Mr. Timothy Melton reports

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

Melcor Developments Ltd. has released its results for the second quarter and six months ended June 30, 2023. Revenue was down 3% to $101.32 million year-to-date and up 28% to $17.43 million in the quarter as a result of the cyclical nature of the real estate industry and timing of sales in our current and comparative periods.

Year-to-date net income was $23.79 million compared to $28.38 million in 2022. In the quarter, net income was $21.63 million compared to $25.91 million in Q2-2022. 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. In the quarter, FFO was up 47% to $17.43 million or $0.56 per share. Year-to-date, FFO was up 9% to $24.48 million or $0.78 per share. Increases in FFO were the direct result of higher gross profit achieved in both the quarter and year-to-date results.

Timothy Melton, Melcor's Executive Chair and Chief Executive Officer, commented: "We are pleased to present Melcor's results for the second quarter of 2023. Melcor continues to be well-positioned to meet demand for serviced residential lots and has the potential to bring on several new phases of development over the next few quarters. We are also excited to launch two new communities in 2023, Sora (located in Southeast Calgary, AB), and Goldwyn (located in the hamlet of Balzac, just north of Calgary city limits).

Our Property Development team continues to strategically develop commercial sites and at the end of the quarter had 104,284 sf under development. Our Investment Properties team sold seven residential units in Arizona for net proceeds of $3.13 million (year-to-date) and also closed on the sale of Stafford Common, a industrial / retail building located in Lethbridge, AB, for proceeds of $3.50 million on June 30, 2023. The REIT listed their Saskatchewan properties for sale as part of a strategic decision to focus on our Alberta markets. The sale of these properties would serve to reduce the REIT's operating loan to provide additional liquidity. The REIT also sold Kelowna Business Center in the first quarter for $19.50 million.

Melcor has been operating in the real estate industry for 100 years, providing shelter to individuals, families, and businesses. The company's longevity results from being financially conservative and the ability to adapt to ever changing economic conditions. Melcor's Board of Directors and dedicated and capable employees remain focused on providing value to our shareholders."

Highlights

Given the cyclical 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. Notwithstanding market conditions, demand for homes has remained stable across our geographically dispersed Community Development division contributing to strong sales results and continued construction activity. Year-to-date, we sold 195 single-family lots compared to 404 last year in Canada. Our Calgary region is actively working on the launch of two new communities, Goldwyn (located in Balzac, AB) and Sora (located in Calgary, AB). We continue to move new communities and additional phases in existing neighbourhoods through the municipal approval process.

In our US Community Development region, we closed on 84 single-family lot sales in our Harmony Development (Denver, CO) in the US (2022: no lots sold in the US) which generated revenue of $16.44 million at a gross margin of 49%. The US development model differs from Canadian markets, and sales can fluctuate quarter-over-quarter due the nature of the the US market with production builders buying lots in bulk and then build and sell the homes to consumers.

Our Property Development division continues to pre-lease space to kick start new commercial development, thus building our future income property asset base. These is currently 104,284 sf under active development and awaiting lease-up in 3 projects (Chestermere Station, Woodbend Market and Greenwich). Construction and leasing activity resulted in fair value gains in the quarter of $1.04 million ($0.08 million in Q2-2022) and $1.36 million year-to-date (2022: $0.41 million).

We continue to monitor our asset holdings in all operating divisions. To date in our Investment Properties division, we have sold 7 units at the Edge at Grayhawk in Phoenix, AZ for net proceeds of $3.13 million (US$2.32 million). We also sold Stafford Common, a retail building located in Lethbridge, AB for gross proceeds of $3.50 million on June 30, 2023. The asset was purchased by Melcor in 2018.

In Q1-2023, we sold Kelowna Business Centre, owned by Melcor REIT, for $19.50 million. This was an opportunistic sale that enabled the REIT to pay down their line of credit while also achieving a good return on investment for unitholders. In Q2-2023, we listed five Saskatchewan properties for sale, all held in the REIT. Under International Financial Reporting Standards (IFRS), this required a balance sheet reclassification of the three retail properties as assets held for sale. These properties have a combined 198,000 sf and were listed for sale due to their geographic location as part of a strategic decision to focus on our Alberta markets within the REIT. The asset sales would generate net cash proceeds which would be used to pay down the REIT revolving credit facility.

Our Income Properties, which include Investment Properties and REIT divisions, contributed 58% of revenue in 2023 compared to 55% in 2022. Occupancy stayed consistent at 88% (December 31, 2022: 88%) and we have been actively pursuing and securing new leases across all asset classes. Our year-to-date retention for REIT was strong at 92%. Overall revenue from our income producing properties was up 3% in Q2-2023 despite the sale of the Kelowna Business Centre which closed on February 1, 2023. This is due to slight increases in weighted average base rents in both our Canadian and US markets, and improved Canadian occupancy rates.

Our Recreational Properties division saw a 6% increase in rounds played to date compared to 2022, as a direct result of our Edmonton courses opening earlier compared to 2022. Overall, we saw an incresae in year-to-date revenue of 14% over 2022.

RETURNING VALUE

We continue to return value to our shareholders and unitholders:

Melcor Developments

We paid a quarterly dividend of $0.16 per share on March 30, 2023 and June 30, 2023. On August 10, 2023 we declared a quarterly dividend of $0.16 per share, payable on September 29, 2023 to shareholders of record on September 15, 2023. The dividend is an eligible dividend for Canadian tax purposes.

Melcor REIT

The REIT paid monthly distributions of $0.04 per unit in the first half of 2022. On July 14, 2023 the REIT declared a distribution of $0.04 per unit payable on August 15, 2023 to unitholders on record on July 31, 2023.

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 and six months ended June 30, 2023, which can be found on the company's website or on SEDAR.

We seek Safe Harbor.