PROSPECTUS SUPPLEMENT To a Short Form Base Shelf Prospectus Dated October 9, 2009 This prospectus supplement together with the short form base shelf prospectus to which it relates dated October 9, 2009, as amended or supplemented, and each document deemed to be incorporated by reference in this prospectus supplement and in the short form base shelf prospectus, constitutes a public offering of these securities only in those jurisdictions where they may be lawfully offered for sale and therein only by persons permitted to sell such securities. No securities regulatory authority has expressed an opinion about these securities and it is an offence to claim otherwise. The securities offered hereby have not been, and will not be, registered under the United States Securities Act of 1933, as amended, (“U.S. Securities Act”) or any state securities laws and, unless registered under the U.S. Securities Act or pursuant to an applicable exemption from registration under the U.S. Securities Act and applicable state securities laws, may not be offered, sold, reoffered, resold or delivered, directly or indirectly, in the United States or to U.S. Persons (as defined in Regulation S under the U.S. Securities Act). This prospectus supplement, together with the short form base shelf prospectus to which it relates, does not constitute an offer to sell or solicitation of an offer to buy any of the securities offered hereby within the United States. See “Plan of Distribution”. Information has been incorporated by reference in this prospectus supplement, and in the short form base shelf prospectus to which it relates, from documents filed with securities commissions or similar authorities in Canada. Copies of the documents incorporated herein and therein by reference may be obtained on request without charge from the Chief Financial Officer of Calloway Real Estate Investment Trust at Suite 200, 700 Applewood Crescent, Vaughan, Ontario L4K 5X3 (Telephone (905) 326-6400 Extension 7631), and are also available electronically at www.sedar.com. See “Documents Incorporated By Reference”. New Issue June 2, 2010 $100,000,000 5.10% Series E Debentures Due June 4, 2015 (Senior Unsecured) Interest on the 5.10% Series E Senior Unsecured Debentures (the “Debentures”) of Calloway Real Estate Investment Trust (“Calloway”) will be payable semi-annually in arrears on June 4 and December 4 in each year commencing December 4, 2010. The semi-annual interest payments will be in an amount equal to $25.50 per $1,000 principal amount. The Debentures will mature on June 4, 2015. Please see “Details of the Offering” for particulars of the material attributes of the Debentures. At the time of closing, the Debentures will qualify for investment under the statutes set out under “Eligibility for Investment”. There is no market through which the Debentures may be sold and purchasers may not be able to resell Debentures purchased under this prospectus supplement. This may affect the pricing of the Debentures in the secondary market, the transparency and availability of trading prices, the liquidity of the Debentures and the extent of issuer regulation. See “Risk Factors”. Prospective investors should also be aware that the acquisition of Debentures may have tax consequences in Canada. For a summary of certain income tax considerations for certain holders of Debentures, see “Canadian Federal Income Tax Considerations”. Price to Public Agents’ Fee Net Proceeds to Calloway (1)(2) Per $1,000 principal amount of Debenture .................... $1,000.00 $10.00 $990.00 Total............................................................................... $100,000,000.00 $1,000,000.00 $99,000,000.00 (1) Plus accrued interest, if any, from June 4, 2010 to the date of delivery. (2) Before deducting the expenses of the offering estimated to be approximately $400,000. Under an agency agreement (the “Agency Agreement”) dated June 1, 2010 between CIBC World Markets Inc., RBC Dominion Securities Inc., BMO Nesbitt Burns Inc., TD Securities Inc., Scotia Capital Inc., Canaccord Genuity
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PROSPECTUS SUPPLEMENT To a Short Form Base Shelf Prospectus Dated October 9, 2009
This prospectus supplement together with the short form base shelf prospectus to which it relates dated October 9, 2009, as amended or supplemented, and each document deemed to be incorporated by reference in this prospectus supplement and in the short form base shelf prospectus, constitutes a public offering of these securities only in those jurisdictions where they may be lawfully offered for sale and therein only by persons permitted to sell such securities.
No securities regulatory authority has expressed an opinion about these securities and it is an offence to claim otherwise.
The securities offered hereby have not been, and will not be, registered under the United States Securities Act of 1933, as amended, (“U.S. Securities Act”) or any state securities laws and, unless registered under the U.S. Securities Act or pursuant to an applicable exemption fromregistration under the U.S. Securities Act and applicable state securities laws, may not be offered, sold, reoffered, resold or delivered, directly or indirectly, in the United States or to U.S. Persons (as defined in Regulation S under the U.S. Securities Act). This prospectus supplement, together with the short form base shelf prospectus to which it relates, does not constitute an offer to sell or solicitation of an offer to buy any of the securities offered hereby within the United States. See “Plan of Distribution”.
Information has been incorporated by reference in this prospectus supplement, and in the short form base shelf prospectus to which it relates, from documents filed with securities commissions or similar authorities in Canada. Copies of the documents incorporated herein and therein by reference may be obtained on request without charge from the Chief Financial Officer of Calloway Real Estate Investment Trust at Suite 200, 700 Applewood Crescent, Vaughan, Ontario L4K 5X3 (Telephone (905) 326-6400 Extension 7631), and are also available electronically at www.sedar.com. See “Documents Incorporated By Reference”.
New Issue June 2, 2010
$100,000,0005.10% Series E Debentures Due June 4, 2015
(Senior Unsecured)
Interest on the 5.10% Series E Senior Unsecured Debentures (the “Debentures”) of Calloway Real Estate Investment Trust (“Calloway”) will be payable semi-annually in arrears on June 4 and December 4 in each year commencing December 4, 2010. The semi-annual interest payments will be in an amount equal to $25.50 per $1,000 principal amount. The Debentures will mature on June 4, 2015. Please see “Details of the Offering” for particulars of the material attributes of the Debentures.
At the time of closing, the Debentures will qualify for investment under the statutes set out under “Eligibility for Investment”.
There is no market through which the Debentures may be sold and purchasers may not be able to resell Debentures purchased under this prospectus supplement. This may affect the pricing of the Debentures in the secondary market, the transparency and availability of trading prices, the liquidity of the Debentures and the extent of issuer regulation. See “Risk Factors”. Prospective investors should also be aware that the acquisition of Debentures may have tax consequences in Canada. For a summary of certain income tax considerations for certain holders of Debentures, see “Canadian Federal Income Tax Considerations”.
Price to Public
Agents’ Fee
Net Proceeds to Calloway(1)(2)
Per $1,000 principal amount of Debenture .................... $1,000.00 $10.00 $990.00 Total ............................................................................... $100,000,000.00 $1,000,000.00 $99,000,000.00
(1) Plus accrued interest, if any, from June 4, 2010 to the date of delivery. (2) Before deducting the expenses of the offering estimated to be approximately $400,000.
Under an agency agreement (the “Agency Agreement”) dated June 1, 2010 between CIBC World Markets Inc., RBC Dominion Securities Inc., BMO Nesbitt Burns Inc., TD Securities Inc., Scotia Capital Inc., Canaccord Genuity
Corp., Desjardins Securities Inc., Dundee Securities Corporation, HSBC Securities (Canada) Inc., Macquarie Capital Markets Canada Ltd. and National Bank Financial Inc. (the “Agents”) and Calloway, Calloway has appointed the Agents as its agents to offer for sale on a best efforts basis, subject to compliance with all necessary legal requirements and to the terms and conditions contained in the Agency Agreement, up to $100,000,000 principal amount of Debentures at a price equal to $1,000 per $1,000 principal amount of Debenture, plus accrued interest (if any) from June 4, 2010 to the date of delivery, payable in cash to Calloway against delivery of such principal amount of Debentures. See “Plan of Distribution”.
CIBC World Markets Inc., RBC Dominion Securities Inc., BMO Nesbitt Burns Inc., TD Securities Inc., Scotia Capital Inc., Desjardins Securities Inc. and HSBC Securities (Canada) Inc. are subsidiaries of separate Canadian chartered banks which are lenders to Calloway. Consequently, Calloway may be considered to be a “connected issuer” of such Agents under applicable Canadian securities legislation. See “Relationship Between Calloway and the Agents”.
The Agents conditionally offer the Debentures on a best efforts basis, subject to prior sale, if, as and when issued by Calloway and accepted by the Agents in accordance with the conditions of the Agency Agreement referred to under “Plan of Distribution” and subject to the approval of certain legal matters on behalf of Calloway by Shea Nerland Calnan LLP and on behalf of the Agents by McCarthy Tétrault LLP.
Calloway has been advised by the Agents that, in connection with this offering and subject to applicable laws, the Agents may effect transactions intended to stabilize or maintain the market price of the Debentures at levels other than those that otherwise might prevail on the open market in accordance with market stabilization rules. Such transactions, if commenced, may be discontinued at any time. See “Plan of Distribution”.
Subscriptions for the Debentures will be received subject to rejection or allotment in whole or in part and the right is reserved to close the subscription books at any time without notice. It is expected that the closing of this offering will take place on June 4, 2010 or on such other date as Calloway and the Agents may agree but, in any event, not later than June 11, 2010 and that Debentures will be available for delivery in book-entry form only through the facilities of CDS Clearing and Depository Services Inc. on or about closing.
Calloway is not a trust company and is not registered under applicable legislation governing trust companies as it does not carry on or intend to carry on the business of a trust company.
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TABLE OF CONTENTS
DOCUMENTS INCORPORATED BY REFERENCE ............................................................................................ S-1ELIGIBILITY FOR INVESTMENT ......................................................................................................................... S-2RATINGS ON SECURITES ..................................................................................................................................... S-2INTEREST AND EARNINGS COVERAGES ......................................................................................................... S-3CONSOLIDATED CAPITALIZATION .................................................................................................................. S-4DETAILS OF THE OFFERING ............................................................................................................................... S-5PLAN OF DISTRIBUTION .................................................................................................................................... S-12RELATIONSHIP BETWEEN CALLOWAY AND THE AGENTS ...................................................................... S-12USE OF PROCEEDS .............................................................................................................................................. S-13CANADIAN FEDERAL INCOME TAX CONSIDERATIONS ............................................................................ S-13RISK FACTORS ..................................................................................................................................................... S-15TRANSFER AGENT AND REGISTRAR .............................................................................................................. S-17LEGAL MATTERS ................................................................................................................................................ S-17PURCHASERS’ STATUTORY RIGHTS .............................................................................................................. S-17AUDITORS’ CONSENT ........................................................................................................................................ S-18CERTIFICATE OF THE GUARANTORS ............................................................................................................... C-1CERTIFICATE OF THE AGENTS .......................................................................................................................... C-3
DOCUMENTS INCORPORATED BY REFERENCE
This prospectus supplement is deemed to be incorporated by reference into the accompanying short form base shelf prospectus of Calloway dated October 9, 2009 (the “Short Form Prospectus”) as of the date hereof solely for the purpose of offering the Debentures.
In addition, the following documents, filed by Calloway with the securities commission or similar authority in each of the provinces of Canada, are specifically incorporated by reference into this prospectus supplement:
(a) the annual information form of Calloway dated February 24, 2010;
(b) the audited annual consolidated comparative financial statements of Calloway for the years ended December 31, 2009 and 2008, together with the notes thereto and the auditors’ report thereon;
(c) management’s discussion and analysis of the financial condition and results of operations of Calloway for the year ended December 31, 2009;
(d) the management information circular of Calloway dated March 15, 2010 issued in connection with the meeting of unitholders of Calloway held on May 6, 2010;
(e) the unaudited interim consolidated comparative financial statements of Calloway for the three months ended March 31, 2010 and 2009, together with the notes thereto; and
(f) management’s discussion and analysis of the financial condition and results of operations of Calloway for the three months ended March 31, 2010.
Any statement contained in the Short Form Prospectus, in this prospectus supplement or in a document incorporated or deemed to be incorporated by reference herein or in the Short Form Prospectus for the purposes of the offering of Debentures will be deemed to be modified or superseded, for purposes of this prospectus supplement, to the extent that a statement contained herein or in the Short Form Prospectus or in any other subsequently filed document that also is or is deemed to be incorporated by reference herein or in the Short Form Prospectus modifies or supersedes such prior statement. The modifying or superseding statement need not state that it has modified or superseded a prior statement or included any other information set out in the document that it modifies or supersedes. Any statement so modified or superseded will not be deemed, except as so modified or superseded, to constitute a part of
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this prospectus supplement. The making of a modifying or superseding statement will not be deemed an admission for any purposes that the modified or superseded statement, when made, constituted a misrepresentation, an untrue statement of a material fact or an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading in light of the circumstances in which it was made.
Information has been incorporated by reference in this prospectus supplement and the short form prospectus from documents filed with securities commissions or similar authorities in Canada. Copies of the documents incorporated herein by reference may be obtained on request without charge from the Chief Financial Officer of Calloway Real Estate Investment Trust at Suite 200, 700 Applewood Crescent, Vaughan, Ontario L4K 5X3 (Telephone (905) 326-6400 Extension 7631) and are also available electronically at www.sedar.com.
ELIGIBILITY FOR INVESTMENT
In the opinion of Shea Nerland Calnan LLP, counsel to Calloway, and McCarthy Tétrault LLP, counsel to the Agents, on the date of this prospectus supplement, the Debentures, if issued on the date of this prospectus supplement, will not be a prohibited investment for a registered pension plan under the Income Tax Act (Canada) (the “Tax Act”) other than a plan for which Calloway, or a person who is connected with, controlled directly or indirectly in any manner by or that does not deal at arm’s length with Calloway, is the employer. Provided that Calloway is a mutual fund trust under the Tax Act, the units of which are listed on a designated stock exchange, the Debentures will be qualified investments under the Tax Act and the regulations thereunder (the “Regulations”) for a trust governed by a registered retirement savings plan, a registered retirement income fund, a registered education savings plan, a registered disability savings plan, a tax free savings account or a deferred profit sharing plan (collectively, the “Plans”), other than a deferred profit sharing plan for which Calloway, or a corporation with which Calloway does not deal at arm’s length, is the employer.
