Melcor Developments Ltd. (MRD) Earnings Call Transcript & Summary

Thank you for standing by. This is the conference operator. Welcome to Melcor Developments Annual General and Special Meeting. [Operator Instructions] The conference is being recorded. I would now like to turn the conference over to Tim Melton, Chairman of the Board, for opening remarks. Please go ahead.

Good morning, ladies and gentlemen, and welcome to the Annual Shareholder Meeting for Melcor Developments Ltd. My name is Timothy Melton, Chairman of the Melcor Board. It is my privilege to chair this 52nd Annual Meeting. As the COVID-19 pandemic is ongoing and in-person gatherings remain restricted, we are hosting this meeting strictly online. We miss seeing all the shareholders and stakeholders in person. I even put on a tie this morning for the AGM, but learned that the formal part of the meeting is all audio. Report from senior management will provide PowerPoint with those of you on webcast. This year, questions and real-time voting will be available. And Nicole Forsythe, Melcor's Communication and Marketing Director, will provide more information on that shortly. However, most voting has taken place in advance of the meeting, and we have reached quorum to pass all today's motions. This is not to discourage you from voting today, if you've not already done so. We will move very quickly through the formal part of the meeting and with Naomi Stefura, our CFO; and Darin Rayburn, acting as motioner and seconder. Following this formal component, Darin Rayburn will present on the results of 2020 and our future prospects. Should you like to reference the information circular or annual report, they are available for download by clicking documents at the top of your screen. I'd like to turn it over to Nicole for her comments, please.

Thank you, Tim. For voting, only shareholders who have entered the webcast with your control numbers will be able to vote. Once the voting has opened, the polling icon will appear on the navigation bar at the top of your screen and the resolutions and voting choices will be displayed. After you vote, a message confirming that your vote has been received will appear. Your vote can be changed by simply clicking the other option or if you wish to cancel your vote, just click on cancel. In order to ask questions, there are 2 methods. If you are on the webcast, you can select the messaging icon at the top of your screen and then type your question into the text box at the bottom of the messaging screen and hit send. Questions will be moderated before they are sent to the Chair for answering. And should we have a large number of questions, we may not get to them all. [Operator Instructions] Tim, over to you.

The meeting is now called to order. I will Chair the meeting, and Naomi Stefura will act as Secretary. Kristine Calesso of AST Trust Company Canada will act as scrutineer. However, all motions have already been passed. Notice of this meeting of shareholders was sent to all shareholders of record. I have an affidavit of mailing, which indicates a mailing date of April 20, 2021, as proof that the notice of this meeting has properly been served. It is certified by our transfer agent. As such, I will request a motion dispensing with the reading of the notice.

I move that the reading of the notice be dispensed with.

I second the motion.

Thank you, and that motion is carried. I will ask the Secretary to keep a copy of the notice and proof of mailing with the records of this meeting. We have received a report on shareholder attendance at this meeting from the scrutineer. We have received 25,049,471 votes, representing 76% of Melcor's issued and outstanding shares on the record date and, therefore, meets the quorum requirements for this meeting. I declare this meeting regularly called and properly constituted to conduct business. I will now request a motion to dispense with the reading of the minutes of Melcor's last Annual General Meeting of shareholders held on June 25, 2020.

I move that the reading of the minutes of the last Annual General Meeting of shareholders be dispensed with. That the minutes be approved as written.

I second the motion.

Thank you, and that motion has been carried. The next item of business is the presentation of financial statements for the period ending December 31, 2020, and the related auditor report. When you received notice of meeting, you also received instructions for accessing Melcor's annual report online or requesting that a printed copy be sent to you. This information is also available on our website at melcor.ca or sedar.com. It will be mailed to anyone who requested it. As you've had ample opportunity to review this material, I would request a motion dispensing with the reading of the financial statements and auditors report.

I move that the reading of the financial statements for the period ending December 31, 2020, and the auditor's report be dispensed with.

I second the motion.

Thank you, and motion carried. Next item of business is to appoint the external auditors and to authorize the directors to set their remuneration. And I ask for a resolution in this regard. For those of you who are voting online, please vote on this matter now.

I move that PricewaterhouseCoopers be appointed as Melcor's auditors until the next annual meeting or until a successor is appointed at remuneration to be determined by Melcor's Board of Directors.

I second the motion.

This motion is carried. Next item of business is to fix the number of directors to be elected at this meeting. For those of you who are voting online, please vote on this matter now.

I move that 8 directors be elected at this meeting.

I second the motion.

