Melcor Developments Ltd. — Interim / Quarterly Report 2023

May 10, 2023

Management's Discussion & Analysis

May 10, 2023

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 three months ended March 31, 2023 and management’s discussion & analysis (MD&A) and consolidated financial statements for the fiscal year ended December 31, 2022.

The financial statements underlying this MD&A, including 2022 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 10, 2023 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 2023 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. 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	14
First Quarter Highlights	3	Financing	14
Funds from Operations	5	Sources & Uses of Cash	15
Divisional Results	5	Share Data	15
Community Development	6	Off Balance Sheet Arrangements, Contractual Obligations,	15
Property Development Investment Properties	8 10	Business Environment & Risks, Critical Accounting Estimates, Changes in Accounting Policies
REIT	12	Normal Course Issuer Bid	15
Recreational Properties	13	Quarterly Results	16
General & Administrative Expense	13	Subsequent Events	16
Income Tax Expense	13	Internal Control over Financial Reporting & Disclosure Controls	16
		Non-GAAP and Non-standard Measures	16

Third Quarter 2022 | Management’s Discussion & Analysis

Melcor Developments Ltd.

1

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, business and industrial parks, office buildings, retail commercial centres and golf courses.

Since 1923, our focus has been the business of real estate. We’ve built over 170 communities and commercial projects across western Canada since the 1950s and have helped to shape much of Alberta’s landscape. We manage 4.73 million square feet (sf) in commercial real estate assets and 473 residential rental units. We have been a public company since 1968 (TSX:MRD).

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

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

• 1 Community Development: acquiring raw land and planning residential communities and commercial developments

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

• 3 Income Properties: operating a portfolio of commercial and residential properties, focused on property improvements and capital appreciation of owned properties and property and asset management of REIT owned properties (comprised of Investment Properties and the REIT divisions)

• 4 Recreational Properties: owning and operating championship golf courses associated with our residential communities.

Melcor has $2.11 billion in assets. The following diagram illustrates how each of our operating divisions complements one another to create and enhance value from our real estate asset

==> picture [488 x 261] intentionally omitted <==

In addition to extending the value of our asset base, these diversified operating segments 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.

While building a sustainable business, we also focus on building sustainable communities by sharing our time and resources to make them stronger. We are proud to support a number of worthy causes and charities that enrich the communities where we operate.

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.

Our history and our culture form our strong foundation: the authentic values of a family-run organization building deep relationships with our clients, our business partners and our employees.

First Quarter 2023 | Management’s Discussion & Analysis

Melcor Developments Ltd.

2

Glossary of Acronyms

Common Acronyms	Common Acronyms	Common Acronyms	Common Acronyms
FFO GAAP G&A GBV GLA	funds from operations generally accepted accounting principles general and administrative expense gross book value gross leasable area	IFRS NOI sf SLR WABR	international financial reporting standards 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 nonstandard measures, Non-GAAP measures, operating measures and Non-GAAP ratios, refer to the Non-GAAP and non-standard measures section.

($000s except as noted)	Three months ended March 31	Three months ended March 31	Three months ended March 31
	2023 2022		Change %
Revenue Gross margin1 Net income Net margin1 FFO2	36,077 50.5 % 2,153 6.0 % 7,045	53,306 47.2 % 2,470 4.6 % 10,697	(32) 7 (13) 30 (34)
Per Share Data ($)
Basic earnings Diluted earnings	0.07 0.07	0.08 0.07	(13) —
FFO3 Dividends	0.23 0.16	0.33 0.14	(30) 14
As at ($000s except share and per share amounts)	31-Mar-2023	31-Dec-2022	Change %
Total assets Shareholders' equity Total shares outstanding	2,112,238 1,175,891 31,248,628	2,167,050 1,178,336 31,248,628	(2.5) (0.2) —
Per Share Data ($)
Book value(3)	37.63	37.71	(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.

Given the longer term nature of real estate development, comparison of any three-month period may not be meaningful.

The market has been challenged by inflation and higher interest rates over the past year. Our Income Properties divisions contributed 78% of revenue in Q1-2023 compared to 53% in 2022. Occupancy stayed consistent at 88% (December 31, 2022: 88%) and we have been actively pursuing and securing new leases across all asset classes. Our year-to-date retention for REIT was strong at 95%. Our Property Development division continues to pre-lease space to kick start new commercial development, thus building our future income property asset base.

Demand for homes remained stable across our geographically dispersed Community Development division contributing to both sales and construction activity. The US community development model differs from Canadian markets, with the majority of revenue occurring in a single quarter. Production builders buy lots in bulk and then build and sell the homes to consumers. No US lot sales closed in the quarter, but we do expect sales to close in 2023.

