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

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

Richard Kirby, a member of the REIT’s board, said 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.

According to the REIT’s second-quarter report, the portfolio held interests in about $673.7 million worth of commercial real estate, based on fair market value as of June 30. Meanwhile, the REIT had about $411.7 million worth of debt.

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.

Melcor’s move comes after Firm Capital, one of the largest REIT’s minority unitholders, called in February for the company to take the trust private bolster its low unit value.

At that time, Firm Capital 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 unit holders with $100 million. Minority unitholders now stand to receive much less.

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

The current proposed purchase price represents a 46% premium on the REIT’s Thursday closing price. 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 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 proposed transaction will be subject to court and two-thirds unitholder approval, among other conditions, and is expected to close in the fourth quarter of 2024.

Pictured: Melcor retail property in northwest Calgary

Photo: Melcor REIT