Motion carried. Next up, we have the election of the directors. All directors elected today will hold office until the next Annual General Meeting, unless his or her office is earlier vacated. At this time, I would like to thank Gordon Clanachan and Allan Scott, who are not seeking reelection, for their many years of dedicated service to Melcor. Thank you very much, gentlemen. The 8 nominees listed in the information circular are proposed for election. They are Ross Grieve, Andrew Melton, Kathleen Melton, Timothy Melton, Catherine Roozen, Ralph Young, Douglas Goss and Bruce Pennock. We have received sufficient proxies to individually elect these nominees and will not be seeking nominations from the floor. For those of you who are voting online, please vote on this matter now.

I move that Ross Grieve, Andrew Melton, Kathleen Melton, Timothy Melton, Catherine Roozen, Ralph Young, Douglas Goss and Bruce Pennock be individually elected to serve as directors of Melcor.

I second the motion.

Thank you for the motion, and that motion is carried. Next, we have confirmation of changes to the bylaw, bylaw #1, enabling virtual annual general meetings to be held by the company.

I move that Melcor confirm changes to bylaw #1, enabling virtual annual general meetings to be held by the company.

I second the motion.

Motion carried. And this concludes the formal business of the Annual General Meeting as described in the information of meeting notice. For those of you who are voting online, please vote on this matter now.

I move that the meeting be terminated.

I second the motion.

I declare this portion of the meeting terminated. Prior to turning the meeting over to Darin, I would like to personally acknowledge and thank our Board of Directors for their continued guidance, counsel and good stewardship of the company. I would also like to welcome our new directors, Doug Goss and Bruce Pennock. I would like to thank Melcor's staff and leadership team for their continuing to deliver satisfactory results for Melcor through this unprecedented period of change and uncertainty. Thank you all for your dedication and effort. Finally, I would like to thank our shareholders for your support and ongoing commitment. I will now turn the meeting over to Darin for his management's presentation.

Thank you, Mr. Chairman. Before getting into our presentation, I'm required to remind you that some of the statements we make today may be forward-looking, and that we will not update any forward-looking statements unless required to do so by law. There's a lot of fine print here and I'd like each of you to read it at your leisure. For a complete discussion of items that may cause the actual results to differ, please refer to the business environment and risk section of our annual management discussion and analysis. Since 1923, Melcor Developments has been in the business of real estate. While the specifics of our business have modified over the years to reflect the times, real estate is fundamentally to who we are. Today, we are a diversified real estate development and asset management company. Our fundamental goals are to protect shareholder investment through prudent risk management and careful stewardship of company assets; to grow shareholder value by achieving strong operational performance and return on invested capital; to distribute profits to shareholders through a reliable dividend; to promote a strong and healthy corporate culture by taking care of our exceptional team; and to build strong and positive relationships with all of our stakeholders. To say, COVID brought an unexpected challenge to remain committed to these goals throughout 2020 is a gross understatement to say the least. However, here we are, still kicking and screaming, fighting and digging, clawing away. Our operating focus at Melcor is to deliver high-quality products and industry leading value in each of our divisions, providing exceptional customer experiences, developing, constructing, managing, leasing, maintaining master planned communities, business and industrial parks, office buildings, retail commercial centers and golf courses. We balance our capacity to take advantage of strategic growth opportunities while sustaining and improving our existing businesses. Melcor has over 98 years of experience in cyclical economies. Throughout these cycles, we've time and again managed through and we've learned not only to weather the cycle, but to make our businesses stronger by recognizing and pursuing opportunities, while balancing our risk and our exposure. While preparing for today, I reviewed my notes from the abbreviated annual meeting a year ago. At that time, we were entering the COVID rabbit hole, uncertain of where the economy was headed, making decisions and taking intentional actions to prepare for the uncertainty ahead. Here we are a year later. And while we're not clear yet, we're coming out of the rabbit hole this time and we see the light at the end of the tunnel. The intent of our presentation today is to give an overview of who we are. Naomi will talk about what we did in 2020, I'll give a high-level overview on how we did it and we'll do a brief snapshot on our specific development, demonstrating the Melcor ecosystem, ending with a discussion on our environmental, social and governance practices. This is May 2021 version of Melcor Developments Ltd. Our Community Development division buys land, pursues municipal approval and zoning and creates residential communities for our homebuilder clients to build and sell their product. We currently have 10,500 acres of raw land in our land bank. There are 648 single-family lots in our inventory. We have 176 multifamily and other raw land acres. Our Property Development division actively constructs and leases our commercial sites. Currently, the division has just under 85,000 square feet under development and the future potential of 4.7 million square feet of future development. Our Investment Properties and REIT divisions holds finished commercial revenue-generating properties, and they manage, maintain and lease. We currently have 4.63 million square feet of space, this includes the Melcor REIT assets, and 604 residential units. And our Recreational Properties division that oversees the management of 3 of our 4 championship golf courses. Collectively, we have $2 billion in assets. For comparison, 20 years ago, Melcor had $177 million in assets. And 15 years ago, we reported $396 million in total assets. Of our 10,500 acres of raw land that I mentioned earlier, 8,833 exist in Canada, and you'll see on the map the various regions that they occupy. And 1,667 acres of lands are in the United States, in Colorado and Arizona. Now on to what we did. To review our results for 2020, I'll pass the meeting over to Naomi Stefura, our Chief Financial Officer. Naomi?

