Dream Residential REIT Reports Q1 2024 Financial Results

This press release contains forward-looking information that is based upon assumptions and is subject to risks and uncertainties as indicated in the cautionary note contained within this press release. All dollar amounts are in U.S. dollars.

DREAM RESIDENTIAL REAL ESTATE INVESTMENT TRUST (TSX: DRR.U, TSX: DRR.UN) (“Dream Residential REIT” or the “REIT” or “we” or “us”) today announced its financial results for the three months ended March 31, 2024 (“Q1 2024”). Management will host a conference call to discuss the financial results on May 9, 2024 at 10:00 a.m. (ET).

HIGHLIGHTS

• Comparative properties net operating income (“Comparative properties NOI”)1 was $6.1 million in Q1 2024, a 3.3% increase when compared to $5.9 million in Q1 2023, due to an increase of $0.7 million in comparative investment properties revenue, partially offset by an increase in investment properties expenses. Net rental income was $6.6 million in Q1 2024 or $0.5 million lower than Q1 2023, due to the timing of receipt of certain property tax bills.

• Diluted funds from operations (“FFO”) per Unit2 was $0.17 for Q1 2024 compared to $0.18 for Q1 2023. The decrease in diluted FFO per Unit compared to Q1 2023 was mainly due to higher general and administrative expenses, partially offset by increased comparative properties NOI.

• Portfolio occupancy was 93.8% as at March 31, 2024, up from 93.7% at the end of Q4 2023, with Greater Oklahoma City at 94.2%, Greater Dallas-Fort Worth at 92.2% and Greater Cincinnati at 94.9%. Occupancy was consistent with expectations as we continue to manage our value-add program, completing 34 units during the quarter.

• Average monthly rent as at March 31, 2024 was $1,155 per unit, which compares to $1,156 per unit at December 31, 2023.

• Maintaining conservative balance sheet and financial flexibility. Net total debt-to-net total assets3 was 32.2% as at March 31, 2024, compared to 31.6% as at December 31, 2023. Total mortgages payable were $137.9 million consisting of 11 fixed rate mortgages with a weighted average contractual interest rate of 4.0%. Total assets (per condensed consolidated financial statements) were $409.4 million as at March 31, 2024. Total assets were comprised primarily of $398.1 million of investment properties and $9.1 million of cash and cash equivalents.

“Financial and operational performance for Q1 2024 was consistent with expectations,” said Brian Pauls, Chief Executive Officer of Dream Residential REIT. “We were pleased to deliver 3.3% year-over-year comparative properties NOI growth, in line with our targeted range for the year. Our portfolio remains defensive, delivering steady growth through the current environment.”

• Q1 2024 net income was $0.8 million, which comprises net rental income of $6.6 million, fair value adjustments to investment properties of $(1.7) million and fair value adjustments to financial instruments of $(1.0) million, primarily from the revaluation of Class B units of DRR Holdings LLC, a subsidiary of the REIT (“Class B Units” and together with the Trust Units, “Units”). Other income and expenses totalled $(3.1) million.
• Total equity (per condensed consolidated financial statements) was $239.6 million as at March 31, 2024, compared to $218.0 million as at December 31, 2023.
• Net asset value (“NAV”)4 per Unit was $13.52 as at March 31, 2024, compared to $13.50 as at December 31, 2023.
• The REIT declared distributions totalling $0.105 per Unit during Q1 2024.
• During the quarter ended March 31, 2024, 3.3 million Class B Units were redeemed and exchanged for Trust Units.

FINANCIAL HIGHLIGHTS

See footnotes at end

Net income (loss) for Q1 2024 was $0.8 million compared to $(10.9) million in Q1 2023, primarily due to a change in fair value adjustments to investment properties of $(3.7) million and a change in fair value adjustments to financial instruments of $15.5 million from Q1 2023. FFO for Q1 2024 was $3.4 million compared to $3.5 million in Q1 2023 due to an increase in general and administrative expenses partially offset by an increase in comparative properties NOI. Q1 2024 diluted FFO per Unit was $0.17 compared to $0.18 in the prior year comparative quarter.

Net rental income for Q1 2024 was $6.6 million compared to $7.1 million in the prior year comparative quarter. Comparative properties NOI for Q1 2024 increased to $6.1 million compared to $5.9 million in the prior year comparative quarter. Comparative properties NOI margin for Q1 2024 was 50.6%, compared to 52.0% in the prior year comparative quarter. Q1 2024 comparative properties NOI includes comparative investment properties revenue of $12.0 million, which exceeded the prior year comparative quarter by $0.7 million, primarily driven by rental rate growth and value-add rental premiums. Investment properties operating expenses increased $0.5 million (excluding the impact of IFRIC 21 and one sold property in Q4 2023), largely driven by increased property insurance and utilities expenses.

