Canadian Tire Corporation, Limited

Stephen Wetmore - President & CEO Marco Marrone - COO, Canadian Tire Retail Dean McCann - CFO & EVP, Finance

Brian Morrison - TD Securities Peter Sklar - BMO Capital Markets Irene Nattel - RBC Capital Markets Vishal Shreedhar - National Bank Chris Lee - Bank of America Jim Durran - Barclays Mark Petrie - CIBC

Good afternoon everyone and thank you for joining us today. While this is our smallest financial quarter of the year it has nonetheless been a busy quarter; we set ourselves up for the reminder of the year.

Dean and Marco are going to cover the quarter in some detail but let me touch on some important initiatives and announcements from this day. In April, we announced that the Corporation and our associate dealers had reached agreement on new terms for our associate dealer contracts.

It was the culmination of some great work on both sides and an extremely important milestone for us. Given this news and the many initiatives we have underway it’s probably time to provide a more detail look at our organization.

So, it’s our intent to plan an Investor Day in the fall of this year. This past quarter has demonstrated some real innovation at both CTR and FGL Sports.

In just a few months, we designed, developed and implemented The Canadian Way, our new CTR digital catalogue. We started to deploy 5,000 fast find or product locator devices in the CTR stores for staff and customer using the store.

We opened Sport Chek's digital lab, a store which serves as a test site for features and technology that maybe rolled out across the FGL Marks and CTR, our store networks of the future. We launched a partnership with Communitech, a digital development lab in Kitchener, Waterloo, and just last week announced the opening of the Canadian Tire cloud computing center in Winnipeg.

Now, with respect to our Q1 results, I believe it was a good start to the year. Financial services as is typical was the major contributor of earnings in the quarter, performed well again delivering growth in their receivables portfolio and doing a great job working with the retail division to grow in the certified programs.

For the retail business, it is a very small quarter that was marked by the arrival of winter in January and February but a very cold March relative to last year. Despite the weather challenges, I’m extremely pleased with the positive sales results and the momentum we saw in key areas of all our retail banners, most importantly automotive parts and automotive service areas.

Our first quarter results show that there was a reversal and the declining automotive service performance that we identified in Q2, 2012, largely due to the additional training, recruiting and assistance will be provided to those underperforming stores as they transition to the new automotive service systems and technology. FGL Sports, Michael Medline and his team successfully completed the banner rationalization initiative closing all non-strategic banners on time and on budget.

In addition, the team did a great job with the customers in generating excitement and attention to the store closure deals, and we have ended the quarter with a significantly smaller amount of inventory on hand than we had expected. FGL was less affected by the March weather pattern and the Sport Chek business grew well in the quarter with same-store sales up some 3%.

At March, the sales and earnings performance was tempered by weather challenges and tough year-over-year comparisons. But we continue to see a favorable response to our products that focus our innovation and quality and durability, features that differentiate all of our products from those of our other retailers.

In addition, the strong performance of the GTA region in Ontario was a highlight in the quarter and evidence of the re-branding efforts we made in this market last year are working very well. With that, I’ll now address the other announcements we made this morning.

First, our announcement that we are moving forward with the process of creating a real estate investment trust or REIT. We are still working through the steps but let me walk you through our thoughts on the transaction.

As you know, having control over our real estate assets has been an integral part of our Canadian Tire’s operations for over 90 years. We continue to believe that we have a competitive advantage in owning and developing our real estate assets.

That said, we believe that creation of a REIT as a publicly traded subsidiary aligns our long standing objectives of retaining control over our properties, while surfacing the value of our real estate holdings for shareholders and providing the company with additional financing flexibility to access funds to invest in and grow our business over the long-term. In fact, we believe that the CTC REIT will build upon our successful track record of acquiring and developing retail and related properties and provides CTC with a variety of options to fuel growth through improving return on store development and to further invest in real estate should it choose us to do so.

Lastly, it is with mixed emotions that I speak about the departure of Marco Marrone from the company and the appointment of Allan MacDonald as Chief Operating Officer of CTR. I’m excited that Allan will be bringing a new generation of leadership to had our namesake CTR business.

I believe this past four years I have positioned him well to take on the challenge from the long-term and I have full confidence in his ability to lead the organization. Marco’s many accomplishments during his 27-year tenure at Canadian Tire have helped to from the company as it stand today and he will be missed.

Alan and Marco will work together through a transition period to ensure a smooth shift of the role, and I can assure you it will be business as usual during this time. With that, I’ll now pass things over to Marco, who will provide additional details about the performance of CTR during the quarter.