Notwithstanding the foregoing, if the Debentures are “prohibited investments” for a tax-free savings account (“TFSA”), the holder of the TFSA will be subject to a penalty tax as set out in the Tax Act. A “prohibited investment” includes a unit or debt of a trust which does not deal at arm’s length with the holder of the TFSA, or in which the holder has a significant interest, which in general terms means the ownership of 10% or more of the value of the trust’s outstanding units by the holder, either alone or together with persons and partnerships with whom the holder does not deal at arm’s length. Holders of TFSAs should consult with their tax advisors in this regard.
RATINGS ON SECURITES
Dominion Bond Rating Service Limited (“DBRS”) provides credit ratings of debt securities for commercial entities. A credit rating generally provides an indication of the risk that the borrower will not fulfill its full obligations in a timely manner with respect to both interest and principal commitments. Rating categories range from highest credit quality (generally AAA) to very highly speculative (generally C). DBRS has provided Calloway with a credit rating of BBB with a stable trend relating to all senior unsecured obligations of Calloway including (i) Calloway’s series A senior unsecured debentures due September 22, 2010 bearing interest at an annual rate of 4.51% per annum (the “4.51% Debentures”), (ii) Calloway’s series B senior unsecured debentures due October 12, 2016 bearing interest at an annual rate of 5.37% per annum (the “5.37% Debentures”), (iii) Calloway’s series C senior unsecured debentures due April 14, 2014 bearing interest at an annual rate of 10.25% per annum (the “10.25% Debentures”) and (iv) Calloway’s series D senior unsecured debentures due June 30, 2014 bearing interest at an annual rate of 7.95% per annum (the “7.95% Debentures”). A credit rating of BBB is generally an indication of adequate credit quality as defined by DBRS.
DBRS also provides stability ratings for real estate investment trusts (“REITs”) and income trusts. A stability rating generally provides an indication of both the stability and sustainability of the distributions to unitholders by the rated entity. DBRS’s rating categories range from highest stability and sustainability of distributions per unit (STA-1) to poor stability and sustainability of distributions per unit (STA-7). DBRS has provided Calloway with a stability rating of STA-3 (high). This rating category reflects good stability and sustainability of distributions per unit.
DBRS has not provided a credit rating on (i) the convertible unsecured subordinated debentures of Calloway due June 30, 2017 bearing an interest at an annual rate of 5.75% per annum (the “5.75% Convertible Debentures”), (ii) the convertible unsecured subordinated debentures of Calloway due June 30, 2014 bearing interest at an annual rate
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of 6% per annum (the “6% Convertible Debentures”) or (iii) the convertible unsecured subordinated debentures of Calloway due June 30, 2013 bearing interest at an annual rate of 6.65% per annum (the “6.65% Convertible Debentures”).
The ratings accorded to Calloway are not recommendations to purchase, hold or sell Calloway’s securities. There can be no assurance that any rating will remain in effect for any given period of time or that any rating will not be withdrawn or revised by a rating agency at any time.
INTEREST AND EARNINGS COVERAGES
The Series E Trust Indenture (as defined under “Details of the Offering - Definitions”) will contain a covenant that Calloway will maintain a ratio of Consolidated EBITDA to Consolidated Interest Expense of not less than 1.65 to 1. The calculation of such interest coverage ratio will be based on the defined terms of Consolidated EBITDA and Consolidated Interest Expense to be contained in the Series E Trust Indenture (see “Details of the Offering- Definitions” and “Details of the Offering – Certain Covenants re Debentures – Consolidated EBITDA to Consolidated Interest Expense Ratio”). This interest coverage ratio differs from the earnings coverage ratio required to be calculated under applicable Canadian securities law disclosure requirements. Such securities law disclosure requires the calculation to be based upon earnings and, as described in Note 1 to the table below under “Earnings Coverage Ratios”, includes a full 12 months of interest expense on indebtedness incurred subsequent to the respective calculation periods as if the indebtedness was incurred at the beginning of the calculation period but gives no credit to income derived from the associated use of proceeds other than interest savings on the repayment, redemption or retirement of other indebtedness. The interest coverage ratio calculated in accordance with the terms of the Trust Indenture for the 12 month period ended March 31, 2010 gives pro forma effect to the offering of the Debentures and to acquisitions and dispositions of income producing assets, debt incurred and debt retired during or subsequent to the calculation period and the associated annual income therefrom as if these transactions occurred at the beginning of the calculation period. These coverage ratios are set out below. The first coverage ratio (under “Interest Coverage Ratio”) has been calculated using the methodology that will be prescribed by the Series E Trust Indenture. The second coverage ratios (under “Earnings Coverage Ratios”) have been calculated using the methodology prescribed under applicable Canadian securities law.
Interest Coverage Ratio
The interest coverage ratio for Calloway for the 12 month period ended March 31, 2010 (including pro forma adjustments as required under the Series E Trust Indenture), being Calloway’s ratio of Consolidated EBITDA to Consolidated Interest Expense calculated in accordance with the terms of the Series E Trust Indenture, is approximately 1.87.
The following table sets out the pro forma interest coverage ratio discussed above.
Pro forma for the 12 months ended March 31, 2010
Interest Expense ($) 151,298,000 Capitalized Interest ($) 15,174,000 Denominator - Consolidated Interest Expense ($) 166,472,000 Net Income ($) 29,324,000 Income Taxes ($) (1) - Interest Expense ($) 151,298,000 Amortization ($) 129,786,000 Net (Gain)/Loss on sale of properties and writedown of properties under and held for development ($)
194,000
Numerator – Consolidated EBITDA ($) 310,602,000 Interest Coverage Ratio 1.87
Note:(1) Calloway is taxed as a mutual fund trust for income tax purposes. Calloway intends to distribute all taxable income
directly earned by Calloway directly to unitholders and to deduct such distributions for income tax purposes.
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Earnings Coverage Ratios
After giving pro forma effect to the issuances of long-term debt and other changes in indebtedness subsequent to the respective calculation periods as if the issuances and changes had occurred at the beginning of the respective calculation periods, and all servicing costs that have been, or are expected to be, incurred in connection therewith and after giving effect to this offering and assuming the retirement of certain other indebtedness (the “Pro Forma Adjustments”), Calloway’s pro forma interest requirements for the 12 months ended December 31, 2009 and the 12 months ended March 31, 2010 was $156,684,000 and $161,046,000, respectively, and its net income before deducting interest and income taxes for such periods was $162,291,000 and $173,145,000, respectively, being approximately 1.04 and 1.08 times Calloway’s pro forma interest requirements for such periods, respectively.
The following table sets out the pro forma earnings coverage ratios discussed above.
Pro forma for the 12 months ended December 31, 2009 (1)
Pro forma for the 12 months ended March 31, 2010 (1)
Interest Expense ($) 143,077,000 145,872,000 Capitalized Interest ($) 13,607,000 15,174,000 Denominator for Earnings Coverage Ratio ($) 156,684,000 161,046,000 Net Income ($) 19,214,000 27,273,000 Income Taxes ($) (2) - - Interest Expense ($) 143,077,000 145,872,000 Numerator for Earnings Coverage Ratio ($) 162,291,000 173,145,000 Earnings Coverage Ratio 1.04 1.08
Notes: (1) Includes a full 12 months of pro forma interest expense on indebtedness incurred subsequent to the end of the
calculation period as if the indebtedness was incurred at the beginning of the calculation period but gives no credit to income derived from the associated use of proceeds other than interest savings on the repayment, redemption or retirement of other indebtedness.
(2) Calloway is taxed as a mutual fund trust for income tax purposes. Calloway intends to distribute all taxable income directly earned by Calloway directly to unitholders and to deduct such distributions for income tax purposes.
CONSOLIDATED CAPITALIZATION
In this prospectus supplement, “Exchangeable Securities” means any securities of any trust, limited partnership or corporation other than Calloway that are convertible or exchangeable directly for trust units (“Units”) of Calloway without the payment of additional consideration therefore.
As at March 31, 2010, the end of its most recently completed financial period, Calloway had 85,212,021 Units and 16,394,997 Exchangeable Securities issued and outstanding. From March 31, 2010 to the date of this prospectus supplement, 80,207 Units and nil Exchangeable Securities have been issued by Calloway or one of its subsidiaries, either: (i) as partial consideration for acquisitions; (ii) pursuant to the incentive deferred unit plan established for Calloway’s trustees, officers and employees; (iii) through Calloway’s distribution reinvestment plan; or (iv) upon the exercise of previously outstanding convertible securities. In addition, 19,566 Exchangeable Securities have been exchanged for Units. As such, as at the date of this prospectus supplement, Calloway had 85,311,794 Units and 16,375,431 Exchangeable Securities outstanding for a total of 101,687,225 Units and Exchangeable Securities in aggregate.
As at March 31, 2010, the indebtedness of Calloway, consisting of mortgages payable, development loans, unsecured debentures, convertible debentures and revolving operating facilities was approximately $2,688,854,000. Since that time, the net indebtedness of Calloway has increased by approximately $25,344,000, with an increase of approximately $58,351,000 in connection with acquisition, development and financing activity offset by a decrease of $20,706,000 to repay a portion of indebtedness and a decrease of approximately $12,301,000 to repay the scheduled amortization of mortgages payable. As a result of this offering, the indebtedness of Calloway will increase by a further $98,600,000 (net of anticipated costs). However, of the net proceeds of the offering, it is currently anticipated that approximately $91,600,000 will be used by Calloway to repay a portion of its
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indebtedness, inclusive of $1,100,000 in yield maintenance and accrued interest. Therefore, Calloway anticipates that the net indebtedness of Calloway following the offering will increase by approximately $8,100,000. See “Use of Proceeds”.
DETAILS OF THE OFFERING
The Debentures will be issued under a trust indenture (the “Trust Indenture”) dated September 22, 2005 between Calloway and Computershare Trust Company of Canada (the “Indenture Trustee”), as supplemented by the fourth supplemental trust indenture to be dated as of the closing date of the offering and to be entered into between Calloway and the Indenture Trustee (the Trust Indenture, as supplemented by the fourth supplemental trust indenture, are collectively referred to as the “Series E Trust Indenture”). The Trust Indenture authorizes Calloway to issue an unlimited aggregate principal amount of Debt Securities (as defined below) in one or more series. Each such issue, other than the initial series A debentures which were issued under the Trust Indenture, will be made by way of a supplemental indenture which will set out the terms of the relevant series of Debt Securities. The terms of the Debentures will be set out in the Series E Trust Indenture. The following is a summary of the material terms of the Debentures which does not purport to be complete. For full particulars of such terms, reference should be made to the Series E Trust Indenture.
Definitions
For the purpose of the following discussion of certain provisions of the Series E Trust Indenture, the following terms have the meanings set out below:
“Adjusted Unitholders’ Equity” of Calloway, at any time, means the aggregate of the amount of unitholders’ equity of Calloway and the amount of accumulated amortization of income properties, including accumulated amortization of the fair value of intangible assets and liabilities recorded on the acquisition of income properties, recorded in the books and records of Calloway at such time, calculated in accordance with Generally Accepted Accounting Principles.
“Aggregate Assets” of Calloway, at any time, means the total book value of the assets of Calloway, excluding goodwill, determined on a consolidated basis, plus accumulated amortization of income properties, including accumulated amortization of the fair value of intangible assets but less the fair value of intangible liabilities and the associated accumulated amortization recorded on the acquisition of income properties, recorded in the books and records of Calloway at such time, determined in accordance with Generally Accepted Accounting Principles.
“Capital Lease Obligation” of any person means the obligation of such person, as lessee, to pay rent or other payment amounts under a lease of real or personal property which is required to be classified and accounted for as a capital lease or a liability on a consolidated balance sheet of such person in accordance with Generally Accepted Accounting Principles.
“Change of Control” means the acquisition by a person, or group of persons acting jointly or in concert, of units of Calloway (and/or securities convertible into units of Calloway) representing (on a diluted basis, but only giving effect to the conversion or exercise of convertible securities held by such person or group of persons) greater than 50% of the units of Calloway.
“Consolidated EBITDA” of Calloway for any period means Consolidated Net Income increased by the sum of (i) Consolidated Interest Expense, excluding interest that has been capitalized on projects that are under development or held for future development, for such period, (ii) income tax expense of Calloway for such period (other than income taxes, either positive or negative, attributable to extraordinary or non-recurring gains or losses) determined on a consolidated basis in accordance with Generally Accepted Accounting Principles, (iii) amortization of income properties (including provisions for diminution of income properties) for such period, determined on a consolidated basis in accordance with Generally Accepted Accounting Principles, (iv) amortization of the fair value of intangible assets and liabilities for such period, determined on a consolidated basis in accordance with Generally Accepted Accounting Principles, (v) amortization of deferred expenses of Calloway for such period, determined on a consolidated basis in accordance with Generally Accepted Accounting Principles, and (vi) other non-cash items
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changing Consolidated Net Income resulting from a change in accounting principles in determining Consolidated Net Income for such period.
“Consolidated Indebtedness” as at any date means the consolidated Indebtedness of Calloway as at such date determined, except as otherwise expressly provided in the Series E Trust Indenture, in accordance with Generally Accepted Accounting Principles.
“Consolidated Interest Expense” of Calloway for any period means the aggregate amount of interest expense of Calloway in respect of Indebtedness, Capital Lease Obligations, the original issue discount of any Indebtedness issued at a price less than the face amount thereof paid, accrued or scheduled to be paid or accrued by Calloway during such period and, to the extent interest has been capitalized on projects that are under development or held for future development during the period, the amount of interest so capitalized, all as determined on a consolidated basis in accordance with Generally Accepted Accounting Principles (provided that, notwithstanding its presentation under Generally Accepted Accounting Principles, all interest expense of Calloway in respect of convertible debt Indebtedness will be included (without duplication) in determining Consolidated Interest Expense).
“Consolidated Net Income” of Calloway for any period means the net income (loss) of Calloway for such period determined on a consolidated basis in accordance with Generally Accepted Accounting Principles, excluding (i) any gain or loss (net of any tax impact) attributable to the sale or other disposition of any asset of Calloway, other than the sale or disposition of income properties specifically acquired and held for resale, (ii) any extraordinary gains and losses of Calloway, determined on a consolidated basis in accordance with Generally Accepted Accounting Principles and (iii) other nonrecurring items.