On February 1, 2023 Melcor REIT sold Kelowna Business Centre, an office building located in Kelowna, BC for gross proceeds of $19.50 million. This asset has been owned by the REIT since 2013 and was a strategic sale that enabled the REIT to pay down its line of credit while also achieving a good return on investment for unitholders.

Overall revenue from our income producing properties was up 1% in Q1-2023 despite the sale of the Kelowna Business Centre. This is due to slight increases in weighted average base rents in both our Canadian and US markets, and improved Canadian occupancy rates.

First Quarter 2023 | Management’s Discussion & Analysis

Melcor Developments Ltd.

3

FINANCIAL HIGHLIGHTS

Revenue was down 32% to $36.08 million in Q1-2023 (Q1-2022: $53.31 million). Our Q1-2023 results were inline with expectation. The real estate industry is impacted by the cyclical nature of development, demand for product, the timing of raw and multi-family land sales and lot registrations. Lot sales, which have a significant impact on quarterly results, are uneven by nature and it is difficult to predict when they will close.

FFO was down 34% or $3.65 million in the quarter. The reduction of FFO is a direct result of the reduction in revenue and higher net finance costs, offset by a reduction in general and administrative expenditures over Q1-2022.

Net income was $2.15 million in Q1-2023 compared to $2.47 million in Q1-2022. Net income is significantly impacted by swings in non-cash fair value adjustments on investment properties, REIT units and the revaluation of interest rate swaps and the conversion feature on our convertible debenture. 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. In Q1-2023 the fair value adjustment on REIT units swung by $8.01 million over Q1-2022. These gains are driven by market forces outside of Melcor's control and are a key reason we focus on FFO as a truer measure of our financial performance.

DIVISIONAL OPERATING HIGHLIGHTS

The Community Development division saw modest sales activity in our Canadian markets, with the Edmonton region contributing the largest sales volume. Year-to-date, we sold 82 single-family lots compared to 288 last year. We continue to move new communities and additional phases in existing neighbourhoods through the municipal approval process. Our Harmony community in Denver, CO is the largest land development project in our US region. Sales in this area are often sold in bulk and thus result in lumpy sales being realized in this region. No lots have been sold in the US year-to-date.

The Property Development division currently has 74,284 sf in 3 projects (Chestermere Station, Woodbend Market and Greenwich) under construction. Construction and leasing activity resulted in fair value gains of $0.32 million ($0.33 million in Q1-2022).

Total GLA under management varies period over period as a result of both property transfers and remeasures of property that typically occur on lease transfers and/or renewals. Revenue from our Income Properties continued to produce stable results in both the quarter and year-todate. GLA in 2023 was also impacted by the disposition of Kelowna Business Center in Q1-2023, which was 71,629 sf.

We sold 3 residential units in the US in Q1-2023. Improved occupancy on our Canadian assets and REIT owned properties contributed to revenue growth.

The investment properties portfolio fair value decreased $3.53 million in Q1-2023. We had 8 properties (legal phases) valued by external valuation professionals in the quarter. Fair value is also impacted by increased spend on tenant incentives that did not have a corresponding increase in fair value.

Our golf courses ( Recreational Properties ) opened subsequent to the quarter. Recreational properties revenue is from food and beverage sales.

RETURNING VALUE

We continue to return value to our shareholders and unitholders:

Melcor Developments:

• We paid a quarterly dividend of $0.16 per share on March 31, 2023 to shareholders of record on March 24, 2023.

• On May 10, 2023 we declared a quarterly dividend of $0.16 per share, payable on June 30, 2023 to shareholders of record on June 15, 2023. The dividend is an eligible dividend for Canadian tax purposes.

• We have been paying dividends since 1969.

Melcor REIT:

• The REIT paid monthly distributions of $0.04 per unit in Q1-2023.

• Subsequent to the quarter, the REIT declared distributions for April, May and June as follows:

Month	Declaration Date	Record Date	Distribution Date	Distribution Amount
April 2023	April 28, 2023	April 28, 2023	May15, 2023	$0.04per unit
May2023	May31, 2023	May31, 2023	June 15, 2023	$0.04per unit
June 2023	June 30, 2023	June 30, 2023	July14, 2023	$0.04per unit

The REIT has been paying distributions since inception in 2013.

REVENUE & MARGINS

Revenue was down 32% to $36.08 million due to the large Community Development contribution to Q1-2022 revenue. Community Development revenue varies quarter over quarter due to the timing of lot sales and plan registrations which often happen in the latter half of the year following the construction season. Revenue from single-family lot sales in Canada was $6.20 million, down from $21.48 million in Q1-2022. 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.

