Melcor Developments Ltd. — Interim / Quarterly Report 2022

May 9, 2022

Management's Discussion & Analysis

May 9, 2022

The following discussion of Melcor Developments' (Melcor's) financial condition and results of operations should be read in conjunction with the condensed interim consolidated financial statements and related notes for the quarter ended March 31, 2022 and management’s discussion & analysis (MD&A) and consolidated financial statements for the fiscal year ended December 31, 2021.

The financial statements underlying this MD&A, including 2021 comparative information, have been prepared in accordance with International Financial Reporting Standards (IFRS) applicable to the preparation of interim financial statements, including IAS 34, Interim Financial Reporting, unless otherwise noted. All dollar amounts included in this MD&A are Canadian dollars unless otherwise specified.

Melcor’s Board of Directors approved the content of this MD&A on May 9, 2022 on the recommendation of the Audit Committee.

Other Information

Additional information about Melcor, including our annual information form, information circular and annual and quarterly reports, is available on SEDAR at www.sedar.com.

Non-standard Measures

We refer to terms that are not specifically defined in the CPA Handbook and do not have any standardized meaning prescribed by IFRS. These non-standard measures may not be comparable to similar measures presented by other companies. We believe that these non-standard measures are useful in assisting investors in understanding components of our financial results. For a definition of these measures, refer to the section “Non-GAAP and Non-standard Measures”.

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 forwardlooking 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 MD&A 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. Forward-looking statements may involve, but are not limited to, comments with respect to our strategic initiatives for 2022 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. We also caution readers that the COVID-19 pandemic resulted in both new and increased risk; however we feel that the worst is now behind us with the lifting of restrictions. 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 Risks in our annual MD&A and the updated risk disclosure contained in the Business Environment & Risks section contained in this 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 Melcor or on its behalf.

TABLE OF CONTENTS

TABLE OF CONTENTS
Our Business	2	Liquidity & Capital Resources	12
First Quarter Highlights	3	Financing	12
Funds from Operations	4	Sources & Uses of Cash	13
Divisional Results	4	Share Data	13
Community Development	5	Off Balance Sheet Arrangements, Contractual Obligations,	13
Property Development Investment Properties	7 9	Business Environment & Risks, Critical Accounting Estimates, Changes in Accounting Policies
REIT	10	Normal Course Issuer Bid	13
Recreational Properties	11	Quarterly Results	14
General & Administrative Expense	12	Subsequent Events	14
Income Tax Expense	12	Internal Control over Financial Reporting & Disclosure Controls	14
		Non-GAAP and Non-standard Measures	15

First Quarter 2022 | Management’s Discussion & Analysis

Melcor Developments Ltd.

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Our Business

Melcor is a diversified real estate development and asset management company. We transform real estate from raw land to high-quality residential communities and commercial developments. We develop and manage mixed-use residential communities, business and industrial parks, office buildings, retail commercial centres and golf courses.

We are committed to building communities that enrich quality of life - communities where people live, work, shop and play.

We operate four integrated divisions that together manage the full life cycle of real estate development:

• acquiring raw land and planning residential communities and commercial developments (Community Development)

• project managing development, leasing and construction of commercial properties (Property Development)

• operating a portfolio of commercial and residential properties, focused on property improvements and capital appreciation of owned properties and property management of REIT owned properties (Investment Properties)

In addition, we own and operate championship golf courses associated with our residential communities in our fifth division, Recreational Properties. Melcor has $2.11 billion in assets.

The diagram below illustrates how each of our operating divisions complements one another to create and enhance value from our real estate assets.

In addition to extending the value of our asset base, these diversified operating divisions enable us to manage our business through real estate cycles (both general market conditions and the seasonality associated with construction and development) and diversify our revenue base.

Our headquarters are in Edmonton, Alberta, with regional offices across Alberta, in Kelowna, British Columbia, and in Phoenix, Arizona. Our developments span western Canada, and Colorado and Arizona in the US.

We have been publicly traded since 1968 (TSX: MRD ).

• acquiring and owning high quality leasable commercial and residential sites (the REIT)

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First Quarter 2022 | Management’s Discussion & Analysis

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Glossary of Acronyms

Common Acronyms

Common Acronyms	Common Acronyms
FFO GAAP G&A GBV GLA IFRS NCIB NOI sf SLR WABR	funds from operations generally accepted accounting principles general and administrative expense gross book value gross leasable area international financial reporting standards normal course issuer bid net operating income square feet straight-line rent weighted average base rent

First Quarter Highlights

Readers are reminded that established key performance measures may not have standardized meaning under GAAP. For further information on Melcor's non-standard measures, non-GAAP measures, operating measures and non-GAAP ratios, refer to the non-GAAP and non-standard measures section.

($000s except as noted)	Three months ended	Three months ended	Three months ended
	31-Mar-22	31-Mar-21	Change
Revenue Gross margin1 Net income (loss) Net margin1 FFO2	53,306 47.2 % 2,470 4.6 % 10,697	43,270 52.2 % (14,033) (32.4) % 10,174	23.2 % (9.6) % 117.6 % 114.2 % 5.1 %
Per Share Data ($)
Basic earnings Diluted earnings	0.08 0.07	(0.42) (0.42)	119.0 % 116.7 %
FFO3 Dividends	0.33 0.14	0.31 0.10	6.5 % 40.0 %
As at ($000s except share and per share amounts)	31-Mar-22	31-Dec-21	Change
Total assets Shareholders' equity Total shares outstanding	2,114,888 1,110,053 32,832,559	2,113,927 1,116,469 32,961,015	— % (0.6) % (0.4) %
Per Share Data ($)
Book value(3)	33.81	33.87	(0.2)%

1 Supplementary financial measure. Refer to the Non-GAAP and Non-Standard Measures section for further information.

• 2 Non-GAAP financial measure. Refer to the Non-GAAP and Non-Standard Measures section for further information.

• 3 Non-GAAP financial ratio. Refer to the Non-GAAP and Non-Standard Measures section for further information.

Revenue in Q1-2022 was up 23% compared to Q1-2021 as a result of continued strength in the new homes market and the timing of lot registrations in the quarter, which contributed to the 75% increase in Community Development revenue. The Community Development division also sold 7.58 acres of multi-family land,

including 2.3 acres in Edmonton and 5.3 acres in Lethbridge in Q1-2022. Given the timing of sales in real estate development, comparison of any three-month period may not be meaningful.

Investment properties GLA increased slightly as a result of property remeasures, which typically occur when leases turnover. Revenue from our income-generating Investment Properties and REIT divisions was down compared to Q1-2021 due to the Early Termination and IP Early Termination events which contributed $2.94 million to other revenue. We also disposed of some US residential units over the past 12 months contributing to lower revenue. See Investment Properties, page 9 and REIT, page 10 for additional information.

FINANCIAL HIGHLIGHTS

Revenue was up 23% as a results of the 136% increase in singlefamily lots sold and 7.58 acres in multi-family land sales (Q1-2021 - nil), leading to 75% growth in Community Development revenue.