“Debt Securities” means unsecured debt securities of Calloway issued from time to time pursuant to the Trust Indenture;
“Extraordinary Resolution” means, for any series of Debt Securities, instruments in writing signed by the holders of not less than 66 % (or 75% in certain events as described under “Modification and Waiver”) of the aggregate outstanding principal amount of such series of Debt Securities or a resolution passed as an Extraordinary Resolution by the affirmative vote of the holders of not less than 66 % (or 75% in certain events as described under “Modification and Waiver”) of the aggregate outstanding principal amount of such series of Debt Securities represented and voting at a meeting of holders of such series of Debt Securities duly convened and held in accordance with the Trust Indenture, all upon compliance with the procedures specified in the Trust Indenture.
“Generally Accepted Accounting Principles” means, as at any date of determination, generally accepted accounting principles in effect in Canada as of the date of the Series E Trust Indenture.
“Indebtedness” of any person means (without duplication), on a consolidated basis, (i) any obligation of such person for borrowed money (including, for greater certainty, the full principal amount of convertible debt, notwithstanding its presentation under Generally Accepted Accounting Principles), (ii) any obligation of such person incurred in connection with the acquisition of property, assets or businesses, (iii) any obligation of such person issued or assumed as the deferred purchase price of property, (iv) any Capital Lease Obligation of such person, and (v) any obligations of the type referred to in clauses (i) through (iv) of another person, the payment of which such person has guaranteed or for which such person is responsible or liable; provided that, for the purpose of clauses (i) through (v) (except in respect of convertible debt, as described above), an obligation will constitute Indebtedness only to the extent that it would appear as a liability on the consolidated balance sheet of such person in accordance with Generally Accepted Accounting Principles. Obligations referred to in clauses (i) through (iii) exclude (i) trade accounts payable, (ii) distributions payable to unitholders of Calloway, (iii) accrued liabilities arising in the ordinary course of business which are not overdue or which are being contested in good faith, (iv) indebtedness with respect to the unpaid balance of installment receipts, where such indebtedness has a term not in excess of 12 months, (v) intangible liabilities and (vi) deferred revenues, all of which will be deemed not to be Indebtedness for the purposes of this definition.
“Material Subsidiary” means, at any date, any Subsidiary the book value of the assets of which exceed (on a stand alone basis) 5% of the Adjusted Unitholders’ Equity calculated as at such date.
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“Non-Recourse Indebtedness” means any Indebtedness of a Subsidiary of Calloway which is a single purpose company or whose principal assets and business are constituted by a particular project and pursuant to the terms of which Indebtedness payment is to be made from the revenues arising out of such project with recourse for such payment being available only to the revenues or the assets of such single purpose company or the project.
“Subsidiary” of any Person has the meaning attributed to it in the Ontario Securities Commission Rule 45-501 as in effect on the date hereof.
General
The Debentures will be issued in $1,000 denominations and will be dated June 4, 2010, will bear interest at the rate of 5.10% per annum, payable in semi-annual installments on June 4 and December 4 in each year, with the first payment of interest due on December 4, 2010 and will mature on June 4, 2015. The semi-annual interest payments will be in an amount equal to $25.50 per $1,000 principal amount.
The Debentures will be direct senior unsecured obligations of Calloway and will rank equally and rateably with one another and with all other unsecured and unsubordinated Indebtedness of Calloway except for sinking fund provisions (if any) applicable to different series of Debt Securities or other obligations of Calloway, except to the extent prescribed by law.
Guarantee
The Debentures will be guaranteed by the wholly-owned Material Subsidiaries of Calloway and certain of the wholly-owned corporate Subsidiaries. All such current and future Material Subsidiaries will provide a guarantee of the Debentures. In the case of default by Calloway, the Indenture Trustee will, subject to the Series E Trust Indenture, seek redress from such Subsidiaries for the guaranteed obligations. These guarantees are intended to eliminate structural subordination, which arises as a consequence of certain Calloway assets being held in various Subsidiaries. A guarantor may be released from its guarantee in certain circumstances where it no longer remains a majority-owned Subsidiary of Calloway. The financial results of the guarantors are included in the consolidated financial results of Calloway, which are incorporated by reference in this prospectus supplement. See “Risk Factors – Structural Subordination of Debentures”.
Redemption by Calloway
At its option, Calloway may redeem the Debentures, in whole or in part, at any time and from time to time, on payment of a redemption price equal to the greater of (i) the Canada Yield Price and (ii) par, together in each case with accrued and unpaid interest to the date fixed for redemption. Calloway will give notice of redemption at least 30 days but not more than 60 days before the date fixed for redemption. Where less than all of the Debentures are to be redeemed pursuant to their terms, the Debentures to be so redeemed will be redeemed on a pro rata basis according to the principal amount of Debentures registered in the respective name of each holder of Debentures or in such other manner as the Indenture Trustee may consider equitable.
For the purposes of the foregoing provisions, the following terms will be defined in the Series E Trust Indenture substantially as follows:
“Canada Yield Price” means a price equal to the price of the Debentures calculated to provide a yield to maturity, compounded semi-annually and calculated in accordance with generally accepted financial practice, equal to the Government of Canada Yield calculated at 10:00 a.m. (Toronto time) on the date on which Calloway gives notice of redemption of the Debentures pursuant to the Trust Indenture plus 0.61%
“Government of Canada Yield” on any date means the yield to maturity on such date, compounded semi-annually and calculated in accordance with generally accepted financial practice, which a non-callable Government of Canada bond would carry if issued, in Canadian dollars in Canada, at 100% of its principal amount on such date with a term to maturity equal to the remaining term to maturity of the Debentures, calculated as of the redemption date of the Debentures, such yield to maturity being the average of the yields provided by two major Canadian investment dealers selected by Calloway.
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Purchase of Debt Securities
Calloway may at any time and from time to time purchase the Debentures in the market (which will include purchases from or through an investment dealer or a firm holding membership on a recognized stock exchange) or by tender or private contract at any price. Debt Securities that are so purchased will be cancelled and will not be reissued or resold.
Certain Trust Indenture Covenants
The Series E Trust Indenture will contain covenants substantially to the following effect in favour of holders of the Debt Securities (including the Debentures).
Maintenance of Properties
Calloway will maintain and keep or cause to be maintained and kept in good condition, repair and working order all of the properties owned by it or any of its Subsidiaries used in its business or in the business of any of its Subsidiaries. Calloway will make or cause to be made all necessary repairs and renewals to and replacements and improvements of these properties as in its judgment may be necessary to carry on its business properly and prudently. Notwithstanding the foregoing, Calloway and its Subsidiaries will not be prohibited from selling or transferring their properties in the ordinary course of business.
Insurance
Calloway will maintain and will cause its Subsidiaries to maintain such property and liability insurance as would be maintained by a prudent owner.
Restrictions on Consolidations and Mergers
Calloway may not consolidate with, amalgamate or merge with or into or sell, assign, transfer or lease all or substantially all of its properties and assets unless:
i) the entity formed by such consolidation or amalgamation or into which Calloway is merged or the entity which acquires by operation of law or by conveyance or by transfer the assets of Calloway substantially as an entirety is a corporation or unincorporated organization organized or existing under the laws of Canada or any province or territory thereof and (except where such assumption is deemed to have occurred solely by the operation of law) such entity assumes under a supplemental indenture all the obligations of Calloway under the Trust Indenture, any supplemental indenture and the Debt Securities and such transaction to the satisfaction of the Indenture Trustee and in the opinion of counsel will be on such terms to preserve and not impair any of the rights and powers of the Indenture Trustee and the holders of Debt Securities;
ii) immediately before and immediately after giving effect to such transaction, no Event of Default (as defined in the Trust Indenture) has occurred and is continuing; and
iii) immediately after giving effect to such transaction, the surviving entity could incur at least $1.00 of additional Indebtedness.
Certain Covenants re Debentures
The Series E Trust Indenture will contain covenants substantially to the following effect in favour of the holders of the Debentures.
Consolidated EBITDA to Consolidated Interest Expense Ratio
Calloway will maintain a ratio of Consolidated EBITDA to Consolidated Interest Expense of not less than 1.65 to 1.
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Restrictions on Additional Indebtedness
Calloway will not incur or assume, or permit any Subsidiary to incur or assume, any Indebtedness unless the quotient (expressed as a percentage) obtained by dividing Consolidated Indebtedness by Aggregate Assets, calculated on a pro forma basis as described below (the “Indebtedness Percentage”), would be less than or equal to 65%.
The Series E Trust Indenture will provide that the Indebtedness Percentage will be calculated on a pro forma basis as at the date of Calloway’s most recently published balance sheet (the “Balance Sheet Date”) giving effect to the incurrence of the Indebtedness to be incurred or assumed and the application of the proceeds therefrom and to any other event that has increased or decreased Consolidated Indebtedness or Aggregate Assets since the Balance Sheet Date to the date of calculation.
Equity Maintenance
Calloway will maintain an Adjusted Unitholders’ Equity of at least $500 million.
Events of Default
The Trust Indenture provides that each of the following events will constitute an event of default (each, an “Event of Default”) in respect of each series of Debt Securities (including the Debentures):
a) default in payment of principal when due;
b) default in payment of any interest when due where such default continues for a period of three business days after the relevant interest payment date;
c) a breach of or default in the performance of any other covenant of Calloway under the Trust Indenture, the Debt Securities or a supplemental indenture in connection with that series of Debt Securities where such default or breach continues for a period of 30 days after the Indenture Trustee has given notice in writing to Calloway specifying the nature of such breach or default, and requiring that it be remedied unless the Indenture Trustee (having regard to the subject matter of such breach or default) agrees to a longer period, and in such event within the period agreed to by the Indenture Trustee;
d) certain events of bankruptcy, insolvency, winding up or dissolution related to Calloway or a Material Subsidiary as set out in the Trust Indenture;
e) the rendering of a final judgment or judgments (not subject to appeal) against Calloway or any Material Subsidiary in an aggregate amount in excess of $25 million by a court or courts of competent jurisdiction, which remains or remain undischarged and unstayed for a period of 60 days after the date on which the right to appeal has expired; and
f) default by Calloway or any Material Subsidiary under the terms of any Indebtedness (other than any Non-Recourse Indebtedness) where that default results in the acceleration of that Indebtedness (after expiration of any applicable grace period) unless such acceleration is waived or rescinded; provided that the aggregate of all such Indebtedness which is accelerated exceeds $25 million.
Subject to the provisions of the Trust Indenture relating to the duties of the Indenture Trustee, in case an Event of Default applicable to a series of Debt Securities occurs and is continuing, the Indenture Trustee will be under no obligation to exercise any of its rights or powers under the Trust Indenture at the request or direction of any of the holders of Debt Securities of such series, unless such holders have offered to indemnify the Indenture Trustee to its reasonable satisfaction.
If an Event of Default (other than an Event of Default described in paragraph (d) above) occurs and is continuing with respect to a particular series of Debt Securities, either the Indenture Trustee or the holders of at least 25% in
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aggregate principal amount of the outstanding Debt Securities of such series may accelerate the maturity of all Debt Securities of such series; provided that, notwithstanding any other provisions of the Trust Indenture, any supplemental indenture or any Debt Securities, after such acceleration, but before a judgment or decree based on acceleration, the holders of a majority in aggregate principal amount of outstanding Debt Securities of that series may rescind and annul such acceleration in certain circumstances described in the Trust Indenture. See “Modification and Waiver”. If an Event of Default specified in paragraph (d) above occurs, the outstanding Debt Securities will become immediately due and payable without any declaration or other act on the part of the Indenture Trustee or any holder of Debt Securities. If the maturity of the Debt Securities of a series has been accelerated, legal action against Calloway may be authorized by an Extraordinary Resolution of the holders of the Debt Securities of such series.
Depository Services
Except as otherwise provided below, the Debentures will be issued in “book-entry only” form and must be purchased or transferred through participants (“Participants”) in the depository service of CDS Clearing and Depository Services Inc. or a successor (“CDS”), which include securities brokers and dealers, banks and trust companies. On the closing date of the offering, Calloway will cause a global certificate or certificates representing the Debentures (each, a “Global Debenture”) to be delivered to, and registered in the name of, CDS or its nominee. Except as described below, no purchaser of a Debenture will be entitled to a certificate or other instrument from Calloway or CDS evidencing that Debentureholder’s ownership thereof, and no Debentureholder will be shown on the records maintained by CDS except through a book-entry account of a Participant acting on behalf of such Debentureholder. Each Debentureholder will receive a customer confirmation of purchase from the registered dealer from which the Debenture is purchased in accordance with the practices and procedures of that registered dealer. Practices of registered dealers may vary, but generally customer confirmations are issued promptly after execution of a customer order. CDS will be responsible for establishing and maintaining book-entry accounts for its Participants having interests in the Debentures.
Debentures will be issued in fully registered form to holders or their nominees other than CDS or its nominee if (i) Calloway determines that CDS is no longer willing or able to discharge properly its responsibilities as depository and Calloway is unable to locate a qualified successor, (ii) Calloway at its option elects, or is required by law, to terminate the book-entry system through CDS or such book-entry system ceases to exist or (iii) after the occurrence of an Event of Default, holders of Debentures representing beneficial interests aggregating over 50% of the outstanding principal amount of Debentures determine that the continuation of the book-entry system is no longer in their best interests.
Transfers
Transfers of ownership in the Debentures will be effected only through records maintained by CDS or its nominee for such Debentures with respect to interests of Participants and on the records of Participants with respect to interests of persons other than Participants. Debentureholders who are not Participants, but who desire to purchase, sell or otherwise transfer ownership of or other interest in the Debentures, may do so only through Participants.
The ability of a Debentureholder to pledge a Debenture or otherwise take action with respect to such Debentureholder’s interest in a Debenture (other than through a Participant) may be limited due to the lack of a physical certificate.
