Bob Evans Will Sell Real Estate, Not Spin It Off

Now, let me tell you a little bit about Bob Evans(BOBE). This ain’t no Bob’s Broccoli Buffet, this here is a pile your plate high with sausage and go back fer more kind of place.  We reported in March that, despite pressure from Sandell Asset Management, the company would not be spinning off its packaged foods business, and that the company was exploring options for its real estate.

In June, though we didn’t mention it at the time, the company announced it planned to pursue a strategic transaction with its real estate, which might

take the form of either a sale-leaseback or a tax-free REIT conversion and spin-off.  The decision as to which path to pursue will depend on a number of factors including, but not limited to: the performance of Bob Evans’ business segments, and in particular the restaurant segment, market values for restaurant real estate, trading performance of publicly traded real estate companies, interest rates and U.S. economic conditions.  The timing of a transaction remains subject to the Board’s continued evaluation of these factors, and the Company cannot guarantee if and when a transaction will be undertaken.

Earlier this month, the company announced it had concluded its process and that it was going with the sale-leaseback option.

Hood continued, “We have completed our review of alternatives concerning a transaction for our owned restaurant properties and determined, along with our external advisors, that given our current business and market conditions, a sale-leaseback transaction of up to $200 million is the most appropriate path to further enhance shareholder value. We would anticipate net proceeds of $165 to $170 million from such a transaction. The sale-leaseback of the restaurant properties would be in addition to the previously announced pursuit of a sale-leaseback of our headquarters building and select industrial properties for which we expect net proceeds of $85 to $90 million. We expect to use net proceeds from these transactions to pay down debt and repurchase shares while maintaining a prudent adjusted leverage level. Approval of such sale leaseback transaction(s) remains subject to final Board approval, amendment of our credit agreement, and other normal conditions of closing. The Company cannot guarantee if and when the transaction(s) will be completed, but expects to complete such transaction(s) in the second half of fiscal 2016.”

Though the company did not mention it, we suspect that additional IRS scrutiny of REIT spinoffs may have contributed to the decision. This approach also makes it easier for the company to receive cash proceeds.

Disclosure: The author holds no shares of any stock mentioned