Funds from operations (FFO) increased 5% over Q1-2021.

Net income was $2.47 million in Q1-2022 compared to a net loss of $14.03 million in Q1-2021. Net loss is significantly impacted by swings in non-cash fair value adjustments on investment properties and REIT units. The change in the REIT's unit price has a counter-intuitive impact on net income as an increase in unit value decreases net income. These losses are a key reason we focus on FFO as a truer measure of our financial performance.

DIVISIONAL OPERATING HIGHLIGHTS

The Community Development division will have a busy construction season to replenish inventory in all regions. Showhomes in the new community known as Cobblestone Creek in Airdrie, AB will be opening soon. The Pinnacle at Sunset Ridge in Cochrane, AB is a highly anticipated estate community, with lots scheduled for release in 2022. New showhome parades are also opening in several other communities in the spring/summer of 2022.

Sales activity remains healthy in our Canadian markets, including satellite communities such as St. Albert, Spruce Grove, Airdrie and Cochrane. Year-to-date, we sold 288 single-family lots compared to 122 last year. We continue to move new communities and additional phases in existing neighbourhoods through the municipal approval process.

The Property Development team has 6,913 sf in 1 project (Jensen Lakes Crossing) currently under construction, with no transfers in 2022 to date. A further 23,247 sf is complete and awaiting leaseup and transfer in 2 projects: Woodbend Market and Chestermere Station. Construction and leasing activity resulted in fair value gains of $0.33 million.

Total GLA under management increased a marginal 1,462 sf due to remeasures of property that typically occur on lease transfers and/or renewals. Revenue in our income-producing divisions ( Investment Properties and REIT ) was down 3% in the quarter. This decrease is a result of the Early Termination and IP Early Termination events which both occurred in Q1-2021, coupled with reduced revenue from our US properties as 11 residential units were sold in Q2 and Q3-2021. These reductions to revenue were partially offset by increased occupancy in both Canada and the US.

The investment property portfolio fair value decreased $3.88 million in Q1-2022. This relates to increased tenant incentives that did not have a corresponding increase in fair value.

First Quarter 2022 | Management’s Discussion & Analysis

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Our Recreational Properties are now open. Black Mountain opened on March 30, 2022. Our other courses opened subsequent to the quarter.

RETURNING VALUE

We continue to return value to our shareholders and unitholders:

• We paid a quarterly dividend of $0.14 per share in Q1-2022.

• On May 9, 2022 we declared a quarterly dividend of $0.14 per share, payable on June 30, 2022 to shareholders of record on June 15, 2022. The dividend is an eligible dividend for Canadian tax purposes.

• The REIT increased monthly distributions by 14% to $0.04 per unit compared to Q1-2021.

• The REIT also declared the following distributions for periods subsequent to the quarter:

			Distribution
Month	Record Date	Distribution Date	Amount
April 2022	April 29, 2022	May16, 2022	$0.04per Unit
May2022	May31, 2022	June 15, 2022	$0.04per Unit

REVENUE & MARGINS

Revenue was up 23% to $53.31 million compared to Q1-2021. Community Development revenue increased 75% to $25.99 million due to strong lot sales in our major Alberta markets. Revenue from single-family lot sales in Canada was $21.48 million, up from $14.88 million in the comparative period. Community Development division revenue is highly dependent on the demand for new homes in the regions where we hold land, the timing of raw, commercial and multi-family land sales, and the timing of registration on single-family lots.

With the higher contribution to revenue from Community Development, our income-generating divisions (Investment Properties and the REIT) accounted for 55% of Q1-2022 revenue after intersegment eliminations compared with 71% of total revenue in Q1-2021. Q1-2022 revenue from our incomegenerating divisions was $29.57 million at 58% gross margin compared to $30.52 million at 60% gross margin in Q1-2021. This decrease in revenue is the result of the Early Termination event, coupled with the sale of residential properties in the US since Q1-2021, partially offset by higher occupancy.

Gross margin decreased to 47% compared to 52% in Q1-2021. Our Community Development division contributed 37% to gross margin in Q1-2022 (Q1-2021 - 33%). Margins in this division decreased from 40% to 38% due to changes in product mix, which, along with negative margin in our recreational properties prior full season opening, led to the decrease in consolidated gross margin.

Net income is impacted by non-cash fair value adjustments on investment properties and REIT units, which can result in wide swings from period to period. These adjustments are primarily driven by market forces outside of Melcor's control. Management believes that FFO (discussion follows) is a more accurate reflection of our true operating performance.

Revenue and net income can also fluctuate significantly from quarter to quarter due to the timing of plan registrations, the cyclical nature of real estate and construction markets, and the mix of lot sales and product types. The growth of our income-

generating divisions offsets this cyclicality and has been a key diversification strategy over the past decade.

Funds From Operations (FFO)

FFO is a non-GAAP measure used in the real estate industry to measure operating performance. Refer to the Non-GAAP Measures section. We believe that FFO is an important measure of the performance of our real estate assets. FFO per share adjusts for certain non-cash items included in income such as fair value adjustments on investment properties and REIT units.

Below is a reconciliation of net income to FFO:

($000s)	Three months ended	Three months ended
	31-Mar-22	31-Mar-21
Net income (loss) for the period Amortization of operating lease incentives Fair value adjustment on investment properties Depreciation on property and equipment Stock based compensation expense Non-cash finance costs Gain on sale of asset Deferred income taxes Fair value adjustment on REIT units	2,470 1,407 2,522 156 117 (1,472) — (181) 5,678	(14,033) 2,011 (976) 178 266 1,274 (4) (184) 21,642
FFO1 FFO per share2	10,697 0.33	10,174 0.31

• 1 Non-GAAP financial measure. Refer to the Non-GAAP and Non-Standard Measures section for further information.

• 2 Non-GAAP financial ratio. Refer to the Non-GAAP and Non-Standard Measures section for further information.

FFO was up 5% or $0.52 million in the quarter. Improved gross margin in the quarter, was partially offset by higher G&A expenses, higher distributions to REIT unitholders (included in adjustments related to REIT units), and slightly higher current tax expense. The increase in distributions correlated to the higher REIT distributions in Q2-2022, compared with Q1-2021.

As real estate development is long term in nature, comparison of any three-month period may not be as meaningful as full year results.

Divisional Results

Our business is comprised of five integrated and complementary operating divisions:

• Community Development , which acquires raw land for future commercial and residential community development;

First Quarter 2022 | Management’s Discussion & Analysis

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• Property Development , which develops high-quality retail, office and industrial income-producing properties on serviced commercial sites developed by Community Development;

Our Corporate division carries out support functions including accounting, treasury, information technology, administration, legal, marketing and human resources.

• Investment Properties , which manages and leases the commercial developments produced by the Property Development division and an externally purchased portfolio of assets, as well as assets held in the REIT;

• The REIT , which owns and holds 39 income-producing properties; and

• Recreational Properties , which owns and operates championship golf courses associated with Melcor residential communities.