Payment of Interest and Principal
Except in the case of payment on maturity, in which case payment may be made on surrender of the Global Debenture, payments of interest and principal on each Global Debenture will be made to CDS as registered holder of the Global Debenture. Interest payments on the Global Debenture will be made by cheque dated the date interest is payable and delivered to CDS two days before the date interest is payable. Payments of interest may also be made by electronic funds transferred to CDS at the option of Calloway. Principal payments on the Global Debenture will be made by cheque dated the maturity date delivered to CDS at maturity against receipt of the Global Debenture. As long as CDS is the registered holder of the Global Debenture, CDS will be considered the sole owner of the Global
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Debenture for the purpose of receiving payment on the Debentures and for all other purposes under the Trust Indenture and the Debentures.
Calloway expects that CDS, upon receipt of any payment of principal or interest in respect of a Global Debenture, will credit Participants’ accounts, on the date principal or interest is payable, with payments in amounts proportionate to their respective beneficial interests in the principal amount of such Global Debenture as shown on the records of CDS. Calloway also expects that payments of principal and interest by Participants to the owners of beneficial interests in such Global Debenture held through such Participants will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name”, and will be the responsibility of such Participants. The responsibility and liability of Calloway and the Indenture Trustee in respect of Debentures represented by the Global Debenture is limited to making payment of any principal and interest due on such Global Debenture to CDS.
If the date for payment of any amount of principal or interest on any Debenture is not a business day at the place of payment, then payment will be made on the next business day and the holder of the Debenture will not be entitled to any further interest or other payment in respect of the delay.
Change of Control
In the event of a Change of Control, the holders of Debentures may require Calloway to repurchase their Debentures, in whole or in part, at a price of (i) 101% of the principal amount of such Debentures plus (ii) all accrued interest to the date of repurchase.
Defeasance
The Trust Indenture contains provisions requiring the Indenture Trustee to release Calloway from its obligations under the Trust Indenture and any supplemental indenture relating to a particular series of Debt Securities (including the Debentures) provided that, among other things, Calloway satisfies the Indenture Trustee that it has deposited funds or made due provision for the payment of (i) the expenses of the Indenture Trustee and (ii) all principal, premium (if any), interest and other amounts due or to become due in respect of such series of Debt Securities.
Modification and Waiver
The rights of the holders of Debt Securities issued under the Trust Indenture and any supplemental indenture may be modified if authorized by Extraordinary Resolution. If the proposed modification affects the rights of the holders of a separate series of Debt Securities rather than all of the Debt Securities, the approval of a like proportion of the holders of such separate series of Debt Securities outstanding will be required.
The approval threshold for an Extraordinary Resolution will generally be 66 % but will be 75% for the following: (a) to change the stated maturity of the principal or redemption price of or any premium or installment of interest on, any Debt Securities of such series, (b) to reduce the principal amount of, or interest or premium (if any) on, any Debt Securities of such series, (c) to change the place or currency of payment of the principal of, premium (if any) on redemption price of or interest on, any Debt Securities of such series or (d) to amend the percentage of Debt Securities of such series necessary to approve an Extraordinary Resolution. See the definition of “Extraordinary Resolution” under “Definitions”.
Subject to certain rights of the Indenture Trustee as provided in the Trust Indenture, the holders of a majority of the outstanding principal amount of the Debt Securities of a series (including the Debentures), on behalf of all holders of Debt Securities of such series, may waive certain Events of Default under the Trust Indenture with respect to such series of Debt Securities.
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Financial Information
Calloway has covenanted in the Trust Indenture to deliver to the Indenture Trustee its audited annual financial statements and unaudited interim financial statements at such time as such statements are delivered to Canadian securities regulators.
PLAN OF DISTRIBUTION
Under an agency agreement (the “Agency Agreement”) dated June 1, 2010 between the Agents and Calloway, Calloway has appointed the Agents as its agents to offer for sale on a best efforts basis on June 4, 2010 or such other date as may be agreed upon, but not later than June 11, 2010, subject to compliance with all necessary legal requirements and to the terms and conditions contained in the Agency Agreement, up to $100,000,000 principal amount of Debentures at a price equal to $1,000 per $1,000 principal amount of Debenture, plus accrued interest (if any) from June 4, 2010 to the date of delivery, payable in cash to Calloway against delivery of such principal amount of Debentures. The Agency Agreement provides that Calloway will pay the Agents a fee equal to 1% of the gross proceeds from the sale of the Debentures on account of agency services rendered in connection with this offering. The obligations of the Agents under the Agency Agreement may be terminated at their discretion upon the occurrence of certain stated events.
The Debentures have not been and will not be registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”) or any state securities laws. Accordingly, except in certain transactions exempt from the registration requirements of the U.S. Securities Act and applicable state securities laws, the Debentures may not be offered, sold or delivered within the United States, and each Agent has agreed that it will not offer, sell or deliver the Debentures within the United States except in certain transactions exempt from the registration requirements of the U.S. Securities Act and applicable state securities laws. In addition, until 40 days after the commencement of this offering of Debentures, any offer or sale of the Debentures offered hereby within the United States by any dealer (whether or not participating in this offering) may violate the registration requirements of the U.S. Securities Act.
Calloway has agreed to indemnify the Agents and their directors, officers, employees and agents against certain liabilities, including civil liabilities under Canadian provincial securities legislation, or to contribute to payments the Agents may be required to make in respect thereof.
Calloway has further agreed with the Agents that it not issue or sell Debentures or any other senior unsecured debentures of Calloway (or agree to do so or publicly announce any intention to do so), at any time prior to 60 days after the issuance of the Debentures offered pursuant to this prospectus supplement, unless (i) the issue or sale or the proposed issue or sale is made pursuant to the Agency Agreement; or (ii) Calloway will have obtained the prior written consent of CIBC World Markets Inc. on behalf of the Agents, which consent will not be unreasonably withheld or delayed; provided that if such consent is provided Calloway shall use CIBC World Markets Inc. as its lead Agent for the purposes of such offering.
Calloway has been advised by the Agents that, in connection with this offering, the Agents may effect transactions which stabilize or maintain the market price of the Debentures at levels other than those which otherwise might prevail on the open market. Such transactions, if commenced, may be discontinued at any time.
RELATIONSHIP BETWEEN CALLOWAY AND THE AGENTS
The Agents are subsidiaries of separate Canadian chartered banks (the “Banks”) which are lenders to Calloway. Accordingly, Calloway may be considered to be a “connected issuer” of the Agents under applicable Canadian securities legislation.
As at May 31, 2010: (i) approximately $130,357,111 was outstanding under credit facilities and pursuant to mortgages on certain of Calloway’s properties with the Bank which owns CIBC World Markets Inc.; (ii) approximately $7,522,581 was outstanding under a credit facility with the Bank that owns RBC Dominion Securities Inc.; (iii) approximately $7,522,581 was outstanding under a credit facility with the Bank which owns BMO Nesbitt Burns Inc.; (iv) approximately $72,911,439 was outstanding under credit facilities and pursuant to mortgages on certain of Calloway's properties with the Bank which owns Scotia Capital Inc.; (v) approximately $55,063,620 was
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outstanding under credit facilities and pursuant to mortgages on certain of Calloway's properties with the Bank which owns TD Securities Inc.; (vi) approximately $39,836,399 was outstanding under mortgages on certain of Calloway's properties with the Bank which owns Desjardins Securities Inc.; and (vii) approximately $42,545,000 was outstanding under credit facilities with the Bank which owns HSBC Securities (Canada) Inc.
A portion of the net proceeds of the offering will be used to repay a portion of the current outstanding indebtedness of Calloway. See “Use of Proceeds”.
The credit facilities and the mortgages referred to above are secured by certain assets of Calloway. The agreements governing such indebtedness contain representations and covenants, restrictions and events of default that are customary for such agreements, including restrictions on Calloway relating to additional indebtedness, liens and encumbrances and adherence to specified financial covenants.
As of the date of this prospectus supplement, Calloway is in compliance with the terms of such agreements and the financial position of Calloway and the value of the security granted to the Banks pursuant to such agreements have not materially changed since such agreements were entered into.
Each of the Agents has advised Calloway that the decision to underwrite this offering was made independently of the Banks and the Banks had no influence as to the determination of the terms of the distribution. None of the Agents will receive any benefit in connection with this offering other than its share of the Agents’ fee payable by Calloway.
USE OF PROCEEDS
The estimated net proceeds to Calloway from this offering, after deducting the Agents’ fees of $1,000,000 but before deducting the estimated expenses of the issue estimated to be approximately $400,000, will be approximately $99,000,000.
Of the net proceeds from the Offering, Calloway intends to use approximately $47,600,000 to repay the balance owing on the outstanding 4.51% series A senior unsecured debentures due September 22, 2010 (inclusive of approximately $1,100,000 to pay yield maintenance and accrued interest thereon), approximately $44,000,000 to pay down a portion of the debt owing under its credit facilities and the balance for general trust purposes. See “Relationship Between Calloway and the Agents”.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Shea Nerland Calnan LLP, counsel to Calloway, and McCarthy Tétrault LLP, counsel to the Agents, the following is, at the date hereof, a summary of the principal Canadian federal income tax considerations generally applicable to a holder of Debentures (a “Holder”), who acquires Debentures pursuant to this Offering and who, at all relevant times, for purposes of the Tax Act, is resident in Canada, holds the Debentures as capital property and deals at arm’s length and is not affiliated with Calloway. Generally, the Debentures will be considered capital property to a Holder provided that the Holder does not hold the Debentures in the course of carrying on a business of buying and selling securities and has not acquired them as an adventure in the nature of trade. Certain Holders whose Debentures might not otherwise qualify as capital property may be entitled to obtain such qualification in certain circumstances by making an irrevocable election permitted by subsection 39(4) of the Tax Act applicable to all Canadian securities owned by the Holder in the year of the election and all subsequent years.
This summary is not applicable to a Holder that is a “financial institution” (as defined in the Tax Act for purposes of the mark-to-market rules) or a “specified financial institution” or a Holder an interest in which is a “tax shelter investment” or a Holder which reports its Canadian tax results in a functional currency (which excludes Canadian dollars), each as defined in the Tax Act. Such Holders should consult their own tax advisors having regard to their particular circumstances.
This summary is based upon the facts set out in the Short Form Prospectus and this prospectus supplement, the current provisions of the Tax Act and the Regulations in force at the date of this prospectus supplement, all specific proposals to amend the Tax Act and Regulations publicly announced by or on behalf of the Minister of Finance
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(Canada) prior to the date hereof and counsel’s understanding of the current administrative and assessing policies and practices of the Canada Revenue Agency (the “CRA”) published in writing by it. There can be no assurance that the proposed amendments will be implemented in their current form or at all. This summary does not otherwise take into account or anticipate any changes of law or practice, whether by judicial, governmental or legislative decision or action or changes in the administrative policies or assessing practices of the CRA, nor does it take into account any other federal, or provincial, territorial or foreign income tax considerations. The provisions of provincial income tax legislation vary from province to province in Canada and in some cases differ from federal income tax legislation.
This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular Holder, and no representations with respect to the income tax consequences to any particular Holder are made. Accordingly, prospective purchasers should consult their own tax advisors for advice with respect to the tax consequences to them of acquiring, holding and disposing of the Debentures, including the application and effect of the income and other tax laws of any country, province, state or local tax authority.
This summary does not address any Canadian federal income tax considerations applicable to non-residents of Canada, and non-residents should consult their own tax advisors regarding the tax consequences of acquiring and holding the Debentures. All payments to non-residents of interest on the Debentures (including amounts deemed to be interest for purposes of the Tax Act) will be net of any applicable withholding taxes.
This summary is not exhaustive of all possible Canadian federal tax considerations applicable to an investment in Debentures. Moreover, the income and other tax consequences of acquiring, holding or disposing of Debentures will vary depending on the holder’s particular circumstances, including the province or provinces in which the Holder resides or carries on business.
In this summary, references to Calloway are to Calloway Real Estate Investment Trust and not to any of its subsidiaries or other entities in which it holds an interest.
Calloway has advised counsel that it is, and expects that it will continue at all times to qualify as, a unit trust and a mutual fund trust under the provisions of the Tax Act, and has provided a certificate to support such advice. This summary therefore assumes that Calloway does and will continue to so qualify. In addition, Calloway has advised in an officer’s certificate that it has elected pursuant to the Tax Act to be deemed to be a mutual fund trust from the date it was established. If Calloway were not to qualify as a mutual fund trust under the Tax Act, the income tax consequences described below would in some respects be materially different.
A Holder that is a corporation, partnership, unit trust or a trust of which a corporation or a partnership is a beneficiary will be required to include in computing its income for a taxation year all interest on the Debentures that accrues to the Holder to the end of that taxation year or that becomes receivable by or is received by the Holder before the end of that taxation year, except to the extent that the Holder included that interest in computing its income for a preceding taxation year.
Any other Holder will be required to include in computing its income for a taxation year all interest on the Debentures received or receivable by the Holder in that taxation year (depending upon the method regularly followed by the Holder in computing income), except to the extent that the Holder included that interest in income for a preceding taxation year. In addition, such Holder will be required to include in computing the Holder’s income for a taxation year any interest that accrued to the Holder to the end of any “anniversary day” (as defined in the Tax Act) in that year to the extent that such interest was otherwise included in the Holder's income for that or a preceding taxation year.
If Calloway redeems a Debenture prior to maturity or repays a Debenture upon maturity, the Holder will generally be considered to have disposed of the Debenture for proceeds of disposition equal to the amount received by the Holder (other than the amount received as interest) on such redemption or repayment. The Holder may realize a capital gain or capital loss as described below.
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On a disposition or deemed disposition of a Debenture, including a purchase for cancellation, a Holder will generally be required to include in income the amount of interest accrued or deemed to accrue on the Debenture from the date of the last interest payment to the date of disposition to the extent that such amount has not otherwise been included in the Holder’s income for the taxation year or a previous taxation year. In general, a disposition or deemed disposition of a Debenture will give rise to a capital gain (or capital loss) to the extent that the proceeds of disposition, net of any accrued interest and any other amount included in computing income and any reasonable costs of disposition, exceed (or are less than) the adjusted cost base of the Debenture to the Holder immediately before the disposition.
