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

TORONTO, ONTARIO -- (Marketwire) -- 02/14/13 -- Calloway Real Estate Investment Trust (TSX:CWT.UN) is pleased to report strong results for the fourth quarter and year ended December 31, 2012.


                                                                            
Highlights for the quarter:                                                 
                                                                            
Operations                                                                  

--  Maintained portfolio occupancy rate at or above the 99% level for the
    12th sequential quarter 
--  Funds from operations ("FFO")(1) increased by 10.3% to $60.4 million and
    4.5% to $0.469 on a per unit basis compared to the same period in 2011 
--  Opened 196,440 square feet of new leased space in existing retail
    centres through completing development and lease up at a weighted
    average development yield of 7.1% on aggregate investment of $54.0
    million 

                                                                            
Growth Initiatives                                                          

--  Entered into a joint venture with SmartCentres to develop a 53-acre site
    located within the Vaughan Metropolitan Centre ("VMC"), which is
    expected to include over 6 million square feet of office, retail and
    residential space at completion. Construction of the first phase
    consisting of the 300,000 square foot KPMG Tower with tunnel connection
    to the VMC subway is expected to commence later this year 
--  Completed the previously announced acquisition of zoned land to develop
    the Montreal Premium Outlets® through a joint venture with Simon
    Properties Group and SmartCentres. The completed development is expected
    to open in summer 2014 
--  Invested $7.0 million for a one third interest in a joint venture with
    Simon Properties Group and SmartCentres to develop a retail centre in
    Mirabel, Quebec, adjacent to the Montreal Premium Outlets® development
--  Completed the sale of seven non-core investment properties for gross
    proceeds of $86.0 million as part of the plan to recycle equity into
    higher growth properties 

                                                                            
Other                                                                       

--  Reversed income tax provisions of $659.2 million upon substantial
    enactment in November 2012 of Income Tax amendments relating to SIFT
    rules first announced in December 2010. Calloway will qualify for REIT
    Exemption, effective January 1, 2011, once the amendments are signed
    into law 
--  Executed previously announced agreements that added floor capitalization
    rates on Earnout properties with capitalization rates based on floating
    rates. This eliminates the $18.8 million contingent liability on
    Earnouts previously completed that would have been payable if the
    agreements had not been signed 
--  Monthly distributions are confirmed for the period of February to April
    at $0.129 per unit 

                                                                            
Highlights for the year:                                                    

--  Maintained over 99% occupancy throughout the year 
--  Renewed 89% of tenant space expiring in 2012 achieving an average rent
    increase of 6.4% 
--  FFO(1)(2) increased by 11.6% to $226.9 million and 4.9% to $1.787 on a
    per unit basis compared to 2011 
--  Acquired 400,358 square feet of retail space in two investment
    properties for $102.7 million 
--  Invested $127.9 million to complete the development and lease up of
    472,268 square feet of leasable area at an average yield of 7.5%. Once
    again, Calloway developed more space in-house at materially higher
    yields than available on acquisitions 
--  Commenced construction and lease up of the 500,000 square feet Toronto
    Premium Outlets® in a 50:50 joint venture with Simon Properties Group.
    This US-style fashion outlets centre, which is the first of its kind in
    Canada, is expected to open fully leased in August 2013 
--  Renewed and increased unsecured revolving operating facility to $70.0
    million 
--  Issued $150 million, eight-year unsecured debentures bearing interest at
    4.05% per annum 
--  Increased the fair value of investment properties by $396.6 million from
    income growth and declining capitalization rates 
--  Improved leverage and liquidity measures with improvements in debt to
    total assets ratio of 40.9% (2011 - 45.4%), net interest coverage ratio
    (excluding capitalized interest) of 2.6X (2011 - 2.5X) and AFFO payout
    ratio of 90.3% (2011 - 94.0%) 

