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Dream Office REIT Reports Q3 2023 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 in our tables are presented in thousands of Canadian dollars, except for rental rates and per unit amounts, unless otherwise stated.

TORONTO, November 09, 2023--(BUSINESS WIRE)--DREAM OFFICE REAL ESTATE INVESTMENT TRUST (D.UN-TSX) ("Dream Office REIT", the "Trust" or "we") today announced its financial results for the three months ended September 30, 2023 and provided a business update. Management will host a conference call to discuss the financial results on November 10, 2023 at 10:00 a.m. (ET).

OPERATIONAL HIGHLIGHTS

(unaudited)

As at

September 30,

June 30,

September 30,

2023

2023

2022

Total properties(1)

Number of active properties

26

26

27

Number of properties under development

2

2

2

Gross leasable area (in millions of square feet)

5.1

5.1

5.4

Investment properties value

$

2,355,714

$

2,363,523

$

2,596,815

Total portfolio(2)

Occupancy rate – including committed (period-end)(3)

84.3%

83.9%

85.7%

Occupancy rate – in-place (period-end)(3)

80.8%

80.9%

81.8%

Average in-place and committed net rent per square foot (period-end)

$

25.47

$

25.33

$

23.71

Weighted average lease term (years)

4.9

5.0

5.3

Occupancy rate – including committed – Toronto (period-end)(3)

88.6%

88.1%

88.9%

Occupancy rate – in-place – Toronto (period-end)(3)

83.4%

83.6%

83.3%

See footnotes at end.

Three months ended

September 30,

September 30,

2023

2022

Operating results

Funds from operations ("FFO")(4)

$

13,566

$

19,909

Comparative properties net operating income ("NOI")(5)

27,484

26,319

Net rental income

25,107

26,738

Net income

13,556

28,044

Per unit amounts

Diluted FFO per unit(6)

$

0.35

$

0.37

Distribution rate per Unit

0.25

0.25

See footnotes at end.

"The third quarter was a very successful quarter for Dream Office in leasing and we are working on many more excellent tenants in joining our portfolio. The improvements we have been making in our buildings have been very well received by our tenants and their employees." said Michael Cooper, Chief Executive Officer of Dream Office REIT. "We are pleased to have executed on 362,000 square feet of new leases since the beginning of the third quarter and are conditional on an additional 91,000 square feet, together at 15.1% higher rents than expiry."

  • Net income for the quarter: For the three months ended September 30, 2023, the Trust generated a net income of $13.6 million. Included in net income for the three months ended September 30, 2023 are net rental income totalling $25.1 million, positive fair value adjustments to financial instruments totalling $24.2 million, primarily due to the revaluation of the subsidiary redeemable units as a result of a decrease in the Trust’s unit price and fair value gains on interest rate swaps, and net income from our investment in Dream Industrial Real Estate Investment Trust ("Dream Industrial REIT") totalling $0.4 million partially offset by negative fair value adjustments to investment properties totalling $16.6 million across the portfolio.

  • Diluted FFO per unit(6) for the quarter: For the three months ended September 30, 2023, diluted FFO per unit decreased by $0.02 per unit to $0.35 per unit relative to $0.37 per unit in Q3 2022, driven by lower net rental income from the sale of 720 Bay Street in Q1 2023 (-$0.05), one-time expenses associated with the start-up costs of our restaurant partnership on Bay Street (-$0.01), lower NOI from properties under development (-$0.01), higher interest expense (-$0.01) and other items (-$0.02), partially offset by the accretive effect of repurchases under the normal course issuer bid and substantial issuer bid ("SIB"), net of reduced FFO from Dream Industrial REIT as a result of selling units to facilitate the buyback under the SIB in Q2 2023 (+$0.05) and higher comparative properties NOI (+$0.03).

  • Net rental income for the quarter: Net rental income for the three months ended September 30, 2023 decreased by 6.1%, or $1.6 million, over the prior year comparative quarter primarily due to the sale of 720 Bay Street in Q1 2023.

  • Comparative properties NOI(5) for the quarter: For the three months ended September 30, 2023, comparative properties NOI increased by 4.4%, or $1.2 million, over the prior year comparative quarter, primarily driven by higher in-place net rents across the portfolio from rent step ups and higher rates on new leases and renewals. Partially offsetting the increases was lower weighted average in-place occupancy in the Other Markets region.