Marco?

Thanks, Stephen. As I start with covering the results for the quarter just recall the weather situation last year for the first quarter.

We really did not have any winter in January and February a year ago and then jumped into summer in March right across the country. This year, winter started in January and wouldn't go away.

Comparing weather for March between the two years you can see the difference, especially during the week 12 of the quarter. For example, one day on week 12 and take Winnipeg the year ago we experienced plus 20 degree Celsius, while this year the temperature was close to minus 30 degree Celsius.

With that kind of weather no one is outside gardening, washing their vehicles or sitting on their patio. In fact, when we launched our new cloud computing center in Winnipeg last week, it was still only minus five degrees.

This difference in weather impacted our results in Q1 of this year specifically in the last three weeks of the quarter, in fact, trying to prepare the quarter is a bit of a challenge and perhaps not that useful, but let me share now numbers to highlight this. After the fist 10-weeks of the quarter¸ CTR was right where we thought it would be with good growth and top line sales with areas like automotive service up 6.5%.

Fast forward three weeks and sales are down 1.6% and auto service was flat for the quarter. The decline in sales growth is directly attributable to seasonal categories all impacted by weather.

In addition, seasonal category such as backyard living, which has barbecues and patio furniture and key category such as gardening, cycling, car care and accessories and tiers were all down compared to the previous year. However, certain categories performed extremely well reflecting the impact of our work and focus in these areas.

For example, the living strategy execution has driven our performance in this category. In the kitchen, home organization and pet care areas, sales grew in the mid to high single-digits demonstrating that consumers are responding to the execution of our merchandising strategy.

Another area, where we have recently turned our focus is our outdoor recreation business. Hunting performed very well and fishing and capturing sales were up in the high-single digits during the quarter.

I should also mention that the approach we have used to grow the outdoor recreation business will now be applied to fixing and sports business in the coming quarters. One final comment on our first quarter performance (inaudible) inventory carryover which was a concern last year.

However, I'm pleased to say that we are in a very good position this year. Over the last year, we have developed plans in key areas of our business and are executing against them.

We brought on David Mock, Senior Vice President of Merchandising, and we have continued to build our merchandising bench strength with key additions and appointments in categories such as Sports and Fixing. We’re continually improving gross margins and finding the balance which is driving top-line and margin improvements.

We focused on our digital strategy and I'm thrilled that we launched our digital catalogue at the end of the first quarter. It becomes a foundational piece in our digital strategy and sets us up for digital commerce later this year.

We focused on our store formats progressing on over 187 living strategy conversions and first smart store conversions in the first quarter alone. As well, given the success of our hunting and fishing pro shops, we will be doubling the number of these during 2013.

Our marketing campaigns are resonating with consumers and if you have seen our latest Pike ad you will see what I mean. I think it’s some of the best work that we’ve ever done.

Our customer experience continues to improve with such initiatives as [We Care] program and our Fast Find technology. These are just a few of initiatives on our play but it provides an excellent view of the focus and execution of the team.

Now, in closing, as you’ve already have heard or read, I am leaving Canadian Tire after 27 years. The organization wanted me to commit to a longer timeframe in my current role but at this stage in my carrier I was not prepared to do that.

In my experience once the decision like this has made us best to make that change quickly as it is in the best interest of everyone. Now is an appropriate time to transition the role to Allan MacDonald.

First of all, we recently completed the successful negotiation of our dealer contract which was an important piece of work to complete. Second, Allan and I have worked closely over the last 12 months developing the strategies and plans to drive CTR into the future.

Therefore, Allan can step in and continue to drive the performance of CTR. As well, we’re entering our planning cycle and I felt that I should not start the planning process if I was not ready to commit to a longer timeframe.

Allan will be a great leader for CTR and I will do everything I can to assist him in an orderly transition and be there as required. I’ve enjoyed my time at Canadian Tire, I’ve made many friends and I have some great memories and I also want to thank all of you.

With that, I’ll hand it over to Dean.

Thank you, Marco. And good afternoon everyone.

I will first walk through the Q1 results for the company and then address at the REIT announcement that we made earlier this morning. Our consolidated results were inline with our expectations for the first quarter of ‘13.

As Stephen noted, Q1 is our smallest quarter of the year in terms of retail sales and earnings contribution with retail segment earnings typically representing a mid-single digit percentage of full year results for the retail segment. Before I walk though our Q1 performance I want to draw your attention to a few disclosure and presentation changes we made to our external reporting documents this quarter.

