Melcor Developments Ltd. — Interim / Quarterly Report 2023

Nov 9, 2023

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Condensed Interim Consolidated Financial Statements For the three and nine months ended September 30, 2023 (Unaudited, in thousands of Canadian dollars)

Third Quarter 2023 | Financial Statements & Notes

Melcor Developments Ltd.

1

Condensed Interim Consolidated Statement of Income

	For the three months ended	For the three months ended	For the nine months ended	For the nine months ended
	September 30,	September 30,	September 30,	September 30,
Unaudited($000s)	2023	2022	2023	2022
Revenue (note 8)	88,781	61,136	190,105	165,486
Cost of sales	**(48,141) **	(30,981)	**(97,362) **	(84,290)
Gross profit	40,640	30,155	92,743	81,196
General and administrative expense	(5,933)	(6,329)	(17,146)	(17,650)
Fair value adjustment on investment properties (note 5 and 14)	5,736	3,070	(1,528)	(247)
Adjustments related to REIT units (note 13 and 14)	259	3,630	8,037	8,323
Gain on sale of assets	41	29	48	37
Operatingearnings	40,743	30,555	82,154	71,659
Interest income	478	707	1,729	1,090
Foreign exchange gain (loss)	21	493	(378)	617
Finance costs(note 9)	**(5,657) **	(4,065)	**(19,981) **	(11,101)
Net finance costs	**(5,158) **	(2,865)	**(18,630) **	(9,394)
Income before income taxes	35,585	27,690	63,524	62,265
Income tax expense	**(6,702) **	(3,916)	**(10,855) **	(10,113)
Net income for theperiod	28,883	23,774	52,669	52,152
Income per share:
Basic income per share	0.94	0.73	1.70	1.59
Diluted incomeper share	0.94	0.73	1.69	1.59

See accompanying notes to these condensed interim consolidated financial statements.

Condensed Interim Consolidated Statement of Comprehensive Income

	For the three months ended	For the three months ended	For the nine months ended	For the nine months ended
	September 30,	September 30,	September 30,	September 30,
Unaudited($000s)	2023	2022	2023	2022
Net income for the period	28,883	23,774	52,669	52,152
Other comprehensive income
Items that may be reclassified subsequently to net income:
Currency translation differences	3,812	12,648	(228)	16,294
Comprehensive income	32,695	36,422	52,441	68,446

See accompanying notes to these condensed interim consolidated financial statements.

Third Quarter 2023 | Financial Statements & Notes

Melcor Developments Ltd.

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Condensed Interim Consolidated Statement of Financial Position

Unaudited($000s)	September 30, 2023	December 31, 2022
ASSETS
Cash and cash equivalents	62,379	80,465
Restricted cash	1,758	2,761
Accounts receivable	7,449	12,487
Income taxes recoverable	2,213	3,889
Agreements receivable	84,099	97,232
Land inventory (note 4)	762,156	749,501
Investment properties (note 5 and 14)	1,106,767	1,124,783
Property and equipment	11,806	12,238
Other assets	59,793	57,836
Derivative financial assets (note 14)	9,059	6,358
Assets held for sale(note 6 and 14)	33,775	19,500
	2,141,254	2,167,050
LIABILITIES
Accounts payable and accrued liabilities	54,673	53,213
Income taxes payable	1,484	336
Provision for land development costs	56,603	58,260
General debt (note 7)	696,161	740,365
Deferred income tax liabilities	63,581	64,650
REIT units(note 13 and 14)	59,186	71,890
	931,688	988,714
SHAREHOLDERS' EQUITY
Share capital (note 10)	68,847	70,218
Contributed surplus	5,581	4,810
Accumulated other comprehensive income (AOCI)	29,370	29,598
Retained earnings	1,105,768	1,073,710
	1,209,566	1,178,336
	2,141,254	2,167,050

See accompanying notes to these condensed interim consolidated financial statements.

Third Quarter 2023 | Financial Statements & Notes

Melcor Developments Ltd.

3

Condensed Interim Consolidated Statement of Changes in Equity

Unaudited($000's)	Equity attributable to Melcor's shareholders	Equity attributable to Melcor's shareholders	Total equity
	Share capital Contributed surplus	AOCI Retained earnings
Balance at January 1, 2023 Net income for the period Cumulative translation adjustment Transactions with equity holders Dividends Share repurchase (note 10) Employee share options Value of services recognized	70,218 4,810 — —	29,598 1,073,710 — 52,669	1,178,336 52,669 (228) (14,852) (7,130) 771
	— — — — (1,371) — — 771	(228) — — (14,852) — (5,759) — —
Balance at September 30, 2023	68,847 5,581	29,370 1,105,768	1,209,566

Unaudited($000's)	Equity attributable to Melcor's shareholders	Equity attributable to Melcor's shareholders	Total equity
	Share capital Contributed surplus AOCI Retained earnings
Balance at January 1, 2022 Net income for the period Cumulative translation adjustment Transactions with equity holders Dividends Share repurchase Employee share options Value of services recognized Share issuance	73,304 4,727 17,858 1,020,580 — — — 52,152		1,116,469 52,152 16,294 (13,977) (13,332) 847 1,404
	— — 16,294 — — — — (13,977) (3,352) — — (9,980) — 847 — — 1,535 (131) — —
Balance at September 30, 2022	71,487 5,443	34,152 1,048,775	1,159,857

See accompanying notes to these condensed interim consolidated financial statements.

Third Quarter 2023 | Financial Statements & Notes

Melcor Developments Ltd.

