McDonalds Is a Real Estate Company

Most people don't realize it, but McDonald's (MCD) is not a burger-flipping restaurant chain; it is one of the world's best real estate portfolios. Franchisees flip the burgers. McDonald's simply owns the best commercial property all over the world.

Although McDonald's first opened its doors in 1954, it wasn't until 1956 after courting many an investor did Ray Kroc consider and implement an idea put forth by Sonneborn, to tap into the real estate market. Shortly after Sonnenborn made his pitch to the investors , the Franchise Realty Corporation, McDonald's Real Estate subsidiary was born.

In simplified terms, McDonald's makes money on real estate via two methods. First, it buys and sells properties, as one might suspect. Often these are restaurant lots, but such is not necessarily always the case. McDonald's will buy properties that it feels are , or will be, hot locations, and it of course sells properties that are under performing or otherwise not doing so well. Again all of this seems pretty normal.

Secondly, on top of the franchise fee ( usually 8% ) which McDonald's charges its franchisees to use the " McDonald's " name, it charges rent to the franchisees to use the corporately-owned properties.

One of these days some large fund or investor will buy up shares of these golden arches for the purpose of spinning off its real estate division. This stock will go tremendously higher. There is a large underlying value in McDonald's shares.

Hows that for a Happy meal?

Disclosure: I do not own shares of McDonalds (MCD), neither for myself or clients. I do, however, plan on accumulating it.

Comments

[Ames Tiedeman]

Warren Buffet never should have sold this.

[buyitcheap]

The time to pounce was 26-27 a few years back - it's ALWAYS been a real estate company, because franchises are about location, location, location. and great french fries. I see some opportunity to buy lower potentially short term through the end of the year, perhaps some asset deflation in terms of land values as well as weak same store sales due to fewer trips through the drive thrus as gas prices continue the parabolic rise. That might make a nice entry point.

[deaverb]

Kroc said in his autobiography (it should be the Bible for all McDonald people) that he could only get financing when he told bankers McDonalds was a real estate company. Kroc listened. Kroc watched. Kroc learned. Like Sam Walton (I have yet to talk to a newbie at Wal-Mart that has read the Bible according to Sam, Made in America; a key reason they are suffering in the US).

Kroc also pushed it is the "fast nickel" not the "slow dime," as did Walton. McDonalds got away from it--but got back to of it of late and soared (as their CEO said, "I was wrong; it was the dollar menu not the salads...). Walmart and others haven't learned it of late.

Real Estate plus low prices for the goods--food or GM, is a heady combo.

[Whisper On The Wind]

I'd take McDonalds over GM, any day.

[No Moss]

"McDonald's simply owns the best commercial property in the world." I've spent years in Asia, and that's the truth--about every restaurant I've seen, from Taiwan, Indonesia, China....

Well-chosen locations, 8% franchise fee, continuing to convert from ownership to franchise...Super REIT.

[beezlebub]

there is nothing new here, regurgitation of old facts is not useful in my estimation. while mcreit has loooooong been discussed, management has been strongly resistent to seperating the real estate from the restaurant units while also creating a third entity....brand management company (think coke). but again, this, like the post, is not new news.