Calloway Reit is to acquire two new large-scale unenclosed shopping centres totalling approximately 1.1 million square feet on completion, for initial consideration of approximately CAD131m, including transaction costs.

Calloway expects to invest a further CAD94m over the next five years as additional space is built and occupied in the centres.

"These properties represent the highest standard for retail income in the country and are in keeping with the quality of the rest of our portfolio – well located, well tenanted, Walmart anchored properties that are dominant in their markets," says Simon Nyilassy, Calloway's president and chief executive.

The two centres are in Laval, Quebec and Sarnia, Ontario. Laval is anchored by a Walmart, Canadian Tire and Sobeys (IGA) and also includes a 28,000 square foot Winners store and an 8,500 square foot SAQ (the Quebec equivalent to the LCBO in Ontario). These tenants have all signed long-term leases representing their commitment to this centre. Plans call for the centre to have almost 770,000 square feet of leasable area, including a home improvement retailer, of which 460,000 square feet is now built and occupied. Once completed, this centre will be Calloway's largest property.

Sarnia will have almost 380,000 square feet on completion, of which approximately 270,000 square feet is currently built, including a 215,000 square foot Walmart Supercentre. A 27,000 square foot Winners store will be opening before the end of this year.

The initial investment in these properties will yield a return of approximately 6.8 per cent. Future investments will yield a return of 7.2 per cent, resulting in an overall return of approximately 7.0 per cent on completion.

Calloway will finance the transaction with the issuance of up to 630,000 units of a subsidiary limited partnership at CAD21.60 per unit, exchangeable into Calloway Reit units on a one-for-one basis, representing a maximum of approximately CAD13.6m of the purchase price, and the balance with cash resources.

The units will be issued to Mitchell Goldhar, owner of a 23.3 per cent interest in Calloway and owner of SmartCentres, one of the vendors. Goldhar will be entitled to subscribe for up to an additional one million limited partnership units at the then market price conditional on the additional leasing and build out of the centres. These units are exchangeable into Calloway Reit units on a one-for-one basis.

The transaction is expected to close during the third quarter in 2010.