RE: Centres' Expansion and HBC“Calloway has invested approximately $38 million in the expansions, which includes such tenants as LCBO, Circuit City, Home Outfitters, Designer Depot, Sears, Bank of Nova Scotia, Quizno's, First Choice, Le Chateau, Moore's and Sleep Country.”
“The expansions where financed, in part, by the issuance of $15.1 million of additional units to Mitchell Goldhar, the REIT's largest unitholder, who subscribed for 916,407 REIT units and 91,678 Class B LP Units, pursuant to previous agreements.”
$15.1MM / 1 008 085 units = $14.97 per unit
$1.45 / $14.97 = 9.68%
Even though the “build outs” are purchased at predetermined cap rates of, say, 8% for earliest 2003 deals, the options (“previous agreements”) really bring down the accretion. The units trade with a 5% or 6% yield but the expansions are purchased with equity issued at almost 10%. Sheesh, that’s almost like a venture REIT’s cost of equity. $15.1MM / $38MM = 39.7%.
HBC bid.
If Onex and First Pro win HBC, they could quickly redevelop a few properties, flip them to Calloway REIT, and then use the FP/CWT traditional triple play of: sell forward the rest of the portfolio "build outs" at fixed cap rates, give Mitch his options and First Pro the property management contracts. Perhaps a quadruple play – some of the land under the centres purchased in the last deal is leased (not owned) by the REIT under long-term pre-paid leases from First Pro.