These are summarized on slide 4. Briefly the most significant is the update to our ROIC calculation methodology to include operating lease obligations.

This makes more sense for us now given the increased proportion of our retail business that operates on the leased locations given the addition of FGL Sports. In addition, we’ve expanded our disclosure related to our cash flow statement and segmented information.

On slide 5, with our consolidated statements in the interest of time since we have a lot to talk about today I will only touch briefly on some factors that influenced our results for this quarter. Consolidated operating expenses increased over the prior year which is you’ll see in our other disclosure documents are largely due to the timing of planned incremental marketing and advertising expenses, as well as higher occupancy costs related to the addition of 19 corporate-owned stores to the network.

That said, we’re still on track to keep operating expenses in line with revenue growth and continue work to identify operational efficiencies to permanently remove cost. In the retail segment, Marco addressed the CTR sales and revenue performance and noted the continued strength of our margins that grew on the quarter.

The delayed arrival of spring has resulted in an increase in our corporate and store inventory at CTR but nothing that won’t be dealt with when we get some sun. Both FGL and Mark's reduced their inventories in the quarter.

Specific highlight for us in the quarter was the completion of our banner rationalization initiatives of FGL Sports. Summarized briefly, we successfully closed a 113 non-strategic locations with the majority of those stores winding up operations in the first quarter of this year.

And to-date, we have converted five stores to our Sport Chek or Atmosphere banners and have a further 13 stores that will be converted later this year in early 2014. As you’ve seen from our first quarter results the strong sales performance of our FGL banner stores was largely due to the liquidation sales at stores closed during the quarter.

However, we also saw solid same-store sales results at our Sport Chek banner stores. This was offset by a lower gross margin which did understandably come down with the clearance of the stores closed.

And higher year-over-year occupancy costs related to the new Sport Chek stores that have opened since the first quarter of 2012. Overall, income before income tax for the retail segment decreased $1.5 million versus Q1 ’12.

However, our retail EBITDA was up 1.8% largely from the higher revenue and gross margin contribution of our banners. Turning to slide 7, financial services posted another solid quarter reflecting gross average credit card receivables growth and improved credit portfolio metrics.

Throughout the quarter we continue to see improvements in the ruling 12 month credit card rate offer rate due to improving bankruptcy rates compared to a year ago. And we also continued to see our return on receivables at levels above our aspirational range of 4.5% to 5%.

As I mentioned in our Q4 call, we have continue to expect ROI to come down as we work to grow receivables balances but we believe it will remain elevated in the 5.5 to 6.5 range throughout ’13. As I mentioned earlier, we updated our ROIC calculation and improved operating leases.

Reported ROIC it was 7.35% but on a normalized basis was essentially flat to Q1 2012 at 7.52%. ROIC is a continuing focus for us and we will work to improve it through tight capital and OpEx control.

Our cash position remain strong with our balance sheet continuing to get stronger. We used about $14 million of our cash in the quarter to repurchase roughly a 196,000 of our Class A shares, in addition to shares purchased for any diluted purposes as part of our 2013 buyback program.

Our capital spending was on plan in the quarter and we remain on track for $400 million to $425 million of CapEx for 2013 plus the impact of a potential new site for our future distribution center. With that, I’ll change direction and provide you with some of the key features and steps that we’ll be taking over the course of the next few months in respect of the REIT announcement this morning.

As you can appreciate, we are still working through all the steps required to complete the REIT. So, we are somewhat limited on what details we can share at this time.

That said, in terms of timing we expect to complete the IPO in the fall of ’13 and anticipate that Canadian Tire would retain a significant majority interest in the REIT of 80% to 90%. We expect the capitalization of the REIT to be a typical structure with a 50-50 debt equity mix and the debt being inter-company with CTC.

Canadian Tire currently owns more than 350 of its 490 CTR store properties, two distribution centers, a modest number of stores at the Mark’s, PartSource and FGL banners, and a number of CTR anchored retail development. The owned CTR properties comprise approximately 25 million square feet have a historical book value of approximately $2 billion and are located in all provinces as well as the Yukon and Northwest territories.

Over the next few months, we will prepare a number of properties for inclusion in the REIT, which includes completing environmental assessments and performing individual property evaluations. Based on the preliminary work we’ve done to-date, we anticipate the initial portfolio would include roughly 250 properties comprised largely of Canadian Tire Retail stores, Canadian Tire anchored retail developments and one DC representing in total about 18 million square feet and approximately $3.5 billion of estimated market value.

