Melcor Developments

Melcor Developments  -  MRD  .  TSX

This is what I thought in November 2016 when I first bought the stock...

Melcor is a property developer based out of Calgary. Their business model is to buy up undeveloped acreage, put in the roads, sewers and whatnot and then sell completed lots off to builders. They typically keep some of the prime land to develop into big box plazas and then keep some of the resulting retail and office space and stuff it into their pet REIT or hang on to it themselves and harvest the rental income.

The company was side-swiped by the downturn in the oil patch and as a result, the stock has been beaten down to compelling levels. At the recent share price of $12.80, you can pick up this developer for just under half of its tangible book value. That book value is made up primarily of raw land that they are holding for future development and income-producing retail and office space that they have already developed and retain on their books.

While the speed and degree of the recovery in the oil sector remains an open question, this company remains profitable and enjoys a steady stream of recurring rental income which should shield it from the worst of the downturn. Over time, I am hopeful that they will be able to monetise their raw land holdings and recycle this money into productive development activities, whatever form those may take. I am buying this primarily on the basis of its steep discount to its own book value and am hoping that at some point in the future this discount will close.

What's changed since I made my first purchase of this stock? Follow the ongoing story in the posts below...

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