Looking for an expanded platform in the U.S. retail real estate market, H&R Real Estate Investment Trust, a rapidly growing Toronto-based REIT, has acquired a one-third interest in Echo Realty LP, a leading owner of grocery stores in the Great Lakes region.
Since its formation in March 2000, Echo has focused on two primary areas of business: developing and owning a core portfolio of real estate tenanted by Giant Eagle Inc., a leading grocer in the western Pennsylvania and eastern Ohio; and developing and selling shopping centers anchored by other large national retailers throughout the Eastern United States. Echo is the largest landlord for Giant Eagle.
Echo’s portfolio consists of 176 properties totaling 7.4 million square feet and is expected to generate in excess of $84 million in net operating income annually with an average remaining lease term of 12.9 years. Echo’s portfolio is comprised of five property types: 160 retail assets, four office buildings, six industrial properties, four retail development projects and two land parcels.
Giant Eagle is a tenant in 161 of the properties and contributes 79% to Echo’s total annual revenue. Giant Eagle had revenue of $9.9 billion for its fiscal year ended June 2012 and has a mortgage bond rating of NAIC 2. The average annual sales per square foot of the Giant Eagle supermarkets in Echo’s portfolio is in excess of $600 per square foot.
The portfolio value amounts to $1.165 billion at a weighted average cap rate of 7.3%.
The portfolio has first mortgages totaling $410 million with an average remaining term of 10 years at an average annual interest rate of 6.1%.
H&R will acquire limited partnership units in consideration for a total purchase price of $294 million. H&R REIT will have the right to appoint two of the six Echo board members.
The proceeds from the transaction will be used by Echo to further expand its retail portfolio by acquiring additional retail properties in the Eastern U.S.
H&R REIT also has a five-year conditional option to acquire additional units resulting in H&R REIT owning up to 49.9% of Echo at a purchase price no greater than fair market value.
During the second quarter of 2013, H&R REIT acquired 100% of Primaris Retail Real Estate Investment Trust, which consisted of 26 properties valued at $3.1 billion.
H&R REIT is an open-ended real estate investment trust, which owns a North American portfolio of 41 office, 112 industrial and 165 retail properties comprising over 53 million square feet and two development projects, with a fair value of $13 billion.