Slate Asset Management has agreed to buy the commercial real estate business of New York-based Annaly Capital Management Inc. in a $2.3 billion deal, including a $390 million portfolio of grocery-anchored properties that will be acquired by Slate Grocery REIT.
Slate, a global alternative investment firm with offices in Toronto and Chicago, will acquire a portfolio of performing real estate loans, debt securities and real estate equity positions from Annaly through the transaction, which is expected to close by the third quarter. Certain employees from Annaly’s commercial real estate group will also join Slate once the deal is complete, including Timothy Gallagher, head of commercial real estate, and Michael Quinn, head of commercial investments.
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Through the deal, Slate Grocery REIT will pick up a 25-property, 3.1 million-square-foot grocery-anchored portfolio, boosting the REIT’s overall holdings to 13 million square feet and $1.7 billion of real estate assets. New York and Dallas account for 46 percent of the Annaly portfolio’s income, while the vast majority of the portfolio is concentrated in top-50 metropolitan areas in the U.S.
The portfolio is anchored by large grocers including Tops and Market 32, Tom Thumb, Kroger, Stop & Shop, Acme Markets and Walmart. Essential tenants represent 74 percent of the portfolio’s income, including 39 percent from grocers, according to a statement by the REIT. Ninety-five percent of the grocers offer e-commerce fulfillment.
Valued at $390 million, the portfolio is being acquired for $90 million in equity and the assumption of about $300 million of existing property-level mortgage debt. The transaction represents a 7.8 percent capitalization rate or $127 per square foot.
David Dunn, CEO of Slate Grocery REIT, noted in the statement that the off-market deal would generate immediate accretion for the trust’s unitholders, while increasing the REIT’s exposure to America’s largest metropolitan markets.
Annaly, a capital manager that invests in and finances both residential and commercial assets, has $14 billion in permanent capital and $102 billion in total assets, according to the firm’s website. The company’s commercial real estate group provides financing to property owners across the U.S., with $800 million in capital and $2.3 billion in net assets as of year-end 2020.
Retail accounts for the largest share of the group’s portfolio at 31 percent, followed by office at 29 percent and multifamily at 14 percent. Annaly is also active in financing or owning health-care, hotel, industrial and other property types.
The company’s office portfolio ranges from LEED-certified skyscrapers to office parks, including Rancho Vista Corporate Center, a 67.5-acre office and R&D campus in Rancho Bernardo, Calif. The retail portfolio focuses on grocery-anchored retail, power centers and shopping malls, such as Phillips Place, a 133,000-square-foot lifestyle center in Charlotte, N.C.
BMO Capital Markets is acting as financial advisor to Slate in the newly announced transaction, while Goodwin Procter LLP and McCarthy Tétrault LLP serve as legal advisors. Evercore serves as financial advisor and Ropes & Gray LLP as legal advisor to Annaly.