Thank you, Darin. I will now walk you through a few of our financial statement highlights for the year ended December 31, 2020. Revenue was $226.8 million in 2020, up 9% compared to 2019. This increase in revenue was achieved despite the fact that the current year results contain 9 months of operations during the COVID-19 pandemic. Not all revenue is reported on the face of the income statement either. Melcor also generates significant internal revenue from land sales to our Property Development group and building sales from our Property Development group to our Investment Properties division. This internally generated revenue is a significant -- is significant to Melcor and its shareholders as it represents true value creation on assets that we have chosen to hold internally as opposed to sell externally. When you include all of these interdivisional transfers, divisional revenue before eliminations in 2020 was $276 million. Gross margin was 43%, down from 46.5% in 2019. Gross margin is significantly impacted by the mix of revenue from our various operating divisions. This decline in margin is largely the result of a higher proportion of our revenue coming from the land division in the current year as compared to 2019, where the land division typically sees lower margins than our REIT and IP operations. Net income was $11.5 million, down from $37.7 million in 2019. However, I remind our shareholders that net income is not always a good metric for performance, given the large number of noncash items in our income statement. The current year net income was significantly influenced by the negative fair value adjustment on our Investment Properties. Our entire portfolio was revalued during the year by independent appraisers. And due to the impact that the COVID-19 pandemic had on the market conditions, we recorded a net valuation loss of $76.5 million for the year. This was partially offset by the fair value gain recorded on our REIT units. Accounting rules dictate that the units of the REIT that are not held by Melcor, in other words, the outside unitholders of the REIT, be presented as a liability and, therefore, any decrease in the REIT share price results in a gain to Melcor's income statement. Counterintuitive that, unfortunately, the decrease in the REIT share price this year actually resulted in a gain to Melcor, but that is how the accounting works. Due to some of these accounting impacts influencing our financial statements, we consider funds from operations, otherwise known as FFO, an important measure of our performance, because it removes some of these noncash impacts to net income, including fair value adjustments on investment properties and adjustments on the REIT units, for which there is no real relationship to our performance. FFO was $51 million, up 34% from 2019. This increase in FFO was the result of the increased activity in our land division and was also aided by our disciplined focus on reducing controllable cash, general and administrative expenses, which were down 19% over 2019. Dividends paid to shareholders were $0.34 for the year, down from $0.49 in 2019. The reduction in the dividend was a decision made by the Board early in the pandemic when there was no clear visibility on what impact COVID would have on our business. This was a prudent and cautious move made to conserve cash during these uncertain times. I will now walk you through a few of our key performance metrics for 2020. Lot sales in Canada were up in 2020 with 770 lots sold compared to 668 in 2019. The COVID-19 pandemic has created a strong single-family housing market, which resulted in a 15% increase in the number of lots sold, while the average selling price is also up 12%. Products sold in the year included a broad mix from price-sensitive townhomes and duplexes to luxury estate lots. Lot sales also remained strong in our U.S. land division, where we sold 241 lots in the community of Harmony in Aurora, Colorado. Our builder group bought all 181 new lots created in phase 2 of this project and an additional 60 lots from phase 1. Construction of phase 3 is currently underway. We sold just over 15 acres of land in the current year compared to 145 in 2019. The prior year sales figure, though, is significantly impacted by an 84-acre sale that we made to the province for a road widening, whereby no similar sales took place in the current year. The timing of raw land sales to municipalities or the province are difficult to predict and can vary significantly from year-to-year. During 2020, the Property Development division completed and transferred 11 buildings, adding over 132,000 square feet to owned and managed gross leasable area and generating an increase in net operating income over 2019. In 2019, only 8 buildings were transferred from the Property Development division. Occupancy remained relatively stable year-over-year. In light of the current COVID-19 pandemic and its impact on the office and retail sector, this was a significant achievement for the company. Occupancy on properties owned by the Investment Properties division was down in the year, primarily due to new properties transferred from the Property Development division with lower in-place occupancy. Occupancy in the REIT remained consistent with the prior year at 88%. And last, but certainly not least, our golf courses reported over 116,000 rounds played. A relatively safe recreational and social activity, golf enjoyed renewed popularity in 2020. Coupled with favorable weather conditions, rounds played in 2020 increased by 15% in spite of having approximately 15% fewer playing days due to the late opening.

