Calloway Real Estate Investment Trust Releases Fourth Quarter and Year End Results

TORONTO, ONTARIO–(Marketwired – Feb. 11, 2015) – Calloway Real Estate Investment Trust (TSX:CWT.UN) is pleased to report positive results for the fourth quarter and year ended December 31, 2014.

Highlights for the quarter:

• Funds from operations (“FFO”)⁽¹⁾ increased by 3.2% to $65.8 million and 1.5% to $0.480 on a per Unit basis compared to the same quarter of 2013. Excluding a provision of $1.8 million relating to a tenant, FFO would have increased by 6.0% to $67.6 million and 4.2% to $0.493 on a per Unit basis compared to the same quarter of 2013
• Effective October 2014, the annual distribution increased to $1.60 per Unit, which translates to a monthly distribution of $0.1334 per unit, representing an increase of 3.4% from the prior year
• Maintained portfolio occupancy rate at 99.0% for the 20th consecutive quarter
• Officially opened the first phase of the Montreal Premium Outlets, which had a successful grand opening on October 28, 2014, with early results indicating another great success story in addition to the success of the Toronto Premium Outlets
• Acquired an income property totalling 54,916 square feet for $17.8 million from a third party
• Invested $13.6 million to complete the development and lease up of 66,278 square feet of leasable area at an average yield of 7.7%
• Sold seven properties to Retrocom Real Estate Investment Trust totalling 640,023 square feet for gross proceeds of $111.1 million, which was satisfied by the assumption of mortgages totalling $35.6 million, the issuance of loans receivable of $40.3 million, and the balance paid in cash, adjusted for other working capital amounts
• Monthly distributions are confirmed for the period from February to April 2015 at $0.1334 per unit
• Increased the unencumbered asset pool to $2.4 billion
• Subsequent to year end on February 6, 2015, the Trust issued $160.0 million of 3.556% Series N senior unsecured debentures maturing in February 2025. The proceeds will be used to redeem the outstanding principal on the 5.37% Series B senior unsecured debentures totalling $150.0 million

Highlights for the year:

• Funds from operations (“FFO”)⁽¹⁾ increased by 7.2% to $264.9 million and 5.3% to $1.945 on a per Unit basis compared to 2013. Excluding a provision of $1.8 million relating to a tenant, FFO would have increased by 7.9% to $266.7 million and 6.0% to $1.958 on a per Unit basis compared to 2013
• Effective October 2014, the annual distribution increased to $1.60 per Unit, which translates to a monthly distribution of $0.1334 per unit, representing an increase of 3.4% from the prior year
• Maintained a 99.0% portfolio occupancy rate throughout the year
• Invested $63.4 million to complete the development and lease up of 276,560 square feet of leasable area at an average yield of 7.8%
• Commenced construction of the KPMG Tower at the Vaughan Metropolitan Centre (“VMC”)
• Acquired three income properties totalling 355,858 square feet for $80.9 million. Two of the three properties were acquired from SmartCentres and Walmart Canada Realty Inc., which is held as a 50:50 co-ownership with a third party partner
• Issued $350.0 million of senior unsecured debentures in three separate transactions during the year
• Redeemed $100.0 million of 5.10% Series E senior unsecured debentures and partially redeemed $100.0 million, in two separate transactions, of $250.0 million aggregate principal amount of the 5.37% Series B senior unsecured debentures
• Obtained a new $350.0 million unsecured revolving operating facility, which includes an accordion feature of $150.0 million

Huw Thomas, President & CEO of Calloway Real Estate Investment Trust (the “Trust”), said, “I am pleased with our positive fourth quarter and year end results. Our portfolio of 120 mostly Walmart-anchored retail centres continues to deliver reliable performance and steady growth. We have grown our portfolio by building out new space for existing and new tenants at an average investment yield of 7.8%, and acquiring three income properties, two of which are from SmartCentres and Walmart Canada Realty Inc. With respect to our emerging portfolio of growth initiatives, the very successful opening of the second Premium Outlets in Montreal and the Toronto Premium Outlets which continues to exceed our expectations in terms of performance, reflects our commitment to look for various avenues of growth and we continue to look for further sites to add to the portfolio. For the most significant longer term opportunity, construction is progressing well on the first tower in the VMC and we are now turning our attention to the next possible development on the site.”

The following table summarizes the Trust’s portfolio information:

Developments completed during the year are as follows:

Quarterly Results

During the quarter, the Trust acquired an income property totalling 54,916 square feet for $17.8 million from a third party. The purchase price was paid in cash, adjusted for costs of acquisition and other working capital amounts.

The Trust sold seven investment properties to Retrocom Real Estate Investment Trust, for gross proceeds of $111.1 million excluding closing costs of $0.7 million, which was satisfied by the assumption of mortgages totalling $35.6 million, loans receivable of $40.3 million and the balance paid in cash, adjusted for other working capital amounts.

During the quarter, the Trust repaid three term mortgages totalling $43.6 million.

The following table summarizes the Trust’s key financial highlights for the quarters ended December 31⁽²⁾:

Excluding the effect of adjustments, for the three months ended December 31, 2014, FFO increased by 3.2% to $65.8 million and by 1.5% to $0.480 on a per Unit basis compared to the same quarter of 2013. In comparison to the same period in 2013, FFO increased by $2.0 million primarily due to an increase in NOI net of tenant incentives of $0.6 million, decrease in interest expense of $1.9 million, offset by an increase in general and administrative expenses of $0.2 million (net of CFO transition and other finance personnel costs), and decrease in interest income of $0.5 million.