Our Income Properties (Investment Properties and REIT) accounted for 83% of year-to-date revenue after intersegment eliminations compared with 55% in Q1-2022. Q1-2023, Income Properties revenue was $29.80 million compared with $29.57 million in Q1-2022 and gross margin

First Quarter 2023 | Management’s Discussion & Analysis

Melcor Developments Ltd.

4

was 56% (Q1-2022: 58%). The sale of the Kelowna Business Centre was offset by an increase in Canadian occupancy, and WABR in both our Canadian and US market.

Consolidated gross margin increased to 51% in Q1-2023 (Q1-2022: 47%). This increase is due to a shift in proportionate gross profit contributed from the income-generating divisions compared to prior year. Our IP and REIT divisions tend to generate higher margins than our Community Development division.

Net income is impacted by non-cash fair value adjustments on investment properties, REIT units and the conversion feature on our convertible debenture, 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 March 31	Three months ended March 31	Three months ended March 31
	2023	2022	Change %
Net income for the period Amortization of tenant incentives Fair value adjustment on investment properties Depreciation on property and equipment Stock based compensation expense Non-cash finance costs	2,153 2,320 2,484 145 230 2,778	2,470 1,407 2,522 156 117 (1,472)	(13) 65 (2) (7) 97 (289)
Deferred income taxes Fair value adjustment on REIT units	(732) (2,333)	(181) 5,678	304 (141)
FFO1 FFO per share2	7,045 0.23	10,697 0.33	(34) (30)

• 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 down 34% or $3.65 million in the quarter over Q1-2022. The reduction in FFO was a direct result of the reduction in Community Development revenue, and the increase in net finance costs due to interest rate hikes. This was offset by a slight reduction of general and administrative expenditures and higher interest income compared to Q1-2022.

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;

• Property Development, which develops high-quality retail, office, industrial and multi-family residential revenue-producing properties on serviced commercial sites developed by Community Development or purchased from third parties;

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

• The REIT, which owned and holds 38 income-producing properties; and

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

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

First Quarter 2023 | Management’s Discussion & Analysis

Melcor Developments Ltd.

5

The following table summarizes 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)	2023 2022		2023 2022		2023 2022		2023 2022		2023 2022
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 Interest income Segment earnings	8,218 25,993 22 % 47 % (5,007) (16,073) 3,211 9,920 39 % 38 % 16 % 37 % (1,842) (1,822) — —		17 18 — % — % — — 17 18 100 % 100 % — % — % (519) (736) 322 328		10,812 10,604 28 % 19 % (4,613) (4,265) 6,199 6,339 57 % 60 % 32 % 24 % (782) (1,010) (1,939) (218)		18,990 18,965 50 % 34 % (8,352) (8,009) 10,638 10,956 56 % 58 % 54 % 41 % (779) (788) (1,586) (3,662)		70 113 — % — % (498) (444) (428) (331) (611) % (293) % (2) % (1) % (393) (365) — —
	545 92 1,914 8,190		1 — (179) (390)		22 1 3,500 5,112		19 7 8,292 6,513		— — (821) (696)

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 large-scale 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 longstanding 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.

Sales Activity

REVENUE BY TYPE

==> picture [420 x 172] intentionally omitted <==

----- Start of picture text -----

Three months ended March 31, 2023 Three months ended March 31, 2022
15%
11%
9% 6%
83%
76%
Single-family Single-family
Multi-family Multi-family
Commercial Commercial
Industrial / Raw Industrial /Raw
Management fee / other Management fee / other
----- End of picture text -----

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.

First Quarter 2023 | Management’s Discussion & Analysis

Melcor Developments Ltd.

6

Consolidated	Three months ended March 31,	Three months ended March 31,
	2023	2022
Canada Sales data: (including joint ventures at 100%)1
Single-family sales (number of lots) Gross average revenue per single-family lot ($) Multi-family sales (acres) Gross average revenue per multi-family acre ($)	82 152,476 3.73 950,000	288 144,246 7.58 594,459
Divisional results: (including joint ventures at Melcor's interest)1
Revenue ($000s) Earnings ($000s)	8,218 1,914	25,993 8,190

1. The number of lots and acres in the table above includes joint ventures at 100%; however, revenue and earnings are reported at Melcor's interest.

Strong demand in the housing market in 2021 carried over to Q1-2022 and was an outlier compared to historic trends in first quarter sales. Q1-2023 results were more aligned with expectation for the first quarter of the year. Although Community Development lot sales were down 72% contributing to the 68% decline in divisional revenue, average revenue per lot and gross revenue on multi-family acres sold were up and management views the results as favourable.

