According to Robert Stetson, CEO of USRP, the merger grew from several talks between himself and Curtis McWilliams, president and CEO of CNLRP, addressing a void in the restaurant industry. Both sides held a joint conference call yesterday to discuss the issue. "We studied the needs of the major chains and looked at their balance sheets and realized there were some big deals out there for the player with the right platform and all the capabilities you need to execute. When this transaction is completed that's us," Stetson said.

Under the terms of the transaction, CNLRP will merge with and into USRP; concurrent with that, USRP agreed to acquire by merger 18 CNL Income Funds. These income funds bring about 500 triple net leased restaurant properties. Total consideration for the income funds assuming all of them are purchased is approximately $540 million, of which 80% of the consideration will be cash, Stetson explained.

Once the deal is completed, the newly formed company will operate as CNL Restaurant Properties with its headquarters here. "We will be the largest restaurant REIT and the numbers tell the story," he added. "We'll wholly own 1,900 fee properties and have financial interest, including mortgages, in about 3,000 properties in 49 states. This is a high-quality portfolio with great brands such as Applebees, Arby's, Burger King, Wendys."

The combined platform will offer clients access to a wide variety of capital resources, including sale/leaseback financing, lease and loan servicing, M&A advisory services, investment and merchant banking, restaurant real estate development and 1031 exchange programs, Stetson said. "These are all skills residing in one or both companies now but they will be much greater and deeper in the combined company. With our greater scale, depth and financing capability we intend to go to the large chains and talk to them about the millions of dollars of dirt sitting on their balance sheets. Virtually now deal will be too large for us."

McWilliams echoed Stetson's outlook of the merger. "We will be the one place to go in restaurant real estate," he said. "We'll have a complete platform to drive growth in an industry that is virtually on every street corner of America. And since in 49 states we'll cover most of those corners.

"The restaurant industry has a pretty good wind at its back right now as more and more people go out to eat. Surveys suggest that over 50% of every food dollar is spent in a restaurant and the industry is forecasting about 5% annual growth through 2006," McWilliams added.

Stetson added that both sides expect the transaction to be accretive within the first year following the closing, which we are targeting for the first quarter of next year. McWilliams will serve as president and CEO of the new company with Stetson joining the board of directors. The transaction has been unanimously approved by the board of directors of both companies as well as the general partners of the CNL Income Funds. It is still subject to approval by the shareholders of both companies and the limited partners of each of the 18 income funds and to securing adequate financing and customary regulatory approvals.

Instant Insights /

Merger Creates Largest US Restaurant REIT

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