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Condensed Interim Consolidated Statement of Cash Flows

	For the three months ended	For the three months ended	For the nine months ended	For the nine months ended
Unaudited ($000's)	September 30,	September 30,	September 30,	September 30,
	2023	2022	2023	2022
CASH FLOWS FROM (USED IN)
OPERATING ACTIVITIES
Net income for the period	28,883	23,774	52,669	52,152
Non cash items:
Amortization of tenant incentives	2,105	2,738	6,374	5,620
Depreciation of property and equipment	491	533	1,062	1,141
Stock based compensation expense	293	514	771	847
Non-cash finance costs	(1,924)	(2,619)	(1,509)	(7,911)
Straight-line rent adjustment	252	(1,408)	(224)	(2,105)
Fair value adjustment on investment properties (note 5 and 14)	(5,736)	(3,070)	1,528	247
Fair value adjustment on REIT units (note 13 and 14)	(1,815)	(5,703)	(12,704)	(13,508)
Gain on sale of assets	(41)	(29)	(48)	(37)
Deferred income taxes	**160 **	(126)	**(1,250) **	11
	22,668	14,604	46,669	36,457
Agreements receivable	(1,938)	17,579	13,133	27,672
Development activities	1,246	(26,863)	(12,896)	(31,403)
Purchase of land inventory (note 4)	—	—	(4,800)	(4,247)
Payment of tenant lease incentives and direct leasing costs	(2,302)	(5,341)	(7,959)	(9,942)
Change in restricted cash	—	(403)	—	(1,899)
Operating assets and liabilities	**15,444 **	9,058	**6,833 **	(9,161)
	35,118	8,634	40,980	7,477
INVESTING ACTIVITIES
Additions to investment properties (note 5)	(6,119)	(6,744)	(17,465)	(11,209)
Net proceeds from disposal of investment properties (note 5)	—	1,309	6,397	3,916
Net proceeds from disposal of asset held for sale (note 6)	—	—	18,025	—
Change in restricted cash	—	—	1,000	—
Purchase of property and equipment	(388)	(251)	(646)	(662)
Proceeds on disposal of property and equipment	**57 **	57	**65 **	70
	**(6,450) **	(5,629)	7,376	(7,885)
FINANCING ACTIVITIES
Revolving credit facilities	(310)	27,989	1,458	55,711
Proceeds from general debt	5,227	27,077	24,440	76,817
Repayment of general debt	(9,236)	(36,705)	(70,509)	(84,929)
Repurchase of REIT units (note 13)	—	—	—	(25)
Dividends paid	(4,902)	(4,811)	(14,852)	(13,977)
Common shares repurchased (note 10)	(3,462)	(8,070)	(7,130)	(13,332)
Share capital issued	—	1,068	—	1,404
	**(12,683) **	6,548	**(66,593) **	21,669
FOREIGN EXCHANGE LOSS ON CASH HELD IN A FOREIGN	281	736	151	1,272
CURRENCY
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS DURING	16,266	10,289	(18,086)	22,533
THE PERIOD
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD	46,113	72,164	80,465	59,920
CASH AND CASH EQUIVALENTS, END OF THE PERIOD	62,379	82,453	62,379	82,453
Total income taxes paid	3,777	9,105	9,806	20,857
Total interestpaid	8,711	6,222	26,000	18,952

See accompanying notes to these condensed interim consolidated financial statements.

Third Quarter 2023 | Financial Statements & Notes

Melcor Developments Ltd.

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NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited – in $000s except per share, share and acre amounts)

1. DESCRIPTION OF THE BUSINESS

We are a real estate development company with community development, property development, investment properties, REIT and recreational property divisions. We develop, manage, and own mixed-use residential communities, business and industrial parks, office buildings, retail commercial centres, and golf courses.

Melcor Developments Ltd. (“Melcor” or “we”) is incorporated in Canada. The registered office is located at Suite 900, 10310 Jasper Avenue Edmonton, AB T5J 1Y8. We operate in Canada and the United States (“US”). Our shares are traded on the Toronto Stock Exchange under the symbol “MRD”. As at September 30, 2023 Melton Holdings Ltd. holds approximately 51.2% of the outstanding shares and pursuant to IAS 24, Related party disclosures, is the ultimate controlling shareholder of Melcor.

As at November 8, 2023, Melcor through an affiliate, holds an approximate 55.4% effective interest in Melcor REIT ("REIT" or "the REIT") through ownership of all Class B LP Units of the Partnership and is the ultimate controlling party. Melcor continues to manage, administer and operate the REIT and its properties under an asset management agreement and property management agreement. Trust units of the REIT are traded on the Toronto Stock Exchange under the symbol "MR.UN".

Our quarterly results are impacted by the cyclical nature of our business environment. Income can fluctuate significantly from period to period 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.

2. BASIS OF PRESENTATION

We prepare our condensed interim consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”) applicable to the preparation of interim financial statements, including IAS 34, Interim Financial Reporting.

The statement of financial position is presented without reference to current assets or current liabilities. The operating cycle of an entity involved in real estate investment and development is normally considered to be longer than one year. Thus, the concept of current assets and current liabilities is not considered relevant and there is no need to segregate the balance sheet to disclose assets or liabilities that are expected to be settled within the immediately following year.

These condensed interim consolidated financial statements should be read in conjunction with our annual consolidated financial statements for the year ended December 31, 2022, which have been prepared in accordance with IFRS.

These condensed interim consolidated financial statements were approved for issue by the Board of Directors on November 8, 2023.

3. SIGNIFICANT ACCOUNTING POLICIES, NEW STANDARDS AND CRITICAL ACCOUNTING ESTIMATES

The accounting policies followed in these condensed interim consolidated financial statements are consistent with those of the previous financial year. There are no new or amended standards adopted during the quarter.

4. LAND INVENTORY

4. LAND INVENTORY	4. LAND INVENTORY	4. LAND INVENTORY
September 30, 2023 December 31, 2022
Raw land held Land under development Developed land	382,567 221,997 157,592	384,681 187,140 177,680
	762,156	749,501

Land is recorded at the lower of cost and net realizable value.

During the nine month period ended September 30, 2023, we purchased 40.00 acres of land in Leduc, Alberta at a cost of $2,400 for cash and another 80.00 acres of land in Acheson, Alberta at a cost of $2,400 for cash.

During the nine month period ended September 30, 2022, we purchased 13.01 acres of land in Buckeye, Arizona in the United States at a cost of $4,247 (USD$3,296) for cash.

Third Quarter 2023 | Financial Statements & Notes

Melcor Developments Ltd.