We sold 82 single-family lots in Q1-2023 (Q1-2022: 288). The Edmonton region contributed the largest volume of single-family lot sales at 78 (Q1-2022: 229) There were no sales in the Calgary region compared to 51 in Q1-2022, but continue to identify positive market indicators in the region. We are introducing 2 new communities in the region later this year. They have received significant early interest.

In Q1-2023 we sold 3.73 acres of multi-family land in the community of Glenridding for $1.24 million at joint venture interest. Land sales, including commercial, multi-family and industrial sites, vary by quarter and can lead to lumpy revenue.

The US Community Development model differs from Canadian markets, with the majority of revenue occurring in a single quarter. Builders buy lots in bulk to build homes to sell to homeowners. Due to this, no lots in our Harmony (Denver, CO) community were sold in the current or comparative quarter, but we do expect sales to close in the US later in 2023.

Our construction program has been active in Q1-2023 with 5 new phases registered in 3 communities year-to-date (Q1-2022: 4 phases in 4 communities).

The gross margin for the Community Development division is strongly impacted by the mix of both product type and location of inventory sold. Gross margin was consistent in Q1-2023 at 39% (Q1-2022: 38%).

The average sale price on single-family lots increased 6% from Q1-2022 primarily due to estate lot sales in the Kelowna region in the current period which also contributed to the slight increase in margin. Single-family lot sales cover a wide mix of product categories at various price points in 2023 thus far, from starter town homes and duplexes to lakefront estate lots.

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.

Regional Sales Analysis

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

	Three months ended	Three months ended
	March 31, 2023	March 31, 2022
(including joint ventures at 100%)	Single- family (Lots) Multi-family (Acres) Other (Acres)	Single- family (Lots) Multi-family (Acres) Other (Acres)
Edmonton Region Red Deer Calgary Region Lethbridge Kelowna United States	78 3.73 — 2 — — — — — — — — 2 — — — — —	229 2.28 — 8 — — 51 — — — 5.30 — — — — — — —
	82 3.73 —	288 7.58 —

Single-family lot sales may vary significantly quarter over quarter as plan registrations typically occur in the latter half of the year. In Q1-2022, sales carried over from the record breaking lot sales achieved in 2021. Demand slowed somewhat through the middle of 2022 as rising interest rates and general inflation caused potential homebuyers to pause while markets regained stability. Through early 2023 we are seeing a return to strength in both interest and activity.

First Quarter 2023 | Management’s Discussion & Analysis

Melcor Developments Ltd.

7

Inventory

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

	Three months ended	Three months ended
	March 31, 2023	March 31, 2022
(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	949 58.19 116.33 — — — 141 3.73 — — — —	685 61.71 — — — — — — — 36 (3.34) —
Sales	(82) (3.73) —	(288) (7.58) —
	1,008 58.19 116.33	433 50.79 —

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

In Q1-2023 we purchased one 40.00 acre parcel of land in Leduc, AB for $2.40 million. The parcel of land is adjacent to existing raw land holdings for future residential development. In the comparative period of Q1-2022 no land was purchased.

We continue to monitor our land holdings and manage our cash position in order to capitalize on land acquisition opportunities as they arise.

Property Development

Our Property Development division develops, manages construction, markets and initially leases high-quality retail, office, industrial and multifamily 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, Walmart, 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. Fees are also collected in Property Development on large tenant work done for Investment Properties and REIT divisions.

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-2023	31-Mar-2022
	17	18
Management fees revenue	17	18
Fair value gains on investment properties	322	328

In the quarter, no properties were completed and transferred. As the 2023 construction season has now begun, the Property Development team is actively constructing 5 new CRU's in 3 communities and has plans to expand development in several other projects.

Continued development and leasing in these projects resulted in fair value gains of $0.32 million during the quarter. Management examines each development site on a case by case basis. We continue to develop where we remain confident in our lessees prospects.

The Property Development division currently has 74,284 sf under active development.

First Quarter 2023 | Management’s Discussion & Analysis

Melcor Developments Ltd.

8

Regional Highlights

($000s and at JV%, except as noted)	Three months ended	Three months ended
Fair value adjustments by region Northern Alberta	31-Mar-2023	31-Mar-2022
	—	328
Southern Alberta	322	—
	322	328

Northern Alberta : We did not recognize any fair value gains in the quarter ($0.33 in Q1-2022). We are actively working on the construction of 27,262 sf at Woodbend Market (Leduc, AB).