  • In-place occupancy: Total portfolio in-place occupancy on a quarter-over-quarter basis decreased by 0.1% relative to Q2 2023. In the Other markets region, in-place occupancy increased by 0.3% to 76.6% relative to Q2 2023 as 12,000 square feet of new leasing and 11,000 square feet of renewals were partially offset by 17,000 square feet of expiries. In Toronto downtown, in-place occupancy decreased by 0.2% to 83.4% relative to Q2 2023 as 75,000 square feet of expiries were partially offset by 35,000 square feet of renewals and 33,000 square feet of new lease commencements.
    Total portfolio in-place occupancy on a year-over-year basis decreased from 81.8% at Q3 2022 to 80.8% this quarter primarily driven by negative absorption in Other markets. In Toronto downtown, in-place occupancy increased by 0.1% year-over-year as the region saw positive absorption of 1.4%, offset by a 1.3% decrease as a result of the sale of the fully occupied 720 Bay Street in Q1 2023.

  • Lease commencements for the quarter: For the three months ended September 30, 2023, excluding temporary leasing, 68,000 square feet of leases commenced in Toronto downtown at net rents of $31.51 per square foot, or 22.1% higher than the previous rent in the same space with a weighted average lease term of 4.3 years. In the Other markets region, 23,000 square feet of leases commenced at $12.48 per square foot, or 27.5% lower than previous rents in the same space as rental rates on new leases rolled down to market rates with a weighted average lease term of 3.9 years.
    The renewal and relocation rate to expiring rate spread for the quarter was 25.7% above expiring rates on 46,000 square feet of renewals.

  • Fair value adjustments to investment properties for the quarter: For the three months ended September 30, 2023, the Trust recorded a fair value loss totalling $16.6 million comprising fair value losses of $11.2 million in Toronto downtown, $4.1 million in Other markets and $1.4 million in our properties under development. Fair value losses in Toronto downtown were driven by the revaluation of a property as a result of a change in the quality of a tenant covenant and maintenance capital spent. In the Other markets region the fair value losses were driven by cap rate expansions at one property as well as maintenance capital spent.
    Year-over-year, our capitalization rates for properties valued under the Direct Capitalization method have expanded by 55 bps in Toronto downtown and 56 bps for our total portfolio.

  • WeWork files for creditor protection: WeWork Canada GP ULC, a subsidiary of WeWork Inc. ("WeWork"), a publicly listed company in the United States, is the sole tenant at the Trust’s 357 Bay Street property in Toronto, Ontario, representing $2.8 million of the Trust’s investment properties revenue for the nine months ended September 30, 2023. On November 6, 2023, WeWork filed for Chapter 11 bankruptcy in the United States and on November 7, 2023 filed for creditor protection under part IV of the Companies’ Creditors Arrangement Act in Canada as foreign representative of WeWork Canada GP ULC and other Canadian subsidiaries. The effect of these filings on the Trust is uncertain. To date, the Trust has not received any indication from WeWork whether it intends to disclaim the lease at the Trust’s property and the court filings do not indicate 357 Bay Street as one of the rejected unexpired leases in Canada. The Trust is monitoring the situation closely and is developing contingency plans for all potential outcomes. WeWork is current on its rental payment obligations to today’s date. The Trust is actively monitoring the effect, if any, on the Trust’s income, investment properties fair values and debt.

BUSINESS UPDATE

As at September 30, 2023, the Trust had $2.7 billion of total assets, $2.4 billion of investment properties and $1.3 billion of total debt.

During Q3 2023, the Trust executed leases totalling approximately 147,000 square feet across our portfolio. In Toronto downtown, the Trust executed 126,000 square feet of leases at a weighted average initial net rent of $35.76 per square foot, or 36.2% higher than the weighted average prior net rent per square foot on the same space, with a weighted average lease term of 7.8 years. In the Other markets region, comprising our properties located in Calgary, Saskatoon, Regina, Mississauga, Scarborough and the United States, we executed leases totalling 21,000 square feet at a weighted average net rent of $20.14 per square foot, an increase of 7.7% from the weighted average prior net rent on the same space, with a weighted average lease term of 3.3 years. Subsequent to September 30, 2023, the Trust executed a further 215,000 square feet of leases in Toronto downtown at a weighted average initial net rent of $25.48 per square foot, or 5.9% higher than the weighted average prior net rent per square foot on the same space, with a weighted average lease term of 4.8 years.