The following table summarize the results of our operating divisions:

	Community Development		Property Development		Investment Properties		REIT		Recreational Properties
	Three months March 31		Three months March 31		Three months March 31		Three months March 31		Three months March 31
($000s except as noted)	2022 2021		2022 2021		2022 2021		2022 2021		2022 2021
Revenue Portion of total revenue % Cost of sales Gross profit Gross margin %1 Portion of total margin1 General and administrative expense Fair value adjustment on investment properties Gain on sale of assets Interest income Segment Earnings(Loss)	25,993 14,877 47 % 33 % (16,073) (8,879) 9,920 5,998 38 % 40 % 37 % 25 % (1,822) (1,563) — — — — 92 140 8,190 4,575		18 32 — % — % — — 18 32 100 % 100 % — % — % (736) (466) 328 72 — — — — (390) (362)		10,604 11,029 19 % 24 % (4,265) (4,213) 6,339 6,816 60 % 62 % 24 % 28 % (1,010) (617) (218) 466 — — 1 1 5,112 6,666		18,965 19,486 34 % 43 % (8,009) (7,894) 10,956 11,592 58 % 59 % 41 % 48 % (788) (803) (3,662) (401) — — 7 7 6,513 10,395		113 84 — % — % (444) (414) (331) (330) (293) % (393) % (1) % (1) % (365) (334) — — — 4 — — (696) (660)

Divisional results are shown before intersegment eliminations and exclude corporate division. 1 Supplementary financial measure. Refer to Non-GAAP and Non-Standard Measures section for further details.

Community Development

Our Community Development division acquires raw land in strategic urban corridors and subsequently plans, develops and markets this land as builder-ready urban communities and largescale commercial and industrial centres. This process includes identifying and evaluating land acquisitions, site planning, obtaining approvals from municipalities, developing the land, construction, marketing and ultimately selling the lots to home builders (for residential communities) or developers (for commercial/industrial centres). The division also sells sites to our Property Development division, which in turn develops commercial properties on the land.

Master-planned mixed-use residential communities comprise the majority of Community Development's portfolio. We create efficient and sustainable urban communities by establishing an overall vision for each community and the amenities that will make it a desirable place to live. Residential lots and multi-family parcels are sold to home builders who share our passion for quality and with whom we have long-standing relationships.

Our focus is to grow market share and income levels by ensuring that we have an appropriate land mix and the right inventory in high demand areas in growing regions. We proactively manage our agreement receivables by maintaining an exclusive builder clientele and working closely with those builders.

First Quarter 2022 | Management’s Discussion & Analysis

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Sales Activity

REVENUE BY TYPE

Three months ended March 31, 2022

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6%
11%
83%
Single-family
Multi-family
Commercial
Industrial / Raw
Management fee / other
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Consolidated	Three months ended	Three months ended
	31-Mar-22	31-Mar-21
Canada Sales data: (including joint ventures at 100%)
Single-family sales (number of lots) Gross average revenue per single- family lot ($) Multi-family sales (acres) Gross average revenue per multi- family acre ($)	288 144,246 7.58 594,459	122 179,036 — —
Land sales to government bodies - raw, other (acres) Gross average revenue per other land acre ($)	— —	8.53 64,453
Divisional results: (including joint ventures at Melcor's interest)
Revenue ($000s) Earnings ($000s)	25,993 8,190	14,877 4,575

Note: The number of lots in the table above includes joint ventures at 100%; however, revenue is reported at Melcor's interest.

Three months ended March 31 2021

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5%
4%
91%
Single-family
Multi-family
Commercial
Industrial /Raw
Management fee / other
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Community Development division revenue is cyclical in nature and highly dependent on the demand for new homes in the regions where we hold land as well as the timing of single-family lot registrations, and the timing of raw, commercial, industrial and multi-family land sales. Because of this, community development revenue and income can fluctuate significantly from period to period.

We sold 288 single-family lots in Q1-2022 compared to 122 in Q1-2021. Our major Alberta markets were busy in the first quarter of 2022 with demand and sales surpassing both the comparative period and budgeted amounts. Our Edmonton region sold 229 lots, compared to 88 in the comparative period, representing the largest increase. The Calgary region also had a busy quarter, with 51 lots sold, compared to 15 in the same period last year.

Multi-family land sales also contributed $3.02 million to revenue in the quarter, while no land was sold in Q1-2021. We sold multifamily lots in two communities in the first quarter - 2.28 acres in SW Edmonton (Windermere) and 5.30 acres in Lethbridge (Legacy Ridge). Land sales, including commercial and multi-family sites, tend to vary quarter over quarter and can lead to lumpy revenue.

Gross margin in the Community Development division was down slightly as a result of higher estate lot sales in the prior year period. Gross margin was 38% in Q1-2022(Q1-2021 - 40%).

With low single-family lot inventory coming into 2022 combined with strong demand, we have an active construction program for the year and are currently planning to bring on 25 new phases in 19 communities for a total of 1,195 new lots being brought into inventory in 2022.

The average selling price on our single-family lots in Canada decreased 24% from Q1-2021 as a result of the combination of product type and selling region. Single-family lot sales covered a wide mix of product categories at various price points in 2022 thus far, from starter townhomes and duplexes to zero lot line homes. In Q1-2021 we released and sold 11 lake-view lots in our Kelowna region, at an average selling price of $0.47 million per lot, bringing the comparative period average up. Excluding these lots sold, the average selling price was more comparative to that in the current period.

No lots were sold in the USA in the quarter. We are actively marketing and working on final approvals for all of our land assets in the US. We intend to sell many of these projects as paper lots, which means we do not plan to develop ourselves. While we may participate in strategic land purchase opportunities, our primary focus is on harvesting our current inventory.

First Quarter 2022 | Management’s Discussion & Analysis

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We continue to develop new phases in communities where demand is evident. We remain committed to managing our risk in uncertain markets by ensuring that market demand is in place prior to proceeding with development, and by ensuring that our product mix is aligned with current market preferences.

consistent with our overall strategy and management expertise. We acquire land when we find a good fit within these criteria.

No new land was purchased in Q1-2022 or Q1-2021. We continue to monitor our land holdings and manage our cash position in order to capitalize on land acquisition opportunities as they arise.

Regional Sales Analysis

A summary of our lot and acre sales by region is as follows:

	Three months ended	Three months ended
	March 31, 2022	March 31, 2021
(including joint ventures at 100%)	Single- family (Lots) Multi- family (Acres) Other (Acres)	Single- family (Lots) Multi- family (Acres) Other (Acres) Paper Lots
Edmonton Region Red Deer Calgary Region Lethbridge Kelowna United States	229 2.28 — 8 — — 51 — — — 5.30 — — — — — — —	88 — 8.53 — 7 — — — 15 — — — 1 — — — 11 — — — — — — —
	288 7.58 —	122 — 8.53 —

Single-family lot sales may vary significantly quarter over quarter as plan registrations typically occur in the latter half of the year. Lot sales were up in our major Alberta regions. In Q1-2022, we rezoned a 3.3 acre site into 36 new single-family lots in our Edmonton region.

