Calloway REIT: Short on Cash

| About: Calloway Re (CWYUF)
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Calloway Real Estate Investment Trust (OTC:CWYUF) needs cash, according to some on Bay St.

Following the release of its sector quarter results, a number of analysts suggested the REIT, one of the largest shopping centre owners in the country, will have to raise money in equity markets.

Gail Mifsud, an analyst at Blackmont Capital said:

We believe the trust requires a capital infusion, as its development obligations through 2010 amount to $354-million while its available capital sources are $310-million.

She added that the REIT is trading at a discount to its peers because of the need to raise cash.

She said:

Management may be reluctant to issue capital due to the obvious equity dilution impact on funds available for distribution (and dilution of the interest of its major shareholder, Smart Centres) and resistance to issue capital at a share pice that is below its intrinsic value.

She added investors at some point may start discounting the trust because of a higher financial risk, including cutting its distribution.

Ms. Mifsud was not alone in her assessment. Mandy Samois, an analyst with Raymond James, questioned whether Calloway’s “debt cover coverage was too close for comfort.’’

“Calloway anticipates it will breach its 1.5 times debt service coverage ratio,” said Ms. Samois, noting the REIT is negotiating with lenders. “We believe further leverage is unlikely and that an equity issue is inevitable before the end of fiscal 2010.”

Neil Downey, an analyst at RBC Capital Markets, said the REIT still has “several quarters” to come up with a solution to its funding shortfall. He raised his 12-month-target price on Calloway to C$16.50 from C$14.