In addition, the Trust has a further 91,000 square feet of conditional deals at a weighted average initial net rent of $31.12 per square foot, or 9.1% higher than the weighted average prior net rent per square foot on the same space, with a weighted average lease term of 8.6 years.

Since the beginning of the year to today’s date, the Trust has executed leases totalling approximately 614,000 square feet across our portfolio. In Toronto downtown, the Trust has executed 583,000 square feet of leases at a weighted average initial net rent of $31.03 per square foot, or 17.0% higher than the weighted average prior net rent per square foot on the same space, with a weighted average lease term of 5.6 years. In the Other markets region, the Trust has executed leases totalling 31,000 square feet at a weighted average initial net rent per square foot of $21.00, or 5.3% higher than the weighted average prior net rents on the same space, with a weighted average lease term of 3.1 years.

To date, the Trust has secured commitments for approximately 781,000 square feet, or 112%, of 2023 full-year natural lease expiries.

Touring volume has been healthy and relatively in-line with pre-COVID levels and office utilization rates in Toronto downtown continue to improve gradually with employers mandating more days in office. However, as a result of current economic uncertainty and higher interest rates, tenants are taking longer to make decisions which has stretched out the time to complete deals. For leases completed over the course of the year, we continue to see strong net rents; however, leasing costs are elevated relative to historical norms as tenants are putting more emphasis on upgrading their workspace to attract employees back into the office as well as higher material and labour costs. Demand for built out space is increasing as tenants seek to minimize downtime and capital while maximizing flexibility. When considering the incentives offered to tenants, we focus on investing in leases with longer terms and strong covenants to maximize the return on the invested capital and occupancy in our best buildings to maintain property value, manage cash flows and to maximize liquidity and refinancing value.

We remain committed to investing in our well-located real estate portfolio in downtown Toronto to distinguish our assets and attract unique tenants. During 2022, we took 366 Bay Street and 67 Richmond Street West in Toronto offline to fully revitalize the assets. The development projects at these properties comprise full modernizations of the properties, including technical systems, interior lighting and elevators, along with enhanced common areas and larger floorplates. At 366 Bay Street, we have spent $11.0 million over the course of the project, $8.1 million of which has been funded by our Canada Infrastructure Bank credit facility (the "CIB Facility"). At 67 Richmond Street West, we have spent $1.9 million on the project, $1.3 million of which has been funded by the CIB Facility. The project at 67 Richmond Street West is expected to be completed and ready to lease in Q2 2024, and 366 Bay has been fully leased prior to its expected Q4 2023 completion.

During Q3 2023, we secured a commitment at 366 Bay Street for a lease for the entire building with a global financial institution that was attracted by the location of the asset, as well as the successful completion of our redevelopment and decarbonization program at the building. The lease is for a term of 15 years for approximately 40,000 square feet with initial net rents of $38.00 per square foot, escalating to $50.00 per square foot over the term of the lease. The full building fixturing and fitout is expected to commence in Q4 2023 on redevelopment project completion with lease commencement scheduled for Q4 2024.

During the quarter, the Trust refinanced a mortgage totalling $114.4 million secured by an investment property in downtown Toronto at maturity. The refinanced interest-only mortgage totals $141.8 million for a term of seven years at an annual fixed interest rate of approximately 6.14%. Also during the quarter, the Trust negotiated a two year extension for a $66.5 million interest-only mortgage secured by a property in Scarborough, Ontario bearing interest at the BA rate plus 1.95%. The Trust is exploring hedging options for this variable rate mortgage. Over the course of the year, the Trust has successfully addressed $250.7 million of mortgage maturities and the Trust is working with lenders on the $73.4 million of mortgage maturities coming due in 2024.

As at September 30, 2023, the Trust had approximately $203.8 million of available liquidity,(7) comprising $15.8 million of cash, undrawn revolving credit facilities totalling $91.3 million and undrawn amounts on our CIB Facility of $96.7 million which provides low-cost fixed-rate financing solely for the purpose of commercial property retrofits to achieve certain energy efficiency savings and GHG emission reductions. The Trust also had $17 million of unencumbered assets(8) and a level of debt (net total debt-to-net total assets)(9) of 48.8%.

During Q3 2023, the Trust drew $1.8 million against the CIB Facility. In total, we have drawn $16.2 million against the CIB Facility since 2022. These draws represent 80% of the costs to date for capital retrofits at 13 properties in Toronto downtown for projects to reduce the operational carbon emissions in these buildings by an estimated 3,241 tonnes of carbon dioxide ("CO2"), or 57.5%, per year on project completion.