Sales remain strong in all areas that have available inventory.

Inventory

A summary of the movement in our developed lot inventory is as follows:

	Three months ended	Three months ended
	March 31, 2022	March 31, 2021
(including joint ventures at 100%)	Single- family (Lots) Multi- family (Acres) Other (Acres)	Single- family (Lots) Multi- family (Acres) Other (Acres)
Open Purchases New developments Redevelopment	685 61.7 — — — — — — — 36 (3.3) —	652 59 126 — — — 17 — — — — —
Sales	(288) (7.6) —	(122) — —
	433 50.8 —	547 59 126

We strategically monitor inventory levels and bring on appropriately sized new phases where market demand dictates.

Raw land inventory

We acquire land in strategic growth corridors and maintain an inventory of land for future development in our primary markets. Raw land acquisitions are based on management’s anticipation of market demand and development potential. The markets we operate in require significant infrastructure development and heavy capital investment, creating a barrier to entry. We continually investigate potential raw lands that complement our existing land holdings or provide attractive projects that are

Property Development

Our Property Development division develops, manages construction, markets and initially leases high-quality retail, office, industrial and multi-family residential revenue-producing properties on prime commercial sites purchased primarily from our Community Development division at fair market value. The division currently operates solely in Alberta.

The Property Development division supports our strategic objectives of asset diversification, income growth and value creation by constructing income-producing commercial developments.

The Property Development division increases the value of land assets and delivers long-term sustainable returns with high profile anchor tenants such as ATB, Bank of Montreal, Canadian Tire, Canadian Western Bank, CIBC, Home Depot, Loblaws, McDonald's, Recipe Unlimited, Rona, Royal Bank, Save-on Foods, Scotiabank, Shoppers Drug Mart, Staples, Starbucks, Subway, TD Canada Trust, Tim Hortons, Wal-Mart, Winners and many others.

Completed buildings are transferred from Property Development to Investment Properties at fair market value (based on third party appraisals) once construction and leasing activity nears completion. The transferred revenue and related costs are eliminated on consolidation and do not impact overall earnings.

Management fee revenue is comprised of fees paid by joint arrangement partners and is a percentage of total development costs incurred, which fluctuate period to period depending on the development stage of active projects.

The Property Development division realizes fair value gains resulting from development and leasing activities as construction is in progress. We generally expect to see the majority of fair value increases in the third and fourth quarters as construction and leasing are completed.

Division Highlights

($000s and at JV%, except as noted)	Three months ended	Three months ended
Total revenue	31-Mar-22	31-Mar-21
	18	32
Management fees revenue	18	32
Fair value gains on investment properties	328	72

Our Property Development division is actively constructing 1 new CRU and has plans to expand development in several other projects as the 2022 construction season commences.

Continued development and leasing in these projects resulted in fair value gains of $0.33 million during the quarter. Management examines each project on a case by case basis and we continue to develop where we remain confident in our lessees prospects.

The Property Development division currently has 30,160 sf under active development or completed and awaiting lease-up.

First Quarter 2022 | Management’s Discussion & Analysis

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Regional Highlights

($000s and at JV%, except as noted)	Three months ended	Three months ended
Fair value adjustments by region Northern Alberta	31-Mar-22	31-Mar-21
	328	—
Southern Alberta	—	72
	328	72

Southern Alberta: Year-to-date we have not recognized any fair value gains. We are actively working on leasing up 12,464 sf of space at Chestermere Station and expect to complete and transfer this property later in the year.

Future development opportunities

We continually review our land inventory to identify parcels that are well suited for commercial development in the near future. We also work with municipalities to gain approvals to commence development on new projects.

Northern Alberta : We recognized $0.33 million in fair value gains year-to-date related to ongoing development in Jensen Lakes and Woodbend Market. Development continues at neighbourhood shopping centres in Northern Alberta with 10,783 sf completed and awaiting lease-up and a further 6,913 sf under construction.

The following tables illustrate our current and future project expectations:

Current Projects
					SF Under
				Developed and	Development or
				transferred to IP or	developed and
Project	Location	Type	Total SF1	Sold2	awaitinglease up
The Village at Blackmud Creek	South Edmonton	Regional businesspark	550,000	198,905	—
Telford Industrial	Leduc	Industrial Park	500,000	143,118	—
West HendayPromenade	West Edmonton	Regional mixed use centre	515,300	116,300	—
Kingsview Market	Airdrie	Regional shopping centre	331,000	200,601	—
Kingsview Commercial	Airdrie	Regional shopping centre	33,500	33,500	—
Chestermere Station	Chestermere	Neighbourhood shopping centre	278,100	241,600	12,464
Clearview Market 2	Red Deer	Neighbourhood shopping centre	80,000	3,010	—
The District at North Deerfoot	North Calgary	Regional business / industrialpark	1,285,000	586,633	—
Campsite Industrial	Spruce Grove	Industrial Park	170,000	13,700	—
The Shoppes atJagare Ridge	South Edmonton	Neighbourhood shopping centre	105,000	105,000	—
Jensen Lakes Crossing	St. Albert	Neighbourhood shopping centre	150,000	95,713	6,913
Woodbend Market	Leduc	Neighbourhood shopping centre	140,000	3,000	10,783
Vista Ridge	Sylvan Lake	Neighbourhood shopping centre	20,000	—	—
Greenwich	West Calgary	Regional mixed use centre	325,000	—	—

1 Total SF represents the estimated total square footage remaining to be developed in the project. This includes sites that may be individually sold to retailers or end-users. For example, grocers usually buy land from Melcor and build/own their building. Total SF is periodically recalibrated based on current market conditions and changes to development plans.

2 Developed and transferred to IP or sold includes estimated sf of sites sold to retailers for development as described above.

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Expected Future Projects
				Ownership	Expected Start
Project	Location	Type	Total SF1	Interest	(year)
Secord	Edmonton	Neighbourhood shopping centre	75,000	60%	2022
Laredo	Red Deer	Neighbourhood shopping centre	10,000	100%	2023
Keystone Common	North Calgary	Regionalpower centre	350,000	100%	2023
The Shoppes at Canyons	Lethbridge	Neighbourhood shopping centre	105,000	100%	2023
Mattson	Edmonton	Neighbourhood shopping centre	75,000	50%	2024+
Rollyview	Leduc	Neighbourhood shopping centre	75,000	100%	2024+
Rosenthal	Edmonton	Neighbourhood mixed use centre	30,000	50%	2024+
West Pointe Marketplace	Lethbridge	Regionalpower centre	750,000	100%	2024+
Westview Commercial	West Calgary	Neighbourhood shopping centre	150,000	100%	2024+
Sora	South Calgary	Neighbourhood shopping centre	60,000	50%	2024+

1 Total SF represents the estimated total square footage remaining to be developed in the project. This includes sites that may be individually sold to retailers or end-users. For example, grocers usually buy land from Melcor and build/own their building. Total SF is periodically recalibrated based on current market conditions and changes to development plans.