Thank you, Naomi. A year ago, we weren't sure where 2020 would end up. These are impressive results with all 4 of our operating divisions contributing beyond our COVID environment expectation. These results didn't just happen. They were a culmination of pivoting our business units making intentional decisions and focusing on careful, disciplined execution in an economic and social environment often changing on a daily basis. The diagram on your screen illustrates the pillars of our strategy, which are: to grow by acquiring strategic land properties and properties and exploring strategic opportunities to increase capital resources; to sustain by remaining disciplined in monitoring and managing our key performance drivers on our reputation; to diversify by developing real estate assets for revenue, earnings and cash flows and by increasing our presence in the United States. I draw your attention to the center of the slide. People are the heart of our strategy, and we commit to protecting our culture and values and taking care of our exceptional team. So how did we achieve the results, and to build on Naomi's reporting. Our Community Development division we start with. The pandemic had a significant impact on our Community Development division and on the world throughout much of 2020. The business community shifted to working from home wherever possible, which, along with home schooling, contributed to a surprisingly strong market for new homes in the areas we operate, particularly in the suburbs and bedroom communities across Alberta, in Kelowna, British Columbia and in Denver, Colorado. While new home sales stalled in the early days of the pandemic, the heightened demand by midyear helped us execute on our stated goal of reducing our finished lot inventory. Year-end inventory of 648 single-family lots is the lowest inventory that Melcor has reported at year-end in a decade. Our Community Development division revenue was down 7%, while our single-family lot sales were up 15% in Canada and 235% in the U.S. Increasing demand for new homes, especially in the latter half of 2020, offset the decrease in demand from multifamily and commercial land sales. Our Property Development team focused on completing projects in spite of the new challenges and uncertainty related to COVID-19. Their efforts resulted in the completion of 11 buildings with just over 132,000 square feet. This is new gross leasable area that will positively impact our results in the future years as we continue to grow our income-producing assets to hold for the long-term or sell to the REIT. We currently have a total of just over 66,000 square feet currently under construction, another 41,000 square feet complete and awaiting lease-up prior to transfer over to our Investment Property division. Speaking of Investment Properties, we classify this group in two ways: one area by properties managed and held by the REIT, which Melcor is a 54% owner of REIT unit; and the second, our properties held in Melcor Developments that Melcor Developments owns 100%. Our Investment Properties, including the REIT, faced significant COVID-19 impacts as many of our retail and personal service tenants were shut down by provincial regulation for much of the year, and our office tenants were required to work-from-home or maintain skeletal staff within buildings. We worked closely with our tenants throughout the year, helping them through the Canada Emergency Commercial Rent Assistance program, working on deferral plans and generally supporting tenants in any way we could. Our goal is to keep the balance sheet strong and to put Melcor and the REIT in the best position to support our builders, tenants and clients as needed. We believe this strategy was in the best interest of all stakeholders, including our shareholders. Our Investment Properties and REIT divisions performed exceptionally well given the uncertainty introduced by COVID-19. We're able to complete new leasing in the midst of all the uncertainty. This slide refers to our 100% owned properties, which include some Canadian assets and all of our U.S. commercial and apartment assets. For the Melcor REIT bundle of assets, rental revenue increased by 3% as a result of properties acquired in the last -- late 2019, including Melcor Crossing in Grand Prairie and Staples Center in Calgary, Alberta. Leasing continued even during this time of COVID. The REIT signed just over 87,000 square feet of new deals in 2020, representing 32 new leases and had renewals and holders of just under 260,000 square feet, representing 73 leases. This helped the REIT maintain their occupancy at a steady 88%. Rent is the lifeblood of these assets. Collecting rent in normal times could be challenging. Throw a pandemic, mandatory closures and stay-at-home orders and things get really tricky. I'm proud to report through 2020, we collected 94% of all of our rents. Broken down by asset class, collections in office were 95%; for retail were 91%; industrial 95%; and for our residential portfolio just shy of 100%. It's hard to be anything but encouraged by the resilience of our tenants and their creativity being shown in modifying and altering their business, product delivery in light of the ever-changing restrictions. We remain cautious about the long-term impact to our tenants and anxiously await the complete reopen of our economy when its safe to do so. Our golf courses were the beneficiaries of COVID-19-impacted economy. Golfing was one of the safe activities that people were able to enjoy. As Naomi mentioned earlier, coupled with favorable weather conditions, round played in 2020 increased by 15% in spite of having 50% fewer days due to a late opening. While our revenue decreased over 2019, the decrease is a result of the closures of the golf courses early in the year due to COVID and as well as operating restrictions placed on food and beverage sales. However, our golf courses were also able to increase their margins from 27% to 43% as a result of improved operating efficiencies and reduced staffing. While that was then, this is now. Frankly, I'm not sorry to see 2020 well into our rearview mirror, and I suspect to echo many people's relief of 2020 being over and done. Real estate development is a dynamic business and we often say, "Nice work, but what have you done for us lately?" For a quick snapshot of the first quarter 2021 results, back over to Naomi.

