,174 $ policies. The percentage of units sold or pre-sold pertains only to units that have been brought to market and are available for sale. (5) The carrying value of Zibi inventory is at 100% as the project is consolidated for financial statement purposes. Refer to Note 28 of the consolidated financial statements for the year ended December 31, 2018 for details on the non-controlling interest related to Zibi. (6) Total facilities include construction loans of $116.6 million and mortgages and term debt on land of $20.3 million used to fund future pre-development or construction costs. (7) Total facilities include construction loans of $7.0 million and mortgages and term debt on land of $40.7 million used to fund future pre-development or construction costs. Total units and project GFA are project-level estimates as of December 31, 2018 and are subject to change pending various development approvals. Dream Unlimited Corp. – December 31, 2018 | 17 Results of Operations – Condominium and Mixed-Use A summary of the results of operations for the condominium and mixed-use division is presented below. For the three months ended December 31, 2018 For the three months ended December 31, 2017 Equity accounted investments Total Directly owned Equity accounted investments Attributable to Dream $ $ $ $ — $ — $ Revenue Gross margin Gross margin (%)(2) Net margin Net margin (%)(2) Condominium occupancy units (project-level) Condominium occupancy units (Dream's share) Per unit(3) $ Per square foot $ (1) Results for the three months ended December 31, 2018 include 100% of the results of Zibi as the project is consolidated for financial statement purposes. (2) Refer to the "Non-IFRS Measures" section of this MD&A for definitions of non-IFRS measures, including gross margin % and net margin %. (3) Average selling price per unit is based on prices excluding non-unit sources of ancillary revenue, such as recoveries and upgrades. 19,742 3,688 18.7% 980 5.0% 52 52 343,000 447 (386) $ n/a 42 21 475,000 540 n/a (60) $ n/a — — — $ — $ 10,971 2,399 21.9% $ $ $ $ $ $ $ $ $ $ $ $ $ Directly owned(1) 19,742 3,688 18.7% 1,040 5.3% 52 52 343,000 447 2 $ 75 $ n/a (1,430) $ n/a — — — $ — $ Total 10,973 2,474 22.5% (1,816) n/a 42 21 475,000 540 For the year ended December 31, 2018 For the year ended December 31, 2017 Equity accounted investments Total Directly owned Equity accounted investments Attributable to Dream $ $ $ $ 39 $ 4 $ Revenue Gross margin Gross margin (%)(2) Net margin Net margin (%)(2) Condominium occupancy units (project-level) Condominium occupancy units (Dream's share) Per unit(3) Per square foot (1) Results for the year ended December 31, 2018 include 100% of the results of Zibi as the project is consolidated for financial statement purposes. (2) Average selling price per unit is based on prices excluding non-unit sources of ancillary revenue, such as recoveries and upgrades. 23,606 5,223 22.1% (4,759) n/a 60 56 373,000 460 n/a (788) $ n/a — — — $ — $ 26,066 5,675 21.8% (1,112) $ n/a 99 50 474,000 540 $ $ $ $ $ $ $ $ $ $ $ $ $ $ Directly owned(1) 23,567 5,219 22.1% (3,971) $ n/a 60 56 373,000 460 $ 461 223 48.4% (3,519) $ n/a 2 1 426,000 550 $ $ Total 26,527 5,898 22.2% (4,631) n/a 101 51 473,000 531 In the three and twelve months ended December 31, 2018, revenue from our condominium and mixed-use division was driven by occupancies at O, our first 70-unit residential building at our Zibi development. In the comparative period, the Southwood, our 107-unit development in downtown Toronto's east end had occupancies. Accordingly, condominium results are not comparable to the prior period as different projects were available for occupancy. In the three and twelve months ended December 31, 2018, our condominium and mixed-use division realized net margin of $1.0 million and a loss of $4.8 million, respectively, due to fixed and other operating costs of the division and limited inventory available for occupancy, consistent with expectations. Developments held through direct ownership In the year December 31, 2018, Dream incurred $85.8 million in development costs, primarily related to our Riverside Square and Zibi developments. Developments held through equity accounted investments In the year ended December 31, 2018, $14.7 million in development costs were incurred, primarily relating to Stage 2 of the Canary District. Other projects held through equity accounted investments, such as Lakeshore East, Port Credit and the Frank Gehry development, incurred minimal costs as the projects are largely in the planning/pre-development phases. Urban Development - Income Properties Our urban development income properties include interests in commercial and retail properties comprising over 554,000 sf of GLA, including the Distillery District, and through jointly controlled entities. In the year ended December 31, 2018, Dream acquired an 8.3% leasehold interest in a retail shopping centre and residential mixed-use development investment opportunity located at 100 Steeles Ave. West in Toronto ("100 Steeles"). Dream Alternatives also holds a 25% interest in the 100 Steeles investment. The investment is currently an income producing retail property with approximately one million sf of residential and commercial mixed-use density with redevelopment potential in future years. Dream Unlimited Corp. – December 31, 2018 | 18 In the year ended December 31, 2018, the Company received a Notice of Expropriation and Notice of Possession from the City of Toronto for its 73-acre commercial site in Toronto (the “Obico Property”), a property within the Urban Development segment, and accordingly, ownership of the property was deemed to be passed to the City of Toronto on the date of the expropriation registration with possession transferring to the City of Toronto on February 1, 2019. The Company received an offer of compensation from the City of Toronto in the amount of $48.0 million in respect of its interest in the Obico Property, pursuant to Section 25 of the Expropriations Act (Ontario). The Company has accepted the consideration and repaid the outstanding first mortgage obligation of $21.9 million, but has the right to claim additional compensation as provided for in the Expropriations Act (Ontario). Based on the consideration offered, the Company has recorded a corresponding realized fair value gain of $7.6 million for the year ended December 31, 2018. The Company intends to pursue a higher amount of compensation under the Expropriations Act (Ontario) in respect of the expropriation of the Obico Property. At the point of final settlement, for which both timing and outcome are uncertain, the Company may record an additional gain in the statement of earnings. Revenue Net operating income(1) Net operating income (%) Net margin Net margin (%)(1) Fair value changes in investment properties(2) (1) Refer to the "Non-IFRS Measures" section of this MD&A for the definition of net operating income and net margin %. (2) Fair value changes in investment properties for the year ended December 31, 2018 includes a realized fair value gain on the Obico Property of $7.6 million. For the three months ended December 31, 2017 3,656 1,944 53.2% 1,628 44.5% 4,586 2018 2,813 1,557 55.4% 1,272 45.2% 11,994 $ $ $ $ $ $ $ $ $ 2018 $ For the year ended December 31, 2017 12,553 6,820 54.3% 5,715 45.5% 3,672 12,259 6,974 56.9% 5,694 46.4% 19,271 $ $ In the three months ended December 31, 2018, revenue and net operating income decreased by $0.8 million and $0.4 million, respectively, due to the expropriation of Obico in the third quarter of 2018. In the year ended December 31, 2018, revenue and net operating income remained relatively consistent with the comparative period. In the three months ended December 31, 2018, fair value changes in investment properties was $12.0 million, an increase of $7.4 million relative to the comparative period driven by fair value gains on the Distillery District. The fair value increase was primarily due to increases in net operating income and was supported by an external appraisal at year-end. In 2018, $19.3 million in fair value gains have been recognized on investment properties in Toronto primarily due to the aforementioned gains on the Distillery District and our Obico Property. Renewables and Recreational Properties Our recreational properties include a ski area in Colorado, a golf course in Saskatoon and a 50% interest in The Broadview Hotel, located in a neighbourhood just east of downtown Toronto. Dream also has an investment in Firelight, which has funded $271.7 million, net of return of capital, for renewable energy projects (of which Dream’s portion is $54.3 million, including letters of credit of $7.0 million), as at December 31, 2018. Recreational Properties A summary by property is provided below. Arapahoe Basin ski hill (Colorado) The Broadview Hotel (Ontario) Willows Golf Course (Saskatchewan) Total recreational properties Total related debt Direct ownership % 100% 50% 100% December 31, 2018 32,103 $ 14,554 2,584 49,241 15,644 $ $ December 31, 2017 22,884 $ 14,933 2,800 40,617 17,137 $ $ The carrying value of recreational properties increased by $8.6 million from December 31, 2017 to December 31, 2018, mainly due to a capital expansion project at Arapahoe Basin. In the three months ended December 31, 2018, the Company completed the Beavers expansion project at Arapahoe Basin which is expected to increase volume by 50,000 skier visits, or approximately 10% annually, and has increased our skiable terrain by approximately 468 acres. The grand opening of the Beavers chairlift on November 26, 2018 opened the Beavers terrain to lift-served skiing almost a full month ahead of schedule. Dream has a 50% ownership interest in The Broadview Hotel, located in Toronto's downtown east side in close proximity to the Canary District, the Distillery District and Riverside Square. The hotel has maintained its iconic 126-year-old facade while offering extensive dining options, over 4,000 sf of event space and 58 hotel rooms. In its first full year of operations, The Broadview Hotel generated positive net operating income and the Company expects that the hotel will contribute more meaningfully to the Company's recurring income in future periods. Arapahoe Basin ski hill (Colorado) The Broadview Hotel (Ontario) Willows Golf Course (Saskatchewan) (1) As of February 25, 2019. Ownership interest 100% 50% 100% Current status(1) Open Open Closed Last season opening date 19-Oct-18 27-Jul-17 28-Apr-18 Last season closing date 3-June-18 n/a 21-Oct-18 Dream Unlimited Corp. – December 31, 2018 | 19 The operating results of recreational properties are summarized below. Revenue Net operating income(1) Net margin Net margin (%)(1) (1) Refer to the "Non-IFRS Measures" section of this MD&A for the definition of net operating income and net margin %. $ $ For the three months ended December 31, 2017 11,016 1,988 979 8.9% 2018 11,601 1,561 338 2.9% $ For the year ended December 31, 2017 40,283 10,278 6,447 16.0% 2018 45,889 10,100 5,644 12.3% $ In the three and twelve months ended December 31, 2018, revenue increased by $0.6 million and $5.6 million, respectively, relative to the prior year due to favourable conditions at Arapahoe Basin and the Broadview Hotel being fully operational for all of 2018. Results are not directly comparable to prior year as The Broadview Hotel opened to the public in July 2017. Net operating income decreased by $0.4 million and $0.2 million in the three and twelve months ended December 31, 2018, respectively, due to increased maintenance costs at Arapahoe Basin in connection with the aforementioned expansion program, as well as increased compensation costs throughout the year. This decrease was partially offset by income generated from The Broadview Hotel. Included in net margin for the three and twelve months ended December 31, 2018 was depreciation expense of $1.1 million and $3.9 million, respectively (three and twelve months ended December 31, 2017 - $0.9 million and $3.1 million). Renewables - Firelight For the three and twelve months ended December 31, 2018, Firelight generated losses of $0.9 million and earnings of $5.2 million, respectively (three and twelve months ended December 31, 2017 – losses of $0.7 million and earnings of $5.1 million, respectively). Earnings were relatively consistent with the comparative period as weather conditions did not fluctuate significantly period over period. Typically, earnings for Firelight are higher in the second and third quarters of a fiscal year due to the seasonal nature of wind and solar renewable power assets. Western Canada Development Dream's Western Canada development team focuses on land development, housing and multi-family construction, and the development of income producing retail and commercial properties within our master-planned communities. We currently own and have under contract approximately 10,000 acres of land in Western Canada, of which over 9,200 acres are in 9 large master-planned communities at various stages of approval. We estimate that, when approved, these master-planned communities will supply lots for the next 30 to 40 years. Dream actively develops land in Alberta (Calgary and Edmonton) and Saskatchewan (Saskatoon and Regina). Land development involves the conversion of raw land to the stage where homes and commercial buildings may be constructed on the land. This process begins with the purchase or control of raw land, generally known as land held for development, and is followed by the entitlement and development of the land. Once the process of converting raw or undeveloped land for end use has begun, that portion of the land that we conduct activity on is generally known as land under development. Building on owned land delays the recognition of revenue, as the land sale is not recognized until the property is occupied by a third-party purchaser. In comparison, when selling land to a third party, revenue is generally recognized on receipt of a 15% deposit from the land buyer and when there is substantial completion of the underground servicing work. Due to the economic conditions in Western Canada, we may not make new investments in undeveloped land at the same rate as in past years unless management considers the lands to be strategic to existing land positions already owned by the Company. Nevertheless, we expect that we will generate profits from building on our owned land in the future. We currently have housing operations in Alberta (Calgary) and Saskatchewan (Saskatoon and Regina). Residential homebuilding involves the construction of single family houses and multi-family buildings, such as townhouses. Each dwelling is generally referred to as a “unit”. A planned community typically includes a number of “lots” on which single family units will be situated, as identified in the neighbourhood plan. Construction time for a residential home depends on a number of factors, including the availability of labour, materials and supplies, the weather, and the type and size of home. Our Retail and Commercial Development division currently focuses on the development of new format and/or grocery-anchored unenclosed retail centres and business parks within our communities in Western Canada. New format retail centres are large aggregations of dominant retailers grouped together at high traffic and easily accessible locations. These unenclosed campus-style centres are generally anchored by supermarkets and may include entertainment (movie theatres and restaurants) and other needs-based retail components. Our retail developments are branded under the "Dream Centres" banner. Business parks provide opportunities for employment to service the surrounding communities. They vary in size, form and character, often containing a combination of office, light industrial and/or institutional style uses. Business parks are geared to corporate headquarter facilities and businesses involving combinations of research, sales and service, light manufacturing, warehousing and administration. The Retail and Commercial Development division traditionally manages a project through the entire development cycle, including planning, pre-development, leasing, construction and post-development. As at December 31, 2018, the Retail and Commercial Development division had 38.4 acres or 396,200 sf in various stages of active development. Dream Unlimited Corp. – December 31, 2018 | 20 Results of Operations In the three and twelve months ended December 31, 2018, we earned net margin of $29.2 million and $25.2 million, respectively, from our Western Canada development segment. Operational results for the segment were lower than prior year due to the specific sales mix and volumes achieved in 2018. With continued challenging market conditions in Western Canada and increased pressures from government policies, we are closely monitoring customer demand, pricing trends and inventory supply across the division. As of the date of this MD&A, assuming no material change in market conditions, we expect our earnings from this division to increase again come 2020, as we commence earning income from land sales in Providence, our most valuable land position in Western Canada. However, we expect the proportion of income driven by Western Canada to decrease over time due to the increased diversification of our business and growth in recurring income generating assets. Our recurring business, including asset management and income properties, supports all the costs of our operating platform as contributions from our development segments may be limited in periods. Refer to the "Sources of Recurring Income" section of this MD&A for further details on our recurring income and assets. Selected Key Operating Metrics - Western Canada (in thousands of dollars, except for average selling prices and acre, lot, unit and sf statistics) For the three months ended December 31, For the year ended December 31, 2018 2017 2018 2017 LAND DEVELOPMENT Revenue Alberta Saskatchewan Total Net margin Alberta Saskatchewan Total Net margin (%)(1) Lots sold Average selling price per lot Acres sold Average selling price per acre HOUSING DEVELOPMENT Revenue Net margin Housing units sold Average housing unit selling price(2) Average selling price per sf(2) INCOME PRODUCING AND DEVELOPMENT PROPERTIES Revenue Net operating income(1) Net margin Net margin (%)(1) Fair value changes in investment properties Number of commercial properties(3) Total commercial area (sf)(3) - income producing & development $ $ $ $ $ $ $ $ $ $ $ $ $ $ 17,537 64,426 81,963 5,545 24,708 30,253 36.9% 561 123,000 17.7 739,000 11,795 (1,574) 47 333,000 220 2,255 1,484 474 21.0% (3,209) 5 $ $ $ $ $ $ $ $ $ $ $ $ $ $ 15,023 59,267 74,290 7,932 28,110 36,042 48.5% 393 126,000 26.5 937,000 32,100 4,245 137 292,000 257 2,454 1,533 527 21.5% 393 7 $ $ $ $ $ $ $ $ $ $ $ $ $ $ 27,526 79,932 107,458 5,296 24,383 29,679 27.6% 767 121,000 20.1 729,000 $ $ $ $ $ $ 51,898 $ (5,903) $ 215 329,000 $ 239 $ $ $ $ 8,966 5,985 1,443 16.1% (1,767) $ 5 396,200 547,600 396,200 Total commercial area in planning stages (sf) (1) Net operating income and net margin % are non-IFRS measures. Refer to "Non-IFRS Measures" section of this MD&A for a reconciliation between net operating income and net margin. (2) Average housing unit selling price is gross of land sales to external customers, which are in the land results above. (3) Excludes all metrics related to properties classified as held for sale as of period end. 130,000 130,000 208,900 43,402 103,553 146,955 12,401 36,181 48,582 33.1% 913 128,000 33.5 886,000 78,610 2,529 300 335,000 259 6,674 4,476 (111) n/a 10,473 7 547,600 208,900 Results of Operations – Land In the three months ended December 31, 2018, revenue increased by $7.7 million relative to the prior year due to an increase in land lot sales volumes. Results for the three months ended December 31, 2018 and 2017 include $5.4 million and $10.5 million, respectively, of favourable cost recoveries and contingencies released, primarily related to development phases that are complete or near completion. In the three months ended December 31, 2018, net margin decreased by $5.8 million relative to the prior year due to the product mix sold. In the year ended December 31, 2018, revenue decreased by $39.5 million relative to the prior year due to fewer lot and acre sales achieved and lower average selling prices. Results for the years ended December 31, 2018 and 2017 include $7.5 million and $10.5 million, respectively, of favourable cost recoveries and contingencies released. In the year ended December 31, 2018, net margin decreased by $18.9 million relative to the prior year due to the lower level of sales activity relative to our fixed operating costs. Refer to the "Western Canada Development - Results of Operations" section of this MD&A for details on market outlook. Dream Unlimited Corp. – December 31, 2018 | 21 Land Portfolio As at December 31, 2018, our land portfolio, including land held for development and land under development, consisted of 9,401 acres and 772 lots in various stages of development. This represents 9,515 acre equivalents. Dream also has commitments to purchase an additional 312 acres, for a total of 9,827 acres. Land held for development and land under development is carried at historical cost. Management believes that the market values of these lands are significantly in excess of their carrying values. (in thousands of dollars, except lots and acres) Land held for development Land under development Cost Acres $ Saskatoon Regina Calgary Edmonton Other(1) Total inventory Land under commitment (1) Other land held for development relates to a single lot held in the U.S. 85,986 148,014 153,637 40,978 845 429,460 4,855 $ $ 3,072 $ 2,937 2,316 862 — 9,187 $ 312 $ Cost per acre 28 50 66 48 n/a 47 16 Cost Acres Lots $ $ 61,386 43,341 25,656 14,320 1,733 146,436 90 56 52 2 14 214 270 $ 321 77 104 — 772 $ December 31, 2018 Cost per acre 455 $ 442 388 977 124 447 $ $ Total 147,372 191,355 179,293 55,298 2,578 575,896 4,855 Land Approval Pipeline The land approval process varies slightly in each city we operate in; however, the key land development milestones can be broadly classified in the categories noted below: Dream Unlimited Corp. – December 31, 2018 | 22 A summary of our land inventory and key milestones is included below. City Active developments Saskatoon Regina Regina Calgary Calgary Edmonton Various Current pipeline Saskatoon Saskatoon Saskatoon Regina Regina Calgary Calgary Edmonton Future developments Other land holdings Land under commitment Neighbourhood Upcoming milestone Gross acres Anticipated sales start(1) Brighton (Holmwood) Eastbrook Harbour Landing Vista Crossing High River Meadows Various Holmwood Suburban Centre The Willows Elk Point Harbour Landing West Coopertown Providence East Glacier Ridge South Elan Tier 5 ongoing Tier 5 ongoing Tier 5 ongoing Tier 5 ongoing Tier 5 ongoing Tier 5 ongoing Tier 5 ongoing Tier 2 approval Tier 2 approval Tier 2 approval Tier 1 approval Tier 3 approval Tier 3 approval Tier 2 approval Tier 2 approval n/a n/a n/a n/a n/a n/a n/a 2022 2019 2024 2023 2022 2020 2021 2020 345 278 31 128 133 144 169 1,228 1,050 80 150 940 1,050 650 320 371 4,611 3,600 76 312 9,827 (1) Anticipated sales starts are subject to change and based on current information available to management. We have an extensive land bank and have obtained key approvals on our Providence East lands (Calgary) and Coopertown (Regina) lands in 2018. Results of Operations – Housing In the three months ended December 31, 2018, our housing division generated revenue of $11.8 million from 47 housing occupancies and incurred negative net margin of $1.6 million ($32.1 million of revenue from 137 housing occupancies and net margin of $4.2 million in the comparative period). In the year ended December 31, 2018, our housing division generated revenue of $51.9 million from 215 housing occupancies and incurred a net loss of $5.9 million ($78.6 million in revenue from 300 housing occupancies and net margin of $2.5 million in the comparative period). Results for the three and twelve months ended December 31, 2017, benefitted from the successful completion and turnover of two affordable housing projects in Harbour Landing to the Saskatchewan Housing Corporation. Excluding these projects, revenue and net margin for housing occupancies would have been more comparable year over year. The housing division incurred negative net margin in the year ended December 31, 2018 due to the volume of housing occupancies relative to the fixed and other operating costs of the division. Refer to the "Western Canada Development - Results of Operations" section of this MD&A for our general market commentary. Western Canada - Income Producing and Development Properties In the three months ended December 31, 2018, revenue and net operating income were relatively consistent relative to the comparative period. In the year ended December 31, 2018, revenue and net operating income increased by $2.3 million and $1.5 million, respectively, from the comparative period due to increased rental income generated from our retail properties under development, partially offset by the impact of an asset disposition in 2018. In the year ended December 31, 2018, fair value losses on investment properties in Western Canada were $1.8 million, largely due to fair value losses on certain properties classified as held for sale, offset by gains on the Harbour Landing Commercial Campus in Regina. In the year ended December 31, 2018, Dream achieved first tenant occupancies within the first commercial development project - the first phase of the Commercial Campus, which includes approximately 41,100 sf of small-bay flex commercial and industrial space across three buildings. Dream Unlimited Corp. – December 31, 2018 | 23 A summary of our active retail and commercial developments is included below. Ownership % Location Type Major tenant Fair value as at December 31, 2018 Acres Total sf Committed leases %(1) as of February 25, 2019 Weighted average lease term First occupancy date Project Shops of South Kensington Brighton Marketplace Montrose 100% 50% 100% Saskatoon Retail Save-On-Foods $ Saskatoon Retail High River Retail Save-On-Foods Anytime Fitness 28,599 21,790 8,661 6.5 72,100 21.5 231,000 2.8 24,500 100% Regina Harbour Landing Hampton Heights(2) Total income producing properties(3) (1) Committed leases represents the GLA under an agreement to lease between a tenant and the Company as at December 31, 2018. (2) Hampton Heights is classified as land under development (held at cost) as at December 31, 2018. (3) Balance excludes assets held for sale. Commercial Saskatoon 68,560 Retail 9,510 100% 38.4 n/a n/a n/a 4.3 3.3 $ 41,100 27,500 396,200 89% 79% 84% 30% 31% 72% 15.4 15.2 11.0 9.1 13.3 14.7 2017 2018 2017 2018 2019 As at December 31, 2018, the Company held $64.3 million as assets held for sale in Western Canada. In aggregate, these properties represent 120,000 sf of GLA, are 95% leased with a weighted average lease term of 9.0 years and have reached stabilization. Dream Alternatives Dream Alternatives is an open-ended trust focused on hard asset alternative investments comprising real estate development, real estate lending, real estate, and renewable power. Dream owned 12.1 million units of Dream Alternatives as at December 31, 2018 (17% of units outstanding), which were acquired through purchases on the open market or through Dream Alternatives' distribution reinvestment plan. The Company intends to increase its ownership in Dream Alternatives over time on an opportunistic basis. Dream is the asset manager of Dream Alternatives and also has several co-owned development investments with Dream Alternatives, which are detailed in the "Urban Development Pipeline and Results of Pre-sale Activity" section of this MD&A. Acquisition of Control On January 1, 2018, under IFRS, the Company was deemed to have acquired control of Dream Alternatives based on the increase in the Company's exposure to variable returns resulting from increased ownership through units held in Dream Alternatives and from new real estate joint venture agreements. The Company re-measured its existing 13% equity interest in Dream Alternatives to its fair value of $60.9 million at the acquisition date. As a result of the remeasurement, the Company recorded a non-cash gain of $12.6 million. The acquisition of control also resulted in a non-cash net bargain purchase gain of $117.4 million in the first quarter of 2018. This amount represented the difference between the fair value of net assets of Dream Alternatives of $246.4 million based on public disclosures, relative to the implied financial consideration for the transaction of $60.9 million. As part of the acquisition of control, the Company also derecognized the intangible asset of $43.0 million related to the right to manage Dream Alternatives and eliminated amounts receivable from Dream Alternatives of $23.1 million, which were both treated as deductions in calculating the gain. The net gain on the acquisition of control of Dream Alternatives was calculated as follows: Net assets acquired Less: Consideration Bargain purchase gain Derecognition of intangible asset Elimination of amounts receivable from Dream Alternatives Adjustment for non-controlling interests in Dream Alternatives Net bargain purchase gain Non-cash gain on deemed disposal of previously held equity accounted investment Net gain on acquisition of Dream Alternatives $ $ 246,383 (60,891) 185,492 (43,000) (23,107) (1,948) 117,437 12,555 129,992 As at December 31, 2018, the liability associated with Dream Alternatives units held by other unitholders had a fair value of $377.2 million. In accordance with the Company's accounting policy detailed in Note 3 of the consolidated financial statements for the year ended December 31, 2018, the Company accounted for the 83% interest in Dream Alternatives trust units held by third parties as a financial liability measured at fair value through profit and loss (January 1, 2018 - 87%). Refer to the "Reconciliation of Basic Earnings per Share" section of this MD&A for further details on the measurement of this liability. Dream Unlimited Corp. – December 31, 2018 | 24 Portfolio Summary - Dream Alternatives The table below provides a summary of the Dream Alternatives portfolio as at December 31, 2018, including net asset value. This table excludes the impact of any consolidation adjustments included in the "Segmented Assets and Liabilities" and "Segmented Statement of Earnings" sections of this MD&A. With Dream Alternatives' focus on development investments that will generate higher growth and cash flow over a period of time, growth in NAV per unit of Dream Alternatives is considered to be a useful metric of value creation. The determination of NAV incorporates a market value(3) adjustment (see definition in the "Non-IFRS Measures" section of this MD&A) to equity accounted investments and the renewable power portfolio to take into consideration the change in risk profile as a result of various factors including progression to completion or becoming operational. As at December 31, 2018, $139.4 million of Dream Alternatives' net asset value, or 22%, represents development projects that are co-owned with Dream. Details of Dream Alternatives' net asset value is as follows: Investment Accounting treatment(1) Asset value Debt Total equity(2) NAV of DAT(3) NAV per unit Other financial assets and equity accounted investments Lending portfolio Investment properties Renewable power Fair value, equity accounted Amortized cost(4) Fair value Amortized cost $ 251,137 144,095 224,310 130,615 n/a $ 254,804 $ 294,674 $ n/a 122,214 73,278 142,220 101,962 64,184 142,220 101,962 74,711 Cash and other Dream Alternatives consolidated working capital, including tax Total unitholders' equity/NAV of Dream Alternatives 27,088 21,083 $ 590,258 $ 634,650 4.06 1.96 1.40 1.03 0.29 Total unitholders' equity per unit /NAV per unit of Dream Alternatives (1) Equity accounted investments are recognized initially at cost and subsequently adjusted for Dream Alternatives' share of the profit or loss. (2) Included in total unitholders equity is working capital that is presented separately from its asset in the consolidated statement of financial position of Dream Alternatives. (3) For the definition of the non-IFRS measure market value and total unitholders' equity per unit , please refer to the "Non-IFRS Measures" section of this MD&A. (4) Includes a loan investment of $16.6 million, as at December 31, 2018, classified as fair value through profit or loss. 8.13 $ $ 8.74 Announcement of Strategic Plan Subsequent to year-end, Dream Alternatives announced a strategic plan to address Dream Alternatives’ unit price performance and gap to its NAV. Since taking over asset management in 2014, approximately $450 million of equity has been successfully repatriated in Dream Alternatives (over 60% of the original equity), which has subsequently been invested into irreplaceable development assets alongside exceptional partners. The strategic goal for Dream Alternatives over the next three years will be to achieve a balance between reducing the number of units outstanding and maintaining a strong balance sheet to meet and exceed Dream Alternatives’ covenants supporting ongoing capital requirements for development activities, while narrowing the gap between the trading price and NAV of the Dream Alternatives trust units. Dream Alternatives is targeting to deploy up to $100 million towards its unit buyback program (representing approximately 21% of current market capitalization) with proceeds of asset sales over the next three years. Dream Alternatives also announced the suspension of its distribution reinvestment and unit purchase plan (“DRIP”). As of December 31, 2018, all of the Company’s units held in Dream Alternatives were enrolled in the DRIP. Financial Overview For the year ended December 31, 2018, Dream Alternatives reported net income of $13.9 million compared with a net loss of $9.5 million in the prior year. The year over year financial results benefited from the transformational growth the Trust has achieved, with the prior year impacted by losses associated with the disposal of approximately $338.5 million of Dream Alternatives' non-core legacy assets throughout 2017. For the three months ended December 31, 2018, Dream Alternatives reported net income of $7.0 million down from $16.4 million in the same period in the prior year. The year over year variance was primarily due to Dream Alternatives recording net fair value gains in income properties of $0.5 million during the fourth quarter of 2018 compared to $11.0 million in the same period in the prior year. During the year ended December 31, 2018, Dream Alternatives invested approximately $93.1 million of capital, including transaction costs, into its development investments either through successful acquisitions or funding towards its existing projects. Over the course of the year the development projects have progressed steadily towards various milestones and/or completion. In addition to investing into its existing development portfolios, Dream Alternatives entered into significant development and re-development opportunities including acquiring: a 10% interest in the 1,500 room Hard Rock Hotel / Virgin Hotel Las Vegas and a 25% interest in the West Don Lands purpose-built rental development. Refer to the "Urban Development - Toronto & Ottawa" section of this MD&A for further details on development projects co-owned with Dream. As at December 31, 2018, the Axis Condominiums project had been "topped off", signifying it has reached its ultimate height but is still under construction. The project remains on schedule with first occupancy slated for the fall of 2019, accelerated from an initial timing of 2020, and includes completion of the lobby and amenities. The project is 100% sold. Upon completion the internal rate of return ("IRR") on Axis Condominiums is expected to be well in excess of 50% on Dream Alternatives' initial investment of $5.4 million, including transaction costs. For the definition of IRR, please refer to the "Non-IFRS Measures" section of this MD&A. Subsequent to December 31, 2018, the Hard Rock signed a franchise agreement with Hilton Hotels & Resorts ("Hilton") to join the Curio Collection following the redevelopment/conversion of the property to the Virgin Hotel Las Vegas in 2020, as well as participate in Hilton's award winning guest loyalty program, Hilton Honors. Curio Collection by Hilton is an upscale, global portfolio of more than 65 one-of-a-kind hotels and resorts across the world. As a result of the Dream Unlimited Corp. – December 31, 2018 | 25 agreement, the property will be on the Hilton booking system upon its re-opening as a Virgin Hotel and will have access to a large distribution channel through the Hilton platform, where there has historically been significant unmet room demand - estimated to be 900,000 unmet Las Vegas rooms per year. NAV per unit of $8.74 as at December 31, 2018 increased by 0.6% compared with $8.69 as at September 30, 2018. The increase was as a result of the following: the redemption of the Trust's investment in Hotel Pur thereby receiving total distributions of $4.9 million, which included return of capital plus a 9% preferred return; a $2.0 million fair value gain on its investment in Hard Rock related to foreign exchange; and market value gains of $7.1 million related to both its Axis Condominiums and Lakeshore East developments. The market value gain on the Axis Condominiums development was attributed to the project being closer to completion. The market value gain on the Lakeshore East development was a result of continued favourable market trends and comparable market transactions, as supported by independent third-party appraisals. Please refer to the "Non-IFRS Measures" section of the MD&A for a reconciliation between NAV of Dream Alternatives and reconciliation to Dream Alternatives' total unitholders' equity. For further details on Dream Alternatives, refer to the Dream Alternatives consolidated financial statements and Management's Discussion & Analysis for the year ended December 31, 2018 filed on SEDAR. Other Items - Consolidated Dream Other Financial Assets Other financial assets consisted of the following: Marketable securities - Dream Global REIT Participating mortgages Investment holdings Loans receivable Other instruments December 31, 2018 58,123 $ 64,764 73,085 11,894 4,485 212,351 $ December 31, 2017 57,635 $ — 7,054 13,289 1,065 79,043 $ Marketable Securities Marketable securities relate to the Company's investments in Dream Global REIT. Refer to the "Investments in Dream Publicly Listed Funds" section of this MD&A for further information on these investments. Participating Mortgages Participating mortgages are related to two long-term development loans secured by real property comprising two residential assets under development (Empire Lakeshore and Empire Brampton). Refer to Note 36 of the consolidated financial statements for the year ended December 31, 2018 for the valuation methodology used to determine the fair value of the participating mortgages. Investment Holdings As at December 31, 2018, investment holdings include one hospitality asset and retail assets (Hard Rock and Bayfield LP) and certain co-owned commercial assets. Loans Receivable Loans receivable are amounts owing to Dream pertaining to specific development partnerships in Toronto. Accounts Receivable As at December 31, 2018, the carrying value of accounts receivable was $177.4 million compared to $197.5 million as at December 31, 2017. The decrease in accounts receivable from the prior year was primarily due to the closing of certain completed urban development projects and the elimination of amounts receivable from Dream Alternatives upon consolidation. Approximately 86% (December 31, 2017 – 78%) of accounts receivable represents amounts receivable under contracted sales of land under development or under housing and condominium sales contracts. Accounts receivable may fluctuate from period to period, reflecting the cyclical nature of the completion and closing of large-scale real estate projects. General and Administrative Expenses In the three and twelve months ended December 31, 2018, general and administrative expenses were $4.5 million and $20.4 million, respectively. The increase of $1.0 million and $7.0 million from the prior year was largely due to the consolidation of Dream Alternatives and certain one-time costs. Dream Unlimited Corp. – December 31, 2018 | 26 Interest Expense In the three and twelve months ended December 31, 2018, interest expense was $10.2 million and $37.9 million, respectively, compared to $6.2 million and $21.6 million in the prior year. The increase of $4.0 million and $16.3 million from the prior year was primarily due to the consolidation of Dream Alternatives and increased borrowings on our corporate facilities and projects under development. Interest expense consisted of the following: Interest on project-specific debt Interest on corporate debt facilities Dividends on Preference shares, series 1 Amortization of deferred financing costs and accretion of effective interest Project-specific interest capitalized to real estate development projects Total $ $ For the three months ended December 31, 2017 3,005 3,528 502 2018 7,409 5,122 502 $ $ For the year ended December 31, 2017 10,407 11,945 2,008 2018 22,723 17,393 2,008 $ 512 366 (3,377) 10,168 $ (1,203) 6,198 $ 1,696 (5,889) 37,931 $ 1,264 (4,025) 21,599 Investment and Other Income Refer to the "Investments in Dream Publicly Listed Funds" section of this MD&A for further information on investment income from Dream Publicly Listed Funds. In the three months ended December 31, 2018, investment and other income was $3.4 million, down from $9.0 million in the comparative period. Results for the three months ended December 31, 2017 included a non-cash gain of $13.3 million relating to the remeasurement of the Company's previously held equity interest in Zibi to fair value, as well as aggregate fair value losses of $6.5 million reclassified to net income upon accounting changes. Excluding these items, investment and other income increased by $1.3 million from the comparative period, primarily due to other income earned by Dream Alternatives in the current period and income generated by the Obico Property between the expropriation date and possession date. In the year ended December 31, 2018, investment and other income was $12.7 million, a decrease of $2.1 million from the prior year after adjusting for the aforementioned items. This decrease was attributable to Dream no longer recording investment income from its investment in Dream Office REIT, offset by other income earned by Dream Alternatives in the current period. Effective October 1, 2017, the Company reclassified its investment in Dream Office REIT to equity accounted investments and as a result no longer records investment income from monthly distributions received from Dream Office REIT. Instead, these amounts are accounted for as a reduction in the Company's equity accounted investment and the Company records its proportionate share of net income from Dream Office REIT. Gain on Disposition of Assets In the year ended December 31, 2018, the Company disposed of its interest in a property located in downtown Toronto for total consideration of $10.2 million (at Dream's share), at an implied sales price of $150 per sf based on the approved residential density. The resulting gain on disposal of $9.4 million was recognized in the consolidated financial statements for the year ended December 31, 2018. Income Tax Expense The Company's effective income tax rate was 10.0% for the year ended December 31, 2018 (year ended December 31, 2017 – 28.3%). The effective income tax rate for the year ended December 31, 2018 is lower than the statutory combined federal and provincial tax rate of 26.7% mainly due to the non-taxable portion of gains related to the acquisition of control of Dream Alternatives. We are subject to income taxes in Canada, both federally and provincially, and the United States. Significant judgments and estimates are required in the determination of the Company's tax balances. Our income tax expense and deferred tax liabilities reflect management's best estimate of current and future taxes to be paid. The Company is subject to tax audits from various government and regulatory agencies on an ongoing basis. As a result, from time to time, taxing authorities may disagree with the interpretation and application of tax laws taken by the Company in its tax filings. Liquidity and Capital Resources Our capital consists of project-specific debt, corporate debt facilities, preference shares and shareholders’ equity. Our objective in managing capital is to ensure adequate operating funds are available to fund development costs; to cover leasing costs, overhead and capital expenditures for investment and recreational properties; to provide for resources needed to acquire new properties and invest in new ventures at reasonable interest costs; and to generate a target rate of return on investments. Other than the amendments to the Dream operating line and non-revolving term facility described below, there were no material changes in future contractual obligations since December 31, 2018. Dream Unlimited Corp. – December 31, 2018 | 27 A summary of selected information as at December 31, 2018 and December 31, 2017 is presented below. December 31, 2018 December 31, 2017 Less than 12 months 64,293 $ Greater than 12 months Total Less than 12 months 25,408 $ Greater than 12 months Total $ 25,408 Cash and cash equivalents 197,467 Accounts receivable 79,043 Other financial assets 118,965 Accounts payable and accrued liabilities 34,756 Provision for real estate development costs 280,227 Project-specific debt Corporate debt facilities(1) 308,024 Debt to total assets ratio(2) 32.4% (1) Included in current corporate debt facilities is $48.9 million relating to the Dream operating line. This facility was amended subsequent to December 31, 2018, extending the maturity date to January 64,293 177,414 212,351 126,842 33,853 514,580 373,026 33.3% 22,094 71,329 10,786 — 146,380 93,225 175,373 7,714 108,179 34,756 133,847 214,799 30,953 204,240 19,416 — 362,327 224,083 146,461 8,111 107,426 33,853 152,253 148,943 — $ — $ $ 31, 2021. (2) Refer to the "Non-IFRS Measures" section of this MD&A for the definition of debt to total assets ratio. As at December 31, 2018, there were adequate resources to address the Company’s short-term liquidity requirements. Certain financial instruments that are callable or due on demand are presented as due within 12 months, which is inconsistent with the repayment timing expected by management. The most significant of these instruments are the Company's $100.0 million margin facility, which is secured by certain marketable securities and due on demand, and the $49.0 million drawn on the Company's operating line, which was amended subsequent to year-end to extend the maturity date to January 31, 2021. Due to the nature of our development business, in addition to