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  • Taylor Sugar

Dream Impact Trust : High Yield + Reasonable Risk

Updated: Jan 25



Dream Impact Trust (MPCT.UN) is a Canadian real estate development firm with assets in Toronto and Ottawa focused on three ESG impact themes: climate change, affordable housing and increasing social inclusion.


At first glance Dream Impact looks like a high risk investment: it offers a high 9.34% yield, has a small $280M market cap, and has an aggressive 91% payout ratio and a small daily volume of shares traded.


The risk level for Dream Impact is not as high as it initially appears and is worthy of a closer examination.


Dream Impact is composed of two parts :


Recurring Income Assets $321M [ $4.86/Share ] +

Development and Investment Holdings $306M [ $4.46/Share]


=Total Net Asset Value of $605M [$9.31/Share]

The current public market price is $4.28 so you can basically buy the current recurring income portfolio and get the development and investment holdings for free.

The majority of its assets are located in the south east quadrant of Toronto 73.2%, Ottawa/Gatineau 17.7% and the United States 9.5% (10% passive investment in Virgin Hotels Las Vegas).

Toronto East Assets The waterfront and Toronto east assets are in an extremely desirable location connected to the DVP, Gardiner Expressway and Downtown Core. The Victory Silos and Quayside properties are once-in-a-lifetime assets and a huge opportunity to improve the downtown waterfront.


The Quayside project was just awarded to Dream Unlimited/Dream Impact in December 2022 and represents an important milestone. Previously this project had been allocated to

Sidewalk Labs (Google Subsidiary) who departed the project in 2020.


Ottawa Assets

The Zibi project is on both sides of the Ottawa River embracing three unique cultures English, French and Algonquin Anishinaabe communities of Ontario and Quebec. This project also contains high value waterfront property that will become extremely valuable once developed. The master planned communities include 34 acres of waterfront in the downtown cores of both Ottawa, Ontario and Gatineau, Quebec. This project also looks like it is in the once-in-a-lifetime bucket and will become a high quality long term hold.


The Dream Unlimited + Dream Impact Relationship

Dream Impact (MPCT.UN) is part of the Dream Unlimited (DRM.TO) platform and pays DRM for asset management services. Michael Cooper serves as both the CEO of Dream Unlimited and the Portfolio Manager of Dream Impact Trust.

This type of external management structure can raise questions about shareholder alignment, however, Dream Unlimited is not just the asset manager parent of Dream Impact Trust, it is also the largest Dream Impact shareholder owning approximately 30% of the float. High insider ownership reinforces shareholder alignment.

DRM is even being paid in MPCT shares for its asset management work instead of cash. This arrangement highlights the long term value and desirability of MPCT shares as CEO Michael Cooper continues to stack his position.


DRM is very motivated to ensure Dream Impact Trust is successful as doing so: increases AUM as developments complete, increases the value of the 30% Holding and generates recurring income to DRM via the high yield.

In the Toronto East project map above Dream Unlimited owns the majority of the Distillery District and the Canary District. Dream Impact's portfolio in Toronto is integrated into these existing successful DRM assets. Dream Impact also partners with Dream Unlimited on the majority of its projects. This high level of integration and proximity to existing successful DRM properties reduces dream impacts risk level.


As all of the projects are completed the entire area is going through a gentrification process and the overall value of each property increases.


Distillery District : A Successful Case Study

Looking at Michael Coopers track record in the area is impressive. Dream Unlimited invested into the Distillery District in 2004 as a derelict collection of 44 buildings on a 13 acre parcel in East Toronto and proceeded to transform the Victorian style industrial buildings into a beautiful walkable network of shops, restaurants, cafe's and the host of a popular annual Christmas Market and Light Show.


Michael Cooper has the experience, resources, platform and credibility required to complete these developments and maximize the value of the entire south east Toronto area.


Project Partners Reduce Risk

Reviewing the list of Dream Impacts development projects we can see that Dream Impact has partnered up with Dream Unlimited or Dream Impact Fund on the majority of the projects. Dream Impact has also partnered with a small army of other successful developers again reducing the development risk and leveraging the experience and capital of larger organizations.

Dream Impact can raise additional cash by selling pieces of its large development pipeline and taking on new partners.


