FC Private Equity Realty Management Corp. Sends Letter to Melcor REIT
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0 KommentareMelcor Developments Ltd. Took Melcor REIT Public – Now Take Them Private at NAV for Unitholder Value Maximization
TORONTO, March 13, 2024 (GLOBE NEWSWIRE) -- FC Private Equity Realty Management Corp. (“Firm Capital”), through affiliated entities, is an owner of both Melcor Real Estate
Investment Trust (TSX : MR.UN) (the “REIT”), and Melcor Series B Convertible Unsecured Debentures (TSX : MR.DB.B) (the “Convertible
Debentures”).
As significant unitholders of the REIT, we are disappointed with the consistent disconnect between the REIT’s trading price and Net Asset Value (“NAV”). Since the spinoff and IPO of properties originally owned by the parent company in 2013, Melcor Developments Ltd. (“Melcor Parent”), the trust units have consistently traded at a discount to NAV. The Melcor Parent is the 55% majority unitholder and is also the asset manager of the REIT. In addition, the trust units have consistently traded at a discount to the REIT’s IPO price of $10.00 per unit, save for a period in 2014. The REIT is currently trading at $2.66 per unit, which is a 67% discount to the Q4/2023 IFRS NAV of $8.09 per unit.
On February 29, 2024, Firm Capital sent a letter to the Melcor CEO and Board of Trustees raising its concerns regarding: (i) the distribution suspension; (ii) the 2024 mortgage maturities; (iii) the 5.1% Convertible Debenture coming due in 2024; and (iv) the risk of a take-over proposal by Melcor Parent whereby the Melcor Parent could take the REIT private at a price significantly lower than the REIT’s IFRS NAV.
The Melcor Q4/2023 press release on March 5, 2024 addressed some of our concerns namely:
- The Revolving Credit Facility of $37.9 million is maturing June 1, 2024 and is expected to be renewed is Q2/2024. Negotiations are underway; and
-
Mortgages of $53.7 million are maturing in 2024. The REIT is in discussions with its lenders to refinance its mortgages at competitive market terms. Management also provided
disclosure on its one unencumbered asset.
However, there was no disclosure regarding the repayment plan for the $46 million Convertible Debenture coming due in June 2024, nor any disclosure regarding the liability/repayment of $2 million of the Class C LP units.
Also in the Q4/2023 press release, Melcor announced that it was in the process of selling certain assets in British Columbia (“BC”) and Saskatchewan (“Sask”) and that proceeds would be used for debt repayment.
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Based on our analysis, if we assume the REIT utilizes (i) cash on hand, (ii) the expected savings from the suspension of the distribution to June 30 2024, and (iii) net expected sale proceeds from the BC and Sask asset sales to ultimately repay the Convertible Debenture at maturity on June 30, 2024, the REIT would be able to repay approximately $38 million, leaving it short by approximately $8 million. This shortfall will be required to be covered by any operational cash generated prior to the June 30, 2024 maturity plus any availability on the Revolving Credit Facility (assuming that there is any availability given that as at Q4/2023 there was approximately $8.2 million available). This also assumes that the BC and Sask sales are completed by June 30, 2024. The REIT should provide additional disclosure in the interim as to how they will account for this contingency in light of this looming debt maturity.
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