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Melcor Developments has gone through a very
explosive period of growth since 2000, which is reflective of the Alberta,
Canada economy that they operate in as a real estate development company
Financial
Real Estate Development & Management
(MRD-TSX)
Melcor Developments Ltd.
Suite 900, 10310 Jasper Avenue
Edmonton AB Canada T5J 1Y8
Phone: 780-423-6931
Ralph B. Young, P. Eng, MBA
President and CEO
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
Published - April 27, 2007
BIO:
Ralph B. Young, P. Eng, MBA
President/CEO and a Director of
Melcor Developments Ltd. a public real estate development company
headquartered in Edmonton since its inception in 1923. Melcor is active in
land development, property ownership and management and commercial
development in Alberta, with offices in Edmonton, Calgary, Red Deer and
Lethbridge, and projects in Saskatchewan and Arizona.
Ralph and his
wife Gay have lived in Edmonton for 37 years where they have raised two
children and six grandchildren.
Ralph has been
involved in the urban development industry for 35 years with Melcor and has
served as President and a Director of the Urban Development Institute of
Edmonton, Alberta and Canada. He currently sits on several Boards of arts,
educational and charitable organizations.
Company Profile:
Our mission at Melcor is to be Alberta’s premier real estate development
and management company. We achieve this by continually striving to meet the
needs of our customers, shareholders, fellow employees and business
associates.
Melcor
Developments Ltd. is primarily engaged in the following activities:
• the
acquisition, planning and development of urban communities and the
subsequent marketing and sale of single family, multiple family and
commercial/industrial lots in Alberta in the metropolitan areas of Calgary,
Edmonton, Lethbridge, Red Deer and in the City of Kelowna;
• the
development of income producing properties in Alberta;
• the ownership
and management of income producing properties in Western Canada; and
• the ownership
and management of championship golf courses.
CEOCFO: Mr.
Young, tell us your background with Melcor Developments, your vision for the
company when you became CEO, and where are you today.
Mr. Young: “I have been with the company
for 36 years this year, so I started with the company in the early stage of
its development, but the company goes back 84 years. It started as a real
estate brokerage company and over the last 30 years or so; it has refocused
its interest into real estate development and the management of real estate
assets. I came up through the organization and started as a development
manager and became vice president of the land development division of the
company. In 1997, I was appointed president and in the year 2000, president
and chief executive officer.”
CEOCFO: How
has the company changed since you became CEO?
Mr. Young: “We’ve gone through a very
explosive period of growth since the year 2000, which is more reflective of
the Alberta economy that we operate in. We have been very fortunate
recipients of being in a part of Canada that has enjoyed extremely strong
economic activity probably beginning almost ten years ago, but it is the
last two or three years that it has accelerated at quite a rapid pace.
Therefore, we have seen significant change as our company has grown
dramatically. In 2001 for instance, our revenues were about $80 million and
in 2006, our revenues were over $200 million, so we have had explosive
growth. Our share value has gone up dramatically as well. Our share value in
2001 was about $3.50 and today our share price is about $27.00, so we have
gone up in value probably about ten times since the year 2000.”
CEOCFO:
What do you look for in your properties?
Mr. Young: “Our company is involved in
four areas of real estate development. We develop residential land into new
residential communities. We also develop commercial properties, both retail
commercial and office properties in the markets in which we operate. We
manage those properties on an ongoing basis as a third component of our
business. We are also in the business of managing a small number of golf
courses in the markets in which we operate. In the land development for
residential communities that we are involved in, we look for strong urban
growth, quality of existing development, we look to ensure that there is
infrastructure in place and that there are political approvals available,
that the community has determined that certain growth patterns will be
sustained. In the office market, we have been both an acquirer of office
properties, as well as a developer of office properties. In acquisitions, we
look for properties with considerable upside potential in the revenues they
are currently generating, and our ability to help control the cost of
operating those properties. We look for areas that have strong economic
growth and strong job creation. We have been fortunate in Edmonton, Calgary
and Alberta particularly where we have seen those large areas of growth. In
the retail sector, we are looking for areas where there is significant
population growth where there may be a shortage of retail commercial space
whether it is demand by certain tenants that are looking to move into new
markets. We are looking for opportunities that are exhibited by holes in the
market that have not been properly filled and where there is strong economic
growth that will allow for future office demand and future retail commercial
demand.”
CEOCFO: Is
there an overall percentage in the different areas of interest or is it
wherever opportunity is?Mr. Young: “It
is a little bit of both a geographic and a business mix. In our business
mix, we currently have about 75% of our assets in our land development,
community development area, which involves creating new communities. We have
probably 20 to 25% of our assets in commercial development and a small
percent in our golf courses. We are looking to grow particularly the
commercial part of our portfolio, and we’ve raised that to probably about
40% of our assets, those are our commercial retail office assets that we
will develop and own over a long period.”
CEOCFO: Why
does a tenant want to be in a Melcor building?