Al Mawani, President & CEO of Calloway Real Estate Investment Trust (the "Trust"), said, "I am pleased with our strong fourth quarter results. Our portfolio of 113 mostly Walmart-anchored retail centres continues to deliver reliable performance and steady growth. We have grown our portfolio in a balanced way with a combination of building out 472,000 square feet of new spaces for existing and new tenants at an average investment yield of 7.5% and acquiring 400,000 square feet in two Calloway-quality centres from third parties at a 6% yield. We have started 2013 having renewed 900,000 square feet of 2013 lease expires. This represents 55% of the 1.6 million square feet of space that is up for renewal in 2013 with average rental uplift of 8% with virtually no inducement payments. 2013 will be an exciting year with the opening of the Toronto Premium Outlets®, construction commencement of the KPMG Tower in Vaughan and the Montreal Premium Outlets® and progress on future phases of the Vaughan Metropolitan Centre development."

The following table summarizes the Trust's portfolio information:


                                 December 31,    December 31,               
                                         2012            2011   Improvement 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Fair value of real estate                                                   
 portfolio (in millions of                                                  
 dollars) (3)                         6,209.8         5,655.8         554.0 
Weighted average stabilized                                                 
 capitalization rate                     6.02%           6.41%        -0.39 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                           
Built gross leasable area                          25.9 million square feet
Future developable area                             3.6 million square feet
                                                                           
Number of retail properties                                             113
Number of other operating properties                                      2
Number of development properties                                         11
                                                                            
Developments completed during the year are as follows:                      
                                                                            
----------------------------------------------------------------------------
Leasable area                                           472,268 square feet 
Cost                                                   $      127.9 million 
Yield                                                                   7.5%
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Quarterly Results

On December 7, 2012, the Trust and SmartCentres entered into a joint venture to develop 6.0 million square feet on 53 acres of development land with SmartCentres acquiring a 50% interest in the existing retail component and undeveloped lands that were owned by the Trust but subject to development management agreements in favour of SmartCentres. As part of the arrangement, the Trust was released from existing development management agreements for the property and corresponding Earnout options and became a 50% joint venture partner in the build-out of mixed-use density on the site, which resulted in an increase in the development value of Calloway's 50% interest and its future pipeline. The first new development by the joint venture will be a 300,000 square foot office building with KPMG as lead tenant. The site will contain the terminus of the Spadina-York University subway extension. The subway stop is expected to open in 2016.

In addition, the Trust amended the terms of nine mortgages receivable by extending the maturity by a weighted average of 2.9 years and by committing to provide an additional $111.6 million. Two mortgages with commitments totalling $37.1 million and an outstanding balance of $16.2 million were repaid to the Trust.

The Trust disposed of seven non-core properties for gross proceeds of $86.0 million.

Under the proposed amendments to SIFT legislation announced on December 16, 2010, which were substantively enacted on November 21, 2012, the Trust qualifies for the REIT Exemption under the SIFT rules for accounting purposes. As a result, $659.2 million of previously recorded current and deferred tax were reversed through net income and comprehensive income.

The following table summarizes the Trust's key financial highlights for the quarters ended December 31 (3):


(in millions of dollars,      Three Months    Three Months                  
 except per Unit            Ended December  Ended December       Increase/  
 information)                     31, 2012        31, 2011      (decrease)  
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income excluding income                                                 
 tax recovery/expense                101.4            38.5            62.9  
Rental revenue                       142.1           132.5             9.6  
Net operating income                  91.9            87.1             4.8  
Cash flow as measured by                                                    
 FFO (1)                              60.4            54.8             5.6  
                                                                            
Per Unit Information                                                        
FFO excluding current                                                       
 income tax                                                                 
 recovery/expense (fully                                                    
 diluted)                            0.469           0.449           0.020  
AFFO per Unit (fully                                                        
 diluted)                            0.451           0.425           0.026  
Quarterly distribution               0.387           0.387               -  
Payout ratio (to AFFO)                85.8%           91.1%           (5.3)%

Net income for the quarter (excluding income tax recovery/expense) was $101.4 million compared to $38.5 million in the same quarter of 2011. Excluding the impact of fair value adjustments and loss on dispositions, net income increased by $5.5 million in the current quarter compared to the same period last year mainly due to an increase in net operating income of $4.8 million and an increase in interest income of $1.6 million offset by an increase in interest expense of $0.4 million.

