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Another retailer reducing commercial real estate exposure

Another opportunity will soon be available for California-based investors in commercial real estate. Following other retail giants, Darden Restaurants has begun transferring some of its commercial real estate properties into a real estate investment trust, many of them which will be leased back to the company. The proceeds are intended to reduce Darden's debt exposure by about $1 billion.

The real estate investment trust may represent a way for investors to gain the benefit of holding already occupied property with greatly reduced risk of lease disputes, maintenance, property management oversight and other ongoing costs and pitfalls. The transferred properties are already occupied by the well-known brands Longhorn Steakhouse and Olive Garden.

Darden has about 1,500 restaurants currently operational, and the company received a market boost of 5 percent following news of the proposed transaction. The company's CEO remarked that the REIT is expected to diversify apart from its holdings of commercial real estate formerly belonging to the company. The spin-off strategy has previously been used by Sears.

Some companies are making the decision to reduce their real estate holdings and lease properties instead. The idea is partly that a dedicated real estate investment trust can better focus on real estate market issues while the company frees up resources to focus on branding and product development. At the same time, the company has less worry about real estate litigation and other problems. Companies who are pursuing this type of strategy often seek the advice of a business attorney when negotiating and preparing the applicable transaction documents.

Source: Forbes, "Olive Garden Parent Spinning Off Real Estate To Pay Down $1 Billion In Debt," Lauren Gensler, June 23, 2015

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