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NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited – in $000s except per share, share and acre amounts)

5. INVESTMENT PROPERTIES

Investment properties consists of the following:

September 30, 2023 December 31, 2022	September 30, 2023 December 31, 2022	September 30, 2023 December 31, 2022
Investment properties Properties under development	1,025,356 81,411	1,059,490 65,293
Total	1,106,767	1,124,783

The following table summarizes the change in investment properties during the period:

Nine months ended September 30, 2023	Nine months ended September 30, 2023	Nine months ended September 30, 2023	Nine months ended September 30, 2023
Investment Properties Properties under Development Total
Balance - beginning of period Additions Transfer from land inventory Direct leasing costs Property improvements Development costs Capitalized borrowing costs Disposals Transfers Fair value adjustment on investment properties Investment properties classified as held for sale (note 6) Other adjustments Foreign currencytranslation(included in OCI)	1,059,490	65,293	1,124,783
	— 1,146 2,765 — — (6,397) 7,506 (7,097) (32,132) 287 (212)	3,104 251 — 14,106 594 — (7,506) 5,569 — — —	3,104 1,397 2,765 14,106 594 (6,397) — (1,528) (32,132) 287 (212)
Balance - end ofperiod	1,025,356	81,411	1,106,767

Year ended December 31, 2022	Year ended December 31, 2022	Year ended December 31, 2022	Year ended December 31, 2022
Investment Properties Properties under Development Total
Balance - beginning of year Additions Transfer from land inventory Direct leasing costs Property improvements Development costs Capitalized borrowing costs Disposals Transfers Fair value adjustment on investment properties Investment property classified as held for sale (note 6) Other adjustments Foreign currencytranslation(included in OCI)	1,071,456	47,349	1,118,805
	— 3,644 2,455 — — (34,998) 13,047 16,590 (19,089) (893) 7,278	11,868 607 — 13,246 306 — (13,047) 4,964 — — —	11,868 4,251 2,455 13,246 306 (34,998) — 21,554 (19,089) (893) 7,278
Balance - end ofyear	1,059,490	65,293	1,124,783

Third Quarter 2023 | Financial Statements & Notes

Melcor Developments Ltd.

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NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited – in $000s except per share, share and acre amounts)

In accordance with our policy we record our investment properties at fair value. Fair value adjustments on investment properties are primarily driven by changes in capitalization rates and stabilized net operating income ("NOI"). Supplemental information on fair value measurement, including valuation techniques and key inputs, is included in note 14.

Disposals in the nine month period ended September 30, 2023:

• We disposed of seven residential units in Arizona for net sale price of $3,126 (US$2,316) net of transaction costs.

• We also disposed of an investment property in Lethbridge for net sale price of $3,271 (net of transaction costs).

Disposals in prior year ended December 31, 2022:

• We disposed of 117 residential units in Arizona for net sale price of $34,998 (US$26,145) net of transaction costs.

6. ASSETS HELD FOR SALE

As at September 30, 2023, the REIT classified three retail properties as assets held for sale with a fair value of $33,775 (including investment property of $32,132, tenant incentives of $1,370 and straight-line rent of $273). As at September 30, 2023 management has listed these assets for sale with the intention to sell the properties.

On February 1, 2023, the REIT disposed of an investment property classified as asset held for sale at year end for net proceeds of $19,025 (including a $1,000 deposit held as restricted cash at year end), resulting from a purchase price of $19,500 less transaction costs of $475. This property was classified as asset held for sale at year end with a fair value of $19,500 (including investment property of $19,089, tenant incentives of $316 and straight line rent of $95). The price was settled in cash, excluding working capital adjustments. Proceeds from the sale were used to repay the outstanding principal balance on the mortgage of $8,727 with the remaining cash being used to reduce our borrowings on our credit facility.

7. GENERAL DEBT

September 30, 2023 December 31, 2022	September 30, 2023 December 31, 2022	September 30, 2023 December 31, 2022
Melcor - revolving credit facilities REIT - revolving credit facility Project specific financing Secured vendor take back debt on land inventory Debt on investment properties and golf course assets REIT - convertible debentures	95,370 34,561 9,603 — 511,588 45,039	96,839 31,634 22,597 5,717 539,110 44,468
General debt	696,161	740,365

On February 10, 2023 the REIT entered in the fourth amendment to their revolving credit agreement with existing lenders (the “Credit Facility Amendment”). Under the terms of their revolving credit facility agreement the REIT maintains an available credit limit based on the lesser of the present value of discounted cashflows or 75% of the appraised value of specific investment properties to a maximum of $50,000 for general corporate purposes and acquisitions, including a $5,000 swingline sub-facility. An additional $15,000 is available by way of an accordion feature, subject to lender approval. Depending on the form under which the credit facility is accessed, rates of interest will vary between prime plus 1.25% or bankers acceptance plus 2.25% stamping fee. The agreement also provides the REIT with $5,000 in available letters of credit which bear interest at 2.25%. Interest payments are due and payable based upon the form of the facility drawn upon, and principal is due and payable upon maturity. The agreement also bears a standby fee of 0.45% for the unused portion of the revolving facility. The lenders hold demand debentures, a first priority general security and a general assignment of leases and rents over specific investment properties as security for the facility. The facility matures on June 1, 2024.

Third Quarter 2023 | Financial Statements & Notes

Melcor Developments Ltd.

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NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited – in $000s except per share, share and acre amounts)

The change in project specific financing during the period is summarized as follows:

The change in project specific financing during the period is summarized as follows:	The change in project specific financing during the period is summarized as follows:	The change in project specific financing during the period is summarized as follows:
Nine months ended September 30, 2023 Year ended December 31, 2022
Balance - beginning of period Cash movements Loan repayments New project financing Non-cash movements Foreign currencytranslation included in OCI	22,597 (14,882) 1,950 (62)	40,758 (50,351) 31,811 379
Balance - end ofperiod	9,603	22,597

The change in secured vendor take back debt on land inventory during the period is summarized as follows:

Nine months ended September 30, 2023 Year ended December 31, 2022	Nine months ended September 30, 2023 Year ended December 31, 2022	Nine months ended September 30, 2023 Year ended December 31, 2022
Balance - beginning of period Cash movements Principal repayments Scheduled repayments	5,717 **(5,717) **	11,794 (6,077)
Balance - end ofperiod	—	5,717

The change in debt on investment properties and golf course assets during the period is as follows:

Nine months ended September 30, 2023 Year ended December 31, 2022	Nine months ended September 30, 2023 Year ended December 31, 2022	Nine months ended September 30, 2023 Year ended December 31, 2022
Balance - beginning of period Cash movements Principal repayments Scheduled amortization on debt Mortgage repayments New mortgages Non-cash movements Mortgage amendment Deferred financing fees capitalized Amortization of deferred financing fees Change in derivative fair value swap Foreign currencytranslation included in OCI	539,110 (14,468) (35,442)	506,382 (18,092) (26,285)
	22,490 — (780) 806 — (128)	73,380 (893) (1,115) 1,123 629 3,981
Balance - end ofperiod	511,588	539,110

Third Quarter 2023 | Financial Statements & Notes

Melcor Developments Ltd.

