the BIG MAC real estate EMPIRE

| August 26, 2015 | 1 Comment More

As the Big Mac empire appears to founder in the face of major competition and rising food prices, many wonder how much longer fast food giant McDonald’s can hang on in the industry. While the restaurant is an absolute behemoth worldwide, some analysts warn that deeply-rooted internal issues could sink the entire ship over time. The company’s share values are falling; profits are foundering, and revenue is dropping worldwide. However, one part of the McDonald’s business is going strong: the real estate side.

One of the things that has always bolstered McDonald’s through tough times is its vast real estate portfolio. Nearly all franchisees rent the property on which their restaurants stand from the corporation, and some franchisees are so large that they are actually publicly traded in and of themselves, such as Arcos Dorados Holdings, which owns more than 2,100 McDonald’s throughout Latin America and the Caribbean[1]. McDonald’s first CEO, Harry Sonneborne, reportedly said tellingly decades ago, “The only reason we sell 15-cent hamburgers is because they are the greatest provider of revenue from which our tenants can pay us rent.”

Now, McDonald’s is considering leveraging its real estate in a new way, by forming a real estate investment trust (REIT). Analysts say that the move could help McDonald’s “unlock at least $20 billion in value,” which could be a huge “shot in the arm” for the struggling restaurant chain. Darden Restaurants, which owns chains like Olive Garden and Longhorn, recently decided to make a similar move, and Macy’s is currently under pressure to do so from an activist investor on its board. However, the move would also change how McDonald’s is able to collect rents on the properties in the REIT and even require the chain to pay rent to the REIT in many cases.

“McDonald’s is facing a lot of headwinds, like minimum wage increases and more competitors,” noted S&P managing director Bob Schulz recently. He added, “[An REIT] would be an additional complication for management’s time.” The ratings agency recently downgraded the company from A to A-. Do you think a McDonald’s REIT would be a good investment? Would it be good for the company?

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[1] http://www.wsj.com/articles/mcdonalds-lands-in-a-real-estate-dilemma-1440495181

About the Author (Author Profile)

Carole Ellis is editor in chief of the Bryan Ellis Investing Letter. Under Carole’s leadership, the Bryan Ellis Investing Letter has grown to over 700,000 subscribers, making it one of the largest real estate newsletters in the world. Each day, Carole directly impacts the daily thinking and conversations of real estate investors worldwide by providing thought-provoking analysis and commentary on news topics relevant to serious real estate investors.

Carole has a strong background in research and in the management of respected publications. She holds a degree in English Literature from the University of Georgia, and has substantial research experience in plant biology. She is the former editor of and writer for the University of Georgia’s Research Magazine. She’s also the author of hundreds of articles and multiple books and home study courses published under the names of her clients, many of whom are well known, highly respected real estate entrepreneurs as well.

Carole makes her home in Kennesaw, Georgia with her husband Bryan and 4 children.

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  1. G13man says:

    i am against all tax deductions and hope congress closes this loop hole !

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