Mr. Timothy Melton reports

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

Melcor Developments Ltd. today released its results for the third quarter and nine months ended Sept. 30, 2023. The third quarter management discussion and analysis (MD&A) and condensed interim financial statements are available on the company's website under investors, or on SEDAR+.

Timothy Melton, Melcor's executive chair and chief executive officer, commented: "We are pleased to present Melcor's results for the third quarter of 2023. Melcor has continued to show resilience while navigating challenging market conditions. These challenges include rising interest rates and ongoing inflation which has had significant impact on the cost of doing business and interest costs on borrowed funds. Our diverse portfolio of assets has enabled us to strategically focus on areas where demand remains strong, and we remain well positioned to bring on new product for our builder partners and committed to providing best-in-class service for our tenants.

"Our community development team had a strong quarter and sold 260 lots in Canada and 121 in the U.S. Year to date we have sold 455 lots in Canada, with 343 of these lots located in our Edmonton region. Development in our Calgary region is active with new communities under way and sales in these communities are expected later in the year. Our U.S. development project, located in Harmony, Colo., has sold 205 lots year to date as compared with the prior year where no lots were sold.

"Our property development team continues to strategically develop commercial sites and at the end of the quarter had 91,644 sf under development. During the quarter, we completed development of a 17,300 sf building in Woodbend market.

"Our income properties teams remain focused on retaining current tenants and leasing up vacant space to help combat rising costs. Despite these efforts, we continue to see an erosion of operating cash flow resulting from reductions in office lease rates, higher tenant incentives, increasing operating costs and continuing higher financing costs.

"Since year-end, we have reduced our general debt by 6 per cent (down $44.20-million) demonstrating our commitment to financial prudency. This year, Melcor is celebrating its 100-year anniversary in real estate which is a testament to our resilience in the marketplace. We remain committed to our shareholders and thank our board of directors for their continued support and all our employees for their dedication to our business."

Financial highlights

Financial highlights of the company's performance are summarized herein.

Third quarter:

• Revenue was up 45 per cent to $88.78-million (Q3 2022: $61.14-million);
• Net income was up 21 per cent to $28.88-million (Q3 2022: $23.77-million);
• Funds from operations (FFO) was up 40 per cent to $22.42-million (Q3 2022: $16.01-million);
• Basic earnings per share was up 29 per cent to 94 cents per share (Q3 2022: 73 cents per share).

Year to date:

• Revenue was up 15 per cent to $190.11-million (Q3 2022: $165.49-million);
• Net income was up 1 per cent to $52.67-million (Q3 2022: $23.77-million);
• Funds from operations (FFO) was up 22 per cent to $46.89-million (Q3 2022: 38,562);
• Basic earnings per share was up 7 per cent to $1.70 per share (Q3 2022: $1.59 per share).

Net income in the current and comparative period is significantly impacted by non-cash fair value adjustments and thus not reflective of overall financial performance. Furthermore, given the cyclical nature of real estate development, comparison of any three-month period may not be meaningful. FFO is an alternative non-GAAP (generally accepted accounting principle) metric used in the real estate industry to measure financial disclosure and was up 40 per cent in the quarter and up 22 per cent year to date compared with 2022.

Melcor reported a strong third quarter, despite challenges in the market including inflation and higher interest rates. Notwithstanding market conditions, demand for homes has remained stable across the company's geographically dispersed community development division, and the company's income properties and recreational properties segments continues to generate stable results. To date in 2023, results have yielded a gross margin of 49 per cent, consistent with 2022. With rising interest rates, the company remains focused on managing liquidity and debt, and since year-end has reduced its general debt by $44.20-million or 6 per cent. Quarterly dividends have remained stable at 16 cents per quarter, and year to date are up 12 cents compared with 2022.

The company's community development division produced strong results, with revenue up 125 per cent to $64.03-million and earnings up 155 per cent to $25.34-million in the quarter, compared with Q3 2022. Year-to-date revenue was up 41 per cent to $105.24-million and earnings was up 67 per cent to $40.98-million. The largest driver of the increase in this division was the company's U.S. region where the company has successfully closed on the 205 single-family lots to date in 2023, generating revenue of $34.31-million at a gross margin of 49 per cent. No lots were closed on in the U.S. region in 2022. The U.S. community development model differs from Canadian markets, and sales can fluctuate quarter over quarter due the nature of the U.S. market with production builders buying lots in bulk and then building and selling the homes to consumers.

The company's property development division had an active construction quarter, and completed and transferred one CRU (17,300 sf) for $7.90-million in the company's Woodbend development to investments properties. The property development division currently has 91,644 sf under active development and awaiting lease-up across six CRUs.

The company's income properties, which include investment properties and REIT divisions, contributed 46 per cent of revenue in 2023 compared with 53 per cent in 2022. Occupancy deceased slightly to 87 per cent (Dec. 31, 2022: 88 per cent) and the company has been actively pursuing and securing new leases across all asset classes. The company's year-to-date retention for REIT was strong at 92 per cent. Overall revenue from the company's income producing properties was down 5 per cent in Q3 2023 and 1 per cent year to date. Revenue and NOI can be impacted by disposition of assets held and transfers from the company's property development division as new leases have fixturing and rent-free periods which are adjusted for in the company's same-asset NOI calculation.

The company's continue to strategically assess its assets within its income properties segment, with an aim to focus on the company's core Alberta market. Earlier in the year the company sold Kelowna Business Centre for $19.50-million, with net proceeds used to reduce the company's line of credit in Melcor REIT. The company also sold Stafford Common, a retail building located in Lethbridge, Alta., for gross proceeds of $3.50-million. The company has also listed its Saskatchewan investment properties for sale, held in Melcor REIT, and in accordance with IFRS (international financial reporting standards) have reclassified the three retail properties as assets held for sale. Year to date the company has also sold seven units at the Edge at Grayhawk in Phoenix, Ariz., for net proceeds of $3.13-million (U.S.).

Returning value

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

Melcor Developments:

• The company has paid quarterly dividends of 16 cents ,per share on March 30, 2023, June 30, 2023, and Sept. 30, 2023.
• The company has repurchased 625,829 shares for cancellation pursuant to the NCIB (normal course issuer bid) at a cost of $7.13-million year to date.
• On Nov. 8, 2023, the company declared a quarterly dividend of 16 cents per share, payable on Dec. 29, 2023, to shareholders of record on Dec. 15, 2023. The dividend is an eligible dividend for Canadian tax purposes.

Melcor REIT:

• The REIT paid monthly consistent distributions of four cents per unit per month from January, 2023, to September, 2023.
• On Oct. 16, 2023, the company declared a distribution of four cents per unit payable on Nov. 15, 2023, to unitholders on record on Oct. 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 nine months ended Sept. 30, 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 4.71 million square feet in commercial real estate assets and 469 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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