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NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited – in $000s except per share, share and acre amounts)

8. REVENUE

8. REVENUE	8. REVENUE	8. REVENUE	8. REVENUE	8. REVENUE
Total Revenues For the three months ended For the nine months ended September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022
Revenue from contracts Revenue from other sources	59,527 29,254	36,910 24,226	114,231 75,874	96,070 69,416
	88,781	61,136	190,105	165,486
Timing of contract revenue recognition For the three months ended For the nine months ended September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022
At a point in time Over time	53,466 6,061	32,355 4,555	97,882 16,349	80,892 15,178
	59,527	36,910	114,231	96,070

9. FINANCE COSTS

For the three months ended For the nine months ended September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022	For the three months ended For the nine months ended September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022	For the three months ended For the nine months ended September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022	For the three months ended For the nine months ended September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022	For the three months ended For the nine months ended September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022
Interest on Melcor - revolving credit facilities Interest on REIT - revolving credit facility Interest on REIT - convertible debentures Interest on general debt Financing costs and bank charges Gain on settlement of interest rate swap Non cash financingcosts(recoveries)	2,094 749 587 4,736 370 (147) **(1,924) **	1,492 89 888 5,025 289 (172) (2,619)	5,283 1,850 1,760 14,304 1,556 (14) **(1,509) **	3,512 166 2,664 14,286 989 (172) (7,911)
Less: capitalized interest	6,465 **(808) **	4,992 (927)	23,230 **(3,249) **	13,534 (2,433)
	5,657	4,065	19,981	11,101

Finance costs paid during the nine months ended September 30, 2023 were $26,000 (2022 - $18,952). Non cash financing costs (recoveries) include debentures accretion expense, debentures amortized fees and fair value adjustment on derivatives.

10. SHARE CAPITAL

Issued and outstanding common shares at September 30, 2023 are 30,622,799 (December 31, 2022 – 31,248,628 shares). During the nine months ended September 30, 2023, there were no options exercised (Q3 2022 – 69,200 options).

On June 7, 2023 Melcor commenced a Normal Course Issuer (NCIB) which allows us to purchase up to 1,562,431 shares for cancellation, representing approximately 5% of the issued and outstanding shares up to a maximum daily limit of 1,617 shares unless acquired under a block purchase exception. The price that Melcor pays for shares repurchased under the plan is the market price at the time of acquisition. The NCIB expires on June 6, 2024.

In connection with the commencement of the NCIB, Melcor also entered into an automatic purchase plan agreement with a broker to allow for the purchase of common shares under the NCIB at times when Melcor ordinarily would not be active in the market due to regulatory restrictions or self imposed trading blackout periods.

During the nine months ended September 30, 2023, 625,829 shares were purchased for cancellation by Melcor pursuant to the NCIB at a cost of $7,130 (December 31, 2022 - 1,777,662 shares purchased at a cost of $21,435). Share capital was reduced by $1,371 and retained earnings was reduced by $5,759.

Third Quarter 2023 | Financial Statements & Notes

Melcor Developments Ltd.

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NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited – in $000s except per share, share and acre amounts)

11. SEGMENTED INFORMATION

Geographic Analysis

A reconciliation of our revenues and assets by geographic location is as follows:

Geographic Analysis A reconciliation of our revenues and assets by geographic location is as follows:	Geographic Analysis A reconciliation of our revenues and assets by geographic location is as follows:	Geographic Analysis A reconciliation of our revenues and assets by geographic location is as follows:
External Revenues For the three months ended For the nine months ended September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 United States 21,018 3,947 44,314 11,797 Canada 67,763 57,189 145,791 153,689 Total 88,781 61,136 190,105 165,486 Total Assets As at September 30, 2023 December 31, 2022
United States Canada	286,522 1,854,732	291,635 1,875,415
Total	2,141,254	2,167,050

Third Quarter 2023 | Financial Statements & Notes

Melcor Developments Ltd.

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NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited – in $000s except per share, share and acre amounts)

11. SEGMENTED INFORMATION (continued)

Divisional Analysis

Our divisions reported the following results:

For the three months ended September 30, 2023	Community Development	Property Development	Investment Properties	REIT	Recreational Properties	Corporate	Subtotal	Intersegment Elimination	Total
Revenue	64,028	7,920	10,013	18,285	4,948	—	105,194	(16,413)	88,781
Cost of sales	(37,096)	(7,900)	(4,606)	(7,371)	(2,746)	—	(59,719)	11,578	(48,141)
Gross profit	26,932	20	5,407	10,914	2,202	—	45,475	(4,835)	40,640
General and administrative
expense	(2,004)	(513)	(654)	(779)	(837)	(1,970)	(6,757)	824	(5,933)
Fair value adjustment
on investment properties	—	890	(216)	1,051	—	—	1,725	4,011	5,736
Gain on sale of assets	—	—	—	—	41	—	41	—	41
Interest income	408	9	29	16	—	16	478	—	478
Segment earnings (loss)	25,336	406	4,566	11,202	1,406	(1,954)	40,962	—	40,962
Finance costs									(5,657)
Foreign exchange gain									21
Adjustments related to REIT
units									259
Income before tax									35,585
Income tax expense									(6,702)
Net income for the period									28,883

For the three months ended September 30, 2022	Community Development	Property Development	Investment Properties	REIT	Recreational Properties	Corporate	Subtotal	Intersegment Elimination	Total
Revenue	28,411	3,310	11,593	18,189	4,857	—	66,360	(5,224)	61,136
Cost of sales	(17,211)	(3,200)	(4,372)	(7,307)	(2,644)	—	(34,734)	3,753	(30,981)
Gross profit	11,200	110	7,221	10,882	2,213	—	31,626	(1,471)	30,155
General and administrative
expense	(1,942)	(465)	(505)	(783)	(845)	(2,620)	(7,160)	831	(6,329)
Fair value adjustment
on investment properties	—	356	(4,263)	6,337	—	—	2,430	640	3,070
Gain on sale of assets	—	—	—	—	29	—	29	—	29
Interest income	661	2	8	7	1	28	707	—	707
Segment earnings (loss)	9,919	3	2,461	16,443	1,398	(2,592)	27,632	—	27,632
Finance costs									(4,065)
Foreign exchange gain									493
Adjustments related to REIT
units									3,630
Income before tax									27,690
Income tax expense									(3,916)
Net income for the period									23,774

Third Quarter 2023 | Financial Statements & Notes

Melcor Developments Ltd.

