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Darden Restaurants Takes The Easy Road

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.