On October 2, 2023, the Trust achieved a four-star GRESB rating of 87/100.

CAPITAL HIGHLIGHTS

KEY FINANCIAL PERFORMANCE METRICS

As at

(unaudited)

September 30,

December 31,

2023

2022

Financing

Weighted average face rate of interest on debt (period-end)(10)

4.59%

4.42%

Interest coverage ratio (times)(11)

2.1

2.5

Net total debt-to-normalized adjusted EBITDAFV ratio (years)(12)

11.6

10.4

Level of debt (net total debt-to-net total assets)(9)

48.8%

44.6%

Average term to maturity on debt (years)

3.5

3.1

Undrawn credit facilities, available liquidity and unencumbered assets

Undrawn credit facilities (in millions)

$

188.0

$

163.5

Available liquidity (in millions)(7)

203.8

171.6

Unencumbered assets (in millions)(8)

16.9

115.7

Capital (period-end)

Total number of REIT A and LP B units (in millions)(13)

37.9

51.3

Net asset value ("NAV") per unit(14)

$

34.42

$

31.36

See footnotes at end.

  • NAV per unit(14): As at September 30, 2023, our NAV per unit increased to $34.42 compared to $31.36 at December 31, 2022. The increase in NAV per unit relative to December 31, 2022 is driven by cash flow retention (FFO net of distributions), lower debt balances and the effect of accretive unit repurchases under our NCIB program and SIB, partially offset by the sale of 12,500,000 units of Dream Industrial REIT at a price below IFRS carrying value and fair value losses on investment properties in both regions due to cap rate expansions across several properties. Year-over-year, our capitalization rates for properties valued under the Direct Capitalization method have expanded by 55 bps in Toronto downtown and 56 bps for our total portfolio. As at September 30, 2023, equity per the condensed consolidated financial statements was $1.3 billion.

"We have successfully addressed all of our 2023 debt maturities, replacing $250.7 million at maturity with $278.4 million at 6.3% for a term of 4.6 years," said Jay Jiang, Chief Financial Officer of Dream Office REIT. "Looking ahead, we believe our 2024 debt exposure is very manageable with $73.4 million of mortgages maturing, or only 5.5% of our total debt stack. We are already working towards addressing our 2024 and 2025 debt maturities."

CONFERENCE CALL
Management will host a conference call to discuss the financial results tomorrow, November 10, 2023, at 10:00 a.m. (ET). To access the conference call, please dial 1-800-319-4160 in Canada or 416-915-3239 elsewhere. To access the conference call via webcast, please go to Dream Office REIT’s website at www.dreamofficereit.ca and click on the link for News, then click on Events. A taped replay of the conference call and the webcast will be archived for 90 days.

OTHER INFORMATION
Information appearing in this press release is a selected summary of results. The condensed consolidated financial statements and Management’s Discussion and Analysis ("MD&A") of the Trust are available at www.dreamofficereit.ca and on www.sedarplus.ca.

Dream Office REIT is an unincorporated, open-ended real estate investment trust. Dream Office REIT is a premier office landlord in downtown Toronto with over 3.5 million square feet owned and managed. We have carefully curated an investment portfolio of high-quality assets in irreplaceable locations in one of the finest office markets in the world. For more information, please visit our website at www.dreamofficereit.ca.

FOOTNOTES

(1)

Excludes properties held for sale and investments in joint ventures that are equity accounted at the end of each period.

(2)

Excludes properties under development, properties held for sale and joint ventures that are equity accounted at the end of each period.

(3)

Occupancy figures as at September 30, 2022 include the sold property 720 Bay Street in Toronto. Excluding this property from September 30, 2022 figures, total portfolio in-place occupancy would have been 80.9% and in-place and committed occupancy would have been 85.0%. In Toronto downtown, in-place occupancy would have been 82.0% and in-place and committed occupancy would have been 88.0%.

(4)

FFO is a non-GAAP financial measure. The most directly comparable financial measure to FFO is net income. The tables included in the Appendices section of this press release reconcile FFO for the three months ended September 30, 2023 and September 30, 2022 to net income. For further information on this non-GAAP financial measure please refer to the statements under the heading "Non-GAAP Financial Measures, Ratios and Supplementary Financial Measures" in this press release.

