American Realty to Sell Assets for Red Lobster Buyout - Analyst Blog

American Realty Capital Properties, Inc. ARCP has penned a deal with the affiliates of The Blackstone Group L.P. BX to vend a large part of its multi-tenant shopping center portfolio for $1.975 billion in cash. The divestiture is strategized to finance the recently disclosed buyout of the $1.5 billion Red Lobster real estate portfolio.

Notably, this is the same portfolio American Capital was planning to spin-off into a publicly traded REIT, American Realty Capital Centers, Inc. The company anticipates this transaction to close in the coming 30 days.

In fact, late last week, American Realty inked a sale-leaseback deal with a private equity firm, Golden Gate Capital, for the Red Lobster portfolio. The lease term for 500 premium Red Lobster properties involves contractual rent escalations of 2% on an annual basis. Therefore, this portfolio that Golden Gate Capital is in turn acquiring from Darden Restaurants, Inc. DRI, offers notable growth opportunities for American Realty.

With the purchase of the Red Lobster portfolio, American Realty will achieve its acquisition target of $3.0 billion for 2014, much ahead of the end of this year. This retail real estate investment trust (REIT) has further increased its acquisition target to $4.5 billion for full-year 2014.

We view these deals as a strategic fit for American Realty, given that these are in sync with the company's goal of owning net lease properties with high credit quality tenants. The move also paves the way for enhancing shareholders' value going forward.

In addition to the abovementioned deal with Blackstone, American Realty priced a public offering of 120 million common shares at $12 per share and granted underwriters an option of 30 days to buy up to 18 million additional shares. The company intends to use the reaped amount for paying off its outstanding debts and meeting other corporate needs.

American Realty currently holds a Zacks Rank #3 (Hold). A better ranked retail REIT is Regency Centers Corporation REG having a Zacks Rank #2 (Buy).

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