Melcor has continued to show resilience while navigating volatile 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.
Lot sales were strong in 2023, and we closed on 1,149 lots in
Our Properties division completed the development of two buildings last year contributing 22,140 sf to our portfolio. At year-end we had 103,925 sf under construction. Going forward, the commencement of additional commercial development will be on a cautious and strategic basis.
Our Properties division also manages 4.77 million sf of income-producing commercial GLA and 466 residential units owned both directly by Melcor, and through our majority interest in Melcor REIT, continues to face a difficult economic environment. Management has been focused on addressing the situation and has been relatively successful. Despite these efforts, we continue to see an erosion of operating cash flow resulting from reductions in office lease rates, higher tenant incentives, capital requirements, increasing operating costs and continuing higher financing costs.
Generally speaking, commercial, and particularly office properties, are struggling with softer demand for space, increasing expenses and higher financing costs. Many factors including post-pandemic effects, work from home, online shopping and staffing issues are all creating challenges for businesses. Because of these factors and together with higher interest rates, financing real estate has become more expensive and difficult to secure.
Melcor remains in solid financial condition. Since 2022, we have reduced our general debt by 9% (down
In 2023, Melcor celebrated 100 years 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."
Today the Board declared a dividend of
Financial Highlights
Financial highlights of our performance are summarized below:
Fourth quarter:
- Revenue was up 64% to
$125 .13 million (Q4-2022:$76 .26 million) - Net income was down 72% to
$10 .31 million (Q4-2022:$37 .20 million) - Funds from operations (FFO) was up 68% to
$37 .56 million (Q4-2022:$22 .30 million) - Basic earnings per share was down 70% to
$0.34 per share (Q4-2022:$1.15 per share)
Year-to-date:
- Revenue was up 30% to
$315 .24 million (2022:$241 .75 million) - Net income was down 30% to
$62 .98 million (2022:$89 .35 million) - Funds from operations (FFO) was up 39% to
$84 .46 million (2022:$60 .86 million) - Basic earnings per share was down 26% to
$2.04 per share (2022:$2.75 per share)
(1) Readers are reminded that established key performance measures may not have standardized meaning under GAAP. For further information on the Melcor's non-standard measures, non-GAAP measures, operating measures and non-GAAP ratios, refer to the information in the press release below along with the Non-GAAP and Non-Standard Measures section in the MD&A
Selected Highlights
($000s except as noted) | Three Months Ended | Twelve Months Ended | ||||||||||
2023 | 2022 | % Change | 2023 | 2022 | % Change | |||||||
Revenue | 125,134 | 76,261 | (49 | )% | 315,239 | 241,747 | (23 | )% | ||||
Gross margin (%)(3) | 39.6 | % | 48.6 | % | 23 | % | 45.2 | % | 48.9 | % | 10 | % |
Fair value adjustment on investment properties | (22,928 | ) | 21,801 | 120 | % | (24,456 | ) | 21,554 | 11 | % | ||
Net income | 10,311 | 37,202 | (17 | )% | 62,980 | 89,354 | 59 | % | ||||
Net margin (%)(3) | 8 | % | 49 | % | 64 | % | 20.0 | % | 37.0 | % | 108 | % |
Funds from operations(1) | 22,297 | 42,311 | (47 | )% | 84,455 | 60,859 | (25 | )% | ||||
Per Share Data ($) | ||||||||||||
Basic earnings | 0.34 | 1.15 | (70 | )% | 2.04 | 2.75 | 62 | % | ||||
Diluted earnings | 0.34 | 1.15 | (70 | )% | 2.03 | 2.74 | 61 | % | ||||
Funds from operations(2) | 1.21 | 0.68 | 78 | % | 2.73 | 1.88 | (24 | )% | ||||
Dividends | 1.21 | 0.68 | 78 | % | 0.64 | 0.58 | 32 | % |
As at ($000s except share and per share amounts) | % Change | |||
Shareholders' equity | 1,209,578 | 1,178,336 | 3 | % |
Total assets | 2,097,473 | 2,167,050 | (3 | )% |
Total Shares outstanding | 30,662,453 | 31,248,628 | 2 | % |
Book value(2) | 39.45 | 37.71 | 5 | % |
(1) Non-GAAP financial measure. Refer to the Non-GAAP and Non-Standard Measures section in the MD&A for further information.
