Dream Investor Day

I went in case you didn't

The truth is, since Dream put up the comprehensive presentation on its website, probably no one needed to go. And given the nightmare that is driving and parking in Toronto, I probably wouldn’t go again in hindsight. I met some people I only knew virtually, which was cool (you guys know who you are, it was good meeting you), but man do I hate the drive….

Anyway, I would say a good 90% or more of the value of the investor day was provided by the slides. Lots of execs presented, not just Michael Cooper, but for the most part their comments were captured by their slides’ content.

Here are those slides: https://dream.ca/wp-content/uploads/2023/09/DRM-Investor-Day-Presentation-website.pdf

It’s a very in depth presentation, and I think does a very good job of accomplishing the company’s goal for the day - to tell investors how management thinks about the value of the company.

But there was a bit of off the cuff discussion and Q&A, so I though that I could write a quick email here with some of the content you would miss.

What I took from Michael Cooper’s comments, more than anything else, was how much he values liquidity.

There’s been a very common pushback on Dream: “if the stock is so cheap, why aren’t they buying back shares?” as well as “if Dream Impact Trust is so cheap, why doesn’t the parent privatize it?”.

I admit to asking myself these questions as well. Given Dream Unlimited’s relentless stock price decline, I have been surprised that Dream hasn’t been buying back shares. Just recently, Dream bought back its first shares since the stock price began dropping, even though the company bought back lots of shares on the way up (discussed in more depth in the linked post below)

I naturally thought if the stock was cheap enough to buy back in 2021 at $30+ a share, why is it not cheap enough to buy back in 2023 at $20 a share? Cooper’s comments around liquidity finally made it clear.

While the presentation should make clear that he is bullish about the value of his company and its assets, he struck a pessimistic tone about the economic environment in general. He listed several worries, I can’t quite remember it all, but he mentioned the geopolitical uncertainty, the political divisiveness in the US and Canada, he might have mentioned house prices and a recession (not sure he did mention these), etc. While it is probably a step too far to say that he is focused on defense and/or merely surviving, it was clear Dream wasn’t going to be hitting the gas.

You might read more doom into this than I did, but he specifically brought up Bed, Bath, and Beyond as an example of a company that focused on share buybacks at the expense of liquidity. I’m paraphrasing a bit, but he said something to the effect of “nobody remembers that they were asking for buybacks after the company goes out of business”.

Again, you can read into that and think Cooper is admitting the company is in a perilous financial position, but that isn’t what I took from it (though it isn’t a ringing endorsement either). He said these things while noting the company’s liquidity is the highest (or nearly the highest) it has ever been, and the goal is to increase that as the company grows. The goal is to have liquidity of $700 million in 2032, double what it is today.

Some can argue whether this is the right decision or not. Personally I probably would want to buy back more shares, but Michael Cooper has seen a real estate cycle or two, and has more incentive than anyone (he owns 45% of the company) to want to see Dream’s value grow. If he thinks building up liquidity is the right thing to do, you can acknowledge the rationale even if you don’t agree with it.

So that’s the main thing I got from the meeting that I don’t think shines through the slides on their own - management values liquidity highly right now. It explains why Dream hasn’t bought back as many shares as one would like. It explains the sale of many of its Dream Office units. It explains quite a few things (if not fully explains them).

Another thing, which I think the slides do a decent job of explaining, is that the NAV and the illustrative ten year plans are meant to be conservative. A few points make this clear:

• in Dream’s NAV, it values its holdings of the subsidiaries (Dream Office, Dream Impact, and Dream Residential) at their market prices. This is in contrast to another asset manager (cough Brookfield cough) that was notorious for publishing a NAV that included its investment in a subsidiary REIT at that REIT’s NAV despite it trading at a very large discount to NAV.

• Cooper made it very clear that while the 2032 plan estimates that asset management FFO will increase 5% per year, they expect to significantly outperform that.

The only other insight I garnered from attending in person that I wouldn’t have otherwise was regarding the rent strike. Cooper reiterated that it is a small number of tenants that are not paying (not the hundreds that the strikers claim), and each month more people have been paying their rent. It’s unfortunate publicity, but the company didn’t seem too worried and it seems like it is becoming a smller issue as time passes.

That’s all I really have. Like I said, check out the presentation.