Calloway Real Estate Investment Trust
TSX : CWT.UN

Calloway Real Estate Investment Trust

February 23, 2012 17:44 ET

Calloway Real Estate Investment Trust Announces Strong Fourth Quarter and Year End Results

TORONTO, ONTARIO--(Marketwire - Feb. 23, 2012) - Calloway Real Estate Investment Trust (TSX:CWT.UN) is pleased to report its results for the fourth quarter and year ended December 31, 2011.

Highlights of the Quarter:

  • Maintained portfolio occupancy rate at the 99% level for the eight sequential quarter.
  • Funds from operations ("FFO")(1) increased by 14.6% to $54.8 million and 8.2% to $0.449 on a per unit basis compared to the same period in 2010 as a result of rent increases from renewals and growth of the portfolio due to acquisitions, earnouts, and completed developments.
  • Invested $47.5 million to complete the development and lease up of 150,993 square feet of leasable area at an average yield of 7.6%.
  • Monthly distributions are confirmed for the period of March to May at $0.129.
  • Raised over $100 million in equity in December 2011.
  • Debt to gross book value as at December 31, 2011 improved to 49.0% (excluding convertible debentures) from 51.3% at December 31, 2010.

Highlights of the Year:

  • Renewed 86.6% of expiring leases with an average rent increase of 8.1% with an additional 5.3% of leases in negotiation.
  • FFO(1)(2) increased by 16.7% to $203.4 million and 4.0% to $1.703 on a per unit basis compared to 2010 as a result of increases in net operating income ("NOI") and a decrease in interest expense.
  • Acquired three Walmart anchored shopping centres comprising 580,300 square feet of leased area and future development of approximately 245,039 square feet for an initial consideration of $140.7 million financed partially by issuing $90 million aggregate principal amount of 4.7% senior unsecured debentures due in 2018.
  • Invested $163.0 million to complete the development and lease up of 594,405 square feet of leaseable area at an average yield of 7.4%.
  • Completed the sale of four non-core assets for gross proceeds of $41.6 million.
  • Raised $216 million in equity during the year.
  • Renewed the existing $160 million operating line for a three-year term.
  • Increased the fair value of the investment properties by $167.0 million from income growth and declining capitalization rates.

Al Mawani, President & CEO of Calloway Real Estate Investment Trust (the "Trust"), said, "During 2011, the Trust delivered solid performance on all components of its strategy, from the reliable performance and growth embedded in our existing portfolio of best in class retail centres to growth from the acquisition of 594,000 square feet of earnout income and 580,300 square feet of new Walmart Supercentre anchored retail centres. We continued to focus on growing income with minimal amount of development risk. During 2011, we took advantage of favourable capital markets by improving leverage ratios, lengthening debt maturities and reducing the AFFO payout ratio to 91%. We remain focussed on delivering stable and growing cash flow to our unitholders."

Quarterly Results

The income-producing portfolio generated revenue of $132.5 million in the fourth quarter, a $7.0 million increase over the same period in the prior year. NOI for the fourth quarter of $87.1 million increased $3.9 million or 4.7% over the same period in the previous year. This growth is attributed mostly to developments and acquisitions during 2011. FFO and Adjusted Fund from Operations ("AFFO") increased by $7.0 million and $5.9 million, respectively. The increase is mainly due to the growth of the portfolio and reduced interest expense. FFO per unit of the Trust ("Unit") for the fourth quarter (fully diluted) was $0.449 compared to $0.415 in the previous year. AFFO per Unit for the fourth quarter (fully diluted) was $0.425 compared to $0.399 in the previous year. The Trust's quarterly distribution of $0.387 per Unit represents a payout ratio (to AFFO) of 91.1% compared to 97.0% in the same period in 2010. This distribution is confirmed for the period of March to May 2012.

Annual Results

As at December 31, 2011, the Trust's $5.7 billion real estate portfolio (at fair value) included 25.5 million square feet of built gross leasable area and 4.3 million square feet of future developable area in 120 operating and 9 development properties. The total fair value of the portfolio increased by $439.9 million during the year. The weighted average stabilized capitalization rate of the portfolio declined in 2011 to 6.41% from 6.66% in 2010.

During the year, the Trust acquired 580,300 square feet of retail space in three Walmart anchored retail properties for $140.7 million, which was satisfied by the issuance of Class B Series 5 limited partnership units of a subsidiary of the Trust, Calloway Limited Partnership III, with a value of $1.7 million and the balance in cash and other working capital adjustments.

Developments completed during the year comprised of 594,405 square feet of leasable area at a cost of $163.0 million and a 7.4% yield.

During the year, the Trust issued $216 million in new Units and $90 million of senior unsecured debentures bearing interest at 4.7% per annum for a total of $306 million. In addition, the Trust renewed its $160 million operating line with an additional $40 million option (which has not been exercised) for an additional three-year term and added a new $35 million unsecured operating line, each at a variable interest rate based on bank prime plus 0.65% or banker's acceptance plus 1.65%. The Trust's previous operating line bore interest at a rate of bank prime plus 2.25% or banker's acceptance plus 3.25%.

In addition, the Trust obtained $107.5 million in new term mortgages with an average term of 12.6 years and weighted average interest rate of 5.26%

The Trust maintained its debt to gross book value at 49.0% (52.3% including convertible debentures) at year-end, which is below the Trust's target range of 55.0%-60.0% (60.0%-65.0% including convertible debentures). This will provide flexibility to the Trust to address its committed financing obligations and grow its portfolio.

