Michael Cooper - CEO Pauline Alimchandani - CFO

Gerg Reiss - Janney Montgomery David Spier - Nitor Capital Dean Wilkinson - CIBC World Markets Frank Mayer - Vision Capital

Thank you and good afternoon, and welcome to our Q2 conference call. I am here today with Pauline Alimchandani, our CFO.

She will speak about our financial performance in a few minutes. I find that to understand our business, I have to separate with the question of how we were doing and how the economies effecting us.

There is a lot of uncertainty in Canada right now. Over last four years has been a financial crisis in Europe and on August 2011 as part of the green global IPO we had to buy Euros.

At the time of the IPO the exchange rate was CAD1.36 take at a euro. And now with all of the noise and issues around the crisis in Europe, the current exchange rate is CAD1.42 take at a euro.

The euro was actually become more expensive over the last four years. There is clearly consensus the Canadians prospects are not favorable over the short-term.

We just spend two days travel with our Board to our asset in Western Canada, I think our team is doing a great job and managing the business better than ever, more on that later. Doing our business with our management team was very interesting as it seems like its business is usual.

While everyone is aware that the economy is facing some challenges, we’re more focus on running our business the best we can. And admin in the teams like we’re doing quite well selling a lot this year and should make our budget would be close and if we are sure it will likely more do with the approval process or construction issues.

In Calgary, we don’t have any lot to sell this year, but if we did have some to sell, there is demand to sell them. In fact the team is starting a new community Brighton and we expect have substantial sales but because of local market conditions and built of inventories, it may be slower than we hope, with John is likely to likely to sale a lot to which we hope for.

We’ve been selling offer existing housing inventories we’re making significant changes to our approach. The houses we’re selling now were built when construction costs was peak.

We are currently redesigning our houses, got to tender for pricing for all of our markets. We believe that we will be able to build better houses at a lower cost and increase our margins to their historic level even in a slower economy.

It was very important to see our first retail developments operational and it has helped us visualize what communities will look like in the future. We have about 380,000 square feet retailer development and made good progress on the leasing.

We have another 1.2 million square feet in three developments. Dream’s future business will include the ownership of a substantial number of high quality grocery acre retail and neighborhood centers.

We are now developing land, building houses, town homes and higher density multi-family as well as a retail centers in our community so we are building complete communities to design and build the maximize their residence experience we continue to sell lots in multi-family site to other builders as well as to provide diversity to the balance or capital requirements redevelopment. We are very actively working on approvals with some very large landholdings.

We have recently received approval for Crossfield, just north of Calgary and Holmwood Brighton and are working on the approval of 5,100 acres more. These approvals will completely change the scale of our business once we’re successful and we’re working to clear operations and capacity of our business.

We are very pleased with the reception of Pan Am Village, this is another project we started in 2011, it was also awarded to see the flags of all the countries hanging but especially its all bring on the balcony designed exclusive for the purpose of hanging flags. We’re pleased to hear that some of the Olympic officials thought the Village was athletic village they’ve ever seen.

We are also quite happy that village is ready to go when needed, we’ll get the project back in a next few weeks and then we’ll raise to complete the repurposing of the village for next year delivery. We’re working with Canadian Specific and provide our initial feedback on a group of both 15 properties, we’ve already begun our efforts on leasing retail side on Sinclair and we’re in close commenting on a 68 industrial site at Tobago.

We expect that we’ll make significant progress with the development in 2016. We’ve been very active both in condominiums and Toronto area, we’ve had good sales all year makes it our sales target for the year, Toronto, as the city is working very well, the appeal of the city has change from it used to be it is become a very special place, I believe it will continue to grow and well conceive, well located real estate with the very well in Toronto over the long term.

We also launch our pre condominiums building or auto our project and acquire the portion of land Quebec. We’re pleased with the early sales results.

Our renewable power group is making great progress and expand our business take advantage of low interest rates and long term contracts. We’ve already developed about 20% of all the solar project in Ontario under fifth programs.

We developed solar on our industrial roof tops as well as on other people roof tops and also on ground mounted solar units. We see many opportunities to add to a sustainability of our company’s footprint with the knowledge and experience of our management team in the renewable power group.

