Dining establishments operated by Darden Restaurants are a familiar sight in California, and the Orlando-based company has built a valuable real estate portfolio including its Olive Garden, Longhorn Steakhouse and Bahama Breeze locations. The company announced on June 23 that it hopes to pay off about $1 billion in debt by transferring 430 restaurants to a real estate investment trust. Most of these restaurants will then be leased back.
The Darden CEO said that the plan was adopted after a strategic review of the company's commercial real estate holdings. Darden owns and operates more than 1,500 restaurants. A further 75 properties were listed for individual sale leasebacks by the company. The Darden CEO also said that once established, the REIT would grow by acquiring additional unrelated properties.
Forming a REIT is the latest step in a turnaround plan Darden implemented at the urging of investor Starboard Value. These efforts have borne fruit as shares have risen by 54 percent in the past year and quarterly earnings and profits continue to exceed expectations. Paying down its debt will help Darden to maintain its investment grade credit rating, and REITs have been used by cash-strapped retailers before. Sears announced plans to raise $2.5 billion by forming a REIT on April 1.
Commercial real estate may not be the safest of investments, but the rewards can be high. However, the legal disputes arising from these transactions can be complex. An experienced real estate attorney may conduct a review of documents such as titles and deeds to identify lien issues or eminent domain concerns, and legal counsel could also advocate on behalf of property owners involved in lease or construction disputes. Purchasing and developing commercial real estate can also present legal challenges, and an attorney could provide assistance when disputes develop over zoning issues or with lenders.
Source: Forbes, "Olive Garden Parent Spinning Off Real Estate To Pay Down $1 Billion In Debt", Lauren Gensler, June 23, 2015