(5)

Comparative properties NOI is a non-GAAP financial measure. The most directly comparable financial measure to comparative properties NOI is net rental income. The tables included in the Appendices section of this press release reconcile comparative properties NOI for the three months ended September 30, 2023 and September 30, 2022 to net rental income. For further information on this non-GAAP financial measure, please refer to the statements under the heading "Non-GAAP Financial Measures, Ratios and Supplementary Financial Measures" in this press release.

(6)

Diluted FFO per unit is a non-GAAP ratio. Diluted FFO per unit is calculated as FFO (a non-GAAP financial measure) divided by diluted weighted average number of units. For further information on this non-GAAP ratio, please refer to the statements under the heading "Non-GAAP Financial Measures, Ratios and Supplementary Financial Measures" in this press release. A description of the determination of the diluted weighted average number of units can be found in the management’s discussion and analysis of the financial condition and results of operations of the Trust for the three and nine months ended September 30, 2023, dated November 9, 2023 (the "MD&A for the third quarter of 2023") in the section "Supplementary Financial Measures and Other Disclosures" under the heading "Weighted average number of units".

(7)

Available liquidity is a non-GAAP financial measure. The most directly comparable financial measure to available liquidity is undrawn credit facilities. The tables included in the Appendices section of this press release reconcile available liquidity to undrawn credit facilities as at September 30, 2023 and December 31, 2022. For further information on this non-GAAP financial measure please refer to the statements under the heading "Non-GAAP Financial Measures, Ratios and Supplementary Financial Measures" in this press release.

(8)

Unencumbered assets is a supplementary financial measure. For further information on this supplementary financial measure, please refer to the statements under the heading "Non-GAAP Financial Measures, Ratios and Supplementary Financial Measures" in this press release.

(9)

Level of debt (net total debt-to-net total assets) is a non-GAAP ratio. Net total debt-to-net total assets comprises net total debt (a non-GAAP financial measure) divided by net total assets (a non-GAAP financial measure). The tables in the Appendices section reconcile net total debt and net total assets to total debt and total assets, the most directly comparable financial measures to these non-GAAP financial measures, respectively, as at September 30, 2023 and December 31, 2022. For further information on this non-GAAP ratio and these non-GAAP financial measures, please refer to the statements under the heading "Non-GAAP Financial Measures, Ratios and Supplementary Financial Measures" in this press release.

(10)

Weighted average face rate of interest on debt is calculated as the weighted average face rate of all interest-bearing debt balances excluding debt in joint ventures that are equity accounted.

(11)

Interest coverage ratio (times) is a non-GAAP ratio. Interest coverage ratio comprises trailing 12-month adjusted EBITDAFV divided by trailing 12-month interest expense on debt. Adjusted EBITDAFV, trailing 12-month adjusted EBITDAFV and trailing 12-month interest expense on debt are non-GAAP measures. The tables in the Appendices section reconcile adjusted EBITDAFV to net income for the three and nine months ended September 30, 2023 and September 30, 2022 and for the year ended December 31, 2022 and trailing 12-month adjusted EBITDAFV and trailing 12-month interest expense on debt to adjusted EBITDAFV and interest expense on debt, respectively, for the trailing 12-month period ended September 30, 2023. For further information on this non-GAAP ratio and these non-GAAP financial measures, please refer to the statements under the heading "Non-GAAP Financial Measures and Ratios and Supplementary Financial Measures" in this press release.

(12)

Net total debt-to-normalized adjusted EBITDAFV ratio (years) is a non-GAAP ratio. Net total debt-to-normalized adjusted EBITDAFV comprises net total debt (a non-GAAP financial measure) divided by normalized adjusted EBITDAFV (a non-GAAP financial measure). Normalized adjusted EBITDAFV comprises adjusted EBITDAFV (a non-GAAP financial measure) adjusted for NOI from sold properties in the quarter. For further information on this non-GAAP ratio and these non-GAAP financial measures, please refer to the statements under the heading "Non-GAAP Financial Measures and Ratios and Supplementary Financial Measures" in this press release.

(13)

Total number of REIT A and LP B units includes 5.2 million LP B Units which are classified as a liability under IFRS.

(14)

NAV per unit is a non-GAAP ratio. NAV per unit is calculated as Total equity (including LP B Units) (a non-GAAP financial measure) divided by the total number of REIT A and LP B units outstanding as at the end of the period. Total equity (including LP B Units) is a non-GAAP measure. The most directly comparable financial measure to total equity (including LP B Units) is equity. The tables included in the Appendices section of this press release reconcile total equity (including LP B Units) to equity as at September 30, 2023 and December 31, 2022. For further information on this non-GAAP financial measure please refer to the statements under the heading "Non-GAAP Financial Measures, Ratios and Supplementary Financial Measures" in this press release.

