Calloway Real Estate Investment Trust
TSX : CWR.UN
TSX : CWT.DB

Calloway Real Estate Investment Trust

October 26, 2006 10:04 ET

Calloway Announces New $1 Billion Transaction; Internalizes Management

TORONTO, ONTARIO--(CCNMatthews – Oct. 26, 2006) –

Attention Business Editors:

Calloway Real Estate Investment Trust (TSX:CWT.UN) announced today that it has entered into conditional agreements with SmartCentres to acquire or lease interests in 16 properties, of which 14 are anchored by Wal-Mart and half are in the Greater Toronto Area; Calloway will also acquire from SmartCentres part of its property management business, which currently manages Calloway's shopping centres. Aggregate consideration will be approximately $1 billion, with an initial payment of $440 million and the balance payable as the recently constructed properties are fully built out.

The 16 properties comprise 9 operating shopping centres, containing over 1.6 million square feet of leased area and 0.6 million square feet of expansion potential, and 7 development properties with 1.8 million square feet of potential leaseable area. The 16 properties are expected to be substantially completed over the next 3 to 4 years.

In addition to the 8 properties located in the Greater Toronto Area, the remaining properties are in the Greater Montreal Area (2), Ontario (4), New Brunswick and Quebec. The centres will be anchored by Wal-Mart (14), as well as other national retailers such as Loblaws (5), Home Depot (2), Canadian Tire (2), Sobeys (2) and Rona.

The development properties include a regional unenclosed centre in Stouffville, Ontario that will comprise of over 600,000 square feet on completion and is home to the first newly constructed Canadian Wal-Mart Supercentre, scheduled to open on November 8, 2006. Many of the centres are large in scale with 5 containing over 500,000 square feet of retail area on completion and a further 7 containing over 200,000 square feet. The centres were all built within the last 10 years, with an average age of approximately 5 years, consistent with Calloway's existing portfolio.

Mr. Simon Nyilassy, President and CEO of Calloway said, "With properties in such communities as Oakville, Leaside in Toronto, Erin Mills and Meadowvale in Mississauga, there are no weaknesses in this portfolio."

As a result of this transaction, Calloway will:

a. on closing, immediately increase its operating portfolio to 122 properties, in which Calloway has a net ownership interest of 18.3 million square feet of leased area;

b. on full completion, increase its portfolio from a net ownership share of 20 million square feet to 24 million square feet, an increase of approximately 20%;

c. on closing, immediately take over management of all 112 properties currently managed by SmartCentres.

Calloway has engaged CIBC World Markets as financial advisors in connection with the transaction. The transaction is expected to close in December 2006 and is subject to normal due diligence, certain approvals and other customary conditions.

"The acquisition of a newly built portfolio of large scale properties from SmartCentres further strengthens our strategic network of retail centres across Canada. Calloway's quality retail will no doubt resonate with Canadian consumers in today's strong economy, but more importantly, the value focus will ensure their appeal remains strong in all economic climates." He adds, "With the acquisition of the Stouffville property, Calloway will own 5 of the initial 7 Wal-Mart Supercentres to operate in Canada."

Mr. Nyilassy also said, "Bringing management of our properties in-house adds even greater strength to our management team which, together with our expanding development capabilities, will help us capitalize on our well positioned assets. This is another important step in our evolution. Our ability to execute another strategic transaction, further emphasizes the strength of our relationship with SmartCentres, which focuses on the development of large scale, value oriented retail centres, many anchored by Wal-Mart".

The initial payment comprises $382 million for the operating properties, at an estimated yield of approximately 6.1%, $44 million for the undeveloped land and $14 million for the property management business. The existing long-term property management contract with SmartCentres will be permanently cancelled, at no additional cost to Calloway. The transaction will be financed in part by the assumption of debt in the amount of approximately $235 million (net of a mark to market adjustment) and the issuance to the vendors of units in the amount of $60 million at current market prices. The balance will be paid in cash, from the surplus proceeds of Calloway's recently completed 5.37%, 10-year unsecured debt offering. The average term to maturity of the assumed debt is approximately 13 years, closely matching the average lease term of approximately 12 years. Following the transaction, Mr. Mitchell Goldhar, President and CEO of SmartCentres will own a 24.5% interest in Calloway, compared to 24.3% prior to the transaction. Mr. Nyilassy also commented, "In addition to the strategic importance of this transaction to Calloway, the financial results are expected to be immediately accretive."

The 16 properties include over 2.4 million square feet in future development, which will be completed by SmartCentres under development agreements. Calloway estimates that it will invest an additional $555 million in these properties as new buildings are completed and as tenants lease new space at an estimated yield of over 6.5%. SmartCentres will have the option to provide up to $140 million in financing for these developments, by subscribing for REIT units or exchangeable LP units at a price per unit, based on a 25-cent premium to the current market price of Calloway Units. Under certain circumstances payments for the additional developments may be deferred and the price per unit adjusted. Interests in five properties, for initial consideration of $222 million, will be by way of prepaid 80-year leases, with the unfettered right to acquire the free-hold interest at the end of the term.

This press release contains "forward looking statements" subject to various significant risks and uncertainties which may cause actual results, performances and achievements of Calloway to be materially different from any future results, performances or achievements, expressed or implied by such forward looking statements. Such risk factors include, but are not limited to, risks associated with real property ownership, availability of cash flow, restrictions on redemption, general uninsured losses, future property acquisition, environmental matters, tax related matters, debt financing, Unitholder liability, potential conflicts of interest, potential dilution, and reliance on key personnel. Calloway cannot assure investors that actual results will be consistent with these forward looking statements and Calloway assumes no obligation to update or revise them to reflect new events or circumstances.

The Toronto Stock Exchange neither approves nor disapproves of the contents of this Press Release.

Contact Information

  • Calloway Real Estate Investment Trust
    Simon Nyilassy
    President and Chief Executive Officer
    (905) 326-6400