TSX Commentary

Calloway REIT (CWT.UN): $19.99 – Stable Results From Value Retail; Q4/09 As Expected
Outperform, Average Risk, Price Target: $21.00
Implied All-In Return: 13% Q4/09 FFO/unit of $0.40, was -14% from Q4/08’s $0.47 and in-line with RBC CM estimates of $0.40E. Calloway’s value-oriented portfolio has been a resilient performer over the past 24 month. President/CEO Simon Nyilassy has offered his view that 2010 will likely be described as the year in which “flat is the new up” (the only likely exceptions will be those property-related businesses which already experienced a significant re-set in their revenues and cash flows in 2008-2009, and are thus once again climbing from a low base). Calloway REIT avoided this experience. A modest lease roll profile, and narrower 2010 leasing spreads (perhaps +5%) should allow for NOI stability, but little growth. Given RBC CM expects flat to modestly higher occupancy through H1/10, and with less challenging comparisons beginning in Q1/10, it seems likely the s-p NOI growth will imminently return to positive territory. Management believes that +1% to 2% can be generated in 2010. Offsetting NOI stability/uptick, higher-cost debt issuance in early-2009 and modest additional equity in H2/09 and Q/10, which is forecast to dilute 2010E FFO/unit below 2009A and push the AFFO payout modestly beyond 100%.