Annual Results

During the year, the Trust acquired two income properties totalling 300,942 square feet for $63.1 million from SmartCentres and Walmart Canada Realty Inc., which is held as a 50:50 co-ownership with a third party partner. The Trust’s share of the purchase price of $63.1 million was satisfied by the issuance of 354,000 Class B Series 7 LP III Units with a value of $9.3 million to SmartCentres, the issuance of 450,000 new Earnout options to SmartCentres, and the balance in cash, adjusted for other working capital amounts.

The Trust also acquired an additional income property totalling 54,916 square feet for $17.8 million from a third party. The purchase price was paid in cash, adjusted for costs of acquisition and other working capital amounts.

During the year, the Trust sold an income property in Richmond, British Columbia to an unrelated party for gross proceeds of $6.4 million, excluding closing costs of $0.4 million, which was satisfied by cash, adjusted for other working capital amounts.

The Trust also sold seven investment properties to Retrocom Real Estate Investment Trust, for gross proceeds of $111.1 million excluding closing costs of $0.7 million, which was satisfied by the assumption of mortgages totalling $35.6 million, loans receivable of $40.3 million and the balance paid in cash, adjusted for other working capital amounts.

The Trust issued $150.0 million of 3.749% Series L senior unsecured debentures due on February 11, 2021, and $150.0 million of 3.73% Series M senior unsecured debentures due on July 22, 2022. The Trust also issued, on a private placement basis, $50.0 million principal amount of Series I senior unsecured debentures. The Trust redeemed $100.0 million of 5.10% Series E senior unsecured debentures and partially redeemed $100.0 million, in two separate transactions, of $250.0 million aggregate principal amount of the 5.37% Series B senior unsecured debentures.

The Trust has obtained a new $350.0 million unsecured revolving operating facility, which includes an accordion feature of $150.0 million.

The Trust obtained four new mortgages totalling $57.5 million with an average term of 8.8 years and a weighted average interest rate of 4.10%.

The Trust’s debt to gross book value was 50.5% at December 31, 2014 (December 31, 2013 – 51.5%), which is below the Trust’s target range, and the debt to aggregate assets ratio was 42.8% (December 31, 2013 – 43.8%). The decreases in the debt to gross book value and debt to aggregate assets ratios are primarily due to the increase in total assets mainly from developments, earnouts and acquisitions totalling $144.3 million, offset by the disposition of investment properties of $117.8 million, and the decrease in debt primarily due to mortgage repayments including scheduled amortization totalling $294.8 million and the redemption of $200.0 million of senior unsecured debentures, offset by the issuance of $350.0 million of senior unsecured debentures and $57.5 million of new term mortgages described above, which were issued at more favourable interest rates, resulting in an improvement in the interest coverage ratio of 2.7X at December 31, 2014 from 2.5X at December 31, 2013. In addition, properties with an aggregate appraised value of approximately $2.4 billion are now unencumbered or debt-free. This will provide significant flexibility to the Trust to address its committed obligations and to grow its portfolio in future years. Finally, maturing mortgages for 2015 and into 2016 continue to present significant potential FFO benefits when refinanced due to the substantial rate differential between maturing and current available rates.

The following table summarizes the Trust’s key financial highlights for the years ended December 31⁽²⁾:

Excluding the effect of adjustments, FFO for the year ended December 31, 2014 increased by 7.2% to $264.9 million and by 5.3% to $1.945 on a per Unit basis compared to the same period in 2013 (December 31, 2013 – $247.1 million). In comparison to 2013, FFO increased by $17.8 million primarily due to an increase in NOI net of tenant incentives of $22.9 million, offset by an increase in interest expense net of yield maintenance on redemption of unsecured debentures of $3.6 million, an increase in general and administrative expenses of $0.2 million (net of CFO transition and other finance personnel costs), and decrease in interest income of $1.4 million.

The high occupancy level of 99.0%, as well as the Trust’s acquisition and development program, generated rental revenue of $609.6 million during the year. NOI of $395.9 million increased by 5.8% over the previous year including a 0.5% or $1.7 million increase on a same properties basis, which is primarily due to net lease-up of vacant space, rent increases in renewing tenants and step-ups in existing leases offset by higher bad debt expense and operating cost recovery shortfalls, mainly due to the $1.8 million provision recorded for a tenant. Excluding the provision, same properties NOI would have increased by 1.0% or $3.5 million.

The non-IFRS measures used in this Press Release, including AFFO, FFO, NOI, debt to aggregate assets, debt to gross book value, payout ratio and interest coverage ratio 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, 2014, available on SEDAR website at www.sedar.com.

⁽¹⁾ Excludes yield maintenance fees on redemption of unsecured debentures and related write-off of unamortized financing costs, CEO and CFO transition and other finance personnel costs.

⁽²⁾ Includes the Trust’s share of investments in associates.

Full reports of the financial results of the Trust for the year ended December 31, 2014 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 Thursday February 12, 2015 at 9:00 a.m. (ET). Participating on the call will be members of Calloway’s senior management.

Investors are invited to access the call by dialing 1-866-530-1553. 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 Thursday February 12, 2015 beginning at 12:00 p.m. (ET) through to 12:00 p.m. (ET) on Wednesday February 18, 2015. To access the recording, please call 1-888-203-1112 and enter the Conference ID 5633215#.

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, 2014 and under the heading “Risk Factors” in its Annual Information Form for the year ended December 31, 2014. 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.