Melcor Developments Ltd., (MRD-T) has increased its offering for Melcor REIT (MR.UN-T) shares by 11 per cent, to $5.50 per unit, as it continues efforts to take the trust private in the face of criticism from a minority shareholder group.

Another significant change is that Melcor Developments Ltd., has removed its right to match any superior offer which might come forward during the new 90-day “go- shop” period associated with the updated bid. The new bid also results in the cancellation of a Nov. 26 unitholder meeting to consider the take-private move.

Melcor’s original September offer for the REIT’s outstanding shares was $4.95 per unit, which drew sharp criticism from a group of its minority shareholders, led by FC Private Equity Realty Management Corp. (Firm Capital). Firm Capital and its supporters have been engaged in a public campaign to draw attention to what they feel has been consistent financial underperformance by the trust.

Early this year Firm Capital had called on Melcor to take the REIT private, and suggested a take-out price of $7.96 per unit, well above both the offers Melcor has made.

Melcor and related entities hold approximately 55 per cent of the REIT’s units. Its unowned interest comprised approximately 13 million Class A LP units, which values the most recent take-out offer at approximately $71.5 million. First Capital was looking for a takeout of approximately $103 million.

The original and updated offers

The original deal offered by Melcor had included a 30-day “go-shop” period, which also drew heavy criticism from Firm Capital as being inadequate for interested firms to conduct proper due diligence. Melcor had reserved the right to match any superior bid when it made the original offer, and had instituted a $2.9-million fee if any competing company did submit a successful takeover bid.

Removal of Melcor’s right to match nixes that fee, although a $5.8-million termination fee would still be in effect if a company makes a superior bid which is accepted by the REIT’s independent committee overseeing this process.

Melcor management does not make any comment about the revised offer in its release, which was issued Monday afternoon.

Melcor REIT owns, acquires, manages and leases retail, office and industrial income-generating properties in western Canadian markets. Its portfolio is currently made up of interests in 36 properties representing approximately 3.072 million square feet of gross leasable area located across Alberta and in Regina, Sask.

The current value of the properties and Melcor REIT's assets was $673 million as of the end of Q3. Its debt-to-gross-book value ratio was 54.8 per cent, down slightly from 56 per cent at year-end 2023.

As with the original offer, the transaction remains subject to closing conditions including approval of 66 per cent of the REIT’s shareholders, plus approval from minority shareholders.

Offer lifts Melcor REIT's share price

The new offer caused a significant increase in Melcor REIT’s share prices on the TSX. When the initial offer was made in September, the REIT was trading in the $3.40 range. At market close on Friday (Nov. 22) the shares were at $4.85. In trading this morning the shares opened at $5.30.

It has a 52-week low of $2.19 and a high of $5.40. Melcor REIT units were valued at $10 during its IPO in 2013.

Melcor announced a $44.8-million quarterly loss in its Q3 financials released on Nov. 4, versus a year-to-date loss of $23.9 million. The quarterly loss is attributed mainly to $12.9 million in property value writedowns and a $33.7-million adjustment on its Class B LP units.

Net operating income in the quarter was $11.6 million, down 2.5 per cent from the year-earlier period. For the year to date, NOI was $34.7 million, down one per cent.

Melcor had slightly reduced its portfolio during the period, from 38 properties in 2023 to 37 properties at the end of Q3 2024.

About Melcor Developments

Melcor Developments is a diversified real estate development and asset management company with operations spanning the acquisition of land through development and management of residential and commercial properties. 

Melcor develops and manages mixed-use residential communities, business and industrial parks, office buildings, retail commercial centres and golf courses. The 101-year-old firm owns a diversified portfolio of assets in Alberta, Saskatchewan, British Columbia, Arizona and Colorado.

The company has built over 170 communities and commercial projects across Western Canada and manages 4.8 million square feet in commercial real estate assets and 455 residential rental units.

Melcor’s headquarters is in Edmonton, with regional offices throughout Alberta and in Kelowna, B.C., and Phoenix, Ariz. Melcor has been a public company since 1968.