More coverage of Callaway (REIT report)...Calloway REIT (CWT.UN $29.10, Sector Outperformer):
Calloway is Canada’s second-largest shopping centre REIT and the fastest
growing REIT in the sector due largely to accretive acquisitions of the Wal-Martanchored (WMT–NYSE) shopping centres (completed and under development)
from SmartCentres Inc., a private company controlled by Calloway’s largest
shareholder, Mitchell Goldhar. The REIT has a large pipeline of acquisition and
expansion opportunities, as well as potential to acquire a great many more
centres from SmartCentres as the latter accommodates the continuing rapid
expansion of Wal-Mart in Canada. DIPU/FFO growth rates of 8% or higher
appear to be achievable in the next several years. At $29.10, Calloway is trading
at 18.4x 2006E DIPU and yields 5.2%. Our price target is 18.0x 2007E DIPU of
$1.72, or $31.00, implying a total return of approximately 12%, which we
regard as attractive in light of the REIT’s stable, low-risk profile.
The shares trade at a premium to our current NAV estimate of $25.27 which is
based on a 6.25% estimated NOI cap rate but at 50–100 bps lower cap rates,
the implied NAV would be $28.55–$32.45. Given the growth synergies that exist
between the REIT and Smartcentres, we believe the timing of any potential
takeover M&A activity may be several years away.