SCHEDULE 13D/A: MILFAM Launches Proxy Battle for Scully Royalty Board Seats

Shareholder MILFAM LLC, holding 13.0% of Scully Royalty Ltd., is initiating a proxy solicitation to replace the entire Board of Directors, citing significant underperformance and governance issues.

Summary

• MILFAM LLC and its affiliates, collectively holding approximately 13.0% (1,985,952 shares) of Scully Royalty Ltd.'s (SRL) outstanding common shares, are soliciting proxies to elect five new directors to SRL's Board.
• The annual general meeting of shareholders is scheduled for Saturday, December 27, 2025, at 8:00 a.m. Hong Kong time.
• MILFAM aims to replace the current five directors: Michael J. Smith, Samuel Morrow, Jochen Dmler, Silke S. Stenger, and Dr. Shuming Zhao.
• The proposed nominees are Jerrod Freund, Mark Holliday, Alan Howe, Nimesh Patel, and Skyler Wichers, who MILFAM believes will bring expertise in corporate governance, restructuring, capital markets, and the metals and mining sectors.
• The solicitation is driven by MILFAM's belief that prompt changes in SRL's leadership and strategy are necessary to enhance shareholder value, citing ineffective governance, poor financial performance, and lacking shareholder returns.
• MILFAM intends to mail its definitive proxy materials to shareholders on or about December 8, 2025.

Sentiment

Score: 2

Explanation: The filing presents a highly critical assessment of the company's past performance, current governance, and strategic direction, indicating severe underperformance and significant shareholder value destruction. While the proposed proxy fight aims for positive change, the current state described is overwhelmingly negative.

Positives

• A significant shareholder (MILFAM, 13.0% ownership) is actively seeking to improve corporate governance and shareholder value at Scully Royalty Ltd.
• The proposed slate of directors possesses extensive experience in corporate governance, corporate restructuring, capital markets, and the metals and mining sectors, which could bring valuable expertise to the Board.
• MILFAM intends to initiate a strategic review of the company's operations, balance sheet, and non-core assets, with an emphasis on maximizing return of capital to shareholders.
• The new board, if elected, aims to improve transparency and accountability to shareholders, including through regular earnings calls and shareholder-accessible annual meetings.

Negatives

• Scully Royalty Ltd. has delivered negative Total Shareholder Return (TSR) over 1-year (-23%), 3-year (-13%), and 10-year (-43%) periods as of September 30, 2025.
• The company's TSR has significantly underperformed its peer group (Deterra Royalties, Labrador Iron Ore Royalty Corp, Mesabi Trust) by 42% (1-year), 61% (3-year), 14% (5-year), and 541% (10-year).
• Book value of equity declined over 60% from C$52.47 per share in 2014 to C$20.39 per share at the end of 2024.
• Total capital returned to shareholders in the last ten years was only C$38.9 million (C$2.63 per share).
• The company incurred cumulative pre-tax losses of over C$20 million despite receiving over C$160 million in royalty payments from the Scully Mine restart since July 2019.
• Cash dividends represent only 16 cents for every dollar of royalty revenue, significantly below peers (55-106%).
• The merchant banking segment (Merkanti subsidiary) has a history of poor performance, with nearly C$140 million in credit losses (net of recoveries) and C$80 million in cumulative impairments (net of reversals) over the last ten years, delivering an average Return on Equity (ROE) of just 2.7% over the last three years.
• Existing Board members have de minimis personal shareholdings, with Chairman Michael Smith holding less than $1 million and CEO Samuel Morrow holding less than $60 thousand.
• Board compensation is misaligned, with Michael Smith earning C$1.0 million and Samuel Morrow C$1.1 million in 2024, without an equity component, while average non-executive director compensation increased by approximately 64% since 2014 as annual revenues fell by approximately 97%.
• The company has not held a single earnings call since November 2015 and has scheduled annual meetings in Hong Kong around holidays, limiting shareholder engagement.

Risks

• Continued underperformance of the company's shares and operating results if current leadership and strategy persist.
• Exposure to a legal action related to an alleged guarantee, with the quantum increasing from C$43 million in 2019 to C$81 million plus interest and costs as of December 31, 2024.
• Ongoing costs and potential further losses from the underperforming merchant banking business and non-core assets.
• Potential for continued value diversion from the valuable Royalty segment to underperforming Merchant Banking investments and excessive executive compensation.
• Risk of further related party transactions that may not be in the best interest of all shareholders.

Future Outlook

MILFAM anticipates that if their nominees are elected, the new Board will conduct an evaluation of the company's management and strategy, focusing on maximizing earnings and dividends from the iron ore royalty interest, rationalizing non-core assets, and reducing the discount between the stock price and book value per share. They also plan a strategic review of the Merchant Banking segment and aim to improve transparency and accountability to shareholders through measures like regular earnings calls and accessible annual meetings.