12

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited – in $000s except per share, share and acre amounts)

11. SEGMENTED INFORMATION (continued)

For the nine months ended September 30, 2023	Community Development	Property Development	Investment Properties	REIT	Recreational Properties	Corporate	Subtotal	Intersegment Elimination	Total
Revenue	105,239	7,986	31,585	55,398	10,357	—	210,565	(20,460)	190,105
Cost of sales	(60,068)	(7,900)	(13,532)	(23,233)	(5,422)	—	(110,155)	12,793	(97,362)
Gross Profit	45,171	86	18,053	32,165	4,935	—	100,410	(7,667)	92,743
General and administrative
expense	(5,641)	(1,543)	(2,237)	(2,294)	(2,166)	(5,622)	(19,503)	2,357	(17,146)
Fair value adjustment on
investment properties	—	2,251	(724)	(8,365)	—	—	(6,838)	5,310	(1,528)
Gain on sale of assets	—	—	—	—	48	—	48	—	48
Interest Income	1,447	18	72	46	5	141	1,729	—	1,729
Segment earnings (loss)	40,977	812	15,164	21,552	2,822	(5,481)	75,846	—	75,846
Finance costs									(19,981)
Foreign exchange loss									(378)
Adjustments related to REIT
units									8,037
Income before tax									63,524
Income tax expense									(10,855)
Net Income for the period									52,669

For the nine months ended September 30, 2022	Community Development	Property Development	Investment Properties	REIT	Recreational Properties	Corporate	Subtotal	Intersegment Elimination	Total
Revenue	74,662	7,124	32,156	55,308	9,619	—	178,869	(13,383)	165,486
Cost of sales	(45,459)	(6,900)	(12,722)	(22,846)	(5,021)	—	(92,948)	8,658	(84,290)
Gross profit	29,203	224	19,434	32,462	4,598	—	85,921	(4,725)	81,196
General and administrative
expense	(5,586)	(1,664)	(2,201)	(2,381)	(2,070)	(6,072)	(19,974)	2,324	(17,650)
Fair value adjustment on
investment properties	—	766	(549)	(2,865)	—	—	(2,648)	2,401	(247)
Gain on sale of assets	—	—	—	—	37	—	37	—	37
Interest income	973	2	14	22	2	77	1,090	—	1,090
Segment earnings (loss)	24,590	(672)	16,698	27,238	2,567	(5,995)	64,426	—	64,426
Finance costs									(11,101)
Foreign exchange gain									617
Adjustments related to REIT
units									8,323
Income before income taxes									62,265
Income tax expense									(10,113)
Net income for the period									52,152

Third Quarter 2023 | Financial Statements & Notes

Melcor Developments Ltd.

13

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited – in $000s except per share, share and acre amounts)

12. SUPPLEMENTAL BALANCE SHEET INFORMATION

Given the significant impact the consolidation of the REIT has on the consolidated statement of financial position, the assets and liabilities of the REIT have been presented separately from the rest of consolidated entity. This information is presented as supplementary information to assist readers in understanding the financial position of Melcor without the impact of consolidating the REIT.

The assets and liabilities of Melcor include Melcor and its wholly-owned subsidiaries, excluding the REIT, and its proportionate share in the assets and liabilities of its joint arrangements. Melcor's investment in REIT is presented at cost as shown in the tables below.

The assets and liabilities of the REIT are presented to conform to Melcor's financial statements presentation. Intercompany eliminations are balances between Melcor and the REIT that are eliminated on consolidation.

($000s)	Melcor	REIT	Intercompany	September 30,
			Eliminations	2023
ASSETS
Cash and cash equivalents	59,121	3,258	—	62,379
Restricted cash	1,758	—	—	1,758
Accounts receivable	7,349	1,805	(1,705)	7,449
Income taxes recoverable	2,213	—	—	2,213
Agreements receivable	84,099	—	—	84,099
Land inventory (note 4)	762,156	—	—	762,156
Investmentproperties(note 5 and 14)	478,593	635,189	(7,015)	1,106,767
Propertyand equipment	11,559	—	247	11,806
Other assets	24,118	30,746	4,929	59,793
Assets held for sale	—	33,775	—	33,775
Derivative financial instrument	4,338	4,721	—	9,059
Melcor's investment in REIT	135,818	—	(135,818)	—
	1,571,122	709,494	(139,362)	2,141,254
LIABILITIES
Accountspayable and accrued liabilities	40,143	16,234	(1,704)	54,673
Income taxespayable	1,484	—	—	1,484
Provision for land development costs	56,603	—	—	56,603
General debt(note 7)	300,757	395,404	—	696,161
Deferred income tax liability	63,581	—	—	63,581
Class B LP units	—	73,369	(73,369)	—
Class C LP units	—	22,028	(22,028)	—
REIT units(note 13 and 14)	—	—	59,186	59,186
	462,568	507,035	(37,915)	931,688

Third Quarter 2023 | Financial Statements & Notes

Melcor Developments Ltd.

