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Four Corners Property Joins Seritage Growth Among Companies Making Real Estate Moves to Diversify From Former Corporate Parents

Former Darden Restaurants Unit Buys 48 Chili's Restaurants
August 3, 2018
Four Corners Property Trust agreed to buy as many as 48 corporate-run Chili's restaurants for $155.7 million, joining U.S. companies such as Seritage Growth Properties in making real estate moves to ease their dependence on a former corporate parent.

The purchase marks the real estate investment trust's latest step away from Darden Restaurants, from which Four Corners was spun off three years ago. After the spinoff, the REIT was left with almost all its rent coming from Darden.

Earlier this week, Seritage Growth, which Sears Holdings spun off into a REIT three years ago, also eased its connection to its former parent. Seritage received a $2 billion term loan from Warren Buffett’s Berkshire Hathaway Life Insurance Co. to pay off debt owed to Sears' owner Eddie Lampert.

In Four Corners' Chili's deal, Brinker International Inc. will lease back the properties for 15 years at an initial annual cash rent of up to approximately $9.9 million. Rent increases 10 percent every five years during the initial term. The deal equates to about $3.2 million per restaurant.

The properties are located in 15 states, with the two largest concentrations in Florida with 14 properties and Texas with 13 sites.

"The property-level rent setting and strong coverage in this portfolio" attracted Four Corners, Chief Executive Bill Lenehan said in a statement.

The deal is advantageous to Four Corners in that it will lessen its reliance on Olive Garden, which makes up 65 percent of the Mill Creek, Calif.-based REIT's property holdings.

The purchase will make Chili's the third-largest brand by number of eateries, behind Olive Garden and Longhorn Steakhouse, for Four Corners.

After the deal, expected to close next week, Brinker would comprise 8 percent of the REIT's cash rent. Darden's share decreases to 79 percent.

In addition, closing on all 48 properties would have a positive impact on the portfolio weighted average lease term for Four Corners, increasing it to 12.7 years from 12.5 years.

Four Corners intends to fund the acquisition through a combination of cash on hand, and borrowings under its undrawn $250 million revolving credit facility. Four Corners had $88 million cash on hand as of June 30.

Four Corners is also undertaking a sale of as many as 4.25 million shares of common stock at a public offering price of $25 per share. The REIT intends to use a portion of the net proceeds to help fund the deal.
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