CTR properties that are currently being considered for replacement, relocation our future development would be retained by Canadian Tire and would not be included in the REIT initially, but over time we would expect some of these properties to be acquired by the REIT. We expect the creation of the REIT would have minimal impact on our consolidated financial statements as the REIT statements would be consolidated with the company for financial reporting purposes.

We would, however, expect that there would be a one-time increase in cash reflected on the balance sheet from the IPO proceeds as well as an increase to our non-controlling interest. We would also expect minimal impact on Canadian Tire’s cash flow because lease payments to the REIT would be largely offset by the receipt of REIT distribution on Canadian Tire’s retained interest in the REIT and from interest payments received from the inter-company debt.

For segmented reporting purposes, we would create a new segment for the REIT which would an addition to our current retail and financial services segments. And finally, we expect there would be minimal impact on Canadian Tire’s debt metrics and don’t anticipate any significant tax effect for the company.

And with that, I’ll turn it over to the operator moderating the Q&A. Operator?

Question on the REIT if I can. Dean, thanks for the capital structure update there.

If I'm to look at the depreciation and amortization in terms of what would be allocated to the REIT versus the OPCO, could you maybe break that down for us specifically in terms of what might be ruled over from building these leasehold improvements et cetera?

Yeah, Brian, we haven’t kind of specifically kind of hide those numbers out but what you have to remember when you put everything back together again, right, on a consolidated basis when you’re looking at Canadian Tire you effectively put the depreciation back on the consolidated balance sheet anyway. So, I think we should just take that offline and have a chat about that so we can kind of help you understand that better.

I completely understand the consolidated portion, I'm just saying would it be fair to take a proportion of 70% of buildings and leasehold improvements and through that on to the REIT, probably into the REIT I understand that on a consolidated basis as a whole?

It’s fair to do that but you’re also talking net book value going to market value, right? So it’s not just an automatic kind of calculation is all I'm saying.

Okay, okay. Maybe we can follow-up offline.

In terms of the proceeds of capital, could you maybe give us a little bit of understanding in terms of your priorities in terms of accelerated share buyback, dividend, potential for acquisition?

I mean, first of all, Brian, we won’t see any proceeds obviously we do the IPO which is going to be later this year. And the initial proceeds, obviously, are going to be not massive, for a lack of a better word.

And we see that is coming into kind of our overall cash bucket in terms of operating the company and we’re kind of sticking with the same kind of messaging around how we intend to deploy our cash resources, right, from a capital allocation point we focusing on investing in the business, protecting our debt rating, looking at protecting our continuing to follow our dividend distribution policy and looking at acquisition or growth opportunities with remaining cash, and obviously we’re also supporting the currently announced buyback program we have about 200 million bucks. So that’s how we’re kind of thinking about the cash at this point, Brian.

Okay. Last question, in terms of -- and this is more on the operation side.

In terms of the store closures of FGL is there any way that you might able to quantify what the nominal impact might have been on the retail performance during the quarter?

Really tough to do. The guys did a fantastic job of kind of managing that to plan and frankly probably did better than plan, I would be remiss if I didn’t say that.

One of the challenging things is it’s such a great job is sort of clearing inventory kind of creating excitement, as we said in the stores, that we actually ended the quarter with less inventory than we expected to from our provisioning point of view but that shows up in the margin as an operating piece, right. So all I'm saying is it’s really tough to kind of quantify kind of one way or the other what the overall impact is, but suffice it to say the provision that we put in place in the second quarter last year was sufficient to deal with everything associated with that activity.

The guys did a great job.

Just first a couple of follow-up questions on the REIT. You mentioned that there is the additional 7 million square feet of real estate that you own that’s not initially going into the REIT that may go in down the road.

Can you give us a sense of timing on that? Is that something that would potentially be a year away of some of the properties come to development provision or is that more three to four years down the road?

I think the best way to answer that, Peter, is that the REIT over time, right, clearly will acquire more properties from Canadian Tire. That’s the likelihood as a source of growth with respect to the REIT.

The first source of growth with respect to the REIT will be the leases that it starts out with in place with Canadian Tire and those will be market leases; so they’ll have terms in them in terms of rent escalations over time so that will be a source of growth. But clearly an important source of growth, going forward, will be the opportunity to acquire additional properties in Canadian Tire.

