Toronto’s Slate Properties recently snapped up another U.S. shopping plaza just as it was releasing details about its intent to establish a real estate investment trust.
Within a day of the purchase, Slate announced on its website plans to roll its Slate U.S. Opportunity (No.1) Realty Trust and Slate U.S. Opportunity (No.2) into a real estate investment trust they are proposing to call ‘Slate Retail REIT’.
Would include Grocery Anchored Retail LP
The REIT’s properties, according to its prospectus, would also include Slate’s Grocery Anchored Retail LP which has purchased six grocery-anchored shopping plazas in the U.S. for a total of $44.8 million US.
The prospectus notes 70 per cent of the gross leasable area of the properties owned by the REIT would be anchored by grocery stores and otherwise have “national” tenants. The brands include Kroeger, Walmart and Winn-Dixie.
Slate intends to go after further acquisitions in the U.S., where it sees a wider opportunity than in Canada, and would target “high-quality, mispriced assets” in secondary markets.
A Moody’s RCA chart demonstrates that since the economic downturn of 2008-09, properties in secondary markets have not regained their value as quickly as those in major centres, resulting in an “unprecedented valuation gap.”
The Slate Retail REIT would also focus on properties that have the top two grocers by regional market; well-developed sub-markets with limited risk of new development; and anchor tenants with a track record of strong sales and profitability.
The prospectus mentions that Slate U.S. Opportunity (No.3) Realty Trust currently has five additional deals under negotiation.
Slate also showed comparable valuations in Canadian equities among six other REITs, including RioCan, Crombie and Choice Properties. Unit prices varied in the report from $10.43 Cdn for Choice Properties to $24.78 Cdn for RioCan. Slate showed itself in the middle targeting a unit price of $13.46 US.
The chart showed distribution yields ranging from a low of 4.80 per cent for First Capital Realty to a high of 6.68 per cent for Crombie REIT. Slate placed in the lower end at 5.37 per cent.
Once the Slate Retail REIT is established, according to the prospectus, it is expected to own 29 properties with a gross leasable area of 3.5 million sq. ft. By comparison, Choice REIT boasted 435 properties with a gross leasable area of 36.3 million sq. ft. and Brixmor had 522 properties with a gross leasable area of 86.7 million sq. ft.
Slate has called for a special March 3 meeting to vote for a recommendation of a subcommittee of an independent board as the next step.
Slate’s founding partners, brothers Brady and Blair Welch, have nearly two decades in the real estate industry. Since 2005, the company has acquired more than $2.2 billion worth of commercial real estate assets across North America.