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Bullboard - Stock Discussion Forum Slate Grocery REIT T.SGR.UN

Alternate Symbol(s):  SRRTF

Slate Grocery REIT (the REIT) is a Canada-based open-ended mutual fund trust. The REIT focuses on acquiring, owning, and leasing a portfolio of grocery-anchored real estate properties (the properties) in the United States of America (the U.S.). Its objectives are to provide unitholders with stable cash distributions from a portfolio of grocery-anchored real estate properties in the United... see more

TSX:SGR.UN - Post Discussion

Slate Grocery REIT > update from Scotia
View:
Post by incomedreamer11 on May 14, 2021 10:16am

update from Scotia

High Distribution Yield Supported by Improving Grocery Real Estate Valuation Trends

OUR TAKE: Neutral.

Our target increases to $10.00 (from $9.50) and our SP rating is unchanged. Our NAVPU increases to $9.60 (from $9.15) as we have adjusted our NAV cap rate lower to 7.50% (from 7.60%). We note SGR adjusted its IFRS NAV cap rate to 7.01% in Q1/21 from 7.34% last quarter and as a result the IFRS NAVPU increased to $12.47 (vs $10.95 previously). We continue to think that the current distribution yield of 8.6% is attractive as we expect AFFO payout ratio to normalize to 99% in 2022. This compares to CDN REIT sector average distribution yield of 4.3%.
Lower cap rate is supported by recent M&A announcement in the US shopping center space
A U.S. Sunbelt $5.9B shopping centre portfolio (WRI - KIM merger) traded at an approximate cap rate of high-5% or ~$250 per sf. While we understand that WRI is largely a U.S. Sunbelt shopping centre portfolio (70% of portfolio in Sunbelt) vs SGR a U.S. Midwest and Southeastern secondary locations (~35%-40% of portfolio in Sunbelt), we do observe the wide spread between the two. A 7.0% cap rate for SGR's portfolio (say approximately 100bp spread over WRI implied cap transaction) would imply NAVPU of $11.55.

KEY POINTS 
Sizable $390M portfolio acquisition expected to be closed in Q3/21. In brief, SGR is acquiring a sizable portfolio at 7.8% going-in yield (or $127 per sf) and financed with $105M equity offering and remaining through debt. This transaction is part of a broader $2.3B acquisition by Slate Asset Management (SLAM) of U.S.-listed Annaly Capital Management's (NYSE: NLY) commercial real estate business. The proposed acquisition is expected to closed in Q3/21 and properties are consistent with existing SGR portfolio. As a result, SGR's asset base increases by ~30% to $1.7B and market capitalization increases by ~25% to $0.6B.
We had already incorporated this transaction in our model and, as such, no changes to our AFFOPU estimates. Leverage will increase to 61% (from 57% level) due to assumption of ~$300M debt. U.S. Shopping Center names up ~40% YTD as part of the re-opening trade: SGR up 13% YTD and trading at a 5% premium to NAV. SGR's close peer (BRX) is up 32% YTD and trading at a 4% premium to NAV
Comment by logicandinertia on Jun 22, 2021 7:18am
Is is interesting to watch how the analysts have chased the share price, consistently underestimating changes in cap rate and therefore NAV.   And once again, begrudgingly nudging up price targets to reflect the realities of the market.  The WRI-KIM merger at a high 5s cap rate suggests that, upon closing, there will definitely be a gain booked for Slate's latest deal.  ...more  
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