Thank you, Darin. We've had a very positive start to 2021, and I am pleased to provide a brief update on our results to date. First quarter revenue in 2021 was $43.3 million, up 28% over the first quarter of 2020. A large driver of this increase in revenue was a very strong first quarter by our land division, where we saw a significant increase in lot sales in the Edmonton and Calgary regions compared to Q1 of 2020. Our Canadian lot sales in Q1 2021 were 122 lots, which was over double our sales at this point in 2020 at only 56 lots. Net income was, in fact, a loss of $14 million. However, once again, I will remind shareholders that this loss was entirely the result of the change in the share value of our REIT units. As the share price of the REIT recovered in the quarter, this resulted in a fair value loss in our financial statements of $21.6 million. Adjusting for this loss, our net income would have been $7.6 million. As such, again, funds from operations, or FFO, is a better indicator of performance. FFO was up 72% or $4.25 million compared with this quarter last year due to strong land sales activity in the quarter and some termination fees received in our Investment Properties divisions. Previously, I mentioned that the dividend was decreased in 2020 in an effort to conserve cash during these uncertain times. We are pleased to report that in the first quarter of 2021, we increased our quarterly dividend back up by $0.02 per share to $0.10 per share. This dividend of $0.10 in Q1 2021 is now consistent with the dividend that was paid in Q1 of 2020 pre-COVID. We renewed our normal course issuer bid effective April 1, 2021. And year-to-date, we have purchased 25,824 shares of the company. Under the renewed NCIB, our daily purchase limit has been increased to 3,781 shares, up from 1,000 in 2019. And with that, I'll pass it back to you, Darin.

