Schorsch buys Red Lobster properties in $1.5 billion deal
For the seafood lover in ... Nick Schorsch
May 16, 2014 @ 11:11 am (Updated 2:41 pm) EST
American Realty Capital Properties Inc. announced Friday it bought the land on which more than 500 Red Lobster restaurants stand in a $1.5 billion sale-leaseback deal.
The company, which is a listed real estate investment trust, bought the property in conjunction with Golden Gate Capital's acquisition of the Red Lobster seafood restaurants from Darden Restaurants Inc.
The purchase price reflects a cash cap rate of 7.9%. About 93.5% of the portfolio's leases will be structured with a 25-year initial term, while the remaining 6.5% will have an average 18.7-year initial term. The master leases will come with a guaranteed annual 2% rent increase.
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The acquisition stokes the momentum for American Realty Capital Properties, which operates under the ticker symbol ARCP.
Nicholas S. Schorsch, chief executive of ARCP, said that his company is well positioned to take advantage of the trend in which companies are unloading real estate so that they can use the money to make greater investments in their operations.
“As corporate America continues to sell its owned real estate, our team has shown its strength in seizing opportunities, evidenced by this deal, and due largely to our inherent advantage as the largest net lease REIT,” Mr. Schorsch said in a statement.
When corporations want to get rid of property, they're likely to turn to ARCP because of its size, said Peter Kalmus, president of Concierge Capital.
“ARCP and Nick Schorsch are the juggernaut in the triple-net-lease industry, which gives it the competitive advantage,” Mr. Kalmus said. “ARCP will be one of a very short list [of firms] that will get the first opportunity to bid on these large portfolios.”
The company said that the Red Lobster acquisition will allow it to achieve its $3 billion acquisition target for 2014 ahead of schedule.
“This transaction demonstrates ARCP's ability — either through origination or acquisition of large portfolios — to deploy its capital fast enough to generate organic income to support its dividend distributions,” Mr. Kalmus said.
Although ARCP is doing well, he cautioned that the threat of increased interest rates and correlated expansion in cap rates will put pressure on the REIT industry.
“I'm not sure the future will be as robust for triple-net acquisitions as it has been the last few years,” Mr. Kalmus said.
Mark Schoeff Jr. covers legislation and regulations affecting investment advisers and brokers and wants to hear from you about how Washington policymakers are influencing your business.
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