Mr. Andrew Melton reports

MELCOR REIT ANNOUNCES Q4 AND 2023 ANNUAL RESULTS

Melcor Real Estate Investment Trust has released its results for the fourth quarter and year ended Dec. 31, 2023. The annual management discussion and analysis, and condensed interim financial statements are available on the REIT's website under financial reports or on SEDAR+.

Andrew Melton, CEO of Melcor REIT commented: "In the face of persistent challenges, including escalating finance costs and the ongoing impact of inflation on operating and leasing expenses, we remain steadfast in our commitment to navigate these hurdles within our investment property portfolio. Our focus remains on tenant retention and actively leasing vacant space to offset the effects of rising costs.

"We anticipate sustained pressure on operational cash flow due to several factors including reduction in office lease rates, heightened tenant incentive and capital expenditure costs, increasing operational expenses, and continued higher financing costs. Despite these challenges, we remain focused on optimizing operational efficiency and maximizing revenue generation to mitigate the financial strain and ensure long-term sustainability in this dynamic environment.

"Earlier in the year, we listed our Saskatchewan properties for sale as part of a strategic decision to focus on our Alberta markets and create additional liquidity for future opportunities and to focus on remaining assets and financial resilience. We have also since listed our remaining asset in Kelowna for sale as well as a building in Lethbridge. We have seen interest on these asset listings, and sales efforts continue.

"On May 1, 2023 we celebrated REIT's 10th year of business. Through this period, the REIT has faced headwinds of significant economic challenges, yet has consistently posted stable results."

Ralph Young, Chair of Melcor REIT commented on subsequent events which have occurred since the end of fiscal year 2023: "In the face of business and financial issues facing the REIT, the board has made the decision to suspend distributions and to pursue a process of evaluating strategic business alternatives, as was announced in its press release on February 22, 2024. Many REITs in Canada and abroad, particularly those owning commercial office assets, have faced similar issues of declining space demand, increasing costs of operations and financing, as well as reduced access to capital markets and other traditional real estate financing. The board believes that its recent decisions will be important to ensure the ongoing business and financial strength of the Trust.

"I want to express deep appreciation to retiring board members Larry Pollock and Carolyn Graham, both who have served the Melcor REIT with dedication and professionalism. Mr Pollock has served since the Trust was created in 2013 and has served as Lead Trustee and Chair of the Governance Committee. I am pleased to announce that independent trustee Richard Kirby has agreed to serve as Lead Trustee and will also Chair the Independent Committee of the Board. The Independent Committee will lead the initiative to review strategic alternatives."

FINANCIAL HIGHLIGHTS 1 :

Financial highlights of our performance are summarized below:

Fourth Quarter:

• Revenue was down 2% at $18.50 million (Q4-2022 - $18.80 million).
• NOI was up 1% to $11.53 million (Q4-2022- $11.46 million).
• FFO was down 2% to $5.65 million or $0.19 per unit (Q4-2022 - $5.78 million or $0.20 per unit).
• ACFO was stable at $3.69 million or $0.13 per unit (Q4-2022 - $3.68 million or $0.13 per unit).

Year-to-date:

• Revenue was steady at $73.90 million (2022 - $74.11 million).
• NOI was up 1% to $46.64 million (2022- $46.32 million).
• FFO was down 3% to $23.87 million or $0.82 per unit (2022 - $24.73 million or $0.85 per unit).
• ACFO was down 12% to $15.65 million or $0.54 per unit (2022 - $17.87 million or $0.61 per unit).

Management believes FFO best reflects our true operating performance and ACFO best reflects our cash position and therefore our ability to pay distributions. Non-cash fair value adjustments may cause significant variability in results, making comparisons less meaningful. Class B LP units, investment properties, and derivative instruments (convertible debenture conversion feature and swaps on floating for fixed interest rates), impacting comparative results. Net income in the current and comparative period is significantly impacted by the non-cash fair value adjustments and thus not a meaningful metric to assess financial performance.

ACFO for the year was impacted by changes in estimate on our normalized capital expenditures and normalized tenant incentives and direct leasing costs. We adjusted our estimates for future spend required to attract and retain tenants. As at December 31, 2023 we had $3.29 million in cash and $3.42 million in additional capacity under our revolving credit facility.

In the quarter rental revenue was down 2% and has remained stable year-to-date. Net rental income was down 1% in the quarter and year-to-date. We saw a 1% increase in NOI in the quarter and year-to-date. Our same-asset NOI calculations, which normalize out Kelowna Business Center, which was sold in 2023, as well as assets held for sale, is up 1% in the quarter and 2% year-to-date.

With a focus on increasing liquidity and reducing debt, we are actively seeking strategic opportunities to sell certain assets and allow us to focus on our core assets. In Q1-2023, we sold Kelowna Business Centre for $19.50 million, with proceeds being used to payout the outstanding mortgage outstanding on the property, with the balance reducing our line of credit. During the year, we also reclassified three retail properties in Saskatchewan as assets held for sale as we shift focus to our Alberta markets.

Our investment properties are revalued as a minimum of every two years, or as market conditions dictate. Revaluations in 2023 resulted in fair value losses of $16.79 million (2022 - losses of $12.00 million). Rising interest rates have increased the cost of borrowing and overall risk of investing driving up capitalization rates. An increase in capitalization rate has an inverse impact on property values.

We adjusted our normalized capital expenditures estimates in late 2022 to account for increases required to properly manage our assets to attract and retain tenants. This increase in estimate resulted in a reduction in the quarter and year-to-date to both adjusted funds from operations, which was down 8% in the quarter and down 17% year-to-date, as well as adjusted cash from operations which was consistent in the quarter and down 12% year to date. These reductions had an inverse effect on our payout ratios, which have gone up in both the quarter and year-to-date.

In 2023, we had four mortgages up for renewal with a maturing principal balance of $46.12 million of which, we renewed three mortgages for a combined total of $42.21 million. We also paid out two mortgages in the year for $12.66 million which includes $8.73 million that was repaid from the proceeds from sale of the Kelowna Business Centre and $3.93 million related to Princeton Place using proceeds from our revolving credit facility.

In the year, we repaid $14.26 million from one of our Class C mortgages, using $12.74 million in funds from a new mortgage at a rate of 4.62% with the remaining balance repaid using our revolving credit facility. Interest rates on renewals and new mortgages during the year ranged from fixed rates of 4.62% to 8.01%. Under our revolving credit facility, we currently support a borrowing base of $46.07 million and as at December 31, 2023 had $37.86 million drawn.

OPERATING HIGHLIGHTS:

We are pleased with the volume of new leasing, renewals and holdovers completed in 2023. Positive leasing activity renewals representing 541,010 sf (including holdovers) for a retention rate of 88% at December 31, 2023, and increase of 2% over 2022 (86%). New leasing has been steady across the portfolio with 108,581 sf in new deals commencing in 2023 and an additional 29,995 sf committed for future occupancy. Leasing efforts yielded a WABR increase of 3% across the portfolio to $17.06 per sf (2022 - $16.55 per sf).

UNITHOLDER HIGHLIGHTS

We paid stable monthly distributions at a rate of $0.04 per unit from January to December. Our annual payout ratio was 89% based on ACFO (2022 - 78%) and 58% based on FFO (2022 - 56%).

SUBSEQUENT EVENTS

Distributions

On January 15, 2024 we declared a monthly distribution of $0.04 per share, payable on February 15, 2024 to unitholders of record on January 31, 2024. On February 22, 2024 the REIT announced the suspension of its monthly distribution which is expected to enable the REIT to retain approximately $1.2 million of cash, monthly, improving the REIT's financial flexibility moving forward.

Strategic review

The Board of Trustees announced on February 22, 2024 the establishment of an Independent Committee to oversee a broad-based strategic review with a focus on unlocking unitholder value. The Independent committee will retain a financial advisor to evaluate strategic alternatives to maximize unitholder value. This committee is comprised of the independent members of the Board of Trustees of the REIT, and is chaired by Richard Kirby.

There can be no assurances that the strategic review will result in the REIT pursuing any transaction or that any alternative transaction will be available to the REIT. Furthermore, the Independent Committee has not set a timeline on the completion of this process and we do not intend to comment further on the review until we determine that additional disclosures are appropriate or required.

MD&A and Financial Statements

Information included in this press release is a summary of results. This press release should be read in conjunction with Melcor REIT's 2023 consolidated financial statements and management's discussion and analysis, which can be found on the REIT's website or on SEDAR+.

Conference Call & Webcast

Unitholders and interested parties are invited to join management on a conference call to be held March 6, 2024 at 11:00 AM ET (9:00 AM MT). Call 1-416-915-3239 in the Toronto area; 1-800-319-4610 toll free.

The call will be webcast on-line. A replay of the call will be available shortly after the call is concluded at the same address.

About Melcor REIT

Melcor REIT is an unincorporated, open-ended real estate investment trust. Melcor REIT owns, acquires, manages and leases quality retail, office and industrial income-generating properties with exposure to high growth western Canadian markets. As at December 31, 2023 its portfolio was made up of interests in 38 properties representing approximately 3.15 million square feet of gross leasable area located across Alberta and in Regina, Saskatchewan; and Kelowna, British Columbia.

We seek Safe Harbor.