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Darden begins commercial property spinoff with new REIT

A new real estate investment trust will soon offer the opportunity for returns to Maryland investors. The REIT is a planned product by Darden Restaurants best known for its Longhorn Steakhouse and Olive Garden brands. The corporation is unloading hundreds of properties into the REIT in a bid to reduce debt and maintain credit standing. The REIT is then expected to diversify and take on an identity besides solely leasing commercial real estate back to Darden.

The technique has been used several times in recent years, most notably in the $2.5 billion Sears commercial property spinoff. The market gave a goodwill gesture with a 5 percent bump to DRI on the news. This followed an upward trend that started in October of 2014. Over a 12-month period, the share price has increased 54 percent compared to the S&P's 8 percent.

From its holdings, Darden is looking to offload 430 properties into the REIT. Other commercial real estate properties in its portfolio that includes about 1,500 restaurants are being sold individually. According to the report, Darden intends the commercial property transfer to pay off about $1 billion in debt. The move by Darden was at least partially prompted by the hiring of a new CEO in February 2015.

Whether the goal is financing new acquisitions or reducing financial difficulties, some big-name corporations are speculating that sale and leaseback transactions may reduce their exposure and increase value compared to holding a large portfolio of commercial real estate. There are several considerations when commercial property owners decide to change positions, including legal and tax obligations. An experienced attorney might provide guidance in the sell, purchase or transfer of commercial real estate, which may include warnings about the risk and profit associated with various moves.

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