So, I wouldn’t put any kind of timeframe on that I mean we’ve got a pretty big stable of properties left and there will be ample opportunity and ample opportunities for the REIT to acquire some of those properties.

Okay. And then --

Talking about the first year.

Okay. And then back again on the deleveraging, first, I see initially you have the IPO proceeds, but then subsequently I would presume that the REIT is going to mortgage the properties and that the REIT would use the proceeds of the financing to repay the notes over to Canadian Tire.

So, over time over a number of years Canadian Tire is going to substantially deleverage. So, I'm just wondering if you can talk about what you’re going to do with your balance sheet as that phenomena happens?

So, see I don’t think of it at that way, the fact is out of the gate basically we are taking back inter-company debt from the REIT as payment for basically half of the value of the properties here. The opportunity is for the REIT to issue additional debt into the future but you really have to think of that as if the REIT issues debt given our ownership position it’s Canadian Tire issuing debt.

So, there will be opportunities as debt matures and Canadian Tire Corporation is an example, we will have the flexibility to choose where the Corporation issue that debt in replacement of maturing debt or would the REIT do that, right? And then repay some of the inter-company debt between the corporation and the REIT.

So there is flexibility but that flexibility is going to be exercised over time based on where the appropriate or the best source of capital is from the cost point of view.

Right, okay. I understand.

Then just one last question on Canadian Tire Retail. You didn’t have the negative comp I believe it was 2.4% and you did have explained on the call how the weather impacted you.

I believe nationally in Canada we’ve had pretty good weather in the second quarter. Can you talk a little bit about how the second quarter is unfolding in terms of the weather and how that’s impacting you?

Hi, it’s Stephen. Well, obviously, as Southern Ontario has picked up, our stores are busy to say the least.

So, it has to but it has been extremely unpredictable across the country, as Marco mentioned earlier. I mean, last week, honestly in Winnipeg it was minus 5 and Saskatoon at three.

So, we’re monitoring it. So in each area there is huge pent up demand and I think what we have gotten ready for and I think it’s the right thing to do because it started to happen in some of the bigger markets is it almost treats us like a Christmas rush.

And as it breaks, our stores are going to be full and they have to be replenished in a hurry. So, distribution has geared up, supply chain is underway with it now.

So, we’re making great progress and like I say, as the weather breaks and totally across the country we’re doing extremely well where it does break.

I was just wondering if you could address the question of why now on the REIT because clearly this is something that we’ve been talking about, talking around for a number of years. And also, whether there we should be making any link between the signing of the new dealer contract, was there anything in there that improved your flexibility and your ability to do this?

Does creating the REIT in anyway impact anything in terms of the relationship with the dealers and how they pay rent?

Hi, it's Stephen. Well, we never as a management team or board ever stop looking at opportunities.

And to say that we haven’t considered this type of opportunity many times over the last years would be not telling you the truth, of course, we look at it. What we have truly concentrated on over the last number of years is getting our businesses focused and trying to get them to operate in a way that we know they have the potential of so doing.

And keeping an eye on all the other aspects of creation of the shareholder value. We constantly and have constantly increased our dividends we this year have also invested in a $100 million share buy back.

So, we've monitored this all the way through. Having said that, we are totally unable to tell the world how valuable this property is when it is been hidden within the Canadian Tire structure.

And the market now is, we would think in almost perfect condition and with the acceptance of high quality REITs with major tenants seems to be accepted well by the market, and I can't see a better time from our perspective to surface the value. We and hopefully we’ll do that during the course of the year to show the tremendous value of the properties that we have.

And obviously, I guess, I mean, I haven’t followed what’s happen during the course of the day here but I suspect it has the surfaced I’m sure about it. And so, we’ve listened to you.

We’ve listened very closely over the years and what we just think the market is right. So, yes, it does create a vehicle that we could access should we need funding.

I do believe too that spending the last number of years in securing the assets that we have in terms of the strategy and our performance criteria making the acquisition of Forzani Group puts us on a track that we believe we can grow this company through organic and inorganic means substantially over the coming years and this gives us another I guess financial flexibility to execute that. As far though as the Canadian Tire dealers and the corporation are concerned, in simple terms this has absolutely nothing to do with the contract.

So, we do not in the contract tie market and escalating market rates to the stores and work that into our contract with the dealers. It would just be impractical, volatile, just doesn’t work.

So, we have calculated values in the contract for land and use of buildings in a very, very different way. And so, it has absolutely nothing to do with that contract and is simply a relationship between Canadian Tire and the REIT.