Thank you, Naomi. An encouraging start to 2021 in spite of all still being in the throes of economic lockdowns. People often ask me, "What opportunities do you see now? And what are you doing to grab them?" As a land development company, our strategies tend to unfold slowly. Around 10 years ago, we embarked on 2 diversification strategies that are now having a significant impact on our bottom line. We feel it's worth reviewing. These strategies were, firstly, to diversify geographically by reentering the United States markets. Melcor last developed land in California in the '80s. And the second diversification strategy was to grow our income-generating asset portfolio to reduce the impact of the seasonal nature of community land development. Today's results have been more than a decade in making. We thought it would be worthwhile for us to take a look back just at the past decade. In late 2008, 2009, we spent time in Texas mining for opportunities. While the world went through a financial adjustment, United States was hit especially hard, Alberta and Melcor specifically remained relatively inflated, except for our share price drop, but our balance sheet was strong, our cash flow solid and the U.S. and Canadian dollar was trading at par. We saw the opportunity and took it to grow our U.S. footprint. Then in January 2011, we also completed a private placement convertible debenture for $40 million. We used this money to repopulate our balance sheet from the 2009-2010 U.S. residential and commercial purchases and to pursue additional assets in the U.S., some land, more commercial assets and several home and residential units in Texas and Arizona. Today, our U.S. portfolio is as follows. We have $243 million in United States assets. That consists of 462 acres in Arizona and 1,205 acres in Colorado and 519,000 square feet of commercial properties, 3 located in Denver, Colorado, 3 located in the Phoenix area, plus 214 residential units in Arizona. This slide demonstrates our 10-year revenue growth. You can see that our U.S. revenue grew from $2 million or 1% of our total revenue in 2010 to $51 million or 22% of our revenue in 2020 for a 10-year cumulative annual growth rate of 37.5%. While our U.S. assets have looked like have changed over time, from heavy weighing on residential and Texas in 2011, which is the white bump on the screen you're looking at now, to now currently holding no assets in Texas and our primary commercial assets in Arizona and Colorado. You can also see by the next slide as representing a growing impact in the relevance of U.S. land purchases on our overall land bank assembly: the dark blue is our Northern Alberta land bank over the last 10 years in acres; the red is Central Alberta; the gray, Southern Alberta; the orange BC, Saskatchewan; and the top of that graph with the increasing shows the U.S. impact to our 10-year numbers. We go where we see opportunities. The U.S. strategy is paying off and generating revenue at a time when the rent from our commercial holdings and residential apartments currently provide a stable income stream. And revenues from our land holdings in the U.S. are now starting to contribute to our bottom line in a meaningful way. A second embarked upon strategy was to increase the consistently recurring revenue generation aspect of our annual income stream. This was done in 2 ways. One was to launch the Melcor REIT in May of 2013. Melcor, like all REIT unitholders, receives an ongoing benefit of a monthly distribution payment from the REIT. Second, we increased focus on our Property Development division to do vertical development and generate income from Melcor owned and held raw commercial land sites. The graph you're looking at now demonstrates the significant contribution Property Development has added to growing our income-generating lease grossable area. The dark blue and the red being the total gross leasable area, the red being Property Development's contribution and cumulative contribution. You can see that in 2010, they accounted for 32%. And now even though we've grown our footprint significantly, still account for 42% of the gross leasable area in our portfolio. In fact, Property Development has added 1.27 million square feet over the past 10 years with a significant amount yet to be transferred or under development. The next slide is our asset composition slide. You can see the impact of red and orange on our overall assets. Blue are our land assets, red are our Investment Property revenue-generating assets and orange are the Property Development properties under development. Our specific goal is to diversify our asset base and increase the percentage of stable annual income. As you can see, that's exactly what's happening. Now I'd like to briefly review another opportunity that we saw and talk a bit about the Melcor ecosystem in full cycle of development. This is truly a team effort across all of our divisions. Jensen Lakes Crossing is a development in Northern St. Albert, commercial piece adjacent to our residential development. In 2013, Melcor Developments bought 35.6 acres to service the land. In 2016, Property Development took 16.8 acres of that land. From 2017 to 2020, Property Development developed 8 commercial retail units for a total cost of $32.7 million. And 2008 to 2019, those 8 commercial retail units, accounting for 77,000 square feet, were transferred to our Investment Property division for a fair value of $43.2 million. And in 2021, Investment Property collects about $2.3 million a year in rent from those assets. And there are 3 commercial retail units currently under construction and 7.7 acres remaining for future development. This is truly a full team effort. Our Community Development division sourced, purchased, worked on the zoning and approvals for the raw land. Our Property Development division built on it, leased it. Our Investment Property division managed it, maintains the properties. And even our Recreational Properties division participates by helping with the landscaping and site maintenance. All these groups being backed up and aided by our finance and administration group, our human resources group, IT and our marketing communications group. A true Melcor whole team effort and a great example of the Melcor ecosystem at work. Finally, today, I'd like to touch on a very important foundation to our ongoing success. While environmental, social and governance standards and reporting has become a much more prevalent and important investor focus, the principles we follow at Melcor have been in place and evolving over many years. A company does not survive 98 years without focus and attention on