NON-GAAP FINANCIAL MEASURES, RATIOS AND SUPPLEMENTARY FINANCIAL MEASURES

The Trust’s condensed consolidated financial statements are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board ("IFRS"). In this press release, as a complement to results provided in accordance with IFRS, the Trust discloses and discusses certain non-GAAP financial measures, including FFO, comparative properties NOI, available liquidity, adjusted EBITDAFV, trailing 12-month adjusted EBITDAFV, trailing 12-month interest expense on debt, net total debt, net total assets, normalized adjusted EBITDAFV – annualized and total equity (including LP B Units or subsidiary redeemable units) and non-GAAP ratios, including diluted FFO per unit, level of debt (net total debt-to-net total assets), interest coverage ratio, net total debt-to-normalized adjusted EBITDAFV and NAV per unit, as well as other measures discussed elsewhere in this release. These non-GAAP financial measures and ratios are not standardized financial measures under IFRS and might not be comparable to similar financial measures disclosed by other issuers. The Trust has presented such non-GAAP financial measures and non-GAAP ratios as Management believes they are relevant measures of the Trust’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 MD&A for the third quarter of 2023 and can be found under the section "Non-GAAP Financial Measures and Ratios" and respective sub-headings labelled "Funds from operations and diluted FFO per unit", "Comparative properties NOI", "Level of debt (net total debt-to-net total assets)", "Net total debt-to-normalized adjusted EBITDAFV ratio (years)", "Interest coverage ratio (times)", "Available liquidity", "Total equity (including LP B Units or subsidiary redeemable units)", "Adjusted earnings before interest, taxes, depreciation, amortization and fair value adjustments ("adjusted EBITDAFV")", "Trailing 12-month Adjusted EBITDAFV and trailing 12-month interest expense on debt", and " NAV per Unit". In this press release, the Trust also discloses and discusses certain supplementary financial measures, including unencumbered assets. The composition of supplementary financial measures included in this press release are expressly incorporated by reference from the MD&A for the third quarter of 2023 and can be found under the section "Supplementary financial measures and ratios and other disclosures". The MD&A for the third quarter of 2023 is available on SEDAR+ at www.sedarplus.com under the Trust’s profile and on the Trust’s website at www.dreamofficereit.ca under the Investors section. Non-GAAP financial measures should not be considered as alternatives to net income, net rental income, 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 as indicators of the Trust’s performance, liquidity, leverage, cash flow, and profitability. Reconciliations for FFO, comparative properties NOI, available liquidity, adjusted EBITDA, and total equity (including LP B Units) to the nearest comparable IFRS measure are contained at the end of this press release.

FORWARD-LOOKING INFORMATION

This press release may contain forward-looking information within the meaning of applicable securities legislation, including, but not limited to, statements regarding our objectives and strategies to achieve those objectives; the increase in activity in our downtown Toronto portfolio, completion of development approvals and increase in comparative properties NOI; our expectations regarding tenant requirement trends in respect of workspace preferences and upgrades, including demand for built out space; the effect of the Trust’s leasing strategy on the return on invested capital, occupancy at our buildings, property value, cash flows, liquidity and refinancing value; the effect of building improvements on tenant experience and building quality and performance; our development, redevelopment and intensification plans, including timelines, square footage and other project characteristics, including in respect of 366 Bay Street and 67 Richmond Street West; our commitment to invest in our downtown Toronto portfolio, and the effect of these plans on the value and quality of our portfolio; our future capital requirements and cost to complete development projects; the expectation that we will be able to use our CIB Facility to fund development costs for certain projects; our ability to increase building performance and achieve certain energy efficiency and greenhouse gas reduction goals, including in respect of specific properties and of retrofits made in connection with the CIB Facility; expectations regarding our financing undertakings, including our ability to address future debt maturities; the ability of the Trust to hedge variable debt; capital allocation, investments and expected benefits; and prospective leasing activity and our overall financial performance, profitability and liquidity for future periods and years. Forward-looking statements generally can be identified by words such as "outlook", "objective", "may", "will", "would", "expect", "intend", "estimate", "anticipate", "believe", "should", "could", "likely", "plan", "project", "budget", 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 Office REIT’s control, which 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, general and local economic and business conditions, including in respect of real estate; mortgage and interest rates and regulations; inflation; risks related to a potential recession economic slowdown in certain of the jurisdictions in which we operate and the effect inflation and any such recession economic slowdown may have on market conditions and lease rates; the uncertainties around the availability, timing and amount of future equity and debt financings; development risks including construction costs, the project timings and the availability of labour; NOI from development properties on completion; the impact of the COVID-19 pandemic on the Trust; the effect of government restrictions on leasing and building traffic; employment levels; the uncertainties around the timing and amount of future financings; leasing risks, including those associated with the ability to lease vacant space; rental rates on future leasing; and interest and currency rate fluctuations.