Okay. That's all I got thank you, that's very helpful.

So, then there was nothing that finding the new dealer contract was not a precondition to do the REIT?

No, not at all, not at all no, no. Between you and I and I’d hope to sign the dealer contract last year just I'm slow, so no, no and this is very coincidental.

I mean, the way to think about it, Irene, the way everybody on the phone should be thinking about it is the REIT announcement is founded on basically purchasing property, acquiring property from Canadian Tire Corporation and executing leases with Canadian Tire Corporation, full stop. Then the dealer contract is completely -- the relationship to the corporation has with the dealers is governed by the contract which is very complex, comprehensive document, and those two things are completely separate things, right, in fact and in structure.

If I could ask more of an operating question, clearly I think whether – has had a significant impact on traffic and on purchasing patterns probably right through this to early May there is storm in Montreal recently is anything to judge by. But as you look around and I'm sure you did, do you have any sense as to whether there has been a change in the competitive environment has the opening to the Target stores made a difference at all to you, do you feel like you’re loosing market share anywhere or really will you take a step back and drill down it really is all related to weather?

Irene, its Marco. When I once go through all of the results for Q1 and looking even beyond and goes to each of the categories you can see the impact had weather year-over-year, just the direct correlation.

I mean, we track all of our categories we’re looking at even the markets where there are new competitive entrants in that market place so we understand our business and it's right back to weather. As to Stephen’s comment before, you can really see what happens when that weather does become normal as all say in the spring here and head into summer you can see the reaction of the consumer and the performance of our stores.

Stephen, in the press release you mentioned organic growth and acquisition opportunities related to this REIT's proposed REIT transaction. I was hoping you could expand on that and in particular what type of acquisition opportunities might you see go to – or organic growth opportunities?

Hi, Vishal. Those once I, those are always really difficult once to come out and give you a lot of clarity on because you just can't disclose kind of where your current interest lie or anything like that in terms of acquisitions is a very difficult one.

But I can always give you general direction on it. I think when we look back at the foundations of our business being living, playing, fixing and driving and certainly Uphill is now a big enough area that it can form the fixed living.

those would be the areas that you would want to both organically and inorganically grow. So, that’s what we currently take a look at.

If you, inorganically, if you will, want to grow then this is a matter of obviously within a Sport Chek world and Atmosphere world drive growth as fast as you possibly can. From Michael and his team he get his big stores and showcase stores done to get us online transaction up and running as fast as he want et cetera.

So, pure organic and I think the same for Mark’s and they’ve got a raft of ideas and concepts that they want to invest And for CTR the success I know that Marcos highlighted to in terms of our pro shops outdoor rack hunting, fishing, he has also mentioned I think in the last call that we were interested in expressing new concept stores. All those things to me represent huge opportunities from a organic point of view.

There is no reason in the world that Canadian Tire once we’re ready and want to can take other fantastically displayed concepts within store which are actually stores within the stores and move them outside the Canadian Tire environment if they fit more within a mall concept. So, all those sort of things to me are driving organic growth as fast as we possibly can.

Inorganic, if you will, is a little bit a different definition for us. To me, it's just a take off from what we have because I always explained Mark’s for example that while we purchased Mark’s we were in the apparel business and we new our customers it made obvious sense.

CTR should have developed Mark’s in many ways, it should have existed because of that and take another store and developed across the country. So, we stay pretty close to those five categories and inorganic would have to continue.

I mean that was a very obvious move when we did Forzani Group logical, it fit within our customers, it fit within the pricing elements and product offering, so that's where we would continue to look.

Great now except two quicker ones. Dean, just wondering on the cadence of the buy backs and why they were a bit slower than perhaps many anticipated in Q1?

One of the challenges, Vishal, is we only have a limited amount of time that you can actually buyback in a quarter because of blackheads and those kinds of things. Additionally, we did some hedging transactions in terms of options those kinds of things, right, that are normal course kind of thing.

So, the reality is there is just limited opportunity to actually exercise buyback. So, were held at buyback just short of a couple of 100,000 shares in terms of the buyback.

And we expect to continue that into the next quarter as well. So but, I would have liked to buyback more in the first quarter to be quite honest with you we were able to do about $14 million worth as we indicated in the release.

Okay. And just on management changes I think I was certainly surprised about Marco's appending departure just given that he is relatively new in his current role and my understanding was that was a role that he wanted and given his track record.

