Slate Grocery REIT Buys $390M Grocery-Anchored Portfolio

Slate Grocery REIT, an owner and operator of US grocery-anchored real estate, revealed that it has agreed to acquire a high quality, grocery-anchored portfolio comprising 25 properties and 3.1 million square feet in major metro markets across the United States.

The company says the portfolio is valued at $390 million and is being acquired for an equity purchase price of $90 million and the assumption of existing debt. The acquisition represents a 7.8% capitalization rate or $127 per square foot.

According to David Dunn, CFO of Slate Grocery REIT, this is a “compelling and unique opportunity for the REIT” to acquire the assets on an off-market basis that importantly generates immediate accretion for unitholders, he adds.

Dunn continues that “This transaction increases our exposure to America’s largest metropolitan markets at an attractive cost basis and deepens our relationships with leading omnichannel grocers whose neighborhood stores will continue to serve as critical food distribution points for both in-store and online purchases.”

The acquisition will be financed through the indirect assumption of approximately $300 million of existing property-level mortgage debt (4.2% weighted average interest rate), the net proceeds from a C$133 million Offering and existing balance sheet liquidity. Following the acquisition, the REIT’s leverage is expected to be approximately 60.8%.

On the REIT’s recent Q4 earnings call, Dunn said that the COVID-19 pandemic reinforced Slate Grocery REIT’s important role in providing Americans with their essential daily needs. He explained that the REIT’s focus has always been and will continue to be on owning high-quality grocery-anchored properties in major markets in the United States. “It is this investment strategy that has allowed us to clearly differentiate ourselves against our peers in North America as the only pure-play grocery-anchored REIT.”

On the call, he noted that the strong performance of the grocery-anchored sector during the pandemic has resulted in its evolution into a new asset class; separate and distinct from the broader retail category. “We partner with market-leading grocers, who by no fluke, tend to be those with strong omni-channel distribution capabilities or the ability to provide customers with a seamless shopping experience; be it in a brick-and-mortar store or online. In fact, 98% of our grocer tenants are currently executing an omni-channel model at our properties.”

He also noted that the REIT’s real estate is located close to where Americans live, which he says “reduces last-mile logistics costs and allows grocers to efficiently deploy food inventory for customers, whether purchases are made in-store or online.”

Transaction highlights for this specific portfolio deal are as follows according to the release:

• Significantly increases the size and scale of the REIT’s portfolio, with the REIT’s proforma portfolio aggregating 13.0 million square feet and US$1.7 billion of critical real estate infrastructure
• Expected to be immediately accretive to the REIT’s funds from operations per unit and adjusted funds from operations per unit
• Increases the REIT’s exposure to certain of America’s largest metropolitan statistical areas (“MSA”), with 83% of the Portfolio’s income derived from the top-50 MSAs
• Materially increases the REIT’s presence in New York and Dallas, two of the largest MSAs in America which account for 46% of the Portfolio’s income
• Omnichannel focused assets with 95% of grocers offering e-commerce fulfillment and strategically located in high density neighborhoods in close proximity to transportation routes
• Essential tenants comprise 74% of the Portfolio’s income including 39% from grocers
• Portfolio is anchored by market leading grocers including Tops and Market 32 (Price Chopper), Tom Thumb (Albertson’s), Kroger, Stop & Shop (Ahold Delhaize), Acme Markets (Albertson’s) and Walmart among others
• The Acquisition is expected to close by the middle of 2021
• The REIT will be purchasing majority interests between 85% and 95% ownership in each of the properties, with the remaining 5% to 15% ownership interests retained by three institutional operators