Activist Investor Wants Bob Evans Farms To Put Real Estate on Investors’ Menu

Noted Swedish investment banker and risk arbitrager Tom Sandell, who knows a thing or two about REIT dividend plays, thinks national restaurant operator Bob Evans Farms Inc. would make a great candidate for a real estate play. 

As a significant investor in Bob Evans Farms, Sandell is urging the firm to take actions to unlock shareholder value, including selling and leasing back its 482 owned restaurants, a portfolio he says is worth between $800 million to $1 billion. 

Sandell Asset Management Corp. has a history of investing in firms seeking to unlock value from their real estate. His past investments have included owning shares of Corrections Corp. of America and GEO Group, the latter of which converted to a REIT this year. Sandell also currently holds significant stock holdings in two companies seeking to convert to REITs: document management firm Iron Mountain Inc. and billboard owner Lamar Advertising Co. 

Sandell Asset Management, the beneficial owner of 1.4 million shares, or 5.1%, of Bob Evans Farms, sent a letter to the restaurant chain's board urging it to take a multi-step approach to unlock shareholder value. 

According to Sandell, the company suffers from a conglomerate discount from its two business segments: a family-dining restaurant business, Bob Evans Restaurants, and a packaged foods business, BEF Foods, both of which trade at discounts to other family-dining restaurant companies and packaged foods companies. His letter also asserts the company’s stock price does not reflect the significant real estate value of the company’s 482 wholly-owned restaurant properties. 

He is urging Bob Evans to separate its food products business (BEF Foods) through a sale or a spin-off to its shareholders and sell off its owned restaurant properties through a sale-leaseback transaction. Sandell said he believes the company could generate approximately $1.08 billion in proceeds from those and other steps. 

Focusing on Remodels

From a real estate perspective, Bob Evans Farms has been focused more on remodeling stores rather than expansion or contraction. 

It has closed only six restaurants in the last two quarters and expects to open just four new restaurants in the next nine months. It expects to increase that number in fiscal 2015 to up to 10 new restaurants. 

In the last year, Bob Evans Farms accelerated two years of remodel into one and said it is planning on more remodels this year than last year. Most of that work will occur in the first half of its fiscal year. 

With regards to its packaged foods business, BEF Foods, it has been closing outdated facilities or investing in newer facilities and processes and equipment. It is currently in the process of consolidating its Bidwell and Springfield, OH, plants into its Sulphur Springs, TN, expansion. 

Late last month, the company announced it intends to close its food production plant in Richardson, TX, this quarter and will add capacity to its facilities in Xenia, OH, and Hillsdale, MI, to absorb the Richardson capacity. It estimates proceeds from the eventual sale of the Richardson facility will be from $5 million to $7 million. 
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