Q4- 2014 Investor Presentation
March 16, 2015
FORWARD-LOOKING STATEMENTS
This presentation may contain 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. These statements
represent Melcor REIT’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. Forward-looking statements may involve, but are not limited to, comments with respect to our
strategic initiatives for 2015 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 forwardlooking statements. Assumptions about the performance of the Canadian and US economies and how this
performance will affect Melcor REIT’s business are material factors we consider in determining our forwardlooking statements. For additional information regarding material risks and assumptions, please see the
discussion under Risk Factors throughout 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.
2
MANAGEMENT TEAM
Darin Rayburn
Jonathan Chia
20+ Years Experience
CFO of Melcor
Developments Ltd.
Chief Executive Officer
Previously with Oxford
Properties Group and
Cambridge Shopping
Centres
Chief Financial Officer
Former CFO of Matrikon
Inc.
o Significant depth and experienced leadership with the Melcor
management team
o Conservative approach focused on stewardship and solid governance
3
TRADITION.
GROWTH.
RESULTS.
WHO WE ARE
WHO WE ARE
Acquire
Manage
Lease
o High quality portfolio of retail, office & industrial
income producing properties
o Backed by Melcor Developments Ltd.
o Financially sound | stable returns | since 1923
o Hands on experience with properties
o Pipeline of potential acquisitions
o Diversified Portfolio
o 2.74 million square feet owned
o 4 asset classes
o 3 provinces (AB, BC, SK)
38
ASSETS
44.5m 657.8m
$
$
2014 REVENUE
ASSET VALUE
5
MELCOR DEVELOPMENTS
2,000,000
Asset Growth ($000)
Melton Building – 1960s
1,800,000
Melton Building today
1,600,000
1,400,000
o A real estate company since 1923
1,200,000
1,000,000
o Public since 1968, market cap: ~$598 million(1),
800,000
$1.86 billion in assets
600,000
o ~53% owned by the Melton family
400,000
200,000
o 56.5% retained interest in REIT
0
$250
MRD 10-Year Share Performance
o Participate in future treasury offerings
o Integrated operating divisions
$200
o History of creating value in real estate
$150
o History of creating value for our shareholders
(1) As of March 16, 2015
$100
$50
$0
TSX Composite Index
TSX Real Estate Index
Melcor
27
Consecutive years
of dividend payments
31-Dec-09 31-Dec-10 31-Dec-11 31-Dec-12 31-Dec-13 31-Dec-14
6
INVESTMENT HIGHLIGHTS: THE MELCOR REIT ADVANTAGE
Established and Diversified Portfolio
2.74 million sq. ft. of gross leasable area
38 assets across office, retail and industrial classes
Future Growth via Melcor's
Development Pipeline
237,000 sq. ft. of active development in office and retail product
Over 6 million sf in future development over the next 5-10 years.
Signature Customer Care &
Strategic Leasing Programs
Responded to 97% of service calls within 30 minutes
Retained 82.7% of expiring GLA (2014)
Direct Alignment of Interests with
Melcor Developments
Experienced Management
Retained interest of 56.5%
Extensive knowledge and history with assets
Average ownership of 9 years for portfolio
Tradition. Growth. Results.