Southern Alberta: We recognized $0.32 million in fair value gains related to our ongoing development at Greenwich (Calgary, AB), where we have two buildings (37,055 sf) and at Chestermere Station (Chestermere, AB) where we have 9,967 sf under construction.

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.

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	198,910	—
Telford Industrial	Leduc	Industrial Park	500,000	143,200	—
West HendayPromenade	West Edmonton	Regional mixed use centre	515,000	116,300	—
Kingsview Market	Airdrie	Regional shopping centre	319,000	200,600	—
Chestermere Station	Chestermere	Neighbourhood shopping centre	264,260	254,260	9,967
Clearview Market 2	Red Deer	Neighbourhood shopping centre	80,000	27,200
The District at North Deerfoot	North Calgary	Regional business / industrialpark	1,285,000	586,600	—
Campsite Industrial	Spruce Grove	Industrial Park	170,000	23,700	—
Jensen Lakes Crossing	St. Albert	Neighbourhood shopping centre	150,000	106,350	—
Woodbend Market	Leduc	Neighbourhood shopping centre	140,000	10,750	27,262
Greenwich	West Calgary	Regional mixed use centre	325,000	62,600	37,055
Vista Ridge	Sylvan Lake	Neighbourhood shopping centre	20,000	5,200	—

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.

Expected Future Projects
				Ownership	Expected Start
Project	Location	Type	Total SF1	Interest	(year)
Secord	Edmonton	Neighbourhood shopping centre	85,000	60 %	2024
Bower	Red Deer	Neighbourhood shopping centre	85,000	100 %	2025
Mattson	Edmonton	Neighbourhood shopping centre	78,000	50 %	2025
Keystone Common	North Calgary	Regionalpower centre	500,000	100 %	2025+
Rolly View	Leduc	Neighbourhood shopping centre	75,000	100 %	2026+
The Shoppes at Canyons	Lethbridge	Neighbourhood shopping centre	105,000	100 %	2026+
West Pointe Marketplace	Lethbridge	Regionalpower centre	750,000	100 %	2026+
Westview Commercial	West Calgary	Neighbourhood shopping centre	150,000	100 %	2026+
Sora	South Calgary	Neighbourhood shopping centre	60,000	50 %	2026+

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.

First Quarter 2023 | Management’s Discussion & Analysis

Melcor Developments Ltd.

9

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 4.73 million sf of income-producing commercial GLA and 473 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 redevelopment 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-2023	31-Dec-2022
	4,734,168 1,135,435 3,598,733 473	4,804,248 1,135,418 3,668,830 476 89.3 % 82.6 % $27.02 $20.32
	90.1 % 81.3 %
	$27.23
	$21.49

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

($000s and at JV%, except as noted)	Three months ended March 31,	Three months ended March 31,
Revenue (total)	2023	2022
	10,812	10,604
Canadian properties US properties Management fees Parking lots and other assets Net operating income (NOI)1 Funds from operations1 Funds from operationsper share2	5,743	5,171 3,621 1,685 127 6,249 5,695 0.17
	3,465 1,389
	215
	6,702 6,200 0.20

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.

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 74,284 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 and weather in our primary operating regions.

Compared to year end, Canadian properties occupancy was up to 90% (2022: 89%) while WABR was up 1% at $27.23 (2022: $27.02). Occupancy and WABR are impacted by transfers from the Property Development as new leases have both fixturing and rent free periods.

First Quarter 2023 | Management’s Discussion & Analysis

Melcor Developments Ltd.

10

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

($000s and at JV%, except as noted) Three months ended March 31,	($000s and at JV%, except as noted) Three months ended March 31,	($000s and at JV%, except as noted) Three months ended March 31,
Same asset NOI1	2023	2022
	2,881	2,761
Properties transferred from PD	1,021	486
NOI1 Amortization of tenant incentives Straight-line rent adjustment	3,902 (537) 246	3,247 (151) 352
Gross profit	3,611	3,448

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

Gross profit was up 5% or $0.16 million in the quarter. NOI increased by 20% or $0.66 million in the quarter. On a same asset basis, NOI was up 4% in the quarter due to improved occupancy.

US properties

Dispositions: In Q1-2023 we sold three residential units in the Edge at Grayhawk in Phoenix, AZ for a net sale price of $1.23 million (US$0.97 million). Throughout 2022, we sold a total of 117 residential units in Phoenix, AZ for a net sale price of $35.00 million (US$26.15 million). These dispositions are adjusted for in the same asset NOI calculations that follows.

