Slate Grocery REIT (SGR-UN-T) intends to acquire a portfolio of 14 U.S. grocery-anchored retail properties for $551 million (all figures Cdn unless otherwise noted) and form a joint venture with Slate North American Essential Real Estate Income Fund L.P. to own the assets.

The 14 retail properties comprise approximately 2.5 million square feet, are concentrated in the Southeastern United States, and are located across a total of seven states. The acquisition will “significantly increase” Slate’s holdings in Florida, North Carolina and Georgia, which it considers leading growth markets in the U.S. Sunbelt Region.

“This acquisition and joint venture illustrate the value and resources Slate Asset Management brings to all of our managed entities,” Blair Welch, chief executive officer of Slate Grocery REIT and founding partner of Slate, said in the announcement Tuesday evening.

“Our global reach and track record facilitate these creative solutions for capital and deals that enable the REIT’s continued growth and ensure we are providing the best value to the REIT’s unitholders.

“We are very pleased to establish this partnership between Slate Grocery REIT and the Slate North American Essential Real Estate Income Fund, which demonstrates confidence from a leading institutional investor in the REIT’s strategy, management and valuation.”

The U.S. grocery-anchored retail portfolio

The portfolio also increases Slate’s exposure to several major U.S. grocers including Publix, Ahold Delhaize, Albertsons and Walmart.

The portfolio price represents a value of just under $226 per square foot and a capitalization rate of 6.9 per cent. Slate says many of the tenants are currently paying below-market rents.

Slate has not identified the vendor, nor the individual properties involved in the acquisition. The transaction is expected to close on July 14.

After the closing, Slate Grocery REIT’s portfolio will comprise 15.7 million square feet and approximately $3.1 billion in grocery-anchored assets.

The joint venture investment by Slate’s NA Essential Fund involves an initial injection of $180 million into Slate Grocery REIT, which will result in the formation of a long-term strategic partnership.

The funds will give the NA Essential Fund an 18.4 per cent interest in Slate Grocery REIT upon closing of the transactions and the $180 million will be used to partially fund the portfolio acquisition.

The rest of the funding for the acquisition will come from new bank financing and existing balance sheet liquidity. It will increase the REIT’s leverage from a current 53.1 per cent to 53.7 per cent.

The investment implies a valuation of US$13.01 per unit of Slate Grocery REIT, a 21.8 premium to the REIT’s most recent trading price of US$10.68.

Because the investment is considered a related-party transaction, a special committee of independent trustees was formed to consider the deal. The committee unanimously approved the transaction.

Blair Franklin Capital Partners Inc. was retained as financial advisor and Fasken as legal advisor to the special committee.

About Slate Grocery REIT, Slate Asset Management

Slate Grocery REIT is an owner and operator of U.S. grocery-anchored real estate. The REIT owns and operates approximately $2.46 billion worth of assets across major U.S. metro markets.

The REIT’s grocery-anchored portfolio and strong credit tenants provide unitholders with durable cash flows and the potential for capital appreciation over the longer term.

Slate Asset Management is a global alternative investment platform targeting real assets.

Slate’s platform has a range of real estate and infrastructure investment strategies, including opportunistic, value add, core plus and debt investments.