7
REIT PROPERTY PORTFOLIO
1
2.74M
Edmonton
Spruce Grove
owned
square feet
2
3
4
9
17 19 20 21 2
Leduc
7
2
11 13 14 15 16
5
4
8 12 13 14
4
Red Deer
9
Airdrie
3
Kelowna
7 12
Calgary
8
5
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
100 Street Place
Trail Business Centre
Birks Building
Capilano Centre
Crowfoot Business Centre
Executive Terrace
Kelowna Business Centre
Kensington Road Building
Melton Building
Parliament Place
Princeton Place
Richter Street
Royal Bank Building
Stanley Building
Sterling Business Centre
Westcor Building
Westgate Business Centre
Lethbridge Centre
Select Building
The Village at Blackmud Creek
White Oaks Square
TOTAL
LOCATION
Edmonton
Edmonton
Edmonton
Edmonton
Calgary
Regina
Kelowna
Calgary
Edmonton
Regina
Edmonton
Kelowna
Edmonton
Edmonton
Edmonton
Edmonton
Edmonton
Lethbridge
Edmonton
Edmonton
Edmonton
GLA
44,295
77,296
35,104
45,487
67,630
42,843
72,076
24,050
114,612
24,411
59,081
28,978
132,377
34,976
67.899
72,810
75,141
446,272
23,432
48,335
30,495
1,567,600
Lethbridge
1
OCC %
68
74
85
99
100
77
83
68
94
97
80
77
90
99
96
88
100
90
100
99
88
89
RETAIL BUILDINGS
1
2
3
4
5
6
7
8
9
10
11
12
13
14
Chestermere Station
Corinthia Plaza
Kingsview Market
Leduc Common
Miller Crossing
Towers Mall
Westgrove Common
Coast Home Centre
Liberty Crossing
Market Mall
University Park Mall
The Village at Blackmud Creek
West Henday Promenade
White Oaks Square
TOTAL
LOCATION
Chestermere
Leduc
Airdrie
Leduc
Edmonton
Regina
Spruce Grove
Edmonton
Red Deer
Regina
Regina
Edmonton
Edmonton
Edmonton
6 10
6 10 11
1
1
OFFICE BUILDINGS
Regina
Chestermere
GLA
48,729
23,179
47,558
284,932
27,340
114,331
21,810
59,725
63,317
42,586
41,238
9,029
34,987
127,824
946,585
3 18
OCC %
96
100
100
95
93
97
99
92
100
100
97
87
96
100
97
INDUSTRIAL BUILDINGS
1
2
3
4
Lethbridge Industrial
TKE Building
LC Industrial
Telford Industrial
TOTAL
LOCATION
Lethbridge
Edmonton
Lethbridge
Leduc
LAND LEASE COMMUNITY LOCATION
1 Watergrove
Calgary
GLA
49,005
15,968
67,610
88,699
221,282
GLA
N/A
OCC %
100
100
93
100
98
OCC %
100
8
DIVERSIFICATION IN PROPERTY TYPE & GEOGRAPHY
NOI by Property Type(1)
4%
NOI for Properties
by Geography(1)
3%
12%
24%
41%
52%
64%
Office
Retail
Industrial
Land Lease
Northern Alberta
Southern Alberta
Saskatchewan and BC
(1) Based on actual NOI at December 31, 2014
9
TOP TENANTS
Number
Top Ten Tenants
(Operating Name)
% of Total
Minimum Rent
% of Total
Owned GLA
Remaining
Term (yrs)(1)
Number of
Locations
Credit Rating
(S&P/Moody’s/DBRS)
1
Alberta Health Services
4.9%
5.3%
7
4
---
2
Government of Alberta
4.7%
4.0%
6
5
AAA /Aaa/AAA
3
Royal Bank of Canada
3.8%
2.2%
5
5
AA-/Aa3/AA
4
Melcor Developments Ltd.
3.4%
2.6%
2
11
---
5
Shoppers Drug Mart
3.0%
1.6%
12
3
BBB+/-/BBB
6
BasinTek LLC
2.4%
3.2%
9
1
---
7
Fountain Tire Ltd.
2.3%
1.1%
14
1
---
8
TD Bank
1.7%
0.9%
7
4
AA-/Aa1/AA
9
The Brick Warehouse LP
1.2%
1.2%
3
1
---
10
Select Engineering
1.1%
0.9%
12
1
---
28.5%
23.0%
7.7
TOTAL/Average
(1) Average remaining term, as of December 31, 2014, weighted by square feet
10
HISTORICAL OCCUPANCY
o Average occupancy in the low 90s
95.1%
2008
94.3%
89.8%
2009
90.4%
2010
91.0%
2011
2012
90.6%
2013
92.4%
2014
o Weighted Average Remaining Lease Term of 5.49 years (at December 31, 2014)
Renewal GLA (sq. ft.)
42%
Percentage of GLA Expiring
11.8%
322,473
2015
6.30%
172,161
2016
10%
274,705
2017
11%
309,053
2018
1,149,859
11%
300,155
2019
Thereafter
11
TRADITION.
