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From the article: > To raise enough cash to make the deal happen, Golden Gate sold off Red Lobster's real estate to another entity — in this case, a company ca
by red_trumpet 2y ago
From the article:
> To raise enough cash to make the deal happen, Golden Gate sold off Red Lobster's real estate to another entity — in this case, a company called American Realty Capital Properties — and then immediately leased the restaurants back.
So private equity didn't try to make Red Lobster profitable before stripping it of its assets. That was literally their first move.
- AdamN 2y agoBecause it was a dead man walking by the time PE bought it. The underlying assets were worth more than the sale price so it was never going to make sense to do anything other than what happened. With that said, the tax code and employee law could be improved so there are stronger guardrails to protect some stakeholders more.
- red_trumpet 2y ago> The underlying assets were worth more than the sale price That's not so clear to me. The real estate wouldn't have been worth so much without the existing restaurants having to pay rent.
- bluGill 2y agoSure, but Red Lobster should be able to make ends meet paying that rent. Their accountants should run the numbers and have numbers for what the restaurant made after paying rent, and what the real estate investment made from rent. Even though the same entity owns both they still need to know where the money is. If a restaurant cannot make money except that the real estate is paid off and thus rent free (or maybe bought at lower than current prices and so payments are artificially low) then they should close and rent the real estate out to someone else. The above is something people often fail to think of. If you (as is common) have something that could be two independent business with one supplying the other, then you should have your accountants figure out the numbers for each separately. (this is not easy, and eventually not worth it)
- SoftTalker 2y agoRetail property value is mostly about location, not whether there is a currently successful business operating there.
- swampthinker 2y agoThat's pretty standard, even for well-run chains. Gives the primary business (making food profitably) a huge cash infusion, and removes a distraction. Obviously deal terms are important, but that action on its own isn't stripping for the sake of stripping.
- red_trumpet 2y ago> Gives the primary business (making food profitably) a huge cash infusion What is "stripping for the sake of stripping" of not this?
- triceratops 2y agoMcDonald's, possibly the most successful chain of them all, doesn't seem to think owning real estate is a distraction.
- quickthrowman 2y agoMcDonald’s is an REIT that happens to sell hamburgers.
- bombcar 2y agoPart of this is because of how McDonald's handles franchise agreements (for various reasons).
- SoftTalker 2y agoThat's because McDonald's is a real-estate company that finances itself by selling hamburgers.
- organsnyder 2y agoHow is owning real estate a distraction for a restaurant chain? Presumably their new landlords aren't going to maintain kitchen equipment and other infrastructure that makes up a lot of the maintenance burden. If it's really such a distraction, outsource it—but don't sell the real estate.
- 2y ago