Calloway REIT Struggling While First Capital Realty Shines

Calloway Real Estate Investment Trust (CWYUF.PK) has a portfolio of Wal-Mart (WMT) anchored power centres of “exceptional quality”, but that’s not enough in today’s economic climate, according to Canaccord Adams analyst Shant Poladian.

Mr. Poladian reduced his 12-month target price on the REIT by C$2 to C$15.75 Monday, saying Calloway is facing major challenges because of a lack of access to equity and unsecured debt financing.

Mr. Poladian said:

We estimate Calloway’s liquidity sands at about C$170-million which is insufficient relative to its C$1.1-billion of unfunded development and mezzanine loan commitments. Also looming is a C$200-million senior unsecured debenture due in 2010.

He expects Calloway will face equity dilution, a slowdown in its development of properties and be forced to sell some core and non-core assets. “Calloway has not positioned itself to outperform its peers in a bear market,” says Mr. Poladian.

By comparison, the analyst says shopping store owner First Capital Realty Inc. (FCRGF.PK) is far better positioned to withstand current economic conditions.

Describing First Capital as a “must own investment," Mr. Poladian said:

It has a strong balance sheet that includes C$182-million of cash and undrawn lines of credit plus a whopping C$1.6-billion (at book value) of unencumbered and real estate assets.

RBC Capital Markets analyst Neil Downey also reduced his target price on Calloway from C$23 to C$17.50 but was more positive in his remarks about the REIT.

“While it requires a lot of work, Calloway has a credible plan to manage liquidity/capital requirements,” said Mr. Downey, in a report.