the above resources, the Company expects to fund a portion of our current liabilities through sales of housing, condominium and land inventories, which cannot be classified and accordingly are not presented above. Management continuously reviews the timing of expected debt repayments and actively pursues refinancing opportunities as they arise. In addition, as at December 31, 2018, we had up to $179.1 million of undrawn credit availability on Dream’s operating line and margin facility. Significant Sources and Uses of Cash Net cash flows provided by (used in) operating activities Net cash flows provided by (used in) investing activities Net cash flows provided by (used in) financing activities Change in cash and cash equivalents For the three months ended December 31, 2017 55,798 $ (57,524) 1,988 2018 (20,842) $ 58,274 (37,152) 280 $ 262 $ $ $ For the year ended December 31, 2017 114,570 (81,504) (31,090) 1,976 2018 (97,142) $ 93,703 42,324 38,885 $ In the three and twelve months ended December 31, 2018, the Company had cash outflows from operating activities of $20.8 million and $97.1 million, respectively, primarily due to development spend for land and condominium inventory, offset by land sales activity in the fourth quarter of 2018. In the year ended December 31, 2018, there were cash flows from investing activities of $58.3 million and $93.7 million, respectively, mainly related to cash acquired through the business combination of Dream Alternatives and proceeds on the disposition of assets, offset by acquisitions and additions to investment properties. For the three months ended December 31, 2018, the Company had net cash outflows from financing activities of $37.2 million primarily due to repayments of mortgages and term debt facilities as well as shares purchased under the normal course issuer bid. For the year ended December 31, 2018, the Company had net cash flows from financing activities of $42.3 million primarily due to advances on corporate and project-level debt facilities, partially offset by repayments and activity under the Company's normal course issuer bid in the period. For more information, refer to the statement of cash flows in the consolidated financial statements for the year ended December 31, 2018. Cash Requirements The nature of the real estate business is such that we require capital to fund non-discretionary expenditures with respect to existing assets, as well as to fund growth through acquisitions and developments. As at December 31, 2018, we had $64.3 million, or $17.4 million on a Dream standalone basis, in cash and cash equivalents (December 31, 2017 – $25.4 million). Our intention is to meet short-term liquidity requirements through cash from operating activities, working capital reserves and operating debt facilities. In addition, we anticipate that cash from operations and recurring income will continue to provide the cash necessary to fund operating expenses and debt service requirements. Dream Unlimited Corp. – December 31, 2018 | 28 Contractual Obligations Our liquidity is impacted by contractual debt commitments and other expenditures required to satisfy our financial liabilities as follows: Financial liabilities(1) Accounts payable and accrued liabilities(2) Project-specific debt(3),(4) Corporate debt facilities(3),(4) Preference shares, series 1 Commitments Leases and other commitments Land and other purchase agreements $ $ $ 2019 2020 2021 2022 2023 2024 and thereafter Total 99,251 $ 154,248 149,000 28,681 431,180 $ 6,786 $ 85,984 — — 92,770 $ — $ 78,511 225,000 — 303,511 $ — $ 80,730 — — 80,730 $ — $ 6,851 $ 112,888 6,089 — — 6,089 $ 108,870 — — 115,721 $ 514,432 374,000 28,681 1,030,001 5,650 $ 3,223 440,053 $ 8,769 $ — 3,301 $ — 2,568 $ — 83,298 $ 1,938 $ — 8,027 $ 15,421 $ — 37,647 3,223 1,070,871 306,812 $ (1) This table excludes customer deposits of $37.2 million, as the timing of the related obligation is not determinable. (2) Amounts exclude deferred revenues and Dream Alternatives' deferred unit incentive plan, which are not considered financial instruments, and a lease obligation, which is included in the commitments 131,142 $ 101,539 $ $ section of this table. (3) The amounts presented are shown consistent with the contractual terms of repayment, which may be due on demand. (4) Amounts exclude deferred financing costs of $0.6 million within project-specific debt and $1.0 million within corporate debt facilities. Debt and Preference Shares As at December 31, 2018, total debt was $916.3 million (December 31, 2017 – $616.9 million), which included $28.7 million of Preference shares, series 1 (December 31, 2017 – $28.7 million). A breakdown of project-specific debt, corporate debt facilities and Preference shares, series 1, is detailed in the table below. Project-Specific Debt (in thousands of Canadian dollars) Balance, January 1, 2018 Borrowings Repayments Assumed through business combination (Note 5) Interest and other Balance, December 31, 2018 Weighted average interest rates Corporate Debt Facilities (in thousands of Canadian dollars) Balance, January 1, 2018 Borrowings Repayments Interest and other Balance, December 31, 2018 Weighted average interest rates $ $ $ $ Construction loans - Western Canada Construction loans - Urban development - Toronto & Ottawa $ 98,706 62,642 (99,927) — — 61,421 $ 4.05% Mortgages and term debt - Dream $ 116,824 $ 69,489 (51,378) — 2,279 64,697 73,090 (21,260) — 38 116,565 $ 4.63% 137,214 $ 4.45% Mortgages and term debt - Dream Alternatives — $ — (4,664) 203,967 77 199,380 $ 3.79% Operating line - Dream(1) Non-revolving term facility(2) 93,225 $ 174,799 $ Operating line - Dream Alternatives Preference shares, series 1 $ — $ 28,668 $ Margin facility 40,000 75,000 (15,000) — 212,000 (257,000) 718 48,943 $ 4.48% 50,000 — (716) 224,083 $ 100,000 $ 4.36% 4.35% 35,000 (35,000) — — $ n/a — — 4 28,672 7.00% $ $ Total 280,227 205,221 (177,229) 203,967 2,394 514,580 4.20% Total 336,692 372,000 (307,000) 6 401,698 4.56% 916,278 Total real estate debt (project-specific and corporate debt) (1) Net of unamortized financing costs of $0.1 million as at December 31, 2018 (December 31, 2017 – $0.8 million). (2) Net of unamortized financing costs of $0.9 million as at December 31, 2018 (December 31, 2017 – $0.2 million). As at December 31, 2018, $216.9 million (December 31, 2017 – $61.6 million) of aggregate development loans and term debt (excluding unamortized financing costs and Preference shares, series 1) were subject to a fixed, weighted average interest rate of 4.30% (December 31, 2017 – 4.73%) and will mature between 2019 and 2025. A further $670.8 million (December 31, 2017 – $526.6 million) of real estate debt was subject to a weighted average variable interest rate of 4.29% (December 31, 2017 – 3.70%) and will mature between 2019 and 2023. Included within real estate debt is $132.6 million of variable debt that the Company has hedged through fixed interest rate swaps. Dream Unlimited Corp. – December 31, 2018 | 29 Operating Line - Dream The Company has established a revolving term credit facility (the “operating line”) available up to a formula-based maximum not to exceed $290.0 million with a syndicate of Canadian financial institutions, maturing on January 21, 2019. As at December 31, 2018, maximum funds available under this facility were $273.5 million, as determined by the formula-based maximum calculation, with $55.4 million of letters of credit issued against the facility. The operating line bears interest, at the Company’s option, at a rate per annum equal to either the bank’s prime lending rate plus 1.25% or at the bank’s then prevailing bankers’ acceptance rate plus 2.50%. The operating line is secured by a general security agreement and a first charge against various real estate assets in Western Canada. Interest expense relating to the operating line for the three and twelve months ended December 31, 2018 was $1.0 million and $4.3 million (three and twelve months ended December 31, 2017 – $1.5 million and $5.1 million). At December 31, 2018, $49.0 million was drawn under the Company’s operating line. The Company had $55.4 million of outstanding letters of credit, leaving an undrawn credit capacity of up to $169.1 million. Subsequent to December 31, 2018, the Company amended its operating line, extending the maturity date to January 31, 2021 and revising certain covenants of DAM. Non-Revolving Term Facility In the year ended December 31, 2018, the Company amended its $175.0 million non-revolving term facility with a syndicate of Canadian financial institutions, increasing the borrowing capacity on the facility to $225.0 million and extending the maturity date to February 28, 2021. The non-revolving term facility bears interest, at the Company’s option, at a rate per annum equal to either the bank’s prime lending rate plus 1.50% or at the bank’s then prevailing bankers’ acceptance rate plus 2.75%. The facility is secured by a general security agreement and a first charge against various real estate assets and other financial assets of the Company. In the year ended December 31, 2018, the Company entered into an interest rate swap to effectively exchange the variable interest rate on $125.0 million of the $225.0 million non-revolving term facility for a fixed rate of 5.20% per annum through the use of forward-purchase contracts that mature on February 28, 2021. Subsequent to December 31, 2018, the Company amended ts non-revolving term facility, extending the maturity date to February 28, 2022 and revising certain covenants of DAM. Margin Facility In the year ended December 31, 2017, the Company entered into a $40.0 million revolving margin facility. The loan is due on demand and bears interest, at the Company's option, at a rate per annum equal to either the bank's prime lending rate plus 1.25% or the bank's then prevailing bankers' acceptance rate plus 2.50%. In the year ended December 31, 2018, the Company amended its margin facility to allow borrowings up to a maximum of $110.0 million by pledging additional security. As at December 31, 2018, $100.0 million was drawn on the facility, leaving an undrawn credit capacity of $10.0 million as of December 31, 2018. Operating Line - Dream Alternatives Dream Alternatives has a revolving term credit facility (the "Dream Alternatives operating line") available up to a formula-based maximum not to exceed $50.0 million, with a Canadian financial institution maturing on July 31, 2019. As at December 31, 2018, funds available under this facility were $39.4 million, as determined by a formula-based maximum calculation. The Dream Alternatives operating line bears interest, at the Company’s option, at a rate per annum equal to either the bank’s prime lending rate plus 1.0% or at the bank’s then prevailing bankers’ acceptance rate plus 2.0%. The Dream Alternatives operating line is secured by a general security agreement over certain Dream Alternatives subsidiaries. As at December 31, 2018, no funds were drawn on the revolving credit facility and funds available under this facility were $38.0 million, net of $1.4 million of letters of credit issued against the facility. Preference Shares, Series 1 The Preference shares, series 1, may be redeemed, at the option of Dream, at any time, at a price of $7.16 per share. The Preference shares, series 1, are redeemable by the holders at any time, at $7.16 per share. As at February 25, 2019, there were 4,005,729 Preference shares, series 1, issued and outstanding. Shareholders’ Equity Dream is authorized to issue an unlimited number of Dream Class A subordinate voting shares (the “Subordinate Voting Shares”) and an unlimited number of Dream Class B common shares (“Class B Shares”). As at December 31, 2018, there were 104,215,841 Subordinate Voting Shares and 3,115,164 Class B Shares outstanding (December 31, 2017 - 106,120,323 Subordinate Voting Shares and 3,115,299 Class B Shares). Subsequent to December 31, 2018, as part of our long-term strategy to maximize shareholder value, the Company's dividend policy was approved. In 2019, the Company will pay an annual dividend of $0.10 per Subordinate Voting Share and Class B Share, payable quarterly. The first dividends will be paid on March 29, 2019 to shareholders of record on March 15, 2019. Dream Unlimited Corp. – December 31, 2018 | 30 Normal Course Issuer Bid In the three and twelve months ended December 31, 2018, 0.8 million Subordinate Voting Shares were purchased for cancellation by the Company for $5.6 million at an average price of $7.26 and 1.9 million were purchased for cancellation by the Company for $16.0 million at an average price of $8.31, respectively, under the Company's NCIB (year ended December 31, 2017 – 3.2 million Subordinate Voting Shares for $22.2 million at an average price of $6.84). Under Dream's current NCIB, which commenced on September 20, 2018, Dream has the ability to purchase for cancellation up to a maximum number of 7.1 million Subordinate Voting Shares through the facilities of the TSX at prevailing market prices and in accordance with the rules and policies of the TSX. The actual number of Subordinate Voting Shares that may be purchased and the timing of any such purchases as determined by Dream, are subject to a maximum daily purchase limitation of 15,925 shares, except where purchases are made in accordance with block purchase exemptions under applicable TSX rules. In connection with the renewal of the NCIB, the Company established an automatic securities purchase plan (the “Plan”) with its designated broker to facilitate the purchase of Subordinate Voting Shares under the NCIB at times when the Company would ordinarily not be permitted to purchase its Subordinate Voting Shares due to regulatory restrictions or self-imposed blackout periods. Purchases will be made by the Company's broker based upon the parameters prescribed by the TSX and the terms of the parties’ written agreement. Outside of such restricted or blackout periods, the Subordinate Voting Shares may also be purchased in accordance with management’s discretion. The Plan was pre-cleared by the TSX and will terminate on September 19, 2019. Subsequent to December 31, 2018, 0.2 million Subordinate Voting Shares were purchased for cancellation by the Company for $1.5 million. As at February 25, 2019, there were 103,994,241 Subordinate Voting Shares and 3,115,164 Class B Shares issued and outstanding. Transactions with Non-Controlling Interest Prior to May 2017, SDC, an entity wholly owned by the President and CRO of DAM and Dream, owned a non-controlling interest in DAM. In May 2017, DAM received an exchange notice from SDC pursuant to the Exchange Agreement dated May 30, 2013 among Dream, DAM and SDC, exercising SDC’s right to receive 31,533,682 newly issued Subordinate Voting Shares of Dream, representing approximately 30% of the post-issuance outstanding Subordinate Voting Shares, in consideration for the transfer of 261.52 non-voting common shares and Class C voting preference shares of DAM, representing approximately 30% of the outstanding non-voting common shares and Class C voting preference shares. Upon completion of the exchange, Dream owned 100% of the outstanding non- voting common shares and Class C voting preference shares of DAM, thus simplifying the corporate structure. Including the Subordinate Voting Shares of Dream and Class B Shares held or controlled directly or indirectly, the President and CRO owned an approximate 34% economic interest and 83% voting interest in the Company as at December 31, 2018. Off Balance Sheet Arrangements We conduct our real estate activities from time to time through joint arrangements with third-party partners. As at December 31, 2018, we were contingently liable for the obligations of the other owners of the unincorporated joint operations and unincorporated joint ventures in the amount of $15.6 million (December 31, 2017 – $17.0 million). We have available to us other venturers’ shares of assets to satisfy the obligations, if any, that may arise. Commitments and Contingencies Dream and its operating subsidiaries may become liable under guarantees that are issued in the normal course of business and with respect to litigation and claims that arise from time to time. In the opinion of management, any liability that may arise from such contingencies would not have a material adverse effect on the consolidated financial statements of Dream. As part of our various agreements to purchase land, we have remaining commitments totalling $3.2 million as at December 31, 2018 (December 31, 2017 – $1.1 million), which will become payable in future periods upon the satisfaction of certain conditions pursuant to such agreements. Levies relating to signed municipal agreements received by Dream as at December 31, 2018 may result in future obligations totalling $1.3 million (December 31, 2017 – $2.2 million). The Company is contingently liable for letters of credit and surety bonds that have been provided to support land developments, equity accounted investments and other activities in the amount of $91.7 million (December 31, 2017 – $87.9 million). The Company is also contingently liable for bonds that have been provided to support certain urban development condominium partnerships that expire at the end of a specified warranty period. Additionally, the Company may be required to fund future capital calls relating to its investments in joint arrangements, associates and other investment holdings, in line with the development progression of these projects and dependent on the achievement of certain milestones. Management expects to fund any such capital requirements through cash flows from operations, capital recycling and undrawn credit available on an as needed basis. Management is aware of a legal matter relating to a development project and intends to vigorously defend the matter. A statement of claim was originally filed by the plaintiff against the Company and others in 2013, and the Company and the other defendants successfully brought a motion to strike the claim in December 2014. In April 2016, the Company was served with an amended statement of claim. Management continues to believe that this amended claim is without merit and that this action will not have a material adverse effect on the financial condition, results of operations or cash flows of the Company. A reasonable estimate of the possible loss or range of loss cannot be made at this time. We are contingently liable with respect to other litigation and claims that may arise from time to time. In the opinion of management, any liability that may arise from such contingencies would not have a material adverse effect on our consolidated financial statements. Dream Unlimited Corp. – December 31, 2018 | 31 Dream Alternatives During the year ended December 31, 2018, the Company, through a subsidiary of Dream Alternatives, continued to provide a guarantee for up to $45.0 million pursuant to the requirements of a senior construction loan associated with the Empire Lakeshore residential project. The guarantee will be in place for the term of the construction loan and will proportionately scale down as the construction loan is repaid as unit closings begin to occur. Guarantees of the other underlying development project loan amounts of third parties are $7.5 million. As at December 31, 2018, the Company is contingently liable under guarantees that are issued on certain debt assumed by purchasers of income properties up to an amount of $44.2 million. A subsidiary of Dream Alternatives is contingently liable for letters of credit in the amount of $1.4 million that have been provided to support third party performance. The Company may also be contingently liable for certain obligations of joint venture partners. However, the Company would have available to it the other joint venture partners' share of assets to satisfy any obligations that may arise. Transactions with Related Parties The Company has agreements for services and transactions with related parties, which are outlined in Note 41 of our consolidated financial statements for the year ended December 31, 2018. Critical Accounting Estimates A detailed summary of the significant judgments and estimates made by management in the preparation and analysis of our financial results is included in Note 4 of our consolidated financial statements for the year ended December 31, 2018. The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities. Critical accounting estimates represent estimates made by management that are, by their very nature, uncertain. We evaluate our estimates on an ongoing basis. Such estimates are based on historical experience and on various other assumptions that we believe are reasonable under the circumstances, and these estimates form the basis for making judgments about the carrying value of assets and liabilities and the reported amount of revenues and expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The following discusses the most significant accounting judgments, estimates and assumptions that the Company has made in the preparation of its consolidated financial statements. Joint Arrangements and Associates The Company holds investments in various assets, and its ownership interest in these investments is established through diverse structures. Significant judgment is applied in assessing whether the investment structure results in control, joint control or significant influence over the operations of the investment, or whether the Company’s investment is passive in nature. The assessment of whether the Company exerts control, joint control or significant influence over an investment will determine the accounting treatment for the investment. In making this assessment, the Company considers its ownership interest in the investment as well as its decision-making authority with regard to the operating, financing and investing activities of the investment as specified in the contractual terms of the arrangement. The Company also considers any agreements with the investee that expose the Company to variable returns from its involvement with the investee. Joint arrangements that involve the establishment of a separate entity in which each venture has an interest are set up as joint ventures, whereas investments in associates are those investments over which the Company has significant influence but no control. Business Combinations and Goodwill The Company uses significant judgment to conclude whether an acquired set of activities and assets is a business, and such judgment can lead to significantly different accounting results. If an acquired set of activities and assets does not meet the definition of a business, the transaction is accounted for as an asset acquisition. There are many differences in accounting for a business combination versus an asset acquisition, including the recognition of goodwill and deferred tax amounts, the initial measurement of assets and accounting for transaction costs. These differences not only affect the accounting as at the acquisition date, but will also affect future depreciation and possible impairment analysis. Accordingly, the conclusion as to whether a business has been acquired can have a significant effect on the Company’s reported financial position and results of operations. Significant judgment is required in applying the acquisition method of accounting for business combinations and, specifically, in identifying and determining the fair value of assets and liabilities acquired, including intangible assets and residual goodwill, if any. The Company’s goodwill balance is allocated to the particular cash generating unit ("CGU") to which it relates (herein referred to as the “goodwill CGU”). The recoverable amount of the Company’s goodwill CGU is determined based on the fair value less costs of disposal approach. Refer to Note 17 of the consolidated financial statements for the year ended December 31, 2018 for further details. Consolidation In determining if an entity is a subsidiary of the Company, the Company makes significant judgments about whether it has power and control over such an entity. In addition to voting rights, the Company considers the contractual rights and obligations arising from other arrangements, and other relevant factors relating to an entity in determining if the Company has the power and ability to affect returns from an investee. The contractual rights and obligations considered by the Company include, among others, the approvals and decision-making process over significant operating, financing and investing activities, the responsibilities and scope of decision-making power of the Company, the termination provisions of applicable agreements, the types and determination of fees paid to the Company and the significance, if any, of any investment made by the Company. The Company reviews its prior conclusions when facts and circumstances change. Dream Unlimited Corp. – December 31, 2018 | 32 Net Realizable Value Land, including land under development and land held for development, as well as housing and condominium inventory, are stated at the lower of cost and net realizable value. In calculating net realizable value, management must estimate the selling price of these assets based on prevailing market prices at the dates of the consolidated statements of financial position, discounted for the time value of money, if material, less estimated costs of completion and estimated selling costs. If estimates are significantly different from actual results, the carrying amounts of these assets may be overstated or understated on the consolidated statements of financial position and, accordingly, earnings in a particular period may be overstated or understated. Provisions Provisions are recorded by the Company when it has determined it has a present obligation, whether legal or constructive, and it is probable that an outflow of resources will be required to settle the obligation, provided a reliable estimate can be made of the amount of the obligation. Management must use judgment in assessing the magnitude and timing of the potential economic exposure and the likelihood of a future event occurring. Actual results may differ significantly from those estimates. The consolidated financial statements include a significant provision for costs to complete land, housing and condominium projects. The stage of completion of any development project, and the remaining costs to be incurred, are determined by management, considering relevant available information at each reporting date. In making such determination, management makes significant judgments about milestones, actual work performed and the estimates of costs to complete the work. Fair Value of Investment Holdings and Participating Mortgages Critical judgments are made in determining the fair value of investment holdings and participating mortgages. The fair values of these investments are reviewed regularly by the Company with reference to the applicable local market conditions and in discussion with the development’s construction management company. The Company makes judgments with respect to the completion dates of the developments, and the leasing and management cost assumptions for the buildings and/or unit sales in order to determine the Company’s interest and participating income. Generally, the investment holdings and participating mortgages are valued using a number of approaches that typically include a discounted cash flow analysis, direct capitalization approach and direct comparison approach. The discounted cash flow model is calculated based on future interest and participating profit payments as determined by the Company and project managers’ estimates of unit sales proceeds and/or net operating income of the development properties. With the direct capitalization rate method, the fair value is determined by applying a capitalization rate to stabilized net operating income. Each investment is subject to an appraisal by an independent valuator at least once every three years, if not earlier. Critical judgments are made in respect of the fair values of co-owned commercial assets. Assumptions related to the estimates of fair values of these investment holdings include discount rates that reflect current market uncertainties, capitalization rates and recent investment holding transaction prices, if any. If there is any change in these assumptions or regional, national or international economic conditions, the fair value of investment holdings may change materially. Fair Value of Investment Properties Critical judgments are made in respect of the fair values of investment properties and the investment properties held in equity accounted investments. Assumptions relating to the estimates of fair values of investment properties include the receipt of contractual rents, expected future market rents, renewal rates, maintenance requirements, discount rates that reflect current market uncertainties, capitalization rates and current and recent investment property transaction prices, if any. If there is any change in these assumptions or regional, national or international economic conditions, the fair value of investment properties may change materially. On a rotational basis, the Company engages independent, professionally qualified appraisers who are experienced, nationally recognized and qualified in the professional valuation of real estate in their respective geographic areas. Judgment is applied in determining the extent and frequency of independent appraisals. A select number of properties are valued by an independent appraiser on a rotational basis at least once every three years. For properties subject to an independent valuation report, management verifies all major inputs to the valuation and reviews the results with the independent appraisers. Fair Value of Development Investment Properties Fair value measurement of an investment property under development is applied only if the fair value is considered to be reliably measurable. Under specific circumstances, investment properties under development may be carried at cost until their fair value becomes reliably measurable. It may sometimes be difficult to determine reliably the fair value of investment properties under development. In order to evaluate whether the fair value of an investment property under development can be determined reliably, management considers various factors, including the terms of the construction contract, the stage of completion, the location, type and quality of the property, expected completion dates, current market rents for similar properties, the level of reliability of cash inflows after completion, the development risks specific to the property, past experience with similar constructions, status of approvals and/or permits, estimated costs to complete and market conditions. Impairment of Non-Financial Assets Recreational properties, renewable power assets, capital assets and intangible assets with finite lives are tested for impairment whenever events or changes in circumstances indicate the carrying amounts may not be recoverable. Intangible assets with indefinite lives are tested at least annually. Management uses judgment in performing this impairment test. Imprecision in any of the assumptions and estimates used could affect the valuation of these assets and the assessment of performance. IAS 36, "Impairment of Assets", requires management to use judgment in determining the recoverable amount of assets tested for impairment. Judgment is involved in estimating the fair value less the cost to sell or value-in-use of the CGUs, including estimates of growth rates, discount rates and terminal rates. The values assigned to these key assumptions reflect past experience and are consistent with external sources of information. Dream Unlimited Corp. – December 31, 2018 | 33 Income Taxes The determination of the Company’s income and other tax liabilities requires interpretation of complex laws and regulations, often involving multiple jurisdictions. Judgment is required in determining whether deferred income tax assets should be recognized on the consolidated statements of financial position. Deferred income tax assets are recognized to the extent the Company believes it is probable that the assets can be recovered. Furthermore, deferred income tax balances are recorded using enacted or substantively enacted future income tax rates. Changes in enacted income tax rates are not within the control of management. However, any such changes in income tax rates may result in actual income tax amounts that may differ significantly from estimates recorded in deferred tax balances. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Fair Value and Impairment of Financial Instruments Certain financial instruments are recorded in the Company’s consolidated statements of financial position at values that are representative of or approximate fair value. The fair value of a financial instrument that is traded in active markets at each reporting date is determined by reference to its quoted market price or dealer price quotations. The fair value of co-owned commercial assets is based on the fair value of the Company's proportionate net assets of the underlying investment. IFRS 9 requires management to use judgment in determining if the Company's financial assets are impaired. The Company's financial assets are subject to the expected credit loss model whereby the Company estimates on a forward looking basis possible default scenarios and establishes a provision matrix that considers various factors including industry and sector performance, economic and technological changes and other external market indicators. The fair value of certain other financial instruments is determined using valuation techniques. By their nature, these valuation techniques require the use of assumptions. Changes in the underlying assumptions could materially impact the determination of the fair value of a financial instrument. Imprecision in determining fair value using valuation techniques may affect the amount of earnings recorded in a particular period. The Company classifies the fair value of its financial instruments according to the following hierarchy, which is based on the amount of observable inputs used to value the instrument: Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets; Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument; and Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement. Fair Value of Hedging Instruments and Effectiveness Critical judgments are made in respect of assumptions used to estimate the fair value of hedging instruments and to assess the effectiveness of the hedging arrangement. The basis of valuation and assessment of effectiveness for the Company's derivatives is set out in Notes 21 and 22 of the Company's consolidated financial statements; however, the fair values reported may differ from how they are ultimately recognized if there is volatility in interest rates between the valuation date and settlement date. Transfer of Inventory to Development Investment Properties Raw land is usually unentitled property without the regulatory approvals that allow the construction of residential, industrial, commercial and mixed-use developments. When development plans are formulated, the Company may decide that specific land holdings will be developed into investment properties. Once appropriate evidence of a change in use is established, the land is transferred to investment properties. This also applies to multi-family rental properties, which are transferred to investment properties from condominium inventory. Internal Control over Financial Reporting As at the December 31, 2018 financial year-end, the President and Chief Responsible Officer and the Chief Financial Officer (the "Certifying Officers"), along with the assistance of senior management, have evaluated the design and effectiveness of the Company’s disclosure controls and procedures (“DC&P”), as defined in National Instrument 52-109, “Certification of Disclosure in Issuers’ Annual and Interim Filings” (“NI 52-109”). Based on that evaluation, the Certifying Officers have concluded that, as at December 31, 2018, the DC&P are adequate and effective in order to provide reasonable assurance that material information has been accumulated and communicated to management, to allow timely decisions of required disclosures by the Company and its consolidated subsidiary entities, within the required time periods. The Company’s internal control over financial reporting (“ICFR”) (as defined by NI 52-109) is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with IFRS. Using the framework established in “2013 Committee of Sponsoring Organizations (COSO) Internal Control Framework”, published by the Committee of Sponsoring Organizations of the Treadway Commission, the Certifying Officers, together with other members of management, have evaluated the design and operation of the Company’s ICFR. Based on that evaluation, the Certifying Officers have concluded that the Company’s ICFR was effective as at December 31, 2018. Dream Unlimited Corp. – December 31, 2018 | 34 There were no changes in the Company’s ICFR in the year ended December 31, 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting. Accounting Standards Adopted During the Period The Company has adopted the following new or revised standards, including any consequential amendments thereto, for the period effective January 1, 2018. Changes in accounting policies adopted by the Company were made in accordance with the applicable transitional provisions as provided in those standards and amendments. As required by IAS 8, "Accounting Policies, Changes in Accounting Estimates and Errors", the nature and the effect of these changes are disclosed below and in Note 46 of the Company's consolidated financial statements. IFRS 2, “Share-Based Payments” (“IFRS 2”) IFRS 2 clarifies how to account for certain types of share-based payment transactions. It was amended to address: (i) certain issues related to the accounting for cash settled awards; and (ii) the accounting for equity settled awards that include a "net settlement" feature in respect of employee withholding taxes. The amendments to IFRS 2 are effective for years beginning on or after January 1, 2018. The adoption of the amendments to IFRS 2 did not have a material impact on the Company's consolidated financial statements. IFRS 7, “Financial Instruments – Disclosure” (“IFRS 7”) IFRS 7 requires entities to provide disclosures in their financial statements that enable users to evaluate the significance of financial instruments and the nature and extent of risks arising from financial instruments to which an entity is exposed and how the entity manages those risks. It was amended to: (i) add guidance on whether an arrangement to service a financial asset that has been transferred constitutes continuing involvement; and (ii) clarify that the additional disclosure required by the amendments to IFRS 7 is not specifically required for interim periods, unless required by IAS 34. The amendments to IFRS 7 are effective for annual periods beginning on or after January 1, 2018. Expanded disclosures required by IFRS 7 are included in Note 36 of the Company's consolidated financial statements. IFRS 9, “Financial Instruments” (“IFRS 9”) IFRS 9 establishes principles for the financial reporting of financial assets and financial liabilities where the final version of IFRS 9 was issued in July 2014 and includes: (i) a third measurement category for financial assets (fair value through other comprehensive income ("OCI")); (ii) a single, forward-looking “expected loss” impairment model; (iii) a substantially reformed approach to hedge accounting; and (iv) a mandatory effective date of annual periods beginning on or after January 1, 2018. The impact of changes due to the adoption of IFRS 9 is included in Note 46 of the Company's consolidated financial statements for the year ended December 31, 2018. IFRS 15, “Revenue from Contracts with Customers” (“IFRS 15”) IFRS 15 specifies how and when revenue should be recognized, in addition to requiring more informative and relevant disclosures. The IFRS 15 revenue recognition model requires management to exercise significant judgment and make estimates that affect revenue recognition. This standard supersedes IAS 18, “Revenue”, IAS 11, “Construction Contracts”, and a number of revenue related interpretations. IFRS 15 must be applied for periods beginning on or after January 1, 2018, with early application permitted. Expanded disclosures required by IFRS 15 are included in Note 29 and the impact of changes due to the adoption of IFRS 15 is included in Note 46 of the Company's consolidated financial statements for the year ended December 31, 2018. IAS 40, “Investment Property” (“IAS 40”) IAS 40 clarifies the principles for transfers into, or out of, investment property when there has been a change in use. The Company has applied the amendments prospectively in accordance with the transitional provisions. The Company has assessed the impact of the amendment on the classification of existing property at January 1, 2018 and has concluded that no reclassifications are required and the timing of subsequent transfers is not expected to change on adoption of the amendment. As such, there is no impact to the consolidated financial statements on application of the amendment. Future Accounting Standards Standards issued but not yet effective up to the date of issuance of the Company's consolidated financial statements that are likely to have an impact on the Company are listed below. IFRS 3, "Business Combinations" ("IFRS 3") IFRS 3 clarifies that when an entity obtains control of a business that is a joint operation, it applies the requirements for a business combination achieved in stages, including remeasuring previously held interest in the assets and liabilities of the joint operation at fair value. The amendments to IFRS 3 are effective for annual periods beginning on or after January 1, 2019, with early application permitted. These amendments will apply to the Company's future business combinations. IFRS 16, “Leases” (“IFRS 16”) IFRS 16 sets out the principles for the recognition, measurement and disclosure of leases. IFRS 16 provides revised guidance on identifying a lease and for separating lease and non-lease components of a contract. IFRS 16 introduces a single accounting model for all lessees and requires a lessee to recognize right- of-use assets and lease liabilities for leases with terms of more than 12 months, unless the underlying asset is of low value. Under IFRS 16, lessor accounting for operating and finance leases will remain substantially unchanged. IFRS 16 is effective for annual periods beginning on or after January 1, 2019, with earlier application permitted for entities that apply IFRS 15. The Company has not early adopted IFRS 16. The Company is in the process of completing its in-depth assessment of IFRS 16 and the impact to the Company's consolidated financial statements. The Company's preliminary assessment has identified certain leases Dream Unlimited Corp. – December 31, 2018 | 35 within Western Canada and Dream Alternatives' renewable power portfolio that will be impacted by the implementation of IFRS 16, which would result in those leases with terms more than 12 months to be included on-balance sheet by recognizing a "right-of-use" asset and its related lease liability at the commencement of the lease. The impact to the Company's consolidated financial statements will be approximately $17.8 million in right of use assets and lease liabilities as at January 1, 2019. IFRIC 23, “Uncertainty over Income Tax Treatments” (“IFRIC 23”) IFRIC 23 clarifies the application of the recognition and measurement requirements in IAS 12, “Income Taxes” (“IAS 12”), for situations where there is uncertainty over income tax treatments. IFRIC 23 specifically addresses whether an entity considers income tax treatments separately; assumptions that an entity makes regarding the examination of tax treatments by taxation authorities; how an entity determines taxable income or loss, tax bases, unused tax losses or credits, and tax rates; and how an entity considers changes in facts and circumstances. IFRIC 23 does not apply to taxes or levies outside the scope of IAS 12. IFRIC 23 is effective for annual periods beginning on or after January 1, 2019. The Company does not expect a significant impact to the consolidated financial statements. Financial Instruments A detailed discussion of our strategy and risk management in respect of financial instruments is provided in Note 36 of the consolidated financial statements for the year ended December 31, 2018. Risk Factors We are exposed to various risks and uncertainties, many of which are beyond our control and could have an impact on our business, financial condition, operating results and prospects. Shareholders should consider those risks and uncertainties when assessing our outlook in terms of investment potential. For a discussion of the risks and uncertainties identified by the Company, please refer to the consolidated financial statements and our most recent Annual Information Form filed on SEDAR (www.sedar.com). Ownership of Real Estate Development Risk The development industry is cyclical in nature and is significantly affected by changes in general and local economic and industry conditions, such as employment levels, availability of financing for homebuyers, government regulations, interest rates, consumer confidence, levels of new and existing homes for sale, demographic trends, housing demand and competition from other real estate companies. An oversupply of alternatives to new homes and condominium units, such as resale properties, including properties held for sale by investors and speculators, foreclosed homes and rental properties, may reduce the Company's ability to sell new homes and condominium units and may depress prices and reduce margins from the sale of new homes and condominium units. Depending on market conditions, the Company may not be able, or may not wish, to develop its land holdings. Development of land holdings and properties that are to be constructed are subject to a variety of risks, not all of which are within the Company's control. Such risks include lack of funding, variability in development costs and unforeseeable delays. Real estate assets, particularly raw land, are relatively illiquid in down markets. Such illiquidity tends to limit the Company's ability to vary its real estate portfolio promptly in response to changing economic or investment conditions. If there are significant adverse changes in economic or real estate market conditions, the Company may have to sell properties at a loss or hold undeveloped land or developed properties in inventory longer than planned. Inventory carrying costs can be significant and may result in losses in a poorly performing project or market. Delays and Cost Over-runs Delays and cost over-runs may occur in completing the construction of development projects, prospective projects and future projects that may be undertaken. A number of factors that could cause such delays or cost