Darden Restaurants, Inc. (NYSE:DRI) is looking to boost profits by divesting part of its real estate portfolio, a strategy that will be a good example for the industry.
More firms are beginning to adopt this strategy where they operate with minimal assets. On Tuesday, the company announced that it plans to sell roughly 430 restaurants out of the total of about 1,500 restaurants. The transfer will be made to a publicly traded real-estate investment trust. After that, Darden Restaurants will then lease back the sold property.
The restaurant chain is the first of its kind to venture into such a strategy. More firms have learned that stripping assets from their balance sheets can cultivate more returns. Other firms that have employed the move include McDonald’s Corporation (NYSE:MCD), General Electric Company (NYSE:GE) and a few others. Darden restaurants, however, received a lot of motivation from activist investor Starboard Value LP to carry out the move.
The asset restructuring strategy might be heavily influenced by the high costs that have ensued healthcare, food and wages. The company which owns LongHorn Steakhouse and Olive Garden received a thorough evaluation of its real estate assets by Moelis & Co and J.P. Morgan Chase & Co. towards the end of 2014. The evaluation was performed to review the options for the company’s real estate portfolio.
The company’s revenue went up by 14% to $1.88 billion Olive Garden represented a 3.4% rise in same-store sales while Longhorn represented an increase of 5.2%. Darden Restaurants, Inc. (NYSE:DRI) expects revenues in the current financial year to range from$3.05 to $3.20 a share. The growing real estate prices have motivated many firms to sell their assets. Favorable tax treatment and low-interest rates have also contributed to a significant deal.
Other firms are resulting to asset divestment so as to raise revenue for major projects such as acquisitions. Hudson’s Bay Co. recently announced that it would sell almost 300 of its stores to raise capital for a partnership with Simon Property Group Inc.