purpose and people in addition to profits. We are committed to corporate sustainability and environmental practice, social responsibility, governance of our company and as stewards of the areas in where we operate. Attaining best practices in all aspects of our business is a constant aspiration. Our history and our culture form our strong foundation, the authentic values of a family-run organization, practicing the golden rule and building deep relationships with our clients, our business partners, our employees and our communities. We're committed to setting high standards for ESG and diversity, equity and inclusion initiatives. With 38% of our senior management team being female, we are recognized by The Globe and Mail's second annual Women Lead Here list. Fountain Tire place, which is built by Melcor in 2014 and has a office building in South Edmonton, was once again recognized by the ENERGY STAR program for being 88% more efficient than similar properties across Canada recognized by Natural Resources Canada. We're in the process of rolling out mandatory training on mental health for all managers, and we doubled the benefits available for mental health support in 2020. In our commercial properties, we reduced greenhouse gas emissions by 32% from 2012 to 2020 and used energy consultants to ensure that our buildings operate in an environmentally friendly manner. We also recently joined Edmonton's Corporate Climate Leaders Program and have engaged Green Economy Canada to work with us developing greenhouse gas emission benchmarking and setting targets for further focus on more reductions. This brief overview today of some of our initiatives does not do justice to the historical efforts and the importance and prevalence we corporately put on these very relevant topics. I encourage each of you to refer to the more wholesome and complete listing of our ESG initiatives. The specifics can be found in our annual report and our management discussion and analysis. Melcor's senior leadership is committed to promoting diversity and inclusion and ensuring that Melcor continues to operate in sustainable and responsible ways with respect to the environment, social needs and governance. The personal, communal, societal, economic and emotional aspects of COVID-19 cannot be truly measured or understood until we are far past the days of lockdowns and viruses and variants. The year past and in reflection also gave power to societal and cultural trends to our diversity, equity inclusion for all and our world will be better for it. Human spirit, especially in the face of diversity and challenge, is truly an amazing thing. While 2020 was an unimaginable year, our entire Melcor team demonstrated they were definitely up for the challenge. The resiliency, commitment and bravery in the face of unending change has been commendable. I am humbled and grateful for their commitment, passion and dedication to the exceptional work they do every day on the front lines and behind the scenes. Our Melcor team focused even -- are focused on even stronger relationship with clients, tenants and partners, while keeping COVID cases virtually nonexistent in our numerous sites, proving that we could survive a year like 2020. No one could have predicted how 2020 would play out. When I reflect back on my year, my initial concerns surrounding the uncertainty ahead are now overshadowed by my immense pride at our team's response. While we don't fully understand the long-term implications of COVID, our team demonstrated they're ready for anything. Once we get through this COVID recovery, we define ways to continue to grow and provide sustainable, consistent returns for our shareholders. In closing, I'd like to express my appreciation for our Board of Directors and our Chairman. Thank you for your ongoing support, your guidance, your wisdom, in particular, over the last 13 months. I echo Tim's comments and thank Allan Scott and Gordon Clanachan for their service above and beyond to Melcor and our shareholders for so many years. And I welcome Doug Goss and Bruce Pennock to the Board. The road has been bumpy in the past year, particularly challenging. I'm extremely proud of our team's response to the challenge and the current situation created. I'm proud of the agility our team demonstrated in pivoting projects and priorities; learning to work-from-home and meet virtually instead of in person; manage their responsibilities along with home schooling and child care. We continue to be proactive in all areas of our business to ensure that the right people are working on the right things in a way that is most efficient for Melcor and our shareholders. I'd like to make special mention and give my thanks to Naomi Stefura, our Chief Financial Officer, who is not only the financial steward for Melcor and the Melcor REIT, but is also shown to be a key component of our COVID crisis management team. I also want to acknowledge the efforts of our executive management team. They're not only stewards of their own divisions to focus their business operations, but are thrust into role of our crisis management team. In addition to Naomi, this includes Susan Keating, Graeme Melton, Guy Pelletier, Dan Eggert, Bob Brown, Lindsay Lefebvre, Nicole Forsythe and Kevin McGee. The Melcor senior management team like many teams today have taken a role none of us saw coming, but we're all committed to see it through. We will get through this. We will meet face-to-face again. To all the Melcor customers, our tenants, our value contractors, our service providers, our homebuilder clients, our golf course clients, thank you for your continued business. We commit to work together to respond to this crisis and find a way through it, so we can all move forward and just get back to business. Finally, I thank our shareholders for your ongoing support and trust in Melcor and our business. We are committed to protecting and enhancing our investment for the long term. We appreciate your notes of support as we navigate through these strange time doing our best to make the right decisions for everyone. After all, we are an ecosystem that relies on one another. We strive to make decisions that support our shareholders for long-term success for each and every one of us. With a diversified portfolio, a proven team, a history of adapting to challenging times, we remain positioned to manage through this period of uncertainty. Thank you for joining us today. I remind everyone. We didn't come this far just to come this far. In closing, I also want to express my sincere gratitude to all those who are working so hard to make our communities safe and livable. Nicole, over to you.

