This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

McDonald's REIT Could Be a Sizzler

Though McDonald's (MCD) management is currently refusing to spin off the company's real estate assets, such a transformation could unlock significant value for shareholders.

Last week, the issue picked up steam when Vornado Realty Trust (VNO), a major real estate investment trust, disclosed that it recently acquired a 1.2% stake in the Big Mac giant.

Activist hedge fund Pershing Square Capital, a 4.9% owner, had previously urged McDonald's to consider spinning off some of its real estate to enhance value. The day before Vornado disclosed its ownership stake in a Securities and Exchange Commission filing, McDonald's CEO Jim Skinner said such proposals wouldn't be in the best interest of shareholders.

Right now, it appears there are two very different proposals being floated by Vornado and Pershing that aim to unlock McDonald's real estate value. Pershing's managing director William Ackman told TheStreet.com that he is pushing to have McDonald's sell off its entire company-operated restaurant business (which is faulted as being too capital intensive and low margin) into a new company, with McDonald's keeping a 35% ownership interest in that company. That would basically leave McDonald's as a real estate company that collected rent and fees from its franchisees, which operate 73% of its restaurants globally.

Vornado, on the other hand, seems to favor spinning off some or all of McDonald's real estate assets into a REIT, according to one analyst who follows the company. Ackman declined to comment on whether he's spoken to Vornado officials about the matter. A Vornado representative didn't make its notoriously tight-lipped executives available for comment.

In a sense, Pershing's proposal might be easier to navigate and would possibly unlock value through the market re-valuing McDonald's based on its new real estate-heavy business strategy. A conversion into a REIT, meanwhile, would be significantly costly, but also would likely result in a tasty treat being served to existing shareholders in the form of a special dividend that could total as high as $20 billion.

1 of 5

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,113.54 +61.81 0.36%
S&P 500 1,983.53 +9.90 0.50%
NASDAQ 4,456.0160 +31.3120 0.71%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs