Mr. Timothy Melton reports

MELCOR DEVELOPMENTS ANNOUNCES FIRST QUARTER RESULTS, DECLARES QUARTERLY DIVIDEND OF $0.16 PER SHARE

Melcor Developments Ltd. today released its results for the quarter ended March 31, 2023. Revenue was down $36.08-million or 32 per cent compared with Q1 2022. Revenue from income properties was stable; however, community development revenue was down significantly. Due to the seasonal nature of community development, first quarter results can vary significantly from year to year.

Net income was $2.15-million in Q1 2023 compared with $2.47-million in Q1 2022. Net income is significantly impacted by swings in non-cash fair value adjustments on investment properties, REIT units and the conversion feature on the REIT's convertible debenture. As a result management relies on funds from operations (FFO) as a better reflection of Melcor's true operating performance. FFO was down 34 per cent in the quarter to $7.05-million or 23 cents per share. FFO was impacted by reduced revenue and the increase in finance costs in the quarter, offset by a reduction in general and administrative expenditures over 2022.

The company sold 82 single-family lots in the trust's community development division compared with 288 in Q1 2022. Income properties (investment properties and REIT) occupancy improved over year-end to 88 per cent with strong tenant retention, also at 88 per cent. The property development division also had an active first quarter, with 74,284 square feet under development.

Timothy Melton, Melcor's executive chair and chief executive officer, commented: "Results are down from the first quarter last year but met expectations. Community development sales may be effected by slower economic conditions brought on by higher interest rates and lower consumer confidence. Lot sales in the first quarter are often irregular and are not necessarily indicative of full year results.

"Leasing activity in our income properties remains encouraging, and both occupancy and tenant retention are up in the quarter. We continue to prelease and build new commercial properties in the property development division and have 74,284 sf under development.

"Golf course operations got under way in April and will contribute to results in the second quarter."

First quarter results

Given the longer-term nature of real estate development, comparison of any three-month period may not be meaningful.

The market has been challenged by inflation and higher interest rates over the past year. The company's income properties divisions contributed 78 per cent of revenue in Q1 2023 compared with 53 per cent last year. Occupancy improved to 88 per cent (Dec. 31, 2022: 88 per cent) and the company has been actively pursuing and closing new leases across all asset classes. The company's year-to-date retention for REIT was strong at 95 per cent. The company's property development division continues to prelease space to start new commercial development, thus building the company's future income property asset base.

Demand for homes remained stable across Melcor's geographically dispersed community development division contributing to both sales and construction activity. The United States community development model differs from Canadian markets, with the majority of revenue occurring in a single quarter. Production builders buy lots in bulk and then build and sell the homes to consumers. No United States lot sales closed in the quarter, but the company does not expect sales to close in 2023.

On Feb. 1, 2023, Melcor REIT sold Kelowna Business Centre, an office building located in Kelowna, B.C., for gross proceeds of $19.50-million. This asset has been owned by the REIT since 2013 and was a strategic sale that enabled the REIT to pay down its line of credit while also achieving a good return on investment for unitholders.

Over all revenue from the company's income-producing properties was up 1 per cent in Q1 2023 despite the sale of the Kelowna Business Centre. This is due to slight increase in weighted average base rents in both the company's Canadian and U.S. markets, and the slight increase in the company's Canadian occupancy rate.

Financial highlights

Revenue was down 32 per cent to $36.08-million in Q1 2023 (Q1 2022: $53.31-million). The company's Q1 2023 results were in line with expectation. The real estate industry is impacted by the cyclical nature of development, demand for product, the timing of raw and multifamily land sales, and lot registrations. Lot sales, which have a significant impact on quarterly results, are uneven by nature and it is difficult to predict when they will close.

FFO was down 34 per cent or $3.65-million in the quarter. The reduction of FFO is a direct result of the reduction in revenue and higher net finance costs, offset by a reduction in general and administrative expenditures over Q1 2022.

Net income was $2.15-million in Q1 2023 compared with $2.47-million in Q1 2022. Net income is significantly impacted by swings in non-cash fair value adjustments on investment properties, REIT units, and the revaluation of interest rate swaps and the conversion feature on our convertible debenture. The change in the REIT's unit price has a counter-intuitive impact on net income as an increase in unit value decreases net income. In Q1 2023 the fair value adjustment on REIT units swung by $8.01-million over Q1 2022. These gains are driven by market forces outside of Melcor's control and are a key reason we focus on FFO as a truer measure of the company's financial performance.

Divisional operating highlights

The community development division saw modest sales activity in the company's Canadian markets, with the Edmonton region contributing the largest sales volume. Year to date, the company sold 82 single-family lots compared with 288 last year. The company continues to move new communities and additional phases in existing neighbourhoods through the municipal approval process. Its Harmony community in Denver, Colo., is the largest land development project in the company's U.S. region. Sales in this area are often sold in bulk and thus result in lumpy sales being realized in this region. No lots have been sold in the U.S. year to date.

The property development division currently has 74,284 square feet in three projects (Chestermere Station, Woodbend Market and Greenwich) under construction. Construction and leasing activity resulted in fair value gains of $320,000 ($330,000 in Q1 2022).

Total GLA under management varies period over period as a result of both property transfers and remeasures of property that typically occur on lease transfers and/or renewals. Revenue from the company's income properties continued to produce stable results in both the quarter and year to date.

The company sold three residential units in the U.S. in Q1 2023. Improved occupancy on the company's Canadian assets and REIT owned properties contributed to revenue growth.

The investment properties portfolio fair value decreased $3.53-million in Q1 2023. The company had eight properties (legal phases) valued by external valuation professionals in the quarter. Market shifts led to a slight increase in capitalization rates on our office properties (decrease in fair value) and a decrease in capitalization rates on the company's retail portfolio (increase in fair value). Fair value is also impacted by increased spend on tenant incentives that did not have a corresponding increase in fair value.

The company's golf courses (recreational properties) opened subsequent to the quarter. Recreational properties revenue is from food and beverage sales.

Returning value

The company continues to return value to its shareholders and unitholders:

Melcor Developments:

• On May 10, 2023, the company declared a quarterly dividend of 16 cents per share, payable on June 30, 2023, to shareholders of record on June 15, 2023. The dividend is an eligible dividend for Canadian tax purposes.

Melcor REIT:

• The REIT has paid monthly distributions of four cents per unit in Q1 2023.
• Subsequent to the quarter, the REIT declared distributions for April, May and June as shown in the attached table.

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's consolidated financial statements and management's discussion and analysis for the three months ended March 31, 2023, which can be found on the company's website or on SEDAR.

About Melcor Developments Ltd.

Melcor is a diversified real estate development and asset management company that transforms real estate from raw land through to high-quality finished product in both residential and commercial built form. Melcor develops and manages mixed-use residential communities, business and industrial parks, office buildings, retail commercial centres, and golf courses. Melcor owns a well-diversified portfolio of assets in Alberta, Saskatchewan, British Columbia, Arizona and Colorado.

Melcor has been focused on real estate since 1923. The company has built over 170 communities and commercial projects across Western Canada and today manages 4.73 million sf in commercial real estate assets and 473 residential rental units. Melcor is committed to building communities that enrich quality of life -- communities where people live, work, shop and play.

Melcor's headquarters are located in Edmonton, Alta., with regional offices throughout Alberta and in Kelowna, B.C., and Phoenix, Ariz. Melcor has been a public company since 1968 and trades on the Toronto Stock Exchange (TSX: MRD).

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