Darden to transfer property into REIT
Darden Restaurants will split off about 430 properties and transfer them to a real estate investment trust, following through on a promise made by its new bosses.
The REIT, which will be publicly traded in the US, will lease back the properties to Darden. Darden, the owner of Olive Garden and other casual-dining chains, also is selling about 75 individual restaurants under separate deals. More than 30 of those properties have already been sold or are under contract, the company said.
Starboard Value, the hedge fund run by chief executive Jeffrey Smith, won a proxy contest with Darden last year, leading to the replacement of the entire board. The company also got a new CEO last October, when Gene Lee took the helm. A key tenet of the activist investor's campaign was the idea of better exploiting the company's property. Proceeds from the real estate deal should help Darden retire about $1 billion of debt.
"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," Lee said in Tuesday's statement.
REITs have become an increasingly popular option for both retailers and restaurant chains in recent months. Sears Holdings Corp. is creating a REIT that will acquire stores and then lease them back to the department-store chain. That effort is expected to generate $2.6bn in cash - a crucial windfall for a company that has posted 12 straight quarterly losses.
The plan will take "a couple of quarters," said analysts. (Bloomberg)