Investment Properties

Our Investment Properties division manages and leases our portfolio of high-quality office, retail, industrial and residential properties, which are located across western Canada and the US, including properties owned by the REIT. Currently our Investment Properties division manages 4.75 million sf of income-producing commercial GLA and 593 residential units.

Our commercial property portfolio is primarily comprised of properties developed and transferred from our Property Development division in Alberta or acquired from third parties throughout our portfolio. Our goal is to improve the operating efficiency of each property for stable and growing cash flows, making them attractive assets for the REIT to purchase under its Right of First Offer (ROFO) option. In our management capacity, we are committed to efficient property management for optimized operating costs, occupancy and rental rates, providing the REIT and our joint venture partners with best in class management services. We focus on client retention through continuous customer contact and ongoing service evaluations. We also enhance our portfolio by upgrading the appearance, functionality and desirability of our properties, thereby increasing their rental potential.

Our US properties provide the division with a stable income stream that diversifies our exposure to the western Canadian resource sector. We also own 11 parking lots and other assets which are held for the long-term, providing current stable income and in some cases, future re-development potential.

Our portfolio under management has high occupancy rates with long-term tenancies from high-quality retail and commercial clients.

Operating results

The following table summarizes the division’s GLA, occupancy and average base rent:

(as at, at JV%, except as noted)
Commercial properties GLA under management (sf, total) Properties owned and managed (sf) Properties managed (sf) Residential units managed Occupancy - CAD Occupancy - US Weighted Average Base Rent (per sf) - CAD Weighted Average Base Rent (per sf) - US	31-Mar-22	31-Dec-21
	4,754,747 1,103,950 3,650,797	4,753,285 1,101,292 3,651,993 593 76.1 % 75.4 % $ 26.59 $ 20.67
	593
	77.6 % 76.9 %
	$ 26.99
	$ 20.53

The following table summarizes the division’s key performance measures:

($000s and at JV%, except as noted)	Three months ended	Three months ended
Revenue (total)	31-Mar-22	31-Mar-21
	10,604	11,029
Canadian properties US properties Management fees Parking lots and other assets Net operating income (NOI)1 Funds from operations1 Funds from operationsper share2	5,170	4,163 5,205 1,555 106 7,116 6,715 0.20
	3,621 1,685
	127
	6,249 5,695 0.17

• 1 Non-GAAP financial measure. Refer to the Non-GAAP and Non-Standard Measures section for further information.

2 Non-GAAP financial ratio. Refer to the Non-GAAP and Non-Standard Measures section for further information.

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The Investment Properties division's primary function is asset management and hands on property management.

Canadian properties

Our Canadian property portfolio continues to grow as properties are developed and transferred from Property Developments. The Property Development division has 30,160 sf of GLA under active construction or completed and awaiting lease up. The majority of transfers to Investment Properties typically occur in the latter part of the year due to construction timing.

Occupancy on Canadian properties was up over year end at 77.6% at March 31, 2022 (December 31, 2021 - 76.1%). Commercial weighted average base rents (WABR) were stable at $26.99 (December 31, 2021 - $26.59). Occupancy and WABR are both impacted by transfers from Property Developments where tenants were on free-rent periods, and lower rates on new leasing and pandemic related lease restructures. During the first quarter, we had new leases commence at some newer buildings (The District) which boosted occupancy quarter over quarter. Certified measures on tenant spaces can also cause slight variances on occupancy as these are adjusted as tenants occupy space.

The following is a reconciliation of Canadian properties same asset NOI to NOI:

($000s and at JV%, except as noted) Three months ended	($000s and at JV%, except as noted) Three months ended	($000s and at JV%, except as noted) Three months ended
Same asset NOI1	31-Mar-22	31-Mar-21
	2,561	2,319
Properties transferred from PD	687	98
NOI1 Amortization of operating lease incentives Straight-line rent adjustment	3,248 (151) 352	2,417 (173) 557
Gross profit	3,449	2,801

• 1 Non-GAAP financial measure. Refer to the Non-GAAP and Non-Standard Measures section for further information.

rollover during the year. Residential occupancy was stable at 99.5%.

A reconciliation of US properties same asset NOI to gross profit is as follows:

($000s and at JV%, except as noted)	Three months ended	Three months ended
Same asset NOI1	31-Mar-22	31-Mar-21
	1,258	2,891
Third party disposals	—	21
NOI1 Foreign currency translation Amortization of operating lease incentives Straight-line rent adjustment	1,258 335 (214) 103	2,912 775 (253) (342)
Grossprofit	1,482	3,092

1 Non-GAAP financial measure. Refer to the Non-GAAP and Non-Standard Measures section for further information.

Gross profit was down $1.61 million. Excluding the IP Early Termination event, gross profit was up $0.33 million due to fluctuations in straight-line rent adjustments and foreign exchange rate compared to Q1-2021 and NOI was up $0.29 million.

Management fees & other

We earn management fees under the asset management and property management agreements with the REIT and under other joint venture agreements where Melcor acts as the manager. Management fees were up 8% over 2021.

Funds from Operations

FFO decreased 15% or $1.02 million over 2021 as a result of the IP Early Termination fee, partially offset by the lower foreign exchange rate for the current period.

REIT

Gross profit was up $0.65 million or 23% over 2021 and NOI increased by 34%. Properties transferred from the Property Development division over the last 12 months, as well as those currently under development added $0.69 million in NOI in the first quarter of 2022 (2021 - $0.10 million). On a same asset basis, NOI was up 10% in the quarter due to improved occupancy and WABR in the quarter.

US properties

IP Early Termination event: In Q1-2021 revenue included a termination fee of $1.94 million (US$1.53 million) from a tenant who surrendered 19,000 sf of office space.

Sale of Assets: We sold 11 Brownstone units in Q3-2021.

As these two events had a significant impact on IP results, we define the terms and refer to them in the following discussion.

Revenue on US properties was $3.62 million compared to $5.21 million in Q1-2021. Excluding the IP Early Termination event, revenue was up $0.35 million. Revenue and NOI were also impacted by the Sale of Assets, which is adjusted for in the same asset NOI calculations following.

The REIT owns 39 income-producing office, retail and industrial properties, comprising 3.22 million square feet of GLA at March 31, 2022. The REIT’s portfolio has a diversified tenant profile - with a mix of national, regional and local tenants - operating in a variety of industries.

As at May 9, 2022 we have a controlling 55.4% interest in the REIT through ownership of all Class B LP Units (December 31, 2021 - 55.4%). As we have concluded that Melcor retains control of the REIT, we consolidate 100% of the REIT’s revenues, expenses, assets and liabilities.

Early Termination event: In Q1-2021, we received $1.00 million for the early lease termination of a fast food chain occupying 6,384 sf in Leduc Common. The tenant made up 0.4% of 2020 base rent and had 11 years remaining on a 20 year lease. Early termination also resulted in $0.19 million in reduced SLR adjustments. As this event had a significant impact on REIT results, we have defined this term and provide details here. We refer to the Early Termination event in the following discussion.

