Small Toronto REIT deal opens door to U.S. market

TORONTO -- A small two-shopping-centre deal in Oregon could be the first step toward international expansion, say the leaders of Calloway Real Estate Investment Trust.

The Toronto-based REIT announced a $10-million (U.S.) deal earlier this week that will give the retail landlord a toehold in the U.S. market. When development of the two centres is complete, Calloway said its total investment will be $35-million.

The REIT's largest shareholder, Mitchell Goldhar, told an industry conference yesterday in Toronto that Calloway intends to expand slowly south into a larger and also a more competitive market.

"We are doing it one step at a time," he told a forum sponsored by CIBC World Markets Inc. "We are going to go there extremely carefully."

The two shopping centres, which are under development and should be completed by 2010, are being sold to Calloway by SmartCentres, a private company owned by Mr. Goldhar. SmartCentres has been a major developer of Canadian centres anchored by Wal-Mart, and the giant retailer would likely play a key role in any foreign expansion.

Calloway's chief executive officer Simon Nyilassy said the U.S. deal is an important strategic move.

"It's modest in terms of the dollars, it's not modest in terms of the size," he said in an interview.

Mr. Nyilassy said Calloway has substantial room to grow outside Canada before it would run into new federal limits on foreign investments by REITs that want to retain their tax-exempt status. He said Calloway could invest up to $1-billion (Canadian) outside the country, given its current size, before it passed federal limits.

That future expansion, he said, could be in the U.S. or in other countries where the international retailers it works with in Canada, such as Wal-Mart, want to locate.