over-runs include, but are not limited to, permitting delays, changing engineering and design requirements, the performance of contractors, labour disruptions, adverse weather conditions and the availability of financing. Supply of Materials and Services The construction industry has from time to time experienced significant difficulties in the supply of materials and services, including with respect to shortages of skilled and experienced contractors and tradespeople, labour disputes, shortages of building materials, unforeseen environmental and engineering problems, and increases in the cost of certain materials. If any of these difficulties should occur, we may experience delays and increased costs in the construction of homes and condominiums. Competition The residential home and condominium building industry is highly competitive. Residential home and condominium builders compete for buyers, desirable properties, building materials, labour and capital. We compete with other local, regional and national homebuilders. Any improvement in the cost structure or service of these competitors will increase the competition we face. We also compete with sellers of existing homes, housing speculators and investors in rental housing. Competitive conditions in the homebuilding industry could result in: difficulty in acquiring desirable land at acceptable prices, increased selling incentives, lower sales volumes and prices, lower profit margins, impairments in the value of our inventory and other assets, increased construction costs and delays in construction. Our ability to successfully expand asset management activities in the future is dependent on our reputation with clients. We believe that our track record, the expertise of our asset management team and the performance of the assets currently under management will enable us to continue to develop productive Dream Unlimited Corp. – December 31, 2018 | 36 relationships with these companies and to grow the assets under management. However, if we are not successful in doing so, our business and results of operations may be adversely affected. Joint Venture Risks Real estate investments are often made as joint ventures or partnerships with third parties. These structures involve certain additional risks, including the possibility that the co-venturers/partners may, at any time, have economic or business interests inconsistent with ours, the risk that such co-venturers/partners could experience financial difficulties that could result in additional financial demands on us to maintain and operate such properties or repay debt in respect of such properties, and the need to obtain the co-venturers’/partners’ consents with respect to certain major decisions in respect of such properties. We attempt to mitigate these risks by performing due diligence procedures on potential partners and contractual arrangements, and by closely monitoring and supervising the joint venture or partnership. Geographic Concentration Our land development and housing operations are concentrated in Saskatchewan and Alberta. Some or both of these regions could be affected by severe weather; natural disasters; shortages in the availability or increased costs of obtaining land, equipment, labour or building supplies; changes to the population growth rates and therefore the demand for homes in these regions; and changes in the regulatory and fiscal environment. Due to the concentrated nature of our expected land development and housing operations, negative factors affecting one or a number of these geographic regions at the same time could result in a greater impact on our financial condition or results of operations than they might have on other companies that have a more diversified portfolio of operations. Given the prominence of the oil and gas industry in Alberta and Saskatchewan, the economies of these provinces can be significantly impacted by the price of oil. Similarly, because of our substantial land and housing development operations in Alberta and Saskatchewan, any substantial decline in the price of oil could also adversely affect the Company's operating results. We continuously evaluate the economic health of the markets in which we operate through various means to ensure that we have identified and, where possible, mitigated risks to the Company, including the potential impacts of changes in the price of oil. Additionally, the land development process is longer term in nature, which, to some extent, mitigates the impacts of short-term fluctuations in the health of the economies in which we operate. As of December 31, 2018, the Company had not identified any material adverse effect on our business as a result of the current softening of oil prices. Our Saskatchewan and Alberta operations have historically focused on the Company's land and housing businesses, as well as a golf course reported under our recreational properties. The Company has also recognized the potential of our substantial land holdings in these markets for retail and multi-family residential development opportunities, and we expect to continue to increase the activity for these types of developments in the future. Our retail developments utilize the Company’s existing land inventory to develop assets that will derive cash flows over a longer term. Similarly, a substantial portion of the projects of our Urban Development segment are located in and around the GTA and we have invested significantly in this region through both our Urban Development segment and our investment to Dream Office REIT, whose portfolio is concentrated in Toronto. Accordingly, any negative fluctuation in Toronto market fundamentals could result in a greater impact on our financial condition or results of operations than they might have on other companies that have a more diversified portfolio of operations. Risks Related to Master-Planned Communities Before a master-planned community generates any revenues, material expenditures are incurred to acquire land, obtain development approvals and construct significant portions of project infrastructure, amenities, model homes and sales facilities. It generally takes several periods for a master-planned community development to achieve cumulative positive cash flow. If we are unable to develop and market our master-planned communities successfully and generate positive cash flows from these operations in a timely manner, this may have a material adverse effect on our business and results of operations. Home Warranty and Construction Defect Claims As a homebuilder, we are subject to construction defect and home warranty claims arising in the ordinary course of our business. These claims are common in the homebuilding industry and can be costly. Where we act as the general contractor, we will be responsible for the performance of the entire contract, including work assigned to subcontractors. Claims may be asserted against us for construction defects, personal injury or property damage caused by the subcontractors, and if successful these claims give rise to liability. Where we hire a general contractor, if there are unforeseen events such as the bankruptcy of, or an uninsured or under-insured loss claimed against our general contractor, we will sometimes become responsible for the losses or other obligations of the general contractor. The costs of insuring against construction defect and product liability claims are high, and the amount of coverage offered by insurance companies may be limited. There can be no assurance that this coverage will not be further restricted and become more costly. If we are not able to obtain adequate insurance against these claims in the future, our business and results of operations may be adversely affected. Seasonality The nature of our land development and housing business is inherently seasonal as it depends on sales of specific projects dictated by the marketplace and the availability of buyers as well as weather-related delays. We have historically experienced, and we expect that we will continue to experience, variability in our results on a quarterly basis. We generally have more homes under construction, close more home sales and have greater revenues and operating income from our housing business in the second quarter of our fiscal period. Therefore, although new home contracts are obtained throughout the period, a significant portion of our home closings occur in the second fiscal quarter. Our revenues from our land and housing development business therefore may fluctuate significantly on a quarterly basis, and we must maintain sufficient liquidity to meet short-term operating requirements. Real Estate Ownership An investment in real estate is relatively illiquid. Such illiquidity tends to limit our ability to vary our commercial property portfolio promptly in response to changing economic or investment conditions. In recessionary times, it may be difficult to dispose of certain types of real estate. The costs of holding real estate Dream Unlimited Corp. – December 31, 2018 | 37 are considerable, and during an economic recession we may be faced with ongoing expenditures with a declining prospect of incoming receipts. In such circumstances, it may be necessary to dispose of properties at lower prices in order to generate sufficient cash for operations. Certain significant expenditures (e.g., property taxes, maintenance costs, mortgage payments, insurance costs and related charges) must be made regardless of whether or not a property is producing sufficient income to pay such expenses. In order to retain desirable rentable space and to generate adequate revenue over the long term, properties must be maintained or, in some cases, improved to meet market demand. Maintaining a rental property in accordance with market standards can entail significant costs, which may not be able to be passed on to tenants. Numerous factors, including the age of the relevant building structure, the material and substances used at the time of construction, or currently unknown building code violations, could result in substantial unbudgeted costs for refurbishment or modernization. Any failure by us to ensure appropriate maintenance and refurbishment work is undertaken could materially adversely affect the rental income that we earn from such properties; for example, such a failure could entitle tenants to withhold or reduce rental payments or even terminate existing leases. Any such event could have an adverse effect on our cash flows, financial condition and results of operations. Rollover of Leases Revenue properties generate income through rent received from tenants. Upon the expiry of any lease, there can be no assurance that the lease will be renewed or the tenant replaced for a number of reasons. Furthermore, the terms of any subsequent lease may be less favourable than those of the existing lease. Our cash flows and financial position could be adversely affected if tenants were to become unable to meet their obligations under their leases or if a significant amount of available space in our revenue properties could not be leased on economically favourable lease terms. In the event of default by a tenant, we may experience delays or limitations in enforcing our rights as lessor and incur substantial costs in protecting our investment. In addition, at any time, a tenant may seek the protection of bankruptcy, insolvency or similar laws, which could result in the rejection and termination of the lease of the tenant and, thereby, cause a reduction in the cash flows available to us. Market Conditions Revenue properties are subject to economic and other factors affecting the real estate markets in the geographic areas where we own and manage properties. These factors include government policies, demographics and employment patterns, the affordability of rental properties, competitive leasing rates and long term interest and inflation rates. These factors may differ from those affecting the real estate markets in other regions. If real estate conditions in areas where these properties are located decline relative to real estate conditions in other regions, our cash flows and financial condition may be more adversely affected than those of companies that have more geographically diversified portfolios of properties. Residential Rental Business Risk The Company expects to be increasingly involved in mixed-use development projects that include residential rentals. Purchaser demand for residential rentals is cyclical and is affected by changes in general market and economic conditions, such as consumer confidence, employment levels, availability of financing for home buyers, interest rates, demographic trends, housing supply and housing demand. As a landlord in its properties that include rental apartments, the Company is subject to the risks inherent in the multi-unit residential rental business, including, but not limited to, fluctuations in occupancy levels, individual credit risk, heightened reputation risk, tenant privacy concerns, potential changes to rent control regulations, increases in operating costs including the costs of utilities and the imposition of new taxes or increased property taxes. Regulatory Risks The real estate development process is subject to a variety of laws and regulations. In particular, governmental authorities regulate such matters as zoning and permitted land uses, levels of density and building standards. We will have to continue to obtain approvals from various governmental authorities and comply with local, provincial and federal laws, including laws and regulations concerning the protection of the environment in connection with such development projects. Obtaining such approvals and complying with such laws and regulations may result in delays which may cause us to incur additional costs that impact the profitability of a development project, or may restrict development activity altogether with respect to a particular project. Environmental Risks As an owner of real estate property, we are subject to various federal, provincial and state laws relating to environmental matters. Such laws provide that we could be liable for the costs of removal and remediation of certain hazardous, toxic substances released on or in our properties or disposed of at other locations, as well as potentially significant penalties. We have insurance and other policies and procedures in place to review and monitor environmental exposure, which we believe mitigates these risks to an acceptable level. Some of the properties in which we have an interest currently have or have had occupants that use hazardous substances or create waste. Such uses can potentially create environmental liabilities. A few issues have been identified through site assessments, including the need to remediate or otherwise address certain contaminations. These issues are being carefully managed with the involvement of professional consultants. Where circumstances warrant, designated substance surveys and/or environmental assessments are conducted. Although environmental assessments provide some assurance, we may become liable for undetected pollution or other environmental hazards on our properties against which we cannot insure, or against which we may elect not to insure where premium costs are disproportionate to our perception of relative risk. We do not currently anticipate material expenditures in respect of any required remediation. Asset Management Risks Our ability to successfully expand our asset management activities is dependent on a number of factors, including certain factors that are outside our control. In the event that the asset base of our funds were to decline, our management fees could decline as well. In addition, we could experience losses on our investments of our own capital in our funds as a result of poor performance by our funds. Termination of an asset management agreement in accordance with its terms by any of our funds would also result in a decline in our management fees. Our ability to successfully expand asset management activities in the future is dependent on our reputation with clients. We believe that our track record, the expertise of our asset management team and the performance of the assets currently under management will enable us to continue to develop productive Dream Unlimited Corp. – December 31, 2018 | 38 relationships with these companies and to grow the assets under management. However, if we are not successful in doing so, our business and results of operations may be adversely affected. Our revenues from the advisory services division are dependent on agreements with a few key clients. Although we have long‑term, stable management contracts with clients that may only be terminated in limited circumstances, any such termination could have a material adverse effect on our revenue from management fees. Lending Portfolio and Investment Holdings Default Risk If a borrower under a loan defaults under any terms of the loan, we may have the ability to exercise our enforcement remedies in respect of the loan. Exercising enforcement remedies is a process that requires a significant amount of time to complete, which could adversely impact our cash flow. In addition, as a result of potential declines in real estate values, there is no assurance that we will be able to recover all or substantially all of the outstanding principal and interest owed to us in respect of such loans by exercising our enforcement remedies. Our inability to recover all or substantially all of the principal and interest owed to us in respect of such loans could materially adversely affect us. There can be no assurance that any of the loans comprising our borrowers' portfolio can or will be renewed at the same interest rates and terms, or in the same amounts as are currently in effect. The lenders, the borrowers or both may elect to not renew any loan. If loans are renewed, the principal balance, the interest rates and the other terms and conditions will be subject to negotiation between the lenders and the borrowers at the time of renewal. In addition, the composition of our lending portfolio may vary widely from time to time and may be concentrated by type of security, industry or geography, resulting in it being less diversified at some times than at other times. A lack of diversification may result in exposure to economic downturns or other events that have an adverse and disproportionate effect on particular types of securities, industries or geographies. Credit Risk There is a risk that a borrower or issuer of an investment security will not make a payment on debt or that an originating lender will not make its payment on a loan participation interest purchased by us or that an issuer or an investment security or an originating lender retaining the original loan in which it grants participations may suffer adverse changes in financial condition, lowering the credit quality of its security or participation and increasing the volatility of the security or participation price. Such changes in the credit quality of a security or participation can affect its liquidity and make it more difficult to sell if we wish to do so. In addition, with respect to loans made or held by us, a change in the financial condition of a borrower could have a negative financial impact on us. While we intend to diversify our investments to ensure that we do not have excessive concentration in any single borrower or counterparty, or related group of borrowers or counterparties, the Company currently holds various lending instruments and investments with the same counterparty or related counterparties within its lending portfolio and development and investment holdings portfolio. A change in the financial condition of a single borrower or counterparty or related group of borrowers or counterparties to which the Company has concentrated exposure could significantly and adversely affect the overall performance of the Company. Renewable Power Contract Performance The renewable power operations are highly dependent upon parties to certain agreements fulfilling their contractual obligations, including counterparties to power purchase agreements ("PPAs") or Feed in Tariff contracts and other key suppliers. An inability or failure of any such party to meet its contractual commitments may adversely affect our financial condition, results of operations and cash flow, as it may not be possible to replace the agreement with an agreement on equivalent terms and conditions. The ability of our facilities to generate the maximum amount of power that can be sold to purchasers of electricity under PPAs is an important determinant of the revenues of our renewable power business. If one of these facilities delivers less than the required quantity of electricity in a given contract period, penalty payments may be payable to the relevant purchaser. The payment of any such penalties could adversely affect the revenues and profitability of our renewable power business. Changes in Technology There are other alternative technologies that can produce renewable power, such as fuel cells and micro-turbines. Research and development activities are ongoing to seek improvements in such alternative technologies, and their cost of producing electricity is gradually declining. It is possible that advances will further reduce the cost of alternative methods of power generation. If this were to happen, the competitive advantage of our projects may be impaired and our business, financial condition, results of operations and cash flow could be materially adversely affected. Assessment of Wind Resource and Associated Wind Energy The strength and consistency of the wind resource at any project site may vary from the anticipated wind resource. Weather patterns could change, or the historical data could prove to be an inaccurate reflection of the strength and consistency of the wind in the future. The conclusions of wind studies and energy production estimates are based on a particular methodology and a set of assumptions about the existence of certain conditions, and the assumption that these conditions will continue in the future. The assumptions and factors are inherently uncertain and may result in actual energy production being different from estimates. A decline in wind conditions at our wind energy facilities could materially adversely affect revenues and cash flows from such facilities. Transmission Capacity and Curtailment Electrical distribution grid systems have finite capacity to accommodate additional electricity that is supplied to the system. In order for projects to be developed, they need to be connected to the distribution grid system in a location where there is sufficient capacity to handle the additional electricity produced by the project. In most cases, the distribution grid system can be upgraded in order to accommodate such increased capacity; however, we are generally required Dream Unlimited Corp. – December 31, 2018 | 39 to cover all or a portion of costs and expenses in connection with any construction and/or upgrades that are required, which impacts the financial viability of such projects. There is also a potential risk associated with transmission curtailment measures being contemplated by the Ontario transmission system operator. These measures could be imposed in the future on renewable energy generators in Ontario. The curtailments may reduce the amount of annual revenue generated by our projects below the forecasted financial models, thus reducing the expected investment return from these projects. Regulatory Regime, Political Environment and Permits The development and operation of renewable power projects is subject to extensive regulation by various government agencies at the municipal, provincial and federal levels. As legal requirements frequently change and are subject to interpretation and discretion, we are unable to predict the ultimate cost of compliance with these requirements or their effect on our operations. Any new law or regulation could require additional expenditure to achieve or maintain compliance or could adversely affect the ability to generate and deliver energy. In addition, delays may occur in obtaining necessary government approvals required for future power projects. We hold permits and licences from various regulatory authorities for the construction and operation of our renewable power facilities. These licences and permits are critical to the operation of the renewable power business. It may not be possible to renew, maintain or obtain all necessary licences, permits and governmental approvals required for the continued operation or further development of projects, which could adversely impact our business, results of operations and cash flow. The profitability of any wind project will be in part dependent upon the continuation of a favourable regulatory climate with respect to the continuing operations, future growth and development of the independent power industry. Government regulations and incentives currently have a favourable impact on the building of wind power facilities. Should the current governmental regulations or incentive programs be modified, our business, operating results, financial condition or prospects may be adversely affected. Financial and Liquidity Risk Financing Risk We will require access to capital to ensure properties are maintained, as well as to fund our growth strategy and significant capital expenditures. There is no assurance that capital will be available when needed or on favourable terms. Our access to third-party financing will be subject to a number of factors, including general market conditions, the market’s perception of our growth potential, our then current and expected future earnings and our cash flows. Upon the expiry of the term of the financing of any particular property, refinancing may not be available or may not be available on reasonable terms. Ability to Obtain Performance, Payment, Completion and Surety Bonds and Letters of Credit We may often be required to provide performance, payment, completion and surety bonds or letters of credit to secure the completion of our construction contracts, development agreements and other arrangements. We have obtained facilities to provide the required volume of performance, payment, completion and surety bonds and letters of credit for our expected growth in the medium term; however, unexpected growth may require additional facilities. Our ability to obtain further performance, payment, completion and surety bonds and letters of credit primarily depends on our perceived creditworthiness, capitalization, working capital, past performance and claims record, management expertise and certain external factors, including the capacity of the performance bond markets. If our future claims record or our providers’ requirements or policies are different, if we cannot obtain the necessary consent from lenders to renew or amend our existing facilities, or if the market’s capacity to provide performance and completion bonds is not sufficient, we could be unable to obtain further performance, payment, completion and surety bonds or letters of credit when required, which could have a material adverse effect on our business, financial condition and results of operations. Other Applicable Risks Adverse Weather Conditions and Natural Disasters Adverse weather conditions and natural disasters such as hurricanes, tornadoes, earthquakes, droughts, floods, fires, extreme cold, snow and other natural occurrences could have a significant effect on our ability to develop land. These adverse weather conditions and natural disasters could cause delays and increase costs in the construction of new homes and the development of new communities. If insurance is unavailable to us or is unavailable on acceptable terms, or if the insurance is not adequate to cover business interruption or losses resulting from adverse weather or natural disasters, our business and results of operations could be adversely affected. In addition, damage to new homes caused by adverse weather or a natural disaster could cause our insurance costs to increase. Adverse weather conditions and natural disasters could also limit the ability to generate or sell power. In certain cases, some events may not excuse us from performing obligations pursuant to agreements with third parties, and we may be liable for damages or suffer further losses as a result. In addition, many of our power generation assets are located in remote areas, which makes access for repair of damage difficult. Uninsured Losses The Company carries comprehensive general liability, environmental, fire, flood, extended coverage and rental loss insurance with policy specifications, limits and deductibles customarily carried for similar properties. There are, however, certain types of risks (including, but not limited to, environmental contamination or catastrophic events such as war or acts of terrorism) which are either uninsurable, in whole or in part, or not insurable on an economically viable basis. Should an uninsured or underinsured loss occur, the Company could lose its investment in, and anticipated profits and cash flows from, one or more of its properties, and the Company would continue to be obliged to repay any recourse mortgage indebtedness on such properties. Key Personnel The Company’s executive and other senior officers have a significant role in our success and oversee the execution of our strategy. Our ability to retain our management team or attract suitable replacements should any members of the management group leave is dependent on, among other things, the competitive nature of the employment market. The Company has experienced departures of key professionals in the past and may do so in the future, and we cannot predict the impact that any such departures will have on its ability to achieve its objectives. The loss of services from key members of the management team or a limitation in their availability could adversely impact our financial condition and cash flow. We rely on the services of key personnel on our executive team, including our President and CRO, Executive Vice President and Chief Financial Officer, Chief Development Officer, Chief Investment Officer, President of Dream Unlimited Corp. – December 31, 2018 | 40 Asset Management, and the Company's directors. The loss of their services could have an adverse effect on the Company. We mitigate key personnel risk through succession planning, but do not maintain key personnel insurance. Changes in Law We are subject to laws and regulations governing the ownership and leasing of real property, (including the expropriation thereof), employment standards, environmental matters, taxes and other matters. It is possible that future changes in such laws or regulations or changes in their application, enforcement or regulatory interpretation could result in changes in the legal requirements affecting commercial properties (including with retroactive effect). Any changes in the laws to which we are subject or in the political environment in the jurisdictions where the commercial properties in which we have an interest are operated could adversely affect us and the revenues we are able to generate from our investments. Tax Risk We are subject to tax audits from various government and regulatory agencies on an ongoing basis. As a result, from time to time, taxing authorities may disagree with the interpretation and application of Canadian tax laws taken by the Company in its tax filings, which could lead to reassessments. These reassessments could have a material impact on the Company in future periods. Cyber Security Risk Cyber security has become an increasing area of focus for issuers and businesses in Canada and globally, as reliance on digital technologies to conduct business operations has grown significantly. Cyber attacks against organizations are increasing in sophistication and can include but are not limited to intrusions into operating systems, theft of personal or other sensitive data and/or cause disruptions to business operations. Such cyber attacks could compromise the Company’s confidential information as well as that of the Company’s employees, customers and third parties with whom the Company interacts and may result in negative consequences, including remediation costs, loss of revenue, additional regulatory scrutiny, litigation and reputational damage. Forward-Looking Information Certain information in this MD&A may constitute “forward-looking information” within the meaning of applicable securities legislation, including but not limited to statements relating to our objectives and strategies to achieve those objectives; our beliefs, plans, estimates, projections and intentions, and similar statements concerning anticipated future events, future growth, results of operations, performance, business prospects and opportunities, acquisitions or divestitures, tenant base, future maintenance and development plans and costs, capital investments, financing, the availability of financing sources, income taxes, vacancy and leasing assumptions, litigation and the real estate industry in general; as well as specific statements in respect of development plans and proposals for future retail and condominium and mixed-use projects and future stages of current retail and condominium and mixed-use projects, including projected sizes, density, uses and tenants; development timelines and anticipated returns or yields on current and future retail and condominium and mixed- use projects, including timing of construction, marketing, leasing, completion, occupancies and closings; anticipated current and future unit sales and occupancies of our condominium and mixed-use projects; our pipeline of retail, commercial, condominium and mixed-use developments projects; development plans and timelines of current and future land and housing projects, including projected sizes, density and uses; anticipated current and future lot and acre sales and housing unit occupancies in our land and housing divisions and the timing of margin contributions from such sales; expected market values of our lands as well as our land backlog; projected population and density in our housing developments; our ability to increase development on our owned lands and the anticipated returns therefrom; future land acquisitions and financings and the timing thereof; anticipated development approvals and timing thereof; the recovery of the Saskatoon, Regina and Calgary markets; our plans with respect to the expropriation of the Obico Property; expected contribution of our investment and recreational properties to recurring income in future periods; our expansion plans for recreational properties and the anticipated effect on revenue; future performance of the land development, housing development, condominium and mixed-use development and retail and commercial developments divisions; timing of achieving milestones in our retail, commercial, residential, condominium and mixed-use developments projects; expected sources, amounts, and timing of financings for our projects; our anticipated ownership levels of proposed investments, including investments in units of Dream Office REIT and Dream Alternatives and the other Dream Publicly Listed Funds; the expected level of growth within Dream Office REIT’s and Dream Alternatives’ core Toronto development portfolios; the future NAV and NAV per unit of Dream Alternatives; future equity investments in Dream Alternatives’ lending and development and investment holdings portfolios; the development plans and proposals for Dream Alternatives’ current and future projects, including projected sizes, timelines, density, uses and tenants; expected cash flows, economic returns and funded equity of projects in future periods; anticipated levels of development, asset management and other management fees in future periods; our expectations of future income, earnings and net margin of our land and housing divisions; our overall financial performance, profitability, leverage and liquidity for future periods and years; and our expectations regarding timing and payment of the Company's first dividend on the Subordinate Voting Shares and Class B Common Shares. The forward-looking information in this MD&A is presented for the purpose of providing disclosure of the current expectations of our future events or results, having regard to current plans, objectives and proposals, and such information may not be appropriate for other purposes. Forward-looking information may also include information regarding our respective future plans or objectives and other information that is not composed of historical fact. Forward-looking information is predictive in nature and depends upon or refers to future events or conditions; as such, this MD&A uses words such as “may”, “would”, “could”, “should”, “will”, “likely”, “expect”, “anticipate”, “believe”, “intend”, “plan”, “forecast”, “project”, “estimate”, and similar expressions suggesting future outcomes or events to identify forward-looking information. Any such forward-looking information is based on information currently available to us, and is based on assumptions and analyses made by us in light of our respective experiences and perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances, including but not limited to: that no unforeseen changes in the legislative and operating framework for the respective businesses will occur; that we will meet our future objectives and priorities; that we will have access to adequate capital to fund our future projects and plans; that our future projects and plans will proceed as anticipated; and that future market and economic conditions will occur as expected. However, whether actual results and developments will conform with the expectations and predictions contained in the forward-looking information is subject to a number of risks and uncertainties, many of which are beyond our control, and the effects of which can be difficult to predict. Factors that could cause Dream Unlimited Corp. – December 31, 2018 | 41 actual results or events to differ materially from those described in the forward-looking information include, but are not limited to: adverse changes in general economic and market conditions; our inability to raise additional capital; our inability to execute strategic plans and meet financial obligations; and risks associated with our anticipated real estate operations and investment holdings in general, including environmental risks, market risks, and risks associated with inflation, changes in interest rates and other financial exposures. For a further description of these and other factors that could cause actual results to differ materially from the forward-looking information contained, or incorporated by reference in this MD&A, see the "Risk Factors" section of this MD&A. In evaluating any forward-looking information contained, or incorporated by reference, in this MD&A, we caution readers not to place undue reliance on any such forward-looking information. Any forward-looking information speaks only as of the date on which it was made. Unless otherwise required by applicable securities laws, we do not intend, nor do we undertake any obligation, to update or revise any forward-looking information contained, or incorporated by reference, in this MD&A to reflect subsequent information, events, results, circumstances or otherwise, except as required by law. Supplemental Segmented Information - Consolidated Dream Revenue by Geographic Region The Company’s revenue segmented by geographic region, net of eliminations, is as follows: Western Canada Alberta British Columbia Saskatchewan Ontario Quebec Eastern Canada Canada United Kingdom United States Non-segmented (asset management) Total For the three months ended December 31, 2017 2018 For the year ended December 31, 2017 2018 $ $ $ 21,714 964 74,877 97,555 32,872 1,234 1,565 133,226 798 9,490 10,441 153,955 14.1% $ 0.6% 48.6% 63.3% $ 18,384 — 90,764 109,148 12.7% $ —% 62.8% 75.5% $ 44,788 4,021 128,666 177,475 13.2% $ 1.2% 37.9% 52.3% $ 57,338 — 179,128 236,466 21.4% 0.8% 1.0% 86.5% 0.5% 6.2% 6.8% 100.0% $ 16,436 — — 125,584 — 8,903 10,099 144,586 11.3% —% —% 86.8% —% 6.2% 7.0% 100.0% $ 86,255 1,234 5,943 270,907 2,696 34,469 31,801 339,873 25.4% 0.3% 1.7% 79.7% 0.8% 10.1% 9.4% 100.0% $ 41,795 — — 278,261 — 32,880 45,823 356,964 16.0% —% 50.2% 66.2% 11.7% —% —% 77.9% —% 9.3% 12.8% 100.0% Net Margin by Geographic Region The Company’s net margin segmented by geographic region is as follows: Western Canada Alberta British Columbia Saskatchewan Ontario Quebec Eastern Canada Canada United Kingdom United States Non-segmented (asset management) Total For the three months ended December 31, 2017 2018 For the year ended December 31, 2017 2018 $ $ $ 6,801 964 22,040 29,805 2,392 1,234 3,434 36,865 (2,441) 581 11,409 46,414 14.6% $ 2.1% 47.5% 64.2% $ 5.1% 2.7% 7.4% 79.4% (5.3%) 1.3% 24.6% 100.0% $ 7,630 — 32,499 40,129 1,439 — — 41,568 — 1,467 6,965 50,000 15.3% $ —% 65.0% 80.3% $ 2.9% —% —% 83.2% —% 2.9% 13.9% 100.0% $ 5,332 4,021 20,176 29,529 27,918 1,234 3,491 62,172 (81) 4,941 20,636 87,668 6.1% $ 4.6% 23.0% 33.7% $ 31.8% 1.4% 4.0% 70.9% (0.1%) 5.7% 23.5% 100.0% $ 11,444 — 38,486 49,930 4,623 — — 54,553 — 7,497 36,185 98,235 11.6% —% 39.2% 50.8% 4.7% —% —% 55.5% —% 7.7% 36.8% 100.0% Dream Unlimited Corp. – December 31, 2018 | 42 Contribution of Quarterly Margin and Income by Major Business Segment/Investment (in thousands of dollars) Asset management(1) Urban development - Toronto and Ottawa Renewables and recreational properties(2) Western Canada development Dream Alternatives Consolidation adjustments Total net margin Income (loss) amounts included below net margin Firelight Infrastructure Partners LP (Energy and Infrastructure)(3) Share of earnings from Dream Office REIT(4) Other share of earnings (losses) from equity accounted investments Total share of earnings (losses) from equity accounted investments Dec 31, 2018 Sep 30, 2018 Jun 30, 2018 Mar 31, 2018 Dec 31, 2017 Sep 30, 2017 Jun 30, 2017 Mar 31, 2017 $ 10,856 $ 8,320 $ 7,021 $ 7,116 $ 6,965 $ 12,756 $ 7,116 $ 2,312 338 29,153 7,192 (3,437) (450) (3,006) 843 9,740 (3,203) (557) 1,974 (2,232) 9,777 (2,762) 418 6,338 (2,545) 8,215 (3,753) 1,244 979 40,812 — — 2,810 (2,460) 13,838 — — 467 2,297 (3,498) — — 9,348 (127) 5,631 57 — — $ 46,414 $ 12,244 $ 13,221 $ 15,789 $ 50,000 $ 26,944 $ 6,382 $ 14,909 (875) 9,361 2,924 8,508 3,373 7,104 (209) 7,429 13,727 (717) 3,308 856 353 (973) (822) 902 2,425 — 39 — (1,243) (1,366) — 3 $ 9,342 $ 11,785 $ 9,504 $ 6,398 $ 13,912 $ 3,311 $ 1,182 $ (1,327) Investment income earned from Dream Publicly Listed Funds $ 3,595 (1) Included in net margin for asset management and management services for the three months ended March 31, 2017 and December 31, 2016 were fees earned from development arrangements, which will fluctuate period over period. Included in net margin for asset management and management services for the three months ended September 30, 2017 were transactional-related fees earned from Dream Publicly Listed Funds, which will fluctuate period over period. Net margin for asset management is gross of consolidation adjustments to eliminate margin earned on the Company's asset management contract with Dream Alternatives. 3,697 $ 2,116 $ 959 $ 884 $ 703 $ 696 $ 842 $ (2) The decline in net margin in the September quarter-end periods is due to the seasonal closure of the Arapahoe Basin ski resort, which generally closes operations from July to September. (3) The decline in net earnings in the March and December quarter-end periods is primarily due to the seasonality of the renewable energy projects. Results may fluctuate period to period based on (4) weather. For additional details, refer to the "Renewable and Recreational Properties" section of this MD&A. In the three months ended December 31, 2017, the Company reclassified its investment in Dream Office REIT from an available-for-sale investment to an equity accounted investment. Accordingly, in the period, distribution income from Dream Office REIT was no longer included within investment income. Selected Annual Information (in thousands of dollars, except per share amounts) Revenue Earnings before income taxes Earnings for the year Earnings for the year attributable to shareholders Basic earnings per share Diluted earnings per share Total assets Total liabilities Total equity Total equity per share(1) (1) Total equity per share includes non-controlling interest relating to SDC for 2016 and 2017. Non-IFRS Measures 2018 2017 $ 339,873 $ 356,964 $ Year ended December 31, 2016 340,167 135,624 95,364 67,638 0.85 0.83 115,576 82,839 79,645 0.81 0.79 1,904,007 1,612,314 946,523 957,484 8.77 780,803 831,511 7.39 213,492 192,053 190,948 1.76 1.71 2,751,566 1,631,986 1,119,580 10.43 In addition to using financial measures determined in accordance with IFRS, we believe that important measures of operating performance include certain financial measures that are not defined under IFRS and, as such, may not be comparable to similar measures used by other companies. Throughout this MD&A, there are references to certain non-IFRS measures, including those described below, which management believes are relevant in assessing the economics of the business of Dream. While these performance measures are not defined by IFRS, do not have a standardized meaning and may not be comparable with similar measures presented by other companies, we believe that they are informative and provide further insight as supplementary measures of earnings for the period and cash flows. "Assets under management (“AUM”)" is the respective carrying value of total assets managed by the Company on behalf of its clients, investors or partners under asset management agreements and/or management services agreements. Assets under management is a measure of success against the competition and consists of growth or decline due to asset appreciation, changes in fair market value, acquisitions and dispositions, operations gains and losses, and inflows and outflows of capital. Dream Unlimited Corp. – December 31, 2018 | 43 “Debt to total asset ratio” is an important measure of financial liquidity and is calculated as total debt (being the sum of project-specific debt, corporate debt facilities and Preference shares, series 1), as a percentage of total assets per the consolidated financial statements. A reconciliation of the debt to total asset ratio can be found below. Project-specific debt Corporate debt facilities Preference shares, series 1 Total debt Total assets Debt to total asset ratio (%) $ December 31, 2018 514,580 373,026 28,672 916,278 2,751,566 33.3% $ Consolidated Dream December 31, 2017 280,227 308,024 28,668 616,919 1,904,007 32.4% $ December 31, 2018 315,200 373,026 28,672 716,898 2,056,028 34.9% $ Dream standalone December 31, 2017 280,227 308,024 28,668 616,919 1,855,671 33.2% "Dream standalone" represents the results of Dream, excluding the impact of Dream Alternatives' equity accounted investment (prior to January 1, 2018) and consolidated results (January 1, 2018 onward). Metrics calculated on a Dream standalone basis are used by management in evaluating the overall performance and managing risk of the Company. Refer to the "Reconciliation of Basic Earnings per Share", "Segmented Assets and Liabilities" and "Segmented Statement of Earnings" sections of this MD&A for a reconciliation of Dream excluding Dream Alternatives results to the consolidated financial statements. “Fee-earning assets under management” represents assets under management that are managed under contractual arrangements that entitle the Company to earn asset management revenues. “Gross margin %” is an important measure of operating earnings in each business segment of Dream and represents gross margin as a percentage of revenue. "Internal rate of return ("IRR")" for Dream Alternatives' residential development projects is calculated based on the estimated net pre-tax cash flow expected to be generated from each project considering real estate development revenues, expenditures, construction timeline and sale dates. This non-IFRS measure is an important measure on evaluating the performance of the Company's investments, however, it is not defined by IFRS, does not have a standard meaning and may not be comparable with similar measures presented by other issuers. "Market value" is an important measure of growth for Dream Alternatives, representing mark-to-market adjustments on the segment's renewable power and equity accounted investments portfolio for the purposes of calculating NAV of DAT. "Net asset value ("NAV") per unit of Dream Alternatives" represents the net asset value attributable to unitholders of Dream Alternatives divided by the number of units outstanding at the end of the period. This non-IFRS measure is an important measure used by the Company in evaluating Dream Alternatives' performance as it is an indicator of the intrinsic value of Dream Alternatives; however, it is not defined by IFRS, does not have a standardized meaning and may not be comparable with similar measures presented by other issuers. A reconciliation of NAV to total unitholders' equity can be found below. Other financial assets and equity accounted investments(2) Lending portfolio Investment properties Renewable power(3) December 31, 2018 Cash, working capital and other(1) Total Total unitholders' equity(4) Market value adjustment to equity accounted investments Market value adjustment to renewable power assets(2) Deferred income taxes adjustment NAV of Dream Alternatives $ $ 254,804 $ 142,220 $ 101,962 $ 64,184 $ 27,088 $ 590,258 39,870 — — — — — — — — — 10,527 — — — (6,005) 39,870 10,527 (6,005) 294,674 $ 142,220 $ 101,962 $ 74,711 $ 21,083 $ 634,650 NAV per unit of Dream Alternatives (1) Cash, working capital and other includes Dream Alternatives and other cash and net working capital balances. (2) For additional details on Dream Alternatives' equity accounted investments market value adjustment, refer to the "Portfolio Summary - Dream Alternatives" section of this MD&A. (3) For additional details on Dream Alternatives' renewable power assets market value adjustment, refer to the "Portfolio Summary - Dream Alternatives" section of this MD&A. (4) Dream Alternatives' unitholders' equity is eliminated upon consolidation. 