Initiating on the retail property sector:
A frugal consumer at the root of value
We are initiating coverage of RioCan REIT, First Capital Realty, Calloway REIT,
Primaris Retail REIT and Crombie REIT.
After a hard fall, we see good value in the retail property sector. The securities we
cover are all projected to have attractive returns over the next 12 months; RioCan,
First Capital and Calloway are expected to have returns near or above 20% and are
rated Outperform. We rate Primaris Neutral and Crombie Underperform, owing to
our forecast of lower relative returns.
Luxury retailers in Canada? Yes, but not for the publicly
traded retail property sector
In general, tenants offering consumer staples dominate the Canadian retail property
sector, and this is particularly true for the publicly traded portion of the sector.
Consequently, the retail focused securities we cover are far less exposed to a
reduction in consumer spending than one might otherwise expect in an economic
slowdown.
Canadian retail sector should not be confused with the US
retail sector
Just as Canadian banks should not be lumped into the same bucket as US banks,
Canadian retail REITs should not be lumped into the same bucket as US retail
REITs. We discuss the fundamental differences between the two, including, at the
root of it all, a more frugal consumer.
A downturn is a terrible thing to waste
The credit crunch brings a generational opportunity for the strong to take advantage
of the distress in the property market. Simply put, when the crisis is over, wellcapitalized
entities positioned to play offense will emerge stronger. In this regard,
both RioCan and First Capital are standouts, nicely positioned to play offence.

Inside
Initiating on the retail property sector 2
Offence and defence in the
real estate industry 3
How they stack up 5
RioCan REIT 12
First Capital Realty Inc. 21
Calloway REIT 29
Primaris Retail REIT 36
Crombie REIT 45