NEW ALBANY, OH—MGM Growth Properties' commencement of trading on the New York Stock Exchange Wednesday illustrates one way of monetizing real estate that previously might have been spun off in a tax-free REIT conversion: contribute properties to a newly formed subsidiary. Another alternative was illustrated earlier this week when Bob Evans Farms Inc. closed on its deals with National Retail Properties Inc. and Mesirow Realty Sale-Leaseback Inc: SLBs.
The restaurant chain and food manufacturer has sold a total of 143 Bob Evans restaurant locations to NNN and Mesirow, with the REIT taking 117 properties for $160.8 million and Mesirow paying $36.4 million for the remainder. BOBE first announced the deals just before Christmas 2015.
A few weeks earlier, its BEF Foods Inc. subsidiary had completed SLBs of manufacturing facilities in Lima, OH and Sulphur Springs, TX to Broadstone Net Lease Inc. In common with the restaurants, the manufacturing facilities are being leased back with initial terms of 20 years along with renewal options. A report earlier this month from NNNet Advisors noted that the leases had a starting cap rate in the range of 7.7%.
Last June, BOBE announced that it was exploring whether to convert some of its Bob Evans portfolio into a REIT or pursue an SLB on the properties. CFO Mark Hood said at the time that although the transaction's ultimate size would depend on factors including market values for restaurant real estate and the performance of the company's business segments, it was expected to range “from approximately 30% to 60% currently owned restaurant real estate.”
Although BOBE and MGM Resorts International, the casino resort giant from which MGP arose, ultimately chose different paths with respect to a REIT option, both acted in response to pressure from activist investors. Land and Buildings Investment Management's Jonathan Litt made it known that he wanted MGM Resorts to create a REIT spin-off similar to what Penn National Gaming had done with Gaming & Leisure Properties Inc.
At BOBE, the heat came from New York City-based Sandell Asset Management Corp. The Wall Street Journal reported this past September that Sandell wanted BOBE to spin off its packaged foods division and sell its real estate, and had also secured four of the 12 seats on BOBE's board in a proxy battle.
According to NNNet Advisors' first-quarter report, the bulk acquisition discount accruing to the buyers of the 143 Bob Evans locations “will put both NNN and Mesirow in a position to realize long-term above-market returns. We would not be surprised to see some of these individual properties come onto the market after this transaction closes. There has never been a better time to receive top dollar on individual restaurant property offerings.”
NNNet Advisors notes that restaurant cap rates experienced a moderate decrease in Q1 over the prior quarter. “While they failed to reach their all time lows of Q3 '14, this sector still remains highly sought after by individual investors,” the report states. As for BOBE, a spin-off of BEF Foods, as well as an SLB on the company's New Albany, OH headquarters, may still be in the offing.
NEW ALBANY, OH—MGM Growth Properties' commencement of trading on the
The restaurant chain and food manufacturer has sold a total of 143 Bob Evans restaurant locations to NNN and Mesirow, with the REIT taking 117 properties for $160.8 million and Mesirow paying $36.4 million for the remainder. BOBE first announced the deals just before Christmas 2015.
A few weeks earlier, its BEF Foods Inc. subsidiary had completed SLBs of manufacturing facilities in Lima, OH and Sulphur Springs, TX to Broadstone Net Lease Inc. In common with the restaurants, the manufacturing facilities are being leased back with initial terms of 20 years along with renewal options. A report earlier this month from NNNet Advisors noted that the leases had a starting cap rate in the range of 7.7%.
Last June, BOBE announced that it was exploring whether to convert some of its Bob Evans portfolio into a REIT or pursue an SLB on the properties. CFO Mark Hood said at the time that although the transaction's ultimate size would depend on factors including market values for restaurant real estate and the performance of the company's business segments, it was expected to range “from approximately 30% to 60% currently owned restaurant real estate.”
Although BOBE and
At BOBE, the heat came from
According to NNNet Advisors' first-quarter report, the bulk acquisition discount accruing to the buyers of the 143 Bob Evans locations “will put both NNN and Mesirow in a position to realize long-term above-market returns. We would not be surprised to see some of these individual properties come onto the market after this transaction closes. There has never been a better time to receive top dollar on individual restaurant property offerings.”
NNNet Advisors notes that restaurant cap rates experienced a moderate decrease in Q1 over the prior quarter. “While they failed to reach their all time lows of Q3 '14, this sector still remains highly sought after by individual investors,” the report states. As for BOBE, a spin-off of BEF Foods, as well as an SLB on the company's New Albany, OH headquarters, may still be in the offing.
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