14

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited – in $000s except per share, share and acre amounts)

	12.	SUPPLEMENTAL BALANCE SHEET INFORMATION(continued)
($000s) Melcor REIT Intercompany Eliminations December 31, 2022
ASSETS
Cash and cash equivalents 77,161 3,304 — 80,465
Restricted cash 1,761 1,000 — 2,761
Accounts receivable 12,043 2,079 (1,635) 12,487
Income taxes recoverable 3,889 — — 3,889
Agreements receivable 97,232 — — 97,232
Land inventory (note 4) 749,501 — — 749,501
Investmentproperties(note 5 and 14) 461,433 672,010 (8,660) 1,124,783
Propertyand equipment 11,983 — 255 12,238
Other assets 22,132 29,128 6,576 57,836
Asset held for sale(note 6 and 14) — 19,500 — 19,500
Derivative financial instrument 2,610 3,748 — 6,358
Melcor's investment in REIT 167,392 — (167,392) —
1,607,137 730,769 (170,856) 2,167,050
LIABILITIES
Accountspayable and accrued liabilities 39,993 14,861 (1,641) 53,213
Income taxespayable 336 — — 336
Provision for land development costs 58,260 — — 58,260
General debt(note 7) 340,624 399,741 — 740,365
Deferred income tax liability 64,650 — — 64,650
Class B LP units — 89,172 (89,172) —
Class C LP units — 37,798 (37,798) —
REIT units(note 13 and 14) — — 71,890 71,890
503,863 541,572 (56,721) 988,714

13. NON-CONTROLLING INTEREST IN MELCOR REIT

In accordance with our policy, we account for the remaining 44.6% publicly held interest in the REIT as a financial liability measured at fair value through profit or loss (“FVTPL”). As at September 30, 2023 the REIT units had a fair value of $59,186 (December 31, 2022 - $71,890).

We recorded adjustments related to REIT units for the three and nine months ended September 30, 2023 of $259 and $8,037 (September 30, 2022 - $3,630 and $8,323).

In 2022, the REIT had an active normal course issuer bid ("REIT NCIB") which commenced on April 1, 2021 and ended on March 31, 2022. This allowed the REIT 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 could be repurchased up to a maximum daily limit of 3,824. The price which the REIT paid for trust units repurchased under the plan was the market price at the time of acquisition.

Prior to the REIT NCIB expiring on March 31, 2022, 3,824 units was purchased for cancellation at a cost of $25, which was recorded as a reduction in the balance of REIT units on the consolidated statement of financial position in the comparative period. The REIT NCIB was not renewed after it expired.

Third Quarter 2023 | Financial Statements & Notes

Melcor Developments Ltd.

15

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited – in $000s except per share, share and acre amounts)

As illustrated in the table below, the adjustment is comprised of:

For the three months ended For the nine months ended September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022	For the three months ended For the nine months ended September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022	For the three months ended For the nine months ended September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022	For the three months ended For the nine months ended September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022	For the three months ended For the nine months ended September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022
Fair value adjustment on REIT units (note 14) Distributions to REIT unitholders	1,815	5,703	12,704	13,508
	**(1,556) **	(2,073)	**(4,667) **	(5,185)
Adjustments related to REIT units	259	3,630	8,037	8,323

The following tables summarize the financial information relating to Melcor's subsidiary, the REIT, that has material non-controlling interest (NCI), before intra-group eliminations.

As at September 30, 2023 December 31, 2022	As at September 30, 2023 December 31, 2022	As at September 30, 2023 December 31, 2022
Assets Liabilities (excluding Class B LP units) Net assets	709,494	730,769 452,400 278,369
	433,666
	275,828
Cost of NCI	103,934	103,934
Fair value of NCI	59,186	71,890

For the three months ended For the nine months ended September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Rental revenue 18,285 18,189 55,398 55,308 Net income and comprehensive income 7,075 19,151 17,929 30,672 Cash flows from operating activities 3,827 819 8,796 7,542 Cash flows from (used in) investing activities (1,905) (782) 16,439 (1,699) Cash flows used in financing activities, before distributions to REIT unitholders (288) (322) (20,614) (5,720) Cash flows used in financing activities - cash distributions to REIT unitholders (1,556) (1,555) (4,667) (4,667) Net decrease in cash and cash equivalents 78 (1,840) (46) (4,544)	For the three months ended For the nine months ended September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Rental revenue 18,285 18,189 55,398 55,308 Net income and comprehensive income 7,075 19,151 17,929 30,672 Cash flows from operating activities 3,827 819 8,796 7,542 Cash flows from (used in) investing activities (1,905) (782) 16,439 (1,699) Cash flows used in financing activities, before distributions to REIT unitholders (288) (322) (20,614) (5,720) Cash flows used in financing activities - cash distributions to REIT unitholders (1,556) (1,555) (4,667) (4,667) Net decrease in cash and cash equivalents 78 (1,840) (46) (4,544)	For the three months ended For the nine months ended September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Rental revenue 18,285 18,189 55,398 55,308 Net income and comprehensive income 7,075 19,151 17,929 30,672 Cash flows from operating activities 3,827 819 8,796 7,542 Cash flows from (used in) investing activities (1,905) (782) 16,439 (1,699) Cash flows used in financing activities, before distributions to REIT unitholders (288) (322) (20,614) (5,720) Cash flows used in financing activities - cash distributions to REIT unitholders (1,556) (1,555) (4,667) (4,667) Net decrease in cash and cash equivalents 78 (1,840) (46) (4,544)	For the three months ended For the nine months ended September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Rental revenue 18,285 18,189 55,398 55,308 Net income and comprehensive income 7,075 19,151 17,929 30,672 Cash flows from operating activities 3,827 819 8,796 7,542 Cash flows from (used in) investing activities (1,905) (782) 16,439 (1,699) Cash flows used in financing activities, before distributions to REIT unitholders (288) (322) (20,614) (5,720) Cash flows used in financing activities - cash distributions to REIT unitholders (1,556) (1,555) (4,667) (4,667) Net decrease in cash and cash equivalents 78 (1,840) (46) (4,544)	For the three months ended For the nine months ended September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Rental revenue 18,285 18,189 55,398 55,308 Net income and comprehensive income 7,075 19,151 17,929 30,672 Cash flows from operating activities 3,827 819 8,796 7,542 Cash flows from (used in) investing activities (1,905) (782) 16,439 (1,699) Cash flows used in financing activities, before distributions to REIT unitholders (288) (322) (20,614) (5,720) Cash flows used in financing activities - cash distributions to REIT unitholders (1,556) (1,555) (4,667) (4,667) Net decrease in cash and cash equivalents 78 (1,840) (46) (4,544)
	18,285 7,075	18,189 19,151	55,398 17,929	55,308 30,672
	3,827 (1,905) (288) **(1,556) **	819 (782) (322) (1,555)	8,796 16,439 (20,614) **(4,667) **	7,542 (1,699) (5,720) (4,667)
	78	(1,840)	**(46) **	(4,544)

14. FAIR VALUE MEASUREMENT

Fair value is the price that market participants would be willing to pay for an asset or liability in an orderly transaction under current market conditions at the measurement date.