Development Pipeline

Looking at the development pipeline the completions are spread out between 2023 ($226.5M), 2024 ($40M), and 2025 ($242M).


The Ottawa/Gatineau Zibi project features a lot of completions in 2023.


Transformation from Development --> Recurring Income Assets

Right now Dream Impact consists of 50% recurring income assets and 50% development assets.

Dream Impact is undergoing a transformation similar to a caterpillar developing into a cashflow butterfly.


The recurring income assets in the company were at only 34% in 2020, have hit 50% today, and are aiming to be 70% through development completions by 2025.


As developments complete recurring revenue increases, the NAV of Dream Impact increases, and the debt ratio decreases reducing risk and increasing earnings. This high proportion of development assets also means that its revenues have not stabilized and represents both the risk and the reward that Dream Impact offers.


Many investors may worry that Dream Impact would have to pay expensive interests rates to fund this 509 million worth of development, however, Michael Cooper highlighted on the Q3 earnings call that Dream Impact had already secured 8Y fixed rate loans between 1.75%-2% for all of the 509m worth of developments completing over the next 36 months.


ESG CAPITAL

This is the ESG Ace up Dream Impacts sleeve as combining high quality assets in prime urban locations with low interest financing is a recipe for success. Where does it get this magical low interest capital you ask? Special government programs that are incentivizing ESG development.

Dividend Yield + Return of Capital

The dividend for Dream Impact has always been constant at 0.40/year. The dividend yield has varied between 5% and 10% with volatility in the price. Right now the current 9.34% yield is an excellent entry point if you believe in the quality of the assets and the effectiveness of Dream Impacts business model.


Interestingly enough one advantage of the current structure of Dream Impact is that the dividends are being classified as return of capital. This results in a lower cost basis with each dividend but defers a taxable event until you sell the shares. This makes it an extra sweet long term hold as you can generate tax deferred income. The designation of the income may change in the future as the recurring income assets come online.

Covid Crash Price

From a share price perspective Dream Impact is at the Covid Low price point despite the fact that it has been executing and completing development projects effectively.


Looking at this chart I really like the risk/reward set up here.

Potential Value Realization Catalysts

  1. Development Completions - as the development pipeline turns into recurring income assets the risk profile decrease, revenues increase and so should the share price.

  2. Dream Impact sells its interest in Virgin Hotels Las Vegas. This has an approximate value of $40M and is a legacy asset that does not fit within the Dream Impact ESG framework. If this was sold the funds could be used for a large buyback to take advantage of the big discount to NAV.

  3. Selling Development Pipeline via Joint Venture with other Development Firms for $$$

  4. Dream Unlimited keeps buying more shares taking advantage of the low price.

  5. Dream Impact gets involved in new projects

Conclusion

Dream Impact is an undervalued real estate development portfolio that is quickly becoming a very high quality portfolio of recurring income assets in extremely desirable locations. The attractive 9% yield pays you to wait for the development completions to finalize.


Impact is reinforced by its major development partner Dream Unlimited and by a small army of experienced joint venture development partners. It comes with a very accomplished Portfolio Manager, Michael Cooper, who has the skills, resources and shareholder alignment to execute effectively.


Imagine trying to replicate this investment in the private market by buying a prime Toronto Development project or Waterfront project at a 50% discount to value, with a juicy monthly dividend yield and an all-star manager.


Despite the risks, MPCT is one high yield small cap worth dreaming about.



Disclosure:

Long MPCT.UN, Long DRM.TO

This is not professional investment advice.

Do your own investment research.



Resources

Stock Analysis: Dream Impact Trust - by Nelson! (substack.com)


Cool Thread on Dream Impact from Tyler @cdnvalue stocks

https://twitter.com/cdnvaluestocks/status/1562857185327034368?s=20&t=n1XtBN0thV6tsf3Sk_87RQ -


Dream LeBreton unveils two-tower design for Ottawa project • RENX • Real Estate News Exchange


Waterfront Toronto Finalizes Quayside Agreement with Dream Unlimited and Great Gulf | UrbanToronto


Canary Landing Apartments - Tricon Residences (triconresidential.com)


Information about the Distillery District

https://storeys.com/distillery-district-toronto-history/

Zibi Project Website




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