So, Stephen, as we think about, as we think about your time here at Canadian Tire and your outlook and your longer term view how shouldn’t investors think about it?

Well, our Chairman said at the Annual General Meeting this morning then I'm not going anywhere anytime soon. So, I guess that's a comfort to me.

Going back 15 months or so and Marco took us on. If Marco had said to me then or somebody else had said to me, Marco can only take this on for 15 months I still would have said that he was the right guy to take this job.

Because at that point in time we had so many initiatives underway that needed execution, and that's what my big deal was a year or so ago when Marco took over. He had displayed all the talent necessary to be a fantastic executive in terms of execution and he has done that.

I mean, he highlighted to you all the areas that have been taken and completed. So, it is a segment, and I believe that what Marco is getting at that is the right time is that he has completed those jobs, those big initiatives that he took on in the spring of 2012.

And if he stayed on with this now you’re into the next planning cycle, we do our strategy with our Board in internally at June, he would have gone through that cycle then prepare for 2014 and now you’re into another year. You look at the timing, we managed to get these projects to where they are and launched the catalogues and all the launches of the stores and the big, big one which is the dealer contract.

And so, when Marco reflected his, he too knows that this is a five to seven year job. Allan MacDonald is what we classify internally as a ready now candidate he is ready to run a business unit, you put all the facts together and Marco didn’t want to take on a role for five to seven years, which I totally, fully understand.

So, we’re not going to miss a beat, the two of them have worked extremely closely together. Allan has I mean 25%, 30% of the business is automotive so he already has that, and in the last year took overall the marketing in all our digital initiatives.

So, he is coming to this ready to continue to roll and Marco will do everything possible to ensure that we don’t miss a beat and that's why said this business is usual so. So, that's kind of where we are at the moment.

And I also believe that entering the new era with the dealer contract needs long term, which Marco knows too, but the implementation of this contract is different and complex and so we need continuity for the long term. So, it all kind of adds up, this is a great time to transition.

First question, in your analysis in terms of the timing on making the REIT announcement, did you consider making the announcement after Loblaw beat his price in July so you can get a better sense of market demand and valuation or are you fairly confident in terms of market investor demand that you can touch the $3.5 billion valuation?

Yeah, Chris, it’s Dean. The reality is, we’ve been looking at this for a while and we basically came to the stage that we satisfied ourselves around all the sort of really important questions we had to answer around control and those kinds of thing.

And frankly, we are at the stage where we need to star doing market valuations and environmental studies and so on and so on. And you just can’t execute that work without somebody kind of noticing, and then you are basically in the public domain at that point.

So, frankly, we are kind of get on with it people. So, we’re moving this at our timing.

Obviously, we’re watching the Loblaw situation and so on, but we’re really moving this on the basis of what’s right for us and we’ll continue to do that.

And in terms of the expected proceeds from the REIT if I kind of just do the math correctly assuming you capitalize it 50% debt and 50% equity and assuming you keep you sell 10% to 20%. I’m kind of estimating you will get proceeds of somewhere between $175 million to $350 million.

Am I in the right ballpark there?

Yes.

Okay.

That’s how we do the math.

And from an impact on earning statement perspective I understand we know, I guess, why it would have minimum impact. But I guess all is being equal and the fact you sold down 10% or 20% of your real estate, I mean, the minimum there will be some leakage in terms of minority interest and cash flow.

Would that be the case or?

Yeah, but on an ongoing basis, Chris, it really is quite the immaterial.

Okay. I guess last question just in terms of timing, when would perspectives be filled and when we would get more information on in terms of how to model the pro forma statements?

The prospectus we’re working towards kind of later in the year. I mean, that’s all we are kind of saying fall, right.

There is just, there is still a lot of work to do in terms of just, as I said, mentioned those valuations, the environmentals and so on, which is just stuff that takes time when you are dealing with a portfolio of this size.

With respect to the dealer agreement, are you going to be providing us with any granularity on the components of it and consistent with what was done the last time when a dealer agreement was signed what kind of financial benefits there might be to shareholders?

Well, Jim, its Stephen. I think the short answer is yes but I believe that we want to give some thought as to how can we take you through the business model in a way that you understand it better than you do today.

That’s what we are trying to without getting down into the complexities of this contract, and that’s the difficulty so that you can actually understand it better I think is our intent. I’m loathe to try to say that the dealer contract will generate us X amount more of money because I just don’t want to make the statement that, that we isn’t achievable but I believe that if you gave you the components properly, you understood it and maybe some of the main drivers within the enterprise how we work together that you will be able to have a hindsight into it and some transparency within the organization or maybe you never had before.

