Nicholas Schorsch’s American Realty Capital Properties has announced that it closed a $1.5 billion sale leaseback deal with the Red Lobster restaurant chain for 500 of its locations. The transaction has a cash cap rate of 7.9% and a GAAP cap rate of 9.9%
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The deal was made with Red Lobster’s new owners, Jake Mizrahi and Josh Cohen’s San Francisco based Golden Gate Capital investment firm.
The fee-simple assets have a weighted average lease term of approximately 25 years and represent approximately 95% of the overall portfolio transaction value. The overall weighted average lease term of the portfolio is in excess of 24 years. The master leases include 2% annual compounded contractual rent escalations, providing built-in income growth.
David S. Kay, President of ARCP, said in a statement, “We are extremely pleased to be acquiring these premium Red Lobster properties, located in key retail markets, with strong operating metrics and real estate fundamentals. Our team structured the transaction with multiple homogeneous long-term master lease pools which are cross defaulted and contain restrictions on leverage and assignability. The leases are structured to allow GGC to execute its operational plan while providing ARCP with protection and flexibility. With the built-in annual compounded rent growth, this transaction provides value to our shareholders and supports long-term earnings growth.”
Josh Cohen, Managing Director at GGC, added, “We are pleased to be partnering with ARCP, one of the country’s leading corporate landlords, on our fourth transaction together. We look forward to working with ARCP and the talented Red Lobster management team to support the long-term success of Red Lobster.”
The deal comes at a time when ACRP announced a total of $0.24 earnings per share for the second quarter of 2014. This was 1 Cent per share above the predictions given by analysts. Its revenue for the quarter was $382 million, more than $70 million more than the predicted $311.9 million.
The company’s current cap is $10.109 billion and its stock’s 200 day moving average of $13.32. Some analysts have given the firm a buy rating predicting that its stock will rise to as much as $15.20 per share, up $2 from its current $13.2.
ARCP is a self-managed publicly traded Maryland corporation listed on The NASDAQ Global Select Market, focused on acquiring and owning single tenant freestanding commercial properties subject to net leases with high credit quality tenants.