(2) Non-GAAP financial ratio. Refer to the Non-GAAP and Non-Standard Measures section in the MD&A for further information.
(3) Supplementary financial measure. Refer to the Non-GAAP and Non-Standard Measures section in the MD&A for further information.
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 metric used in the real estate industry to measure financial disclosure and was up 68% in the quarter and up 39% year-to-date compared with 2022.
Melcor reported a strong fourth quarter, despite challenges in the market including inflation and higher interest rates. Notwithstanding market conditions, demand for homes has remained stable across our geographically dispersed Land division, and our Properties and Golf segments continues to generate stable results. To date in 2023, results have yielded a gross margin of 45% (2022 - 49%). Gross margin earned in our Land division remained steady at 39%. Gross profit contributed by the Land division was up 51% to
With rising interest rates, we remain focused on managing liquidity and debt, and since year-end have reduced our general debt by
Our Land division produced strong results, with revenue up 49% to
Our Properties division completed construction on 2 CRU's (22,140 sf) in our Woodbend development. We recognized
Our
We continue to strategically assess our assets within our
Melcor REIT also listed our
Investing for growth
In the year, we purchased 80 acres of raw land in
Our Properties division completed 2 retail buildings (22,140 sf) in 2023 with a further 103,925 sf under development. These new buildings will positively impact results in future years as we continue to grow our income-generating assets for long-term holding or for sale to the REIT. Commercial development continues in our Properties division and at year-end we have an additional 5 buildings in 4 projects under development with completion expected in 2024 and 2025.
Asset Dispositions
Kelowna Business Centre , a office building located inKelowna, BC for gross proceeds of$19.50 million (REIT division).- Stafford Common a retail building located in
Lethbridge, AB for gross proceeds of$3.50 million (Properties Division). - 10 residential units located at the Edge at Grayhawk located in
Phoenix, AZ for net proceeds of$4.55 million (US$3.58 million ) (Properties Division).
During the year, we reclassified three REIT-owned properties with a fair value of
Shareholder Highlights
We continued to return value to our shareholders and unitholders:
- Dividends paid to shareholders increased to
$0.64 per share in 2023, up from$0.58 per share in 2022. - We repurchased 712,160 shares for cancellation pursuant to the NCIB at a cost of
$8 .10 million during 2023. - On
March 13, 2024 we declared a quarterly dividend of$0.11 per share, payable onMarch 29, 2024 to shareholders of record onMarch 22, 2024 . The dividend is an eligible dividend for Canadian tax purposes.
Melcor REIT:
- Distributions to unitholders of the REIT was
$0.48 per unit in both 2023, consistent with 2022. - Subsequent to the year, the REIT declared distributions of
$0.04 per unit forJanuary 2024 . OnFebruary 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 REIT
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.
Outlook
Melcor owns a diverse portfolio of real estate assets; including raw land, land under development, serviced residential, multifamily and commercial lots, income-producing properties and also owns and operates championship golf courses. This diverse mix helps position us to meet demand for any real estate opportunity regardless of market conditions. There is always market volatility, but Melcor has had a resilient and proven record.
Considering all challenges and opportunities, our business model has adapted to changing times and economic cycles over the years. Melcor remains cautiously optimistic that 2024 will be a satisfactory year. We will maintain our disciplined, conservative approach to operations to ensure that we remain profitable while achieving our fundamental goals of protecting shareholder investment and sharing corporate profit with our shareholders.