GROWTH.
RESULTS.
WHAT WE DID
DELIVERING AS PROMISED – 2014 RESULTS
Consistently and methodically executed our strategy to grow portfolio
by 62%
o Completed 2 acquisitions via our proprietary Melcor pipeline, adding six
new properties and additional phases at two existing properties (793,941
sf)
o Completed third-party acquisitions of three properties (249,361 sf)
o Completed a bought deal issuance of 2,145,000 units for gross proceeds
of $22.8 million (including overallotment option)
o Completed a bought deal issuance of 5.5% convertible debentures for
gross proceeds of $34.5 million (including overallotment option)
Redeveloping properties to maximize occupancy and tenant retention
o Invested $4.4 million in capital expenditure program
o Achieved BOMA BESt level 2 certification at 2 properties
Continue to deliver exceptional property management and leasing
programs
o Achieved 97% on time response rate on service calls
o Retained 82.7% of tenants on leases expiring in 2014
13
STRONG OPERATING PERFORMANCE
December 31, 2015
At IPO
Δ
38
27
41%
2.74
1.57
74%
Occupancy % (weighted by GLA)
92.4%
91.0%*
140 bps
Retention % (weighted by GLA)
82.7%
77.0%*
570 bps
5.49
4.70
17%
$15.25
$16.63*
(8%)
Number of Properties
Gross Leasable Area (GLA) (millions of sq. ft.)
Weighted average remaining lease term (years)
Weighted average base rent (per sq. ft.)
* At December 31, 2012
14
WHAT WE DID
KEY PERFORMANCE INDICATORS
$000s
2014
2013
%Δ
Net operating income (NOI)
28,581
25,295
13%
Funds from Operations (FFO)
17,907
15,903
13%
Adjusted funds from operations (AFFO)
15,613
13,916
12%
Rental revenue
44,509
39,325
13%
Distributions to unitholders
7,128
4,109
73%
Cash flow from operations
9,252
10,502
(12)%
Income - diluted
0.75
1.25
-40%
FFO
0.87
0.85
2%
AFFO
0.76
0.75
1%
0.675
0.45
50%
PER UNIT METRICS(1)
Distributions
(1) 2013 figures calculated as if the trust units and Class B LP Units were outstanding during the entire comparable period,
except for income – diluted, which is calculated post formation
15
WHAT WE DID
OTHER MEASURES
2014
2013
%Δ
Total assets ($000s)
657,765
454,743
45%
Equity ($000s)(1)
261,853
186,608
40%
Debt ($000s)(2)
344,694
215,601
60%
3.98%
3.98%
—%
Debt to GBV ratio
56%
51%
10%
Finance costs coverage ratio(3)
2.94
2.96
(1)%
Debt service coverage ratio(4)
2.75
2.83
(3)%
Weighted average interest rate on mortgages and Class C LP Units
(1)
(2)
(3)
(4)
Calculated as the sum of trust units and Class B LP Units at their book value. In accordance with IFRS the Class B LP Units are presented as a financial liability in the
consolidated financial statements.
Calculated as the sum of total amount drawn on revolving credit facility, mortgages payable, Class C LP Units, excluding unamortized fair value adjustment on Class C LP
Units and convertible debenture, excluding unamortized discount and transaction costs.
Excluding convertible debentures, Debt to GBV ratio is 50%
Calculated as the sum of FFO and finance costs; divided by finance costs, excluding distributions on Class B LP Units.(6) Calculated as FFO; divided by sum of contractual
principal repayments on mortgages payable and distributions of Class C LP Units, excluding amortization of fair value adjustment on Class C LP Units.
16
TRADITION.
GROWTH.
RESULTS.