Annual Results

During the year, the Trust issued $150.0 million in unsecured debentures with an eight-year term and 4.05% interest rate. The funds were used for the acquisition of investment properties and repayment of maturing debt. The Trust also obtained $189.5 million in new mortgages with an average term of 10.5 years and weighted average interest rate of 3.79%.

The Trust completed the acquisitions of two income properties totalling 400,358 square feet for $102.7 million, which consisted of 152,633 square feet in Dartmouth, Nova Scotia for a purchase price of $26.5 million and 247,725 square feet in Duncan, British Columbia for a purchase price of $76.2 million.

The Trust maintained its debt to gross book value at 48.7% at December 31, 2012, which is below the Trust's target range. The Trust also improved its debt to total assets ratio to 40.9% (2011 - 45.4%), net interest coverage ratio (excluding capitalized interest) to 2.6X (2011 - 2.5X) and interest coverage ratio to 2.3X (2011 - 2.2X). In addition, properties with an aggregate appraised value of $1,139.8 million are unencumbered or debt-free. This will provide flexibility to the Trust to address its committed obligations and to grow its portfolio.


                                             Excluding            Including 
                                           convertible          convertible 
                                            debentures           debentures 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Debt to gross book value                          48.7%                49.7%
Target range                                55.0%-60.0%          60.0%-65.0%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
                                                                            
The following table summarizes the Trust's key financial highlights for the 
years ended December 31 (3):                                                
                                                                            
(in millions of dollars, except per Unit                         Increase/  
 information)                                 2012       2011   (decrease)  
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income excluding income tax                                             
 recovery/expense                            603.3      348.8        254.5  
Rental revenue                               546.1      511.9         34.2  
Net operating income                         358.7      338.9         19.8  
Cash flow as measured by FFO (1)             226.9      203.4         23.5  
                                                                            
Per Unit Information                                                        
FFO excluding current income tax                                            
 recovery/expense (fully diluted)            1.787      1.703        0.084  
AFFO per Unit (fully diluted)                1.714      1.646        0.068  
Annual distribution                          1.548      1.548            -  
Payout ratio (to AFFO)                        90.3%      94.0%        (3.7)%

Net income for the year (excluding income tax recovery/expense) was $603.3 million compared to $348.8 million in 2011. Excluding the impact of fair value adjustments and loss on dispositions, net income increased by $21.8 million compared to 2011 mainly due to an increase in net operating income of $19.8 million and an increase in interest income of $2.1 million offset by an increase in interest expense of $1.0 million.

The high occupancy level of 99.0%, as well as the Trust's acquisition and development program, generated rental revenue of $142.1 million during the quarter and $546.1 million during the year. NOI of $358.7 million increased by 5.8% over the previous year including a 0.7% increase on a same properties basis.

The non-IFRS measures used in this Press Release, including AFFO, FFO, NOI, 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, 2012, available on SEDAR website at www.sedar.com.

(1) Excludes income tax recovery/expense.

(2) Excludes one-time adjustment relating to prepayment penalty incurred on early repayment of term mortgages of $1.1 million.

(3) Includes the Trust's share of investments in associates.

Full reports of the financial results of the Trust for the year ended December 31, 2012 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 14, 2013 at 8:30 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 1-800-814-4860. 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 14, 2013 beginning at 9:30 a.m. (ET) through to 11:59 p.m. (ET) on Thursday February 21, 2013. To access the recording, please call 1-877-289-8525 and use the reservation number 4591276#.

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, 2012 and under the heading "Risk Factors" in its Annual Information Form for the year ended December 31, 2012. 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.

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

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

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