The fair value of Melcor's financial instruments are determined as follows:

• the carrying amounts of cash and cash equivalents, restricted cash, accounts receivable, agreements receivable and accounts payable and accrued liabilities approximate their fair values based on the short term maturities of these financial instruments.

• fair values of general debt and interest rate swaps are estimated by discounting the future cash flows associated with the debt at market interest rates (Level 3).

• fair value of derivative financial liabilities, which is the conversion feature on the REIT convertible debenture are estimated based upon unobservable inputs, including volatility and credit spread (Level 3).

• fair value of REIT units are estimated based on the closing trading price of the REIT’s trust units (Level 1).

• fair value of the convertible debenture is estimated based on the closing trading price of the REIT's debenture (Level 2).

Third Quarter 2023 | Financial Statements & Notes

Melcor Developments Ltd.

16

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited – in $000s except per share, share and acre amounts)

In addition, Melcor carries its investment properties and assets held for sale at fair value, which is determined based on the accepted valuation methods of direct income capitalization or discounted future cash flows (Level 3).

The fair value hierarchy categorizes fair value measurement into three levels based upon the inputs to valuation technique, which are defined as follows:

• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities that are accessible at the measurement date.

• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

• Level 3: unobservable inputs for the asset or liability.

There were no transfers between the levels of the fair value hierarchy during the period.

The following table summarizes Melcor's assets and liabilities carried at fair value and its financial assets and liabilities where carrying value does not approximate fair value.

	September 30, 2023 December 31, 2022
	Fair Value Hierarchy Fair Value Amortized Cost Total Carrying Value Total Fair Value Total Carrying Value Total Fair Value
Non-financial assets Investment properties Assets held for sale Financial liabilities General debt, excluding convertible debentures and derivative financial liability Convertible debentures Derivative financial liabilities Conversion features on convertible debentures REIT units Derivative financial assets Interest rate swaps	Level 3 1,106,767 — 1,106,767 1,106,767 1,124,783 1,124,783 Level 3 33,775 — 33,775 33,775 19,500 19,500 Level 3 — 651,122 651,122 595,641 695,897 642,460 Level 2 — 44,754 44,754 40,655 44,056 41,011 Level 3 285 — 285 285 412 412 Level 1 59,186 — 59,186 59,186 71,890 71,890 Level 3 9,059 — 9,059 9,059 6,358 6,358

Investment properties

Investment properties are remeasured to fair value on a recurring basis, determined based on the accepted valuation methods of direct income capitalization or discounted future cash flows. The application of these valuation methods results in these measurements being classified as level 3 in the fair value hierarchy.

Under the discounted future cash flows method, fair values are determined by discounting the forecasted future cash flows over ten years plus a terminal value determined by applying a terminal capitalization rate to forecasted year eleven cash flows.

Under the direct income capitalization method, fair values are determined by dividing the stabilized net operating income of the property by a property specific capitalization rate.

The significant unobservable inputs in the Level 3 valuations are as follows:

• Capitalization rate - based on actual location, size and quality of the property and taking into consideration available market data as at the valuation date;

• Stabilized net operating income - revenue less direct operating expenses adjusted for items such as average lease up costs, vacancies, non-recoverable capital expenditures, management fees, straight-line rents and other non-recurring items;

• Discount rate - reflecting current market assessments of the uncertainty in the amount and timing of cash flows;

• Terminal capitalization rate - taking into account assumptions regarding vacancy rates and market rents;

• Estimated costs to complete for properties under development - based on expected completion dates considering development and leasing risks specific to each property and the status of approvals and/or permits; and

• Cash flows - based on the physical location, type and quality of the property and supported by the terms of existing leases, other contracts or external evidence such as current market rents for similar properties.

Third Quarter 2023 | Financial Statements & Notes

Melcor Developments Ltd.

17

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited – in $000s except per share, share and acre amounts)

An increase in the cash flows or stabilized net operating income results in an increase in fair value of investment property whereas an increase in the capitalization rate, discount rate or terminal capitalization rate decreases the fair value of the investment property.

In determining the fair value of our investment properties judgment is required in assessing the ‘highest and best use’ as required under IFRS 13, Fair value measurement . We have determined that the current uses of our investment properties are their ‘highest and best use’.

Melcor’s executive management team is responsible for determining fair value measurements on a quarterly basis, including verifying all major inputs included in the valuation and reviewing the results. Melcor’s management, along with the Audit Committee, discuss the valuation process and key inputs on a quarterly basis. At least once every two years, the valuations are performed by qualified external valuators who hold recognized and relevant professional qualifications and have recent experience in the location and category of the investment property being valued.

Investment properties are valued by Melcor's internal valuation team. For the nine months ended September 30, 2023, 22 legal phases included in investment properties (of 94 legal phases) with a fair value of $253,050 were valued by external valuation professionals (year ended December 31, 2022 - 64 legal phases included in investment properties (of 95 legal phases) with a fair value of $806,468). Valuations performed during the period resulted in net fair value losses of $1,528 (December 31, 2022 - net fair value gains of $21,554).

The following table summarizes the valuation approach, significant assumptions, and the relationship between the inputs and the fair value:

Asset	Valuation approach	Significant assumptions	Relationshipbetween assumptions and fair value
Investment	Direct capitalization or	- Capitalization rate	Inverse relationship between capitalization, discount and
properties	discounted cash flows	- Discount rate	terminal rates and fair value (higher rates result in
		- Terminal rate	decreased fair value); whereas higher stabilized NOI or cash
		- Stabilized NOI	flows results in increased fair value.
		- Cash flows
Properties under	Direct capitalization less	- Capitalization rate	Inverse relationship between capitalization rate and fair
development	cost to complete	- Stabilized NOI	value (higher capitalization rate results in lower fair value);
		- Costs to complete	whereas higher stabilized NOI results in increased fair value.
Properties under	Direct comparison	- Comparison to	Land value reflects market value.
development -		market transactions
undeveloped land		for similar assets

Weighted average annual stabilized net operating income for investment properties as at September 30, 2023 is $1,477 (December 31, 2022 - $1,448) per property. Other significant valuation metrics and unobservable inputs are set out in the following table. Fair values are most sensitive to changes in capitalization rates.