Occupancy was 76.9% at March 31, 2022, up slightly from 75.4% at year end. Q1-2022 WABR was $20.53 per sf compared to $20.67 at year end. WABR was negatively impacted by tenant

First Quarter 2022 | Management’s Discussion & Analysis

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Operating results

The following table summarizes the division’s GLA, occupancy and average base rent:

(as at, at JV%, except as noted)
Commercial properties GLA under management (sf, total) Fair value of portfolio1 Occupancy Weighted average base rent(per sq. ft.)	31-Mar-22	31-Dec-21
	3,215,025 723,149 87.4 %	3,216,175 723,729 87.1 %
	16.61	16.73

• 1 Supplementary financial measure. Refer to the Non-GAAP and Non-Standard Measures section for further information.

The following table summarizes the REIT’s key performance measures:

($000s except as noted) Three months ended	($000s except as noted) Three months ended	($000s except as noted) Three months ended
Rental revenue NOI1 Same asset NOI1 (see calculation following) Fair value adjustment on investment properties Funds from operations1 Funds from operations per share2	31-Mar-22	31-Mar-21
	18,965 11,855 11,855 (3,662) 11,076	19,486 12,627 12,627 (401) 11,711
	0.34	0.35

• 1 Non-GAAP financial measure. Refer to the Non-GAAP and Non-Standard Measures section for further information.

• 2 Non-GAAP financial ratio. Refer to the Non-GAAP and Non-Standard Measures section for further information.

Rental revenue was down 3% compared to Q1-2021. Excluding the Early Termination event, revenue increased 3% over Q1-2021. Swings in SLR partially offset the higher other revenue in the comparative period.

Other revenue includes parking, storage, lease amendment fees and other miscellaneous revenue that is ancillary to our business and fluctuates from period to period. Other revenue was significantly impacted by the Early Termination event in Q1-2021

During Q1-2022, we signed 179,269 sf of new and renewed leasing (including holdovers) which improved occupancy slightly to 87.4%. In 2022, 9.6% of our portfolio (308,989 sf) is up for renewal, including month-to-month tenants. As at March 31, 2022, we have retained 86.1% (137,563 sf) of expiring leases and have received commitment on an additional 117,527 sf of future renewals. While we have observed some softness in the market, pockets of opportunity exist across our portfolio and in all asset classes.

Property taxes and utilities were up 2% in the quarter. Utility costs, including heating costs, fluctuate year over year depending on weather conditions in the regions where our assets are located. Property tax increases were the result of increased assessments over the prior year.

The following is a reconciliation of same asset NOI to net rental income:

($000s except as noted)	Three months ended	Three months ended
Same asset NOI1	31-Mar-22	31-Mar-21
	11,855	12,627
NOI before adjustments Amortization of operating lease incentives Straight-line rent adjustment	11,855 (901) 2	12,627 (915) (120)
Net rental income	10,956	11,592

• 1 Non-GAAP financial measure. Refer to the Non-GAAP and Non-Standard Measures section for further information.

NOI and same-asset NOI are non-standard metrics used in the real estate industry to measure the performance of investment properties. The IFRS measure most directly comparable to NOI and same-asset NOI is net income.

NOI and same-asset NOI are identical in Q1-2022 as no transactions were completed within the trailing 24 months. NOI was down 6% in Q1-2022 compared to Q1-2021, and up 2% compared to Q4-2021. Excluding the Early Termination event, NOI was up 2% in the quarter.

Funds from operations

FFO is a non-GAAP financial measure used in the real estate industry to measure the operating performance of investment properties. Refer to the Non-GAAP and Non-standard Measures section for further information. FFO was down 5% in the first quarter due to lower NOI.

Recreational Properties

Our Recreational Properties division owns and manages championship golf courses built to add value to Melcor residential communities.

The division's goal is to provide a high standard of service to our customers to maximize their enjoyment at our golf courses and to enhance divisional performance through revenue growth and cost savings.

Our golf courses aspire to achieve consistent course conditions and quality, and to be recognized as championship public golf courses with state of the art clubhouses that contribute to our ability to attract tournaments and events. Achieving these goals enables us to find the appropriate balance between the revenue levers of course fees, number of rounds played and customer satisfaction and enjoyment.

Revenue in the Recreational Properties division increased by 35% to $0.11 million in Q1-2022. Black Mountain was open for 2 days in Q1-2022 and had 162 rounds played. All other courses opened in late April due to the late arrival of spring in Alberta.

Operating expenses were up slightly, consistent with higher revenue excluding the Early Termination event.

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	Ownership interest	Season opened 2022		Season opened 2021
Managed by Melcor: Lewis Estates (Edmonton) 60% The Links (Spruce Grove) 100% Black Mountain (Kelowna) 100% Managed by a Third Party: Jagare Ridge (Edmonton) 50%		April 22 April 22 March 30 April 29		April 2 April 2 April 1 April 14

General & Administrative Expense

G&A expenses were up 20% over Q1-2021. Community Development G&A increased as a result of increased activity in the division and the reversal of various cost constraint initiatives put in place during the comparative period. Our Investment Properties G&A expense was up due to non-recurring one time expenses.

As a percentage of revenue, G&A was stable at 11% in the current quarter (Q1-2021 - 11%). Management continues to prudently monitor and manage controllable expenses.

Income Tax Expense

The statutory tax rate is 23% for the three months ended March 31, 2022 (2021 - 23%). Other items that impacted the effective tax rate include permanent differences related to revaluation adjustments on investment properties, distributions to REIT unitholders and the non-taxable portion of REIT income.

Liquidity & Capital Resources

The following table represents selected information as at March 31, 2022, compared with December 31, 2021.

As at ($000s except as noted)	31-Mar-22	31-Dec-21
Cash & cash equivalents Restricted cash Accounts receivable Agreements receivable Revolving credit facilities Accounts payable and accrued liabilities Total assets Total liabilities Debt to equityratio1	66,372 6,129 8,579 125,426 92,263 50,503 2,114,888 1,004,835 0.91	59,920 4,824 10,097 127,739 87,050 50,476 2,113,927 997,458 0.89

We employ a range of strategies to maintain operations and facilitate growth. Our principal liquidity needs are to:

• Fund recurring expenses;

• Meet debt service requirements;

• Make dividend payments;

• Make distributions to unitholders of the REIT;

• Fund land development; and

• Fund investing activities such as the discretionary purchase of land inventory and/or investment property purchases.

We are able to meet our capital needs through a number of sources, including cash generated from operations, long and shortterm borrowings from our syndicated credit facility, mortgage financings, convertible debentures, and the issuance of common shares or trust units. Our primary use of capital includes paying operating expenses, sustaining capital requirements on land and property development projects, completing real estate acquisitions, debt principal and interest payments, paying distributions on the REIT units and paying dividends when declared by our board of directors.

We believe that internally generated cash flows, supplemented by borrowings through our credit facility and mortgage financings, where required, will be sufficient to cover our normal operating and capital expenditures. We regularly review our credit facility limits and manage our capital requirements accordingly. Melcor continues to focus on cash management to place our business in a position where we are able to support our builders, suppliers and tenants through the unpredictability of COVID-19.