Net income for the year was $206.8 million compared to $534.5 million in 2010. The decrease was primarily the result of lower fair value adjustments on investment properties and financial instruments, which were a net gain of $151.0 million compared to $637.8 million in 2010 as a result of the larger decrease in capitalization rates in 2010 compared to this year. Excluding the impact of fair value adjustments, interest expense related to the distributions on limited partnership units of certain subsidiaries of the Trust ("LP Units") and vested deferred units considered as debt in 2010, yield maintenance payment on repayment of the Trust's Series C 10.25% senior unsecured debentures ("Series C Debentures") in 2010 and income tax provisions, net income would have increased by $27.8 million during the year mainly due to increases in net rental revenue of $19.3 million and a reduction of interest expense of $9.3 million mainly due to the repayment of the Series C Debentures at the end of 2010.

The high occupancy level of 99.0%, as well as the Trust's acquisition and development program, generated rental revenue of $511.9 million in 2011, a $32.7 million increase over the prior year. NOI of $338.9 million increased $19.3 million or 6.0% over the previous year, on the same properties basis the increase was 1.2%. Cash flow as measured by FFO totalled $203.4 million (1) in 2011, an increase of $29.1 million or 16.7% over 2010. The year-over-year results were positively impacted mainly by completed acquisitions and developments generating additional NOI of $19.3 million and a decrease in interest expense of $9.3 million (excluding distributions on LP Units and vested deferred units considered interest expense under IFRS). FFO per Unit (fully diluted) was $1.703 compared to $1.637 in the previous year. AFFO per Unit (fully diluted) was $1.646 compared to $1.540 in the previous year. The Trust's annual distribution of $1.55 per Unit represents a payout ratio (to AFFO) of 94.0% compared to 100.5% in 2010.

The Trust expects to meet the REIT Exemption once the Federal Budget proposals clarifying the application of the rules for REIT Exemption from income tax are re-introduced and passed. The effective date of the proposed legislation is January 1, 2011 at which time the current ($20.4 million) and deferred ($426.2 million) income taxes totalling $446.6 million will be reversed.

The non-IFRS measures used in this Press Release, including AFFO, FFO, NOI and debt to gross book value, do not have any standardized meaning prescribed by International Financial Reporting Standards ("IFRS") and are therefore unlikely to be comparable to similar measures presented by other issuers. These non-IFRS measures are more fully defined and discussed in the management discussion and analysis of the Trust for the year ended December 31, 2011, available on SEDAR website at www.sedar.com.

(1) Excludes current income taxes; which are expected to be reversed upon the proposed changes being enacted.
(2) Excludes the effect of the $31.6 million expense in 2010 as a result of the redemption of the 10.25% Series C senior unsecured debentures.

Full reports of the financial results of the Trust for the year are outlined in the audited financial statements and the related management discussion and analysis of the Trust, available on the SEDAR website at www.sedar.com. In addition, supplemental information is available on the Trust's website at www.callowayreit.com.

The Trust will hold a conference call on Friday February 24, 2012 at 10:00 a.m. (ET). Participating in the call will be members of the Trust's senior management.

Investors are invited to access the call by dialing 1-800-814-4859. You will be required to identify yourself and the organization on whose behalf you are participating. A recording of this call will be made available Friday February 24, 2012 beginning at 12:00 p.m. (ET) through to 11:59 p.m. (ET) on Friday March 2, 2012. To access the recording, please call 1-877-289-8525 and use the reservation number 4507310#.

Certain statements in this Press Release are "forward-looking statements" that reflect management's expectations regarding the Trust's future growth, results of operations, performance and business prospects and opportunities. as outlined under the headings "Business Overview and Strategic Direction" and "Outlook". More specifically, certain statements contained in this Press Release, including statements related to the Trust's maintenance of productive capacity, estimated future development plans and costs, view of term mortgage renewals including rates and upfinancing amounts, timing of future payments of obligations, intentions to secure additional financing and potential financing sources, and vacancy and leasing assumptions, and statements that contain words such as "could", "should", "can", "anticipate", "expect", "believe", "will", "may" and similar expressions and statements relating to matters that are not historical facts, constitute "forward-looking statements". These forward-looking statements are presented for the purpose of assisting the Trust's Unitholders and financial analysts in understanding the Trust's operating environment, and may not be appropriate for other purposes. Such forward-looking statements reflect management's current beliefs and are based on information currently available to management. However, such forward-looking statements involve significant risks and uncertainties, including those discussed under the heading "Risks and Uncertainties" and elsewhere in the Trust's Management's Discussion & Analysis for the year ended December 31, 2011 and under the heading "Risk Factors" in its Annual Information Form for the year ended December 31, 2011. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements. Although the forward-looking statements contained in this Press Release are based on what management believes to be reasonable assumptions, the Trust cannot assure investors that actual results will be consistent with these forward-looking statements. The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. These forward-looking statements are made as at the date of this Press Release and the Trust assumes no obligation to update or revise them to reflect new events or circumstances unless otherwise required by applicable securities legislation.

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

Contact Information

  • Calloway Real Estate Investment Trust
    Al Mawani
    President and Chief Executive Officer
    (905) 326-6400 ext. 7649
    (905) 326-0783 (FAX)

    Calloway Real Estate Investment Trust
    Bart Munn
    Chief Financial Officer
    (905) 326-6400 ext. 7631
    (905) 326-0783 (FAX)
    www.callowayreit.com