NEW YORK CITY—In a three-pronged outcome from a single large-scale transaction, American Realty Capital Properties Inc. has closed on its previously announced $1.5-billion sale-leaseback of approximately 500 Red Lobster locations; Darden Restaurants has closed on its sale of the seafood chain to Golden Gate Capital; and Darden’s chairman and CEO announced that he would step down at year’s end. All three announcements were made late Monday afternoon.
For ARCP, the SLB “provides value to our shareholders and supports long-term earnings growth” thanks to built-in annual compounded rent gains, says David S. Kay, the net lease REIT‘s president. “We are pleased with the opportunity to partner with GGC, who brings exceptional experience in the full-service restaurant industry, as well as the seasoned Red Lobstermanagement team, and have great confidence in the bright future for this iconic restaurant brand.” It’s the fourth partnership between ARCP and San Francisco-based GGC.
When the deal was first announced in May, it came at a GAAP cap rate of 9.9%. “We previously promised acquisitions at cap rates north of 8% and have done so this year in small self-originated transactions; now, we have duplicated that effort on a large scale,” Kay said in May.
Approximately 93.5% of the portfolio’s leases will be structured with a 25-year initial term, with the remaining 6.5%, constituting leasehold assets, having a weighted average 18.7-year initial term. The master leases include 2% annual compounded contractual rent escalations.
For Orlando, FL-based Darden, about $1 billion of GGC’s $2.1-billion purchase price of the Red Lobster chain will be used to retire outstanding debt. The remaining net proceeds of approximately $500 million to $600 million are expected to go toward a new share repurchase program of up to $700 million in fiscal 2015.
In the meantime, Clarence Otis, who has served as Darden’s chairman and CEO since 2005, will relinquish both roles by the end of 2014. Charles A. Ledsinger Jr., the company’s current independent lead director, has been named independent non-executive chairman of the board, effective immediately.
Otis will stay on as CEO until a successor is named or Dec. 31, whichever occurs first. The Wall Street Journal reported that Darden has been under pressure from activist investors for the past year, based on the investors’ belief that the company should be split into three components. Darden’s other brands include Olive Garden, Longhorn Steakhouse and Capital Grille.