Friday 28 October 2016

McDonald's looks at options for its US real estate portfolio

Leslie Patton

Published 18/10/2015 | 02:30

McDonald's is holding an internal debate about what to do with its real estate holdings
McDonald's is holding an internal debate about what to do with its real estate holdings

Big Mac maker McDonald's is close to deciding what to do with its massive US real-estate portfolio. The fast-food chain and its board haven't yet reached a decision, but have been reviewing and debating options, McDonald's director Miles D White said last week.

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McDonald's has about 14,300 US restaurants, of which about 90pc are franchised.

It has more than 80 stores in Ireland, which are either owned by franchise holders or by the company.

Senior McDonald's executives will discuss more on business strategy at an investor meeting in November, the company added.

Other restaurants have recently faced pressure to spin off real-estate holdings to unlock value for shareholders. Darden Restaurants said in June that it was splitting off about 430 properties and transferring them to a real estate investment trust, also known as a REIT.

The REIT then allows the company to lease back the properties.

In McDonald's case, the idea of creating a REIT is seen as less likely. John Glass, an analyst at Morgan Stanley, said last month that the company was unlikely to pursue the option.

Last year, McDonald's collected about $9.27bn (€8.15bn) of its revenue from franchised restaurants. That included both rent and royalties paid by store owners to the company.

The stock is up 11pc this year, helped by comeback prospects under new chief executive officer Steve Easterbrook.

McDonald's, which is desperately trying to revive flagging sales, is calling the roll-out of all-day breakfasts in the US a success and telling its franchisees to prepare for the next course - a 'national value plan'.

In the past, it has relied on value menus and special deals to help boost sales. The Dollar Menu - introduced across the US in 2002 - was upgraded to the Dollar Menu and More after it became no longer profitable to sell fare for just $1. The Eurosaver menu in Ireland has proved hugely successful for the chain after its launch more than a decade ago.

Major initiatives at McDonald's have tended to be launched in the US before being rolled out across its global footprint of company owned and franchisee owned stores. McDonald's generated €14.9m in pre-tax profits in Ireland in 2013, according to recent filings.

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