This Day On The Street
Continue to site right-arrow
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
TheStreet Open House

McDonald's REIT Could Be a Sizzler

Though McDonald's (MCD - Get Report) 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 - Get Report), 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 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

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

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

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
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!
MCD $97.64 -0.51%
SHLD $41.77 0.65%
VNO $110.27 -0.08%
AAPL $124.24 0.70%
FB $83.01 0.11%


DOW 17,678.23 -40.31 -0.23%
S&P 500 2,056.15 -4.90 -0.24%
NASDAQ 4,863.3620 -13.1570 -0.27%

Partners Compare Online Brokers

Free Reports

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