Darden Restaurants finally caved. At the start of the month, we noted that the real estate was Darden’s other catalyst. The key being that Darden owned a lot of its real estate. Starboard Value, the activist here that overthrew the board and put together a 300-page presentation on salting boiling water and giving away breadsticks, has estimated them to be worth $2.5 billion to $3 billion, and that spinning off that real estate would create $1 billion in shareholder value.
As of today, it plans to spin a large part of its real estate (430 stores) into a REIT and for 75 properties it’ll do a sale-leaseback. Both expected to be done by year-end.
Up 8% over the last month, the question becomes; has the easy money been made? If there is $1 billion in money to be made from the deal, then that’s still close to $8 a share in value to be unlocked. The funds will go toward paying off $1 billion in debt, however. Is a less levered company worth a 10% jump following the REIT and sale-leaseback catalyst.
It was only a matter of time before Starboard, which owns the board, would get the real estate spun off to take advantage of the strong FFO multiples we’re seeing on real estate.