1.40 $ 1.96 $ 4.06 $ 1.03 $ $ 0.29 $ 8.74 "Net asset value ("NAV") of Dream Alternatives" a non-IFRS measure, represents total unitholders' equity per the Dream Alternatives segment, adjusted for fair value adjustments for both renewable power projects and equity accounted investments (including applicable deferred income tax adjustment) and the unamortized balance of the mortgages payable premiums. The mortgages payable premiums represent the current unamortized balance of fair value adjustments recorded for these instruments at Dream Alternatives' listing date. Since Dream Alternatives intends to repay the mortgages at maturity, this historical fair value adjustment is removed for the calculation of the NAV. A fair value adjustment for renewable power projects developed by Dream Alternatives is reflected once they become operational and long-term financing is arranged as well as reflecting recent market information that would indicate a change in the renewable power portfolio fair value (subject to appraisals). A fair value adjustment for equity accounted investments is included to address the reduction in risk profile as each project progresses towards completion and/or reflect information from recent market transactions that indicate a change in the equity investment fair value (subject to appraisals). Dream Alternatives believes that incorporating a fair value adjustment is a more useful measure to value the renewable power portfolio and equity accounted investments that would not ordinarily be captured within IFRS and Dream Alternatives' condensed consolidated financial statements. The fair value adjustments account for the applicable deferred income taxes considering the timing of their realization and, Dream Unlimited Corp. – December 31, 2018 | 44 if appropriate, will be incorporated into the determination of the NAV of Dream Alternatives. Excluded from the NAV of Dream Alternatives calculation are any fair value adjustments with respect to liabilities as well as commitments/contracts that are not otherwise recorded as liabilities on Dream Alternatives' balance sheet. Dream Alternatives has not appraised the lending portfolio, as Dream Alternatives intends to hold the investments in the lending portfolio until maturity and its term to maturity is within one year; as such, this portfolio is considered fairly liquid and fair value approximates amortized cost. This non- IFRS measure is an important measure used by the Company in evaluating Dream Alternatives' performance as it is an indicator of the intrinsic value of Dream Alternatives; however, it is not defined by IFRS, does not have a standardized meaning and may not be comparable with similar measures presented by other issuers. A reconciliation of NAV to total unitholders' equity can be found on the prior page. “Net margin %” is an important measure of operating earnings in each business segment of Dream and represents net margin as a percentage of revenue. This non-IFRS measure is an important measure on evaluating the Company's performance, however, it is not defined by IFRS, does not have a standard meaning and may not be comparable with similar measures presented by other issuers. “Net Operating Income" represents revenue less direct operating costs. Net operating income less general, administrative and overhead expenses, and amortization, is equal to net margin as per Note 43 of the consolidated financial statements. Net operating income for the investment and recreational properties divisions for the years ended December 31, 2018 and 2017 is calculated as follows: Revenue Less: Direct operating costs Less: Selling, marketing and other indirect costs Net margin Add: Depreciation Add: General and administrative expenses Net operating income Revenue Less: Direct operating costs Less: Selling, marketing and other indirect costs Net margin Add: Depreciation Add: General and administrative expenses Net operating income Revenue Less: Direct operating costs Less: Selling, marketing and other indirect costs Net margin Add: Depreciation Add: General and administrative expenses Net operating income For the three months ended December 31, 2018 Urban development - investment properties Western Canada - investment properties Recreational properties $ $ $ $ $ $ $ $ $ 2,813 1,256 285 1,272 — 285 1,557 Urban development - investment properties 3,656 1,712 316 1,628 — 316 1,944 Urban development - investment properties 12,259 5,285 1,280 5,694 — 1,280 6,974 $ $ $ $ $ $ $ $ $ 2,255 771 1,010 474 — 1,010 1,484 $ $ $ 11,601 10,040 1,223 338 1,101 122 1,561 For the three months ended December 31, 2017 Western Canada - investment properties Recreational properties 2,454 921 1,006 527 — 1,006 1,533 $ $ $ 11,016 9,028 1,009 979 888 121 1,988 For the year ended December 31, 2018 Western Canada - investment properties Recreational properties 8,966 2,981 4,542 1,443 — 4,542 5,985 $ $ $ 45,889 35,789 4,456 5,644 3,891 565 10,100 Dream Unlimited Corp. – December 31, 2018 | 45 Revenue Less: Direct operating costs Less: Selling, marketing and other indirect costs Net margin Add: Depreciation Add: General and administrative expenses Net operating income Urban development - investment properties Western Canada - investment properties Recreational properties For the year ended December 31, 2017 $ $ $ 12,553 5,733 1,105 5,715 — 1,105 6,820 $ $ $ 6,674 2,198 4,587 (111) — 4,587 4,476 $ $ $ 40,283 30,005 3,831 6,447 3,059 772 10,278 "Total Unitholders' equity per unit" represents the total unitholders' equity of Dream Alternatives divided by the number of Dream Alternatives trust units outstanding at the end of the period. Additional Information Additional information relating to Dream, including the Company's annual information form and consolidated financial statements and accompanying notes, are available on SEDAR at www.sedar.com. The Subordinate Voting Shares trade on the TSX under the symbol “DRM”, and the Dream Preference shares, series 1, trade under the symbol “DRM.PR.A”. Dream Unlimited Corp. – December 31, 2018 | 46 Management's responsibility for consolidated financial statements The accompanying consolidated financial statements, the notes thereto and management's discussion and analysis contained in this Annual Report have been prepared by, and are the responsibility of, the management of Dream Unlimited Corp. These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, using management's best estimates and judgments when appropriate. The Board of Directors is responsible for ensuring that management fulfills its responsibility for financial reporting and internal controls. The Board of Directors carries out these responsibilities primarily through an Audit Committee, which is composed entirely of independent directors. The Audit Committee meets with management as well as the external auditor to satisfy itself that management is properly discharging its financial responsibilities and to review its consolidated financial statements and the report of the auditor. The Audit Committee reports its findings to the Board of Directors, which approves the consolidated financial statements. PricewaterhouseCoopers LLP, the independent auditor, has audited the consolidated financial statements in accordance with Canadian generally accepted auditing standards. The auditor has full and unrestricted access to the Audit Committee, with or without management present. "Michael J. Cooper" Michael J. Cooper President and Chief Responsible Officer Toronto, Ontario February 26, 2019 "Pauline Alimchandani" Pauline Alimchandani EVP and Chief Financial Officer Dream Unlimited Corp. – December 31, 2018 | 47 Independent auditor’s report To the Shareholders of Dream Unlimited Corp. Our opinion In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of Dream Unlimited Corp. and its subsidiaries, (together, the Company) as at December 31, 2018 and 2017, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS). What we have audited The Company's consolidated financial statements comprise: • • • • • • the consolidated statements of financial position as at December 31, 2018 and 2017; the consolidated statements of earnings for the years then ended; the consolidated statements of comprehensive income for the years then ended; the consolidated statements of changes in equity for the years then ended; the consolidated statements of cash flows for the years then ended; and the notes to the consolidated financial statements, which include a summary of significant accounting policies. Basis for opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities in accordance with these requirements. Other information Management is responsible for the other information. The other information comprises the Management's Discussion and Analysis and the information, other than the consolidated financial statements and our auditor's report thereon, included in the annual report. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of management and those charged with governance for the consolidated financial statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company’s financial reporting process. Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. Dream Unlimited Corp. – December 31, 2018 | 48 As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • • • • • • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. The engagement partner on the audit resulting in this independent auditor’s report is Frank Magliocco. (Signed) "PricewaterhouseCoopers LLP" Chartered Professional Accountants, Licensed Public Accountants Toronto, Ontario February 26, 2019 Dream Unlimited Corp. – December 31, 2018 | 49 Consolidated Statements of Financial Position As at December 31, 2018 and 2017 (in thousands of Canadian dollars) Assets Cash and cash equivalents Accounts receivable Other financial assets Lending portfolio Housing inventory Condominium inventory Land inventory Investment properties Recreational properties Renewable power assets Equity accounted investments Capital and other operating assets Intangible asset Goodwill Assets held for sale Total assets Liabilities Accounts payable and other liabilities Income and other taxes payable Provision for real estate development costs Customer deposits Project-specific debt Corporate debt facilities Preference shares, series 1 Dream Alternatives trust units Deferred income taxes Total liabilities Shareholders’ equity Share capital Reorganization adjustment Contributed surplus Retained earnings Accumulated other comprehensive income Total shareholders’ equity Non-controlling interest Total equity Total liabilities and equity Note 42 6 7 8 9 10 11 12 13 14 15 16 5 17 18 19 20 21 22 23 24 25 26 37 27 28 2018 64,293 177,414 212,351 144,095 56,605 239,621 575,896 412,771 49,241 143,288 549,760 40,068 — 13,576 72,587 2,751,566 126,842 49,529 33,853 34,111 514,580 373,026 28,672 377,234 94,139 1,631,986 1,209,819 (944,577) 8,049 818,581 11,379 1,103,251 16,329 1,119,580 2,751,566 $ $ $ $ $ 2017 25,408 197,467 79,043 — 59,619 171,513 574,898 241,977 40,617 — 402,672 20,099 43,000 13,576 34,118 1,904,007 118,965 77,143 34,756 39,021 280,227 308,024 28,668 — 59,719 946,523 1,225,651 (944,577) 5,341 601,098 31,881 919,394 38,090 957,484 1,904,007 $ $ $ $ $ See accompanying notes to the consolidated financial statements. Commitments and contingencies (Note 40) Subsequent events (Note 47) On behalf of the Board of Directors of Dream Unlimited Corp.: "Michael J. Cooper" Michael J. Cooper Director "Joanne Ferstman" Joanne Ferstman Chair Dream Unlimited Corp. – December 31, 2018 | 50 Consolidated Statements of Earnings For the years ended December 31, 2018 and 2017 (in thousands of Canadian dollars, except for per share amounts) Revenues Direct operating costs Asset management and advisory services expenses Gross margin Selling, marketing and other operating costs Net margin Other income (expenses): General and administrative expenses Fair value changes in investment properties Share of earnings from equity accounted investments Investment and other income Gain on disposition of assets Interest expense Net gain on acquisition of Dream Alternatives Adjustments related to Dream Alternatives trust units Fair value changes in financial instruments Earnings before income taxes Income tax expense Earnings for the year Total earnings for the year attributable to: Shareholders Non-controlling interest Earnings for the year Basic earnings per share Diluted earnings per share See accompanying notes to the consolidated financial statements. Note 29 30 31 32 33 12, 18 15 34 18 35 5 24 25 28 38 38 $ $ $ $ $ $ 2018 339,873 $ (193,927) (11,164) 134,782 (47,114) 87,668 (20,395) 15,262 37,029 12,702 9,422 (37,931) 129,992 (19,680) (577) 213,492 (21,439) 192,053 $ 190,948 $ 1,105 192,053 $ 1.76 $ 1.71 $ 2017 356,964 (203,310) (9,638) 144,016 (45,781) 98,235 (13,419) 14,145 17,078 21,624 — (21,599) — — (488) 115,576 (32,737) 82,839 79,645 3,194 82,839 0.81 0.79 Dream Unlimited Corp. – December 31, 2018 | 51 Consolidated Statements of Comprehensive Income For the years ended December 31, 2018 and 2017 (in thousands of Canadian dollars) Earnings for the year Other comprehensive income Reversal of losses on interest rate hedge reclassified to net income, net of tax Unrealized (loss) gain on interest rate hedge, net of tax Unrealized gain on financial assets designated as available for sale, net of tax Unrealized gain (loss) from foreign currency translation (reclassified to earnings on partial or full disposal of foreign operation) Losses reclassified to net income upon transfer to equity accounted investments, net of tax Reversal of losses reclassified to net income upon consolidation of Dream Alternatives Share of other comprehensive income (loss) from equity accounted investments Total other comprehensive income Other comprehensive income Total comprehensive income for the year attributable to: Shareholders Non-controlling interest Comprehensive income See accompanying notes to the consolidated financial statements. Note $ 2018 192,053 $ 99 (983) — 3,210 — 68 802 3,196 195,249 $ 194,144 $ 1,105 195,249 $ 27 28 $ $ $ 2017 82,839 — 280 26,689 (2,026) 5,612 — (581) 29,974 112,813 108,590 4,223 112,813 Dream Unlimited Corp. – December 31, 2018 | 52 Consolidated Statements of Changes in Equity For the years ended December 31, 2018 and 2017 (in thousands of Canadian dollars) Dream share capital (Note 26) Contributed surplus Reorganization adjustment Retained earnings Accumulated other comprehensive income Total shareholders' equity Non- controlling interest Total equity Balance, January 1, 2018 $ 1,225,651 $ 5,341 $ (944,577) $ 601,098 $ 31,881 $ 919,394 $ 38,090 $ 957,484 Impact of changes in accounting policies (Note 46) — — — 34,144 (23,698) 10,446 — 10,446 Adjusted balance, January 1, 2018 1,225,651 5,341 (944,577) Earnings for the year Other comprehensive income for the year (Note 27) Share repurchase under normal course issuer bid (Note 26) Share-based compensation (Note 37) Distributions to non-controlling interests (Note 28) Contributions from non- controlling interests (Note 28) Non-controlling interest related to business combination (Notes 5 and 28) Change in interest in subsidiary (Note 28) — — (16,026) — — — 194 2,708 — — — — — — — — — — — — — — — — 635,242 190,948 — — — — — — (7,609) 8,183 — 3,196 — — — — — — 929,840 190,948 3,196 (16,026) 2,902 — — — 38,090 1,105 — — — 967,930 192,053 3,196 (16,026) 2,902 (1,021) (1,021) 1,600 1,600 1,948 1,948 (7,609) (25,393) (33,002) Balance, December 31, 2018 $ 1,209,819 $ 8,049 $ (944,577) $ 818,581 $ 11,379 $ 1,103,251 $ 16,329 $ 1,119,580 (in thousands of Canadian dollars) Dream share capital (Note 26) Contributed surplus Reorganization adjustment Retained earnings Accumulated other comprehensive income (loss) Total shareholders’ equity Non- controlling interest Total equity Balance, January 1, 2017 $ 1,009,838 $ 3,719 $ (944,577) $ 550,843 $ (1,350) $ 618,473 $ 213,038 $ 831,511 Earnings for the year Other comprehensive income for the year (Note 27) Dividends declared (Note 26) Share repurchase under normal course issuer bid (Note 26) Share-based compensation (Note 37) Non-controlling interest related to business combination Change in interest in subsidiary (Note 28) — — — (22,206) 255 — 237,764 — — — — 1,622 — — — — — — — — — 79,645 — 79,645 3,194 82,839 — — — — — 28,945 — — — — 28,945 — (22,206) 1,877 1,029 (5,005) — — 29,974 (5,005) (22,206) 1,877 — 38,494 38,494 (29,390) 4,286 212,660 (212,660) — Balance, December 31, 2017 $ 1,225,651 $ 5,341 $ (944,577) $ 601,098 $ 31,881 $ 919,394 $ 38,090 $ 957,484 See accompanying notes to the consolidated financial statements. Dream Unlimited Corp. – December 31, 2018 | 53 Consolidated Statements of Cash Flows For the years ended December 31, 2018 and 2017 (in thousands of Canadian dollars) Operating activities Earnings for the year Adjustments for non-cash items: Depreciation and amortization Fair value changes in investment properties Share of earnings from equity accounted investments Deferred income tax expense (recovery) Deemed gain on disposition of equity accounted investment in Zibi Losses reclassified to earnings upon transfer to equity accounted investments Other adjustments Gain on disposition of assets Net gain on acquisition of Dream Alternatives Changes in non-cash working capital Acquisition of housing inventory Acquisition of condominium inventory Development of housing inventory, net of sales Development of condominium inventory, net of sales Advances for construction loan, net of repayments Acquisition of land inventory Fair value adjustment on Dream Alternatives trust units Development of land inventory, net of sales Net cash flows (used in) provided by operating activities Investing activities Acquisitions and additions to investment properties and assets held for sale Additions to recreational properties and renewable power assets Investments in equity accounted investments Contributions to equity accounted investments Distributions from equity accounted investments Acquisition of financial assets and other assets, net of distributions Proceeds on disposition of assets Cash acquired in business combination Loan receivable advances, net of repayments Acquisition of investment holdings and marketable securities, net of disposals Lending portfolio repayments, net of advances Net cash flows provided by (used in) investing activities Financing activities Borrowings from mortgages and term debt facilities Repayments of mortgages and term debt facilities Advances from operating line, net of repayments Advances from margin facility, net of repayments Borrowings pursuant to non-revolving term facility Distributions to non-controlling interest Dream Alternatives trust units repurchased from other unitholders Contributions from non-controlling interest Dividends paid to non-controlling interest Shares repurchased under normal course issuer bid Net cash flows provided by (used in) financing activities Note 2018 2017 $ 192,053 $ 82,839 12, 18 15 25 42 5 42 9 10 9 10 21 11 24 11 12, 18 13, 14 5 21 21 22 22 22 28 24 28 26 26 13,057 (15,262) (37,029) 9,132 — — (8,266) (9,422) (129,992) (48,622) — (694) 20,541 (67,414) 14,545 (960) (5,003) (23,806) (97,142) (22,937) (10,128) (17,005) (25,594) 42,728 (7,393) 71,508 60,927 2,135 (24,368) 23,830 93,703 69,489 (56,042) (45,000) 60,000 50,000 (1,021) (20,676) 1,600 — (16,026) 42,324 4,149 (14,145) (17,078) (1,154) (13,302) 6,481 (2,842) — — 16,170 (1,908) (7,462) 7,560 (14,673) 73,139 (7,951) — 4,747 114,570 (13,997) (11,159) (68,474) (21,937) 33,212 3,675 — 1,091 (3,915) — — (81,504) 24,928 (56,807) (12,000) 40,000 — — — — (5,005) (22,206) (31,090) 1,976 23,432 25,408 Change in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year 42 $ 38,885 25,408 64,293 $ See accompanying notes to the consolidated financial statements. Dream Unlimited Corp. – December 31, 2018 | 54 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ 1. Business and structure Dream Unlimited Corp. ("Dream" or "the Company"), through its wholly owned subsidiary, Dream Asset Management Corporation (“DAM”), is one of Canada’s leading real estate companies with assets under management in North America and Europe. The scope of the business includes asset management and management services for four Toronto Stock Exchange ("TSX") listed trusts and institutional partnerships, condominium and mixed-use development, investments in and management of Canadian renewable energy infrastructure and commercial property ownership, and residential land development, housing and multi-family development. On January 1, 2018, the Company acquired control of Dream Hard Asset Alternatives Trust ("Dream Alternatives") based on the increase in the Company's exposure to variable returns resulting from increased ownership through units held in Dream Alternatives and from new real estate joint venture agreements. In the year ended December 31, 2017, the Company accounted for its investment in Dream Alternatives as an equity accounted investment. Refer to Note 5 for a description of this transaction. Refer to Note 28 for a description of equity transactions with non-controlling interests in the year ended December 31, 2018. The principal office and centre of administration of the Company is 30 Adelaide Street East, Suite 301, State Street Financial Centre, Toronto, Ontario, M5C 3H1. The Company is listed on the TSX and is domiciled in Canada. 2. Basis of preparation The consolidated financial statements are prepared in compliance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”). All dollar amounts discussed herein are in thousands of Canadian dollars, unless otherwise stated. The consolidated financial statements for the year ended December 31, 2018 were approved by the Board of Directors for issue on February 26, 2019, after which date they may be amended only with the Board of Directors’ approval. 3. Summary of significant accounting policies The significant accounting policies adopted by the Company in the preparation of its consolidated financial statements are set out below. The Company has consistently applied these accounting policies throughout all years presented in the consolidated financial statements, except for new standards adopted during the year ended December 31, 2018 and related accounting policies as described below. Basis of Measurement The consolidated financial statements have been prepared under the historical cost convention, except for investment properties, other financial assets and financial instruments classified as fair value through profit or loss, which are measured at fair value as determined at each reporting date. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions have been eliminated in the consolidated financial statements. Subsidiaries are those entities the Company controls through the power to govern the financial and operating policies of the entity and by having exposure or rights, to variable returns from its involvement with the entity. The existence and effect of potential voting rights that are currently exercisable are considered when assessing whether the Company controls another entity. Subsidiaries are fully consolidated from the date on which control is obtained by the Company and are subsequently deconsolidated on the date control ceases. Goodwill Goodwill arises on the acquisition of businesses and represents the excess of the consideration transferred over and above the Company's interest in the fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree and the measurement of the non-controlling interest in the acquiree. For the purposes of impairment testing, goodwill acquired in a business combination is allocated to each of the cash generating units ("CGUs") or groups of CGUs that are expected to benefit from the synergies of the combination. Each CGU or group of CGUs to which goodwill is allocated represents the lowest level within the Company at which the goodwill is monitored for internal management purposes. Goodwill is monitored by the Company at an operating segment level. Goodwill impairment reviews are undertaken annually, or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of goodwill is compared to the recoverable amount of the CGU, which is the higher of value-in-use and the fair value less costs to sell. Any impairment is recognized immediately as an expense and is not subsequently reversed. Dream Unlimited Corp. – December 31, 2018 | 55 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ Segmented Reporting Operating segments are reported in a manner consistent with internal reporting provided to the chief operating decision maker. The chief operating decision maker has been identified as the President and Chief Responsible Officer of the Company. Joint Arrangements and Associates Investments in Joint Arrangements A joint arrangement is a contractual arrangement, pursuant to which the Company and other parties undertake an economic activity that is subject to joint control, whereby the strategic financial and operating policy decisions relating to the activities of the joint arrangement require the unanimous consent of the parties sharing control. Joint arrangements are of two types: joint ventures and joint operations. Investments in Joint Ventures Joint ventures involve the establishment of a separate entity in which each co-venturer has an interest in the net assets of the arrangement and are accounted for using the equity method of accounting, whereby the Company recognizes its share of earnings or losses and of other comprehensive income ("OCI") of the equity accounted investment in its own earnings or OCI, as applicable. Dilution gains and losses arising from changes in the Company's interest in equity accounted investments are recognized in earnings. If the Company's investment is reduced to zero, additional losses are not provided for, and a liability is not recognized, unless the Company has incurred legal or constructive obligations or made payments on behalf of the equity accounted investment. The Company's investments in joint ventures are as follows: Name of joint venture and location Bear Valley Mountain Resort LLC, California Corktown Commercial Inc., Toronto Distillery Restaurants LP, Toronto Dream CMCC Funds I and II, Toronto Dundee Kilmer Developments Limited, Toronto Dundee Kilmer Developments LP, Toronto Firelight Infrastructure Partners LP, Toronto Firelight Infrastructure Partners Management LP, Toronto S/D Commercial Corporation, Toronto Westland Properties Ltd., Western Canada Dream VHP Limited Partnership, Toronto Dream Wilson Brighton Development LP, Western Canada GulfDream LP, Toronto Port Credit West Village Partners LP, Toronto GG Duncan LP, Toronto Dream WDL LP, Toronto Zibi Community Utility LP, Ottawa Nature of business Ski facilities Investment properties Restaurant Mixed-use development Condominiums Condominiums Renewable energy Renewable energy Investment properties Land Mixed-use development Mixed-use development Mixed-use development Mixed-use development Mixed-use development Residential rental Utilities 2018 50% 50% 50% 9% - 40% 50% 50% 20% 50% 50% 78% 25% 50% 50% 31% 25% 33.33% 40% Ownership interest 2017 50% 50% 50% 9% - 40% 50% 50% 20% 50% 50% 78% 25% 50% 12.5% 7.75% 6.25% n/a n/a Investments in Joint Operations Where the Company undertakes its activities as a joint operation through a direct interest in the joint operation's assets and a direct obligation for the joint operation's liabilities, rather than through the establishment of a separate entity, the Company's proportionate share of the joint operation's assets, liabilities, revenues, expenses and cash flow is recognized in the consolidated financial statements and classified according to their nature. The following table summarizes joint operations in which the Company participates and for which it recognizes its proportionate interest in the underlying assets, liabilities, revenues, expenses and cash flows: Name of joint operation and location Distillery District, Toronto Millswoods Robertson, Edmonton Streetcar, Toronto Thornhill Woods, Toronto Nature of business Historical heritage district Land Condominiums Land and housing 2018 50% 70% 25% - 50% 30% - 32% Ownership interest 2017 50% 70% 25% - 50% 30% - 32% Investments in Associates Investments in associates comprise those investments over which the Company has significant influence but not control. Generally, the Company is considered to exert significant influence when it holds more than a 20% interest in an entity. However, determining significant influence is a matter of judgment and specific circumstances and, from time to time, the Company may hold an interest of more than 20% in an entity without exerting significant influence. Dream Unlimited Corp. – December 31, 2018 | 56 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ Conversely, the Company may hold an interest of less than 20% and exert significant influence through representation on the Board of Directors, direction of management or through contractual agreements. The Company accounts for its investments in associates using the equity method of accounting. Impairment of Equity Accounted Investments The Company assesses, at each reporting date, whether there is objective evidence that its interest in an equity accounted investment is impaired. If impaired, the carrying value of the Company's share of the underlying assets of the equity accounted investment is written down to its estimated recoverable amount, with any difference charged to earnings. Business Combinations The Company uses the acquisition method to account for business combinations. The consideration transferred for the acquisition is measured as the aggregate of the fair values of assets transferred, liabilities incurred or assumed, and any equity instruments of the Company issued in exchange for control of the acquiree. Acquisition costs are recorded as an expense in earnings as incurred. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3, “Business Combinations” (“IFRS 3”), are recognized at their fair values at the acquisition date. The interest of non-controlling shareholders in the acquiree, if any, is initially measured at the non-controlling shareholders’ share of the net assets of the acquiree, or the fair value of the non-controlling interest, as applicable. To the extent the fair value of consideration paid exceeds the fair value of the net identifiable tangible and intangible assets acquired, the excess is recorded as goodwill. If the consideration transferred is less than the fair value of net identifiable tangible and intangible assets, the excess is recognized in earnings. Where a business combination is achieved in stages, previously held interests in the acquired entity are remeasured to fair value at the acquisition date, which is the date control is obtained, and the resulting gain or loss, if any, is recognized in earnings. Amounts arising from interests in the acquiree prior to the date of acquisition of control that have previously been recognized in OCI are reclassified to earnings. Changes in the Company’s ownership interest of a subsidiary that do not result in a loss of control are accounted for as equity transactions and are recorded as a component of equity. Foreign Currency Translation Functional and Presentation Currency The consolidated financial statements are presented in Canadian dollars, which is also the Company’s functional currency. Functional Currency of Subsidiaries and Equity Accounted Investments The monetary assets and liabilities on the financial statements of consolidated subsidiaries and equity accounted investments that have a functional currency that is different from that of the Company are translated into Canadian dollars using the exchange rate at year-end for items included in the consolidated statements of earnings and OCI, and the rates in effect at the dates of the consolidated statements of financial position for assets and liabilities. All resulting changes are recognized in OCI as foreign currency translation adjustments. If the Company’s interest in the foreign operations of a subsidiary or an equity accounted investment is diluted, but the foreign operations remain a subsidiary or an equity accounted investment, a pro rata portion of the cumulative translation adjustment related to those foreign operations is reallocated between controlling and non-controlling interests, in the case of a subsidiary, or is recognized as a dilution gain or loss in the case of an equity accounted investment. When the Company disposes of its entire interest in the foreign operations, or when it loses control, joint control or significant influence, the cumulative translation adjustment included in accumulated other comprehensive income (“AOCI”) related to the foreign operations is recognized in the consolidated statements of earnings on a pro rata basis. Foreign Currency Transactions Foreign currency transactions are translated into the functional currency using exchange rates prevailing at the dates of the transactions. Generally, foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation of monetary assets and liabilities denominated in currencies other than an entity’s functional currency at each year-end date are recognized in the consolidated statements of earnings, except when deferred in OCI as qualifying cash flow hedges and qualifying net investment hedges. Financial Instruments The Company’s financial instruments include cash and cash equivalents, accounts receivable, other financial assets, lending portfolio, financial instruments within accounts payable and other liabilities, customer deposits, project-specific debt, corporate debt facilities, Dream Alternatives trust units, and Preference shares, series 1, including related redemption and retraction options that have been separately recognized and deposits and restricted cash that have been included in the consolidated financial statements within capital and other operating assets. Financial assets and liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument. Financial assets are no longer recognized when the rights to receive cash flows from the assets have expired or are assigned and the Company has transferred substantially all risks and rewards of ownership in respect of an asset to a third party. Financial assets are recognized at settlement date less any related transaction costs. Financial liabilities are no longer recognized when the related obligation expires, or is discharged or cancelled. Classification of financial instruments in the Company’s consolidated financial statements depends on the purpose for which the financial instruments were acquired or incurred. Management determines the classification of financial instruments at initial recognition. Dream Unlimited Corp. – December 31, 2018 | 57 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ The following table shows the original measurement categories under IAS 39 as at December 31, 2017 and the new measurement categories under IFRS 9 for each class of the Company's financial assets and liabilities as at January 1, 2018: Classification and measurement IAS 39 IFRS 9 Note Carrying amount IFRS 9 IAS 39 57,635 57,635 13,289 7,054 13,289 13,572 280 128 657 935 280 128 657 935 6,332 115,341 39,021 280,227 308,024 28,668 Amortized cost $ 25,408 $ 25,408 Amortized cost 197,467 197,467 Financial assets(1) Cash and cash equivalents Accounts receivable Marketable securities Loans receivable Investment holdings Other instruments: Redemption option on Preference shares, series 1 Interest rate swap - project-specific debt Interest rate swap - corporate debt facilities Capital and other operating assets: Deposits 6 7 7 7 7 7 7 16 Loans and receivables; amortized cost Loans and receivables; amortized cost Available-for-sale ("AFS"); fair value through other comprehensive income ("FVOCI") Loans and receivables; amortized cost AFS; amortized cost FVTPL Held to maturity ("HTM"); FVTPL HTM; FVOCI Loans and receivables; amortized cost Loans and receivables; amortized cost Fair value through profit or loss ("FVTPL") Amortized cost FVTPL FVTPL FVTPL FVOCI Amortized cost 16 Restricted cash Financial liabilities(1) Financial instruments in accounts payable and other liabilities Customer deposits Project-specific debt Corporate debt facilities Preference shares, series 1 (1) Excludes certain financial instruments that were recognized in the consolidated statements of financial position on acquisition of Dream Alternatives on January 1, 2018 (Note 5). HTM; amortized cost HTM; amortized cost HTM; amortized cost HTM; amortized cost HTM; amortized cost Amortized cost Amortized cost Amortized cost Amortized cost Amortized cost 115,341 $ 39,021 280,227 308,024 28,668 Amortized cost 21 22 23 6,332 19 $ Fair Value Through Profit or Loss Financial instruments in this category are initially and subsequently recognized at fair value. Gains and losses arising from changes in fair value are presented within earnings in the consolidated statements of earnings in the period in which they arise, unless they are derivative instruments that have been designated as hedges. Financial Liabilities at Amortized Cost Financial liabilities classified at amortized cost are initially measured at the amount required to be paid, less, when material, a discount to reduce the liabilities to fair value. Subsequently, these financial liabilities are measured at amortized cost using the effective interest method. Financial Liabilities at Fair Value through Profit or Loss Certain financial liabilities are designated as FVTPL as they are managed and evaluated on a fair value basis. These financial liabilities are initially and subsequently measured at fair value. Gains and losses arising from changes in fair value are recorded within earnings in the consolidated statements of earnings in the period in which they arise, with the exception of changes in the liability's credit risk, which are recorded in OCI in the period in which they arise. Hedging Instruments and Activities At the inception of a hedging transaction, the Company documents the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Company also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. The effective portion of changes in the fair value of derivatives that are hedges of a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction is recognized in OCI. The gain or loss relating to the ineffective portion, if any, is recognized immediately in the consolidated statements of earnings. The realized gain or loss recognized on settlement of a hedging instrument designated as a cash flow hedge will be reclassified to earnings over the same basis as the cash flows received from the hedged item. When a hedging instrument no longer meets the criteria for hedge accounting, any cumulative gains or losses existing in OCI at that time are recognized in earnings immediately. Dream Unlimited Corp. – December 31, 2018 | 58 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ Impairment of Financial Assets The Company applies an appropriate impairment model approach for financial assets depending on the category of financial assets or liabilities. The three impairment models applicable under IFRS 9 include the general approach, the simplified approach and the credit-adjusted approach. The Company uses the simplified approach, which recognizes expected credit losses (“ECLs”) based on lifetime ECLs for accounts receivable and the general approach for loans receivable. The general approach uses the ECLs estimated at the 12-month ECL unless the credit risk has increased significantly relative to the credit risk at the date of initial recognition. Investment Holdings and Participating Mortgages Investment holdings and participating mortgages include limited partnership interests, a hospitality asset, and mortgage receivables secured against residential development properties and include participation rights in the profits of the underlying development. At initial recognition, the Company measures a financial asset at its fair value, plus any related transaction costs. Subsequent measurement depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows. Investment holdings and participating mortgages are classified as FVTPL as their contractual cash flows do not represent solely payments of principal and interest. Income earned and the changes in fair value are recorded in the consolidated statements of earnings as revenue. Lending Portfolio The lending portfolio is primarily comprised of fixed-interest-rate and interest-only mortgage and loan investments that the Company intends on holding until maturity. They are recognized initially at fair value, plus any directly attributable transaction costs. The Company classifies all loan investments that give rise to specified payments of principal and interest as amortized cost. All other loan investments are classified as FVTPL. For those loan investments classified as amortized cost, subsequent to initial recognition, the lending portfolio investments are measured at amortized cost using the effective interest rate method, less any provision for impairment, if applicable. A provision for impairment on the lending portfolio is established based on the general approach ECL model. Under the general approach ECL model, the Company estimates possible default scenarios for the next 12 months on its lending portfolio investments. The Company established a provision matrix that considers various factors including the borrower’s credit risk, term to maturity, status of the underlying project and market risk. The results of the general approach ECL model are used to reduce the carrying amount of the financial asset through an allowance account, and the changes in the measurement of the allowance account are recognized in the consolidated statements of earnings. If a significant increase in credit risk occurs on a loan investment, an estimate of default is considered over the entire remaining life of the assets. In circumstances when an entity acquires a loan investment that is credit impaired at the date of initial recognition the credit adjusted approach will be applied. The credit adjusted approach results in expected credit losses calculated considering an estimate of default over the life of the asset. The Company recognizes interest, lender fees and other income from the lending portfolio in the consolidated statements of earnings using the effective interest rate method for the general or simplified approach regardless if evidence of impairment exists. If the credit adjusted method approach is used then a credit adjusted effective interest rate is used in calculating the applicable interest, lender fees and other income. Interest and other income includes the Company's share of any fees received, as well as the effect of any premium or discount received on the mortgage. The effective interest rate method discounts the future cash payments and receipts through the expected life of the lending portfolio mortgage or loan to its carrying amount before any allowance for expected credit losses. Under the general and simplified approach, if no evidence of impairment exists interest income is calculated on the carrying amount at the beginning of the period before any allowance for expected credit loss, otherwise interest income is calculated after an allowance for expected credit loss. Real Estate Inventory Housing and Condominiums Housing and condominium inventory, which may, from time to time, include commercial property, is acquired or constructed for sale in the ordinary course of business and is held as inventory and measured at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, based on prevailing market prices at each reporting date and discounted for the time value of money, if material, less estimated costs of completion and estimated selling costs. Land Land inventory includes land held for development and land under development and is measured at the lower of cost and net realizable value. Capitalized Costs Capitalized costs include all expenditures incurred in