Moody's Eyes U.S. Restaurant's Rating

The B1 preferred stock rating of U.S. Restaurant Properties Inc., a Dallas-based real estate investment trust, has been placed under review for possible downgrade by Moody's Investors Service in the wake of the REIT's announcement of a planned merger.The rating action reflects the fact that the merger with CNL Restaurant Properties Inc. and 18 CNL income funds would be a leveraged transaction, at least initially, and that CNL's capital structure is weaker than U.S. Restaurant's, Moody's said. The transaction would also be "legally and structurally complex," the rating agency said. "Moody's recognizes that the transaction should generate operating synergies through the leveraging of the existing CNL Restaurant Properties management team over a larger operating base and elimination of redundancies in operations," Moody's said. The new REIT, with $2.5 billion in pro forma assets, would operate under the CNL name, own 1,900 properties, and have financial interests in approximately 3,000 properties in 49 states. The combined portfolio would be the largest restaurant REIT in the United States, the rating agency said. Moody's can be found online at http://www.moodys.com.