Chili’s Parent Company Spices Up Revenue, Buys Franchisee Locations
Casual dining restaurant chains have been taking a drubbing from competitors offering quicker service.
But Chili's Grill & Bar and Maggiano's Little Italy have been among the bright spots in the industry, posting revenue and profit gains for their parent company, Dallas-based Brinker International. Brinker's stock price, though, has taken a nearly 22% hit over the past 12 months.
In a move to ensure a healthy bottom line going forward, Brinker has agreed to buy 116 Chili's properties from its longtime franchisee ERJ Dining. That will add $300 million in revenue when Brinker completes the purchase over the next few months.
"The acquisition is a compelling opportunity to further invest in our brand, broaden our scale and create growth in earnings and cash flow," Joe Taylor, Brinker’s chief financial officer and executive vice president, said in a statement.
Taylor said the acquisition of the 116 restaurants, primarily located in the Midwest, provides "a solid foundation for further growth in these markets."
Terms of the deal weren’t disclosed, but it is being funded by an existing credit line. The company has been selling off property at a steady clip and putting part of the sale proceeds toward paying down its revolving credit line.
Brinker has been pursuing sale-leaseback deals, in which the company agrees to long-term net leases, which means the company pays the property taxes, insurance and other operating expenses on the property.
The sales have been something of a boon for real estate investors seeking single-tenant properties that produce an annual return on investment.
The chain has sold 150 or more properties over the past year. The most recent came in March, when a private investor paid Brinker $2.84 million for Chili’s-occupied real estate in Pleasanton, Texas, about 35 miles south of San Antonio.
Brinker signs 15-year leases with options to extend and annual rent increases, according to filings from the U.S. Securities and Exchange Commission.
Real estate investment trusts snapped up the largest batch. Brinker sold almost 50 Chili's-occupied properties last year for $155.7 million to Four Corners Property Trust, a REIT spun out of Darden Restaurants, which owns such brands as Olive Garden and Longhorn Steakhouse.
In August, Brinker sold 45 properties to San Diego-based REIT Realty Income Corp. for $146.6 million.
There may be more in the offing. Chili’s alone has more than 1,600 restaurants in all 50 states and across the world in 32 countries and two territories. Chili's got its start in Dallas in 1975 with its first restaurant along Greenville Avenue, a corridor known for its eateries.
Brinker also upgraded its corporate real estate in the past two years in an effort to up the ante when it comes to corporate recruiting. The company sold its aging North Dallas campus to an investor with plans to lease the property built in 1983 to Dallas County to be used for government offices.
In February 2017, Brinker, along with 500 of its corporate employees, moved into its new custom-built headquarters on the Dallas side of Cypress Waters, a 1,000-acre corporate magnet with close proximity to Dallas-Fort Worth International Airport. The move was expected to help the company recruit and retain talented employees.
