July 25, 2014

Calloway Real Estate Investment Trust (CWT)

Calloway Real Estate Investment Trust (CWT) is one of the largest REITs in Canada with roughly $5.9 billion in assets.  They have a large full-time staff of 105 people.  Calloway owns 129 properties across Canada, and most of them are large-scale retail centres.  They currently have about 25.3 million square feet of leasable area, and approximately 4.4 million square feet of future development potential.  The REIT is unique in the volume of international retailers that are listed amongst their clients, and they are clearly comfortable brokering deals with major companies.  Calloway REIT’s (CWT) most valuable anchor tenant is non-other than the international conglomerate Wal-Mart.  The trust’s vision is, “To provide a value-oriented shopping experience to Canadian consumers.”  Its main competitor would likely be the RioCan REIT (REI).

 

The advantage Calloway REIT (CWT) has over many of the REITs in Canada is the massive pull of its client list.  The premium brand names that populate the retail centres that Calloway specializes in generate a positive cycle of building value for the properties within Calloway’s (CWT) portfolio.  Some examples of the REITs clients (with the number of locations in brackets) are Best Buy (11), The Brick (8), Canadian Tire (4), Dollarama (24), Future Shop (20), Home Outfitters (12), Loblaws (4, Lowe’s (2), Mark’s Work Wearhouse (51), Michaels (14), Reitmans (53), Reno Depot (2), Rona (3), Sobeys (13), Sport Chek (8), Staples (25), Walmart (73), Winners (27),  and Zellers (4).

 

Calloway REIT (CWT) is also very diversified geographically within Canada.  Like many real estate investment trusts, they do have slightly concentrated holdings in Ontario (66) but Calloway also owns a number of retail centres in Western Canada, Quebec, and the Maritimes.  This indicates a large amount of stability to investors.

 

Recently, Calloway announced that two of their four Zellers locations would be converted into Target stores as a result of their recent merger.  The two lucky locations will be Hopedale Mall in Oakville, Ontario, and the Laurentian Power Centre in Kitchener, Ontario.  With the incredible amount of popularity and fresh consumer product lines that Target is bringing to Canadian markets, these conversions will increase the value of Calloway’s properties substantially.  Al Mawani, the President and CEO of Calloway stated that, “The introduction of Target stores to these Centres will further strengthen Calloway’s high caliber portfolio of tenants,” he went on to add, “Callow expects the increased tenant demand to enhance cash flow in these Centres and facilitate future intensification plans.

 

While a REIT that specializes in retail space that is anchored by some of the most efficiently run brands and businesses in the world is an appealing prospect, I am slightly concerned about Callaway’s (CWT) relatively low dividend yield of 5.9%.  You could argue that this stable yield is more impressive than the high yields being offered by several REITs who have holes in their balance sheet, but I would like to see the current price (around $26.00-per unit) fall a little bit before I committed to a large position within the REIT.  Calloway (CWT) is trading near its 52-week high right now, and if it were anywhere near its 52-week low of $18-per share, I would not hesitate to strongly recommend it.