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Big Catch: ARCP Lands $1.5 Billion Red Lobster Property Sale

If Darden Deal Closes, Schorsch-Led Net Lease REIT Will Hit 2014 Investment Goal
May 16, 2014
Nicholas Schorsch’s American Realty Capital Properties, Inc. (NASDAQ: ARCP) has hauled in more than 500 Red Lobster restaurant properties in a massive $1.5 sale-leaseback transaction with Darden Restaurants, Inc.

The transaction is expected to close in conjunction with the acquisition by private-equity firm Golden Gate Capital (GGC) of Red Lobster and certain other related assets and assumed liabilities from Darden (NYSE: DRI) for $2.1 billion is cash. That deal is expected to close by the end of August.

Under the agreement, more than 93% of the $1.5 billion portfolio’s leases will be structured with a 25-year initial term, with the remainder having a weighted average of a 18.7-year initial term, ARCP said. The master leases will also include built-in 2% annual rent escalations.

"Through executing this transaction, ARCP will achieve its 2014 $3 billion acquisition target well ahead of schedule," the company said in a release.

Schorsch, who oversees an independent broker-dealer platform and more than a dozen REITs, including the $10 billion ARCP specializing in net leased, single-tenant properties, said the deal "further demonstrates our team’s ability to execute on our investment strategy."

"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,” Schorch said.

ARCP President David S. Kay noted that the transaction will enable the company to achieve its $3 billion acquisition goal for 2014 well ahead of schedule.

Darden expects to receive $1.6 billion in net cash proceeds from the sale, of which $1 billion will be used to retire outstanding debt.

It's the fourth deal between ARCP and San Francisco-based Golden Gate Capital, which has $12 billion of assets under management and remains one of the most active investors in retail and casual dining restaurants.

GGC has acquired leading brands such as California Pizza Kitchen, Payless ShoeSource, Eddie Bauer, Express, Zales, J.Jill and Pacific Sunwear. The company owned and then sold Romano's Macaroni Grill to Ignite Restaurant Group.

With the sale, Darden defies investor activists, including Starboard Value LP and Barington Capital Group LP, who demanded a special meeting before any decision was made to sell the Red Lobster business.

“The announced sale woefully undervalues Red Lobster and its real estate assets," said Jeffrey Smith, Starboard’s CEO and chief investment officer, in a statement e-mailed to CoStar. "It is truly unbelievable that the current board has the audacity to negotiate a transaction that does not require shareholder approval when a significant majority of Darden’s shareholders have formally demanded a special meeting on this very topic."

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