Our US residential units were strategically purchased over 10 years ago when exchange rates and market conditions were favorable. Following the US housing market crash in 2008, we issued a $40 million convertible debenture and invested heavily in the US. In addition to the raw land purchased in Denver, we acquired residential rental units in Arizona and Texas. In total, we bought 969 units for $86 million Canadian and have since sold 884 of those units for $167 million Canadian, doubling our investment. Sales took place in 2015-2016 and 2021-2022.

These sales are not included in revenue; however, the value of the assets increased over time through both exchange rate changes and market improvements and we achieved significant gains compared to our initial investment. These gains are considered fair value adjustments and were recorded over the time the assets were held.

Revenue on US properties was $3.47 million in Q1-2023 (Q1-2022: $3.62 million). Revenue and NOI were impacted by dispositions in the trailing 12 months, which is adjusted for in the same asset NOI calculations in the following table.

Compared to year end, occupancy decreased slightly to 81% (2022: 83%) and WABR increased by 6% to $21.49 (2022: $20.32).

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

($000s and at JV%, except as noted) Three months ended March 31,	($000s and at JV%, except as noted) Three months ended March 31,	($000s and at JV%, except as noted) Three months ended March 31,
Same asset NOI1	2023	2022
	1,100	1,037
Third party disposals	(13)	220
NOI1 Foreign currency translation Amortization of tenant incentives Straight-line rent adjustment	1,087 383 (224) 12	1,257 335 (214) 103
Grossprofit	1,258	1,481

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

Gross profit was down $0.22 million in Q1-2023 due to the sale of rental units over the trailing 12 months. Same asset NOI increased 4% or $0.12 million over Q1-2022.

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.

Q1-2023 management fees were down as a result of dispositions and the lease fee agreement between Melcor and the REIT amendment in 2022 which decreased fees paid. Management fees include payments received from the REIT for management of REIT assets. These amounts are eliminated on consolidation.

Funds from Operations

FFO increased 9% or $0.51 million in the quarter. The increase in FFO is attributed to the increase in revenues in the period, and a reduction in general and administrative expenses.

First Quarter 2023 | Management’s Discussion & Analysis

Melcor Developments Ltd.

11

REIT

The REIT owns 38 income-producing office, retail and industrial properties, comprising 3.15 million sf of GLA at March 31, 2023. 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 10, 2023 we have a controlling 55.4% interest in the REIT through ownership of all Class B LP Units (December 31, 2022 - 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. Note 11 to the Condensed Interim Financial Statements provides a breakout of the assets and liabilities of the REIT as supplemental information to assist readers in understanding Melcor's financial position.

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-2023	31-Dec-2022
	3,146,006 699,886 88.4 %	3,216,141 700,182 88.1 %
	16.64	16.55

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 March 31,	($000s except as noted) Three months ended March 31,	($000s except as noted) Three months ended March 31,
Rental revenue NOI1 Same asset NOI1 (see calculation following) Fair value adjustment on investment properties Funds from operations1 Funds from operations per share2	2023	2022
	18,990 11,522 11,492 (1,586) 10,936	18,965 11,855 11,687 (3,662) 11,076
	0.35	0.34

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 remained stable compared to Q1-2022; however, both NOI and net rental income were down 3%. Same-asset NOI, which removes property sold in the period (Kelowna Business Centre), was down 2% compared to Q1-2022 as costs increased more than revenue on remaining assets held. Recoveries are amounts recovered from tenants for direct operating expenses and include a nominal administrative charge. We typically expect recovery revenue to correlate with changes in recoverable operating expenses. In the quarter, recovery revenue was up 3% and direct operating expenses were up 4%. Our recovery ratio can vary quarter over quarter due to variability of expenditures within our portfolio, and the timing of expenses incurred. Prior year recovery adjustments can also impact our recovery ratio and are generally recognized in the first quarter.

Other revenue includes parking, storage, lease amendment and termination fees as well as other miscellaneous revenue that is ancillary to our business and fluctuates from period to period.

Amortization of tenant incentives can fluctuate based on the timing of lease rollovers and leasing incentives. SLR adjustments relate to new leases which have escalating rent rates and/or rent-free periods. SLR fluctuates due to the timing of signed leases and the rent-steps under individual leases.

To date, we have signed 221,777 sf of new and renewed leasing (including holdovers).

As at March 31, 2023, we have retained 95% (196,449 sf) of expiring leases and have received commitment on an additional 47,116 sf of future renewals representing a committed occupancy of 90%. We completed 25,328 sf in new leases, and grew existing tenants by 7,661 sf in occupied space. Kelowna Business Centre, a 71,629 sf office asset was removed from both total GLA and closing occupancy.

