Raymond James analyst Brad Sturges thinks Slate Grocery REIT (SGR.U-T, SGR.UN-T) offers “unique investment exposure” to the U.S. grocery-anchored retail property sector, which he calls a “defensive asset class providing attractive risk-adjusted returns.”
“GR is the only TSX-listed REIT to focus on owning and acquiring unenclosed essential retail neighbourhood shopping centers that are typically anchored by market dominant grocery retailers in targeted growing U.S. non-gateway metropolitan statistical areas (MSA),” he said. “SGR’s U.S. portfolio comprises 119 assets totaling 15.5 million square feet of GLA in 23 states. Notably, SGR’s essential retail portfolio is concentrated in the U.S. Sunbelt (approximately 51 per cent of net operating income), and North-East (20 per cent of NOI), with Florida ( 18 per cent of NOI), North Carolina (12 per cent of NOI) and New York (12 per cent of NOI) representing SGR’s largest operating regions.”
Seeing Slate Asset Management LP, its external asset manager which owns a 6-per-cent stake, providing “expertise, possible access to capital, and an extensive network of U.S. grocery-anchored retail property sector relationships,” Mr. Sturges initiated coverage with a “market perform” recommendation, expecting a “highly fragmented” sector providing ample opportunities for future acquisitions.
“We believe SGR’s above-average distribution income profile is supported by the defensive nature of its U.S. essential retail shopping center portfolio,” said Mr. Sturges. “Further, the REIT’s future organic growth prospects could be supported by capturing the gap between in-place rents psf and estimated market rents psf through executed leasing activities in 2023, and beyond. Future accretive growth of its portfolio through additional acquisitions may act as a positive catalyst for SGR’s unit price.”
Blaming its discounted valuation on its external management structure and low trading liquidity, Mr. Sturges set a Street-high target of US$13 per unit. The average is US$11.90.