Another spin-off for Darden
June 23, 2015
by Monica Watrous
Darden Restaurants, Inc. plans to separate a portion of its real estate assets.
ORLANDO, Fla. — Darden Restaurants, Inc. plans to separate a portion of its real estate assets into an independent, publicly traded company. The operator of Olive Garden and LongHorn Steakhouse on June 23 detailed a strategic plan that includes a combination of selected sale leaseback transactions and the transfer of a portion of remaining real estate assets to a new real estate investment trust (REIT) that will be separated by a spin-off, split-off or similar transaction.
Darden’s board of directors reached the decision after considering a number of strategic alternatives following an extensive real estate evaluation process that included asset suitability screening, market rent analysis on a property-by-property basis and prospective portfolio quality and diversification analysis.
|Gene Lee, CEO of Darden
“This strategic real estate plan is the result of a comprehensive review of alternatives to best take advantage of our real estate portfolio," said Gene Lee, CEO of Darden. “While a significant amount of work remains in order to proceed with the REIT transaction, we believe this plan will result in a more optimized capital structure and will create long-term shareholder value. We appreciate the valuation differential between restaurant and real estate companies and are excited to create a new company, which we believe will unlock current value while growing through acquisitions of other properties.
“Importantly, we expect this real estate plan to create minimal distraction for team members in our restaurants and have no impact on guests or the recent improvements we have been making in our day-to-day operations.”
Under the plan, Darden will transfer approximately 430 of its more than 1,500 owned restaurant properties to the REIT, with substantially all of the REIT’s initial assets being leased back to Darden. The potential REIT would be positioned to expand through real estate acquisitions of other businesses, the company said.
Additionally, Darden has been marketing selected properties for individual sale leasebacks. More than 30 of the 75 listed properties to date have been sold or are under contract. The company expects to close most of these transactions by the end of August and is seeking to sell and lease back its Orlando Restaurant Support Center property and buildings under a long-term contract. The company expects to retire approximately $1 billion of debt over time with proceeds from the real estate sales.
Completion of the REIT transaction is subject to satisfaction of various tax conditions, identification and appointment of REIT leadership, negotiation and execution of leases between REIT and Darden, Securities and Exchange Commission filings related to the transaction, and debt financing transactions required to finalize the capitalization of the REIT and Darden.
Darden expects to complete the transaction by the end of the year. The announcement comes a little more than a year after the company sold its Red Lobster restaurant chain to private equity firm Golden Gate Capital for $2.1 billion.