Thanks, Darin. I'm just going to remind everybody quickly how to ask a question. [Operator Instructions] We already have a number of questions that have come in. And so we're going to start with an easy one for -- and I believe I'm going to give this to Naomi. The question is, would you remind repeating -- would you mind repeating your Q1 NCIB numbers?

Absolutely, Nicole. So just in case there was any confusion. So at the end of Q1, as I believe was our disclosures at the time, although I don't have it in front of me, we had purchased 5,000 shares of the company. But since then, we have purchased some more. The total that I'm showing to today's date is 25,824 shares. And the other thing that was mentioned, just to be clear, is the normal course issuer bid restrict how many shares we can buy daily due to our trading volumes. And last year's NCIB only allowed us to purchase 1,000 shares a day. And now under the new, renewed NCIB, we can now purchase 3,781 shares per day starting April 1, 2021. So I hope that answers that question.

Thanks, Naomi. I have another question here. This one is from Mr. Shawn Allen. You indicated 2021 is off to a great start. Can you please comment further on the state of residential lot market at this time? And how optimistic you feel?

Shawn, thanks for the question. First quarter is encouraging. However, we're still in lockdowns. We don't know how 2021 is going to finish. So your specific question talk about where we see the market going. Demand is there. And as long as demand is there and the interest rate is down and people are employed, we will do our best to take advantage of that demand. Going forward, I think your guess is as good as mine depending on what happens with the interest rates and the rest of it. But what is undeniable and perhaps a bit surprising is the demand continues. And there was a report this morning that came out from ATB that talked about home sales in the first quarter of 2021, and in April and May being up double-digit increases. So lot sales are a big part of Melcor Developments' business, and so we're always encouraged and optimistic. But I've learned to be cautiously optimistic because things can change quickly. I don't know if that answers your question, Shawn.

Thanks, Darin. I'm going to actually -- a few people have asked a very similar question. So I'm going to kind of paraphrase it. And it is in relation to book value -- Melcor's book value in comparison to our share value and whether we feel that our book value is appropriate.

Thanks, Nicole. I think, as CFO, I guess, Darin's pointing at me. I'll take that one. The reality is if you tuned into our Melcor REIT conference call this morning, I think a really difficult part of answering this question is market value is at the end of the day what someone is willing to pay. And while we have most of our balance sheet is at market value, that's based on appraisals, I think what investors can sort of take with confidence is that all of our land remains at book. And as you can see through the sales that our land division has, we sort of consistently earned margins in the 30% range. So if you took all of our land value and assume that we could make 30% on everything that's sitting in our book, that's quite a bit of room for comfort for any potential risk and anything else being undervalued on our balance sheet. Also a reminder that we did take a large fair value hit in the current year of over $70 million. And so that's also already included in our book value. So while I can't say with any sort of extreme confidence or certainty exactly what a true market value of the company would be, I do think the book value is a close, at least, proxy to that. And so yes, the current discount that there is the true, just discount. Unfortunately that our shares trade that much below market on the stock exchange.

Thanks, Naomi. Okay. So I have a question here on return on equity. It's been low each year since 2015. Land development involves tying up capital for many years. Is it the case that land development is inherently a low ROE business? Or is it more likely a cyclic low and ROE can be expected to be much higher in good years?

Thank you for that question. I think there's probably a long answer to that, but I'll give you the short answer. I think it all comes to perspective. To term inherently low, I think it depends how you look at inherently. Land development is a capital-intensive business. And as developers, we try and buy land at an appropriate price in the proper growth zones to be able to get a return on equity on it, too. So I think depending on what part of history you look at, you can slice and dice the return on equity throughout it. Clearly, my role as CEO of the company is to work with our team to increase our return on equity. That's what we do, and so we do our best. And the land development is characterized as a lumpy business with good years and bad years. And the goal is to smooth out those lumps over time. So the cumulative annual return gives our shareholders an appropriate return going forward. I hope that answers your question, Shawn. If it didn't, you're welcome to reach out to me later on, and we can chat a bit more.

I have a couple more questions. Actually, I'm just going to pause for a moment and check in with Anastasia and see if she has any questions from the phone line.

There are no questioners on the phone lines.

Okay. So my next question is, at this point, is there a set policy relating to free cash flow or FFO being directed proportionately to dividends and NCIB?

Thank you for the question. A company doesn't survive 98 years without being cautious and forward thinking. And so the answer to that question, there's not a set policy regarding free cash flow going to dividends. We do feel a responsibility to get a return to our shareholders, but we'll do it in a cautious and stable manner. And it's also a tough question to ask going through the year we've gone through in 2020 and trying to understand where 2021 goes. But again, just to be clear to everyone on the call and on the webcast. We take great responsibility in the fiduciary responsibility to get a return to our shareholders, and we'll do it in a consistent, responsible way going forward. Thank you for your question.

Thank you, Darin. I have one final question showing at the moment. So if anybody else wants to ask a question, please jump in now. This question is, does management have a plan to expand to other listings in order to increase liquidity?

Thank you for your question. I can tell you at this point, we have no specific plan to expand to other listings regarding liquidity. But we do have conversations about how to increase our liquidity and expand the company at the Board level and has been consistently and will continue to have those conversations moving forward.

There are no further questions.

That concludes the 2020 Melcor Developments Annual General Meeting. I want to remind everyone and thank them that we express our sincere gratitude to all those who are working so hard to make our community safe and livable. So thank you all for calling in today. Stay safe, healthy and strong. Be well. Hang in there. And a good day to all of you.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.