HOW WE DO IT
THE MELCOR REIT ADVANTAGE:
EXPERIENCE
350+
YEARS OF REAL ESTATE
& PROPERTY
MANAGEMENT
EXPERIENCE
9.0
YEARS AVERAGE
OWNERSHIP OF
PROPERTIES IN
PORTFOLIO
63%
OF PORTFOLIO BUILT
OR SUBSTANTIALLY
REDEVELOPED BY
MELCOR
74%
PORTFOLIO GROWTH SINCE IPO
ADDED 1,163,993 SQUARE FEET
18
OUR MISSION & OUR STRATEGY TO ACHIEVE IT
Stable & growing monthly cash distributions to unitholders
ACQUIRE
• Third Party
• SMART Criteria
• Melcor Pipeline
• Occupancy
• Complete/Titled
Portfolio Growth
Stabilize/Increase Distributions
Financing Opportunities
IMPROVE
• Redevelopment
• Increase efficiency
• BOMA BESt
• Property Management
• Signature Care
• Landlord of Choice
Increase Occupancy/Retain Tenants
Increase Base Rent
Lower Cost
19
SMART ACQUISITION STRATEGY
The right properties at the right price in the right place
Strategic
Market
Accretive
Right Price
Targeted
Acquisition Targets
o Stable, accretive properties
• Deeper penetration in existing geographic markets
• Expand into adjacent geographic markets
o Properties with redevelopment & repositioning potential
Acquisition & Integration Strengths
o Proven due diligence process
o Agility to quickly execute on decisions
o Ability to close within 30 days (broker preference for access to
unmarketed opportunities)
o Clustering of properties for efficient management & strong
market knowledge
20
DEVELOPMENT PIPELINE ROFO
o REIT opportunity to purchase from Melcor Developments
744,000sf
793,941sf
CURRENT PIPELINE (COMPLETED
AND UNDER DEVELOPMENT)
ACQUIRED FROM MELCOR IN 2014
Pipeline Property GLA by Type
Acquired Properties GLA by Type
15%
11%
24%
Office
Retail
Office
27%
Retail
Industrial
61%
Industrial
62%
21
DEVELOPMENT PIPELINE UPDATE
o The following table
summarizes Melcor
Development Ltd.’s future
property development
sites.
o Management expects
approved projects to yield
approximately 6 million
square feet over the next
5 to 15 years.
Properties Currently under
Development
Location
Types
Anticipated
GLA (sq. ft.)
Village at Blackmud Creek
Edmonton
Regional Business Park
547,000
West Henday Promenade
Edmonton
Regional Mixed Use (Retail)
267,000
Telford Industrial
Leduc
Industrial
367,000
Chestermere Station(2)
Calgary
Office/Retail
80,000
Kingsview Market
Calgary
Retail
197,000
The District at North Deerfoot
Calgary
Regional Business Park
West Henday Promenade, Edmonton
3,685,000
Total
(1)
Includes a 29,345 square foot land lease
Clearview Market, Red Deer
2,227,000
(2)
Melcor REIT owns a 50% interest in Chestermere Station
Village at Blackmud Creek, Edmonton
22
ASSET ENHANCEMENT
Capital Expenditures Strategy
ENHANCE
• Visible improvements (common
area upgrades, landscaping,
improved comfort & aesthetics)
• Driven by lease expiries/ vacancy
and need
Lease buildings and retain tenants
PRESERVE
• Inner works (boilers, roofs,
maintenance)
• Improve efficiencies through
upgrades
• Driven by annual building &
equipment condition assessments
Maintain asset value through routine care
Lower building operating costs
23
THE MELCOR REIT ADVANTAGE:
SIGNATURE CUSTOMER CARE
o Hands-on office building management
o Continuous improvement
o Enhancements to improve sustainability
o Relationship driven
o Responsive care
Proud of our on-time
response rate: over 97%
within 30 minutes
24
THE MELCOR REIT ADVANTAGE:
SUSTAINABILITY
o 4 BOMA BESt certified Green & Responsible buildings
o Light Harvesting
o Motion Sensitive Lights
o Paper & Other Recycling Programs
25
OUTLOOK FOR MELCOR REIT
Economic
Fundamentals
• Real estate
fundamentals are
evolving
• Well-positioned to
sustain distributions
• Conservative
management
approach and strong
balance sheet
• 56.5% owned by MRD
Occupancy
Stability
• 11.8% GLA expiring in
2015
• Strategic and
proactive leasing
programs to maintain
stable occupancy
• Leasing activity
remains good
Financing
Stability
• Reasonable interest
rate stability over
medium term
• Five mortgages to
renew in next 12
months – we expect
to be able to
refinance at lower
rates
• Availability on credit
facility
26
TRADITION.
