American Realty Capital Trust IV Inc. agreed to buy 986 retail properties from General Electric Co. (GE:US)’s finance arm for $1.45 billion as it spends capital raised from shareholders.
The buildings have an average remaining lease duration of 10.6 years and tenants include national food chains Pizza Hut and Burger King, the non-traded real estate investment trust said in a statement today. The REIT plans to increase the value of its portfolio to $2.3 billion within two months, according to the statement.
American Realty Capital Trust IV will finance today’s deal using $1.7 billion of equity from shareholders and part of the $750 million of debt it has arranged. The REIT will own 1,326 properties following the completion of its plan to use the capital raised.
The properties are being bought at a capitalization rate “north of 7 percent,” said Nicholas Schorsch, chairman and chief executive officer of American Realty Capital Trust IV. “This acquisition exemplifies our focus on building one of the best-in-class, lowest leveraged, long-term, retail focused net lease portfolios in the REIT industry’s history.”
Cap rates, a measure of investment yield, are net operating income divided by purchase price. The company said its annualized rental income will more than double to about $170 million from $71 million after the deal is completed.
American Realty Capital Trust IV is one of the nontraded REITs sponsored by New York-based American Realty Capital, of which Schorsch is chairman and CEO. American Realty Capital is also the external manager of American Realty Capital Properties Inc. (ARCP:US), a publicly traded owner of U.S. single-tenant buildings, which announced two acquisitions last week.
American Realty Capital last year raised $2.6 billion, the most in the nontraded REIT industry, according to Blue Vault Partners LLC, a Cumming, Georgia-based company that tracks the industry. Companies that manage REITs are generally paid fees based in part on properties they oversee.
The assets purchased from GE’s GE Capital unit consist of net-lease properties, in which the tenant is responsible for the costs relating to the property as well as the rent. The portfolio was formerly part of Trustreet Properties Inc., which was bought by Fairfield, Connecticut-based GE in 2007.
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