connection with the acquisition of property, direct development and construction costs, certain borrowing costs and property taxes. Provision for Real Estate Development Costs The provision for real estate development costs reflects management’s estimate of costs to complete for land, housing and condominium projects for which revenue has been recognized. These amounts have not been discounted, as the majority of the costs are expected to be expended within approximately one year. Investment Properties Investment properties include properties held to earn rental income or for capital appreciation, or both. Investment properties are measured initially at cost, which includes all expenditures incurred in connection with the acquisition of property, direct development and construction costs, borrowing costs and property taxes. Subsequent to initial recognition, investment properties are measured at their fair value at each reporting date. Gains or losses arising from changes in fair value are recorded in earnings in the period in which they arise. Dream Unlimited Corp. – December 31, 2018 | 59 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ Development Investment Properties Once appropriate evidence of a change in use of land held or under development is established, the land is transferred from inventory to investment properties. At that time, the land is recognized at fair value in accordance with the Company's accounting policy for investment properties, and any gain or loss is reflected in fair value changes in investment properties within the consolidated statements of earnings, in the period the transfer occurs. The gain or loss recorded represents the difference between the fair value of the transferred property and the accumulated costs of development. The fair value of development investment properties is determined by management on a property-by-property basis using a discounted cash flow valuation methodology. Within the discounted cash flows, the significant unobservable inputs include: forecasted net operating income based on the location, type and quality of the property, supported by the terms of actual or anticipated future leasing, current market rents for similar properties, adjusted for market allowances; discount rates based on market terms at the valuation date, adjusted for property-specific risks; estimated costs to complete based on internal budgets, terms of construction contracts and market conditions; expected completion dates; development and leasing risks specific to the property; and the status of approvals and/or permits. Recreational Properties Recreational properties are owner-occupied properties used in the production or supply of goods or services. Recreational properties are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Costs of recreational properties include all expenditures incurred in connection with the acquisition of the property, direct development and construction costs, borrowing costs and property taxes. The Company uses the straight-line method of depreciation for recreational properties, including major expansions and renovations. The estimated useful life of the properties is between two and forty years. Renewable Power Assets Renewable power assets are measured at cost less accumulated depreciation and impairment charges, if any. Cost includes expenditures that are directly attributable to the acquisition and construction of the asset including interest costs paid or accrued during construction. The Company uses the straight-line method of depreciation for renewable power assets including major replacements. The estimated useful life of the assets is between 20 and 25 years. Real Estate Borrowing Costs Real estate borrowing costs include interest and other costs incurred in connection with the borrowing of funds for operations. Borrowing costs directly attributable to the acquisition, development or construction of qualifying real estate assets that necessarily take a substantial period of time to prepare for their intended use or sale are capitalized as part of the cost of the respective real estate asset. For real estate construction and development projects, the Company considers a substantial period of time to be a period longer than one year to complete. All other borrowing costs are expensed in the period in which they occur. Borrowing costs that are directly attributable to investment properties under development or to the development of condominiums and commercial properties are capitalized. Borrowing costs related to land or housing developments are recognized in earnings as incurred. Where borrowing costs are specific to a qualifying asset, the amount is directly capitalized to that asset. Otherwise, borrowing costs are aggregated and pro-rated to qualifying assets using the Company’s weighted average cost of borrowing. Borrowing costs are capitalized during periods of active development and construction, starting from the commencement of the development work until the date on which all of the activities necessary to prepare the real estate asset for its intended use or sale are complete. Thereafter, borrowing costs are charged to earnings. Capital and Other Operating Assets Capital assets are recorded at cost, net of accumulated depreciation and impairment, if any, and are depreciated on a straight-line basis. Annual depreciation rates estimated by management have a range of two to twenty years. The Company reviews the depreciation method, residual values and estimates of the useful life of its capital assets at least annually. On sale or retirement, a capital asset and its related accumulated depreciation are removed from the consolidated financial statements and any related gain or loss is reflected in earnings. Other operating assets consist primarily of prepaid amounts, which are generally amortized to earnings over the expected service period; deposits made in connection with potential future land acquisitions, which are subsequently allocated to specific land inventory on completion of the acquisition; and restricted cash amounts, which comprise cash-securing letters of credit provided to various government agencies to support development activities, certain customer deposits and amounts held as security against accounts receivable. Impairment of Non-financial Assets Non-financial assets are assessed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. An impairment loss, if any, is recognized for the amount by which the asset’s carrying value exceeds its recoverable amount. The recoverable amount of an asset is the greater of an asset’s fair value, less costs to sell, and its value in use. For the purposes of assessing impairment, assets are grouped at the CGU level. If their carrying value is assessed as not recoverable, an impairment loss is recognized. An assessment is made, at each reporting date, as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Company makes an estimate of the recoverable amount and, if appropriate, reverses all or part of the impairment. If the impairment is reversed, the carrying amount of the asset is increased to the newly estimated recoverable amount. This increased carrying amount may not exceed the carrying amount that would have resulted after taking into account depreciation if no impairment loss had been recognized in prior periods. The amount of any impairment reversal is recorded immediately in earnings for the period. Dream Unlimited Corp. – December 31, 2018 | 60 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ Assets Held for Sale Assets and liabilities (or disposal groups) are classified as held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. Investment properties continue to be measured at fair value and the remainder of the disposal group is stated at the lower of the carrying amount and fair value less costs to sell. Dream Alternatives Trust Units The Company holds an effective 17% interest in Dream Alternatives as at December 31, 2018 through ownership of 12,138,723 trust units (December 31, 2017 - 13% interest through ownership of 9,619,390 trust units). The remaining 60,454,099 trust units outstanding are held by other unitholders and have been recognized on the consolidated statements of financial position to reflect the residual 83% interest held by other parties as at December 31, 2018. The units are redeemable at the option of the holder and, therefore, are considered a puttable instrument in accordance with IAS 32, "Financial Instruments - Presentation" ("IAS 32"), and must be presented as a financial liability. The holder has the option to redeem units, generally at any time, at a redemption price per unit equal to the lesser of 90% of the 20-day weighted average closing price prior to the redemption date or 100% of the closing market price on the redemption date. The Company manages the Dream Alternatives units on a fair value basis. As a financial liability measured at fair value through profit or loss, the Company recorded the Dream Alternatives trust units at fair value on acquisition of control. Subsequent to initial recognition, the liability is remeasured to fair value each period based on the Dream Alternatives trust unit's closing trading price. Fair value changes are recorded within adjustments related to Dream Alternatives trust units in the consolidated statements of earnings in the period in which they arise. Distributions on Dream Alternatives trust units not held by the Company are recognized in the period in which they are approved and are recorded as an expense within adjustments related to Dream Alternatives trust units in the consolidated statements of earnings. Refer to Note 24 for additional details. Revenue Recognition Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. The Company recognizes revenue when it transfers control over a product or service to a customer. The Company capitalizes all commissions paid to an intermediary as a cost to obtain a contract when they are expected to be recovered. These costs are amortized consistently with the pattern of recognition for the related revenue. The following is a description of principal activities from which the Company generates its revenues, including the nature of revenues, timing of satisfaction of performance obligations and significant payment terms. Product and services Land Nature, timing of satisfaction of performance obligations Revenue relating to sales of land is recognized when control over the property has been transferred to the customer - typically when the customer can begin construction on the property. Until this criterion is met, any proceeds received are accounted for as customer deposits. Revenue is measured based on the transaction price agreed to under the contract and is typically recognized upon receipt of 15% of the transaction price. Condominiums and housing projects Revenue relating to sales of condominiums and housing projects is recognized when control of the property has been transferred to the customer - typically when the customer occupies the property. Until these criteria are met, any proceeds received are accounted for as customer deposits. Revenue is measured based on the transaction price agreed to under the contract. Other revenue from investment properties (excluding base rent) Other revenue from investment properties includes recoveries of operating expenses including percentage participation rents, lease cancellation fees, parking income and other incidental income. The Company recognizes revenue as the related services are performed. The unsatisfied performance obligation resulting from other investment property revenue has a variable consideration that is constrained by the underlying performance of the property. Recreational properties Amounts received for the sale of annual season passes to recreational properties are deferred and amortized on a straight-line basis over the term of the season. Other amounts received from the use of recreational properties are recognized as revenue when earned. Real estate asset management and advisory services Revenue from real estate asset management and advisory services is calculated based on a fee that is a formula specific to each advisory client and may include fee revenue calculated as a percentage of the capital managed, capital expenditures incurred, the purchase price of properties acquired and the value of financing transactions completed. These fees are recognized on an accrual basis over the period during which the related service is rendered. Asset management and advisory services fee arrangements may also provide the Company with an incentive fee when the investment performance of the underlying assets exceeds established benchmarks. Incentive fees and other revenues are recognized in earnings when it is highly probable there will not be a significant reversal of revenue. Renewable power Revenue from renewable power assets is recognized based on the amount of energy generated at the contracted rates and is recognized when the energy produced is received by the client and the performance obligation is satisfied. Several power-generating sites are eligible for additional payments under government programs designed to provide additional fees based on the supply of renewable energy. These amounts are related to energy generated and are based on the megawatt hours ("MWh") of electricity supplied. These amounts are recorded as revenue in the period in which the energy produced is received by the client. Amounts are determined based on a fixed amount per MWh generated, depending on the location of where the energy is produced. The unsatisfied performance obligation resulting from contracted rates has a variable consideration that is constrained by the MWh of energy produced. Dream Unlimited Corp. – December 31, 2018 | 61 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ Rental Income The Company uses the straight-line method of rental revenue recognition on investment properties whereby any contractual free-rent periods and rent increases over the term of a lease are recognized in earnings evenly over the lease term. Initial direct leasing costs incurred in negotiating and arranging tenant leases are added to the carrying amount of the investment properties and are amortized over the term of the lease. Lease incentives, which include costs incurred to make leasehold improvements to tenants’ space and cash allowances provided to tenants, are added to the carrying amount of investment properties and are amortized on a straight-line basis over the term of the lease as a reduction in revenue from investment properties. Lending Portfolio Interest and Fees Income Mortgage interest and fees revenues are recognized in the consolidated statements of earnings using the effective interest method. Mortgage interest and fees revenues include the discount or premium incurred by the Company at the time the mortgages were acquired, if any. The effective interest method derives the interest rate that discounts the estimated future cash payments and receipts over the expected life of the mortgages to its carrying amount. When calculating the effective interest rate, future cash flows are estimated considering all contractual terms of the financial instrument, but not future credit losses. The calculation of the effective interest rate includes all fees and transaction costs paid or received, including the incremental revenues and costs that are directly attributable to the acquisition or issuance of the mortgage. Direct Operating Costs Inventory costs associated with land held for development or land under development, including the estimated costs to complete the development of the asset, are allocated to direct operating costs on a per lot basis, pro-rated based on the street frontage of each lot. Inventory costs associated with the development of condominiums are allocated to direct operating costs on a per unit basis, pro-rated based on the sales value of the unit relative to the sales value of all units in a condominium project. Direct operating costs associated with the construction of housing inventory and commercial property are specific to each project. Direct operating costs related to specific investment or recreational properties include property management costs and operating expenses, as well as management and administrative expenses, and are recorded on an accrual basis. Income Taxes The Company follows the balance sheet liability method to provide for income taxes on all transactions recorded in its consolidated financial statements. The balance sheet liability method requires that income taxes reflect the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities and their tax bases. Deferred income tax assets and liabilities are determined for each temporary difference and for unused tax losses and unused tax credits, as applicable, at rates expected to be in effect when the asset is realized or the liability is settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the substantive enactment date. Deferred tax assets are recognized to the extent that it is probable that the assets can be recovered. Due to uncertainties in the estimation process, particularly with respect to changes in facts and circumstances in future reporting periods (carry forward period assumptions), it is reasonably possible that actual results could differ from the estimates used in the Company’s historical analysis. If the Company’s results of operations are less than projected and there is insufficient objectively verifiable evidence to support the likely realization of its deferred tax assets, adjustments would be required to reduce or eliminate its deferred tax assets. Non-controlling Interest The non-controlling interest represents equity interests of subsidiaries owned by other shareholders. The share of net assets, net retained earnings and accumulated other comprehensive income of these subsidiaries attributable to a non-controlling interest is presented as a component of equity. Preference Shares, Series 1 The Preference shares, series 1, are classified and accounted for as a financial liability, as they are convertible at the sole discretion of the Company into a variable number of Dream's Class A Subordinate Voting Shares ("Subordinate Voting Shares") or are otherwise retractable at the option of the holder, at or after a particular date, for a fixed amount per share (Note 23). The redemption and retraction option features of the Preference shares, series 1, meet the definition of embedded derivatives requiring separate recognition, as the economic risks and characteristics of the redemption and retraction options are not closely related to those of the Preference shares, series 1. Accordingly, the embedded redemption and retraction options have been bifurcated from the Preference shares, series 1, and have been recognized as derivative financial instruments included with other financial assets and accounts payable and other liabilities, respectively, with a corresponding increase or decrease in the initial carrying value of the Preference shares, series 1. Earnings per Share Basic earnings per share is computed by dividing Dream’s earnings attributable to owners of the parent by the weighted average number of Subordinate Voting Shares and Dream Class B common shares ("Class B Shares") outstanding during the year. Diluted earnings per share, where applicable, is calculated by adjusting the weighted average number of shares outstanding for dilutive instruments by applying the treasury stock method. Dream Unlimited Corp. – December 31, 2018 | 62 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ Share-based Compensation Stock Option Plan Management issues share-based compensation to certain employees in the form of stock options that vest evenly over a three to five-year period. The fair value of the options on the grant date is determined using an option pricing model. The estimated fair value of options on the grant date is recognized as compensation expense on a graded vesting basis over the period in which the employee services are rendered. Performance Share Unit Plan Management issues share-based compensation to certain employees in the form of performance share units (“PSUs”) that are subject to either time vesting only, or time and performance vesting. PSUs subject to performance vesting provide the holder with a minimum of 0 and a maximum of 1.5 Subordinate Voting Shares based on the achievement of predetermined Company performance goals. In lieu of receiving Subordinate Voting Shares on vesting, PSU holders may request a cash payment equal to the five-day trailing weighted average share price of the Company’s Subordinate Voting Shares on the vesting date or settlement date, when applicable; however, the form of payment on vesting is ultimately the decision of the Company. The fair value of the PSUs on the grant date is determined using an option pricing model. The estimated fair value of the PSUs on the grant date is recognized as compensation expense on a straight- line basis over the period in which the employee services are rendered. Deferred Share Incentive Plan The Company has a deferred share incentive plan that provides for the grant of deferred share units ("DSUs") and income deferred share units to eligible directors, senior management and their service providers. Grants to directors, officers and employees are recognized as compensation expense and are included in general and administrative expenses in the period in which they are granted. During the holding period, which is between the grant date and the vesting date, DSUs earn dividends declared by the Company in the form of additional fractional DSUs. On settlement of DSUs and earned fractional DSUs, the amount recognized in contributed surplus for the grant is reclassified to share capital. Adoption of Recent Accounting Pronouncements The Company has adopted the following new or revised standards, including any consequential amendments thereto, for the period effective January 1, 2018. Changes in accounting policies adopted by the Company were made in accordance with the applicable transitional provisions as provided in those standards and amendments. As required by IAS 8, "Accounting Policies, Changes in Accounting Estimates and Errors", the nature and the effect of these changes are disclosed above and in Note 46. IFRS 2, “Share-based Payments” (“IFRS 2”) IFRS 2 clarifies how to account for certain types of share-based payment transactions. It was amended to address: (i) certain issues related to the accounting for cash settled awards; and (ii) the accounting for equity settled awards that include a "net settlement" feature in respect of employee withholding taxes. The amendments to IFRS 2 are effective for years beginning on or after January 1, 2018. The adoption of the amendments to IFRS 2 did not have a material impact on the Company's consolidated financial statements. IFRS 7, “Financial Instruments – Disclosure” (“IFRS 7”) IFRS 7 requires entities to provide disclosures in their financial statements that enable users to evaluate the significance of financial instruments and the nature and extent of risks arising from financial instruments to which an entity is exposed and how the entity manages those risks. It was amended to: (i) add guidance on whether an arrangement to service a financial asset that has been transferred constitutes continuing involvement; and (ii) clarify that the additional disclosure required by the amendments to IFRS 7 is not specifically required for interim periods, unless required by IAS 34. The amendments to IFRS 7 are effective for annual periods beginning on or after January 1, 2018. Expanded disclosures required by IFRS 7 are included in Note 36. IFRS 9, “Financial Instruments” (“IFRS 9”) IFRS 9 establishes principles for the financial reporting of financial assets and financial liabilities where the final version of IFRS 9 was issued in July 2014 and includes: (i) a third measurement category for financial assets (fair value through other comprehensive income ("OCI")); (ii) a single, forward-looking “expected loss” impairment model; (iii) a substantially reformed approach to hedge accounting; and (iv) a mandatory effective date of annual periods beginning on or after January 1, 2018. The impact of changes due to the adoption of IFRS 9 is included in Note 46. IFRS 15, “Revenue from Contracts with Customers” (“IFRS 15”) IFRS 15 specifies how and when revenue should be recognized, in addition to requiring more informative and relevant disclosures. The IFRS 15 revenue recognition model requires management to exercise significant judgment and make estimates that affect revenue recognition. This standard supersedes IAS 18, “Revenue”, IAS 11, “Construction Contracts”, and a number of revenue-related interpretations. IFRS 15 must be applied for periods beginning on or after January 1, 2018, with early application permitted. Expanded disclosures required by IFRS 15 are included in Note 29 and the impact of changes due to the adoption of IFRS 15 is included in Note 46. IAS 40, “Investment Property” (“IAS 40”) IAS 40 clarifies the principles for transfers into, or out of, investment property when there has been a change in use. The Company has applied the amendments prospectively in accordance with the transitional provisions. The Company has assessed the impact of the amendment on the classification of existing property as at January 1, 2018 and has concluded that no reclassifications are required and the timing of subsequent transfers is not expected to change on adoption of the amendment. As such, there is no impact to the consolidated financial statements on application of the amendment. Dream Unlimited Corp. – December 31, 2018 | 63 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ Future Accounting Standards IFRS 3, "Business Combinations" IFRS 3 clarifies that when an entity obtains control of a business that is a joint operation, it applies the requirements for a business combination achieved in stages, including remeasuring previously held interest in the assets and liabilities of the joint operation at fair value. The amendments to IFRS 3 are effective for annual periods beginning on or after January 1, 2019, with early application permitted. These amendments will apply to the Company's future business combinations. IFRS 16, “Leases” (“IFRS 16”) IFRS 16 sets out the principles for the recognition, measurement and disclosure of leases. IFRS 16 provides revised guidance on identifying a lease and for separating lease and non-lease components of a contract. IFRS 16 introduces a single accounting model for all lessees and requires a lessee to recognize right- of-use assets and lease liabilities for leases with terms of more than 12 months, unless the underlying asset is of low value. Under IFRS 16, lessor accounting for operating and finance leases will remain substantially unchanged. IFRS 16 is effective for annual periods beginning on or after January 1, 2019, with earlier application permitted for entities that apply IFRS 15. The Company has not early adopted IFRS 16. The Company is in the process of completing its in-depth assessment of IFRS 16 and the impact to the Company's consolidated financial statements. The Company's preliminary assessment has identified certain leases within Western Canada and Dream Alternatives' renewable power portfolio that will be impacted by the implementation of IFRS 16, which would result in those leases with terms of more than 12 months to be included on-balance sheet by recognizing a "right-of-use" asset and its related lease liability at the commencement of the lease. The impact to the Company's consolidated financial statements will be approximately $17,800 in right-of-use assets and lease liabilities as at January 1, 2019. IFRIC 23, “Uncertainty over Income Tax Treatments” (“IFRIC 23”) IFRIC 23 clarifies the application of the recognition and measurement requirements in IAS 12, “Income Taxes” (“IAS 12”), for situations where there is uncertainty over income tax treatments. IFRIC 23 specifically addresses whether an entity considers income tax treatments separately; assumptions that an entity makes regarding the examination of tax treatments by taxation authorities; how an entity determines taxable income or loss, tax bases, unused tax losses or credits, and tax rates; and how an entity considers changes in facts and circumstances. IFRIC 23 does not apply to taxes or levies outside the scope of IAS 12. IFRIC 23 is effective for annual periods beginning on or after January 1, 2019. The Company does not expect a significant impact to the consolidated financial statements. 4. Critical accounting estimates, judgments and assumptions The preparation of these consolidated financial statements in accordance with IFRS requires the Company to make judgments in applying its accounting policies and estimates and assumptions about the future. These judgments, estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities included in the Company’s consolidated financial statements. The Company evaluates its estimates on an ongoing basis. Such estimates are based on historical experience and on various other assumptions the Company believes are reasonable under the circumstances, and these estimates form the basis for making judgments about the carrying value of assets and liabilities and the reported amount of revenues and expenses that are not readily apparent from other sources. Actual results may differ from those estimates under different assumptions or conditions. The following discusses the most significant accounting judgments, estimates and assumptions the Company has made in the preparation of its consolidated financial statements. Joint Arrangements and Associates The Company holds investments in various assets, and its ownership interest in these investments is established through diverse structures. Significant judgment is applied in assessing whether the investment structure results in control, joint control or significant influence over the operations of the investment, or whether the Company’s investment is passive in nature. The assessment of whether the Company exerts control, joint control or significant influence over an investment will determine the accounting treatment for the investment. In making this assessment, the Company considers its ownership interest in the investment as well as its decision-making authority with regard to the operating, financing and investing activities of the investment as specified in the contractual terms of the arrangement. The Company also considers any agreements with the investee that expose the Company to variable returns from its involvement with the investee. Joint arrangements that involve the establishment of a separate entity in which each venture has an interest are set up as joint ventures, whereas investments in associates are those investments over which the Company has significant influence but no control. Business Combinations and Goodwill The Company uses significant judgment to conclude whether an acquired set of activities and assets is a business, and such judgment can lead to significantly different accounting results. If an acquired set of activities and assets does not meet the definition of a business, the transaction is accounted for as an asset acquisition. There are many differences in accounting for a business combination versus an asset acquisition, including the recognition of goodwill and deferred tax amounts, the initial measurement of assets and accounting for transaction costs. These differences not only affect the accounting as at the acquisition date, but will also affect future depreciation and possible impairment analysis. Accordingly, the conclusion as to whether a business has been acquired can have a significant effect on the Company’s reported financial position and results of operations. Significant judgment is required in applying the acquisition method of accounting for business combinations and, specifically, in identifying and determining the fair value of assets and liabilities acquired, including intangible assets and residual goodwill, if any. The Company’s goodwill balance is allocated to the particular CGU to which it relates (herein referred to as the “goodwill CGU”). The recoverable amount of the Company’s goodwill CGU is determined based on the fair value less costs of disposal approach. Refer to Note 17 for further details. Dream Unlimited Corp. – December 31, 2018 | 64 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ Consolidation In determining if an entity is a subsidiary of the Company, the Company makes significant judgments about whether it has power and control over such an entity. In addition to voting rights, the Company considers the contractual rights and obligations arising from other arrangements, and other relevant factors relating to an entity in determining if the Company has the power and ability to affect returns from an investee. The contractual rights and obligations considered by the Company include, among others, the approvals and decision-making process over significant operating, financing and investing activities, the responsibilities and scope of decision-making power of the Company, the termination provisions of applicable agreements, the types and determination of fees paid to the Company and the significance, if any, of any investment made by the Company. The Company reviews its prior conclusions when facts and circumstances change. Net Realizable Value Land, including land under development and land held for development, as well as housing and condominium inventory, are stated at the lower of cost and net realizable value. In calculating net realizable value, management must estimate the selling price of these assets based on prevailing market prices at the dates of the consolidated statements of financial position, discounted for the time value of money, if material, less estimated costs of completion and estimated selling costs. If estimates are significantly different from actual results, the carrying amounts of these assets may be overstated or understated on the consolidated statements of financial position and, accordingly, earnings in a particular period may be overstated or understated. Provisions Provisions are recorded by the Company when it has determined it has a present obligation, whether legal or constructive, and it is probable that an outflow of resources will be required to settle the obligation, provided a reliable estimate can be made of the amount of the obligation. Management must use judgment in assessing the magnitude and timing of the potential economic exposure and the likelihood of a future event occurring. Actual results may differ significantly from those estimates. The consolidated financial statements include a significant provision for costs to complete land, housing and condominium projects. The stage of completion of any development project, and the remaining costs to be incurred, are determined by management, considering relevant available information at each reporting date. In making such determination, management makes significant judgments about milestones, actual work performed and the estimates of costs to complete the work. Fair Value of Investment Holdings and Participating Mortgages Critical judgments are made in determining the fair value of investment holdings and participating mortgages. The fair values of these investments are reviewed regularly by the Company with reference to the applicable local market conditions and in discussion with the development’s construction management company. The Company makes judgments with respect to the completion dates of the developments, and the leasing and management cost assumptions for the buildings and/or unit sales in order to determine the Company’s interest and participating income. Generally, the investment holdings and participating mortgages are valued using a number of approaches that typically include a discounted cash flow analysis, direct capitalization approach and direct comparison approach. The discounted cash flow model is calculated based on future interest and participating profit payments as determined by the Company and project managers’ estimates of unit sales proceeds and/or net operating income of the development properties. With the direct capitalization rate method, the fair value is determined by applying a capitalization rate to stabilized net operating income. Each investment is subject to an appraisal by an independent valuator at least once every three years, if not earlier. Critical judgments are made in respect of the fair values of co-owned commercial assets. Assumptions related to the estimates of fair values of these investment holdings include discount rates that reflect current market uncertainties, capitalization rates and recent investment holding transaction prices, if any. If there is any change in these assumptions or regional, national or international economic conditions, the fair value of investment holdings may change materially. Fair Value of Investment Properties Critical judgments are made in respect of the fair values of investment properties and the investment properties held in equity accounted investments. Assumptions relating to the estimates of fair values of investment properties include the receipt of contractual rents, expected future market rents, renewal rates, maintenance requirements, discount rates that reflect current market uncertainties, capitalization rates and current and recent investment property transaction prices, if any. If there is any change in these assumptions or regional, national or international economic conditions, the fair value of investment properties may change materially. On a rotational basis, the Company engages independent, professionally qualified appraisers who are experienced, nationally recognized and qualified in the professional valuation of real estate in their respective geographic areas. Judgment is applied in determining the extent and frequency of independent appraisals. A select number of properties are valued by an independent appraiser on a rotational basis at least once every three years. For properties subject to an independent valuation report, management verifies all major inputs to the valuation and reviews the results with the independent appraisers. Fair Value of Development Investment Properties Fair value measurement of an investment property under development is applied only if the fair value is considered to be reliably measurable. Under specific circumstances, investment properties under development may be carried at cost until their fair value becomes reliably measurable. It may sometimes be difficult to determine reliably the fair value of investment properties under development. In order to evaluate whether the fair value of an investment property under development can be determined reliably, management considers various factors, including the terms of the construction contract, the stage of completion, the location, type and quality of the property, expected completion dates, current market rents for similar properties, the level of reliability of cash inflows after completion, the development risks specific to the property, past experience with similar constructions, status of approvals and/or permits, estimated costs to complete and market conditions. Dream Unlimited Corp. – December 31, 2018 | 65 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ Impairment of Non-Financial Assets Recreational properties, renewable power assets, capital assets and intangible assets with finite lives are tested for impairment whenever events or changes in circumstances indicate the carrying amounts may not be recoverable. Intangible assets with indefinite lives are tested at least annually. Management uses judgment in performing this impairment test. Imprecision in any of the assumptions and estimates used could affect the valuation of these assets and the assessment of performance. IAS 36, "Impairment of Assets", requires management to use judgment in determining the recoverable amount of assets tested for impairment. Judgment is involved in estimating the fair value less the cost to sell or value-in-use of the CGUs, including estimates of growth rates, discount rates and terminal rates. The values assigned to these key assumptions reflect past experience and are consistent with external sources of information. Income Taxes The determination of the Company’s income and other tax liabilities requires interpretation of complex laws and regulations, often involving multiple jurisdictions. Judgment is required in determining whether deferred income tax assets should be recognized on the consolidated statements of financial position. Deferred income tax assets are recognized to the extent the Company believes it is probable that the assets can be recovered. Furthermore, deferred income tax balances are recorded using enacted or substantively enacted future income tax rates. Changes in enacted income tax rates are not within the control of management. However, any such changes in income tax rates may result in actual income tax amounts that may differ significantly from estimates recorded in deferred tax balances. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Fair Value and Impairment of Financial Instruments Certain financial instruments are recorded in the Company’s consolidated statements of financial position at values that are representative of or approximate fair value. The fair value of a financial instrument that is traded in active markets at each reporting date is determined by reference to its quoted market price or dealer price quotations. The fair value of co-owned commercial assets is based on the fair value of the Company's proportionate net assets of the underlying investment. IFRS 9 requires management to use judgment in determining if the Company's financial assets are impaired. The Company's financial assets are subject to the ECL model whereby the Company estimates on a forward looking basis possible default scenarios and establishes a provision matrix that considers various factors including industry and sector performance, economic and technological changes and other external market indicators. The fair value of certain other financial instruments is determined using valuation techniques. By their nature, these valuation techniques require the use of assumptions. Changes in the underlying assumptions could materially impact the determination of the fair value of a financial instrument. Imprecision in determining fair value using valuation techniques may affect the amount of earnings recorded in a particular period. The Company classifies the fair value of its financial instruments according to the following hierarchy, which is based on the amount of observable inputs used to value the instrument: Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets; Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument; and Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement. Fair Value of Hedging Instruments and Effectiveness Critical judgments are made in respect of assumptions used to estimate the fair value of hedging instruments and to assess the effectiveness of the hedging arrangement. The basis of valuation and assessment of effectiveness for the Company's derivatives is set out in Notes 21 and 22; however, the fair values reported may differ from how they are ultimately recognized if there is volatility in interest rates between the valuation date and settlement date. Transfer of Inventory to Development Investment Properties Raw land is usually unentitled property without the regulatory approvals that allow the construction of residential, industrial, commercial and mixed-use developments. When development plans are formulated, the Company may decide that specific land holdings will be developed into investment properties. Once appropriate evidence of a change in use is established, the land is transferred to investment properties. This also applies to multi-family rental properties, which are transferred to investment properties from condominium inventory. Dream Unlimited Corp. – December 31, 2018 | 66 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ 5. Business combination Dream Alternatives On January 1, 2018, the Company acquired control of Dream Alternatives based on the increase in the Company's exposure to variable returns resulting from increased ownership through units held in Dream Alternatives and from new real estate joint venture agreements. The Company remeasured its existing 13% equity interest in Dream Alternatives to its fair value of $60,891 at the acquisition date. As a result of the remeasurement, the Company recorded a non-cash gain of $12,555 and realized losses reclassified from AOCI of $78 in the year ended December 31, 2018. The acquisition of control also resulted in a non-cash net bargain purchase gain of $117,437 in the year ended December 31, 2018. This amount represented the difference between the fair value of net assets of Dream Alternatives relative to the implied financial consideration for the transaction. As part of the acquisition of control, the Company derecognized the intangible asset of $43,000 related to the right to manage Dream Alternatives and eliminated amounts receivable from Dream Alternatives of $23,107. The following table summarizes the identifiable assets and liabilities assumed, which were measured at fair value at the date of acquisition of control of Dream Alternatives, as well as the components of the net gain on acquisition of Dream Alternatives: Cash and cash equivalents Accounts receivable Other financial assets Lending portfolio Investment properties Renewable power assets Equity accounted investments Capital and other operating assets Deferred income taxes Total assets Less: Accounts payable and other liabilities Project-specific debt Dream Alternatives trust units (87% held by other unitholders as at January 1, 2018) Deferred income taxes Net assets acquired Consideration: Deemed disposal of previously held equity accounted investment at fair value Total consideration Net assets acquired Less: Consideration Bargain purchase gain Derecognition of intangible asset Elimination of amounts receivable from Dream Alternatives Adjustment for non-controlling interests in Dream Alternatives Net bargain purchase gain Non-cash gain on deemed disposal of previously held equity accounted investment Net gain on acquisition of Dream Alternatives $ $ $ $ $ $ 60,927 5,645 157,231 161,399 220,240 148,901 133,406 4,515 111 892,375 (21,050) (203,967) (397,620) (23,355) (645,992) 246,383 60,891 60,891 246,383 (60,891) 185,492 (43,000) (23,107) (1,948) 117,437 12,555 129,992 The fair values at the date of acquisition of control of Dream Alternatives' current assets, capital and other operating assets, and current liabilities approximate their carrying values due to their short-term nature. The Dream Alternatives trust units held by other unitholders are measured at the fair value of units outstanding. Zibi On October 13, 2017, the Company acquired control of Zibi through a restructuring of Zibi’s ownership whereby the Company obtained control of the ultimate general partner of Zibi. Prior to the acquisition date, the Company owned a 50% economic interest in Zibi and a 35% voting interest in the ultimate general partner and accounted for its interest as an equity accounted investment. As a result of the restructuring, the Company owns a 40% economic interest in Zibi and an 80% voting interest in Zibi’s ultimate general partner. As part of the restructuring, Dream Alternatives also acquired a 40% interest in the project, with the residual 20% interest held by a third-party partner. Dream Unlimited Corp. – December 31, 2018 | 67 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ Immediately prior to the restructuring, the Company had contributed $25,000 in equity to Zibi for a 50% interest and had a $2,573 loan outstanding from the project. The carrying value of the Company's equity accounted investment in Zibi was $22,742 immediately prior to the restructuring. As a result of acquiring control of the ultimate general partner of Zibi, the Company re-measured its existing 50% equity interest in Zibi to its fair value of $36,044, implied by the purchase price agreed upon by Dream Alternatives. As a result of the remeasurement, the Company recorded a non-cash gain of $13,302 in investment and other income in the three months ended December 31, 2017.  