Darden has announced plans to set up a real estate investment trust (REIT) splitting off some of its real estate assets. The plan involves a combination of leasebacks and the transfer of some assets into a REIT through a spinoff. The new REIT will become an independent, publicly traded company.

The restaurant operator has been targeted by Starboard Value for some time, and the activist hedge fund recently won some seats on the board of directors.

Darden-model Darden

Details on Darden’s plan

Darden CEO Gene Lee said in a statement that they decided to conduct the transaction after reviewing strategic solutions to create “a more optimized capital structure” and “long-term shareholder value. He also said they expect the plan to “create minimal distraction” for the restaurant operator’s employees and have no impact on diners.

The company plans to transfer about 430 of the restaurant properties it owns into the REIT, and almost all of those initial assets will then be leased back to Darden. Management expects the leases to have “attractive rent coverage ratios, fixed rent escalations and multiple renewal options at Darden’s discretion.” They also say the REIT could expand by acquiring real estate properties owned by other businesses.

Darden markets some properties

The restaurant operator also said it has been marketing some of its properties for individual sale leasebacks. So far Darden has listed 75 of its properties and sold or placed under contract more than 30 of them.

The company said it expects about a 5.5% average cash capitalization rate for all of the properties it has listed and expects to close the majority of the transactions by the end of August. Darden is also trying to secure a long-term sale and leaseback contract for its Orlando Restaurant Support Center.

Darden enacts temporary poison pill

Darden intends to use about $1 billion of the proceeds from the REIT spinoff to retire some of its debt over time and maintain its current investment grade credit rating. The restaurant operator expects to complete the REIT spinoff by the end of the current calendar year.

Management expects to pay dividends in a combination of about 20% cash and 80% stock in the REIT. The REIT will hand out at least 90% of its annual taxable income as dividends. The spinoff is expected to be tax-free for Darden shareholders except for “cash paid in lieu of fractional shares.”

Darden has apparently learned from its recent battle with Starboard, as it has enacted a temporary shareholder rights plan, commonly known as a poison pill. The plan is designed to keep investors from buying more than 9.8% of Darden’s shares in the time leading up to the REIT spinoff.

Darden shares climbed as much as 4.79% to $72.70 per share in premarket trading after the deal was announced this morning.