Behind The Deal: Why Slate Bought A Shopping Centre In Utah
Slate Retail REIT has acquired Salt Lake City’s Taylorsville Town Center, the first Utah asset in its rapidly expanding grocery-anchored US portfolio. CEO Greg Stevenson discusses how the deal fits into the trust’s growth strategy.
We dropped by Slate Asset Management’s King Street HQ to chat with Greg, who tells us the Utah retail centre (97% occupied and anchored by Fresh Market) “ticks all the boxes” for his firm. It’s in an undervalued secondary market overlooked by institutional capital, with solid grocery sales and below-market rents, so there's room for hikes. Salt Lake City boasts a strong job market and metro population of 1.2 million and growing. “If you put it on a trailer and moved it to Canada it’d be our fourth-largest city." And the asset was acquired for $14.5M, under the cost to build it new. “So there’s a margin of safety.”
Taylorsville Town Center (above) is one of several properties recently acquired by Slate Retail REIT, which launched in 2011 and has built a US$1B portfolio of grocery-anchored assets in 21 states. Last month it bought Eastpointe Shopping Center in West Virginia for US$11.6M. It purchased Tennessee’s Sunset Plaza (100% Kroger-occupied) for $9M in June. And the month before it acquired Abbott’s Village in Atlanta (anchored by Publix, below) for $15.2M. These are well-performing assets with top grocer tenants, Greg points out; they’re just not that alluring to large institutional players. “But there’s still lots of money to be made here.”
In establishing a stable of 70 US retail centres over the past five years, Slate's retail REIT has effectively become the major institutional player in those secondary markets. "No one else is really doing what we're doing,” says Greg. Grocers at the plazas make good money, “they just don’t have landlords to partner with to reinvest in the centres." Slate isn’t redeveloping the sites it acquires, but sprucing them up with new parking lots, landscaping and signage. In return, the trust secures long-term leases, rent increases and future deal opportunities, many via its grocer tenants.
Slate has disposed of some assets in the past year, notably a portfolio of five Food Lion-anchored properties in the Carolinas that sold for US$21.9M, “more than we were carrying them on our books for,” Greg says. The deals resulted from inbound calls, and the CEO stresses the trust remains in buy mode as it looks to build its presence in existing markets. “We don’t want to go into a region and have just one deal.” Slate is eyeing two more properties in Colorado and another in Utah, plus a few in Arizona. “We want to carve out a niche and be an important player in these smaller markets.”
In Canada, the grocery real estate business (roughly 2,400 stores nationwide, according to Greg) is concentrated with two large institutional owners, Choice Properties REIT and Crombie REIT. The US market is far more fractured; the biggest landlord there owns 370 grocery-anchored centres, and that’s just 1% of the market. So it’s not unrealistic that Slate's aiming to establish a stable of 500-plus overlooked, undervalued assets in the coming years, and Greg says we can expect several more deals by year’s end. “We’re excited about how big this could get.”