The acquisition of control also resulted in $13,576 of goodwill on the Company's consolidated statements of financial position, which represented the difference between the fair value of net assets of Zibi (at 100%) relative to the implied financial consideration for the transaction.  The results of Zibi have been consolidated for the twelve months ended December 31, 2017, with a 60% non-controlling interest recognized for the residual partners' economic interest. The following table summarizes the identifiable assets and liabilities assumed, which were measured at fair value at the date of acquisition of control of Zibi: Cash and cash equivalents Accounts receivable Condominium inventory Capital and other operating assets Goodwill Total assets Less: Accounts payable and other liabilities Customer deposits Project-specific debt Non-controlling interest (at 60%) Net assets acquired Consideration: Deemed disposal of previously held equity accounted investment at fair value Conversion of loan receivable from Zibi to equity Capital contributions payable Total consideration $ $ $ $ 1,091 18,263 85,101 5,216 13,576 123,247 (4,503) (4,662) (36,348) (38,494) (84,007) 39,240 36,044 2,573 623 39,240 The fair values of current assets, capital and other assets, and current liabilities approximate their carrying values due to their short-term nature. The non- controlling interest in Zibi has been measured at its proportionate share of Zibi's identifiable assets. The Company incurred $122 in acquisition-related costs that are included in selling, marketing and other costs. As a result of the acquisition of control of Dream Alternatives, the Company acquired an additional 40% economic interest in Zibi, which was accounted for as an equity transaction (Note 28). Dream Unlimited Corp. – December 31, 2018 | 68 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ 6. Accounts receivable The details of accounts receivable by segment are summarized in the following table: Western Canada development Urban development Renewables and recreational properties Asset management and advisory services fees Dream Alternatives Corporate and other(1) 2017 118,350 39,590 5,058 6,933 — 27,536 197,467 (1) As at December 31, 2017, Corporate and other includes contributions receivable of $14,540 from Dream Alternatives and a letter of credit of $6,510 to a third party relating to co-owned development 2018 120,567 31,856 4,546 6,763 2,821 10,861 177,414 $ $ $ $ projects. These balances were eliminated on consolidation of Dream Alternatives as at January 1, 2018. Accounts receivable for contracted sales of land under development and housing and condominium sales are secured by the underlying real estate assets and have various terms of repayment. The carrying value of accounts receivable is reported net of a provision for impairment of $762 (December 31, 2017 - $663). 7. Other financial assets Other financial assets consisted of the following: Marketable securities - Dream Global REIT Participating mortgages Investment holdings Loans receivable Other instruments Note $ 36 $ 2018 58,123 64,764 73,085 11,894 4,485 212,351 $ $ 2017 57,635 — 7,054 13,289 1,065 79,043 Marketable Securities As at December 31, 2018, the Company held 3,132,727 Dream Global REIT units with a fair value of $37,279 (December 31, 2017 – 3,031,593 units with a fair value of $37,046). In addition, the Company held 2,081,517 deferred trust units (“DTUs”) as at December 31, 2018 with a fair value of $20,844 (December 31, 2017 – 2,059,806 DTUs with a fair value of $20,589), which were received as compensation provided for services pursuant to the asset management and advisory services agreement between the Company and Dream Global REIT. Refer to Note 36 for the valuation methodology used to determine the fair value of the DTUs. Participating Mortgages Participating mortgages related to two long-term development loans secured by real property comprising two residential assets under development. Refer to Note 36 for the valuation methodology used to determine the fair value of the participating mortgages. In the year ended December 31, 2018, the Company recorded a net fair value loss of $7,844, primarily related to the participating mortgages as a result of changes in profit assumptions. As at December 31, 2018, the discount rates applied for the participating mortgages were 7% to 8% (January 1, 2018 - 9.5% to 12%). The change in discount rates was due to a reduction in risk profile of the development holdings as the assets approach completion and are fully sold. The Company determined the fair value of the participating mortgages by using a discounted cash flow analysis which is calculated based on future interest and participating profit payments as determined by the Company and the project managers' estimates of unit sales proceeds and/or net operating income of the development properties. Investment Holdings As at December 31, 2018, investment holdings include one hospitality asset (Hard Rock Hotel & Casino), retail assets and certain co-owned commercial assets. In the year ended December 31, 2018, the Company, through Dream Alternatives, invested US$29,000 ($37,526) for an approximate 10% interest in the Hard Rock Hotel & Casino in Las Vegas, Nevada, with a consortium of partners, led by Juniper Capital Partners and Fengate Real Estate Asset Investments. As at December 31, 2018, the cash consideration approximates fair value, adjusted for foreign currency translation. Loans Receivable Loans receivable are amounts owing to the Company pertaining to development partnerships in Toronto. Dream Unlimited Corp. – December 31, 2018 | 69 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ 8. Lending portfolio Balance, December 31, 2017 Acquired through business combination (Note 5) Add (deduct): Lending portfolio advances(1) Changes in accrued interest receivable Interest capitalized to lending portfolio balance Discount on lending portfolio, net of amortization Lender fees and extension fees received, net of amortization Principal repayments at maturity and contractual repayments and prepayments Balance, December 31, 2018 (1) Included is a loan of $16,574 that is classified as FVTPL. As at December 31, 2018, fair value approximates amortized cost. The table below provides a summary of the Company's lending portfolio: Weighted average effective interest rate (year-end) Security allocation (1st mortgages/other) Maturity dates Balance of accrued interest Loans with prepayment options Principal repayments, based on contractual maturity date, are as follows: 2019 2020 2021 2022 2023 and thereafter Total principal repayments Provision for lending portfolio losses Accrued interest balance Unamortized balance of lender fees received Unamortized balance of discount on lending portfolio Balance, December 31, 2018 2018 9.6% 69.8%/30.2% 2019 - 2025 241 37,127 $ $ $ $ $ $ $ Total — 161,399 35,042 (776) 6,113 (3,513) 318 (54,488) 144,095 2017 n/a n/a n/a n/a n/a 101,727 7,230 18,221 6,250 19,152 152,580 (4,842) 241 (338) (3,546) 144,095 In the year ended December 31, 2018, the Company, through a subsidiary of Dream Alternatives, advanced $35,042 at a weighted average effective interest rate of 10.7%. In the three months and year ended December 31, 2018, a loan investment classified as FVTPL, aggregating $16,574, was measured at fair value using a discounted cash flow method. The fair value was determined by discounting the expected cash flows of the loan using a market interest rate of 17.6%. The market rate was determined by taking into consideration similar instruments with corresponding maturity dates plus a credit adjustment in accordance with the borrowers' creditworthiness as well as the risk characteristics of the underlying development. Generally, under this method, a decrease in the market rate will result in an increase to the fair value. An increase in the market rate will result in a decrease to the fair value. If the weighted average market rate were to increase by 25 basis points ("bps"), the fair value of the loan investments would decrease by $100. If the weighted average market rate were to decrease by 25 bps, the fair value would increase by $100. Dream Unlimited Corp. – December 31, 2018 | 70 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ 9. Housing inventory The movement in housing inventory is as follows: Balance, January 1, 2017 Acquisitions Transfers from land inventory Development Housing units occupied Balance, December 31, 2017 Transfers from land inventory Development Housing units occupied Balance, December 31, 2018 10. Condominium inventory The movement in condominium inventory is as follows: Balance, January 1, 2017 Acquisitions Development Condominium units occupied Transfers to/from investment properties Transfers to assets held for sale Acquired through business combination Balance, December 31, 2017 Acquisitions Development Condominium units occupied Balance, December 31, 2018 11. Land inventory The movement in land inventory is as follows: Balance, January 1, 2017 Acquisitions Development Lot and acre sales Transfers Transfers to housing inventory Transfers to condominium inventory Balance, December 31, 2017 Acquisitions Development Lot and acre sales Transfers Transfers to housing inventory Transfers to investment properties Balance, December 31, 2018 $ $ $ $ Total 50,662 1,908 14,609 54,578 (62,138) 59,619 17,527 23,992 (44,533) 56,605 Total 55,634 7,462 35,114 (20,441) 9,425 (782) 85,101 171,513 694 85,817 (18,403) 239,621 Total 604,487 7,951 77,946 (82,693) — (14,609) (18,184) 574,898 960 86,761 (62,955) — (17,527) (6,241) 575,896 Land held for development Land under development $ $ 413,485 7,951 4,486 — (6,339) — — 419,583 960 10,483 — (1,566) — — 429,460 $ $ 191,002 — 73,460 (82,693) 6,339 (14,609) (18,184) 155,315 — 76,278 (62,955) 1,566 (17,527) (6,241) 146,436 $ $ Dream Unlimited Corp. – December 31, 2018 | 71 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ 12. Investment properties The movement in investment properties by segment is as follows: Balance, January 1, 2017 Additions to and transfers to/from investment properties: Land and building additions Transfers to/from condominium inventory (net) Transfers from land inventory Transfers to assets held for sale Gains (losses) included in earnings: Fair value changes in investment properties Amortization and other Change in straight-line rent Balance, December 31, 2017 Additions to and transfers to/from investment properties: Properties acquired through business combination (Note 5) Acquisitions Land and building additions Transfers from land inventory Transfers to assets held for sale Dispositions Gains (losses) included in earnings: Fair value changes in investment properties Amortization and other Change in straight-line rent Urban Development Western Canada Development Dream Alternatives(1) Total $ 158,176 $ 79,806 $ — $ 237,982 2,025 (9,425) — (8,294) 3,672 (47) 186 146,293 — 3,381 732 — — (48,000) 19,346 (46) 1 121,707 11,972 — 18,184 (25,042) 10,473 — 291 95,684 — — 6,308 6,241 (53,732) — 1,556 — 191 56,248 — — — — — — — — 220,240 10,144 7,908 — — — (2,242) (1,260) 26 234,816 $ $ 13,997 (9,425) 18,184 (33,336) 14,145 (47) 477 241,977 220,240 13,525 14,948 6,241 (53,732) (48,000) 18,660 (1,306) 218 412,771 Balance, December 31, 2018 (1) Dream Alternatives segment includes consolidation adjustments relating to a 33.3% leasehold interest co-owned with Dream. $ $ In the year ended December 31, 2018, Dream acquired certain office and industrial properties in connection with the acquisition of control of Dream Alternatives (Note 5). In the year ended December 31, 2018, Dream, along with Dream Alternatives, acquired a 33.3% leasehold interest in a retail shopping centre and residential mixed-used development investment located at 100 Steeles Ave. West ("100 Steeles") in Toronto, split 25%/75% between Dream and Dream Alternatives. The investment is currently an income producing retail property with redevelopment potential in future years. In the year ended December 31, 2018, Dream achieved first tenant occupancies within its first commercial development project in the Harbour Landing Commercial Campus in Regina, Saskatchewan (year ended December 31, 2017 - two retail properties). The achievement of first tenant occupancy demonstrated a change in use of the property, which resulted in a change in classification under IFRS from land under development (held at cost) to investment properties (held at fair value). As a result, the Company transferred the carrying value of the property of $6,241 to investment properties and recognized a non-cash gain of $815 within fair value changes in investment properties in the consolidated statement of earnings upon transfer (year ended December 31, 2017 - carrying value of $18,184, non-cash gain of $6,915). Fair value changes for the year ended December 31, 2018 for investment properties were $18,660 (year ended December 31, 2017 – $14,145). In the year ended December 31, 2018, the Company received a Notice of Expropriation and Notice of Possession from the City of Toronto for its 73-acre commercial site in Toronto (the “Obico Property”), a property within the Urban Development segment, and accordingly, ownership of the property was deemed to be passed to the City of Toronto on the date of the expropriation registration. The Company received an offer of compensation from the City of Toronto in the amount of $48,000 in respect of its interest in the Obico Property, pursuant to Section 25 of the Expropriations Act (Ontario). The Company has accepted the consideration in order to repay the outstanding first mortgage obligation of $21,917, but has the right to claim additional compensation as provided for in the Expropriations Act (Ontario). Based on the consideration offered, the Company has recorded a corresponding fair value gain of $7,580 in the consolidated statements of earnings for the year ended December 31, 2018 and collected the net proceeds in the three months ended December 31, 2018. The Company intends to pursue a higher amount of compensation under the Expropriations Act (Ontario) in respect of the expropriation of the Obico Property. At the point of final settlement, for which both timing and outcome are uncertain, the Company may record an additional gain in the consolidated statements of earnings. Dream Unlimited Corp. – December 31, 2018 | 72 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ Fair Value of Investment Properties Fair values of investment properties are determined using valuations prepared by management using inputs that are Level 3 on the fair value hierarchy. To supplement the assessment of fair value, management obtains valuations of selected investment properties on a rotational basis from qualified external valuation professionals and verifies the results of such valuations with the external appraisers. As at December 31, 2018, investment properties of $340,560 (December 31, 2017 - $nil) were externally appraised. The discount rate is based on the weighted average cost of capital of the Company and is used to determine the net present value of cash flows. The terminal capitalization rate is based on the location, size and quality of the investment property and takes into account any available market data at the valuation date. The terminal capitalization rate is used to estimate the value of a property at the end of the holding period. The following are the significant assumptions used under the discounted cash flow method: • • Terminal capitalization rate – taking into account assumptions regarding vacancy rates and market rents Discount rate – reflecting current market assessments of the uncertainty in the amount and timing of cash flows Significant unobservable inputs were as follows for December 31, 2018 and December 31, 2017: Urban development Western Canada Dream Alternatives Input Discount rate Terminal capitalization rate Discount rate Terminal capitalization rate Discount rate Terminal capitalization rate Range 6.00%–7.00% 5.25%–6.50% 6.75%–7.00% 5.75%–6.50% 5.80%–8.80% 4.75%–8.00% 2018 Weighted average 6.0% 5.3% 6.9% 6.1% 6.9% 6.3% Range 5.75%–7.00% 5.25%–6.50% 6.50%–7.00% 5.75%–6.50% n/a n/a 2017 Weighted average 5.8% 5.3% 6.7% 5.9% n/a n/a Fair Value of Urban Development and Dream Alternatives Investment Properties Fair values of Urban Development and Dream Alternatives investment properties, which include commercial, retail, industrial and other properties held for long-term, are calculated using a discounted cash flow (“DCF”) model, generally over an average period of ten years, plus a terminal value based on the estimated cash flow in the final year. The DCF model incorporates, among other things, expected rental income from current leases, assumptions about rental income from future leases and implied vacancy rates, general inflation and projections of required cash outflows with respect to such leases. The significant unobservable inputs for the fair value of the Company’s investment properties are provided above. Fair values of the Company's Urban Development and Dream Alternatives investment properties are most sensitive to changes in the terminal capitalization rates. An increase in the terminal capitalization rate will result in a decrease in the fair value of an investment property and vice versa. If the capitalization rate were to increase or decrease by 25 bps, the value of investment properties would decrease by $15,910 and increase by $16,590, respectively, as at December 31, 2018. Fair Value of Western Canada Development Properties The fair values of Western Canada development properties are determined by management on a property-by-property basis using a DCF model. Within the DCF the significant unobservable inputs include: forecasted net operating income based on the location, type and quality of the property, supported by the terms of actual or anticipated future leasing; current market rents for similar properties, adjusted for market allowances; discount rates based on market terms at the valuation date, adjusted for property-specific risks; estimated costs to complete, terms of construction contracts and market conditions; expected completion dates; development and leasing risks specific to the property; and the status of approvals and/or permits. Fair values of the Company's Western Canada development properties are most sensitive to changes in the terminal capitalization rates. An increase in the terminal capitalization rate will result in a decrease in the fair value of an investment property and vice versa. If the terminal capitalization rate were to increase or decrease by 25 bps, the value of investment properties would decrease by $1,341 and increase by $1,457, respectively, as at December 31, 2018. Investment properties, including equity accounted investments and excluding assets held for sale, with a fair value of $363,813 as at December 31, 2018 (December 31, 2017 — $110,623) are pledged as security for mortgages and term debt. Investment properties, including equity accounted investments, with a fair value of $28,363 as at December 31, 2018 (December 31, 2017 — $110,621) are pledged as security for construction loans. The Company's future minimum rental commitments, including joint operations and excluding investment properties classified as held for sale, from non- cancellable tenant operating leases as at December 31, 2018 were as follows: No longer than 1 year Between 1 and 5 years Longer than 5 years $ $ 14,804 50,347 36,243 101,394 Dream Unlimited Corp. – December 31, 2018 | 73 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ 13. Recreational properties The movement in recreational properties is as follows: Cost Accumulated depreciation Balance, beginning of year Additions Depreciation Other Balance, end of year Cost Accumulated depreciation Balance, end of year Operational recreational properties: Arapahoe Basin ski hill (Colorado) The Broadview Hotel (Ontario) Willows Golf Course (Saskatchewan) 14. Renewable power assets The movement in renewable power assets is as follows: Balance, January 1, 2018 Acquired through business combination (Note 5) Additions Depreciation Other Balance, December 31, 2018 Cost Accumulated depreciation Total renewable power assets $ $ $ $ $ $ $ $ $ $ 2018 63,557 (22,940) 40,617 9,557 (3,891) 2,958 49,241 76,072 (26,831) 49,241 2018 32,103 14,554 2,584 49,241 $ $ $ $ $ $ Wind power — 60,680 272 (2,963) 520 58,509 2018 160,691 (17,403) 143,288 $ $ $ $ 2017 52,753 (19,881) 32,872 11,159 (3,059) (355) 40,617 63,557 (22,940) 40,617 2017 22,884 14,933 2,800 40,617 Total — 148,901 584 (6,717) 520 143,288 2017 — — — $ $ Solar power — 88,221 312 (3,754) — 84,779 Dream Unlimited Corp. – December 31, 2018 | 74 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ 15. Equity accounted investments The Company has entered into certain arrangements in the form of jointly controlled entities for various residential and investment property developments, as well as renewable energy investments. These arrangements include restrictions on the ability to access assets without the consent of all partners and include distribution conditions outlined in partnership agreements. These arrangements are accounted for under the equity method. The equity method of accounting is also applicable to investments in common stock in which the Company is deemed to be able to exercise significant influence over the investee company. As at December 31, 2018, the carrying value of these arrangements was $549,760 (December 31, 2017 – $402,672). The following tables summarize the Company’s proportionate share of assets and liabilities in equity accounted investments (segregated between development and income producing investments) as at December 31, 2018 and December 31, 2017. Project level (at 100%) Development investments Brighton Marketplace Canary District Frank Gehry Port Credit Lakeshore East Other development investments Total development investments Income producing investments Dream Office REIT Firelight Infrastructure Partners LP Other income producing investments Total income producing investments Total At Dream's share Development investments Brighton Marketplace Canary District Frank Gehry Port Credit(2) Lakeshore East(2) Other development investments Total development investments Income producing investments Assets Liabilities 46,465 $ 125,057 345,011 259,819 63,575 319,370 1,159,297 $ 3,122,932 $ 944,846 140,545 4,208,323 $ 5,367,620 $ (30,646) $ (105,090) (259,265) (122,827) (30,040) (202,031) (749,899) $ (1,509,310) $ (752,188) (85,788) (2,347,286) $ (3,097,185) $ $ $ $ $ $ Ownership interest Assets Liabilities Net assets Difference between net assets and deemed cost of investments(1) 50% $ 50% 25% 31% 50% 7%-50% $ 23,233 $ 62,529 85,773 84,902 46,383 104,288 407,108 $ (15,323) $ (52,545) (64,816) (38,076) (15,021) (75,057) (260,838) $ 7,910 $ 9,984 20,957 46,826 31,362 29,231 146,270 $ (2,286) $ — 7,656 — — — 5,370 $ 2018 Net assets 15,819 19,967 85,746 136,992 33,535 117,339 409,398 1,613,622 192,658 54,757 1,861,037 2,270,435 2018 Total 5,624 9,984 28,613 46,826 31,362 29,231 151,640 Dream Office REIT(3) Firelight Infrastructure Partners LP Other income producing investments 340,257 700,581 $ 38,475 188,969 19,388 45,486 398,120 935,036 $ Total income producing investments Total 549,760 1,342,144 $ (1) The difference between net assets and the deemed cost of investment is due to the Company's proportionate share of the joint venture's net assets being either higher or lower than the Company's cost of the investment at year-end. (2) The Company's deemed cost of this investment includes fair value adjustments relating to the consolidation of Dream Alternatives (Note 5) and as a result, may not reflect our proportionate share of project level net assets. (3) The ownership interest in Dream Office REIT increased throughout the year ended December 31, 2018 and was approximately 23% as at December 31, 2018 (December 31, 2017 - 14%). (339,199) $ (150,494) (26,098) (515,791) $ (776,629) $ 361,382 $ 38,475 19,388 419,245 $ 565,515 $ 23% $ 20% 17%-78% (21,125) $ (15,755) $ (21,125) $ — — $ $ Dream Unlimited Corp. – December 31, 2018 | 75 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ Project level (at 100%) Development investments Brighton Marketplace Canary District Port Credit Lakeshore East Other development investments Total development investments Income producing investments Dream Alternatives Dream Office REIT Firelight Infrastructure Partners LP Other income producing investments Total income producing investments Total At Dream's share Development investments Brighton Marketplace Canary District Frank Gehry Port Credit Lakeshore East Other development investments Total development investments Income producing investments Assets Liabilities 27,394 $ 81,770 267,910 62,272 127,294 566,640 $ 853,265 $ 3,321,983 1,000,205 71,836 5,247,289 $ 5,813,929 $ (10,606) $ (59,838) (138,323) (30,008) (8,824) (247,599) $ (244,039) $ (1,470,379) (797,620) (16,877) (2,528,915) $ (2,776,514) $ $ $ $ $ $ Ownership interest 50% $ 50% 6.25% 7.75% 12.5% 9%-50% $ Assets Liabilities Net assets 13,697 $ 40,885 4,752 20,763 7,784 6,234 94,115 $ (5,303) $ (29,919) — (10,720) (3,751) (1,717) (51,410) $ 8,394 $ 10,966 4,752 10,043 4,033 4,517 42,705 $ Difference between net assets and deemed cost of investments(1) (2,285) $ — — — — — (2,285) $ 2017 Net assets 16,788 21,932 129,587 32,264 118,470 319,041 609,226 1,851,604 202,585 54,959 2,718,374 3,037,415 2017 Total 6,109 10,966 4,752 10,043 4,033 4,517 40,420 Dream Alternatives(2) Dream Office REIT Firelight Infrastructure Partners LP Other income producing investments 48,336 247,383 40,517 26,016 362,252 Total income producing investments Total 402,672 (1) The difference between net assets and the deemed cost of investment is due to the Company's proportionate share of the joint venture's net assets being either higher or lower than the Company's cost of the investment at year-end. (2) As at January 1, 2018, the Company's investment in Dream Alternatives was consolidated. Refer to Note 5 for further details. 113,072 $ 472,430 200,041 34,307 819,850 $ 913,965 $ (209,111) (159,524) (8,291) (409,347) $ (460,757) $ 263,319 40,517 26,016 410,503 $ 453,208 $ 13% $ 14% 20% 17%-78% (32,315) $ (15,936) — — (48,251) $ (50,536) $ (32,421) $ 80,651 $ $ $ Dream Unlimited Corp. – December 31, 2018 | 76 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ The following tables summarize the Company’s proportionate share of revenues, earnings (losses), and earnings (losses) before depreciation in equity accounted investments for the years ended December 31, 2018 and 2017. Project level (at 100%) Development investments Brighton Marketplace Canary District Frank Gehry Port Credit Lakeshore East Other development investments Total development investments Income producing investments Dream Office REIT Firelight Infrastructure Partners LP Other income producing investments Total income producing investments Total At Dream's share Development investments Brighton Marketplace Canary District Frank Gehry Port Credit Lakeshore East Other development investments Total development investments Income producing investments Dream Office REIT(1) Firelight Infrastructure Partners LP Other income producing investments Revenues Earnings (losses) 2018 Earnings (losses) before depreciation 486 $ 78 — — — 3,843 4,407 $ 285,208 $ 132,673 41,127 459,008 $ 463,415 $ (968) $ (1,130) 759 (98) (168) 8,276 6,671 $ 163,906 $ 26,063 (1,222) 188,747 $ 195,418 $ (968) (1,130) 759 (98) (168) 8,290 6,685 166,103 69,563 186 235,852 242,537 $ $ $ $ $ Ownership interest Revenues Earnings (losses) 2018 Earnings (losses) before depreciation 50% $ 50% 25% 31% 50% 7%-50% $ 18% 20% 17%-78% 243 $ 39 — — — 425 707 $ 54,658 26,827 20,364 101,849 $ 102,556 $ (484) $ (565) 195 (31) (84) 956 (13) $ 32,402 5,213 (573) 37,042 $ 37,029 $ (484) (565) 195 (31) (84) 956 (13) 32,805 13,913 130 46,848 46,835 Total income producing investments Total (1) The ownership interest in Dream Office REIT increased throughout the year ended December 31, 2018 and averaged 18% (year ended December 31, 2017 - 14%) $ $ Dream Unlimited Corp. – December 31, 2018 | 77 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ Project level (at 100%) Development investments Brighton Marketplace Canary District Frank Gehry Port Credit Lakeshore East Other development investments Total development investments Income producing investments Dream Alternatives Dream Office REIT Firelight Infrastructure Partners LP Other income producing investments Total income producing investments Total At Dream's share Development investments Brighton Marketplace Canary District Frank Gehry Port Credit Lakeshore East Other development investments Total development investments Income producing investments Dream Alternatives(1) Dream Office REIT Firelight Infrastructure Partners LP Other income producing investments Ownership interest Revenues Earnings (losses) 2017 Earnings (losses) before depreciation $ $ $ $ $ — $ 1,944 — — — 5,880 7,824 $ 56,515 $ 41,373 135,165 36,386 269,439 $ 277,263 $ — $ (4,998) — (217) (328) 3,143 (2,400) $ (9,472) $ 107,952 25,275 2,695 126,450 $ 124,050 $ — (4,998) — (217) (328) 3,143 (2,400) (3,614) 107,952 69,700 3,935 177,973 175,573 Ownership interest Revenues Earnings (losses) 2017 Earnings (losses) before depreciation 50% $ 50% 6.25% 7.75% 12.5% 7%-50% $ 13% $ 14% 20% 17%-78% — $ 972 — — — 1,419 2,391 $ 6,091 $ 5,261 27,033 18,189 56,574 $ 58,965 $ — $ (2,499) — (16) (41) 663 (1,893) $ (1,021) $ 13,727 5,055 1,210 18,971 $ 17,078 $ — (2,499) — (16) (41) 663 (1,893) (390) 13,727 13,940 1,829 29,106 27,213 Total income producing investments Total (1) As at January 1, 2018, the Company's investment in Dream Alternatives was consolidated. Refer to Note 5 for further details. $ $ Dream Unlimited Corp. – December 31, 2018 | 78 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ 16. Capital and other operating assets Capital and other operating assets consisted of the following: Deposits Restricted cash Capital assets Prepaid expenses(1) Inventory Total capital and other operating assets $ $ 2018 2,539 14,832 12,291 9,203 1,203 40,068 $ $ 2017 935 6,332 7,570 4,250 1,012 20,099 2017 13,147 Capital assets (5,577) Accumulated depreciation Total capital assets 7,570 (1) Included in prepaid expenses as at December 31, 2018 is $3,507 of capitalized sales commissions relating to housing and condominium sales to be recognized in future periods (December 31, 2017 - $195). 2018 20,317 (8,026) 12,291 $ $ $ $ Restricted cash represents cash advanced by the Company to secure letters of credit provided to various government agencies to support development activity, certain customer deposits on land, housing and condominium sales required for specific statutory requirements before closing, and cash held as security. 17. Goodwill Balance, beginning of year Additions from business combinations Balance, end of year $ $ 2018 13,576 $ — 13,576 $ 2017 — 13,576 13,576 Goodwill arising from business combinations is allocated at the lowest level within the Company at which it is monitored by management to make business decisions and, therefore, has been allocated to the Zibi CGU within the Urban Development - Toronto & Ottawa operating segment. The recoverable amount of the Zibi CGU has been estimated using fair value less costs of disposal. The CGU's inventory was fair valued using a third party appraisal, whereby the direct comparison approach was used to compare Zibi with similar sites classified as vacant for development that have been recently sold or offered for sale. The fair value measurement is categorized in Level 3 of the fair value hierarchy. The Company performed its annual impairment test as at October 1, 2018 and did not identify an impairment for the Zibi CGU. 18. Assets held for sale As at December 31, 2018, management had committed to a plan of sale of certain properties, which were considered to be highly probable. As a result, these properties were classified as assets held for sale totalling $72,587. Balance, beginning of year Assets classified as held for sale during the year Assets sold during the year Additions to assets held for sale Change in straight-line rent Fair value changes in investment properties classified as assets held for sale Balance, end of year $ $ 2018 34,118 $ 53,732 (14,086) 1,763 458 (3,398) 72,587 $ 2017 — 34,118 — — — — 34,118 In the year ended December 31, 2018, the Company disposed of its interest in two properties, for total consideration of $23,508. The resulting gain on disposal of $9,422 was recognized in the consolidated financial statements for the year ended December 31, 2018. Subsequent to December 31, 2018, the Company disposed of its interest in two properties for total consideration of $16,121. Dream Unlimited Corp. – December 31, 2018 | 79 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ 19. Accounts payable and other liabilities The details of accounts payable and other liabilities are as follows: Trade payables(1) Accrued liabilities Deferred revenue Interest rate swap Retraction option on Preference shares, series 1 Lease obligation Note 36 $ $ 2018 24,549 87,422 6,774 685 232 7,180 126,842 $ $ 2017 30,032 85,309 3,624 — — — 118,965 (1) Included in trade payables were bank overdraft balances of $7,602 as at December 31, 2018 (December 31, 2017 - $4,299). Lease Obligation In the year ended December 31, 2018, the Company acquired a 33.3% leasehold interest in a retail shopping centre and residential mixed-use development investment in Toronto, split 25%/75% between Dream and Dream Alternatives (refer to Note 12). Under IAS 40, the Company has elected to treat the leasehold interest as a finance lease, where the Company is a lessee and the property meets the definition of an investment property. Accordingly, once the transaction closed the Company recognized the leasehold asset as an investment property of $13,525, a lease obligation of $7,299, and initial direct costs of $6,226 were paid in cash. The leasehold interest has a remaining term of 17 years and includes an option to purchase a freehold interest in the property. 20. Provision for real estate development costs The movement in the provision for real estate development costs is as follows: Balance, beginning of year Additional provisions Utilized during the year Balance, end of year $ $ 2018 34,756 11,845 (12,748) 33,853 $ $ 2017 41,798 22,666 (29,708) 34,756 The provision for real estate development costs includes accrued costs based on the estimated costs to complete land, housing and condominium development projects for which revenue has been recognized. These amounts have not been discounted, as the majority are expected to be substantially utilized within one year. 21. Project-specific debt Continuity of Debt Construction loans - Western Canada Balance, January 1, 2018 Borrowings Repayments Assumed through business combination (Note 5) Interest and other Balance, December 31, 2018 $ $ $ 98,706 62,642 (99,927) — — 61,421 $ Construction loans - Urban development - Toronto & Ottawa 64,697 73,090 (21,260) $ — 38 116,565 $ Mortgages and term debt - Dream Mortgages and term debt - Dream Alternatives $ 116,824 69,489 (51,378) — 2,279 137,214 $ — $ — (4,664) 203,967 77 199,380 $ Total 280,227 205,221 (177,229) 203,967 2,394 514,580 Dream Unlimited Corp. – December 31, 2018 | 80 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ Balance, January 1, 2017 Borrowings Repayments Assumed through business combination Interest and other Balance, December 31, 2017 Construction loans - Western Canada Construction loans - Urban development - Toronto & Ottawa Mortgages and term debt $ $ $ 81,651 77,650 (60,345) — (250) 98,706 $ $ 8,708 55,834 — — 155 64,697 $ $ 112,657 24,928 (56,807) 36,348 (302) 116,824 $ Total 203,016 158,412 (117,152) 36,348 (397) 280,227 Western Canada construction loans relate to housing, retail and commercial projects under development and are all due on demand with recourse provisions. Urban development construction loans relate to project-specific financing for condominium units under development and land servicing and hold security against the underlying asset. Mortgages and term debt for both Dream and Dream Alternatives are provided by a variety of lenders. The balance of interest and other primarily includes accrued interest adjustments, foreign exchange and amortization of deferred financing costs. Further details on the weighted average interest rates and maturities are included in Note 36. Interest Rate Swap In order to manage the interest rate risk on certain variable rate debt, the Company entered into a seven-year interest rate swap agreement that fixed the interest rate on a term loan at 3.69%. As at December 31, 2018, the aggregate value of the interest rate swap amounted to $158 and is presented in other financial assets. The Company did not apply hedge accounting to this relationship, and therefore the change in fair value of the swap is recognized in earnings within fair value changes in derivative financial instruments in the year ended December 31, 2018. As at December 31, 2018, the outstanding amount on the hedged facility was $7,560 (December 31, 2017 - $8,655). The following table summarizes the details of the interest rate swap outstanding as at December 31, 2018: Notional amount hedged 7,560 Fixed interest rate 3.69% Financial instrument classification FVTPL Fair value of hedging instrument(1) 158 $ Maturity date January 14, 2023 (1) Included in other financial assets as at December 31, 2018. $ 22. Corporate debt facilities Continuity of Debt Balance, January 1, 2018 Borrowings Repayments Interest and other Balance, December 31, 2018 $ $ Operating line - Dream(1) 93,225 212,000 (257,000) 718 48,943 $ $ Non-revolving term facility(2) 174,799 50,000 — (716) 224,083 Balance, January 1, 2017 Borrowings Repayments Interest and other Balance, December 31, 2017 (1) Net of unamortized financing costs of $57 as at December 31, 2018 (December 31, 2017 - $775). (2) Net of unamortized financing costs of $917 as at December 31, 2018 (December 31, 2017 - $201). $ $ Operating line - Dream(1) 104,526 114,000 (126,000) 699 93,225 Margin facility 40,000 75,000 (15,000) — 100,000 Non-revolving term facility(2) 174,403 — — 396 174,799 $ $ $ $ $ $ $ $ Operating line - Dream Alternatives — $ 35,000 (35,000) — — $ Margin facility — $ 40,000 — — 40,000 $ Total 308,024 372,000 (307,000) 2 373,026 Total 278,929 154,000 (126,000) 1,095 308,024 Further details on the weighted average interest rates and maturities are included in Note 36. In the year, there were no events of default on any of the Company's obligations under its corporate debt facilities. Dream Unlimited Corp. – December 31, 2018 | 81 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ Operating Line - Dream The Company has established a revolving term credit facility (the "operating line"), available up to a formula-based maximum not to exceed $290,000, with a syndicate of Canadian financial institutions, maturing on January 31, 2019. As at December 31, 2018, funds available under this facility were $273,543, as determined by the formula-based maximum calculation, with $55,413 of letters of credit issued against the facility. The operating line bears interest, at the Company’s option, at a rate per annum equal to either the bank’s prime lending rate plus 1.25% or at the bank’s then prevailing bankers’ acceptance rate plus 2.50%. The operating line is secured by a general security agreement and a first charge against various real estate assets in Western Canada. Interest expense relating to the facility for the year ended December 31, 2018 was $4,252 (year ended December 31, 2017 – $5,103). Non-Revolving Term Facility In the year ended December 31, 2018, the Company executed on an amendment to its $175,000 non-revolving term facility with a syndicate of Canadian financial institutions, increasing the borrowing capacity on the facility to $225,000 and extending the maturity date to February 28, 2021. The non-revolving term facility bears interest, at the Company’s option, at a rate per annum equal to either the bank’s prime lending rate plus 1.50% or at the bank’s then prevailing bankers’ acceptance rate plus 2.75%. The facility is secured by a general security agreement and a first charge against various real estate assets and other financial assets of the Company. Interest expense relating to the non-revolving term credit facility for the year ended December 31, 2018 was $9,205 (year ended December 31, 2017 – $6,486). Margin Facility In the year ended December 31, 2017, the Company entered into a $40,000 revolving margin facility. In the year ended December 31, 2018, the Company executed on an amendment to the facility, increasing the amount available to $110,000. The loan is due on demand and bears interest, at the Company's option, at a rate per annum equal to either the bank's prime lending rate plus 1.25% or the bank's then prevailing bankers' acceptance rate plus 2.50%. The facility is secured by a first charge against certain marketable securities. Interest expense relating to the facility for the year ended December 31, 2018 was $3,321 (year ended December 31, 2017 – $356). Operating Line - Dream Alternatives Dream Alternatives has a revolving term credit facility (the "Dream Alternatives operating line") available up to a formula-based maximum not to exceed $50,000, with a Canadian financial institution, maturing on July 31, 2019. As at December 31, 2018, funds available under this facility were $39,395, as determined by a formula-based maximum calculation. The Dream Alternatives operating line bears interest, at the Company’s option, at a rate per annum equal to either the bank’s prime lending rate plus 1.0% or at the bank’s then prevailing bankers’ acceptance rate plus 2.0%. The Dream Alternatives operating line is secured by a general security agreement over certain Dream Alternatives subsidiaries. As at December 31, 2018, no funds were drawn on the revolving credit facility (December 31, 2017 – $nil) and funds available under this facility were $38,000 (December 31, 2017 – $43,295), net of $1,395 (December 31, 2017 – $1,705) of letters of credit issued against the facility. Interest expense relating to the Dream Alternatives operating line for the year ended December 31, 2018 was $615. Interest Rate Swap In the year ended December 31, 2018, the Company entered into an interest rate swap to effectively exchange the variable interest rate on $125,000 of the $225,000 non-revolving term facility for a fixed rate of 5.20% per annum through the use of forward-purchase contracts that mature on February 28, 2021. The Company has applied hedge accounting to this relationship, whereby the change in fair value of the effective portion of the hedging derivative is recognized in AOCI. Settlement of both the fixed and variable portions of the interest rate swap occurs on a monthly basis. The full amount of the hedge was determined to be effective as at December 31, 2018 as all critical terms matched during the year. The following table summarizes the details of the interest rate swap, which has been classified as a hedging instrument, outstanding as at December 31, 2018: Maturity date February 28, 2021 (1) Included in accounts payable and other liabilities as at December 31, 2018. Notional amount hedged Fixed interest rate Financial instrument classification $ 125,000 5.20% Cash flow hedge $ Fair value of hedging instrument(1) 685 Dream Unlimited Corp. – December 31, 2018 | 82 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ 23. Preference shares, series 1 As part of the reorganization of the Company's share capital in 2013, the Company issued 6,000,000, 7% Cumulative Redeemable First Preference shares, series 1 (“Preference shares, series 1”), with a liquidation amount of $7.16 per share. The shares are classified and accounted for as a financial liability as they are retractable at the option of the holder for a fixed amount per share. The shares are also retractable by the Company for a fixed amount per share. Each series of Preference shares, series 1, will be entitled to preference on the payment of dividends and the distribution of assets in the event of the liquidation, dissolution or winding up of the Company over the Subordinate Voting Shares and Class B Shares (Note 26). The Preference shares, series 1, issued and outstanding are as follows: Balance, January 1, 2017 Accretion using the effective interest method Balance, December 31, 2017 Accretion using the effective interest method Balance, December 31, 2018 Number of shares 4,005,729 — 4,005,729 — 4,005,729 $ $ $ Par value 28,681 — 28,681 — 28,681 Carrying value 28,643 25 28,668 4 28,672 $ $ $ In the year ended December 31, 2018, the Company declared and paid dividends on the Preference shares, series 1 of $2,008 (year ended December 31, 2017 – $2,008). 