Firm Capital is calling for the Melcor REIT’s minority unitholders to reject a proposal to take it private.

Toronto-based Firm contends that the offer is too low and only benefits the REIT’s majority owner, Melcor Developments, and insiders.

Firm wants Melcor Developments to boost the take-private offer to $8.48 per unit or sell all of the REIT’s real estate assets and liquidate the proceeds.

Edmonton-based Melcor Developments plans to dissolve the debt-laden REIT and bring its $673.6-million portfolio back under the company’s full ownership.

Earlier this month, the company announced that it has agreed to acquire 100% ownership of the REIT. The proposed deal calls for the development company to purchase all REIT units that it does not own for $4.95 per unit through a plan of arrangement. Melcor Developments currently owns 55.4% of the REIT.

Richard Kirby, a member of the REIT’s board, said then that the proposed deal resulted following an in-depth strategic review process. Kirby chaired a REIT independent committee that examined the proposed transaction. He is not an employee of the company.

But Firm said the deal represents a 45% discount to the REIT’s net asset value of $8.93 per unit on July 30.

“The transaction is highly beneficial to both Melcor [Developments] and insiders, namely the Melton family, who are members of senior management, and the trustees of both Melcor [Developments] and the REIT,” said Firm in a news release.

Firm contends that the offer is also “far below” the value of the REIT’s entire real estate portfolio.

The portfolio comprises interests in 37 diversified commercial properties spanning 3.12 million square feet of gross leasable area across Alberta and in Regina and Kelowna, B.C.

The $4.95-per-unit offer is also well below the REIT’s $10 IPO price, noted Firm, which has been publicly urging Melcor Developments, to take the REIT private since November 2020.

In addition to launching the take-private plan, the REIT announced several “self-dealing initiatives” that only benefit the development company at the expense of unitholders, Firm argues. Firm also contends that the REIT board’s decision to suspend its monthly distribution in February unnecessarily drove the unit price down.

Melcor’s take-private offer comes after Firm called in February for the development company to take the REIT private or bolster its low unit value.

At that time, Firm said a take-out price of 95% of the REIT’s net asset value, based on the then $7.69 unit price, would provide minority unitholders with $100 million. Minority unitholders now stand to receive much less.

In another move that Firm sought, Melcor Developments has agreed to pay out $46 million worth of 5.1% convertible subordinated unsecured debentures.

The company contends that the current proposed purchase price represents a 46% premium. The REIT has been granted a 30-day go-shop period that allows it to solicit prospective third-party buyers until October 14. If the REIT succeeds in securing a better offer, the REIT must pay Melcor Developments a $2.9-million go-shop fee.

The company can also collect a $5.8-million termination fee if a go-shop fee is not workable.

The current proposed transaction will be subject to court and two-thirds unitholder approval, among other conditions, and is slated to close in the fourth quarter of 2024.

Pictured: Melcor REIT retail property in northwest Calgary

Photo: Melcor REIT