GROWTH.
RESULTS.
SUPPLEMENTAL INFORMATION
EXECUTING THE STRATEGY | 2014:
3 EXTERNAL ACQUISITIONS MEETING SMART CRITERIA
LC Industrial
Select Building
White Oaks
o 93% occupied
o 67,610 sq. ft. (2.89 acres)
o Lethbridge County, AB
o 100% occupied
o 23,432 sq. ft.
o Strategic west Edmonton
o 98% occupied
o 158,320 sq. ft. (18.98
with excellent access off
Hwy. 34
o Accretive to AFFO
~$0.012/unit
location with excellent
exposure to major
arteries
o Accretive to AFFO
~$0.01/unit
acres)
o North Edmonton with
excellent exposure along
137 Ave retail corridor
o Accretive to AFFO
~$0.01/unit
28
EXECUTING THE STRATEGY | 2014:
COMPLETED 2 MELCOR ACQUISITIONS
Acquired from Melcor
Location
Types
Market Mall
Regina
Retail
42,586
100%
Kingsview Market Phase 3
Airdrie
Retail
11,555
100%
Lethbridge Centre
Lethbridge
Office
446,276
90%
Telford Industrial
Leduc
Industrial
88,699
100%
Edmonton
Business Campus
57,364
99%
Regina
Retail
41,238
97%
Edmonton
Retail
34,987
96%
Leduc
Retail
71,240
95%
The Village at Blackmud Creek
University Park
West Henday Promenade
Leduc Common
GLA
Occupancy
29
STRONG GOVERNANCE
Trustee
Position with the REIT
Principal Occupation
Andrew J. Melton(1)
Chair of the Board
Chair, Investment Committee
Trustee, Chair of the Board
Executive Vice-Chairman, Melcor Developments Ltd.
Ralph B. Young(2)
Trustee
Chancellor, University of Alberta
Director, Melcor Developments Ltd.
Brian D. Baker
Trustee
President & CEO, Melcor Developments Ltd.
Brian S. Hunt(1) (2) (3)
Chair, Audit Committee
Independent Trustee
President, Director of Taviston Inc
F. Patrick Kirby
Independent Trustee
Counsel, Felesky Flynn LLP
Donald Lowry(2) (3) (4)
Lead Trustee
Chair, C&G Committee
Independent Trustee
Corporate Director, former President and CEO of EPCOR
Utilities Inc.
Non-executive Chairman of Canadian Oil Sands and Capital
Power Corporation
Larry Pollock(1) (3)
Independent Trustee
Corporate Director, former President, CEO and Director of
Canadian Western Bank
Director of WestJet Airlines, EPCOR Utilities Inc. and Clark
Builders Ltd.
(1) Member of the Investment Committee (2) Member of the C&G Committee (3) Member of the Audit Committee (4) Lead Trustee
30
AGREEMENTS WITH MELCOR
Asset Management
Asset Management Fee
0.25% of GBV
Capital Expenditures Fee
5% of hard construction costs, per project, on projects with a cost > $0.1 million
Acquisition Fee
1.0% of property purchase price on first $100 million per fiscal year. Thereafter 0.75% on next $100
million and 0.50% on purchase amounts over $200 million per fiscal year
Financing Fee
0.25% of debt and equity; cost reimbursement
Term
Five years, five-year renewal
Internalization
Once assets reach $1.15 billion, on 12 months’ notice or payment in lieu thereof
Property Management
Property Management Fee
3.0% of gross property revenue
Leasing Fees
5.0% of aggregate base rent for new leases over first 5 years, 2.5% over next 5 years
2.5% of aggregate base rent for lease renewals & expansions
Term
Five years, automatic renewal unless terminated
Internalization
Once assets reach $1.15 billion, on 90 days’ notice or payment in lieu thereof
Development & Opportunities Agreement
ROFO
Right of first opportunity to acquire properties from Melcor
Other
Opportunity to participate in future investments, joint ventures, development properties and
mezzanine financing
31
32