McDonald’s will not put its properties in a REIT

McDonald’s has decided against creating a real estate investment trust (REIT).

Chief Executive Steve Easterbrook broke the news at the company’s investor meeting on Tuesday. He said that a REIT was not in the best interest of shareholders as the risks were too great.

“We don’t believe it serves the best interests of shareholders to pursue a REIT,” Easterbrook said during the meeting. “The potential upside is not compelling, and the future value at risk too great.”

Real estate represents an important part of the company’s business. McDonald’s collects rent payments from franchisees. Between 2009 and 2014 the amount collected from rent increased 26 percent. Last year rents accounted for over 22 percent of the fast-food chain’s total revenue.

Shares in McDonald’s have been steadily increasing since October 22 when Easterbook announced a rebound in quarterly sales. The recent uptick in sales has eased pressure on the fast-food giant to put its properties into a REIT.

Investor Larry Robbins, chief executive of shareholder Glenview Capital Management, had lobbied for the REIT. He said that putting the company’s properties into a REIT could unlock over $20 billion in value.

McDonald’s said in its 2014 annual report that the “rent and royalty income we receive from franchisees provides a stable revenue stream that has relatively low costs and enables us to return significant cash to shareholders,”

Shares in the company gained 0.3 percent to $113.22 after the announcement was made. So far this year McDonald’s shares have increased 21 percent, mainly because of optimism that Easterbrook can turn the company around.

Leave A Reply

Your email address will not be published.