Financing & Liquidity

Total liquidity (cash and MDL & REIT line availability) was $153.01 million as at March 31, 2022 (December 31, 2021 - $126.66 million). As at March 31, 2022, our total general debt outstanding was $728.65 million compared to $716.91 million on December 31, 2021.

A summary of our debt is as follows:

As at($000s)	31-Mar-22	31-Dec-21
Melcor - revolving credit facilities	92,263	87,050
Project specific financing Secured vendor take back debt on land inventory Debt on investment properties and golf course assets REIT - convertible debentures	39,831 11,435 512,663 72,459	40,758 11,794 506,382 70,929
General debt	728,651	716,913

1 Non-GAAP financial ratio. Refer to the Non-GAAP and Non-Standard Measures section for further information.

First Quarter 2022 | Management’s Discussion & Analysis

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We are subject to financial covenants on our revolving credit facility. The covenants include a maximum debt to total capital ratio of 125%, a minimum debt service coverage ratio of 3.00, and a minimum net book value of shareholder's equity of $300.00 million. As at March 31, 2022 and throughout the period, we were in compliance with our financial covenants.

We are also subject to financial covenants on the REIT's $35.00 million revolving credit facility. The covenants include a maximum debt to total capital ratio of 60% (excluding convertible debenture), a minimum debt service coverage ratio of 1.25, and a minimum adjusted unitholders' equity of $140.00 million. As at March 31, 2022 and throughout the period, we were in compliance with our financial covenants.

These metrics are non-standard measures used to assess compliance with our lending agreements and are not specifically defined in the CPA Handbook or in IFRS. These non-standard measures may not be comparable to similar measures presented by other companies.

Sources & Uses of Cash

The following table summarizes our cash flow from (used in) operating, investing and financing activities, as reflected in our consolidated statement of cash flow:

($000s)	Three months ended	Three months ended
Cash flow from operating activities Cash flow used in investing activities Cash flow from (used) in financing activities	31-Mar-22	31-Mar-21
	988 (1,675) 7,746	21,219 (4,292) (4,761)

Cash flow from operating activities was $0.99 million, an decrease of $20.23 million over comparative period. Cash flow from operating activities is significantly impacted by the timing of development and sales activity and settlement of working capital. Collections on agreements receivable were down $7.52 million compared to 2021 due to timing of sales and receipts. Development activity was up in 2021, spending $4.10 (2021 - cash inflow of $0.82 million). Operating assets and liabilities tend to fluctuate year over year depending on the timing of payments due and receivable, which resulted in cash outflow of $4.52 million year to date 2022 (2021 - cash inflow of $1.22 million). We also incurred $1.72 million in tenant incentives and direct leasing costs in 2021 compared to $2.24 million in 2021. Our restricted cash balance also went up $1.31 million related to deposits on US lot sales.

Cash flow used in investing activities was $1.68 million in Q1-2022 (Q1-2021 - $4.29 million). We continue to develop commercial properties and invest in our portfolio, resulting in $1.56 million of cash outflow in the quarter (Q1-2021 - $4.28 million). Investments in properties under development (Property Development division) contributed $1.26 million to the cash outflows (Q1-2021 - $3.94 million).

Cash flow from financing activities was $7.75 million in the quarter compared to $4.76 million used in the comparative 2021 period. Draws on the credit facility were $5.21 million in 2022 compared with draws of $3.54 million in 2021 comparative period. Draws on the credit facility were offset by net proceeds on our general debt of $9.08 million year to date in 2022 compared with net repayment of $4.71 million in Q1-2021.

We paid a $0.14 per share dividend for a total of $4.60 million during the quarter. This compares to Q1-2021 payments of $0.10 per share for a total of $3.31 million.

Share Data

Melcor has been a public company since 1968 and trades under the symbol “MRD” on the Toronto Stock Exchange. As at March 31, 2022 there were 32,832,559 common shares issued and outstanding, 378,800 options, and 260,591 restricted share units. Each stock option and restricted share unit is convertible to one common share upon exercise or exchange. There is only one class of common shares issued.

Off Balance Sheet Arrangements, Contractual Obligations, Business Environment & Risks, Critical Accounting Estimates, Changes in Accounting Policies

There are no material changes to the above titled sections at March 31, 2022 in comparison to the December 31, 2021 annual MD&A. Refer to note 3 of the condensed interim consolidated financial statements for changes in accounting policies.

Normal Course Issuer Bid

We have had active Normal Course Issuer Bids (NCIB) in place over the past year.

On April 1, 2021, Melcor commenced a Normal Course Issuer Bid (NCIB) which expired on March 31, 2022. Under this bid, we were allowed to purchase up to 1,654,553 common shares in total (approximately 5% of our issued and outstanding common shares) with a daily repurchase restriction of 3,781 common shares. We purchased 380,761 common shares for cancellation under this bid.

Also, on April 1, 2021 the REIT commenced a normal course issuer bid ("2021 NCIB") which expired on March 31, 2022. Under this bid, the REIT was allowed to purchase up to 652,525 trust units for cancellation, representing approximately 5% of the REIT's issued and outstanding trust units. The trust units were allowed to be repurchased up to a maximum daily limit of 3,824. The price which the REIT will paid for trust units repurchased under the plan was the market price at the time of acquisition. The REIT purchased a total of 89,507 units for cancellation under this plan.

First Quarter 2022 | Management’s Discussion & Analysis

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On April 1, 2022 Melcor commenced a new NCIB, which allows Melcor to purchase up to 1,641,627 shares for cancellation, representing approximately 5% of the issued and outstanding shares. The shares may be repurchased up to a maximum daily limit of 1,281. The price Melcor will pay for shares repurchased under the plan will be the market price at the time of acquisition. The NCIB ends one year from commencement on March 31, 2023. The REIT did not renew its NCIB at this time.

Melcor has entered into an automatic share purchase plan (ASPP) agreement with a broker to allow shares to be purchased under the NCIB at times we would ordinarily not be active in the market due to regulatory restrictions or self-imposed blackout periods.

Quarterly Results

The following table presents a summary of our unaudited operating results for the past eight quarters. This information should be read in conjunction with the related financial statements, notes to the financial statements and management’s discussion and analysis.