Management Comments

• "Prompt changes in SRLs leadership and strategy are necessary for the Company to achieve its full potential and produce enhanced value for all stakeholders."
• "The MILFAM Nominees, if elected, would restore shareholder confidence by initiating a review of the Companys strategy, operations, and balance sheet with an emphasis on maximizing return of capital to shareholders, improving transparency and accountability to shareholders, and minimizing related party transactions."
• "The Existing Directors do not represent the best interests of the Company or the Companys Shareholders and have not been acting in the best interests of the Company during their tenure."
• "The Existing Directors have overseen significant and sustained shareholder value destruction over a long period of time and have done little to promote transparency."
• "The Company needs a Board with a slate of new directors who have relevant industry and leadership experience and who are committed to maximizing shareholder value."

Industry Context

The company's performance is contrasted sharply with its peer group in the royalty and iron ore mining sectors, specifically Deterra Royalties, Labrador Iron Ore Royalty Corp, and Mesabi Trust. The filing highlights that Scully Royalty Ltd. has severely underperformed these peers across various timeframes and key financial metrics, suggesting a significant disconnect from broader industry trends and competitor success in maximizing shareholder value from similar assets.

Comparison to Industry Standards

• Scully Royalty Ltd.'s 10-year Total Shareholder Return (TSR) of -43% significantly underperformed the peer group average of 498% as of September 30, 2025.
• Labrador Iron Ore Royalty Corp, a close comparison with a royalty asset in an iron ore mining operation just eight kilometers away from the Scully Mine, delivered a 10-year TSR of 422% compared to Scully Royalty Ltd.'s -43%.
• Over the last six years, Scully Royalty Ltd. distributed only 16 cents in cash dividends for every dollar of royalty revenue, significantly below its peers: Deterra Royalties (~55%), Labrador Iron Ore Royalty Corp (~106%), and Mesabi Trust (~67%).
• The peer group for TSR comparison includes Deterra Royalties (DRR.AX), Labrador Iron Ore Royalty Corp (LIF.TO), and Mesabi Trust (MSB).

Management Changes

Corporate Governance

Legal Proceedings

• The company's subsidiaries are named defendants in a legal action related to an alleged guarantee of a former parent. The estimated quantum of the claim has increased from C$43 million in 2019 to C$81 million, plus interest and costs, as of December 31, 2024.

Related Party Transactions

• In 2024, the company incurred approximately C$1.3 million in royalty expenses, employee benefits, and various leases and office expenses to related parties, including the company's directors, Chairman, President, Chief Executive Officer, and Chief Financial Officer.
• An unexplained C$22.4 million outstanding receivable is due to the company from the Chairman or an entity controlled by him, as of the latest disclosure.
• Executive compensation includes over C$0.6 million in housing allowances and expense reimbursements.

Stakeholder Impact

• Shareholders are directly impacted by the proposed board changes, with the potential for increased shareholder value, improved governance, and greater transparency if MILFAM's nominees are elected. Conversely, continued underperformance and lack of accountability could persist if the current board remains.
• Current management and the existing Board face potential removal and scrutiny over past performance, compensation, and strategic decisions.
• Employees may be indirectly impacted by potential strategic reviews and operational changes, though specific details are not provided.
• Creditors and suppliers could be indirectly affected by the company's financial performance issues and ongoing legal proceedings.

Next Steps

• MILFAM intends to mail definitive proxy materials to shareholders on or about December 8, 2025.
• The annual general meeting of shareholders is scheduled for December 27, 2025, where the election of directors will be voted upon.
• Reporting Persons plan to continue communicating with the Issuer and other shareholders regarding board changes and other matters.
• Depending on the outcome of communications and other factors, Reporting Persons may take further steps to bring about changes to the Board and/or Issuer to increase shareholder value.

Key Dates

Recommendation

The filing details severe historical underperformance across multiple financial metrics and compared to industry peers, coupled with significant corporate governance concerns and related party transactions. This information suggests a 'sell' on the company's current trajectory. However, the filing also announces a proxy contest by a significant shareholder (MILFAM LLC) to replace the entire Board of Directors with a slate of nominees possessing relevant expertise. This proposed change introduces a potential catalyst for a turnaround and value creation. Therefore, a seasoned investor would likely 'hold' to observe the outcome of the proxy fight, as a successful change in leadership could significantly alter the company's future prospects and potentially lead to a 'buy' opportunity, while a failed attempt might reinforce the negative outlook.

Keywords

Scully Royalty Ltd., MILFAM LLC, Proxy Fight, Shareholder Activism, Corporate Governance, Board of Directors, SEC Filing, Schedule 13D, Royalty Company, Iron Ore, Merchant Banking, Shareholder Value, Underperformance, Executive Compensation, Related Party Transactions