Our objectives and forward-looking statements are based on certain assumptions, which include but are not limited to: that the general economy remains stable; our interest costs will be relatively low and stable; that we will have the ability to refinance our debts as they mature; inflation and interest rates will not materially increase beyond current market expectations; conditions within the real estate market remain consistent; the timing and extent of current and prospective tenants’ return to the office; our future projects and plans will proceed as anticipated; that government restrictions due to COVID-19 on the ability of us and our tenants to operate their businesses at our properties will not be re-imposed in any material respects; competition for acquisitions remains consistent with the current climate; and that the capital markets continue to provide ready access to equity and/or debt to fund our future projects and plans. All forward-looking information in this press release speaks as of the date of this press release. Dream Office 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 Office REIT’s filings with securities regulators, including its latest annual information form and MD&A. These filings are also available at Dream Office REIT’s website at www.dreamofficereit.ca

APPENDICES

Funds from operations and diluted FFO per unit

Three months ended September 30,

2023

2022

Net income for the period

$

13,556

$

28,044

Add (deduct):

Net income from investment in Dream Industrial REIT

(449)

(9,567)

Share of FFO from investment in Dream Industrial REIT

3,327

5,914

Depreciation and amortization

2,960

2,831

Costs attributable to sale of investment properties

325

Interest expense on subsidiary redeemable units

1,308

1,308

Fair value adjustments to investment properties

16,649

9,588

Fair value adjustments to investment properties held in joint ventures

84

33

Fair value adjustments to financial instruments and DUIP included in G&A expenses

(24,452)

(19,786)

Internal leasing costs

405

578

Principal repayments on finance lease liabilities

(13)

(13)

Deferred income taxes expense

191

350

Debt settlement costs due to disposals of investment properties, net

304

FFO for the period

$

13,566

$

19,909

Diluted weighted average number of units

38,694

53,243

FFO per unit - diluted

$

0.35

$

0.37

Comparative properties NOI

Three months ended

Change in

weighted average

occupancy %

Change in

in-place

net rents %

September 30,

September 30,

Change

2023

2022

Amount

%

Toronto downtown

$

20,541

$

19,326

$

1,215

6.3

0.7

5.4

Other markets

6,943

6,993

(50)

(0.7)

(3.4)

1.1

Comparative properties NOI

27,484

26,319

1,165

4.4

(0.8)

4.9

Properties under development

91

454

(363)

Property management and other service fees

454

408

46

Change in provisions

(243)

(301)

58

Straight-line rent

207

195

12

Amortization of lease incentives

(2,948)

(2,674)

(274)

Lease termination fees and other

64

579

(515)

Sold properties

(2)

1,758

(1,760)

Net rental income

$

25,107

$

26,738

$

(1,631)

(6.1)

Adjusted EBITDAFV

Three months ended

Nine months ended

Year ended

September 30,

September 30,

September 30,

September 30,

December 31,

2023

2022

2023

2022

2022

Net income (loss) for the period

$

13,556

$

28,044

$

(34,772)

$

146,248

$

63,641

Add (deduct):

Interest – debt

14,989

13,554

43,113

36,755

51,836

Interest – subsidiary redeemable units

1,308

1,308

3,925

3,925

5,234

Current and deferred income taxes expense (recovery), net

191

350

(132)

479

672

Depreciation on property and equipment

41

104

126

351

430

Fair value adjustments to investment properties

16,649

9,588

67,583

(3,971)

95,171

Fair value adjustments to financial instruments

(24,249)

(19,640)

(41,791)

(51,730)

(60,834)

Net loss (income) from investment in Dream Industrial REIT

(449)

(9,567)

30,843

(62,043)

(60,237)

Distributions earned from Dream Industrial REIT

2,369

4,655

10,090

13,966

18,622

Share of net loss (income) from investment in joint ventures

445

(102)

493

420

532

Non-cash items included in investment properties revenue(1)

2,741

2,479

8,076

7,857

10,481

Change in provisions

243

301

237

1,413

1,709

Lease termination fees and other

(64)

(579)

(243)

(852)

(1,233)

Net loss on transactions and other items

405

1,207

1,355

2,239

1,890

Adjusted EBITDAFV for the period

$

28,175

$

31,702

$

88,903

$

95,057

$

127,914

(1) Includes adjustments for straight-line rent and amortization of lease incentives.

