DineEquity to Sell 56 Applebee’s – Analyst Blog

California-based DineEquity Inc. (DIN) announced on Monday that it has inked an agreement to sell 56 company-owned Applebee’s restaurants in Missouri, Illinois and Virginia for $38 million as a move to reduce debt burden and to build up a franchise-centric operation. In July 2010, DineEquity also announced the sale of 63 company-operated Applebee’s restaurants in Minnesota and parts of Wisconsin and expects to clinch the deal in fourth quarter 2010.

 

The sale of 36 restaurants in Missouri and Illinois will bring in after-tax proceeds of approximately $26 million, while the Virginia transactions will fetch $12 million. Management expects to close the Missouri and Illinois deal in first quarter 2011, whereas the Virginia transaction will be sealed in fourth quarter 2010. Mid River Restaurants LLC and Apple Investors Group LLC are the respective franchise partners in the Missouri and Illinois as well as Virginia deal. Apple American Group remained the franchisee for the Minnesota agreement.

 

Like most of the restaurant companies in the U.S., DineEquity is also shifting its focus toward franchised operations from company-owned restaurants as a de-risking strategy. The company acquired Applebee’s International in November 2007 in a $2 billion leveraged buyout. Since then, DineEquity has sold a total of 110 Applebee’s company-operated restaurants in five states and reduced its debt considerably by the use of free cash flow. As of June 30, 2010, long-term debt had reduced to 1,561.2 million from $1,637.2 million in December 2009.

 

At the end of the second quarter, more than 88% of DineEquity’s Applebee’s and IHOP restaurants were franchised. Upon completion of all the pending sales, this percentage will rise to 92%. Although DineEquity’s transition to a more franchise-based model will decrease company-owned revenues, this will enhance free cash flow generation by reducing capital employed.

 

With more than 3,450 Applebee’s and IHOP restaurants combined, DineEquity is the largest full-service restaurant company in the world with brands leading in their respective categories of casual and family dining.