Non-GAAP & Non-Standard Measures
FFO is a key measure of performance used by real estate operating companies; however, that is not defined by International Financial Reporting Standards (“IFRS”), do not have standard meanings and may not be comparable with other industries or income trusts. This non-IFRS measures are more fully defined and discussed in the Melcor’s management discussion and analysis for the period ended
FFO Reconciliation
Consolidated | ||||||||
($000s) | Three Months Ended | Twelve Months Ended | ||||||
2023 | 2022 | 2023 | 2022 | |||||
Net income for the period | 10,311 | 37,202 | 62,980 | 89,354 | ||||
Amortization of tenant incentives | 2,042 | 1,941 | 8,416 | 7,561 | ||||
Fair value adjustment on investment properties | 22,928 | (21,801 | ) | 24,456 | (21,554 | ) | ||
Depreciation on property and equipment | 198 | 209 | 1,260 | 1,350 | ||||
Stock based compensation expense | 286 | (6 | ) | 1,057 | 841 | |||
Non-cash financing costs | 6,275 | (607 | ) | 4,766 | (8,518 | ) | ||
Gain on sale of asset | (3 | ) | (3 | ) | (51 | ) | (40 | ) |
Deferred income taxes | 914 | 8,214 | (336 | ) | 8,225 | |||
Fair value adjustment on REIT units | (5,389 | ) | (2,852 | ) | (18,093 | ) | (16,360 | ) |
FFO | 37,562 | 22,297 | 84,455 | 60,859 | ||||
Properties | ||||||||
($000s) | Three Months Ended | Twelve Months Ended | ||||||
2023 | 2022 | 2023 | 2022 | |||||
Segment Earnings | (9,788 | ) | 33,526 | 6,188 | 49,552 | |||
Fair value adjustment on investment properties | 15,311 | (28,588 | ) | 13,784 | (28,805 | ) | ||
Amortization of tenant incentives | 601 | 447 | 2,480 | 1,620 | ||||
Divisional FFO | 6,124 | 5,385 | 22,452 | 22,367 | ||||
(1) Refer to note 24 to the consolidated financial statements | ||||||||
REIT | ||||||||
($000s) | Three Months Ended | Twelve Months Ended | ||||||
2023 | 2022 | 2023 | 2022 | |||||
Segment Earnings | 1,255 | 485 | 22,807 | 27,723 | ||||
Fair value adjustment on investment properties | 8,429 | 9,130 | 16,794 | 11,995 | ||||
Amortization of tenant incentives | 956 | 962 | 3,975 | 3,725 | ||||
Divisional FFO | 10,640 | 10,577 | 43,576 | 43,443 |
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 2023 consolidated financial statements and management’s discussion and analysis for the year ended
About
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
Melcor has been focused on real estate since 1923. The Company has built over 140 communities across western
Melcor’s headquarters are located in
Forward Looking Statements
In order to provide our investors with an understanding of our current results and future prospects, our public communications often include written or verbal forward-looking statements.
Forward-looking statements are disclosures regarding possible events, conditions, or results of operations that are based on assumptions about future economic conditions, courses of action and include future-oriented financial information.
This news release and other materials filed with the Canadian securities regulators contain statements that are forward-looking. These statements represent Melcor’s intentions, plans, expectations, and beliefs and are based on our experience and our assessment of historical and future trends, and the application of key assumptions relating to future events and circumstances. Future-looking statements may involve, but are not limited to, comments with respect to our strategic initiatives for 2024 and beyond, future development plans and objectives, targets, expectations of the real estate, financing and economic environments, our financial condition or the results of or outlook of our operations.
By their nature, forward-looking statements require assumptions and involve risks and uncertainties related to the business and general economic environment, many beyond our control. There is significant risk that the predictions, forecasts, valuations, conclusions or projections we make will not prove to be accurate and that our actual results will be materially different from targets, expectations, estimates or intentions expressed in forward-looking statements. We caution readers of this document not to place undue reliance on forward-looking statements. Assumptions about the performance of the Canadian and US economies and how this performance will affect Melcor’s business are material factors we consider in determining our forward-looking statements. For additional information regarding material risks and assumptions, please see the discussion under Business Environment and Risk in our annual MD&A.
Readers should carefully consider these factors, as well as other uncertainties and potential events, and the inherent uncertainty of forward-looking statements. Except as may be required by law, we do not undertake to update any forward-looking statement, whether written or oral, made by the Company or on its behalf.
Contact Information:
Investor Relations
Tel: 1.855.673.6931
ir@Melcor.ca
Source:
2024 GlobeNewswire, Inc., source