NEW YORK CITY — American Realty Capital Properties Inc. (NASDAQ: ARCP) has entered into a $1.5 billion sale-leaseback for more than 500 Red Lobster restaurant properties. This deal will be completed in conjunction with Golden Gate Capital’s (GGC) acquisition of Red Lobster from Darden Restaurants Inc. (NYSE: DRI).
About 93.5 percent of the portfolio’s leases will be structured with a 25-year initial term. Another 6.5 percent will have a weighted average 18.7-year initial term. The portfolio’s master leases will include 2 percent annual contractual rent escalations.
“With strong financial metrics, built-in 2 percent annual rent growth and long-term lease commitments, this acquisition affords shareholders value and supports our future earnings growth,” says David Kay, ARCP’s president. “When consummated, the Red Lobster transaction will allow us to achieve the high end of our acquisition guidance, which we set at $3 billion for 2014.”
The deal represents a GAAP cap rate of 9.9 percent and a cash cap rate of 7.9 percent.
”We previously promised acquisitions at cap rates north of 8 percent and have done so this year in small, self-originated transactions,” explains Kay. “Now, we have duplicated that effort on a large scale.”
This is ARCP’s fourth transaction with GGC. ARCP is a publicly traded, self-managed Maryland corporation that focuses on single-tenant, freestanding commercial properties subject to net leases with high-credit, quality tenants. The company’s stock price closed Thursday at $13.22 per share, down from $17.68 per share a year ago.
GGC is a privately held investment firm based in San Francisco. It has more than $12 billion in committed capital. GGC operates as a private holding company that recapitalizes, restructures and rebuilds meaningful businesses with its management partners.
It focuses on software, semiconductors and IT hardware, retail and restaurants, industrials, IT and business services and the financial services industries. GGC has previously acquired retail and restaurant brands like California Pizza Kitchen, Payless ShoeSource and Eddie Bauer.
Red Lobster is a casual dining seafood restaurant company with nearly 700 restaurants in the United States and Canada. It currently employs about 63,000 workers. Red Lobster is also the largest overnight shipper of fresh fish in the restaurant industry.
The restaurant chain was a subsidiary of Darden Restaurants. Based in Orlando, Fla., Darden’s restaurant portfolio also contains Olive Garden, LongHorn Steakhouse, Bahama Breeze, Seasons 52, The Capital Grille, Eddie V's and Yard House. The company’s stock price closed Thursday at $50.69 per share, down from $53.91 per share a year ago.
— Nellie Day