Calloway REIT ends busy 2012 with strong quarter

The year that was 2012 proved to be a memorable one for Calloway Real Estate Investment Trust, so it was only fitting that it ended with a bang up quarter.
The Vaughan, Ont.-based REIT is best known as the real estate partner of Walmart given its large portfolio of malls anchored by the discount giant.
Calloway REIT capped its year with a number of operational and financial punctuation marks.
Those included:
•  A portfolio occupancy rate at or above the 99% level. (It’s 12th straight quarter at or above that mark).
•  A 10.3% increase in funds from operations. That key measure rose to $60.4 million for the quarter and increased 4.5% to $0.469 on a per unit basis compared with last year.
•  Calloway opened 196,440 square feet of new leased space in existing retail centres by completing development and lease up at a weighted average development yield of 7.1% on aggregate investment of $54 million.
•  Entered  into a  joint  venture  with  mall developer and operator SmartCentres  to  develop  the  53-acre , 6 million sq. ft. Vaughan Metropolitan Centre, north of Toronto.
•  Completed the acquisition of zoned land to develop the Montreal Premium Outlets in  a  joint  venture  with  Simon  Properties  Group  and  SmartCentres.
•  Completed the sale of seven non-core investment properties for gross proceeds of $86 million as part of its plan to focus on higher growth properties.
Net income for the quarter was $101.4 million compared to $38.5 million in 2011 and excluding fair value adjustments and loss on dispositions, net income rose by $5.5 million in the fourth quarter, primarily because operating income rose by $4.8 million.
“We had a good quarter,” especially when looked at from a FFO basis, Al Mawani, President and CEO of Calloway, said in an interview.
Higher revenue from ultra-low vacancy
Calloway reported that net income for the year (excluding income tax recovery/expense) was $603.3 million compared to $348.8 million in 2011. After adjustments, net operating income increased by $19.8 million to $357.8 million. Rental revenue for the year rose $34.2 million to $546.1 million.
Mawani expects growth in 2013 to come from a mix of continued ultra-low vacancy rates, debt refinancing at lower interest rates, rent hikes from lease rollovers and renewals that are averaging 6 to 8% higher rents as well as new initiatives such as its Premium Outlets mall concept. The first of those malls is slated to open in Toronto with the second Montreal outlet scheduled to open in 2014.
“The regular business is stable, it gives us not huge growth but good growth,” he said. “What we have is very stable and defensive in terms of the cash flow and if there are vacancies like Best Buy or there is any tenant that wants to reduce size or change their format it is relatively easy for us to re-lease the space because most of our centers have a Walmart anchor.”
In fact, Calloway owns 113 malls that feature the U.S. discounter as its main tenant.
“In Canada, you have one of two anchors. Either you have a grocery store anchor or you have a department store anchor,” said the Calloway CEO.
“The only department store that has been growing – until Target – is Walmart. In our research, and I think that everyone will agree, a department store draws more traffic than a grocery store.”
2012 was a good year for retail
For landlords, 2012 was a good year with relatively few major bankruptcies, as Calloway’s tiny vacancy numbers attest.
Best Buy’s announced closure of 15 stores in Canada will impact four of the REIT’s centres. In one case, the electronics retailer intends to re-open in a smaller format and close its doors in the other three.
With the retailer agreeing to honour its lease in those other three malls, Calloway will have the time it needs to find replacement tenants.
Calloway faces a similar situation with a few RONA stores which are slated to close, the Calloway CEO said.
“There have been fewer retail casualties, who knows after Target comes what happens, and I think we have a stronger base of tenants,” said Mawani. “Because [malls] are well located and well anchored, we actually have a choice of tenants so we do select better covenants and so we are a bit sheltered, not completely, but there is a bit of a buffer for us.”
Calloway’s portfolio includes four Zellers locations, two of which will become Target stores and a third will remain operating under the Zellers name to honour a lease covenant and the fourth will become a Loblaw’s supermarket.
“We didn’t have that many Zellers,” he said. “We had the good fortune to be aligned with Walmart so we were able to get newer, contemporary Walmart open format stores as opposed to the enclosed stores which is what most of the Zellers stores were.”



Paul is a writer, editor and media trainer based in Toronto with over 25 years of experience as a business reporter. He has written for Canada’s major news services on…

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Paul is a writer, editor and media trainer based in Toronto with over 25 years of experience as a business reporter. He has written for Canada’s major news services on…

Read more




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