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Schorsch Strikes Again: ARCP to Buy Red Lobster Properites

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Nicholas Schorsch just used his crusher claw to close another big transaction.

American Realty Capital Properties (ARCP) said Friday that it has agreed to a $1.5 billion sale-leaseback transaction for over 500 Red Lobster restaurant properties. The deal is part of Golden Gate Capital’s acquisition of Red Lobster from Darden Restaurants.

“This transaction further demonstrates our team’s ability to execute on our investment strategy,” said Schorsch, ARCP’s CEO and executive chairman, in a press release. “As corporate America continues to sell its owned real estate, our team has shown its strength in seizing these opportunities, evidenced by this deal, and due largely to our inherent advantage as the largest net-lease REIT.”

The news comes just three days after another Schorsch-led business, RCS Capital Corp. (RCAP) announced a restructuring of the executive lineup in charge of its 9,000 independent reps. These shifts included the departure of Valerie Brown as the head of Cetera Financial and the ascension of Larry Roth to the post of CEO for RCAP’s independent broker-dealer operations.

(The IBD business incudes First Allied Securities and the four Cetera Financial Group broker-dealers, which have already been bought, in addition to Investors Capital, Summit Brokerage Services and J.P. Turner & Co., which are in the process of being acquired by RCAP.)

According to ARCP, the purchase price of the Red Lobster properties involves a GAAP capitalization rate of 9.9% and a cash cap rate of 7.9%. Some 93.5% of the $1.5 billion portfolio’s leases will be structured with a 25-year initial term; the remainder (constituting leasehold assets) will have a weighted average 18.7-year initial term.

The portfolio master leases include a 2% annual contractual rent escalation, “providing built-in income growth,” says ARCP. The real-estate group adds that this deal should help it reach $3 billion-acquisition target for 2014 “well-ahead of schedule.”

Red Lobster has been in business for roughly 50 years, and ARCP expects the chain “to successfully continue in the future.” The leases permit Red Lobster to stay in the locations beyond the initial 25-year term. 

In a corporate sale-leaseback transaction, the landlord enters into a partnership with the occupant, ARCP says, and provided the tenant with the opportunity to monetize their non-earnings assets (i.e. real estate) for deployment into its business. 

“ARCP has diligently underwritten the assets at or below market rates, such that should Red Lobster vacate in the future, there would be considerable upsize opportunity in releasing these well-located parcels at future market rents,” it said in a statement.

ARCP is a self-managed, publicly traded Maryland corporation that buys and owns single-tenant freestanding commercial properties subject to net leases with high-credit-quality tenants. In October, the corporation announced its purchase of Cole Real Estate Investments in a deal worth $11.2 billion.

Check out Nicholas Schorsch, the Mission of a Man: The IA 25 Profile.


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