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