Darden Restaurants Inc said it plans to separate some of its restaurants into a publicly traded real estate investment trust as part of changes engineered by activist investor Starboard Value LP.
Shares of Darden, which also reported better-than-expected quarterly profit and revenue, rose almost 6 percent to a record high of $73.40 on Tuesday.
Starboard, while agitating for change at the restaurant operator last year, had called for transferring some of Darden's restaurants into a REIT. The investor's efforts eventually resulted in a revamp of the company's board and management.
Darden said on Tuesday said it would transfer about 430 restaurants, mostly Olive Garden properties, to the REIT this year and lease back most of the properties.
Darden also listed 75 properties for individual sale-lease backs, with most of these deals expected to close by the end of August.
The company, which has more than 1,500 restaurants, said it would use the proceeds from the transactions to pay down about $1 billion of debt.
After completing the conversion, the REIT will distribute profit for the year ending Dec. 31 as dividend, with about 20 percent in cash and the rest in shares of the REIT, Darden said.
Darden's announcement follows retailer Sears Holdings Corp's decision in April to raise more than $2.5 billion by forming a REIT with 254 of its stores.
Department store operator Macy's Inc is also being pushed by several hedge funds to consider options for its real estate, including selling and leasing back some major sites.
The company did not say how much it plans to raise from the REIT and leaseback transactions.
Darden is also looking to sell and lease back its headquarters in Orlando, Florida.
Traffic at Olive Garden rose in March, the first increase since October, but fell again in April and May. Sales, however, rose 14 percent in the fourth quarter ended May 31, partly helped by higher pricing.
The company also forecast a better-than-expected full-year adjusted profit, and said it expected same-restaurant sales to grow 2-2.5 percent.
JP Morgan and Moelis & Co advised Darden on financial matters for the transaction, while Skadden, Arps, Slate, Meagher & Flom LLP was legal advisers.
(Reporting by Sruthi Ramakrishnan and Ramkumar Iyer in Bengaluru; Editing by Simon Jennings and Saumyadeb Chakrabarty)