September 30, 2023	Investment Properties Properties under Development
	Min Max Weighted Average Min Max Weighted Average
Capitalization rate Terminal capitalization rate Discount rate	4.88% 10.00% 6.93% 6.00% 6.25% 6.15% 5.75% 8.75% 7.07% 6.25% 6.50% 6.40% 6.75% 9.75% 7.95% 7.25% 7.50% 7.36%
December 31, 2022	Investment Properties Properties under Development
	Min Max Weighted Average Min Max Weighted Average
Capitalization rate Terminal capitalization rate Discount rate	5.25% 10.00% 6.90% 6.00% 6.50% 6.18% 5.75% 8.75% 7.03% 6.25% 6.75% 6.43% 6.25% 9.75% 7.92% 7.25% 7.75% 7.42%

An increase in capitalization rates by 50 basis points would decrease the fair value and carrying amount of investment properties by $64,500 (December 31, 2022 - $66,000). A decrease in capitalization rates by 50 basis points would increase the fair value and carrying amount of investment properties by $74,500 (December 31, 2022 - $76,300).

Third Quarter 2023 | Financial Statements & Notes

Melcor Developments Ltd.

18

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited – in $000s except per share, share and acre amounts)

General debt, excluding derivative financial liabilities

The fair value of revolving credit facilities approximates the carrying value excluding unamortized financing costs. The facilities bear interest, at our option, at a rate per annum equal to either the bank's prime lending rate plus 0.75% to 2.25% or at the bank's then prevailing banker's acceptance rate plus a stamping fee of 2.25% to 3.00%.

The fair value of project specific financing, secured vendor take back debt on land inventory and debt on investment properties and golf course assets have been calculated by discounting the expected cash flows of each loan using a discount rate specific to each individual loan. The discount rate is determined using the bond yield for similar instruments of similar maturity adjusted for each individual project's specific credit risk. In determining the adjustment for credit risk, we consider current market conditions and other indicators of credit worthiness.

The fair value of the convertible debentures are based on the trading price of the REIT's debentures at the period end date.

Derivative financial assets and liabilities

Our derivative financial assets and liabilities are comprised of floating for fixed interest rate swaps on mortgages (level 3) and the conversion features on our REIT convertible debentures (level 3).

The fair value of the interest rate swaps are calculated as the net present value of the future cash flows expected to arise on the variable and fixed portion, determined using applicable yield curves at the measurement date. As at September 30, 2023, the fair value of interest rate swap contracts was $9,059 (December 31, 2022 - $6,358).

The significant assumptions used in the fair value measurement of the conversion features on the REIT convertible debentures are volatility and credit spread. As at September 30, 2023 the fair value of the conversion features on our convertible debentures was $285 liability (December 31, 2022 - $412).

REIT units

REIT units are remeasured to fair value on a recurring basis and categorized as level 1 in the fair value hierarchy. The units are fair valued based on the trading price of the REIT units at the period end date. At September 30, 2023 the fair value of the REIT units was $59,186, resulting in a fair value gain during the nine months ended of $12,704 (September 30, 2022 - gain of $13,508) in the statement of income and comprehensive income for the period ended ended September 30, 2023 (note 13).

15. RISK MANAGEMENT

Melcor's exposure to risks as a result of holding financial instruments could be impacted. The impact on these risks is as follows:

a. Credit Risk

We manage our credit risk in the Investment Property and REIT Divisions through careful selection of tenants and look to obtain national tenants or tenants in businesses with a long standing history, or perform financial background checks including business plan reviews for smaller tenants. We manage our concentration risk in the Investment Property Division by renting to an expansive tenant base, with no dependency on rents from any one specific tenant.

Accounts receivables have historically been significantly low risk due to their individual immaterial balances, the nature of the party they are due from (including joint venture participants under management by Melcor), and overall lack of historical write offs. At this time, based on management's best estimate of the current economic outlook, management has assessed and recorded the current expected credit loss at $316 (December 31, 2022 - $284).

Agreements receivable are collateralized by specific real estate sold. Agreements receivable relate primarily to land sales in Alberta and, accordingly, collection risk is related to the economic conditions of that region. We manage credit risk by selling to certain qualified registered builders. Concentration risk is low as we sell to a large builder base, and no receivables are concentrated to one specific builder and Melcor maintains an approved builder list containing those builders which have a long standing track record, good volumes, positive perception in the industry, and strong history of repayment.

b. Liquidity Risk

Liquidity risk is the risk that we will not be able to meet our financial obligations as they fall due. We manage liquidity risk to ensure that we have sufficient liquid financial resources to finance operations and meet long-term debt repayments. We monitor rolling forecasts of our liquidity, which includes cash and cash equivalents and the undrawn portion of the operating loan, on the basis of expected cash flows. In addition, we monitor balance sheet liquidity ratios against loan covenant requirements and maintain ongoing debt financing plans. We believe that we have access to sufficient capital through internally generated cash flows, external sources and undrawn committed borrowing facilities to meet current spending forecasts. We

Third Quarter 2023 | Financial Statements & Notes

Melcor Developments Ltd.

19

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited – in $000s except per share, share and acre amounts)

believe that based on the cash flow models created by management we have access to sufficient liquidity through internally generated cash flows, external sources and undrawn committed borrowing facilities to meet current financial obligations.

c. Interest Rate Risk

We are subject to interest rate cash flow risk as our operating credit facilities and certain of our general debt bear interest at rates that vary in accordance with prime borrowing rates in Canada. For each 1% change in the rate of interest on loans subject to floating rates, the change in annual interest expense is approximately $2,636 (December 31, 2022 - $2,739). We are not subject to other significant market risks pertaining to our financial instruments.

16. EVENTS AFTER THE REPORTING PERIOD

Distributions on REIT trust units

On October 16, 2023, we declared a distribution of $0.04 per unit payable on November 15, 2023 to unitholders on record on October 31, 2023.

Dividends declared

On November 8, 2023 our board of directors declared a dividend of $0.16 per share payable on December 29, 2023 to shareholders of record on December 15, 2023.

Third Quarter 2023 | Financial Statements & Notes

Melcor Developments Ltd.

20