Darden Q4 Profit Climbs, To Pursue Real Estate Assets Spin-off; Stock Surges

(RTTNews) - Darden Restaurants, Inc. (DRI) Tuesday said its fourth-quarter profit increased significantly from the previous year, amid higher revenues. Separately, the company said its Board of Directors approved a strategic real estate plan to pursue a separation of a portion of the company's real estate assets. The stock climbed around 7 percent in pre-market activity.

Net earnings climbed to $105.3 million from last year's $86.5 million. Earnings per share advanced to $0.82 from $0.65. The results included an additional week, from the 53 weeks for the just concluded year.

Earnings per share from continuing operations climbed to $0.92 from $0.36. The latest results included $0.07 of impairment losses, $0.06 related to severance and other costs associated with our support reduction efforts and $0.03 of other strategic action costs associated with the evaluation of our real estate portfolio.

Adjusted earnings per share from continuing operations was $1.08, while it totaled $0.54 in the prior year.

On average, 23 analysts polled by Thomson Reuters expected earnings of $0.93 per share for the quarter. Analysts' estimates typically exclude special items.

Sales increased to $1.878 billion from $1.650 billion in the prior year. Analysts expected revenues of $1.87 billion. Excluding the 53rd week, sales increased 6.3 percent from last year.

Excluding the impact of the 53rd week, same-restaurant sales increased 3.8 percent for the quarter.

For 2016, the company expects adjusted earnings per share growth of 20 to 25 percent, on a 52-week basis, resulting in adjusted earnings per share of $3.05 to $3.20. Analysts currently expect the company to earn $2.88 per share for fiscal 2016.

Same-restaurant sales growth, on a 52-week basis, is estimated to be 2 to 2.5 percent.

The guidance does not include the impact of any fiscal 2016 real estate transactions and related cash and capital structure activities.

Separately, the company said its Board of Directors approved a strategic real estate plan to pursue a separation of a portion of Darden's real estate assets.

The separation would be achieved through a combination of selected sale leaseback transactions and the transfer of a portion of its remaining real estate assets to a new real estate investment trust or REIT.

This REIT will be separated by a spin-off, split-off or similar transaction, leading to the REIT becoming an independent, publicly-traded company.

Darden will transfer approximately 430 of its owned restaurant properties to the REIT, with substantially all of the REIT's initial assets being leased back to Darden. The leases are expected to have attractive rent coverage ratios, fixed rent escalations and multiple renewal options at the company's discretion.

The potential REIT will be well positioned to expand through real estate acquisitions of other businesses.

The company has also been marketing selected properties for individual sale leasebacks. To date, the company has listed 75 properties, and over 30 of these properties have been sold or are under contract.

Darden expects an average cash capitalization rate of 5.5 percent for all 75 properties, and expects to close most of these transactions by the end of August.

In addition, the company is seeking to sell and lease back its Orlando Restaurant Support Center property and buildings under a long-term contract with multiple renewal options at the company's discretion.

After receiving proceeds from the completion of the strategic real estate plan, the company expects to retire $1 billion of its debt over time and maintain its investment grade credit profile.

The company currently expects to complete the REIT Transaction by the end of 2015. Following the election of REIT status, the REIT will be required to distribute the earnings and profits allocated to it from the company and earnings and profits generated in the taxable year ending December 31, 2015.

The dividend will be paid in a combination of cash and REIT stock, which Darden expects will consist of 20 percent cash and 80 percent REIT stock. Going forward, Darden expects the REIT to distribute at least 90 percent of its annual taxable income as dividends.

In order to preserve the company's ability to effect a pro-rata dividend of the REIT shares in connection with the proposed REIT transaction, Darden's Board adopted a short-term shareholder rights plan to deter any person from acquiring ownership of more than 9.8 percent of the company's outstanding common stock during the period leading up to the REIT transaction.

DRI, which closed up 0.7 percent on Monday at $69.38, added 7.1 percent in pre-market activity.