As part of its prolonged turnaround effort in the U.S., McDonald's Corporation announced Tuesday that it would increase spending to buy back shares and accrue a “meaningful” amount of additional debt in order to send more cash to shareholders. Additionally, CEO Steve Easterbrook also laid to rest speculation that the company would put its real estate assets into a Real Estate Investment Trust (REIT) -- a move that many investors had called for.
“We have concluded that any potential value creation from a REIT is outweighed by the significant financial and operational risks to our business and the continued progress of our turnaround, and we do not believe that pursuing a REIT would be in the best interest of McDonald's at this time,” McDonald’s Chief Administrative Officer Pete Bensen said, in a statement.
In 2014, the fast food giant’s real estate assets, which include rental payments from franchises, reportedly accounted for 22 percent of its revenues. Many investors and analysts have, in the past, urged the company to place its U.S. properties in a publicly traded real-estate investment trust, which would have provided considerable tax advantages and offset declining sales and profits that McDonald’s, until recently, has been reeling under.
The announcement to increase its dividend and borrow money to increase its share buyback plan comes close on the heels of the company’s first strong quarter in over two years. While the plan to increase dividend by 5 percent in the fourth quarter was welcomed by investors -- pushing the company’s shares up 0.3 percent Tuesday -- it was not well received by Standard & Poor’s, which lowered its credit rating for the company one notch to BBB+ from A-.
Additionally, the company also announced an increase in the number of restaurants it plans to sell to franchisees to 4,000 by the end of 2018, from the target of 3,500 set in May. McDonald’s, which is currently 81 percent franchise-owned, now aims to become 95 percent franchise-owned.