American Realty Capital Properties Inc. (ARCP), the largest U.S. owner of single-tenant real estate, plans to sell most of its multitenant shopping-center buildings to affiliates of Blackstone Group LP (BX) for $1.98 billion in cash.
American Realty expects to complete the deal within 30 days and use the proceeds to fund its purchase of Red Lobster’s real estate portfolio, the company said today in a statement. The New York-based real estate investment trust raised its full-year target for acquisitions to $4.5 billion.
American Realty, led by Chief Executive Officer Nicholas Schorsch, has amassed single-tenant buildings leased to businesses such as drugstores and fast-food restaurants through acquisitions, including the $9.85 billion takeover of Cole Real Estate Investments Inc. in February. Last week, the REIT said it would buy more than 500 Red Lobster seafood restaurants in a $1.5 billion sale-and-leaseback deal.
“This sale will allow us to acquire what in our view are the 500 best Red Lobster stores profitably by selling our multitenant portfolio” at a yield that is more than 1 percent lower than the restaurants’ 7.9 percent initial cash return, David Kay, American Realty’s president, said in the statement.
American Realty shares were down 4.7 percent to $12.29 as of 1:47 p.m. in New York, after earlier falling as much as 5.4 percent. The decline is largely because the company simultaneously said it started an offering of 100 million common shares, said Cedrik Lachance, an analyst with real estate research firm Green Street Advisors Inc. Lachance estimated the new shares may raise as much as $1.4 billion.
“The equity was necessary to finance the flurry of deals since the beginning of the year,” Lachance, whose company is based in Newport Beach, California, said in a telephone interview. “I don’t see it as positive or negative. I just see it as necessary.”
American Realty had previously planned to spin off the properties being sold to New York-based Blackstone into a unit called American Realty Capital Centers. Separating into separate single-tenant and multitenant retail companies would provide stockholders with “more clarity, more efficiency and more opportunity,” Schorsch said in March.
“We now believe the sale of the multitenant portfolio will deliver the best value-creation option to our shareholders and serve to enhance the clarity of our single-tenant, net lease investment strategy,” Schorsch said in today’s statement.
American Realty was wise to switch strategies because Blackstone probably is paying more for the properties than the company would have gotten in the public markets, Lachance said. Investors would have discounted American Realty Capital Centers because plans called for it to be externally managed, a structure that is “unattractive because management is not appropriately aligned with shareholders,” he said.
The $1.98 billion Blackstone agreed to pay is marginally less than the properties’ open-market value, reflecting a “large check-writer’s discount,” he said. That price is still significantly higher than what the spinoff would have raised, according to the analyst.
“All this serves to recapitalize the company, and puts the company in a position to continue to aggressively buy assets,” Lachance said.
Blackstone, the world’s biggest manager of private-equity real estate funds, has retail holdings including a majority stake in Brixmor Property Group Inc. (BRX) The New York-based REIT, which owns grocery-anchored shopping centers, raised $825 million in an October initial public offering.
In December, Blackstone bought a $718 million minority stake in Columbia, South Carolina-based Edens, an owner of more than 100 community-based shopping centers on the East Coast.
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