Property taxes and utilities were up 1% in the quarter. Utility costs, including heating and power costs, have seen significant increases over the last 12 months due to inflation. Weather conditions in the regions where our assets are located can also impact both heating and air conditioning costs. Property tax increases were the result of increased mill rates over the prior year.

Operating expenses were up in the quarter consistent with the timing of maintenance projects and increased costs being felt across the industry.

First Quarter 2023 | Management’s Discussion & Analysis

Melcor Developments Ltd.

12

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

($000s except as noted)	Three months ended March 31,	Three months ended March 31,
Same asset NOI1	2023	2022
	11,492	11,687
Disposals	30	168
NOI before adjustments Amortization of tenant incentives Straight-line rent adjustment	11,522 (1,058) 174	11,855 (901) 2
Net rental income	10,638	10,956

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. Refer to the Non-GAAP and Non-Standard Measures section for reconciliation of NOI to net income.

Same-asset NOI in the current and comparative periods exclude Kelowna Business Center, which was sold on February 1, 2023. There have been no other acquisitions or dispositions over the past three years. In the quarter, NOI was down 3% and same-asset NOI was down 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 1% in the 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.

All courses opened subsequent to the first quarter of 2023.

	Ownership interest	Season opened 2023	Season opened 2022
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 19 April 20 April 4 April 25	April 22 April 22 March 30 April 29

General & Administrative Expense

G&A expenses were down $0.35 million or 6% to $5.51 million. This decreases is a result of a reduction in activity within our Community Development division and a reduction in G&A within our Investment Properties division.

As a percentage of revenue, G&A was up slightly in the quarter at 15% (Q1-2022: 11%) as a direct result of the reduction in overall revenue. 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, 2023 (2021: 23%). 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.

First Quarter 2023 | Management’s Discussion & Analysis

Melcor Developments Ltd.

13

Liquidity & Capital Resources

The following table represents selected information as at March 31, 2023, compared with December 31, 2022.

As at ($000s except as noted)	31-Mar-2023	31-Dec-2022
Cash & cash equivalents Restricted cash Accounts receivable Agreements receivable Revolving credit facilities Accounts payable and accrued liabilities Total assets Total liabilities Debt to equityratio1	51,453 1,759 10,211 86,033 106,239 39,917 2,112,238 936,347 0.80	80,465 2,761 12,487 97,232 128,473 53,213 2,167,050 988,714 0.84

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

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 short-term 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.

We do not currently have any other plans to raise additional capital through the issuance of common shares, trust units, preferred shares or convertible debentures; however, under certain circumstances, we would consider these means to facilitate growth through acquisition or to reduce the utilized level on our credit facility.

Financing & Liquidity

Total liquidity (cash and MDL & REIT line availability) was $124.36 million as at March 31, 2023 (December 31, 2022: $167.10 million). Our total general debt outstanding was $705.04 million as at March 31, 2023 (December 31, 2022: $740.37 million).

A summary of our debt is as follows:

As at($000s)	31-Mar-2023	31-Dec-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	81,931 24,308 23,619 5,717 524,870 44,590	96,839 31,634 22,597 5,717 539,110 44,468
General debt	705,035	740,365

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, 2023 and throughout the period, we were in compliance with our financial covenants.

We are also subject to financial covenants on the REIT's $50.00 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 million. As at March 31, 2023 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.

First Quarter 2023 | Management’s Discussion & Analysis

Melcor Developments Ltd.

14

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 (used in) operating activities Cash flow from (used in) investing activities Cash flow from(used in)financingactivities	31-Mar-2023	31-Mar-2022
	(5,072) 16,462 **(40,377) **	988 (1,675) 7,746

Operating Activities:

Cash used in operating activities was $5.07 million in Q1-2023 compared to cash from operations of $0.99 million in Q1-2022. Cash flow from operating activities is significantly impacted by the timing of development and sales activity and swings in working capital. 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 $11.05 million in Q1-2023 (Q1-2022: $4.52 million). Collections on agreements receivable were up $8.89 million compared to 2022 due to timing of sales and receipts which has a positive impact on cash flow.

Development activities resulted in $4.50 million in net cash outflows, compared to $4.10 million in net cash outflows in Q1-2022. Tenant incentives and direct leasing costs were up in the quarter at $5.00 million (Q1-2022: $1.72 million).

In the quarter, we invested $2.40 million in the purchase of 40.00 acres in Leduc, AB adjacent to existing inventory. Melcor remains focused on harvesting current land inventory and continues to strategically review land purchase opportunities. No land was purchased in Q1-2022.

