A relative newcomer on the REIT stage given that it became a public entity through its IPO in May 2013, Melcor REIT (MR.UN-T) is off to a fast start. Chalk it up to a proud lineage that stretches back through more than 90 years and four generations of family ownership.
The Edmonton-based REIT is majority-owned and controlled by Melcor Developments Ltd., a diversified real estate development and management company that has been quietly doing its thing out West since 1923.
“People tell me all the time that Melcor Developments is one of Western Canada’s best-kept secrets,” said Darin Rayburn, Melcor REIT’s chief executive officer.
Besides owning more than 50 per cent of the REIT’s stock today, the low-profile Melcor Developments plays a major role in, well, developing its corporate offspring.
Melcor Developments provides the REIT with an enviable acquisition pipeline boasting more than five million square feet in potential acquisitions. MD also acts as the REIT’s external asset manager and property manager.
Andrew Melton serves as chairman
The REIT’s board of trustees is headed by Andrew Melton as chairman. A third-generation Melton, he is also executive vice-chair of Melcor Developments and runs the company along with his brother Timothy, who is chairman of the parent company. (The fourth generation is also represented as each man has a son in mid-level positions within the Melcor ranks).
Rayburn is not related to the Melton family. He entered the real estate industry in 1991 and held leasing, operations, management and marketing positions with Oxford Properties Group and Cambridge Shopping Centers before joining Melcor in 2002.
Besides heading the REIT, he is also an executive vice-president of Melcor Developments’ investment property division and has grown its investment property portfolio from approximately 600,000 square feet to more than three million square feet in four asset classes throughout Western Canada and U.S.
Melcor has enjoyed rapid growth since its IPO when it emerged as a public entity with 27 assets comprising 1.57 million square feet. Pending the successful conclusion of its most recent acquisition, it will stand at 38 properties made up of 2.73 million sq. ft., or about 74% growth since the IPO, by Rayburn’s reckoning.
The REIT’s CEO describes its growth as a “two-pronged” approach: it has right of first refusal on any properties Melcor Developments wishes to dispose of (that not-insubstantial acquisition pipeline of more than five million sq. ft. in potential acquisitions) as well as third-party acquisitions. Melcor REIT’s latest acquisition, announced on Nov. 12, leans heavily on the MD pipeline growth stream: six properties from Melcor Developments and one third-party property for $169.63 million.
To partially pay for the acquisition of the seven properties – six in Alberta and one in Saskatchewan – Melcor plans to sell approximately $30 million of 5.50% extendible convertible unsecured subordinated debentures.
Increases gross leasable area by 49%
Melcor REIT said the purchases increase the gross leasable area of its portfolio by 49% and are expected to be immediately accretive to AFFO per unit.
“The properties acquired include both innovative new mixed-use developments that are unique in the marketplace and properties that have been improved through redevelopment over the past few years,” Rayburn said in the announcement. “Together, the acquisitions bring us closer to our diversification targets by increasing our retail portfolio to 41% and our industrial portfolio to eight per cent of total gross leasable area.
“These acquisitions again demonstrate the advantage of our exclusive Melcor property pipeline and our ability to find and complete third-party acquisitions to drive growth.”
Like most REITs, Melcor has put growth at the top of its agenda. Unlike most, however, it has a 90-year-old real estate institution with a five-million-square-foot property acquisition pipeline. That Melcor-to-Melcor relationship has meant that “how fast can you grow?” is one of the most common questions Rayburn faces.
When Melcor completed its IPO, he had set a goal of reaching $1.15 billion worth of assets within five to seven years. He may need to up that target as the REIT currently stands at about $700 million worth of assets provided it closes on its November acquisitions.
The Western Canada-focused REIT also wants to create a balanced property mix. At the time of its IPO, it was heavily weighted to office, comprising about 68% of its portfolio with another 30% in retail properties and the small remainder in industrial.
“My goal is 40-40-20,” said Rayburn, referring to the 20 per cent as industrial.