Realty Income Buys Restaurants for $350M

ESCONDIDO, CA-Realty Income Corp., a REIT that specializes in net lease properties, has agreed to acquire $350 million of restaurants from the merged Buffets Inc. and Ryan's Restaurant Group chains. The locations and the number of restaurants have yet to be decided, but the properties will be in 20 states in the Midwest and the South.

The two restaurant chains agreed on a merger in July in an $876-million deal, and Realty Income will buy the restaurants from the merged entity as sale-leaseback properties. "The exact locations and number of properties to be acquired is the subject of continuing discussion between the parties involved in the transaction," according to Realty Income.

The REIT's acquisition of the restaurants is expected to close in the fourth quarter, subject to customary closing conditions. It will acquire the Buffets and Ryan's restaurants under 20-year, triple-net lease agreements, with the restaurants on average measuring 10,300 sf.

For the most part, Realty Income will be buying locations that have been in business for about 11 years. The company plans to hold more than 80% of the properties in its core portfolio as long-term investments and will place the remaining restaurants in its Crest Net Lease Inc. subsidiary for future sale.

The merger of Buffets and Ryan's will create the nation's largest buffet restaurant chain and one of the five largest companies in the casual and mid-scale dining segment. The combined company will operate approximately 675 restaurants in 42 states under various brand names, including HomeTown Buffet, Old Country Buffet, Fire Mountain and Ryan's Grill, Buffet & Bakery.

Buffets is based in Eagan, MN and operates 337 restaurants in 33 states, primarily in the North and West. Ryan's, based in Greer, SC, operates approximately 340 restaurants in 23 states, primarily in the South and Midwest.