Investing Activities:

Cash from investing activities was $16.46 million in Q1-2023 compared to cash used in investing activities in Q1-2022 $1.68 million. The largest factor of this $18.14 million swing relates to the sale of the Kelowna Business Centre, which brought in net proceeds of $19.03 million (including $1.00 million of restricted cash held at year end). These funds were used to repay the mortgage on the property, with remaining cash used to reduce borrowings on our REIT credit facility.

We continue to develop commercial properties and invest in our portfolio and spent $3.71 million (Q1-2022: $1.56 million) on additions to our investment properties, including $3.52 million on Property Development projects.

Financing Activities:

Cash used in financing activities was $40.38 million in Q1-2023 compared to cash from financing of $7.75 million in Q1-2022. During the quarter, we made repayments on our credit facility of $22.23 million (Q1-2022: cash draws of $5.21 million) and also made repayments on our general debt of $14.17 million, which includes the loan payout of Kelowna Business Center of $8.73 million.

We paid dividends of $0.16 per share in Q1-2023 for a total of $5.00 million compared to $0.14 per share in Q1-2022 for a total of $4.60 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, 2023 there were 31,248,628 common shares issued and outstanding, 223,000 options, and 314,948 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, 2023 in comparison to the December 31, 2022 annual MD&A. Refer to note 3 of the condensed interim consolidated financial statements for changes in accounting policies.

Normal Course Issuer Bid

We do not currently have an active Normal Course Issuer Bids (NCIB) for Melcor Developments or REIT.

First Quarter 2023 | Management’s Discussion & Analysis

Melcor Developments Ltd.

15

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.

	2023	2022	2022	2022	2021	2021
($000s)	Q1	Q4 Q3 Q2 Q1			Q4 Q3 Q2
Revenue Net income FFO1	36,077 2,153 7,045	76,261 37,202 22,297	61,136 23,774 16,012	51,044 53,306 25,908 2,470 11,853 10,697	150,598 56,213 44,769 16,561 42,311 12,516	65,547 9,014 16,326
Per Share
Basic earnings Diluted earnings FFO basic2 FFO diluted2	0.07 0.07 0.23 0.23	1.15 0.73 0.79 0.08 1.15 0.73 0.79 0.07 0.70 0.49 0.36 0.33 0.71 0.49 0.36 0.32			1.35 0.50 1.35 0.50 1.28 0.38 1.28 0.38	0.27 0.27 0.49 0.49
Book value2	37.63	37.71 35.55 34.78 33.81			33.87 32.69	32.10

• 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 third and 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 15 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, 2023 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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 non-cash 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:

First Quarter 2023 | Management’s Discussion & Analysis

Melcor Developments Ltd.

16

Investment Properties

($000s)	Three months ended March 31,	Three months ended March 31,
	2023	2022
Segment Earnings Fair value adjustment on investment properties General and administrative expenses Interest income Amortization of tenant incentives Straight-line rent adjustment	3,500 1,939 782 (22) 761 (258)	5,112 218 1,010 (1) 365 (455)
Divisional NOI	6,702	6,249

REIT

($000s)	Three months ended March 31,	Three months ended March 31,
	2023	2022
Segment Earnings Fair value adjustment on investment properties General and administrative expenses Interest income Amortization of tenant incentives Straight-line rent adjustment	8,292 1,586 779 (19) 1,058 **(174) **	6,513 3,662 788 (7) 901 (2)
Divisional NOI	11,522	11,855

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:

First Quarter 2023 | Management’s Discussion & Analysis

Melcor Developments Ltd.

17

Consolidated

($000s)	Three months ended March 31,	Three months ended March 31,
	2023	2022
Net income for the period Amortization of tenant incentives Fair value adjustment on investment properties Depreciation on property and equipment Stock based compensation expense Non-cash finance costs	2,153 2,320 2,484 145 230 2,778	2,470 1,407 2,522 156 117 (1,472)
Deferred income taxes Fair value adjustment on REIT units	(732) **(2,333) **	(181) 5,678
FFO	7,045	10,697

Investment Properties

($000s)	Three months ended March 31,	Three months ended March 31,
	2023	2022
Segment Earnings Fair value adjustment on investment properties Amortization of tenant incentives	3,500 1,939 761	5,112 218 365
Divisional FFO	6,200	5,695

REIT

($000s)	Three months ended March 31,	Three months ended March 31,
	2023	2022
Segment Earnings Fair value adjustment on investment properties Amortization of tenant incentives	8,292 1,586 1,058	6,513 3,662 901
Divisional FFO	10,936	11,076

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.

First Quarter 2023 | Management’s Discussion & Analysis

Melcor Developments Ltd.

18