Mr. David Dunn reports
SLATE GROCERY REIT ANNOUNCES AGREEMENT TO ACQUIRE US$390 MILLION GROCERY-ANCHORED PORTFOLIO AND RELATED SUBSCRIPTION RECEIPT OFFERING
Slate Grocery REIT 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 portfolio is valued at $390-million (U.S.) and is being acquired for an equity purchase price of $90-million (U.S.) and the assumption of existing debt. The acquisition represents a 7.8-per-cent capitalization rate or $127 (U.S.) per square foot.
"This is a compelling and unique opportunity for the REIT to acquire $390-million (U.S.) of quality grocery-anchored assets on an off-market basis that importantly generates immediate accretion for unitholders," said David Dunn, chief executive officer of Slate Grocery. "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 on-line purchases."
Transaction highlights:
- Significantly increases the size and scale of the REIT's portfolio, with the REIT's proforma portfolio aggregating 13 million square feet and $1.7-billion (U.S.) 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 per cent 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 per cent of the portfolio's income;
- Omnichannel focused assets with 95 per cent of grocers offering e-commerce fulfillment and strategically located in high density neighborhoods in close proximity to transportation routes;
- Essential tenants comprise 74 per cent of the portfolio's income including 39 per cent 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;
- The acquisition is expected to close by the middle of 2021;
- The REIT will be purchasing majority interests between 85 per cent and 95 per cent ownership in each of the properties, with the remaining 5 per cent to 15 per cent ownership interests retained by three institutional operators.
The acquisition will be financed through the indirect assumption of approximately $300-million (U.S.) of existing property-level mortgage debt (weighted average interest rate of 4.2 per cent), the net proceeds from a $133-million offering (as described below) and existing balance sheet liquidity. Following the acquisition, the REIT's leverage is expected to be approximately 60.8 per cent.
The REIT will acquire these assets from an institutional owner pursuant to a sale contract between the REIT, the vendor and an affiliate of Slate Asset Management. As a result of Slate Asset Management's involvement as a separate purchaser of assets from the vendor, the board of trustees of the REIT established a special committee composed entirely of independent trustees to, among other things, review and oversee the REIT's negotiation of the acquisition. The members of the special committee are Thomas Farley (chair), Andrea Stephen, Colum Bastable and Patrick Flatley. The special committee retained Blair Franklin Capital Partners Inc. as financial adviser with respect to the acquisition. Blair Franklin has provided a fairness opinion to the special committee stating that, in their opinion, and subject to the assumptions, limitations and qualifications contained in the fairness opinion, as of the date of the fairness opinion, the consideration to be paid for the acquisition is fair, from a financial point of view, to the REIT. Following its consideration of the fairness opinion, and after careful deliberation, the special committee determined that the acquisition is in the best interests of the REIT and unanimously recommended approval of the acquisition by the board. Following receipt of the unanimous recommendation by the special committee, the board (with interested trustees abstaining) has unanimously approved the acquisition.
The offering
In conjunction with the acquisition, the REIT has entered into an agreement with a syndicate of underwriters co-led by BMO Capital Markets and RBC Capital Markets to sell, on a bought deal basis, 11.42 million subscription receipts at a price of $11.65 per subscription receipt for gross proceeds to the REIT of approximately $133-million. In addition, the REIT has granted to the underwriters an overallotment option to purchase up to an additional 1,713,000 subscription receipts on the same terms and conditions, exercisable at any time, in whole or in part, up to the earlier of: (i) 30 days after the closing of the offering; or (ii) the date of a termination event (as defined herein).
On satisfaction of the escrow release conditions (as defined herein): (i) one unit of the REIT will be automatically issued in exchange for each subscription receipt (subject to customary anti-dilution protection), without payment of additional consideration or further action by the holder thereof; (ii) an amount per subscription receipt equal to the amount per unit of any cash distributions made by the REIT for which record dates have occurred during the period that the subscription receipts are outstanding, net of any applicable withholding taxes, will become payable in respect of each subscription receipt; and (iii) the net proceeds from the sale of the subscription receipts will be released from escrow to the REIT.
The net proceeds from the sale of the subscription receipts will be held by an escrow agent pending the satisfaction or waiver of all conditions precedent to the acquisition in accordance with the terms of the material agreements relating to the acquisition, without amendment or waiver in a manner that would be materially adverse to the terms and conditions upon which the REIT is effecting the acquisition, unless the consent of the lead underwriters is given to such amendment or waiver, other than: (i) the payment of the consideration to be paid for the acquisition for which the escrowed funds are required; and (ii) such conditions precedent that by their nature are to be satisfied at the time of the closing of the acquisition. There can be no assurance that the requisite approvals will be obtained, closing conditions will be met or that the acquisition will be consummated on the terms described herein, if at all.
If the escrow release conditions are not satisfied or deemed to be satisfied by Sept. 30, 2021, or the acquisition is terminated at an earlier time, or the REIT announces by press release that it will not proceed with the acquisition, the gross proceeds of the offering and pro rata entitlement to interest earned or deemed to be earned on the subscription receipts, net of any applicable withholding taxes, will be paid to holders of the subscription receipts and the subscription receipts will be cancelled.
The subscription receipts will be offered by way of a prospectus supplement to the REIT's short form base shelf prospectus dated March 2, 2020, which prospectus supplement is expected to be filed with the securities commissions and other similar regulatory authorities in each of the provinces and territories of Canada on or about March 27, 2021. Further information regarding the offering and the acquisition, including related risk factors, will be set out in the prospectus supplement. The offering is subject to the receipt of all necessary approvals, including the approval of the Toronto Stock Exchange. The closing of the offering is expected to take place on or about March 31, 2021.