Potential REIT Spin-Off of 430 Dining establishments and Sale of 75 Others Would Cut $1 Billion in Financial obligation
Coming off receiving money earnings of $2.08 billion from the sale of its Red Lobster restaurant business, Darden Restaurants Inc. has actually decided to generate income from more of its restaurant apartments.
The Orlando-based chain of casual eateries authorized a strategic plan to sequel or split-off about one-third of its possessed equipments into a publicly traded REIT.
“This strategic real estate plan is the outcome of a comprehensive review of options to finest make the most of our property profile,” said Darden CEO Gene Lee. “While a considerable amount of work stays in order to proceed with the REIT deal, our company believe this strategy will lead to a more optimized capital structure.
“We value the evaluation differential between restaurant and real estate business and are excited to produce a new company, which we believe will certainly open current value while growing through acquisitions of other equipments,” Lee added.
Under the plan, Darden will certainly transfer roughly 430 of its corporate-owned dining establishments to the REIT, with significantly all the REIT’s preliminary possessions being leased back to Darden.
The leases are expected to have attractive lease coverage ratios, repaired rent escalations and multiple renewal alternatives at Darden’s discretion. The prospective REIT would be able to broaden by getting property from other dining establishment businesses. Darden at first expects to pay the REIT about $120 million a year in lease.
The proposed REIT’s profile will initially consist primarily of Olive Garden restaurants. Overall, Darden possesses roughly 845 Olive Garden real properties.
Future 1031 exchanges are anticipated to diversify the mix of possessions, the business stated.
In addition, the company has been marketing chosen equipments for individual sale lease-backs. To this day, the company has noted 75 apartments, and over 30 of these equipments have been offered or are under contract. The business anticipates an average cash capitalization rate of roughly 5.5 % for all 75 properties, and expects to close the majority of these transactions by the end of August. It expects to publish a net gain of $50 million from the sales.
In addition, the company is looking for to offer and rent back its Orlando Dining establishment Support Center commercial property and structures under a long-term agreement with renewal alternatives.
After getting earnings from the completion of the strategic property strategy, the company anticipates to retire around $1 billion of its debt with time.
The business presently anticipates to finish the REIT transaction by the end of calendar 2015.
JP Morgan and Moelis & & Co. are acting as monetary consultants to the company in the transaction. Skadden, Arps, Slate, Meagher & & Flom LLP is acting as its legal consultant.
Darden Restaurants owns and operates more than 1,500 restaurants that generate $6.8 billion in yearly sales. Its dining establishment brands include Olive Garden, LongHorn Steakhouse, Bahama Breeze, Seasons 52, The Capital Grille, Eddie V’s and Backyard House.What a Distinction a Year Makes
A year earlier, Darden Restaurants finished a previous commercial property testimonial and chosen versus such a technique, stating that separating its property into a REIT would “introduce considerable functional complexity, remove from Darden an important strategic asset, and likely not create meaningful shareholder value,” the business stated at that time.
Under pressure from financiers, the company reluctantly accepted separate out its Red Lobster restaurant business, realizing considerable gains in the process. Through February 2015, the business netted an $826 million gain from the sale of the Red Lobster realty.
Not surprisingly, having the ability to retire $1 billion in debt and save $45 million a year from interest payments was considered too attractive to ignore and eventually got rid of Darden senior managment’s resistance to spinning off its property.
Last week, Bob Evans Farms Inc. became the current in a long line of firms seeking to quell investors by improving its stock value by spinning off part of its actual estate-related operations into a REIT.
The supreme size of such a transaction is anticipated to vary from 30 % to 60 % of its current owned restaurant real estate. At the end of monetary 2014, Bob Evans owned 480 of its Bob Evans Restaurants and rented another 81 locations.