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

Trailing 12-month period

ended September 30, 2023

Adjusted EBITDAFV for the nine months ended September 30, 2023

$

88,903

Add: Adjusted EBITDAFV for the year ended December 31, 2022

127,914

Less: Adjusted EBITDAFV for the nine months ended September 30, 2022

(95,057)

Trailing 12-month adjusted EBITDAFV

$

121,760

Trailing 12-month period

ended September 30, 2023

Interest expense on debt for the nine months ended September 30, 2023

$

43,113

Add: Interest expense on debt for the year ended December 31, 2022

51,836

Less: Interest expense on debt for the nine months ended September 30, 2022

(36,755)

Trailing 12-month interest expense on debt

$

58,194

Interest coverage ratio (times)

For the trailing 12-month period ended

September 30,

December 31,

2023

2022

Trailing 12-month adjusted EBITDAFV

$

121,760

$

127,914

Trailing 12-month interest expense on debt

$

58,194

$

51,836

Interest coverage ratio (times)

2.1

2.5

Net total debt-to-normalized adjusted EBITDAFV ratio (years)

September 30,

December 31,

2023

2022

Non-current debt

$

1,240,052

$

1,106,816

Current debt

85,633

265,967

Total debt

1,325,685

1,372,783

Less: Cash on hand(1)

(14,483)

(6,811)

Net total debt

$

1,311,202

$

1,365,972

Adjusted EBITDAFV – quarterly

28,175

32,857

Less: NOI of disposed properties for the quarter

2

(31)

Normalized adjusted EBITDAFV – quarterly

$

28,177

$

32,826

Normalized adjusted EBITDAFV – annualized

$

112,708

$

131,304

Net total debt-to-normalized adjusted EBITDAFV ratio (years)

11.6

10.4

(1) Cash on hand represents cash on hand at period-end, excluding cash held in co-owned properties and joint ventures that are equity accounted.

Level of debt (net total debt-to-net total assets)

Amounts included in condensed

consolidated financial statements

September 30,

December 31,

2023

2022

Non-current debt

$

1,240,052

$

1,106,816

Current debt

85,633

265,967

Total debt

1,325,685

1,372,783

Less: Cash on hand(1)

(14,483)

(6,811)

Net total debt

$

1,311,202

$

1,365,972

Total assets

2,699,126

3,066,892

Less: Cash on hand(1)

(14,483)

(6,811)

Net total assets

$

2,684,643

$

3,060,081

Net total debt-to-net total assets

48.8%

44.6%

(1) Cash on hand represents cash on hand at period-end, excluding cash held in co-owned properties and joint ventures that are equity accounted.

Available liquidity

As at

September 30,

December 31,

2023

2022

Cash and cash equivalents

$

15,848

$

8,018

Undrawn revolving credit facilities

91,330

58,585

Undrawn CIB Facility

96,653

104,957

Available liquidity

$

203,831

$

171,560

Total equity (including LP B Units) and NAV per unit

Unitholders’ equity

September 30, 2023

December 31, 2022

Number of Units

Amount

Number of Units

Amount

Unitholders’ equity

32,624,637

$

1,837,122

46,110,593

$

1,842,010

Deficit

(591,582)

(321,769)

Accumulated other comprehensive income

6,924

11,933

Equity per condensed consolidated financial statements

32,624,637

1,252,464

46,110,593

1,532,174

Add: LP B Units

5,233,823

50,506

5,233,823

78,193

Total equity (including LP B Units)

37,858,460

$

1,302,970

51,344,416

$

1,610,367

NAV per unit

$

34.42

$

31.36

View source version on businesswire.com: https://www.businesswire.com/news/home/20231109552616/en/

Contacts

Michael J. Cooper
Chairman and Chief Executive Officer
(416) 365-5145
mcooper@dream.ca

Jay Jiang
Chief Financial Officer
(416) 365-6638
jjiang@dream.ca

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