It's been a tough half-decade for Denny's
Operating income has also shown gradual improvement, but interest expense continues to consume all of the company's income (or more), and the company's debt balances have held steady at just more than $500 million over the last few years. Since a fair portion of the company's debt is variable, slight improvements in debt balances haven't yielded corresponding improvements in interest expense, because interest rates had continued to increase until recently. The company has hedged part of its variable-rate interest through a swap agreement, but today it took a larger step toward alleviating some of the pressure on its balance sheet by selling 66 properties currently operated by franchisees to National Retail Properties
The sale is expected to generate after-tax proceeds of $65 million, which the company plans to use to pay down a portion of its debt, which in turn should lower the company's interest expense and improve some of its balance sheet measures. Of course, the company will also lose the rental income it used to receive from these properties, along with any further appreciation in the properties. Still, Denny's believes that the decrease in interest expense will more than offset the rental income, creating a $1 million increase in net income. After the closing of this transaction, the company will still have 13 franchisee-operated properties up for sale.
Denny's has been making improvements, but a drop-off in traffic and sales because of a softening economy would make the company's situation a bit more precarious. With more upscale casual-dining businesses such as OSI Restaurant Partners
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At the time of publication, Nathan Parmelee owned shares in OSI Restaurant Partners, but had no financial interest in any of the other companies mentioned. The Motley Fool has an ironclad disclosure policy.
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