24. Dream Alternatives trust units As described in Note 5, the Company acquired control of Dream Alternatives as of January 1, 2018. In accordance with the Company's accounting policy detailed in Note 3, as at December 31, 2018, the Company accounted for the 83% interest in Dream Alternatives trust units held by other unitholders as a financial liability measured at fair value through profit or loss (January 1, 2018 - 87%). As at December 31, 2018, the trust units had a fair value of $377,234 based on the trading price on the TSX. The movement in Dream Alternatives trust units is as follows: Balance, January 1, 2018 Assumed through business combination (Note 5) Units acquired by the Company in the year Units issued to other unitholders through distribution reinvestment plan Units repurchased and cancelled by Dream Alternatives Deferred units exchanged for Dream Alternatives trust units Fair value adjustment Balance, December 31, 2018 Units — $ 62,815,176 (1,875,426) 756,348 (1,289,889) 47,890 — 60,454,099 $ Total — 397,620 (12,221) 4,984 (8,455) 309 (5,003) 377,234 In the year ended December 31, 2018, the Company, through Dream Alternatives, declared distributions on the trust units of $24,683 owing to other unitholders, of which $19,699 was paid in cash. In the year ended December 31, 2018, the Company recognized an expense related to Dream Alternatives trust units of $19,680 in the consolidated statements of earnings, comprising distributions to other unitholders of $24,683 offset by a fair value gain of $5,003. Subsequent to December 31, 2018, Dream Alternatives announced the suspension of its distribution reinvestment plan effective for the February 2019 distribution. Dream Unlimited Corp. – December 31, 2018 | 83 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ 25. Income taxes In the year ended December 31, 2018, the Company recognized income tax expense of $21,439 (year ended December 31, 2017 – $32,737), the major components of which include the following items: Current income taxes: Current income taxes with respect to profits during the year Current tax adjustments with respect to prior periods Other items affecting current tax expense Current income tax expense Deferred income taxes: Origination and reversal of temporary differences Recovery arising from previously unrecognized temporary difference Impact of changes in income tax rates Deferred income tax expense (recovery) Income tax expense 2018 10,243 (987) 3,051 12,307 9,134 (148) 146 9,132 21,439 $ $ 2017 31,500 (66) 2,457 33,891 (4,224) (361) 3,431 (1,154) 32,737 $ $ Due to non-coterminous tax years of the Company’s partnership and trust interests, income of approximately $13,271 for the year ended December 31, 2018 (year ended December 31, 2017 – $12,514) relating to such partnership and trust interests will be included in computing the Company’s taxable income for its 2019 and 2018 taxation years. The income tax expense amount on pre-tax earnings differs from the income tax expense amount that would arise using the combined Canadian federal and provincial statutory tax rate of 26.7% (December 31, 2017 – 26.6%), as presented in the table below. Cash paid for income taxes for the year ended December 31, 2018 was $38,649 (year ended December 31, 2017 – $3,871). Earnings before tax at statutory rate of 26.7% (2017 – 26.6%) Effect on taxes of: Non-deductible expenses Adjustment in expected future tax rates Non-taxable gain on acquisition of Dream Alternatives Tax adjustments in respect of prior years Non-taxable portion of capital gains Other items Income tax expense $ $ 2018 57,002 $ 3,105 146 (34,713) (1,135) (3,806) 840 21,439 $ 2017 30,743 1,466 3,431 — (427) (2,344) (132) 32,737 The movement in the deferred income taxes in the year ended December 31, 2018 and the year ended December 31, 2017, and the net components of the Company’s net deferred income tax liabilities, are presented in the following table: Asset (Liability) Balance, January 1, 2017 (Charged) credited to: Earnings for the year Other comprehensive income Balance, December 31, 2017 Impact of changes in accounting policies (Note 46) Adjusted balance, January 1, 2018 (Charged) credited to: Earnings for the year Assumed through business combination (Note 5) Tax effect of business combination (Note 5) Other comprehensive income Balance, December 31, 2018 $ $ $ Accounts receivable Real estate inventory Non- coterminous tax year Financial assets/equity accounted investments Loss carry- forwards Equity issuance Total (8,418) $ (17,550) $ (16,791) $ (17,366) $ 4,297 $ 298 $ (55,530) (587) — (9,005) $ — (9,005) 325 — — — (8,680) $ (8,279) (409) (26,238) $ (1,743) (27,981) (8,857) (5,994) 5,469 357 (37,006) $ 13,454 — (3,337) $ — (3,337) (210) — — — (3,547) $ (214) (4,934) (22,514) $ (869) (23,383) (3,071) — 1,226 $ — 1,226 (149) — 1,154 (5,343) 149 $ (59,719) — 149 (2,612) (62,331) 1,717 (1,958) (149) (9,132) (2,758) (28,824) 211 (53,037) $ 8,863 — — 8,131 $ — 111 (23,355) — — 568 — $ (94,139) Dream Unlimited Corp. – December 31, 2018 | 84 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ As at December 31, 2018, the Company had tax losses of $15,764 (December 31, 2017 – $12,952) that expire between 2025 and 2038 and U.S. capital losses of $1,157 (US$848) (December 31, 2017 – $1,064 (US$848)) that expire in 2019. Deferred income tax assets have not been recognized in respect of these losses, as it is not probable that the Company will be able to utilize all of the losses against taxable profits in the future. 26. Share capital The Company is authorized to issue an unlimited number of Subordinate Voting Shares and an unlimited number of Class B Shares. Holders of Subordinate Voting Shares and Class B Shares are entitled to one vote and 100 votes, respectively, for each share held. The Class B Shares are convertible into Subordinate Voting Shares on a one-for-one basis at any time. Holders of Subordinate Voting Shares and Class B Shares are entitled to receive and participate equally as to dividends, share for share, as and when declared by the directors of the Company. In the event of a liquidation, dissolution or winding up of the Company, holders of Subordinate Voting Shares and Class B Shares will, after payment to the holders of Preference shares, series 1, be entitled to the remaining property and assets of the Company. Issued and outstanding Dream Subordinate Voting Shares Dream Class B Shares Number of shares 104,215,841 3,115,164 107,331,005 $ $ The following table summarizes the changes in the Dream Subordinate Voting Shares issued: Issued and outstanding, beginning of year Class B Shares converted into Subordinate Voting Shares Deferred share units converted into Subordinate Voting Shares Stock options exercised Subordinate Voting Shares issued under Exchange Agreement (Note 28) Subordinate Voting Shares repurchased Issued and outstanding, end of year Number of shares 106,120,323 135 $ — 24,583 — (1,929,200) 104,215,841 $ (16,026) 1,171,034 2018 Amount 1,171,034 38,785 1,209,819 2018 Amount 1,186,865 1 — 194 — Number of shares 106,120,323 3,115,299 109,235,622 Number of shares 77,803,711 165 28,162 — 31,533,682 (3,245,397) 106,120,323 The following table summarizes the changes in the Dream Class B Shares issued: Issued and outstanding, beginning of year Class B Shares converted into Subordinate Voting Shares Issued and outstanding, end of year Number of shares 3,115,299 (135) 3,115,164 $ $ 2018 Amount 38,786 (1) 38,785 Number of shares 3,115,464 (165) 3,115,299 2017 Amount 1,186,865 38,786 1,225,651 2017 Amount 971,051 1 255 — 237,764 (22,206) 1,186,865 2017 Amount 38,787 (1) 38,786 $ $ $ $ $ $ Dividends In the year ended December 31, 2018, the Board of Directors of DAM declared dividends of $nil to the Company on its non-voting common shares (year ended December 31, 2017, $12,972 and $5,005 to the Company and the non-controlling interest of DAM, respectively). Dividends attributable to the Company are eliminated in the consolidated financial statements of Dream. As a result of the share exchange transaction described in Note 28, the non-controlling interest of DAM relating to Sweet Dream Corp. ("SDC") was eliminated in the year ended December 31, 2017, and accordingly any dividends payable on the non-voting common shares after May 19, 2017 are only payable to Dream. Subsequent to December 31, 2018, the Company's dividend policy was approved. In 2019, the Company will pay an annual dividend of $0.10 per Subordinate Voting Share and Class B Share, payable quarterly. The first dividends will be paid on March 29, 2019 to shareholders of record on March 15, 2019. Reorganization adjustment On May 16, 2013, shareholders of Dundee Corporation unanimously voted in favour of a corporate restructuring, through a tax-efficient Plan of Arrangement, which resulted in Dundee Corporation transferring its 70.05% interest in DAM, formerly Dundee Realty Corporation, including DAM common shares and DAM Class C shares, to the Company, in exchange for shares of Dream (the "Arrangement"). The Arrangement was accounted for as a corporate reorganization, and the Company recognized the identifiable assets and liabilities of DAM transferred to Dream pursuant to the Arrangement at DAM’s historical carrying values, with no fair value adjustments. The difference between the stated capital of Dream's issued shares and the previously recorded share capital and contributed surplus of DAM, and other minor adjustments, of $944,577 was reflected as a separate component of equity described as "Reorganization adjustment". Dream Unlimited Corp. – December 31, 2018 | 85 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ Shares of DAM The following shares exist within DAM's share capital; they hold a carrying value of $nil in the consolidated financial statements of Dream. Class D Preferred Shares The Class D Preferred Shares of DAM, held by SDC, are non-voting and are not entitled to receive dividends. The Class D Preferred shares are redeemable by DAM, at its sole discretion, for an amount per share equal to the lesser of: (i) $10,447 divided by the aggregate number of Class D Preferred shares originally outstanding at the date of grant of the Class D Preferred shares; and (ii) an amount obtained by multiplying 512,108 by the closing market price of a Series A unit of Dream Office REIT at the time of such redemption, divided by the aggregate number of Class D Preferred shares originally outstanding at the date of grant of the Class D Preferred shares. In each case, the redemption amount is to be satisfied only to the extent of proceeds of a corresponding redemption of Preferred shares owned by DAM in SDC. The Class D Preferred shares have been recognized as a liability with a net carrying value of $nil (2017 – $nil). The value attributable to DAM's investment in the Preferred shares of SDC has been offset against the Class D Preferred shares as a result of the right to set off the redemption amounts payable on the respective shares. Class F Preferred Shares The Class F Preferred shares of DAM, held by a third party, are non-voting and are entitled to receive dividends of up to 4% of the Class F redemption amount as and when declared by the directors of DAM. The Class F Preferred shares are redeemable by DAM and are retractable at the option of the third party at a price of $10.00 per share, plus accrued and unpaid dividends. The Class F Preferred shares have been recognized as a liability with a net carrying value of $nil (December 31, 2017 – $nil). The value attributable to DAM's investment in the Preferred shares of the third party has been offset against the Class F Preferred shares as a result of the right to set off the redemption amounts payable of $180,613 on the respective shares. Preference Shares, Class G Using the proceeds of an equity offering in 2014, the Company invested $44,698 in Preference shares, Class G and $10,767 in common shares of DAM. The Preference shares, Class G have similar terms to the Company's Preference shares, series 1, except that they do not have a conversion feature and have a subscription price of $7.45 per share. The Preference shares, Class G held by the Company are eliminated on consolidation of DAM. Normal Course Issuer Bid The Company renewed its normal course issuer bid (the "Bid"), which commenced on September 20, 2018, under which the Company has the ability to purchase for cancellation up to a maximum number of 7,062,995 Subordinate Voting Shares through the facilities of the TSX at prevailing market prices and in accordance with the rules and policies of the TSX. The actual number of Subordinate Voting Shares that may be purchased, and the timing of any such purchases as determined by the Company, are subject to a maximum daily purchase limitation of 15,925 shares, except where purchases are made in accordance with block purchase exemptions under applicable TSX rules. In the year ended December 31, 2018, 1,929,200 Subordinate Voting Shares were purchased for cancellation by the Company at an average price of $8.31 (year ended December 31, 2017 – 3,245,397 Subordinate Voting Shares at an average price of $6.84). In connection with the renewal of the Bid, the Company has established an automatic securities purchase plan (the “Plan”) with its designated broker to facilitate the purchase of Subordinate Voting Shares under the Bid at times when the Company would ordinarily not be permitted to purchase its Subordinate Voting Shares due to regulatory restrictions or self-imposed blackout periods. Purchases will be made by the Company's broker based on the parameters prescribed by the TSX and the terms of the parties’ written agreement. Outside of such restricted or blackout periods, the Subordinate Voting Shares may also be purchased in accordance with management’s discretion. The Plan was pre-cleared by the TSX and will terminate on September 19, 2019. Subsequent to December 31, 2018, 221,600 Subordinate Voting Shares were purchased for cancellation by the Company for $1,544. Dream Unlimited Corp. – December 31, 2018 | 86 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ 27. Accumulated other comprehensive income The movement in AOCI is as follows: Interest rate hedges $ $ $ 275 280 — — 555 — 555 (884) (329) $ $ $ Foreign currency translation 8,558 (2,026) — — 6,532 — 6,532 3,210 9,742 $ $ $ Marketable securities/ equity accounted investments Less: Amounts attributable to non- controlling interest (6,926) 26,108 5,612 — 24,794 (23,698) 1,096 870 1,966 $ $ $ (3,257) (1,029) $ — 4,286 — $ — — — — $ Balance, January 1, 2017 Other comprehensive income (loss) during the year Losses reclassified to earnings upon transfer to equity accounted investments during the year Change in interest in subsidiary Balance, December 31, 2017 Impact of changes in accounting policies (Note 46) Adjusted balance, January 1, 2018 Other comprehensive income (loss) during the year Balance, December 31, 2018 28. Non-controlling interest The movement in non-controlling interest is as follows: Balance, January 1, 2017 Earnings (loss) for the year Other comprehensive income for the year Dividends declared Change in interest in subsidiary Non-controlling interest related to business combination Balance, December 31, 2017 Earnings for the year Change in interest in subsidiary related to business combination Distributions to non-controlling interests Contributions from non-controlling interests Non-controlling interest related to business combination Balance, December 31, 2018 Note $ $ $ 5 5 SDC 213,038 $ 3,598 1,029 (5,005) (212,660) — — $ — — — — — — $ Zibi — $ (404) — — — 38,494 38,090 $ 363 (25,393) — 1,600 — 14,660 $ Other — $ — — — — — — $ 742 — (1,021) — 1,948 1,669 $ Total (1,350) 23,333 5,612 4,286 31,881 (23,698) 8,183 3,196 11,379 Total 213,038 3,194 1,029 (5,005) (212,660) 38,494 38,090 1,105 (25,393) (1,021) 1,600 1,948 16,329 Zibi The Company acquired control of Zibi in the year ended December 31, 2017, holding a 40% economic interest in the project. The residual non-controlling interest was held by Dream Alternatives (40%) and a third-party developer. The Company obtained control through an 80% voting interest in Zibi's ultimate general partner. As a result of the acquisition of control of Dream Alternatives in the year ended December 31, 2018, the Company acquired an additional 40% economic interest in the project, which was accounted for as an equity transaction and resulted in a decrease in non-controlling interest. A summary of the impact is as follows: Fair value of acquired interest in Zibi as at January 1, 2018 Decrease in non-controlling interest Decrease in retained earnings Amount 33,002 (25,393) 7,609 $ $ Sweet Dream Corp. Prior to May 19, 2017, SDC, an entity wholly owned by the President and Chief Responsible Officer of DAM and Dream, owned a non-controlling interest in DAM. In May 2017, DAM received an exchange notice from SDC pursuant to the Exchange Agreement dated May 30, 2013 among Dream, DAM and SDC, exercising SDC’s right to receive 31,533,682 newly issued Subordinate Voting Shares of Dream, representing approximately 30% of the post-issuance outstanding Subordinate Voting Shares, in consideration for the transfer of 261.52 non-voting common shares and Class C voting preference shares of DAM, representing approximately 30% of the outstanding non-voting common shares and Class C voting preference shares. On completion of the exchange, Dream owned 100% Dream Unlimited Corp. – December 31, 2018 | 87 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ of the outstanding non-voting common shares and Class C voting preference shares of DAM, thus simplifying the corporate structure. Including the Subordinate Voting Shares of Dream and Class B Shares held or controlled directly or indirectly, the President and Chief Responsible Officer owned an approximate 34% economic interest and 83% voting interest in the Company as at December 31, 2018. The change in DAM equity attributable to the Company on May 19, 2017 was accounted for as an equity transaction with non-controlling interest, resulting in the following: Fair value of Subordinate Voting Shares issued(1) Decrease in non-controlling interest Increase in accumulated other comprehensive income Decrease in retained earnings (1) The fair value of Subordinate Voting Shares issued was based on the market price of the Subordinate Voting Shares on May 19, 2017. The Company's total equity remained unchanged as a result of the transaction. Amount 237,764 (212,660) 4,286 29,390 $ $ 29. Revenues Revenue consisted of the following: Revenues from contracts with customers Revenues from other sources - lending portfolio Revenues from other sources - rental income Total revenues $ $ 2018 294,343 $ 15,684 29,846 339,873 $ Revenue from Contracts with Customers The following table disaggregates revenue by major revenue stream and timing of revenue recognition: Revenues Less: Intercompany revenue Revenue from external customers Timing of revenue recognition At a point in time Over time Revenues Less: Intercompany revenue Revenue from external customers Timing of revenue recognition At a point in time Over time $ $ $ $ $ $ $ $ Land 107,458 $ — 107,458 $ 94,215 $ (18,750) 75,465 $ 107,458 $ — 107,458 $ 75,465 $ — 75,465 $ Land 146,955 $ — 146,955 $ 126,481 $ (21,805) 104,676 $ 146,955 $ 104,676 $ — — 146,955 $ 104,676 $ Housing and condominium Investment properties Recreational properties Asset management Renewable power 15,856 $ — 15,856 $ — $ 15,856 15,856 $ 45,889 $ — 45,889 $ 44,034 $ (12,233) 31,801 $ 38,564 $ 7,325 45,889 $ 5,434 $ 26,367 31,801 $ 17,874 $ — 17,874 $ — $ 17,874 17,874 $ Housing and condominium Investment properties Recreational properties Asset management Renewable power 5,127 $ — 5,127 $ — $ 5,127 5,127 $ 40,282 $ — 40,282 $ 33,908 $ 6,374 40,282 $ 45,823 $ — 45,823 $ 10,342 $ 35,481 45,823 $ — $ — — $ — $ — — $ 2017 342,863 — 14,101 356,964 2018 Total 325,326 (30,983) 294,343 226,921 67,422 294,343 2017 Total 364,668 (21,805) 342,863 295,881 46,982 342,863 Dream Unlimited Corp. – December 31, 2018 | 88 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ Unsatisfied contracts The following table summarizes unsatisfied performance obligations resulting from the sale of condominium units, excluding equity accounted investments. The timing of revenue recognition upon occupancy is subject to uncertainty due to a number of variables throughout the construction process. Any revenue attributable to unsatisfied performance obligations subject to a variable constraint have been excluded from the table below. Performance obligation expected to be fully satisfied by Contract value at Dream's share 2019 2020 2021 Aggregate amount of the transaction price allocated to contracts that are partially or fully unsatisfied as at December 31, 2018 $ 216,137 $ 115,091 $ 85,075 $ 15,971 As permitted under the transitional provisions under IFRS 15, the transaction price allocated to unsatisfied performance obligations as at December 31, 2017 is not disclosed. In addition, as permitted under IFRS 15, the transaction price allocated to unsatisfied contracts for sales contracts for periods of one year or less is not disclosed. Revenue recognized in relation to contract liabilities The following table summarizes revenue recognized in the current reporting period relating to prior period deferred revenue. There was no revenue recognized in the current reporting period that relates to performance obligations satisfied in a prior year. Revenue recognized that was included in deferred revenue at the beginning of the period 30. Direct operating costs Direct operating costs consisted of the following: Direct costs of real estate inventory Direct costs of operating investment and recreational properties Salary and other compensation Direct costs of renewable power 31. Asset management and advisory services expenses Asset management and advisory services expenses consisted of the following: Salary and other compensation Corporate, service and professional fees General office and other 32. Selling, marketing and other operating costs Selling, marketing and other operating costs consisted of the following: Selling and marketing costs Salary and other compensation General office and other $ $ $ $ $ $ $ 2018 3,624 $ 2017 3,190 2018 126,282 $ 39,056 17,838 10,751 193,927 $ 2018 7,997 $ 2,969 198 11,164 $ 2018 8,741 $ 23,074 15,299 47,114 $ 2017 165,375 22,537 15,398 — 203,310 2017 7,879 1,405 354 9,638 2017 11,063 21,393 13,325 45,781 Dream Unlimited Corp. – December 31, 2018 | 89 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ 33. General and administrative expenses General and administrative expenses consisted of the following: Salary and other compensation Corporate, service and professional fees General office and other 34. Investment and other income Investment and other income consisted of the following: Distributions from Dream Publicly Listed Funds Deemed gain on disposition of equity accounted investment in Zibi Losses reclassified to earnings on accounting changes (Notes 5 and 15) Interest and other income $ $ $ $ 2018 11,545 $ 5,597 3,253 20,395 $ 2018 3,388 $ — (78) 9,392 12,702 $ 2017 8,334 3,985 1,100 13,419 2017 10,104 13,302 (6,481) 4,699 21,624 Investment income on Dream Publicly Listed Funds includes the income portion of distributions earned on the Company’s investment in Dream Global REIT. In the year ended December 31, 2017, the Company's investment in Dream Office REIT was transferred to equity accounted investments. 35. Interest expense Interest expense consisted of the following: Interest on project-specific debt Interest on corporate debt facilities Dividends on Preference shares, series 1 Amortization of deferred financing costs and accretion of effective interest Project-specific interest capitalized to real estate development projects Total $ $ 2018 22,723 $ 17,393 2,008 1,696 (5,889) 37,931 $ 2017 10,407 11,945 2,008 1,264 (4,025) 21,599 Interest expense was capitalized to real estate development projects for the year ended December 31, 2018 at a weighted average effective borrowing rate of 4.64% (year ended December 31, 2017 - 5.52%). Dream Unlimited Corp. – December 31, 2018 | 90 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ 36. Financial instruments fair value and risk management Fair Value of Financial Instruments The following table categorizes financial assets or liabilities measured or disclosed at fair value by level according to the significance of inputs used in making measurements. Quoted market prices represent a Level 1 valuation. When quoted market prices are not available, the Company maximizes the use of observable inputs. When all significant inputs are observable, the valuation is classified as Level 2. Valuations that require the significant use of unobservable inputs are considered Level 3. Recurring measurement Financial assets Marketable securities Investment in Dream Global REIT - deferred trust units Participating mortgages Investment holdings Other instruments Lending portfolio Financial liabilities Dream Alternatives trust units Retraction option on Preference shares, series 1 Fair values disclosed Lending portfolio Construction loans Mortgages and term debt - Dream Mortgages and term debt - Dream Alternatives Operating line - Dream Non-revolving term facility Margin facility Preference shares, series 1 Fair value hierarchy Carrying value 2018 Fair value Carrying value 2017 Fair value Level 1 Level 3 Level 3 Level 3 Level 3 Level 3 Level 1 Level 3 Level 3 Level 3 Level 3 Level 3 Level 3 Level 3 Level 3 Level 2 $ 37,279 $ 20,844 64,764 73,085 4,485 16,574 37,279 $ 20,844 64,764 73,085 4,485 16,574 377,234 232 377,234 232 127,521 177,986 137,214 199,380 48,943 224,083 100,000 28,672 126,825 177,953 136,591 200,500 49,000 225,000 100,000 28,838 37,046 $ 20,589 — 7,054 1,065 — — — — 163,403 116,824 — 93,225 174,799 40,000 28,668 37,046 20,589 — n/a 1,065 — — — — 163,486 116,502 — 94,000 175,000 40,000 29,162 The fair values of cash and cash equivalents, accounts receivable, loans receivable, deposits, restricted cash, certain financial instruments included in accounts payable and other liabilities, and customer deposits are carried at amortized cost, which approximates their fair values due to their short-term nature. The fair value of the Preference shares, series 1, is based on the listed market price on the TSX as at December 31, 2018 of $7.25 per share for the 4,005,729 issued and outstanding Preference shares, series 1, adjusted for the fair value of the embedded redemption and retraction options. The fair value of the Dream Alternatives trust units is based on the listed market price on the TSX as at December 31, 2018 of $6.24 per share for the 60,454,099 outstanding trust units not held by the Company. Level 3 Fair Value Measurements The Company used the following techniques to determine the fair value measurements categorized in Level 3: Dream Global REIT Deferred Trust Units The fair value of Dream Global REIT deferred trust units is based on the market price of Dream Global REIT units and applying an appropriate discount rate to reflect the vesting period. The significant unobservable inputs used in determining the discount rate include the following: Risk-free rate Expected volatility 2018 1.9% 14.6%–16.9% 2017 1.7%–1.9% 16.5%–18.4% The volatility of the Dream Global REIT units is estimated based on comparable companies in both the European and Canadian real estate markets. The discount rate used to value the deferred trust units is calculated by weighting a put-and-call model calculated using the Black-Scholes option pricing model. A higher volatility or risk-free rate will decrease the value of the deferred trust units and vice versa. Dream Unlimited Corp. – December 31, 2018 | 91 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ Total deferred units granted Vesting period Units as at December 31, 2018 closing price of $11.90 per unit Discount rate of 11% per unit for units issued in 2012 Discount rate of 14% per unit for units issued in 2013 Discount rate of 17% per unit for units issued in 2014 Discount rate of 19% per unit for units issued in 2015 Discount rate of 21% per unit for units issued in 2016 Total 412,777 536,053 513,196 392,751 226,740 2,081,517 2018–2022 2019–2023 2020–2024 2021–2025 2022–2026 Total deferred units granted Vesting period Units as at December 31, 2017 closing price of $12.22 per unit Discount rate of 14% per unit for units issued in 2012 Discount rate of 17% per unit for units issued in 2013 Discount rate of 19% per unit for units issued in 2014 Discount rate of 21% per unit for units issued in 2015 Discount rate of 24% per unit for units issued in 2016 Total 486,472 505,406 483,855 370,296 213,777 2,059,806 2018–2022 2019–2023 2020–2024 2021–2025 2022–2026 $ Fair value as at December 31, 2018 24,770 (540) (893) (1,038) (888) (567) 20,844 $ $ Fair value as at December 31, 2017 25,171 (832) (1,050) (1,123) (950) (627) 20,589 $ In the case of Dream Global REIT, the Company had irrevocably elected to receive the first $3,500 of the annual fees payable to it pursuant to these arrangements in DTUs of Dream Global REIT for the first five years until August 2016. The DTUs will vest to the Company in five equal annual installments, beginning in the sixth year following the grant of such DTUs. Participating Mortgages The fair value of participating mortgages are valued using a discounted cash flow analysis. The discounted cash flow model is calculated based on future interest and participating profit payments and the project managers’ estimates of unit sales proceeds and/or net operating income of the underlying development. In determining the discount rate, the Company considered market conditions, time to completion of the development, the market capitalization rate, the percentage of space leased on units sold and other available information. The significant unobservable inputs include the following: Discount rate 2018 7.0%-8.0% 2017 n/a Generally, an increase in anticipated proceeds from unit closings or an increase in stabilized net operating income will result in an increase in fair values. An increase in the capitalization rates or in the discount rates will result in a decrease in fair values. The capitalization rate magnifies the effect of a change in stabilized net operating income, with a lower rate resulting in a greater impact to the fair value than a higher rate. Any change in the revenue or costing estimates or development timeline could have a significant impact on the value of the development and investment holdings. If the discount rates applied for participating mortgages were to increase by 1%, the fair value of the participating mortgages would decrease by $700. If the discount rate were to decrease by 1%, the fair value would increase by $700. Investment Holdings - Co-Owned Commercial Assets The fair value of co-owned commercial assets is based on the fair value of the Company's proportionate net assets of the underlying investment. The significant unobservable inputs used in the fair value measurement relate to the fair value of the underlying investment properties and project-specific debt and include the following: Capitalization rate Average growth rate Market rate on project-specific debt 2018 2.9%-4.5% 1.5% 1.0%-1.4% 2017 n/a n/a n/a Redemption and Retraction Options on Preference Shares, Series 1 The fair value of the Preference shares, series 1, redemption and retraction options are calculated using an interest rate option pricing method. The significant unobservable inputs used in the fair value measurement of the redemption and retraction options on the Preference shares, series 1, include the following: Credit spread Reversion parameter Expected volatility 2018 4.6% 2.9% 22.5% 2017 3.6% 81.4% 26.9% Dream Unlimited Corp. – December 31, 2018 | 92 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ A higher volatility will increase the value of the redemption and retraction options. A lower credit spread will decrease the value of the redemption and retraction options. Interest Rate Swaps The fair value measurements of the interest rate swaps were valued by qualified external valuators based on the present value of the estimated future cash flows determined using observable yield curves. Lending Portfolio The fair value measurement of the lending portfolio is determined based on the Company’s assessment of the current lending market for lending portfolio investments of same or similar terms in consultation with the Canadian Mortgage Servicing Corporation ("CMSC"), the manager and servicer of the lending portfolio, and other available information. Corporate Debt Facilities The fair value measurement of the non-revolving term facility, operating line, margin facility and Dream Alternatives operating line approximates the carrying value excluding unamortized financing costs given their variable rate. Project-Specific Debt The fair value of the construction loans and mortgages and term debt has been calculated by discounting the expected cash flows of each loan using a discount rate specific to each individual loan. The discount rate is determined using the bond yield for similar instruments of similar maturity adjusted for each individual project’s specific credit risk. In determining the adjustment for credit risk, the Company considers current market conditions and other indicators of the Company’s creditworthiness. Valuation Process The Company’s finance department is responsible for performing the valuation of fair value measurements or reviewing the fair value measurements provided by third-party appraisers. The Company has determined that third-party appraisers will be utilized for recurring measurements of derivative instruments, such as the redemption and retraction options on the Preference shares, series 1, on a quarterly basis. On a quarterly basis, management will review the valuation policies, procedures and analysis of changes in fair value measurements. Refer to Note 8 for a continuity of the Company's lending portfolio balance. The Company recognizes transfers into and transfers out of fair value hierarchy levels as at the date of the event or change in circumstances that caused the transfer. In the year ended December 31, 2018, $1,435 was transferred from Level 3 to Level 1 related to vested Dream Global REIT DTUs (year ended December 31, 2017 - $2,264). Investment in Dream Global REIT - DTUs Redemption option on Preference shares, series 1 Investment holdings Interest rate swaps (1) Participating mortgages Retraction option on Preference shares, series 1 Balance, December 31, 2017 Impact of changes in accounting policies (Note 46) Adjusted balance, January 1, 2018 Issued or received during the year: DTUs Acquired through business combination on January 1, 2018 (Note 5) Acquired during the year DTUs vested during the year Distributions/capital repayment Total gains or losses for the year included in net earnings: Change in fair value Foreign currency gain Included in other comprehensive income: Change in fair value $ 7,054 $ 6,518 13,572 20,589 $ — 20,589 280 $ — 280 785 $ — 785 — 18,451 37,526 — (4,886) 6,383 2,039 1,369 — — (1,435) — 321 — — — — — — (252) — — — — — — 31 — — $ — — — 75,668 — — (3,060) (7,844) — Balance, December 31, 2018 (1) Included within other instruments in other financial assets and within accounts payable and other liabilities. $ — 73,085 $ — 20,844 $ — 28 $ (1,343) (527) $ — 64,764 $ — — — — — — — — (232) — — (232) Dream Unlimited Corp. – December 31, 2018 | 93 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ Balance, December 31, 2016 Issued or received during the year: DTUs DTUs vested during the year Total gains or losses for the year included in net earnings: Change in fair value Included in other comprehensive income: Change in fair value Balance, December 31, 2017 (1) Included within other instruments in other financial assets. Investment in Dream Global REIT - DTUs Redemption option on Preference shares, series 1 Interest rate swaps(1) Retraction option on Preference shares, series 1 $ 15,564 $ 841 $ 330 $ 1,386 (2,264) — — — (561) — — 73 5,903 20,589 $ $ — 280 $ 382 785 $ — — — — — — Risk Management The Company is exposed to financial risks due to the nature of its business and the financial assets and liabilities that it holds. The Company’s overall risk management strategy seeks to minimize potential adverse effects on the Company’s financial performance. Market Risk Market risk is the risk a material loss may arise from fluctuations in the fair value of a financial instrument. For purposes of this disclosure, the Company segregates market risk into two categories: fair value risk and interest rate risk. Fair Value Risk Fair value risk is the risk of a potential loss from adverse movements in the values of assets and liabilities, excluding movements relating to changes in interest rates and foreign exchange currency rates, because of changes in market prices. The Company’s investment in marketable securities is listed on the TSX. A 10% absolute change in the market price of the Company's marketable securities would increase (decrease) the carrying amount of the investments by $5,812, before associated taxes, with a corresponding increase (decrease) in earnings before income taxes. The Company’s liability associated with the Dream Alternatives trust units is fair valued in reference to Dream Alternatives' unit trading price as listed on the TSX. A 10% absolute change in the market price of the Dream Alternatives units would increase (decrease) the carrying amount of the liability by $37,723, before associated taxes, with a corresponding decrease (increase) in earnings before income taxes. Credit Risk Credit risk is the risk one party to a financial instrument will cause a financial loss to the other party by failing to discharge an obligation. Credit risk arises from the possibility that builders or other third-party purchasers of the Company’s real estate inventory, or other entities to which the Company may have advanced funds, may not fulfill their contractual obligations to repay amounts due to the Company. The Company mitigates its credit risk by requiring graduated deposits from buyers and withholding real estate titles until final payments are received. The Company also mitigates credit risk by dealing only with builders and other third-party buyers the Company considers to have secure financial standing and by diversifying the mix of builders and markets. Credit risk also arises from the possibility that tenants in investment properties may not fulfill their lease or contractual obligations. The Company mitigates this credit risk by attracting tenants of sound financial standing and diversifying its mix of tenants. It also monitors tenant payment patterns and discusses potential tenant issues with property managers on a regular basis. Credit risk related to the lending portfolio and investment holdings arises from the possibility that a borrower may not be able to honour its debt commitments as a result of a negative change in market conditions that could result in a loss to the Company. The Company mitigates risk by actively monitoring the mortgage and loan investments and initiating recovery procedures, in a timely manner, when required. The maximum exposure to credit risk at December 31, 2018 was the fair value of the Company's investment holdings and the contractual value of its lending portfolio which, including interest receivable, was $208,858. The Company has recourse under these investments in the event of default by the borrower, in which case, the Company would have a claim against the underlying collateral. Interest Rate Risk Interest rate risk relates to the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk primarily through its variable rate debt obligations. Excluding the demand facility and margin facility, variable rate debt represented 71% (December 31, 2017 – 87%) of total debt obligations as at December 31, 2018. Interest rate risk is mitigated, in part, by borrowing long-term fixed rate mortgages with relatively consistent interest expense. The Company has entered into interest rate swaps to further mitigate interest rate risk. See Notes 21 and 22 for further details. Dream Unlimited Corp. – December 31, 2018 | 94 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ The Company has exposure to the variability in market interest rates on its lending portfolio investments with variable-rate loans and fixed-rate loans maturing within the next 12 months. As at December 31, 2018, there are no variable-rate loans within the lending portfolio. The Company invests in mortgages and loans secured by all types of residential and commercial real estate property that represent an acceptable underwriting risk. As a result, the Company's lending portfolio investments are not exposed to significant market interest risk. Liquidity Risk Liquidity risk is the risk the Company will encounter difficulty in meeting obligations associated with the maturity of financial liabilities. The Company manages its liquidity risk primarily through the management of its financial leverage. The Company uses various debt and equity ratios to monitor its capital adequacy and debt requirements, including interest coverage, minimum net worth, average term to debt maturity, and the ratio of variable rate debt to aggregate debt. These ratios assist the Company in assessing the debt level maintained by the Company in order to ensure adequate cash flows for real estate development. The Company manages maturities of outstanding debt by matching them to project closing dates and monitoring the repayment dates to ensure sufficient capital will be available to cover obligations. Management also monitors the Company's availability under the operating lines and margin facility. A summary of the Company’s weighted average effective interest rates as at December 31, 2018 is as follows: Weighted average effective interest rates 2017 2018 Maturity dates 2018 Debt amount 2017 Fixed rate Mortgages and term debt Mortgages and term debt - Dream Alternatives Preference shares, series 1 Total fixed rate debt Variable rate Construction loans - Western Canada Construction loans - Urban development Mortgages and term debt Mortgages and term debt - Dream Alternatives Operating line Non-revolving term facility Margin facility Total variable rate debt Total debt 4.53% 4.08% 7.00% 4.61% 4.05% 4.63% 4.44% 3.60% 4.48% 4.36% 4.35% 4.29% 4.38% 4.73% n/a 7.00% 5.46% 3.26% 4.36% 3.94% n/a 3.62% 3.65% 3.82% 3.70% 3.96% 2019-2025 $ 104,216 $ 2019-2022 2021 2019-2021 2019-2021 2019-2023 2019-2022 2019 2021 2019 $ 112,637 28,672 245,525 61,421 116,565 32,998 86,743 48,943 224,083 100,000 670,753 916,278 $ 61,642 — 28,668 90,310 98,706 64,697 55,182 — 93,225 174,799 40,000 526,609 616,919 The following table summarizes the aggregate of the scheduled principal repayments and debt maturities as at December 31, 2018: Construction loans - Western Canada Construction loans - Urban development Mortgages and term debt - Dream Mortgages and term debt - Dream Alternatives Operating line - Dream (1) Non- revolving term facility(1) 47,966 $ 11,636 1,819 — — 61,421 17,237 $ 44,748 54,580 — 58,350 $ 17,965 3,649 3,732 32,646 $ 11,635 16,512 76,998 — 116,565 54,096 137,792 60,863 198,654 49,000 $ — — — — 49,000 — $ — 225,000 — — 225,000 100,000 Margin facility 100,000 $ — — — — Preference shares, series 1 28,681 $ — — — — 28,681 Total 333,880 85,984 301,560 80,730 114,959 917,113 $ 2019 2020 2021 2022 2023 and thereafter Discount/ unamortized premium/ financing costs — — (578) 726 (57) (917) — (9) (835) $ 61,421 $ 116,565 $ 137,214 $ 199,380 $ 48,943 $ 224,083 $ 100,000 $ 28,672 $ 916,278 (1) Subsequent to December 31, 2018, the maturity dates of these facilities were amended as described in Note 22. The contractual payments above include the principal repayments owing in future periods. The amounts presented above are shown consistent with their contractual repayments. Certain facilities may be due on demand. Dream Unlimited Corp. – December 31, 2018 | 95 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ 37. Share-based compensation Stock Option Plan The Company has a stock option plan under which key officers and employees are granted options to purchase Subordinate Voting Shares. Each option granted can be exercised for one Subordinate Voting Share. Options outstanding, January 1, 2017 Granted Forfeited Options outstanding, December 31, 2017 Granted Exercised Forfeited Options outstanding, December 31, 2018 Options exercisable, December 31, 2018 Options 1,678,500 144,550 (14,000) 1,809,050 147,050 (24,583) (39,417) 1,892,100 1,061,663 Weighted average exercise price 8.60 6.60 7.76 8.44 7.44 7.93 7.55 8.39 8.87 $ $ $ $ As at December 31, 2018, 1,892,100 options were outstanding under the stock option plan collectively. Grants that are outstanding as at December 31, 2018 are as follows: Grant date Number of options granted and outstanding as at December 31, 2018 Weighted average exercise price Vesting period Expiry date Fair value of stock options granted at grant date $ $ Number of options vested as at December 31, 2018 October 2013 February 2015 December 2015 May 2016 March 2017 February 2018 150,000 690,000 680,000 13.88 $ 8.96 $ 7.25 $ 93,000 7.76 $ 138,300 140,800 6.60 $ 5 years October 2023 5 years February 2025 5 years December 2025 3 years May 2021 5 years March 2027 5.08 $ 2.05 $ 2.06 $ 1.57 $ 1.91 $ 150,000 414,000 408,000 62,000 27,663 7.44 5 years February 2028 2.09 — The fair value of the stock options granted in the year ended and outstanding as at December 31, 2018 was estimated on the grant date using the Black- Scholes option pricing model with the following weighted average assumptions: Risk-free interest rate Estimated volatility(1) Expected life Contractual life Expected dividend yield (1) Estimated volatility is based on a blended rate of market comparables and the Company's historical volatility. 