Slate funds look to REIT listing

While Slate Properties Inc. continues to buy up U.S. grocery-anchored real estate for its U.S. funds, the Toronto-based real estate investor and asset manager is working on a Canadian real estate investment trust listing.

This week, the company announced the first two purchases for its Slate U.S. Opportunity (No. 3) Realty Trust: a shopping centre in North Augusta, S.C., for US$19 million and another grocery-anchored property in Greer, S.C., for US $8.3 million. The company successfully raised approximately $75 million of equity last month in a blind pool from investors for the No. 3 Realty Trust fund.

Slate Properties“We raise between $50 million and $75 million because we feel it is an appropriate amount of equity to buy the right type of deals,” said Brady Welch, a partner in Slate.

Slate has already successfully utilized the same strategy to acquire grocery-anchored retail properties in U.S. B markets with its Slate U.S. Opportunity Realty Trust (Nos. 1 and 2).

The first fund is fully invested. The company raised $57 million of equity and secured (on average) 65% of loan-to-value ratio financing which allowed it to buy 13 properties. That fund is paying out about “north of an eight per cent yield,” said Welch.

The second fund raised $72.1 million of equity last year. Slate has completed nine U.S. property deals plus one additional deal that will close in January. 

So far, the strategy has allowed Slate to purchase 31 properties in 13 U.S. states.

A future REIT?

Slate has an end game for its mature realty funds, namely a publicly listed REIT vehicle. “We are working on something now; it is subject to a bunch of things but we could roll the (Slate U.S. Nos. 1 and 2) and the GAR (Grocery-Anchored Retail) fund into one public entity and list it,” said the Slate partner.

The Grocery-Anchored Retail LP is a 2011 closed U.S private placement that purchased a portfolio of six grocery-anchored shopping plazas in the U.S. for a total of US$44.8 million.

“We could sell the real estate on its own as a portfolio or we could combine it,” he said. “These are REITs and we report like any other Canadian-listed REIT but we could go and list our units and that would be liquidity for the investors and so we are looking at doing that right now.”

Currently investors in the Slate funds do not enjoy the liquidity of standard REITs. They are invested for five to seven years, but they are collecting nice high single-digit yields on their investments and are expecting appreciation of the portfolio at the end of the term.

“So one of the exits, and we are working on it right now, is to roll them into one publicly listed entity,” said Welch.

A RioCan-light strategy

RioCan won kudos for its U.S. foray into the U.S. retail real estate market in the dark economic days of 2009. At that time it invested US$181-million in a deal with Cedar Shopping Centers Inc., making it a player in the U.S. retail market at a bargain price.

Slate Properties is taking a similar approach on a smaller scale.

“We started to go down in 2010 and our first fund was closed in 2011,” said Welch. “RioCan isn’t going to go down and buy a $10-million mall. We are playing in that niche. We will go and buy these assets one-off in these markets because there is less competition for them and you can buy them at attractive pricing and all of a sudden you have a portfolio of 30 or 40 assets that are diversified by geography, diversified by credit and by anchor tenant.”

Slate’s founding partners, Brady Welch and his brother Blair Welch, have nearly two decades of experience in the industry managing complex real estate transactions in domestic and international markets.  Since 2005, the company has acquired more than $2.2 billion of commercial real estate assets across North America. The company currently co-invests and manages various investment vehicles, including Slate U.S. Opportunity (No. 1) Realty Trust, Slate U.S. Opportunity (No. 2) Realty Trust, Slate U.S. Opportunity (No. 3) Realty Trust, the closed-end “GAR” private fund focused on U.S. retail assets in addition to the company’s co-investments and management of Canadian office properties with domestic institutional equity groups.

Paul is a writer, editor and media trainer based in Toronto with over 25 years of experience as a business reporter. He has written for Canada’s major news services on…

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Paul is a writer, editor and media trainer based in Toronto with over 25 years of experience as a business reporter. He has written for Canada’s major news services on…

Read more

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