On Wednesday, the S&P 500 was down 1.0% and Toronto was up 0.1%.
Melcor reported Q1 earnings after the close. (Note that our report is as of Q4) Things were mostly about as expected. The Income property income is still growing modestly. Occupancy is strong at 91%. The residential lot sales were down 48%. They continue to develop new income properties. Melcor posted a GAAP loss. However, there would have been a modest profit if not for the fact that they had to increase the liability for the non controlled interest due to an increase in the value of the REIT units. This was required by some really silly accounting rules. This non-controlled interest has to be shown as a liability on the balance sheet but it’s not a true liability in the sense that it ever has to be paid off. It really seems bizarre to generate a loss because the market value of the REIT units of which they own 56% has increased.
Some quarters the price change in the REIT units adds to income. I have consistently eliminated this fluctuation in the adjusted earnings. On an adjusted basis the earnings were positive but significantly less than last year’s Q1.
Overall, with book value reported as $28.86, Melcor remains very much under-valued.
If it happens that the share price declines on the news of the GAAP loss then I believe that would be an opportunity to buy. Certainly Melcor has been a company that tests the patience of investors. But the value is there.