The asset management group that's a management is coming along, as we’re in a blackout period for each of our businesses and each business has their own management teams, I will only comment to them when they release the results. During the quarter, we completely changed our boring ranges with the syndicate bank, firstly we amended the boring base for $291 to operating line, so the method of calculation is more suitable during volatile times.

In addition we created the three year term facility for a $135 million which probably in swap to fix at a three year, 3.65% rate. We’ve used the money to pay off some short term debt liabilities such as vendor mortgages or some acquisitions pay of and demand line, and reduce our operating line borrowings.

As a result, we have total availability on our line of a $164 million of which we have very little demand for, we just had that for safety. The finance arraignment we made improves the safety of our business.

We have substantially more funds available on our projected capital needs. This allows us to continue to plan our business for the long term and manage to whatever turmoil the Canadian economy toward us.

I am very pleased that we have rearranged our financed this past quarter. We have so many opportunities assets that we already own.

ARPUs are coming along our retail developments are coming online. We are making houses better at a lower cost.

We started our multifamily business in U.S. and Canada, Pan Am is on time and on budget and our joint ventures with any specific taken form.

Although the development business is always unpredictable I feel like we are making great progress. Now I would like to ask Pauline to make some comments on our financial results.

Thank you Michael and good afternoon. Q2 was the momentous quarter for our company.

First and foremost we closed the new three year $175 million term financing on June 30th with a syndicate of Canadian financial institution. This new financing puts our company in excellent financial shape.

The net proceeds from the financing were used to fund final payment for 555 acres of land acquisitions in Western Canada and reduced other debt obligations which included the full repayment of the loan outstanding to Dundee Corporation and just over $80 million of repayments against our operating line. Our second quarter results included a $2.2 million pretax gain on the early repayment of the loan balance to Dundee Corp.

Our loan to value on our new facility is under 20% and it is well secured against certain real estate and other assets within the company including securities held within our publicly listed bonds. On July 17th we entered into a syndicated interest rate swaps, effectively fixing our interest costs at 3.65% per annum for the term of the facility.

Given that the significant portion of our debt including our operating line and construction loans are all at variable rates due to the nature of our business we felt that it would be prudent to fix rates on a $175 million of our debt for the next three years at a low cost. Intending with our financing, we also restructured our borrowing base underlying our existing $290 million operating line to reduce variability in our borrowing availability in any one period thereby increasing our flexibility in running the operations of our business.

On conclusion, if these two significant financing transactions we made substantial progress in improving both our immediate and longer term liquidity financial position and cost to capital. At the end of the quarter, we were well capitalized with our overall debt to asset ratio at 32% down from 34% last quarter and was up to $164 million of available liquidity as Michael noted.

Year-to-date we have achieved 21% growth in our total book equity relative to the end of 2014 all through internally generated value creation activity. Although we have not earned much income from our primary lines of business to date due to seasonality and other factors, we have created significant value within our retail development and asset management division.

Our land and condo divisions are expected to be more meaningful contributors to 2015 income starting in Q3 and Q4. In addition, we expect further fair value gains from our Tamarack development site in Edmonton in the fourth quarter.

I will discuss the results by major business division and then confirm our guidance for the full year. Net margin from land was $11.2 million year-to-date down from $16.6 million in the prior year.

Year-to-date we have achieved a 171 sales relatively in line with the volume in the prior year and we have sold 17 developed acre sales versus 33 in the prior year, the latter of which contributed to the year-over-year decline in net margin. Our land margins as a percentage of revenues in the quarter were 47%.

During the quarter we had approximately $2 million of net positive cost of completed adjustments, largely due to the release of contingencies and recoveries achieved at the end of the development phases south [indiscernible]. Excluding these net positive adjustments, our margins were still strong at 39% and well above our historical average margin of between 33% to 35%.

We are expecting to sale approximately 1,000 lots for all 15 and 100 acres this year. The lot sales are expected to occur primarily within Brighton and Kensington and Saskatoon the Meadows in Edmonton, Harbour Landing and Regina and we are also expecting our first sales in cost sales Alberta by the end of the year.

Moving on to housing. Net margin from housing was 1.7 million year-to-date before eliminations down from 3.5 million in the prior year.

Our average selling price for houses occupied in the first six months of the year were $281 per square foot, down only slightly from $284 per square foot, which explained the small amount of the year-over-year decline in that margin. Most of the decline in margin was expand by higher direct sales commissions and marketing expenses during the period driven in part by redesigning our entire housing business.

As discussed in prior quarters, our margins in housing continue to be impacted by increased competition. All of our inventory expected to sale and occupy in 2015 relates to products constructed in prior period.

Our reported margins in 2015 are expected to come in around 6%. Our housing business is undergoing a transformation.

We expect our margins will increase over the next couple of years as we execute on our business plan and strategy for the division. Net margin from our condo division was negative $0.8 million year-to-date versus $18.3 million in the prior year, although was also not directly comparable as they were no project and occupancy during the current period and Betterham was in occupancy last year.

The negative margin year-to-date, fully relates the overhead and sales and marketing expenses on project expected to occupy in future year. Occupancy that the Carla and Phase 1 of the Carnegie which together comprised 528 units or 50% a Dream’s share are expected to commence in the second half of 2015 and are currently over 99% sold.

At the end of the quarter, our condominium projects consisted of over 1,000 units at Dream’s share of which 79% were in construction and 21% were in pre-construction. We are currently 84% pre-sold across all our condominium projects under construction up from 77% at the end of 2014.

In addition included in equity accounted investments in 2016 will be the occupancies of Block 4 and 11 in the in the canary district and downtown Toronto where we have 810 condo unit at project level or 50% at our share. We are now over 90% sold in Block 11 and 57% sold in Block 4 and based on the current sales velocity we are targeting to be 90% sold across both projects when occupancy is commence in mid-2016.

In the second quarter, we completed the acquisition of the gap no lands which from part of our 37 acre exhibit development in Ottawa together with our joint venture partner with Mill Development Group. The Ontario lands remain under contract and are expected to close in the follow of 2015 pending certain approval.

Today, we have invested 16.5 million of equity into the joint venture which includes the $2.2 million convertible loan that was funded earlier in the year and 14.3 million of additional equity that was funded in the second quarter to close on the Gatineau land. The project plan for this development includes over 3 million square feet of density including 2,000 residential units and over 1 million square feet of commercial space.

So lands are expected to be developed over the next 15 years. Moving on to asset management, net margin from the division was 4.1 million in Q2, down from 9.7 million last quarter and was in line with our expectation.

Net margin as a percentage of revenue declined to 67% from 85% last quarter. Excluding 0.5 million of non-recurring expenses reported margins would have been posted to 75%, which is a ongoing run rate expected excluding the Dream Office Management contract.

On April 2nd, we completed the reorganization of the management structure of Dream Office REIT. As of this data, office no longer pays annual fees to Dream in respective asset management and acquisition.

In exchange, Dream received 4.85 million units of the REIT. The reorganization converted Dream value in the contract into a direct equity interest in the Office REIT.

The RIET has retained the continuity of management and continued the leverage of the dream platform on a cost recovery basis. In terms of financial impact of Dream the 4.85 million units were recorded on our balance sheet at the closing price on April 2, which resulted in the recognition of a pre-tax gain of a 127.3 million in net income as a result of the transaction, the subsequent loss on the revaluation of units from in the closing price between April 2, and June 30 was recorded through other comprehensive income.

Further changes in the fair value of the units will be recognized in the same manner within in our financial result in future period. On to retail.

In Q2 we have recognized fair value increments of 5.8 million of which 4.5 million related to our first tenant occupancies within our retail development in Tamarack Southeast. Another 1.3 million related to subsequent fair value increments at Tamarack Northeast from being three months closer to the completion day and the expected completion date moving up to 2019 from 2018 resulting in one year of reduced interest cost.

Today we have recognized 9.7 million of fair value gains in retail. We have added ample disclosure on our three sites seeing Tamarack on page 18 of our MD&A.

Tamarack north is expected to take occupancy in the fourth quarter at which time we expect to recognize further fair value gains. Forecasted fair value gains for 2015 in retail are expected to be approximately 14 million, with the respect to other corporate expense items our G&A expense was 5.2 million in the quarter about 1.5 million higher than the prior quarter due to expenses that were non-recurring in nature as it related to transactional activities and donations within our communities in Western Canada.

In summary, 2015 is expected to be another significant year for our company. We are expecting to generate over 200 million of pre-tax income this year up from 109 million in the prior year.

For the full year, we are expecting to achieve approximately a 1000 lot sales, a 100 developed and undeveloped acres sales, 230 housing unit occupancies, between a 160 to 170 condominiums occupancies at our share, approximately 14 million of fair value gains in our retail development and between 22 to 24 million of margins from our asset management division. In addition, we expect to maintain stable to slightly lower leverage for the rest of the year.

I look forward to providing you with further updates in our progress next quarter. I will now turn the call back over to Michael for his concluding remarks.

Thanks Pauline. Everybody knows that the Canadian economy is that basis on headwinds we’re focused on how to manage our business in the shorter and longer term with the [indiscernible] done with the tremendous flexibility dealing with the shorter term, we’re doing a lot of value add value creation activities, all of our managers are very much aware of what oil prices mean Saskatchewan is got a lot of exciting news going on agriculture, uranium potash, Alberta it’s going to be a new world there, but we’re well positioned it's a great province they got a lot of leverage to grow there, province and we’re just position our business where whatever comes next, we’re quite excited about what we are at.

And even we will be happy to answer any questions anybody would have at this time.

Michael, if land and acreage becomes available in the western provinces, are you going to buy it or are you going to pass on it?

We haven't been buying much land in the last several years. In the past quarter, the land that we’re talking about is land we agreed to buy three years ago but there is a couple of strategic pieces of land who might have some interest in but generally we’re not looking to grow our land bank at all.

Okay. And for the foreseeable future the shares in Dream office, you are just going to sit with and collect your coupon?

Yes, I mean with regards to the ownership of those units we’re going to keep them as part of the deal we have a five year lockup, so its not a strategic decision as much as one of that the deal we make.

Okay is there outstanding an issue we’re bid and if so -- if stock price gets down to ex-level will you use corporate resources to take advantage of that?

Yes, we don't buying up from stock, we have a normal course a issuer a bit, we haven't buying up some stock. I have a very strong opinion at the time to buy back stock as when we’re very aware that the momentum is improving and that the stock price is low.

I think that if you just look at the Canadian dollar, if you look at all the reports there is a tremendous consensus that we need to be careful building houses in oil areas, so I think that we’re more focused on marching our capital than being opportunistic right now. Having said that the time will come.

So couple of questions. So in release and you on the call, so you mentioned the expectation earned 200 million of pre-tax income.

I assume that includes the gains from the office retail. So essentially second half 2015, what are you expecting 50 million of pre-tax income?

That’s correct.

Got it. And then I’ll just put this with an apology, this is somewhat lengthy question but I think from an important to get straight but if you just look at the balance sheet and the listed book value, the land in Western Canada represents the company’s biggest asset expect 50% worth of assets.

And I really seen especially from your stock has gone over the last year that this is where the market has placed full amount of its attention. When we keep looking at it 50% interest in Distillery and the Canary district which essentially represents that is 48 acre contiguous development in the major city but then if you look in your balance sheet it appears the minimal value is currently signs those assets, I mean around 90 million is sign to market value the 4,000 square feet at and then 12.5 million for the equity count investment for your 50% interest in the canary district.

So it could be wrong, but it seems the only value being assigned to the asset is the value which is in structures much have already been dealt while no material value is being assigned to your interest from main development ramp at both Distillery in canary. So is that we’re just still somebody have been acre statement?

I think that, okay on the first part. Our Western Canadian land, they are book value probably more tremendously more than that, but I think you’re right.

On the Pan Am Athletes village, yes it’s we only record the equity component starting to $15 million, the rule about expensive bunch of thing it’s down to 12, it’s going to look a lot different next year as we realize on selling of the components. The Distillery has fair value of the project and it would include something for density we don’t push those values...

But what not really getting any I mean according with some of the regions you put out, there is about six potential future developments, I mean the land, the remaining land at Distillery and Cannery should be able to yield six future developments that will bring in additional thousand condos and about 250,000 square feet of retail base and not to mentioned the other four adjacent developments on the other side the river and so what I’m asking more which appears to all the value of this land is not really stand in the balance sheet?

I think for the most of the parts you are absolutely right because the way the Pan Am village transaction works is when it's finished we inherit the lane for those sites. So fundamentally there is, the only recording at our actual book equity doesn’t show the profit but when we get the profit what's really cool about the deal is we are taking a lot of the profit in land than we get the opportunity to build three more buildings and those building will be profitable.

What I am trying to get is that essentially your all of the land cost of those transactions was essentially put in at the first stage and it was all assigned upfront and once the next stage come on, there is just no doubt leaving the sign there. So that's what I am getting.

And so that's the - in terms of these bookings and financials.

I am not going to argue with you, I am in total agreement, especially in – the Pan Am engagement has already happened. Now we are just finishing it up.

We are so close to finish that the way we do the and nothing gets recognized until return of the title. So yes there is a lot money.

Got it. Alright so I mean I just leave with that because when we look at the equity count investments where you have the future value of Canary, you have ROR, you have the JV with CPMs about $50 million.

Is that a size of those future assets and these marketing themes then if you guys actually - which you have in past that these assets could down the road at some point you working more of the current value to company?

Well, -- conference call for us this would be great.

Yeah, I mean that's just one of confusions in terms of mark red, I mean even in the call there is a lot of emphasis on the - which I know there is value by adjusting by are they've kind of lost in - So we appreciate all the work and the long-term thinking here. So good job and look forward.

Well, we appreciate it but before you go, we have got a renewable power business that carried a book and there is a lot upside there. We have got a ton of stuff and what we do this quarter was we arrange our finances so we have lots of capability to make sure that we get the opportunity to make the most of everything we would buy overtime.

So we have really excited about it and some of these big dollars.

Got it, I apologize actually the last question. Do you have any idea what the, currently what development land costs what the value is on per square foot basis in Toronto.

What [indiscernible] land would be worth at the present value?

What we are seeing is a lot of competition and we have got a bunch of investments not public. I would say $50 a square foot is as cheap as you can imagine and $80 works for the normal margin.

So site would be purchased essentially with developed site with, couple of 100,000 square feet development would be purchase value in that range per square foot.

Yes, between 50 and 80, but it could be higher than that, I mean everything we’ve got is captive, so there is not like, we will hear anything about Pan Am gains or is there still we work really hard to get very low cost lands but obviously that’s what we use 50 to 80 for sure. But right now we’re seeing any development site that are half decent or very competitively bids like 15 bids.

So that's a lot of money.

Pauline was there a bit of tax leakage on the 127 million?

Yes there was. That was on kind of capital, so it was in deferred taxes this quarter.

Okay. That went straight into deferred.

That's about was it, about 17 million?

Yes, so it was 127 pre-tax and 110 after-tax.

And that all went to due to the deferred, okay so there is no cash tax paid on that, okay so that will just burn out overtime, that is enough. And just a clarification on the land sales in the quarter, were those sales that were from a prior quarter that just booked in Q2 or was that [indiscernible] in the quarter?

No there is nothing irregular in the quarter, other than the cost that can be adjustment from the land division.

Now Dean but I would add that's been interesting, and it’s been a little bit surprising to me is that I believe in everyone of our market there has actually been a pickup in the last 60 days. So its not as if these are sort of the last few sales from some prior period.

We’re seeing things, I think these are burning to their inventories, and there -- I mean I think the number that came on yesterday was over 3% growth in the population of Calgary, April over April this year. So I mean that really is population growth in this market and there is need to some new help in development.

Right, so extension of that the pricing sort of 120 to 130 per development lot is holding?

What this things you say that, we were talking the land guys and I don't think anybody has lower any prices and now they haven't lower the prices, they’ve gone up really rapidly so they are holding at quite a high level.

Okay. That's good.

And the city you are getting copper and there more scarce resource so it's a very interest market.

And the four acres that went in Regina at the 937 was that commercial land?

No. It sounds like the school-side we didn’t do any commercial.

Okay.

Anything else Dean?

Just the land under contract 792 acres at seems at a fairly low price. Now you said that was tough you entered into a couple of years ago.

Can you say where that is?

A lot of it's in Saskatoon.

Most of it's in Saskatoon.

And this is part of home development and this is contiguous to what we own. It’s fairly distance, but we thought they might as well ensure continue with the projects or maybe 35 years instead of 30.

Right, I’m assuming that just agricultural land at this point then?

Yes. We got $60 in the acre to rented to the farmer

To rented, perfect. And a question you might not be able to answer, but I get ask any way.

Any conversion around that first offer issue with the DIR units with either of those entities?

No, no.

Any thoughts on that.

We talked about this a little bit before the call. There is ultimately the reason for next week.

I’m not actually sure with your question, but generally we’re leaving to the management to the REIT to speak to them. If you want, I will be happy to answer your question don’t you understand what you mean?

Is there an interest in DRM in acquiring the DIR units from Dream Office?

I see. I think the view have been like if the Office REIT -- okay let me take a step back.

Prior to this transaction, the industrial REIT unit happen and consider to be strategic, but when you take a look at the area before they produce compared to other uses of cash they’re actually quite good for Dream Office. So with the idea being the units on strategic what we did the transaction, what we thought about was if it turns out the Dream Office doesn’t have an interest in owning those units in the pricing is right between Dream Office and the industrial REIT and they want to sell them, it was a good idea for Dream to have a first crack on it.[ph].

So there was a plan for, it was just since there was a reasonable chance they’ll be sold let’s make sure that the manager has and ability to buy them.

Okay. So there is no discussion around anything to that point?

No.

Just a question about what your thoughts on the L&I properties, you own some office space here and you are a significant player in the office deals in the L&I. Do you have any plan to those properties?

Those properties are held in Dream Office REIT. The L&I is an incredible micro economy with all the given levels of government and mining companies has got a lot of things affecting it.

I'm not the expert on it. We have always liked the market, but we don’t have any specific plans now on it within the Office REIT.

So you are going to let empty office building in your content to let it sit that way?

You know what, I'm sure I thought you are talking about our whole portfolio. Do you want to buy that one?

Yes, sure.

Give us an offer on the empty one, believe we're open minded for sure. I mean you say content, you don’t know me well enough, content is not a word I would often.

Just it's been sitting empty for three years and there is I think their concerns about what impact an empty building has in the energy in a small downtown.

Yes. We have looked at different alternative uses.

Just the background on that was the tenant in that building needed a new building, we built them a new building. And when we built them a new building, we knew that we were going to get a building back that was empty, but -- and in the scale of the city there is just not that much growth in office demand.

So we built the tenant a new building, we're really happy with that building and here I mean we'd like -- but I think, we would obviously like to find a use for it and that would be better than having it empty.

Any thought of conversion to residential space?

Absolutely, absolutely. We are looking at everything, it's just -- I would say that your question's timing is good because I think that it's time that we should probably come to terms with.

Once we [rethink] the deal, you think that maybe there's a tenant and we can look at alternative uses.

Great. Well, I thank everybody for making some time on the Friday of a holiday.

Absolutely.

Right. Just a quick question.

The new ring road that's going around Calgary and goes through your land, could you update us on the negotiations relating thereto with the provincial government? And you're [added to] towards cash versus additional land elsewhere?

Right. Just a quick question.

The new ring road that's going around Calgary and goes through your land, could you update us on the negotiations relating thereto with the provincial government? And you're [added to] towards cash versus additional land elsewhere?

Firstly, this has been like the most suspenseful movie, but what's happened recently is we've had of premieres and it's been on discussions off, but now at this point there is a clear commitment to get started with that as soon as possible, it's very exciting. The land that the province need for the ring road has now been acquired from the Tsuu T'ina Nation and the money has been distributed to the nation, the clock has started, and how long they have to complete ring road.

We’re in discussions with the province. What I would say is there is new government in town.

And we’re going to -- we have a 172 acres that needs to be bought by the province. And we are working our way through as whether it is to be in cash or in land.

And it just depends on the changes within their policies. But it should happen pretty soon, and because I think that's started here -- it's right here.

In the light of the change in the oil price and in the Alberta economy, has your preference changed between cash and land?

Maybe I’m an addict, but no it hasn’t, because I think that the opportunity be -- if we are able to be successful in trading for land, we would be able to get the land, like the development profit, we’re looking at pieces in Edmonton which is a market that we’re short on land, also if we can get it we’d like to do it. And if we get cash there is no tears.

Okay. I’m going to be quick.

Thanks everyone. Good bye.