One-half of the amount of any capital gain (a “taxable capital gain”) realized by a Holder in a taxation year generally must be included in the Holder’s income for that year, and one-half of the amount of any capital loss (an “allowable capital loss”) realized by a Holder in a taxation year must generally be deducted from taxable capital gains realized by the Holder in that year. Allowable capital losses in excess of taxable capital gains in a particular year may be carried back and deducted in any of the three preceding taxation years or carried forward and deducted in any subsequent taxation year against net taxable capital gains realized in such years, to the extent and under the circumstances described in the Tax Act.
A Holder that is a “Canadian controlled private corporation” (as defined in the Tax Act) may be liable to pay an additional refundable tax of 6 % on certain investment income, including amounts of interest and taxable capital gains. A capital gain realized by a holder who is an individual or trust (other than certain specified trusts) may give rise to a liability for alternative minimum tax.
Pursuant to the recent amendments to the Tax Act, the taxation regime applicable to specified investment flow-through trusts or partnerships (“SIFTs”) and investors in SIFTs has been altered. If Calloway were to become subject to these new rules (the “SIFT Rules”), it generally would be taxed in a manner similar to corporations on income from business carried on in Canada by Calloway and on income (other than taxable dividends) or capital gains from non-portfolio properties (as defined in the Tax Act), at a combined federal/provincial tax rate similar to that of a corporation. Distributions of such income are generally taxed as dividends from a taxable Canadian corporation. In general, distributions paid as returns of capital will not be subject to this tax. The SIFT Rules are applicable beginning with the 2007 taxation year of a trust unless the trust would have been a “SIFT trust” (as defined in the Tax Act) on October 31, 2006 if the definition had been in force and applied to the trust on that date (the “Existing Trust Exemption”). For trusts that meet the Existing Trust Exemption, including Calloway, the SIFT Rules will apply commencing in the 2011 taxation year, assuming compliance with the “normal growth” guidelines issued by the Department of Finance (Canada) on December 15, 2006, as amended from time to time (the “Normal Growth Guidelines”). The SIFT Rules are not applicable to a real estate investment trust that meets certain specified criteria relating to the nature of its revenue and investments (the “REIT Exemption”). Calloway intends to qualify for the REIT Exemption prior to 2011.
RISK FACTORS
There are risks associated with the Debentures being distributed under the Offering. In addition to the risks described herein, reference is made to the risks described in the Short Form Prospectus including Calloway’s annual information form and management’s discussion and analysis which are incorporated therein by reference. See “Documents Incorporated by Reference”.
Credit Ratings
Real or anticipated changes in credit ratings on the Debentures may affect the market value of the Debentures. In addition, real or anticipated changes in credit ratings can affect the cost at which Calloway can access the debenture market.
Structural Subordination of Debentures
Liabilities of a parent entity with assets held by various Subsidiaries may result in the structural subordination of the lenders of the parent entity. The parent entity is entitled only to the residual equity of its Subsidiaries after all debt obligations of its Subsidiaries are discharged. In the event of a bankruptcy, liquidation or reorganization of
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Calloway, holders of indebtedness of Calloway (including holders of Debentures) may become subordinate to lenders to the Subsidiaries of Calloway.
Wholly-owned Material Subsidiaries and certain wholly-owned corporate Subsidiaries of Calloway will provide a form of guarantee pursuant to which the Indenture Trustee will, subject to the Trust Indenture, be entitled to seek redress from such wholly-owned Subsidiaries for the guaranteed indebtedness. These guarantees are intended to eliminate structural subordination which arises as a consequence of certain Calloway assets being held in various Subsidiaries. Although all wholly-owned Material Subsidiaries will provide a guarantee, not all Subsidiaries of Calloway will provide such a guarantee. In addition, there can be no assurance that the Indenture Trustee will, or will be able to, effectively enforce the guarantee. See “Details of the Offering – Guarantee”.
Coverage Ratios
See “Interest and Earnings Coverages” which is relevant to an assessment of the risk that Calloway will be unable to pay interest or principal on the Debentures when due.
Market Value Fluctuation
Prevailing interest rates will affect the market value of the Debentures, as they carry a fixed interest rate. Assuming all other factors remain unchanged, the market value of the Debentures, which carry a fixed interest rate, will decline as prevailing interest rates for comparable debt instruments rise, and increase as prevailing interest rates for comparable debt instruments decline.
Trading Market for Debentures
There is no market through which the Debentures may be sold and purchasers may not be able to resell Debentures purchased under this prospectus supplement. This may affect the pricing of the Debentures in the secondary market, the transparency and availability of trading prices, the liquidity of the Debentures and the extent of issuer regulation.
If the Debentures are traded after their initial issuance, they may trade at a discount from their initial public offering price depending on prevailing interest rates, the market for similar securities, the performance of Calloway and other factors. No assurance can be given as to whether an active trading market will develop or be maintained for the Debentures. To the extent that an active trading market for the Debentures does not develop, the liquidity and trading prices for the Debentures may be adversely affected.
Statutory Remedies
Calloway is not a legally recognized entity within the relevant definitions of the Bankruptcy and Insolvency Act, the Companies’ Creditors Arrangement Act and in some cases, the Winding Up and Restructuring Act. As a result, in the event a restructuring of Calloway were necessary, Calloway would not be able to access the remedies available thereunder. In the event of a restructuring, a holder of Debentures may be in a different position than a holder of secured indebtedness of a corporation.
Application of SIFT Rules
No assurance can be given that Canadian federal income tax law respecting the taxation of income trusts and other flow-through entities will not be further changed in a manner that adversely affects Calloway.
Management has advised counsel that the total amount of all previous equity issuances and all currently contemplated issuances, determined in accordance with the Normal Growth Guidelines, should not cause Calloway to exceed its available growth for the period from November 1, 2006 to December 31, 2010. Management believes that Calloway is not currently subject to tax under the SIFT Rules. However, in the event that Calloway issues additional units or convertible debentures (or other equity securities) on or before 2011, Calloway may become subject to the SIFT Rules prior to its 2011 taxation year. No assurance can be given that the SIFT Rules will not apply to Calloway prior to its 2011 taxation year.
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Calloway currently intends to qualify for the REIT Exemption prior to 2011. In order to so qualify, Calloway may need to restructure its business affairs and/or discontinue certain of its activities. If Calloway were not to qualify for the REIT Exemption, it will be subject to the SIFT Rules in 2011 (subject to compliance with the Normal Growth Guidelines).
TRANSFER AGENT AND REGISTRAR
The registrar and transfer agent for the Debentures will be Computershare Trust Company of Canada at its principal office in Toronto, Ontario.
LEGAL MATTERS
Legal matters in connection with the issuance of the Debentures offered by this prospectus supplement will be passed upon at the date of closing on behalf of Calloway by Shea Nerland Calnan LLP and on behalf of the Agents by McCarthy Tétrault LLP.
As of the date hereof, the partners and associates of Shea Nerland Calnan LLP, as a group, and McCarthy Tétrault LLP, as a group, beneficially own, directly or indirectly, less than 1% of the outstanding units of Calloway. David M. Calnan, a partner of Shea Nerland Calnan LLP, is a member of the board of trustees of Calloway.
PURCHASERS’ STATUTORY RIGHTS
Securities legislation in certain of the provinces of Canada provides purchasers with the right to withdraw from an agreement to purchase securities. This right may be exercised within two business days after receipt or deemed receipt of a prospectus and any amendment thereto. In several of the provinces, the securities legislation further provides a purchaser with remedies for rescission or, in some jurisdictions, revisions of the price or damages if the prospectus and any amendment thereto contains a misrepresentation or is not delivered to the purchaser, provided that the remedies for rescission, revision of the price or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province for the particulars of these rights or consult with a legal advisor.
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AUDITORS’ CONSENT
We have read the short form base shelf prospectus of Calloway Real Estate Investment Trust (“Calloway”) dated October 9, 2009 relating to the issuance and sale of Trust Securities, and the prospectus supplement of Calloway dated June 2, 2010 relating to the issuance and sale of $100,000,000 5.10% series E senior unsecured debentures due June 4, 2015. We have complied with Canadian generally accepted standards for an auditor’s involvement with offering documents.
We consent to the incorporation by reference in the above mentioned prospectus supplement of our report to the unitholders of Calloway on the consolidated balance sheets of Calloway as at December 31, 2009 and 2008 and the consolidated statements of income and comprehensive income, equity and cash flows for the years ended December 31, 2009 and 2008. Our report is dated February 24, 2010.
Toronto, Ontario June 2, 2010
(signed) “PricewaterhouseCoopers LLP” Chartered Accountants, Licensed Public Accountants
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CERTIFICATE OF THE GUARANTORS
Dated: June 2, 2010
The short form prospectus, together with the documents incorporated in the prospectus by reference, as supplemented by the foregoing, constitutes full, true and plain disclosure of all material facts relating the securities offered by the prospectus and this supplement as required by the securities legislation of each of the provinces of Canada.
CALLOWAY HOLDINGS TRUST
By: (Signed) “Simon Nyilassy”President
By: (Signed) “Bart Munn”Chief Financial Officer
On behalf of the Board of Trustees of Calloway Holdings Trust
By: (Signed) “Simon Nyilassy”Trustee
By: (Signed) “David M. Calnan”Trustee
CALLOWAY LIMITED PARTNERSHIP,BY ITS GENERAL PARTNER, CALLOWAY GP INC.
By: (Signed) “Simon Nyilassy”President
By: (Signed) “Bart Munn”Chief Financial Officer
On behalf of the Board of Directors of Calloway GP Inc.
By: (Signed) “Simon Nyilassy”Director
By: (Signed) “David M. Calnan”Director
CALLOWAY GP INC.
By: (Signed) “Simon Nyilassy”President and Director
By: (Signed) “Bart Munn”Chief Financial Officer
On behalf of the Board of Directors of Calloway GP Inc.
By: (Signed) “Simon Nyilassy”Director
By: (Signed) “David M. Calnan”Director
CALLOWAY REAL ESTATE INVESTMENT TRUST INC.
By: (Signed) “Simon Nyilassy”President and Director
By: (Signed) “Bart Munn”Chief Financial Officer
On behalf of the Board of Directors of Calloway Real Estate Investment Trust Inc.
By: (Signed) “Simon Nyilassy”Director
By: (Signed) “David M. Calnan”Director
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CERTIFICATE OF THE GUARANTORS (continued)
CALLOWAY FINANCIAL INC.
By: (Signed) “Simon Nyilassy”President and Director
By: (Signed) “Bart Munn”Chief Financial Officer
On behalf of the Board of Directors of Calloway Financial Inc.
By: (Signed) “Simon Nyilassy”Director
By: (Signed) “David M. Calnan”Director
C-3
CERTIFICATE OF THE AGENTS
Dated: June 2, 2010
To the best of our knowledge, information and belief, the short form prospectus, together with the documents incorporated in the prospectus by reference, as supplemented by the foregoing, constitutes full, true and plain disclosure of all material facts relating the securities offered by the prospectus and this supplement as required by the securities legislation of each of the provinces of Canada.
CIBC WORLD MARKETS INC.
By: (signed) “Sean Gilbert”
RBC DOMINION SECURITIES INC.
By: (signed) “David M. Dulberg”
BMO NESBITT BURNS INC.
By: (signed) “Derek Dermott”
TD SECURITIES INC.
By: (signed) “Armen Farian”
SCOTIA CAPITAL INC.
By: (signed) “James Gallant”
CANACCORD GENUITY CORP.
By: (signed) “Ken Knowles”
DESJARDINS SECURITIES INC.
By: (signed) “Ryan Godfrey”
DUNDEE SECURITIES CORPORATION
By: (signed) “Onorio Lucchese”
HSBC SECURITIES (CANADA) INC.
By: (signed) “Nicole Caty”
MACQUARIE CAPITAL MARKETS CANADA LTD.
By: (signed) “Ron Rimer”
NATIONAL BANK FINANCIAL INC.
By: (signed) “Craig T. Shannon”
(This page has been left blank intentionally.)
This short form prospectus is a base shelf prospectus. This short form prospectus has been filed under legislation in each of the provinces of Canada that permit certain information about these securities to be determined after this prospectus has become final and that permit the omission from this prospectus of that information. The legislation requires the delivery to purchasers of a prospectus supplement containing the omitted information within a specified period of time after agreeing to purchase any of these securities.
No securities regulatory authority has expressed an opinion about these securities and it is an offence to claim otherwise. This short form prospectus constitutes a public offering of these securities only in those jurisdictions where they may be lawfully offered for sale and therein only by persons permitted to sell such securities. The securities offered hereby have not been, and will not be, registered under the United States Securities Act of 1933, as amended, (“U.S. Securities Act”) or any state securities laws and, unless registered under the U.S. Securities Act or pursuant to an applicable exemption from registration under the U.S. Securities Act and applicable state securities laws, may not be offered, sold, reoffered, resold or delivered, directly or indirectly, in the United States or to U.S. Persons (as defined in Regulation S under the U.S. Securities Act). This short form prospectus does not constitute an offer to sell or solicitation of an offer to buy any of the securities offered hereby within the United States.
Information has been incorporated by reference in this short form prospectus from documents filed with securities commissions or similar authorities in Canada.Copies of the documents incorporated herein by reference may be obtained on request without charge from the Chief Financial Officer of Calloway Real Estate Investment Trust at Suite 200, 700 Applewood Crescent, Vaughan, Ontario L4K 5X3 (Telephone (905) 326-6400 Extension 7631), and are also available electronically at www.sedar.com. See “Documents Incorporated By Reference”.