And so, that’s our intent and that’s what we are going to do try to do. And we will be in contact with you that the type of things that you may want to see so that we can understand whether we can go there or not.

Okay, look forward to that. On the REIT, I don’t know if you had time to look at the REITs that you will be competing against for investor interest.

But can you give us a sense of what kind of growth profile you would see for the REIT?

Yeah Jim, it’s Dean. The reality is our advice and as we look at the market and understand it.

The growth profile with respect to REIT are what’s expected is, is actually pretty modest, right, so it's surprisingly modest. So, but from a opportunity point of view if you would to rank order where growth comes from with respect to the REIT going forward first is obviously these will be market leases between Canadian Tire Corporation and the REIT, and meaning that there will be run escalations and so on and as part of those terms right, which should be reflecting the market.

And then, secondly, as we mentioned we held back a substantial portfolio of properties from Canadian Tire Corporation perspective. And so, there will be opportunities for the REIT to acquire that going forward acquire some of that on an ongoing basis going forward as those properties are developed.

And then thirdly, I mean, over time as the REIT, if you will, get some flakes under it there will be opportunities that the REIT then can consider for further growth. So, I’m not going to give you a growth number but we are well aware of what‘s kind of market, if you will, and expected in terms of what a REIT kind of needs to generate and we’re not worried about the REIT’s ability and the structure to achieve those.

And when I think about the ongoing renovation upgrade cost out of the retail network over time where do you see renovation spending dollars or new format dollars being spent by the REIT on a leasehold inducement standpoint or staying within the retail operations?

Staying within the retail operations, Jim, I'm learning new concepts here triple net, quadruple net things like that in terms of leases, which to me in English just means lessee and the Corporation would be responsible for those costs going forward not the REITs.

Yeah.

But he would have people here who know all this.

Yeah, thanks a lot. But the reality you know this organization we have a tremendous kind of real estate group.

We’ve been one of the premier developers in Canada for the last couple of decades led by Ken Silver and his team. So, we have got tremendous expertise in this that we are drawing on obviously.

Operator it’s Stephen. I think we can take one more call but we have to finish at 1:00 p.m., so I apologize to anybody who does want to ask us something but obviously we are available and we will follow-up with all of you but if we could just take one more call and I apologize to the rest of you.

Just following up on that last question with regards to the REIT, can you just talk about the management structure, board and management? And also, what is the thinking exactly behind sort of retaining 80% to 90%, is there a specific strategy sort of driving that or maybe if you can just expand on that please?

Mark, over time, over the coming months and as we disclose sort of all the details certainly the board composition, management structure and such we’ll unfold all that to you. I think the way we try to express it within the release in our remarks was that we would obviously have the governance practices and etcetera to meet market condition.

So, that’s how - how that would go. In terms of the initial ownership of float you simply have to make the float margin asset and it is in fact a liquid float.

So, that’s where you kind of come into the 80%, 90% ownership and it’s a great starting point for us and we go forward from there.

And then just in terms of the operations, can you just talk a little bit about the improvement in automotive and auto service, what do you think is driving that? How much of it is dealers getting trained on the new systems and improving execution and how much of it’s the market and how much of it is, is just sort of weather or whatever?

Well, I think certainly we had weather conditions conducive to the performance of our automotive business in January and February, which we’re comping over it by different situation. So, we had hope that we would see some great improvement in that area and we did.

We did well in parts. We did well in service.

I think also going and dealing with the 50 stores that we’re struggling with the implementation of the new system has helped greatly too. This is our first kind of quarter in some ways to be comping over the new system.

And the new system recording things in different ways, in different categories and it requires a lot of training and expertise on behalf of our store management in terms of utilizing the system to up-sell and that sort of thing. So, I think we’re starting to fire well with it.

The dealers across the board have made tremendous commitments to driving our automotive business. I know there are some line are using tires etcetera, etcetera that we also dealt with in this quarter, which stands very well for next year and our inventory situation looks extremely good.

It’s a one of those things of and I with at the end of February we could have taken you through all the different numbers in automotive but you finally cracked it but anyway I can’t because of the last two and two and a half weeks of March. So, I’m very, very pleased with how automotive is going.

Okay. Thanks a lot.

You’re welcome. So, operator, I think we have to call it a day.

Thank you very much everybody. I know its busy day for joining us and we are always available to answer your calls and thank you again.