Darden Restaurant Inc. looks forward to separating some of its real estate properties to spice up profits, in the same way as Wendys Co (NASDAQ:WEN) did in the past. The announcement was made on Tuesday stating that Darden would transfer 430 out of 1500 restaurants to a publically traded REIT and lease them back.
Insights On The Matter:
The announcement made by Orlando-based Restaurant Chain is the boldest step taken by any of the company to enhancing returns out of real estate properties by simply removing them from the balance sheet. McDonald’s and Wendys Co. are among others that have been following this model to reduce the financial risk and expand at the same time.
With the help of the franchise model, companies cannot only enhance their revenues, but also remain burden free and focus on the growth of the company in an organized way. The retooling step has come at a time when Darden Restaurant, Inc. and other retailers are facing higher costs in the form of health care, wages and food.
How Transferring of Assets Can Work for Darden:
By transferring its real estate assets to the REIT, Darden Restaurant will not only get an upfront amount, but also create a model to generate minimum fixed revenue in the future as well. It will help the paying off its debt and generate extra income that can be further invested for growth objectives.
Among many others, Bob Evans Farms Inc., operating over 600 restaurants, stated that it was planning to sell and lease out 30% to 60% of its restaurants. The company is also considering an option to transfer them to any real estate investment trust. Other major food chains and restaurants are likely to follow this way in the coming months to generate extra funding and get out of any financial burden without any hassle.