SHORT FORM BASE SHELF PROSPECTUS
New Issue October 9, 2009
$2,000,000,000
UnitsSubscription Receipts
WarrantsDebt Securities
Calloway Real Estate Investment Trust (“Calloway”) is an unincorporated “open-end” trust constituted in accordance with the laws of the Province of Alberta, pursuant to a declaration of trust that was most recently amended and restated as of May 16, 2006 (the“Declaration of Trust”). Calloway was created to invest in income-producing rental properties. The principal and head office of Calloway is located at 700 Applewood Crescent, Suite 200, Vaughan, Ontario L4K 5X3.
Calloway may from time to time during the 25-month period that this short form base shelf prospectus (the “Prospectus”), including any amendments hereto, remains valid, offer for sale and issue trust units of Calloway (“Units”), subscription receipts (“Subscription Receipts”), warrants (“Warrants”), and debt securities, which may consist of debentures, notes or other types of debt and may be issuable in series (the “Debt Securities” and together with the Units, Subscription Receipts and Warrants, the “Trust Securities”).Calloway may sell up to $2,000,000,000 in the aggregate of initial offering price of Trust Securities (or its equivalent in any other currency used to denominate the Trust Securities at the time of the offering) at any time. The Trust Securities may be sold from time to time in one or more transactions at a fixed price or prices (which may be changed) or at market prices prevailing at the time of sale, at prices determined by reference to such prevailing market prices or at negotiated prices.
The specific terms of any Trust Securities offered will be described in one or more shelf prospectus supplements (collectively or individually, as the case may be, a “Prospectus Supplement”), including, where applicable: (i) in the case of Units, the number of Units being offered, the offering price and any other specific terms; (ii) in the case of Subscription Receipts, the number of Subscription Receipts being offered, the offering price, the procedures for the exchange of the Subscription Receipts for Units and/or Warrants and any other specific terms; (iii) in the case of Warrants, the number of such Warrants offered, the offering price, the terms, conditions and procedures for the exercise of such Warrants into or for Units and any other specific terms; and (iv) in the case of Debt Securities, the specific designation, the aggregate principal amount being offered, the denominations, the currency, the issue and delivery date, the maturity date, the issue price (or the manner of determination thereof if offered on a non-fixed price basis), the interest rate (either fixed or floating, and, if floating, the manner of calculation thereof), the interest payment date(s), the redemption, the exchange or conversion provisions (if any), the repayment terms, the form (either global or definitive), the authorized denominations and any other specific terms. A Prospectus Supplement may include specific variable terms pertaining to the TrustSecurities that are not within the alternatives and parameters described in this Prospectus.
All shelf information permitted under applicable laws to be omitted from this Prospectus will be contained in one or more Prospectus Supplements that will be delivered to purchasers together with this Prospectus. Each Prospectus Supplement will be incorporated by reference into this Prospectus for the purposes of securities legislation as of the date of the Prospectus Supplement and only for the purposes of the distribution of the Trust Securities to which the Prospectus Supplement pertains.
Calloway may sell the Trust Securities to or through underwriters or dealers purchasing as principals, and may also sell the Trust Securities directly to one or more purchasers pursuant to applicable statutory exemptions or through agents. The Prospectus Supplement relating to a particular offering of Trust Securities will identify each underwriter, dealer or agent, as the case may be, engaged by Calloway in connection with the offering and sale of the Trust Securities, and will set forth the terms of the offering of such Trust Securities, including the method of distribution of such Trust Securities, the proceeds to Calloway and any fees, discounts or any other compensation payable to underwriters, dealers or agents and any other material terms of the plan of distribution. In connection with any offering of Trust Securities, the underwriters, dealers or agents, as the case may be, may over allot or effect transactions which stabilize or maintain the market price of the Trust Securities at a level above that which otherwise might prevail on the open market. Such transactions, if commenced, may be discontinued at any time. See “Plan of Distribution”.
The Units, 6.0% convertible unsecured subordinated debentures (the “6.0% Debentures”) and 6.65% convertible unsecured subordinated debentures (the “6.65% Debentures”) of Calloway are listed on the Toronto Stock Exchange (the “TSX”) under the symbols “CWT.UN”, “CWT.DB,” and “CWT.DB.A”, respectively. As at October 8, 2009, the trading price for the Units, 6.0% Debentures and 6.65% Debentures was $17.82, $106.23 and $101.50, respectively. Each series or issue of Subscription Receipts, Warrants, or Debt Securities will be a new issue of securities with no established trading market. Unless otherwise specified ina Prospectus Supplement relating to an issue of Subscription Receipts, Warrants, or Debt Securities, the Subscription Receipts, Warrants, and Debt Securities will not be listed on any securities or stock exchange. Accordingly, unless so specified,there will be no market through which these securities may be sold and purchasers may not be able to resell securities purchased under this Prospectus. This may affect the pricing of the securities in the secondary market, the transparency and availability of trading prices, the liquidity of the securities and the extent of issuer regulation. See “Risk Factors”.
A return on an investment in Units of Calloway is not comparable to the return on an investment in a fixed-income security. Therecovery of an investment in Units is at risk, and any anticipated return on an investment in Units is based on many performanceassumptions. Although Calloway intends to make distributions of a significant percentage of its available cash to its Unitholders in accordance with its distribution policies, these cash distributions are not assured and may be reduced or suspended. The ability of Calloway to make cash distributions and the actual amount distributed will be dependant upon, among other things, the financialperformance of the properties in its property portfolio, its debt covenants and obligations, its working capital requirements and its future capital requirements. In addition, the market value of the Units may decline for a variety of reasons including if Calloway is unable to meet its cash distribution targets in the future, and that decline may be significant.
It is important for a person making an investment in Units of Calloway to consider the particular risk factors that may affect both Calloway and the real estate industry in which Calloway operates and which may therefore affect the stability of the cash distributions on the Units of Calloway. See the section entitled “Risk Factors” in Calloway’s annual information form dated February 25, 2009 (the “AIF”), which document is incorporated herein by reference, which describes Calloway’s assessment of those risk factors as well as the potential consequences to a Unitholder if a risk should occur. See “Risk Factors”.
The after-tax return from an investment in Units to Unitholders that is subject to Canadian income tax can be made up of both a“return on” and a “return of” capital. That composition may change over time, thus affecting a Unitholder’s after-tax return. Returns on capital are generally taxed as ordinary income or capital gains in the hands of a Unitholder while returns of capital are generally tax-deferred (and reduce the Unitholder’s cost base in the unit for tax purposes). Distributions of income and returns of capital to a Unitholder who is not resident in Canada for purposes of the Income Tax Act (Canada) (the “Tax Act”) or is a partnership that is not a “Canadian partnership” for purposes of the Tax Act may be subject to Canadian withholding tax. Prospective Unitholders should consult their own tax advisors with respect to the Canadian income tax considerations in their own circumstances.
Dominion Bond Rating Service Limited (“DBRS”) has provided Calloway with a stability rating of STA-3 (high). This rating category reflects good stability and sustainability of distributions per unit. DBRS has also provided Calloway with a credit rating of BBB with a stable trend relating to all senior unsecured obligations of Calloway. A credit rating of BBB is generally an indication of adequate credit quality as defined by DBRS. See “Ratings”.
Calloway is not a trust company and is not registered under applicable legislation governing trust companies as it does not carry on or intend to carry on the business of a trust company. Calloway qualifies as a mutual fund trust for the purposes of the Tax Act and offers and sells its Units to the public. Units are not “deposits” within the meaning of the Canada Deposit Insurance Corporation Act (Canada) and are not insured under the provisions of that act or any other legislation.
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TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS.....................................................................................................................3 DOCUMENTS INCORPORATED BY REFERENCE ................................................................................................4 CALLOWAY ................................................................................................................................................................5 USE OF PROCEEDS ....................................................................................................................................................5 EARNINGS COVERAGE RATIOS.............................................................................................................................5 DESCRIPTION OF TRUST SECURITIES ..................................................................................................................6
RATINGS ON SECURITIES........................................................................................................................................9 PLAN OF DISTRIBUTION..........................................................................................................................................9 CONSOLIDATED CAPITALIZATION ....................................................................................................................10 PRIOR SALES ............................................................................................................................................................11 TRADING PRICE AND VOLUME ...........................................................................................................................11 RISK FACTORS .........................................................................................................................................................13 LEGAL MATTERS ....................................................................................................................................................14 AUDITORS.................................................................................................................................................................14 PURCHASERS’ STATUTORY RIGHTS ..................................................................................................................14 AUDITORS’ CONSENT ............................................................................................................................................15 CERTIFICATE..........................................................................................................................................................C-1
FORWARD LOOKING STATEMENTS
Certain statements in this Prospectus and in the documents incorporated by reference herein are “forward looking statements” that reflect management’s expectations regarding Calloway’s future growth, results of operations, performance and business prospects and opportunities and other future events. More specifically, certain statements contained in this Prospectus in the sections “Calloway” and “Risk Factors” regarding Calloway’s ability to continue to execute its growth strategy, make additional accretive acquisitions, build a geographically diversified portfolio and qualify for the REIT Exemption (as defined herein) prior to 2011 are forward looking statements. All statements other than statements of historical fact contained in this Prospectus and in the documents incorporated by reference herein are forward looking statements including, without limitation, statements that contain words such as “could”, “should”, “can”, anticipate”, “expect”, “believe”, “will”, “may” and similar expressions, and statements regarding the timing and amount of distributions and the future financial position, business strategy, proposed acquisitions, plans and objectives of Calloway or its subsidiaries. These forward looking statements are presented for the purpose of assisting Calloway’s investors and financial analysts in understanding Calloway’s operating environment, and may not be appropriate for other purposes. Such forward looking statements contained directly in this Prospectus reflect management’s current beliefs and are based on information currently available to management. Forward looking statements involve significant risks and uncertainties. A number of factors could cause actual results to differ materially from the results discussed in the forward looking statements including risks associated with real property ownership, debt financing, interest and financing, capital requirements, credit risk, general uninsured losses, developments, future property acquisitions, competition for real property investments, environmental matters, land leases, potential conflicts of interest, reliance on key personnel, and tax related matters. These risks and others are more fully discussed under the “Risk Factors” section of this Prospectus, which section also refers to the risks described in Calloway’s AIF, which document has been incorporated by reference herein. Although the forward looking statements contained in this Prospectus and in the documents incorporated by reference are based upon what management believed to be reasonable assumptions at the time such statements were made, Calloway cannot assure investors that actual results will be consistent with these forward looking statements. The forward looking statements contained in this Prospectus and in the documents incorporated by reference herein are expressly qualified in their entirely by this cautionary statement. The forward looking statements contained in this Prospectus are made as at the date of this Prospectus, and the forward looking statements contained in the documents incorporated by reference herein are made as of the date of such documents, and Calloway assumes no obligation to update or revise such forward looking statements to reflect new events or circumstances except as otherwise required by applicable securities legislation.
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DOCUMENTS INCORPORATED BY REFERENCE
Information has been incorporated by reference in this short form prospectus from documents filed with securities commissions or similar authorities in Canada. Copies of the documents incorporated herein by reference may be obtained on request without charge from the Chief Financial Officer of Calloway Real Estate Investment Trust at Suite 200, 700 Applewood Crescent, Vaughan, Ontario L4K 5X3 (Telephone (905) 326-6400 Extension 7631) and are also available electronically at www.sedar.com.
The following documents of Calloway, which have been filed with the securities commission or similar authority in each of the provinces of Canada, are specifically incorporated by reference into and form an integral part of this Prospectus:
(a) the AIF;
(b) the management information circular of Calloway dated March 27, 2009 issued in connection with the meeting of unitholders of Calloway held on May 7, 2009;
(c) the audited annual consolidated comparative financial statements of Calloway for the years ended December 31, 2008 and 2007, together with the notes thereto and the auditors’ report thereon;
(d) management’s discussion and analysis of the financial condition and results of operations of Calloway for the year ended December 31, 2008;
(e) the material change report of Calloway dated April 13, 2009 in respect of the issue of $150 million principal amount of 10.25% Series C senior unsecured debentures;
(f) the material change report of Calloway dated June 30, 2009 in respect of the issue of $75 million principal amount of 7.95% Series D senior unsecured debentures;
(g) the unaudited interim consolidated comparative financial statements of Calloway for the three and six month periods ended June 30, 2009, together with the notes thereto;
(h) management’s discussion and analysis of the financial condition and results of operations of Calloway for the three and six month periods ended June 30, 2009; and
(i) the material change report of Calloway dated August 13, 2009 in respect of the issue of 3,226,000 trust units for $15.50 per unit for gross proceeds of approximately $50 million.
All annual information forms, material change reports (excluding confidential material change reports), business acquisition reports, unaudited interim financial statements, audited annual financial statements including the auditors’ report thereon, management’s discussion and analysis of financial condition and results of operation and information circulars which are filed by Calloway with a securities commission or similar regulatory authority in any of the provinces of Canada after the date of this Prospectus and prior to the termination of the offering under any Prospectus Supplement shall be deemed to be incorporated by reference into this Prospectus.
Upon new audited annual financial statements being filed by Calloway with the applicable securities regulatory authorities during the term of this Prospectus, the previously filed audited annual financial statements and all unaudited interim financial statements, together with related management’s discussion and analysis, relating to prior periods shall be deemed to no longer be incorporated into this Prospectus for the purposes of future offers and sales of Trust Securities under this Prospectus.
Upon a new annual information form being filed by Calloway with the applicable securities regulatory authorities during the term of this Prospectus, the previously filed annual information form, any material change reports filed prior to the end of the financial year in respect of which the new annual information form is filed, any information circular filed since the start of such financial year, and any business acquisition report for acquisitions completed since the beginning of such financial year (unless such report is incorporated by reference into the current annual
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information form or less than nine months of the acquired business’ or related businesses’ operations are incorporated into Calloway’s most recent audited financial statements), shall be deemed no longer to be incorporated by reference into this Prospectus for the purposes of future offers and sales of Trust Securities under this Prospectus.
Upon interim financial statements and related management’s discussion and analysis being filed by Calloway with the applicable securities regulatory authorities during the term of this Prospectus, all previously filed interim financial statements and related management’s discussion and analysis shall be deemed no longer to be incorporated by reference into this Prospectus for the purposes of future offers and sales of Trust Securities under this Prospectus.
