McDonald's, one of the big names in the fast food industry, is in the brink of making a major real estate decision. According to the CNBC, head of the corporate-governance committee for McDonald's board Miles D. White has stated in an interview that the food company many not have made a decision yet but they have had a lot of review and debate.
McDonalds has been known to continuously emphasize the importance of owning its assets but sales has been falling to a point where some investors and analysts are calling for the board to spin off the U.S. holdings like a real-estate investment trust (REIT). They say that it would be an advantage to shareholders.
According to the Wall Street Journal, McDonald's have already looked into this decision before adding that the current evaluation had begun even before Steve Easterbrook became chief executive in March. Mr. White has confirmed that Mr. Easterbrook is also on the board.
In the previous months, McDonald's executives are said to have been studying all financial options to boost shareholder value. Finance Chief Kevin Ozan assured in July that investors will be updated on the company's plans in November.
The goal is to sustain McDonald's performance and its context in a global business model that is why it is looking into the long term role of real estate. Speaking of this evaluation, Mr. White says, "Regardless of where we come out, somebody is going to be unhappy."
According to the Wall Street Journal, the reason why Investors favor REITs is because they tend to trade better than retail companies in terms of higher multiples. Moreover REITs pay little or no tax on earnings when they hand out most profits in the form of dividends. On the other hand, some Wall Street analysts say it is unlikely for McDonald's to spin off its real estate because it derives a huge part of its revenue from its real estate. For example rent payments from franchisees have increased to 26% over a five-year period to $6.1 billion in 2014.
This month McDonald's began offering breakfast all day meals. Early signs indicate it is starting to pay off but it is still too early to tell if the benefits will continue. Will this move increase sales and keep McDonald's from spinning off its real estate?