	Three Months Ended	Three Months Ended	Three Months Ended
($000s)	31-Mar-22	31-Dec-21 30-Sept-21 30-June-21 31-Mar-21	31-Dec-20 30-Sept-20 30-June-20
Revenue Net income (loss) FFO1 Shares outstanding (basic)	53,306 2,470 10,697 32,832,559	150,598 56,213 65,547 43,270 44,769 16,561 9,014 (14,033) 42,311 12,516 16,326 10,174 32,961,015 32,966,423 33,066,649 33,086,061	80,947 73,051 39,053 (112) 7,526 (62,590) 21,908 14,315 9,276 33,091,061 33,129,561 33,155,561
Per Share
Basic earnings (loss) Diluted earnings (loss) FFO basic2 FFO diluted2 Dividends Book value2	0.08 0.07 0.33 0.32 0.14 33.81	1.35 0.50 0.27 (0.42) 1.35 0.50 0.27 (0.42) 1.28 0.38 0.49 0.31 1.28 0.37 0.49 0.30 0.12 0.12 0.10 0.10 33.87 32.69 32.10 31.98	(0.01) 0.23 (1.88) (0.01) 0.23 (1.88) 0.66 0.43 0.28 0.66 0.43 0.28 0.08 0.08 0.08 32.56 32.83 32.76

1 Non-GAAP financial measure. Refer to the Non-GAAP and Non-Standard Measures section for further information.

2 Non-GAAP financial ratio. Refer to the Non-GAAP and Non-Standard Measures section for further information.

We have historically experienced variability in our results of operations from quarter to quarter due to the seasonal nature of the development business and the timing of plan registrations with the municipalities. We typically experience the highest sales in our Community Development division in the fourth quarter, as this is when the majority of plans register. The fair value gains in our Property Development division are also seasonally affected, as the majority of construction in Alberta takes place during the spring and summer months.

Subsequent Events

Refer to note 13 of the interim consolidated financial statements for information pertaining to subsequent events.

Internal Control over Financial Reporting & Disclosure Controls

The Chief Executive Officer and the Chief Financial Officer have evaluated whether there were material changes to internal control over financial reporting during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Melcor has continually responded to the COVID-19 pandemic by following the guidelines set forth by the Alberta government, at a minimum. As a result, the majority of Melcor's employee base was working from home wherever practical until mid-March 2022. The remote work arrangements have not impacted the design of our internal controls. We will continue to monitor and mitigate the risks associated with changes to our control environment.

First Quarter 2022 | Management’s Discussion & Analysis

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Non-GAAP and Non-standard Measures

Throughout this MD&A, we refer to terms known as non-GAAP financial performance measures that are not specifically defined in the CPA Canada Handbook or in IFRS. These non-standard measures may not be comparable to similar measures presented by other companies. We use REALpac definitions for items such as FFO except that, for FFO, we include an adjustment for amortization of deferred financing fees, which is included in noncash financing costs.

We believe that these non-GAAP and non-standard measures are useful in assisting investors in understanding components of our financial results.

The non-GAAP and non-standard terms that we refer to in this MD&A are defined below.

Net operating income (NOI): a non-GAAP financial measure defined as rental revenue, adjusted for amortization of tenant improvements and straight-line rent adjustments, less direct operating expenses as presented in the statement of income and comprehensive income. A reconciliation of NOI to the most comparable IFRS measure, net income, is shown in the below tables:

Investment Properties

($000s)	Three months ended	Three months ended
	31-Mar-22	31-Mar-21
Segment Earnings Fair value adjustment on investment properties General and administrative expenses Interest income Amortization of operating lease incentives Straight-line rent adjustment	5,112 218 1,010 (1) 365 (455)	6,666 (466) 617 (1) 515 (215)
Divisional NOI	6,249	7,116

REIT

($000s)	Three months ended	Three months ended
	31-Mar-22	31-Mar-21
Segment Earnings Fair value adjustment on investment properties General and administrative expenses Interest income Amortization of operating lease incentives Straight-line rent adjustment	6,513 3,662 788 (7) 901 **(2) **	10,395 401 803 (7) 915 120
Divisional NOI	11,855	12,627

Further discussion over NOI can be found in the Investment Property and REIT Divisional Results sections of the MD&A.

Same asset NOI: Same-asset NOI is a non-GAAP financial measure that compares the NOI on assets that have been owned for the entire current and comparative period and are classified for continuing use. Further discussion over same-asset NOI can be found in the Investment Property and REIT Divisional Results sections of the MD&A. this measure compares the NOI on assets that have been owned for the entire current and comparative period.

Fair value of investment properties: Fair value of investment properties in the REIT Divisional results section of the MD&A is a supplementary financial measure and is calculated as the sum of the balance sheet balances for investment properties and other assets (TI's and SLR).

Gross margin (%): Gross margin percent is a supplementary financial measure that indicates the relative efficiency with which we earn revenue. This ratio is calculated by dividing gross profit by revenue.

Net margin (%): Net margin percent is a supplementary financial measure that indicates the relative efficiency with which we earn income. This ratio is calculated by dividing net income by revenue.

Book value per share: Book value per share is a non-GAAP financial ratio and is calculated as shareholders' equity over number of common shares outstanding.

Debt to equity ratio: this is a non-GAAP financial ratio and is calculated as total debt over total equity. Refer to the Liquidity & Capital Resources section of the MD&A for further discussion.

Portion of total revenue: Portion of total revenue is a supplementary financial measure and is calculated as divisional revenue over total consolidated revenue. Refer to the Divisional Results section of the MD&A for further information.

Portion of total gross profit: Portion of total gross profit is a supplementary financial measure and is calculated as divisional gross profit over total consolidated gross profit. Refer to the Divisional Results section of the MD&A for further information.

Funds from operations (FFO): FFO is a non*GAAP financial measure and is defined as net income in accordance with IFRS, excluding (i) fair value adjustments on investment properties; (ii) gains (or losses) from sales of investment properties; (iii) amortization of tenant incentives; (iv) fair value adjustments, interest expense and other effects of redeemable units classified as liabilities; (v) acquisition costs expensed as a result of the purchase of a property being accounted for as a business combination; (vi) adjustment for amortization of deferred financing fees, which is included in non-cash financing costs and (vii) fair value adjustment on derivative instrument, after adjustments for equity accounted entities, joint ventures and non-controlling interests calculated to reflect FFO on the same basis as consolidated properties. Further discussion over FFO, including a reconciliation from net income, can be found in the Funds from Operations section of the MD&A and in the tables below:

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Consolidated

($000s)	Three months ended	Three months ended
	31-Mar-22	31-Mar-21
Net income (loss) for the period Amortization of operating lease incentives Fair value adjustment on investment properties Depreciation on property and equipment Stock based compensation expense Non-cash finance costs Gain on sale of asset Deferred income taxes Fair value adjustment on REIT units	2,470 1,407 2,522 156 117 (1,472) — (181) 5,678	(14,033) 2,011 (976) 178 266 1,274 (4) (184) 21,642
FFO	10,697	10,174

Investment Properties

($000s)	Three months ended	Three months ended
	31-Mar-22	31-Mar-21
Segment Earnings Fair value adjustment on investment properties Amortization of operating lease incentives	5,112 218 365	6,666 (466) 515
Divisional FFO	5,695	6,715

REIT

($000s)	Three months ended	Three months ended
	31-Mar-22	31-Mar-21
Segment Earnings Fair value adjustment on investment properties Amortization of operating lease incentives	6,513 3,662 901	10,395 401 915
Divisional FFO	11,076	11,711

FFO per share: FFO per share is a non-GAAP financial ratio and is defined as FFO over basic weighted average common shares outstanding. Refer to the Funds From Operations section of the MD&A for further discussion.

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