A Prospectus Supplement containing the specific terms in respect of any offering of Trust Securities, updated disclosure of interest coverage ratios (if applicable) and any additional or updated information Calloway may elect to include (provided that such information does not describe a material change that has not already been the subject of a material change report or a prospectus amendment) will be delivered to purchasers of such Trust Securities, together with this Prospectus, and will be deemed to be incorporated into this Prospectus as of the date of such Prospectus Supplement, but only for purposes of the offering of such Trust Securities.
Any statement contained herein or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded, for purposes of this Prospectus, to the extent that a statement contained herein or in any other subsequently filed document that also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. The modifying or superseding statement need not state that it has modified or superseded a prior statement or include any other information set forth in the document that it modifies or supersedes. The making of a modifying or superseding statement shall not be deemed an admission for any purposes that the modified or superseded statement, when made, constituted a misrepresentation, an untrue statement of a material fact or an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading in light of the circumstances in which it was made. Any statement so modified or superseded shall not be deemed in its unmodified or superseded form to constitute part of this Prospectus.
CALLOWAY
Calloway’s mission is to provide Unitholders with stable and growing tax deferred cash distributions by providing a value-oriented family shopping experience through the acquisition, development and operation of a portfolio of well-located, well-leased, primarily large format retail centres; and enhancing the value through effective management, leasing and re-development of its assets, and effective control of long-term cost of capital.
To the extent that opportunities exist, and to the extent that management and the Board of Trustees of Calloway believe such opportunities are beneficial to Unitholders, Calloway will continue to invest primarily in large format, unenclosed retail rental properties with strong tenant covenants, stable yields, low vacancy levels and growth potential and continue to build a geographically diversified portfolio of such properties.
USE OF PROCEEDS
The use of proceeds from the sale of Trust Securities will be described in a Prospectus Supplement relating to a specific issuance of Trust Securities. Among other potential uses, Calloway may use the net proceeds from the sale of Trust Securities to repay indebtedness outstanding from time to time, to fund the purchase of real property and other investments as permitted by the Declaration of Trust, for capital expenditures and for other general purposes.
EARNINGS COVERAGE RATIOS
Earnings coverage ratios will be provided as required in the applicable Prospectus Supplement(s) with respect to the issuance of Debt Securities pursuant to this Prospectus.
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DESCRIPTION OF TRUST SECURITIES
The following is a summary of the material attributes and characteristics of the Trust Securities. This summary does not purport to be complete.
Units
This section describes the general terms that will apply to any Units that may be offered by Calloway pursuant to this Prospectus. For a complete summary of the general terms that apply to Units of Calloway, see “Declaration of Trust and Description of Units” in Calloway’s AIF, which document is incorporated by reference in this Prospectus.
The Units may be offered separately or together with Subscription Receipts, Warrants, or Debt Securities, as the case may be.
An unlimited number of Units may be created and issued pursuant to the Declaration of Trust. Each Unit represents an equal fractional undivided beneficial interest in any distributions from Calloway, and in any net assets of Calloway in the event of termination or winding-up of Calloway. All Units are of the same class with equal rights and privileges. Each Unit is transferable, entitles the holder thereof to participate equally in distributions, including the distributions of net income and net realized capital gains of Calloway and distributions on liquidation, is fully paid and non-assessable and entitles the holder thereof to one vote at all meetings of Unitholders for each Unit held.
Subscription Receipts
This section describes the general terms that will apply to any Subscription Receipts that may be offered by Calloway pursuant to this Prospectus.
Subscription Receipts may be offered separately or together with Units, Warrants, or Debt Securities, as the case may be.
The following sets forth certain general terms and provisions of the Subscription Receipts offered under this Prospectus. The specific terms and provisions of the Subscription Receipts offered pursuant to an accompanying Prospectus Supplement, and the extent to which the general terms described in this section apply to those Subscription Receipts, will be set forth in the applicable Prospectus Supplement.
The Subscription Receipts will be issued under one or more subscription receipt agreements (each, a “Subscription Receipt Agreement”), in each case between Calloway and a subscription receipt agent (each, a “Subscription Receipt Agent”) determined by Calloway. The statements made hereunder relating to any Subscription Receipt Agreement and the Subscription Receipts to be issued thereunder are summaries of certain anticipated provisions thereof and do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all provisions of the applicable Subscription Receipt Agreement. The applicable Prospectus Supplement will include details of the applicable Subscription Receipt Agreement covering the Subscription Receipts being offered.
The particular terms of each issue of Subscription Receipts will be described in the related Prospectus Supplement. Such description will include, where applicable:
the number of Subscription Receipts being offered; the price at which the Subscription Receipts will be offered; the procedures for the exchange of the Subscription Receipts into Units and/or Warrants; the number of Units and/or Warrants that may be exchanged upon exercise of each Subscription Receipt;the designation and terms of any other securities with which the Subscription Receipts will be offered, if any, and the number of Subscription Receipts that will be offered with each security; the Subscription Receipt Agent under the Subscription Receipt Agreement pursuant to which the Subscription Receipts are to be issued;
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material Canadian tax consequences of owning, holding or disposing of the Subscription Receipts (if any); and any other material terms and conditions of the Subscription Receipts.
An original purchaser of Subscription Receipts will have a contractual right of rescission against Calloway, following the issuance of the underlying Units or other securities to such purchaser, upon the surrender or deemed surrender of the Subscription Receipts, to receive the amount paid for the Subscription Receipts in the event that this Prospectus (including any documents incorporated by reference) and any amendment thereto contains a misrepresentation or is not delivered to such purchaser, provided such remedy for rescission is exercised within 180 days.
Warrants
This section describes the general terms that will apply to any Warrants that may be offered by Calloway pursuant to this Prospectus.
Warrants may be offered separately or together with Units, Subscription Receipts or Debt Securities, as the case may be. Calloway will not offer Warrants for sale separately to any member of the public in Canada unless the offering is in connection with and forms part of the consideration for an acquisition or merger transaction or unless the Prospectus Supplement containing the specified terms of the Warrants to be offered separately is first approved for filing by the securities commissions or similar regulatory authorities in each of the provinces of Canada where the Warrants will be offered for sale.
The following sets forth certain general terms and provisions of the Warrants offered under this Prospectus. The specific terms and provisions of the Warrants offered pursuant to an accompanying Prospectus Supplement, and the extent to which the general terms described in this section apply to those Warrants, will be set forth in the applicable Prospectus Supplement. The Warrants will be issued under one or more indentures (each, a “Warrant Indenture”), in each case between Calloway and a warrant agent (each, a “Warrant Agent”) determined by Calloway. The statements made hereunder relating to any Warrant Indenture and the Warrants to be issued thereunder are summaries of certain anticipated provisions thereof and do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all provisions of the applicable Warrant Indenture. The applicable Prospectus Supplement will include details of the applicable Warrant Indenture covering the Warrants being offered.
The particular terms of each issue of Warrants will be described in the related Prospectus Supplement. Such description will include, where applicable:
the title or designation of the Warrants; the number of Warrants being offered; the number of Units and/or other securities of Calloway purchasable upon exercise of the Warrants and the procedures for exercise; the exercise price of the Warrants; the dates or periods during which the Warrants are exercisable and when they expire; the designation and terms of any other securities with which the Warrants will be offered, if any, and the number of Warrants that will be offered with each such security; the Warrant Agent under the Warrant Indenture pursuant to which the Warrants are to be issued; material Canadian tax consequences of owning, holding or disposing of the Warrants (if any); and any other material terms and conditions of the Warrants.
Debt Securities
This section describes the general terms that will apply to any Debt Securities that may be offered by Calloway pursuant to this Prospectus.
The Debt Securities may be offered separately or together with Units, Warrants or Subscription Receipts, as the case may be.
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The following sets forth certain general terms and provisions of the Debt Securities offered under this Prospectus. The specified terms and provisions of the Debt Securities offered pursuant to an accompanying Prospectus Supplement, and the extent to which the general terms described in this section apply to those Debt Securities, will be set forth in the applicable Prospectus Supplement.
The Debt Securities will be direct unsecured obligations of Calloway. The Debt Securities will be senior or subordinated indebtedness of Calloway as described in the relevant Prospectus Supplement. In the event of the insolvency or winding-up of Calloway, the subordinated indebtedness of Calloway, including the subordinated Debt Securities, will be subordinate in right of payment to the prior payment in full of all other liabilities of Calloway (including senior indebtedness), except those which by their terms rank equally in right of payment with or are subordinate to such subordinated indebtedness.
The Debt Securities will be issued under one or more indentures (each, a “Debt Security Indenture”), in each case between Calloway and a trustee (each, a “Debt Security Trustee”) determined by Calloway. The statements made hereunder relating to any Debt Security Indenture and the Debt Securities to be issued thereunder are summaries of certain anticipated provisions thereof and do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all provisions of the applicable Debt Security Indenture. The applicable Prospectus Supplement will include details of the applicable Debt Security Indenture covering the Debt Securities being offered.
Each Debt Security Indenture may provide that Debt Securities may be issued thereunder up to the aggregate principal amount which may be authorized from time to time by Calloway.
The particular terms of each issue of Debt Securities will be described in the related Prospectus Supplement. This description will include, where applicable:
the designation, aggregate principal amount and authorized denominations of such Debt Securities;the currency or currency units for which the Debt Securities may be purchased and the currency or currency unit in which the principal and any interest is payable (in either case, if other than Canadian dollars); the percentage of the principal amount at which such Debt Securities will be issued; the date or dates on which such Debt Securities will mature; the rate or rates per annum at which such Debt Securities will bear interest (if any), or the method of determination of such rates (if any); the dates on which any such interest will be payable and the record dates for such payments; the Debt Security Trustee under the Debt Security Indenture pursuant to which the Debt Securities are to be issued; the designation and terms of any securities with which the Debt Securities will be offered, if any, and the number of Debt Securities that will be offered with each security; whether the Debt Securities are subject to redemption or call and, if so, the terms of such redemption or call provisions; whether such Debt Securities are to be issued in registered form, bearer form or in the form of temporary or permanent global securities and the basis of exchange, transfer and ownership thereof; any exchange or conversion terms; whether the Debt Securities will be subordinated to other liabilities of Calloway; material Canadian tax consequences of owning the Debt Securities (if any); and any other material terms and conditions of the Debt Securities.
Debt Securities of a single series may be issued at various times with different maturity dates, may bear interest at different rates and may otherwise vary.
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RATINGS ON SECURITIES
Dominion Bond Rating Service Limited (“DBRS”) provides stability ratings for real estate investment trusts (“REITs”) and income trusts. A stability rating generally provides an indication of both the stability and sustainability of REITs’ and income trusts’ distributions to unitholders. DBRS’s rating categories range from highest stability and sustainability of distributions per unit (STA-1) to poor stability and sustainability of distributions per unit (STA-7). Calloway has a DBRS stability rating of STA-3 (high). This rating category reflects good stability and sustainability of distributions per unit.
DBRS also provides credit ratings of debt securities for commercial entities. A credit rating generally provides an indication of the risk that the borrower will not fulfill its full obligations in a timely manner with respect to both interest and principal commitments. Rating categories range from highest credit quality (generally AAA) to very highly speculative (generally C). DBRS has provided Calloway with a credit rating of BBB with a stable trend relating to all general unsecured obligations of Calloway. A credit rating of BBB is generally an indication of adequate credit quality as defined by DBRS, where protection of interest and principal is considered acceptable but the issuing entity is susceptible to adverse changes in financial and economic conditions, or there may be other adverse conditions present which reduce the strength of the entity and its rated securities.
The DBRS ratings accorded to Calloway’s securities are not recommendations to purchase, hold or sell such securities. There can be no assurance that any rating will remain in effect for any given period of time or that any rating will not be withdrawn or revised by a rating agency at any time.
PLAN OF DISTRIBUTION
Calloway may from time to time during the 25-month period that this Prospectus, including any amendments hereto, remains valid, offer for sale and issue Units, Subscription Receipts, Warrants, and Debt Securities. Calloway may sell up to $2,000,000,000 in the aggregate of initial offering price of Trust Securities (or its equivalent in any other currency used to denominate the Trust Securities at the time of the offering) at any time. The Trust Securities may be sold from time to time in one or more transactions at a fixed price or prices (which may be changed) or at market prices prevailing at the time of sale, at prices determined by reference to such prevailing market prices or at negotiated prices.
The specific terms of any Trust Securities offered will be described in one or more shelf Prospectus Supplements including, where applicable: (i) in the case of Units, the number of Units being offered, the offering price and any other specific terms; (ii) in the case of Subscription Receipts, the number of Subscription Receipts being offered, the offering price, the procedures for the exchange of the Subscription Receipts for Units and/or Warrants and any other specific terms; (iii) in the case of Warrants, the number of such Warrants offered, the offering price, the terms, conditions and procedures for the exercise of such Warrants into or for Units and any other specific terms; and (iv) in the case of Debt Securities, the specific designation, the aggregate principal amount being offered, the denominations, the currency, the issue and delivery date, the maturity date, the issue price (or the manner of determination thereof if offered on a non-fixed price basis), the interest rate (either fixed or floating, and, if floating, the manner of calculation thereof), the interest payment date(s), the redemption, the exchange or conversion provisions (if any), the repayment terms, the form (either global or definitive), the authorized denominations and any other specific terms. A Prospectus Supplement may include specific variable terms pertaining to the Trust Securities that are not within the alternatives and parameters described in this Prospectus.
All shelf information permitted under applicable laws to be omitted from this Prospectus will be contained in one or more Prospectus Supplements that will be delivered to purchasers together with this Prospectus. Each Prospectus Supplement will be incorporated by reference into this Prospectus for the purposes of securities legislation as of the date of the Prospectus Supplement and only for the purposes of the distribution of the Trust Securities to which the Prospectus Supplement pertains.