Mr. Young: “Location is very important
and tenants wanting to locate in a particular property. The rent, operating
cost, and the quality of ongoing management are also key factors in people
wanting to be in a Melcor building. Therefore, the majority of tenants are
looking for location and they are looking for what they believe to be fair
market rent. Thirdly, most tenants are very appreciative of the quality of
ongoing property management on the properties to ensure the properties are
clean, well looked after and where landlords are responsive to tenant
needs.”
CEOCFO: How
do you maintain the quality standards as you continue to grow?
Mr. Young: “As we grow, we have a bigger
ability to develop more sophisticated systems from both an administrative
accounting and an operational perspective. Having a certain mass of
properties is very important and to have the resources to support the
properties, so that is a critical factor. We also believe we have some very
good people in place that are service cautious and meeting tenants needs. We
hope to be able to train the people that are coming under them to continue
that approach, attitude and level of service.”
CEOCFO: How
is occupancy in your buildings?
Mr. Young: “Occupancies right now are
sitting about 93%, but we have an awful lot of activity on our properties
and we would expect over the balance the year for our properties to get to a
96% occupancy level. Many of the areas where we are operating in the
Edmonton market have had historically very high levels of vacancy. Probably
about ten years ago, the market in Edmonton had 15 to 20% vacancy and over
time that has come down. We have tracked that market and we will continue to
enjoy stronger occupancy rates so we will get our vacancy rates down to I
hope in the order of 4%.”
CEOCFO: Do
people look for a Melcor community?
Mr. Young: “People are first looking for
location and they are probably secondly looking at price, and the quality of
the community. We believe that we provide a high-quality community so we
probably would be a factor in people buying into a community. However, I
would acknowledge it is not the principle factor but it would be probably
fifth or sixth in terms of importance as most people buy into a new
community.”
CEOCFO:
What is ahead two or three years down the line for the company?
Mr. Young: “We plan to continue to be a
real estate development company focused in Alberta, Canada. We see some
geographic growth; we are expanding into British Columbia and Saskatchewan.
We historically have had some of our assets invested in the United States in
Arizona and one large project twenty years ago in California. I would expect
two or three years ago to have a larger part of our assets into some of
these other geographic areas particularly the United States. We see
expanding a little more heavier into commercial and office properties. The
basic strategy would be the same. We see some continued strong growth. We
see the economy where we are involved continuing to generate strong economic
activity through strong job creation, strong immigration; those are all
positive factors in our business.”
CEOCFO:
What are the challenges and rewards for you going into the United States?
Mr. Young: “The challenge is it is a
different market and there are economic factors. We are not as knowledgeable
although we do have experience in operating in Arizona and California. It is
a different market and different marketing conditions. It takes a while to
be able to acquire assets and bring them to development. It involves having
to either hire or move staff into that market which is new for us. There are
quite a number of challenges, but we see the opportunity of being in a much
larger market than our markets in Canada. In addition, there is a very
healthy and strong economy over the long term particularly in the
southwestern part of the US where there continues to be strong job creation
and immigration of citizens to that area of the country.”
CEOCFO:
What is the financial picture today for Melcor?
Mr. Young: “Our financial picture is
very healthy. We have a strong equity base in our company. Our debt to
equity ration is about 1.2 to 1, but that is with our assets at book value.
Based on run-up and asset values over the last ten years in this economy, we
have a very strong level of appreciation in many of the assets we have on
our books so we believe there is a very substantial lift in asset value
based on market conditions. We have good credit facilities, strong balance
sheet, so we are very strong financially at this point.”
CEOCFO: Do
you turn properties over very often?
Mr. Young: “We do not turn over our
commercial and office properties very often; generally, we retain them for
our own long-term investment. We do of course in our land development area.
It is a manufacturing business; we take inventory, improve it, and create a
product, which we then turn over. Therefore, that part of our business is a
turnover business."
CEOCFO: Why
should potential investors be interested in Melcor?
Mr. Young: “They should be interested
because we are in a very strong economic area of growth. They should be
interested investing because of the strong historic track record our company
has had. For a real estate development company, we have been operating for a
lot longer than most of our competitors. We have demonstrated our ability to
operate in good and bad times. We have very seasoned experience people
working for us. We produce very strong financial results. Anyone looking at
our financial track record would be impressed with the results that we have
enjoyed. I think those would be the principle factors. We have a strong
balance sheet; not highly leveraged. People can look at us with some level
of confidence. There are some independent evaluations of our company by one
or two upside analysts who recommend our company highly. Some independent
review of the prospects for our company would also be seen as being quite
positive.”
CEOCFO: In
closing, what should our readers remember about Melcor?
Mr. Young: “We
are in a very good long-term business. We are not impacted as much by
foreign forces. We see in the last week or so impacts from China in the
market that has had an impact on stock markets. We are not in a
manufacturing business that is subject to a lot of foreign forces. We are
very focused on our business and have had a long and strong track record of
successful results.”
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