2.2% 22.0% 6.5 years 10 years —% In the year ended December 31, 2018, the Company recognized $621 (year ended December 31, 2017 – $822) of share-based compensation expense related to stock options, offset by a $120 recovery from forfeited shares in the year ended December 31, 2018 (year ended December 31, 2017 – $6), primarily recognized in general and administrative expense. Performance Share Unit Plan Performance share units ("PSUs") may be granted to current employees and are subject to either time vesting only, or time and performance vesting. PSUs subject to performance vesting provide the holder with a minimum of 0 and a maximum of 1.5 Subordinate Voting Shares based on the achievement of predetermined Company performance goals. In lieu of receiving Subordinate Voting Shares on vesting, PSU holders have the right to request a cash payment equal to the five-day trailing weighted average share price of the Company’s Subordinate Voting Shares on the vesting date or settlement date, when applicable; however, the form of payment on vesting is ultimately the decision of the Company. Dream Unlimited Corp. – December 31, 2018 | 96 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ Units outstanding, January 1, 2017 Granted Units outstanding, December 31, 2017 Granted Forfeited Units outstanding, December 31, 2018 Units — $ 328,526 328,526 334,130 (28,404) 634,252 Weighted average fair value at grant date — 6.62 6.62 7.44 7.03 7.03 $ In the year ended December 31, 2018, compensation expense of $1,428 (year ended December 31, 2017 – $562) related to this plan was primarily recognized in general and administrative expense. The fair value of PSUs granted and outstanding as at December 31, 2018 was estimated on the grant date with the following assumptions: Risk-free interest rate Expected life Contractual life Expected dividend yield 1.92% 3 years 10 years —% Deferred Share Unit Plan The Company has a deferred share unit incentive plan pursuant to which DSUs may be granted to eligible directors, senior management and certain service providers. As at December 31, 2018, there were 273,839 units outstanding (December 31, 2017 – 186,546 units outstanding). In the year ended December 31, 2018, compensation expense of $779 (year ended December 31, 2017 – $499) related to this plan was recognized in general and administrative expense. Units outstanding, beginning of year Granted Settled Units outstanding, end of year 2018 186,546 87,293 — 273,839 2017 142,949 71,765 (28,168) 186,546 The net changes in contributed surplus relating to share-based compensation for the stock option plan, preferred share unit plan and deferred share unit plan were as follows: Balance, January 1, 2017 Granted, net of forfeitures Settled Balance, December 31, 2017 Granted, net of forfeitures Balance, December 31, 2018 $ $ Total 3,719 1,877 (255) 5,341 2,708 8,049 Dream Unlimited Corp. – December 31, 2018 | 97 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ 38. Earnings per share Basic earnings per share is calculated by dividing the Company’s earnings attributable to outside shareholders of the Company by the weighted average number of shares outstanding in the year. Diluted earnings per share is calculated by dividing the Company’s earnings attributable to the outside shareholders of the Company by the weighted average number of shares outstanding after the dilutive effect of the Preference shares, series 1, stock options, preferred share units and deferred share units. The diluted weighted average number of shares used in the diluted earnings per share calculation is determined by assuming that the total proceeds received for the conversion of such units is used to repurchase Subordinate Voting Shares at the average selling price of such publicly traded units over the term of the calculation. The following table summarizes the basic and diluted earnings per share and the weighted average number of shares outstanding: Earnings attributable to the outside shareholders of the Company Diluted earnings per share adjustments for Preference shares, series 1 Earnings for diluted earnings per share Weighted average number of shares outstanding: Dream Subordinate Voting Shares Dream Class B Shares Total weighted average number of shares Effect of dilutive securities on weighted average number of shares outstanding at year end: Share-based compensation(1) Preference shares, series 1 Total weighted average number of shares outstanding after dilution 2018 190,948 2,496 193,444 $ $ $ $ 2017 79,645 1,472 81,117 105,335,690 3,115,272 108,450,962 466,248 4,399,351 113,316,561 95,336,774 3,115,388 98,452,162 164,748 3,799,704 102,416,614 0.81 0.79 1.76 Basic earnings per share Diluted earnings per share 1.71 (1) For the year ended December 31, 2018, 997,883 stock options (including PSUs) were considered anti-dilutive (year ended December 31, 2017 – 1,825,907 stock options). $ $ $ $ 39. Capital management The Company’s capital consists of project-specific debt, corporate debt facilities, Preference shares, series 1, and shareholders’ equity. The Company’s objectives in managing capital are to: i) Ensure adequate operating funds are available to fund the development of real estate inventory and other assets, including investments through joint ventures and joint operations; Ensure the Company is able to meet its lease and capital expenditure obligations relating to its investment and recreational properties; Ensure the Company has adequate resources available to benefit from acquisition opportunities, should they arise; and ii) iii) iv) Generate a targeted rate of return on its investments. The Company continuously monitors its debt structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying real estate industry. Dream Unlimited Corp. – December 31, 2018 | 98 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ 40. Commitments and contingencies Leases and Other The Company, including joint operations, has operating leases and other commitments pursuant to which future minimum annual payments, exclusive of operating costs and realty taxes, are as follows: 2019 2020 2021 2022 2023 2024 and thereafter $ $ 5,650 8,769 3,301 2,568 1,938 15,421 37,647 Land and Other Purchase Agreements As at December 31, 2018, the Company had remaining commitments under land purchase agreements totalling $3,223 (December 31, 2017 – $1,131), which will become payable in future periods on satisfaction of certain conditions pursuant to these arrangements. These amounts exclude future repayments of debt relating to land, which has been included in mortgages and term debt as at December 31, 2018. Letters of Credit and Surety Bonds The Company is contingently liable for letters of credit and surety bonds that have been provided to support land developments, equity accounted investments and other activities in the amount of $91,672 (December 31, 2017 – $87,934). The Company is also contingently liable for bonds that have been provided to support certain urban development condominium partnerships that expire at the end of a specified warranty period. The Company is committed to pay levies in the future of up to $1,252 (December 31, 2017 – $2,151) relating to signed municipal agreements on commencement of development of certain real estate assets. Additional development costs may also be required to satisfy the requirements of these municipal agreements. Joint Operations, Co-ownerships, Joint Ventures and Associates The Company may conduct its real estate activities from time to time through joint operations and joint ventures with third-party partners. The Company was contingently liable for the obligations of the other owners of the unincorporated joint operations and joint ventures in the amount of $15,609 as at December 31, 2018 (December 31, 2017 – $16,973). The Company would have available to it the other co-venturers’ share of assets to satisfy any obligations that may arise. Dream Alternatives In the year ended December 31, 2018, the Company, through a subsidiary of Dream Alternatives, continued to provide a guarantee for up to $45,000 pursuant to the requirements of a senior construction loan associated with a participating mortgage. The guarantee will be in place for the term of the construction loan and will proportionately scale down as the construction loan is repaid as unit closings begin to occur. Guarantees of the other underlying development project loan amounts of third parties are $7,500. As at December 31, 2018, the Company is contingently liable under guarantees that are issued on certain debt assumed by purchasers of income properties up to an amount of $44,157. A subsidiary of Dream Alternatives is contingently liable for letters of credit in the amount of $1,395 that have been provided to support third party performance. Legal Contingencies The Company and its operating subsidiaries may become liable under guarantees that are issued in the normal course of business and with respect to litigation and claims that arise from time to time. In the opinion of management, any liability that may arise from such contingencies would not have a material adverse effect on the consolidated financial statements of the Company. Management is aware of a legal matter relating to a development project and intends to vigorously defend the matter. A statement of claim was originally filed by the plaintiff against the Company and others in 2013, and the Company and the other defendants successfully brought a motion to strike the claim in December 2014. In April 2016, the Company was served with an amended statement of claim. Management continues to believe that this amended claim is without merit and that this action will not have a material adverse effect on the financial condition, results of operations or cash flows of the Company. A reasonable estimate of the possible loss or range of loss cannot be made at this time. We are contingently liable with respect to other litigation and claims that may arise from time to time. In the opinion of management, any liability that may arise from such contingencies would not have a material adverse effect on our consolidated financial statements. Dream Unlimited Corp. – December 31, 2018 | 99 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ 41. Asset management and management services agreements and related party transactions Material Transactions with Dream Industrial REIT and Dream Global REIT The Company has entered into agreements with Dream Global REIT and Dream Industrial REIT, effective August 2011 and October 2012 respectively, pursuant to which the Company provides each entity a broad range of management and advisory services relative to their respective real estate holdings. The Company receives revenues in respect of these services including base annual management fees, acquisition fees, financing fees, capital expenditure fees and incentive fees, determined in accordance with a formula as outlined in the respective agreements. Each of these agreements has an initial term of 10 years and is renewable for further five-year terms. Subject to the termination provisions in the respective agreements, the Company is automatically reappointed at the expiration of each five-year term. In addition, the Company has entered into shared services and cost sharing agreements (“shared services agreements”) with each of Dream Industrial REIT and Dream Global REIT. Pursuant to the agreements, Dream Industrial REIT and Dream Global REIT reimburse the Company for shared costs allocated in each calendar year on a cost recovery basis. In the years ended December 31, 2018 and 2017, the Company earned/recovered the following amounts pursuant to its asset management and advisory services and shared services agreements: Asset management fees charged by Dream to Dream Industrial REIT Asset management fees charged by Dream to Dream Global REIT Cost recoveries charged by Dream to Dream Industrial REIT Cost recoveries charged by Dream to Dream Global REIT $ $ 2018 6,546 20,890 657 1,173 2017 5,372 19,202 682 1,111 Included in accounts receivable are balances due from Dream Industrial REIT and Dream Global REIT related to asset management and management services agreements and cost sharing agreements as follows: Dream Industrial REIT Dream Global REIT $ $ 2018 606 $ 5,047 5,653 $ 2017 781 2,631 3,412 Material Transactions with Dream Office REIT The Company and Dream Office REIT entered into a Management Services Agreement effective April 2015, pursuant to which the Company will provide certain management services, including services of a Chief Executive Officer to Dream Office REIT, as requested. The Company will be reimbursed for out-of-pocket costs and expenses incurred in connection with performance of the management services and costs incurred. This agreement will continue until it is terminated by either party in accordance with the termination provisions of the agreement. The Company has also entered into a shared services agreement with Dream Office REIT, whereby Dream Office REIT reimburses the Company for shared costs allocated in each calendar year on a cost recovery basis. In addition, the Company and Dream Office REIT are party to an administrative services agreement. Amounts charged under the respective agreements in the years ended December 31, 2018 and 2017 are as follows: Costs recovered under Management Services Agreement from Dream Office REIT Cost recoveries charged by Dream to Dream Office REIT Charges under the Administrative Services Agreement to Dream $ $ 2018 2,270 1,207 6,391 2017 2,955 965 6,029 Amounts owing to and from Dream Office REIT as of December 31, 2018 were $988 and $531, respectively (December 31, 2017 – $763 and $894, respectively). Distributions Earned from Investments The Company earned distributions from Dream Global REIT and Dream Office REIT (Notes 7 and 15). Other Transactions Included in other financial assets as at December 31, 2018 is $19,052 (December 31, 2017 - $7,054) relating to co-owned commercial assets acquired jointly with Dream Global REIT. The acquisitions were primarily funded through loans from Dream Global REIT amounting to $9,072 (December 31, 2017 - $8,173), which were included in accounts payable and other liabilities owing to Dream Global REIT as at December 31, 2018 of $9,440 (December 31, 2017 - $8,358). In the year ended December 31, 2018, the Company received services for $88 related to a project-level property management agreement with Dream Industrial REIT. As at December 31, 2018, $nil was owed to Dream Industrial REIT. Dream Unlimited Corp. – December 31, 2018 | 100 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ In the year ended December 31, 2018, the Company, along with Dream Office REIT, entered into a strategic partnership focused on the property technology market. The Company and Dream Office REIT each hold a 25% interest in the partnership, included within other development interests in equity accounted investments. As at December 31, 2018, the Company had funded $1,541 into the partnership. Compensation of Key Management Compensation expense for the year for key management personnel, including the President and Chief Responsible Officer, Executive Vice President and Chief Financial Officer, Chief Development Officer, Chief Investment Officer, President of Asset Management, and the Company's directors, is shown in the table below. Compensation and benefits Share-based compensation Directors' fees 42. Supplementary cash flow information Components of other adjustments include: Dream Global REIT deferred trust units Accrued interest on loans receivable and other expenses Share-based compensation expense Fair value changes in financial instruments Non-cash acquisition of investment property Non-cash contribution to equity accounted investment Other Components of changes in non-cash working capital include: Accounts receivable Accounts payable and other liabilities Income and other taxes payable Provision for real estate development costs Customer deposits Deposits Restricted cash Inventory, prepaid expenses and other assets The breakdown of cash and cash equivalents is as follows: Cash Money market funds, term deposits and GICs 2018 5,892 $ 1,821 780 8,493 $ 2018 (1,369) (5,567) 2,902 577 (7,299) — 2,490 (8,266) 2018 8,863 (19,654) (25,456) (903) (4,910) (1,204) (5,029) (329) (48,622) 2018 63,955 338 64,293 $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2017 7,152 1,222 1,090 9,464 2017 (1,386) (1,125) 1,877 488 — (2,170) (526) (2,842) 2017 (38,810) 17,241 30,020 (7,042) 4,703 6,013 (414) 4,459 16,170 2017 25,228 180 25,408 Dream Unlimited Corp. – December 31, 2018 | 101 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ 43. Segmented information Management has determined the operating segments based on the reports reviewed by the President and Chief Responsible Officer and senior management. Gross margin represents revenue, less direct operating costs and asset management and advisory services expenses, excluding selling, marketing and other operating costs. Net margin represents gross margin, as defined above, including selling, marketing and other operating costs. Used as a percentage of revenue to evaluate operational efficiency, these margins are employed as fundamental business considerations in updating budgets, forecasts and strategic planning. The allocation of other components of earnings would not assist management in the evaluation of the segments’ contributions to earnings. The Company's operating segments are as follows: • • • Asset management, management services and investments in publicly listed funds ("asset management") includes managing four publicly listed funds and various development partnerships, in addition to equity interests in Dream Office REIT and Dream Global REIT. Urban development - Toronto & Ottawa includes condominium and mixed-use development in the Greater Toronto Area and Ottawa/Gatineau regions. Renewables and recreational properties includes a ski area in Colorado, a 50% interest in the Broadview Hotel and the ownership of wind and solar power generating facilities. • Western Canada development includes land and housing development, as well as income producing retail and commercial developments in Saskatoon, Regina, Calgary and Edmonton. • Dream Alternatives includes the operating activity of Dream Alternatives' diversified portfolio. In connection with the acquisition of control of Dream Alternatives on January 1, 2018, the Company has reviewed its segment reporting taking into consideration how the Company presents information for financial reporting and management decision making. The Company has retrospectively applied this segment presentation for all periods presented. Segmented Statement of Net Earnings Segmented revenues and expenditures for the year ended December 31, 2018 and 2017 are as follows: Asset management Urban development - Toronto & Ottawa Renewables and recreational properties Western Canada development Corporate and other Dream Alternatives Consolidation adjustments Consolidated Dream 2018 Revenues $ 44,034 $ Direct operating costs — 35,826 $ (23,633) 45,889 $ 168,322 $ — $ 57,596 $ (11,794) $ (35,789) (110,915) (22,672) (918) Asset management expenses Gross margin Selling, marketing and other operating costs Net margin Fair value changes in investment properties Investment and other income Net gain on acquisition of Dream Alternatives Gain on disposition of assets Share of earnings from equity accounted investments Net segment earnings (10,721) 33,313 — 33,313 — 12,193 (10,470) 1,723 — 19,271 1,292 12,555 — 3,154 — 9,422 — 10,100 (4,456) 5,644 — 237 — — — 57,407 (32,188) 25,219 (1,767) — — 1,530 3,108 3,313 30,198 (253) 5,164 (484) 813 1,591 $ 77,358 $ 33,317 $ 11,045 $ 24,498 $ 3,108 $ 36,855 $ 105,894 $ General and administrative expenses Fair value changes in financial instruments Interest expense Adjustments related to Dream Alternatives trust units Income tax expense Net earnings (loss) (1) (1) Includes earnings attributable to non-controlling interest. (15,277) 4,486 (29,201) — (26,241) (63,125) $ $ Dream Unlimited Corp. – December 31, 2018 | 102 — — — — — — — — — 339,873 (193,927) (11,164) 134,782 (47,114) 87,668 15,262 12,702 37,029 292,075 (20,395) (577) (37,931) (19,680) (21,439) — 34,924 — 34,924 (2,195) (443) (13,155) — (13,155) (47) 68 — — 117,437 129,992 — 9,422 (15,411) 2,106 (8,964) — (684) 10,293 (7,169) 234 (19,680) 5,486 13,902 $ 95,058 $ 192,053 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ Asset management Urban development - Toronto & Ottawa Renewables and recreational properties Western Canada development Corporate and other Dream Alternatives Consolidation adjustments Consolidated Dream 2017 Revenues $ 45,823 $ 38,619 $ 40,283 $ 232,239 $ — $ — $ — $ 356,964 Direct operating costs Asset management expenses Gross margin Selling, marketing and other operating costs Net margin Fair value changes in investment properties Investment and other income Share of earnings from equity accounted investments (30,005) (147,181) — (9,638) 36,185 — 36,185 — 1,386 (26,124) — 12,495 (7,892) 4,603 3,672 14,960 — 10,278 (3,831) 6,447 — — 13,926 (915) 5,088 — 85,058 (34,058) 51,000 10,473 1,732 — — — — — — — 3,546 — — — — — — — — (1,021) — — — — — — — — (203,310) (9,638) 144,016 (45,781) 98,235 14,145 21,624 17,078 Net segment earnings (loss) $ 51,497 $ 22,320 $ 11,535 $ 63,205 $ 3,546 $ (1,021) $ — $ 151,082 General and administrative expenses Fair value changes in financial instruments Interest expense Income tax expense Net earnings (loss) (1) (1) Includes earnings attributable to non-controlling interest. (13,419) (488) (21,599) (32,737) — — — — — — — — $ (64,697) $ (1,021) $ — $ (13,419) (488) (21,599) (32,737) 82,839 Dream Unlimited Corp. – December 31, 2018 | 103 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ Segmented Assets and Liabilities Segmented assets and liabilities as at December 31, 2018 and December 31, 2017 were as follows: Asset management Urban development - Toronto & Ottawa Renewables and recreational properties Western Canada development Corporate and other(1) Dream Alternatives Consolidation and fair value adjustments Consolidated Dream 2018 9,583 $ 31,846 3,129 $ 4,546 Assets Cash and cash equivalents $ 138 $ Accounts receivable Other financial assets Lending portfolio Housing inventory Condominium inventory Land inventory Investment properties Recreational properties Renewable power assets 8,329 58,123 — — — — — — — — — — 233,974 1,742 121,707 — — Equity accounted investments 342,415 46,153 114 43,000 — — 18,705 — 13,576 8,308 3,047 $ 1,547 $ 46,730 $ 119 $ 120,567 — — 56,605 5,647 573,311 56,248 — — 5,624 6,101 — — 64,279 12,646 103,019 — — — — — — — — 2,821 122,908 144,095 — — — 224,921 — 132,251 132,528 6,180 5,023 — — — — — — (3,341) (71,699) — — — — 9,895 — 11,037 (18,753) 3 (43,000) — — 64,293 177,414 212,351 144,095 56,605 239,621 575,896 412,771 49,241 143,288 549,760 40,068 — 13,576 72,587 — — — — 843 — 49,241 — 41,793 3,942 — — — Capital and other operating assets Intangible asset Goodwill Assets held for sale Total assets Liabilities Accounts payable and other liabilities Income and other taxes payable Provision for real estate development costs Customer deposits Project-specific debt Corporate debt facilities Preference shares, series 1 Dream Alternatives trust units Deferred income taxes Total liabilities Non-controlling interest Total shareholders' equity (1) $ 452,119 $ 485,594 $ 103,494 $ 891,429 $ 123,392 $ 811,277 $ (115,739) $ 2,751,566 $ 13,662 $ 24,851 $ 10,974 $ 30,208 $ 19,321 $ 25,888 $ 1,938 $ — — — — — — — — — 3,338 31,647 183,309 — — — — — — 597 15,644 — — — — — 51,236 (1,707) 30,515 1,867 116,247 — — — — — — — 373,026 28,672 — 75,662 — — 195,492 — — — (323) — — — 3,888 — — 377,234 18,800 126,842 49,529 33,853 34,111 514,580 373,026 28,672 377,234 94,139 $ $ 13,662 $ 243,145 $ 27,215 $ 178,837 $ 547,917 $ 219,350 $ 401,860 $ 1,631,986 — 43,935 — — — 1,669 (29,275) 16,329 438,457 $ 198,514 $ 76,279 $ 712,592 $ (424,525) $ 590,258 $ (488,324) $ 1,103,251 Included in other financial assets is $72,678 relating to the Company's investment in Dream Alternatives units that is eliminated in the consolidation and fair value adjustments column. Dream Unlimited Corp. – December 31, 2018 | 104 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ Asset management Urban development - Toronto & Ottawa Renewables and recreational properties Western Canada development Corporate and other Dream Alternatives Consolidation and fair value adjustments Consolidated Dream 2017 Assets Cash and cash equivalents $ — $ Accounts receivable Other financial assets Housing inventory Condominium inventory Land inventory Investment properties Recreational properties 6,933 57,635 — — — — — Equity accounted investments 247,274 Capital and other operating assets Intangible asset Goodwill Assets held for sale Total assets Liabilities Accounts payable and other liabilities Income and other taxes payable Provision for real estate development costs Customer deposits Project-specific debt Corporate debt facilities Preference shares, series 1 Deferred income taxes Total liabilities Non-controlling interest Total shareholders' equity 9,411 $ 39,590 3,178 $ 5,058 — — 165,866 1,619 146,293 — 56,444 9,055 — 13,576 9,076 — — — 717 — 40,617 44,509 3,536 — — — 10,529 $ 2,290 $ — $ — $ 118,350 — 59,619 5,647 572,562 95,684 — 6,109 5,668 — — 25,042 27,536 21,408 — — — — — — 1,840 — — — — — — — — — — 48,336 — — — — — — — — — — — — — — — — 25,408 197,467 79,043 59,619 171,513 574,898 241,977 40,617 402,672 20,099 43,000 13,576 34,118 — 43,000 — — $ 354,842 $ 450,930 $ 97,615 $ 899,210 $ 53,074 $ 48,336 $ — $ 1,904,007 $ 13,558 $ 40,206 $ 8,377 $ 33,088 $ 23,736 $ — $ — $ — — — — — — — — 2,926 32,249 157,947 — — — — — 518 17,137 — — — — 77,143 31,830 6,254 105,143 — — — — — — 308,024 28,668 59,719 — — — — — — — — — — — — — — 118,965 77,143 34,756 39,021 280,227 308,024 28,668 59,719 $ $ 13,558 $ 233,328 $ 26,032 $ 176,315 $ 497,290 $ — $ — $ 946,523 — 38,090 — — — — 341,284 $ 179,512 $ 71,583 $ 722,895 $ (444,216) $ 48,336 $ — — $ 38,090 919,394 Dream Unlimited Corp. – December 31, 2018 | 105 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ 44. Classification of items in consolidated statements of financial position A summary of the classification between current and non-current assets and liabilities is presented below. Assets Cash and cash equivalents Accounts receivable Other financial assets Lending portfolio Housing inventory Condominium inventory Land inventory Investment properties Recreational properties Renewable power assets Equity accounted investments Capital and other operating assets Goodwill Assets held for sale Total assets Less than 12 months Greater than 12 months Non-determinable 64,293 $ 146,461 8,111 96,968 — — — — — — — 10,406 — 72,587 398,826 $ — $ 30,953 204,240 47,127 — — — 412,771 49,241 143,288 — 29,662 13,576 — — $ — — — 56,605 239,621 575,896 — — — 549,760 — — — 930,858 $ 1,421,882 $ $ $ $ Liabilities Accounts payable and accrued liabilities Income and other taxes payable Provision for real estate development costs Customer deposits Project-specific debt(1) Corporate debt facilities(1) Preference shares, series 1(2) Dream Alternatives trust units(2) Deferred income taxes Total liabilities (1) The amounts presented are shown consistent with the contractual terms of repayment, which may be due on demand. (2) Preference shares, series 1 and Dream Alternatives trust units may be redeemed at the option of the holder with no expiry date. 107,426 $ 49,529 33,853 — 152,253 148,943 — — — 19,416 $ — — — 362,327 224,083 — — 94,139 699,965 $ 492,004 $ $ — $ — — 34,111 — — 28,672 377,234 — 440,017 $ 2018 Total 64,293 177,414 212,351 144,095 56,605 239,621 575,896 412,771 49,241 143,288 549,760 40,068 13,576 72,587 2,751,566 126,842 49,529 33,853 34,111 514,580 373,026 28,672 377,234 94,139 1,631,986 Dream Unlimited Corp. – December 31, 2018 | 106 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ Assets Cash and cash equivalents Accounts receivable Other financial assets Housing inventory Condominium inventory Land inventory Investment properties Recreational properties Equity accounted investments Capital and other operating assets Intangible asset Goodwill Assets held for sale Total assets Less than 12 months Greater than 12 months Non-determinable $ $ 25,408 $ 175,373 7,714 — — — — — — 5,262 — — 34,118 247,875 $ — $ 22,094 71,329 — — — 241,977 40,617 — 14,837 43,000 13,576 — — $ — — 59,619 171,513 574,898 — — 402,672 — — — — 447,430 $ 1,208,702 $ $ Liabilities Accounts payable and accrued liabilities Income and other taxes payable Provision for real estate development costs Customer deposits Project-specific debt(1) Corporate debt facilities(1) Preference shares, series 1(2) Deferred income taxes Total liabilities (1) The amounts presented are shown consistent with the contractual terms of repayment, which may be due on demand. (2) Preference shares, series 1 may be redeemed at the option of the holder with no expiry date. 108,179 $ 77,143 34,756 — 133,847 214,799 — — 568,724 $ $ 10,786 $ — — — 146,380 93,225 — 59,719 310,110 $ — $ — — 39,021 — — 28,668 — 67,689 $ 2017 Total 25,408 197,467 79,043 59,619 171,513 574,898 241,977 40,617 402,672 20,099 43,000 13,576 34,118 1,904,007 118,965 77,143 34,756 39,021 280,227 308,024 28,668 59,719 946,523 45. Comparative figures Certain comparative balances have been reclassified from the consolidated financial statements previously presented to conform to the presentation of the 2018 consolidated financial statements. 46. Changes in accounting policies IFRS 15 The Company adopted IFRS 15 with a date of initial application of January 1, 2018. As a result, the Company has changed its accounting policy for revenue as detailed below. The Company applied IFRS 15 using the modified approach, whereby comparative information has not been adjusted. The details and quantitative impact of the changes in accounting policies are described below. Costs incurred to obtain a contract The Company previously expensed certain costs incurred to obtain a contract (primarily refundable sales commissions on real estate property sales). Under IFRS 15, the Company capitalizes all commissions paid to an intermediary as a cost to obtain a contract when they are expected to be recovered. These costs are amortized consistently with the pattern of recognition for the related revenue. The Company has applied the practical expedient in IFRS 15 and has expensed the costs incurred to obtain contracts if the amortization period is less than one year. The impact of this change effective January 1, 2018 is an increase to equity accounted investments and capital and other assets of $2,208 and $3,424, respectively, to capitalize sales commissions previously expensed relating to future revenue. Dream Unlimited Corp. – December 31, 2018 | 107 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ Accounting Policies Applicable up to December 31, 2017 The following policies apply to comparative information for 2017 in the Company's consolidated financial statements as we did not restate prior periods on adoption of IFRS 15. Revenue from sales of real estate inventory is generally recognized when the earnings process is virtually complete, the significant risks and rewards of ownership are transferred to the buyer, collectibility is reasonably assured, and the Company does not have a substantial continuing involvement with the asset to the degree normally associated with ownership. Revenue relating to sales of land under development is recognized provided: the related agreement of purchase and sale is unconditional; an appropriate deposit of the sale proceeds has been received; collectibility of the remaining proceeds is reasonably assured; and the Company can reliably measure the necessary costs to complete the development of the asset. Until these criteria are met, any proceeds received are accounted for as customer deposits. Revenue relating to sales of condominiums and housing projects or commercial property is recognized provided: the related agreement of purchase and sale is unconditional; the buyer occupies the unit; a reasonable portion of the sale proceeds has been received; collectibility of the remaining proceeds is reasonably assured; and the Company can reliably measure the necessary costs to complete the development of the asset. Until these criteria are met, any proceeds received are accounted for as customer deposits. Revenue from investment properties includes base rents, recoveries of operating expenses including property taxes, percentage participation rents, lease cancellation fees, parking income and other incidental income. The Company uses the straight-line method of rental revenue recognition on investment properties whereby any contractual free-rent periods and rent increases over the term of a lease are recognized in earnings evenly over the lease term. Initial direct leasing costs incurred in negotiating and arranging tenant leases are added to the carrying amount of the investment properties and are amortized over the term of the lease. Lease incentives, which include costs incurred to make leasehold improvements to tenants’ space and cash allowances provided to tenants, are added to the carrying amount of investment properties and are amortized on a straight-line basis over the term of the lease as a reduction in revenue from investment properties. Amounts received for the sale of annual season passes to recreational properties are deferred and amortized on a straight-line basis over the term of the season. Hotel revenues are derived from room rentals and services provided at the Company's property and are recorded when rooms are occupied and services have been rendered. Other amounts received from the use of recreational properties are recognized as revenue when earned. Revenue from real estate asset management and advisory services is calculated based on a fee that is a formula specific to each advisory client and may include fee revenue calculated as a percentage of the capital managed, capital expenditures incurred or the purchase price of properties acquired. These fees are recognized on an accrual basis over the period during which the related service is rendered. Asset management and advisory services fee arrangements may also provide the Company with an incentive fee when the investment performance of the underlying assets exceeds established benchmarks. Incentive fees and other revenues are not recognized in earnings until the amounts can be established with certainty and are no longer dependent on future events. The Company recognizes investment income from distributions on financial assets when the distributions are received or receivable, after adjusting for the portion considered to be a return of capital. The Company's basis of measurement for distributions from financial assets classified as investment income and return of capital is the Company's pro rata share of cash flows from operations of the investee. IFRS 9 The Company has adopted IFRS 9 with initial application as at January 1, 2018. The accounting policies were changed to comply with IFRS 9 and replace the provisions of IAS 39 that relate to the recognition, classification and measurement of financial assets and liabilities; derecognition of financial instruments; and impairment of assets and hedge accounting. IFRS 9 also amends other standards dealing with financial instruments such as IFRS 7. The details and quantitative impact of the changes in accounting policies are described below. Investments in marketable securities The Company previously recorded its investment in Dream Global REIT (including DTUs) at fair value through OCI. Under IFRS 9, the Company records these investments at fair value through profit or loss. The impact of this change effective January 1, 2018 is an increase to retained earnings of $23,698 (net of tax in AOCI of $3,620). Investments in co-owned commercial assets The Company previously recorded its investment in equity securities not quoted in an active market at cost. Under IFRS 9, the Company records these investments at fair value through profit or loss. The impact of this change effective January 1, 2018 is an increase to retained earnings of $5,649 (net of tax of $869). Gain on prior debt modifications The Company previously modified certain debt instruments held through Firelight Infrastructure Partners LP, an equity accounted investment. Under IFRS 9, the Company calculated a gain on modification as the difference between the original contractual cash flows and the modified cash flows discounted at the original effective interest rate. The impact of this change effective January 1, 2018 at Dream's 20% ownership interest is an increase to retained earnings of $667 (net of tax of $241). Dream Unlimited Corp. – December 31, 2018 | 108 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ Accounting Policies applicable up to December 31, 2017 The following policies apply to comparative information for 2017 in the Company's consolidated financial statements as we did not restate prior periods on adoption of IFRS 9. The Company’s financial instruments include cash and cash equivalents, accounts receivable, other financial assets, financial instruments within accounts payable and other liabilities, customer deposits, construction loans, amounts borrowed pursuant to the Company’s operating line, non-revolving term facility, margin loan, mortgages and term debt, and Preference shares, series 1, including related redemption and retraction options that have been separately recognized and deposits and restricted cash that have been included in the consolidated financial statements under “Capital and other operating assets”. Financial assets and liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument. Financial assets are no longer recognized when the rights to receive cash flows from the assets have expired or are assigned and the Company has transferred substantially all risks and rewards of ownership in respect of an asset to a third-party. Financial assets are recognized at settlement date less any related transaction costs. Financial liabilities are no longer recognized when the related obligation expires, is discharged or cancelled. Classification of financial instruments in the Company’s consolidated financial statements depends on the purpose for which the financial instruments were acquired or incurred. Management determines the classification of financial instruments at initial recognition. Available-for-sale Securities AFS securities are non-derivative financial instruments that are either specifically designated as available for sale or have not been classified in any other financial instrument category. AFS securities are initially recognized at cost on acquisition, including directly attributable transaction costs, and are subsequently carried at fair value. Certain investments included as other financial assets in the Company’s consolidated statements of financial position, including the Company’s investment in Dream Global REIT (Note 7), have been included in this category. Changes in the fair values of AFS securities are reported in OCI until the financial asset is sold or becomes impaired, at which time the accumulated gain or loss is removed from AOCI and recognized in earnings. Also included as AFS securities are DTUs of Dream Global REIT, which the Company received as compensation for services provided pursuant to an asset management and advisory services agreement up to August 2016 (Note 41). The DTUs will vest to the Company in five equal annual installments, beginning in the sixth year following the grant of such DTUs until September 2026. The DTUs and the corresponding asset management and advisory services revenue are recognized at fair value, determined by applying a discount to the trading value of the underlying units of Dream Global REIT to reflect the vesting period. Subsequent to initial recognition, the DTUs are carried at fair value, with changes in fair value recognized in AOCI. Loans and Receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Financial instruments classified in this category include cash and cash equivalents, accounts receivable, loans receivable included in the Company’s portfolio of other financial assets, and deposits and restricted cash. Financial instruments designated as loans and receivables are initially recognized at the amount expected to be received, less, when material, a discount to reduce the loans and receivables to fair value. Subsequently, loans and receivables are measured at amortized cost using the effective interest method, less a provision for impairment, if applicable. Financial Liabilities at Amortized Cost Financial liabilities at amortized cost include certain financial instruments included in accounts payable and other liabilities, customer deposits, construction loans, amounts borrowed pursuant to the Company’s operating line, non-revolving term facility, margin loan, mortgages and term debt, amounts due to a shareholder, and the Company’s Preference shares, series 1. These amounts are initially measured at the amount required to be paid, less, when material, a discount to reduce the liabilities to fair value. Subsequently, these financial liabilities are measured at amortized cost using the effective interest method. Fair Value Through Profit or Loss Financial instruments in this category, which include the redemption and retraction options on the Preference shares, series 1, and the interest rate swap are initially and subsequently recognized at fair value. Gains and losses arising from changes in fair value are presented within net earnings in the consolidated statements of comprehensive income in the period in which they arise, unless they are derivative instruments that have been designated as hedges. Hedging Instruments and Activities At the inception of a hedging transaction, the Company documents the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Company also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. The effective portion of changes in the fair value of derivatives that are hedges of a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction is recognized in OCI. The gain or loss relating to the ineffective portion, if any, is recognized immediately in the consolidated statements of earnings. Dream Unlimited Corp. – December 31, 2018 | 109 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ The realized gain or loss recognized on settlement of a hedging instrument designated as a cash flow hedge will be reclassified to earnings over the same basis as the cash flows received from the hedged item. When a hedging instrument no longer meets the criteria for hedge accounting, any cumulative gains or losses existing in OCI at that time are recognized in earnings immediately. Impairment of Financial Assets At each reporting date, management assesses whether there is objective evidence that financial assets are impaired. Objective evidence may include a significant or prolonged decline in the trading value of an equity security below its cost, significant financial difficulty of the obligor, or delinquencies in interest and principal payments. If such evidence exists, an impairment loss is recognized equal to: (i) the difference between the weighted average cost of the financial asset and the present value of the estimated future cash flows, discounted using the instrument’s original effective interest rate, for financial assets carried at amortized cost; or (ii) the difference between the weighted average cost of the asset and the fair value at the measurement date, less any previously recognized impairment loss, for financial assets designated as AFS securities. Impact on Date of Initial Application Assets Other financial assets Equity accounted investments Capital and other operating assets Liabilities Deferred income taxes Shareholders' Equity Retained earnings Accumulated other comprehensive income December 31, 2017 IFRS 15 IFRS 9 January 1, 2018 $ $ $ 79,043 $ 402,672 20,099 — $ 2,208 3,424 6,518 $ 908 — 85,561 405,788 23,523 59,719 $ 1,502 $ 1,110 $ 62,331 601,098 $ 31,881 4,130 $ — 30,014 $ (23,698) 635,242 8,183 Impact on Consolidated Financial Statements The following tables summarize the impacts of adopting IFRS 15 on the Company's consolidated financial statements for the year ended December 31, 2018. Consolidated Statement of Financial Position Equity accounted investments Capital and other operating assets Other Total assets Accounts payable and other liabilities Deferred income taxes Other Total liabilities Retained earnings Accumulated other comprehensive income Other Total equity Total liabilities and equity As reported Adjustments 2018 Balance without adoption of IFRS 15 $ $ $ $ 549,760 $ 40,068 2,161,738 2,751,566 $ 126,842 $ 94,139 1,411,005 1,631,986 818,581 11,379 289,620 1,119,580 2,751,566 $ (3,127) $ (3,431) — (6,558) $ 423 $ (1,765) — (1,342) (5,216) — — (5,216) (6,558) $ 546,633 36,637 2,161,738 2,745,008 127,265 92,374 1,411,005 1,630,644 813,365 11,379 289,620 1,114,364 2,745,008 Dream Unlimited Corp. – December 31, 2018 | 110 Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except numbers of shares and per share amounts) ______________________________________________________________________________________________________________________________________________ Consolidated Statement of Earnings Gross margin Selling, marketing and other operating costs Net margin Other income (expenses): Share of earnings from equity accounted investments Other Income tax expense Earnings for the year Consolidated Statement of Cash Flows Operating activities Earnings for the year Share of earnings from equity accounted investments Deferred income taxes Changes in non-cash working capital Other Net cash flows used in operating activities Net cash flows provided by investing activities Net cash flows provided by financing activities Change in cash and cash equivalents 47. Subsequent events $ $ $ $ As reported Adjustments 2018 Balance without adoption of IFRS 15 134,782 (47,544) 87,238 — $ (430) (430) (919) — 263 (1,086) $ 36,110 88,795 (21,176) 190,967 134,782 $ (47,114) 87,668 37,029 88,795 (21,439) 192,053 $ As reported Adjustments 2018 Balance without adoption of IFRS 15 192,053 $ (37,029) 9,132 (48,622) (212,676) (97,142) 93,703 42,324 38,885 $ (1,086) $ 919 (263) 430 — — — — — $ 190,967 (36,110) 8,869 (48,192) (212,676) (97,142) 93,703 42,324 38,885 Subsequent to December 31, 2018, the Company entered into an agreement to purchase a 25% interest in IVY Condominiums, formed for the development of a residential condominium located in downtown Toronto. The residual 75% interest is held by Dream Alternatives and the project will be managed by Dream. Subsequent to December 31, 2018, the Company amended its Dream operating line and non-revolving term facility, extending the maturity dates to January 31, 2021 and February 28, 2022, respectively, and revising certain covenants of DAM. Dream Unlimited Corp. – December 31, 2018 | 111 Dream Unlimited Corp. – December 31, 2018 | 112 Directors Management Team Michael J. Cooper4 Toronto, Ontario President & Chief Responsible Officer Dream Unlimited Corp. Duncan JackmanInd. Toronto, Ontario Chairman, President and CEO E-L Financial Corporation Limited Michael J. Cooper President & Chief Responsible Officer Pauline Alimchandani EVP & Chief Financial Officer James EatonInd. Toronto, Ontario Corporate Director Joanne FerstmanInd.,1,3,4,5 Toronto, Ontario Corporate Director Richard GatemanInd.,2, 3 Calgary, Alberta Vice President, Major Projects Business Development TransCanada Pipelines Limited P. Jane Gavan4 Toronto, Ontario President, Asset Management Dream Unlimited Corp. Jennifer Lee KossInd.,1,2 Toronto, Ontario Co-Founder and Builder of Business BRIKA Vincenza SeraInd.,1, 2, 3,4 Toronto, Ontario Corporate Director Legend: Ind. Independent 1. Member of the Audit Committee 2. Member of the Governance and Nominating Committee 3. Member of the Organization, Design and Culture Committee 4. Member of Leaders and Mentors Committee 5. Chair of the Board Corporate Information HEAD OFFICE TRANSFER AGENT CORPORATE COUNSEL Dream Unlimited Corp. State Street Financial Centre 30 Adelaide Street East, Suite 301 Toronto, Ontario M5C 3H1 Phone: (416) 365-3535 Fax: (416) 365-6565 Website: www.dream.ca INVESTOR RELATIONS Phone: (416) 365-3535 Toll free: 1 877 365-3535 Email: info@dream.ca Website: www.dream.ca (for change of address, registration or other unitholder enquiries) Computershare Trust Company of Canada 100 University Avenue, 8th Floor Toronto, Ontario M5J 2Y1 Phone: (514) 982-7555 or 1 800 564-6253 Fax: (416) 263-9394 or 1 888 453-0330 Website: www.computershare.com Email: service@computershare.com AUDITOR PricewaterhouseCoopers LLP PwC Tower, 18 York Street, Suite 2600 Toronto, Ontario M5J 0B2 Osler, Hoskin & Harcourt LLP Box 50, 1 First Canadian Place, Suite 6200 Toronto, Ontario M5X 1B8 STOCK EXCHANGE LISTING The Toronto Stock Exchange Listing Symbols: Subordinate Voting Shares: DRM Series 1 Preferred Shares: DRM.PR.A For more information, please visit www.dream.ca Corporate Office State Street Financial Centre 30 Adelaide Street East, Suite 301 Toronto, Ontario M5C 3H1 Phone: 416.365.3535 Fax: 416.365.6565 Website: www.dream.ca Email: info@dream.ca 

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