Calloway may sell the Trust Securities to or through underwriters or dealers purchasing as principals, and may also sell the Trust Securities directly to one or more purchasers pursuant to applicable statutory exemptions or through agents. The Prospectus Supplement relating to a particular offering of Trust Securities will identify each underwriter, dealer or agent, as the case may be, engaged by Calloway in connection with the offering and sale of
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the Trust Securities, and will set forth the terms of the offering of such Trust Securities, including the method of distribution of such Trust Securities, the proceeds to Calloway and any fees, discounts or any other compensation payable to underwriters, dealers or agents and any other material terms of the plan of distribution.
Any public offering price and any discounts, concessions or omissions allowed or reallowed or paid to underwriters or dealers may be changed from time to time.
The Units, 6.0% Debentures and 6.65% Debentures of Calloway are listed on the TSX under the symbols “CWT.UN”, “CWT.DB,” and “CWT.DB.A”, respectively. Each series or issue of Subscription Receipts, Warrants,or Debt Securities will be a new issue of securities with no established trading market. Unless otherwise specified in a Prospectus Supplement relating to an issue of Subscription Receipts, Warrants, or Debt Securities, the Subscription Receipts, Warrants, and Debt Securities will not be listed on any securities or stock exchange. Accordingly, unless so specified, there will be no market through which these securities may be sold and purchasers may not be able to resell securities purchased under this Prospectus. This may affect the pricing of the securities in the secondary market, the transparency and availability of trading prices, the liquidity of the securities and the extent of issuer regulation. See “Risk Factors”.
In connection with any offering of Trust Securities, the underwriters may over-allot or effect transactions that stabilize or maintain the market price of the Trust Securities offered at a level above that which might otherwise prevail in the open market. Such transactions, if commenced, may be discontinued at any time. Any underwriters or agents to or through whom Trust Securities are sold by Calloway may make a market in the Trust Securities, but they will not be obligated to do so and may discontinue any market making at any time without notice. No assurance can be given that a trading market in any of the Trust Securities will develop or as to the liquidity of any trading market for the Trust Securities.
Underwriters, dealers and agents who participate in the distribution of the Trust Securities may be entitled under agreements to be entered into with Calloway to indemnification by Calloway against certain liabilities including liabilities under securities legislation, or to contribution with respect to payments that they may be required to make in respect thereof. Such underwriters, dealers and agents may be customers of, engage in transactions with, or perform services for Calloway in the ordinary course of business.
The Trust Securities have not been and will not be registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”) or any state securities laws. Accordingly, except in certain transactions exempt from the registration requirements of the U.S. Securities Act and applicable state securities laws, the Trust Securities may not be offered, sold or delivered within the United States, and each underwriter or agent for any offering of Trust Securities will agree that it will not offer, sell or deliver the Trust Securities within the United States except in certain transactions exempt from the registration requirements of the U.S. Securities Act and applicable state securities laws. In addition, until 40 days after the commencement of an offering of Trust Securities, an offer or sale of such Trust Securities within the United States by a dealer (whether or not participating in the offering) may violate the registration requirements of the U.S. Securities Act.
CONSOLIDATED CAPITALIZATION
In this Prospectus, “Exchangeable Securities” means any securities of any trust, limited partnership or corporation other than the Trust that are convertible or exchangeable directly for Units without the payment of additional consideration therefore.
As at June 30, 2009, the end of the most recently completed interim period of Calloway for which financial statements of Calloway have been filed in accordance with applicable Canadian securities legislation, Calloway had 79,379,069 Units and 16,364,472 Exchangeable Securities issued and outstanding. From June 30, 2009 to October 8, 2009, 3,387,071 Units and nil Exchangeable Securities have been issued by Calloway or one of its subsidiaries, either: (i) through Calloway’s distribution reinvestment plan; (ii) upon the distribution of Units under a prospectus supplement dated August 17, 2009, together with the short form base shelf prospectus of Calloway dated September 21, 2007; or (iii) pursuant to the conversion of certain of Calloway’s 6.0% Debentures. See “Prior Sales”.
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As at June 30, 2009, the indebtedness of Calloway, consisting of mortgages payable, development loans, unsecured debentures, convertible debentures and revolving operating facilities was $2,675,566,000. Since that time, as of October 8, 2009, the net indebtedness of Calloway has increased by approximately $3,833,000 including an increase of approximately $169,613,000 in connection with financing, acquisition and development activities, offset by a decrease of approximately $151,205,000 to repay a portion of indebtedness, and a decrease of approximately $14,575,000 to repay the scheduled amortization of mortgages payable.
PRIOR SALES
The following table sets out, for the Units and Exchangeable Securities, and for securities that are convertible into the foregoing, a description of each prior sale that occurred in the 12-month period before the date of this Prospectus:
Date Issuance Type(1)Total Number of Securities Issued
Issuance Price per Security
October 15, 2008 Distribution Reinvestment Plan 87,376 $15.47 October 28, 2008 Exchange of LP Class D Series 2 Units for Units 34,130 n/a November 17, 2008 Distribution Reinvestment Plan 78,846 $12.74 December 15, 2008 Distribution Reinvestment Plan 92,856 $9.38 January 2, 2009 Issuance of deferred units under Deferred Unit Plan 57,523 $10.76 January 15, 2009 Distribution Reinvestment Plan 98,030 $11.40 January 15, 2009 Exchange of deferred units for Units under Deferred
Unit Plan 24,404 n/a
February 17, 2009 Distribution Reinvestment Plan 111,077 $10.77 February 25, 2009 Issuance of deferred units under Deferred Unit Plan 91,221 $10.58 March 16, 2009 Distribution Reinvestment Plan 122,948 $9.23 March 30, 2009 Exchange of deferred units for Units under Deferred
Unit Plan 8,638 n/a
April 15, 2009 Distribution Reinvestment Plan 114,820 $9.92 May 15, 2009 Distribution Reinvestment Plan 141,341 $12.12 June 15, 2009 Distribution Reinvestment Plan 34,380 $13.54 June 30, 2009 Acquisition 1 Earn-Out Proceeds – Issuance of Units 10,228 $10.50 July 15, 2009 Distribution Reinvestment Plan 38,464 $12.26 August 17, 2009 Distribution Reinvestment Plan 78,366 $14.69 August 25, 2009 Issuance of units pursuant to a prospectus offering 3,226,000 $15.50 September 15, 2009 Distribution Reinvestment Plan 37,493 $16.48 September 21, 2009 Conversion of 6% Debentures 294 $17.00 September 23, 2009 Exchange of deferred units for Units under Deferred
Unit Plan 6,454 n/a
Note:(1) Capitalized terms in this column have the meanings ascribed to them in the AIF.
In addition, (i) on April 13, 2009, Calloway closed the issue of $150 million principal amount of 10.25% Series C senior unsecured debentures and (ii) on June 30, 2009, Calloway closed an offering of $75 million principal amount of 7.95% Series D senior unsecured debentures. No other Debt Securities have been issued by Calloway in the 12-month period before the date of this Prospectus.
TRADING PRICE AND VOLUME
The Units are listed and posted for trading on the TSX under the trading symbol “CWT.UN”. The following table sets forth the reported high and low sales prices and the trading volumes for the Units as reported by the TSX for the periods indicated:
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Price Range
High LowTradingVolume
2008 September.................................................................. October ...................................................................... November .................................................................. December...................................................................2009 January ...................................................................... February .................................................................... March ........................................................................ April .......................................................................... May ........................................................................... June ........................................................................... July ............................................................................ August ....................................................................... September ................................................................. October 1-8................................................................ Total for Periods
The 6% Debentures are listed and posted for trading on the TSX under the trading symbol “CWT.DB”. The following table sets forth the reported high and low sales prices, the volume traded and the value traded for the 6% Debentures as reported by the TSX for the periods indicated:
Price Range
High Low Volume Traded Value Traded2008 September........................................... October............................................... November ........................................... December ...........................................2009 January ............................................... February ............................................. March ................................................. April ................................................... May .................................................... June .................................................... July ..................................................... August ................................................ September .......................................... October 1-8........................................ Total for Periods
$123.99$95.00$90.00$76.05
$92.00$96.00$96.00$98.00
$100.00$100.00$102.00$105.00$110.00$107.00
$113.84$80.00$79.99$75.01
$83.65$92.00$95.00$94.00$92.00
$100.00$101.00$105.00$105.00$105.00
1,700840
1,44090
590340110430
1060131050010
910660
9,990
197,359.5072,533.40
117,697.606,822.50
53,528.5031,990.0010,470.0041,140.00
102,200.00131,000.0050,800.001,050.00
98,911.7070,096.80
985,600.00
The 6.65% Debentures are listed and posted for trading on the TSX under the trading symbol “CWT.DB.A”. The following table sets forth the reported high and low sales prices, the volume traded and the value traded for the 6.65% Debentures as reported by the TSX for the periods indicated:
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Price Range
High Low Volume Traded Value Traded2008 September........................................ October ............................................ November ........................................ December.........................................2009 January............................................. February........................................... March .............................................. April ................................................ May.................................................. June.................................................. July .................................................. August ............................................. September ....................................... October 1-8...................................... Total for Periods
Prospective investors in a particular offering of the Trust Securities should carefully consider, in addition to information contained in the Prospectus Supplement relating to that offering and the information incorporated by reference herein, the risks described in Calloway’s AIF and management’s discussion and analysis which are incorporated by reference herein as at the date of the Prospectus Supplement relating to the particular offering of the Trust Securities.
Tax Rules for Income Trusts
Pursuant to the recent amendments to the Tax Act, the taxation regime applicable to specified investment flow-through trusts or partnerships (“SIFTs”) and investors in SIFTs has been altered. If Calloway were to become subject to these new rules (the “SIFT Rules”), it generally would be taxed in a manner similar to corporations on income from business carried on in Canada by Calloway and on income (other than taxable dividends) or capital gains from non-portfolio properties (as defined in the Tax Act), at a combined federal/provincial tax rate similar to that of a corporation. In general, distributions paid as returns of capital will not be subject to this tax. The SIFT Rules are applicable beginning with the 2007 taxation year of a trust unless the trust would have been a “SIFTtrust” (as defined in the Tax Act) on October 31, 2006 if the definition had been in force and applied to the trust on that date (the “Existing Trust Exemption”). For trusts that meet the Existing Trust Exemption, including Calloway, the SIFT Rules will apply commencing in the 2011 taxation year, assuming compliance with the “normal growth” guidelines issued by the Department of Finance (Canada) on December 15, 2006, as amended from time to time (the “Normal Growth Guidelines”). The SIFT Rules are not applicable to a real estate investment trust that meets certain specified criteria relating to the nature of its revenue and investments (the “REIT Exemption”). Calloway intends to qualify for the REIT Exemption prior to 2011.
No assurance can be given that Canadian federal income tax law respecting the taxation of income trusts and other flow-through entities will not be further changed in a manner that adversely affects Calloway.
Management has advised counsel that the total amount of all previous equity issuances and all currently contemplated issuances, determined in accordance with the Normal Growth Guidelines, should not cause Calloway to exceed its available growth for the period from November 1, 2006 to date. It is assumed that Calloway will not currently be subject to the SIFT Rules. However, in the event that Calloway issues additional units or convertible debentures (or other equity securities) on or before 2011, Calloway may become subject to the SIFT Rules prior to its 2011 taxation year. No assurance can be given that the SIFT Rules will not apply to Calloway prior to its 2011 taxation year.
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Calloway currently intends to qualify for the REIT Exemption prior to 2011. In order to so qualify, Calloway may need to discontinue or reorganize certain of its activities. If Calloway were not to qualify for the REIT Exemption, it will be subject to the SIFT Rules in 2011 (subject to compliance with the Normal Growth Guidelines).
LEGAL MATTERS
Certain legal matters relating to the offering of the Trust Securities will be passed upon on behalf of Calloway by Shea Nerland Calnan LLP. As of October 8, 2009, the partners and associates of Shea Nerland Calnan LLP beneficially owned, directly or indirectly, less than 1% of the outstanding units of Calloway. David M. Calnan, a partner of Shea Nerland Calnan LLP, is a member of the board of Trustees of Calloway. In addition, certain legal matters in connection with any offering of Trust Securities will be passed upon for any underwriters, dealers or agents by counsel to be designated at the time of the offering by such persons.
AUDITORS
Calloway’s auditors are PricewaterhouseCoopers LLP, Chartered Accountants of 5700 Yonge Street, Suite 1900, North York, Ontario, M2M 4K7.
PURCHASERS’ STATUTORY RIGHTS
Securities legislation in certain of the provinces of Canada provides purchasers with the right to withdraw from an agreement to purchase securities. This right may be exercised within two business days after receipt or deemed receipt of a prospectus and any amendment. In several of the provinces, the securities legislation further provides a purchaser with remedies for rescission or, in some jurisdictions, damages if the prospectus and any amendment contains a misrepresentation or is not delivered to the purchaser, provided that such remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province for the particulars of these rights or consult with a legal adviser.
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AUDITORS’ CONSENT
We have read the short form base shelf prospectus of Calloway Real Estate Investment Trust (“Calloway”) dated October 9, 2009 relating to the issuance and sale of Trust Securities. We have complied with Canadian generally accepted standards for an auditor’s involvement with offering documents.
We consent to the use through incorporation by reference in the above mentioned short form base shelf prospectus of our report to the Unitholders of the Trust on the consolidated balance sheets of Calloway as at December 31, 2008 and 2007 and the consolidated statements of income and comprehensive income, equity and cash flows for the years ended December 31, 2008 and 2007. Our report is dated February 25, 2009.
Toronto, Ontario October 9, 2009
(signed) “PricewaterhouseCoopers LLP” Chartered Accountants, Licensed Public Accountants
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CERTIFICATE
Dated: October 9, 2009
This short form prospectus, together with the documents incorporated in this prospectus by reference, will, as of the date of the last supplement to this prospectus relating to the securities offered by this prospectus and the supplement(s), constitute full, true and plain disclosure of all material facts relating to the securities offered by this prospectus and the supplement(s) as required by the securities legislation of each of the provinces of Canada.
