Slate Grocery REIT SRRTF

Scotia comments

[incomedreamer11]

Thoughts on SGR: We toured four shopping centers owned by SGR in Dallas – all four were anchored by Tomb Thumb (owned by Albertsons). The strategy is consistent across portfolio – open-air centers anchored by grocery tenant and supported by essential small-shop tenants. We were impressed by the strength of the Slate platform which owns assets in U.S., Canada and Europe across real estate sector types. We heard credit availability is challenging for office sector, while lending environment is still positive for grocery retail. Also, there are pockets of negative leverage for multi-res and industrial in some markets, while grocery retail continues to enjoy positive leverage. SGR is the best performing REIT in our coverage in 2022 so far (up 15% while Sector is down 17% – Exhibit 1). SGR’s distribution yield is one of the highest in our coverage universe (8.3% vs. REIT sector at 5.3% and implies 2023 AFFO payout ratio of 102%. We think high distribution is well-supported by stable grocery cash flows. SGR implied cap rate is 7.3% versus Phillips Edison (PECO), a close comp for SGR, at 7%. We retain our SP rating but do recommend SGR to income/yield investors. We continue to think that grocery is a good place to hide in case of recession.