Brixmor and Everview agree to take Slate Grocery REIT private at $2.3B

Slate Grocery REIT will not be taken private by the party that set the process in motion. The Toronto-based owner and operator of U.S. grocery-anchored real estate has agreed to be sold to a joint venture of Brixmor Property Group and affiliates of Everview Partners, the company announced Monday morning, at $13 for each issued and outstanding unit and a total enterprise value of $2.3 billion.

That price works out to a 13 percent premium to where the units traded when the strategic review was announced and 20 percent above Wednesday's close, the last print before the REIT suspended distributions. Slate's board of trustees recommended the sale and a special committee voted unanimously in favor; shareholders still have to approve it. The transaction is expected to close in the first quarter, after which the units stop trading on the Toronto Stock Exchange.

Private affiliates of Slate Asset Management, which serves as Slate Grocery's external manager, submitted an offer to the REIT several months ago, and that bid kicked off the process now concluding in a sale to other parties. The announcement puts no price on the manager's offer, gives no account of whether it was revised, and offers no explanation of why the manager's own private affiliates are not the buyer. Whether the winning joint venture outbid the incumbent's private capital or simply arrived at a number the special committee could accept is not something the disclosure addresses.

What the buyers are getting is a 15.2 million-square-foot portfolio spread across 23 states, with nearly half the properties in the Southeast and almost a fifth of the portfolio occupied by Kroger and Walmart. Slate values the assets at $2.4 billion, while the buyers are paying a $2.3 billion enterprise value for the company that holds them, and no figure for the debt inside that enterprise value appears in the announcement. Divided across the square footage, $2.3 billion comes to roughly $151 a foot — a portfolio price rather than a building price, and one that carries whatever leverage sits underneath it.

Brixmor supplies the platform. It holds 346 retail centers spanning roughly 63 million square feet and is best known for open-air shopping centers, so a grocery-anchored portfolio tucks into an existing format rather than stretching the firm into a new one. Everview supplies the newer money: a private investment management firm founded two years ago and run by Billy Rahm, now underwriting a $2.3 billion take-private. That is a large first impression for a two-year-old shop, and the deal structure makes no distinction between the strategic buyer and the private-capital buyer on the other side of the table.

Slate chief executive Blair Welch called the outcome a validation of "what we have long believed" — that grocery-anchored essential real estate is "a high-quality, in-demand asset class," and that active in-house management "creates measurable value for investors." The bid side of that claim has been visible this year. Nuveen Real Estate, the investment arm of TIAA, raised $330 million in March for its U.S. Cities Retail Fund, to be deployed on grocery-anchored shopping centers, and the source also names SJC Ventures and a partnership between Bain Capital Real Estate and 11North Partners among the other real estate investors in the segment.

Grocery anchors are the reason the format keeps drawing institutional capital — the source frames the perceived safety of the segment as what has made it a popular commodity among investors — and Slate's rent roll leans on Kroger and Walmart hard, with those two tenants occupying almost a fifth of the portfolio. What the announcement does not address is lease expirations, rollover or rent levels, the variables that decide whether a concentrated anchor rent roll behaves like a bond or like a bet. It is equally silent on the debt, on how Brixmor and Everview will split the equity, and on what becomes of the external management contract once the units come off the exchange.

Against the roughly $1 billion market value Slate carried when the review was announced in May, a 13 percent premium to the pre-review unit price is a modest number, and the benchmark that may matter more at the vote is the 20 percent gap to Wednesday's close. The absence of a competing bid is also worth noting for what it does not prove: the manager's private affiliates were an interested party from the start, yet the only price the market can judge is the one Brixmor and Everview agreed to pay.

Shareholders vote next, closing is expected in the first quarter, and the documents that accompany that vote are where the debt, the JV split, and whatever the manager's affiliates originally offered would have to show up.