According to the Wall Street Journal, McDonald’s board member Miles D. White said on Thursday that the company may soon make a decision on what to do with its vast real estate holdings. There has been continued murmurings that the company should spinoff its real estate holdings into a REIT (Real Estate Investment Trust) vehicle because it could potentially unlock value for shareholders. REITs often pay little or no taxes on earnings as long as they distribute most profits through dividends, and they typically receive a higher valuation multiple than retail companies like McDonald’s. Some investors, such as Larry Robbins of Glenview Capital Management, believe a real estate spinoff could unlock $20 billion in shareholder value. However, Morgan Stanley analyst John Glass says the possibility of forming a REIT is remote and doing so would not create as much value as one might think.
McDonald’s stock has underperformed the S&P 500 over the last 2 and 1/2 years, but has been outperforming so far this year as management works hard to end the slump. Regardless the 2 and 1/2 year slump, McDonald’s remains hugely profitable, and we believe has the potential to outperform the market in the coming years. You can read our complete McDonald’s research report here, and you can view our previous McDonald’s updates here.