See footnotes at end

ORGANIC GROWTH

Weighted average monthly rent as at March 31, 2024 was $1,155 per unit, compared to $1,156 at December 31, 2023. Since December 31, 2023, rental rates increased in the Greater Cincinnati region at 0.2% and remained flat in Greater Oklahoma City. Greater Dallas-Fort Worth experienced a rental rate decrease of (0.3)% from December 31, 2023.

During Q1 2024, blended lease trade-outs averaged 2.0% compared to 1.6% in Q4 2023. This is comprised of an average increase on renewals of approximately 4.4% (3.5% – December 31, 2023) and an average decrease on new leases of approximately (1.2)% ((1.1)% – December 31, 2023). As at March 31, 2024, estimated market rents were $1,268 per unit, or an average gain-to-lease for the portfolio of 9.8%. The retention rate for the quarter ended March 31, 2024 was 57.2% compared to 59.6% for the three months ended December 31, 2023 as we continued to prioritize leasing efforts in securing renewals during the period.

Value-Add Initiatives

During Q1 2024, renovations were completed on 34 suites primarily across Greater Dallas-Fort Worth and Greater Oklahoma City, with 27 suites under renovation as at March 31, 2024. For the three months ended March 31, 2024, the average new lease trade-out on renovated suites was $120 per unit higher than expiring leases, or a lease trade-out of 10.6%.

“We are pleased with the REIT’s operational performance for the first quarter,” said Scott Schoeman, Chief Operating Officer of Dream Residential REIT. “While elevated new supply persists in Dallas-Fort Worth, we achieved positive blended lease trade-outs, demonstrating the resiliency of our portfolio and the impact of our value-add program. We remain committed to our markets and believe these locations have systemic housing shortages, supported by economic and demographic tailwinds, which we believe will drive rental rate growth over the long term.”

FINANCING AND CAPITAL INFORMATION

See footnotes at end

As at March 31, 2024, net total debt-to-net total assets was 32.2%, total mortgages payable were $137.9 million and total assets were $409.4 million. The REIT ended Q1 2024 with total available liquidity of approximately $79.1 million(6), comprised of $9.1 million of cash and cash equivalents and $70.0 million available on its undrawn revolving credit facility.

Total equity of $239.6 million increased from December 31, 2023 by $21.6 million. As at March 31, 2024, there were approximately 15.9 million Trust Units and 3.7 million Class B Units.

NAV per Unit as at March 31, 2024 remained relatively consistent at $13.52 compared to $13.50 as at December 31, 2023.

Subsequent Event

On April 4, 2024, the Company extended the term of its credit facility to March 28, 2027.

CONFERENCE CALL

Senior management will host a conference call to discuss the financial results on Thursday, May 09, 2024, at 10:00 a.m. (ET). To access the conference call, please dial 1-800-898-3989 (toll free) or 416-406-0743 (toll) and use the passcode 8899926#. To access the conference call via webcast, please go to Dream Residential REIT’s website at www.dreamresidentialreit.ca and click the link for the webcast. A taped replay of the conference call and the webcast will be available for ninety (90) days following the call.

ANNUAL MEETING OF UNITHOLDERS

The REIT’s 2024 Annual Meeting of Unitholders (“AGM”) will be held on Wednesday, June 12, 2024, at 12:00 p.m. (ET), located at the TMX Market Centre, 120 Adelaide Street West, Toronto, Ontario M5H 1S3. The audio webcast and digital replay can be accessed here.

OTHER INFORMATION

Information appearing in this press release is a select summary of financial results. The condensed consolidated financial statements and management’s discussion and analysis for the REIT will be available at www.dreamresidentialreit.ca and under the REIT’s profile on www.sedarplus.com.

Dream Residential REIT is an unincorporated, open-ended real estate investment trust established and governed by the laws of the Province of Ontario. The REIT owns a portfolio of garden-style multi-residential properties, primarily located in three markets across the Sunbelt and Midwest regions of the United States. For more information, please visit www.dreamresidentialreit.ca.

Non-GAAP financial measures, ratios and supplementary financial measures

The REIT’s condensed consolidated financial statements are prepared in accordance with IFRS Accounting Standards as issued by the International Accounting Standards Board (“IFRS Accounting Standards”). In this press release, as a complement to results provided in accordance with IFRS, the REIT discloses and discusses certain non-GAAP financial measures and ratios, including FFO, diluted FFO per Unit, comparative properties NOI, comparative investment properties revenue, NOI, comparative properties NOI margin, net total debt-to-net total assets ratio, net total debt, net total assets, adjusted EBITDAFV, trailing 12-month adjusted EBITDAFV, trailing 12-month interest expense on debt, interest coverage ratio (times), available liquidity, total equity (including Class B Units) and NAV per Unit as well as other measures discussed elsewhere in this press release. These non-GAAP financial measures and ratios are not defined by or recognized under IFRS Accounting Standards and do not have a standardized meaning under IFRS Accounting Standards. The REIT’s method of calculating these non-GAAP financial measures and ratios may differ from other issuers and may not be comparable with similar measures presented by other issuers. The REIT has presented such non-GAAP financial measures and ratios as management believes they are relevant measures of the REIT’s underlying operating and financial performance. Certain additional disclosures such as the composition, usefulness and changes, as applicable, of the non-GAAP financial measures and ratios included in this press release are expressly incorporated by reference from the management’s discussion and analysis of the financial condition and results from operations of the REIT as at and for the three months ended March 31, 2024, dated May 8, 2024 (the “Q1 2024 MD&A”) and can be found under the section “Non-GAAP Financial Measures and Ratios” and respective sub-headings labelled “FFO and diluted FFO per Unit”, “NAV per Unit”, “Comparative properties NOI and comparative properties NOI margin”, “Adjusted earnings before interest, taxes, depreciation, amortization and fair value adjustments (Adjusted EBITDAFV)”, “Trailing 12-month adjusted EBITDAFV”, “Trailing 12-month interest expense on debt”, “Available liquidity”, “Total equity (including Class B Units)”, “Interest coverage ratio (times)” and “Net total debt-to-net total assets”. In this press release, the REIT also discloses and discusses certain supplementary financial measures, including tenant retention ratio and weighted average number of units. The composition of supplementary financial measures included in this press release is expressly incorporated by reference from the Q1 2024 MD&A and can be found under the section “Supplementary Financial Measures and Other Disclosures”. The Q1 2024 MD&A is available on SEDAR+ at www.sedarplus.com under the REIT’s profile and on the REIT’s website at www.dreamresidentialreit.ca under the Investors section. Non-GAAP financial measures and ratios should not be considered as alternatives to net income (loss), net rental income, investment properties revenue, cash flows generated from (utilized in) operating activities, cash and cash equivalents, total assets, non-current debt, total equity, or comparable metrics determined in accordance with IFRS Accounting Standards as indicators of the REIT’s performance, liquidity, cash flow, and profitability.

Forward-Looking Information

This press release may contain forward-looking information within the meaning of applicable securities legislation. Such information includes statements regarding our ability to drive rental rate growth; future market conditions; our ability to maintain a safe and flexible balance sheet which will drive operations; our anticipated investments in our properties and their effect on portfolio quality and rent growth; our intention to implement our value-enhancing renovation initiatives across our portfolio; the resiliency of our portfolio; and the ability of our value-add program and regional diversification to enhance the safety of our business. Forward-looking information generally can be identified by the use of forward-looking terminology such as “will”, “expect”, “believe”, “plan”, or “continue”, or similar expressions suggesting future outcomes or events. Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond Dream Residential REIT’s control that could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. These risks and uncertainties include, but are not limited to, risks inherent in the real estate industry; financing risks; inflation, interest and currency rate fluctuations; global and local economic and business conditions; risks associated with unexpected or ongoing geopolitical events; changes in law; tax risks; competition; environmental and climate change risks; insurance risks; cybersecurity; and uncertainties surrounding public health crises and epidemics. Our objectives and forward-looking statements are based on certain assumptions, including that the general economy remains stable; there are no unforeseen changes in the legislative and operating framework for our business; we will have access to adequate capital to fund our future projects and plans and that we will receive financing on acceptable terms; inflation and interest rates will not materially increase beyond current market expectations; and geopolitical events will not disrupt global economies. All forward-looking information in this press release speaks as of the date of this press release. Dream Residential REIT does not undertake to update any such forward-looking information whether as a result of new information, future events or otherwise, except as required by law. Additional information about these assumptions and risks and uncertainties is contained in Dream Residential REIT’s filings with securities regulators, including its latest annual information form and management’s discussion and analysis. These filings are also available at the REIT’s website www.dreamresidentialreit.ca.

Appendices

Reconciliation of FFO to net income (loss)

The table below reconciles FFO to net income (loss) for the three months ended March 31, 2024 and March 31, 2023:

Reconciliation of NOI and Comparative properties NOI to net rental income

The table below reconciles NOI and Comparative properties NOI to net rental income for the three months ended March 31, 2024 and March 31, 2023:

Reconciliation of adjusted EBITDAFV to net income (loss)

The table below reconciles adjusted earnings before interest, taxes, depreciation, amortization and fair value adjustments to net income (loss) for the three months ended March 31, 2024 and March 31, 2023:

Reconciliation of available liquidity to undrawn credit facility

The table below reconciles available liquidity to cash and cash equivalents as at March 31, 2024 and December 31, 2023:

Trailing 12-month adjusted EBITDAFV and trailing 12-month interest expense on debt

Interest coverage ratio (times)

Reconciliation of total equity (including Class B Units) and NAV per Unit to total equity

The table below reconciles total equity (including Class B Units) and NAV per Unit to total equity as at March 31, 2024 and December 31, 2023:

Reconciliation of net total debt to mortgages payable and net total assets to total assets and calculation of net total debt-to-net total assets

The following table reconciles net total debt to mortgages payable and net total assets to total assets and calculates net total debt-to-net total assets as at March 31, 2024 and December 31, 2023:

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