McDonald’s, the world’s largest restaurant chain by revenues, is looking to capitalize on the depressed commercial property market and purchase more of the land and buildings where it operates.
Peter Bensen, chief financial officer of McDonald’s, said the company has been shifting away from its previous strategy of leasing properties in favour of owning as the recession has led to increased distressed real estate.
“For the most part, we are focused on purchasing more where we can and over time that is definitely accretive to our business,” Mr Bensen said at McDonald’s investor conference on Thursday. “We realized the opportunity to get in and purchase sites and secure occupancy rights long term has been better than it has ever been.”
The company currently owns about 45 per cent of the land and 70 per cent of the buildings for its more than 30,000 restaurants around the world.
Victor Calanog, director of research at Reis, a property research company, said many real estate owners would like to unload their distressed properties and that McDonald’s should be able to find bargains with prices stuck at 2006 levels.
“Given the amount of distress in retail properties around the nation, now is the time for retail tenants to carefully assess their lease/own decisions,” Mr Calanog said.
In spite of ongoing macroeconomic headwinds, McDonald’s said on Thursday it was ramping up its capital expenditures next year to $2.9-billion, with plans to open 1,300 restaurants and remodel 2,400.
In 2005, McDonald’s was under pressure from William Ackman, founder of hedge fund Pershing Square Capital, to sell 65 per cent of its company-owned restaurants and restructure its vast real estate assets.
At the time, the company owned about 30 per cent of its restaurants around the world and Mr. Ackman, who had a 9.3 per cent stake in the company, proposed that it retain its real estate assets but raise about $15-billion in non-recourse financing against them, using the proceeds to buy back shares. McDonald’s was cool to the idea and Mr. Ackman later sold his stake.
On Thursday, Mr. Benson said McDonald’s intends to invest more in real estate next year, but that so far it has not been able to capitalize on the property downturn to the extent that it hoped. International markets have been difficult because landlords want to hold on to the security of having McDonald’s as a tenant, and in the U.S. the transaction process has been complicated because off-balance-sheet structures mean that there is not a single owner to a property.
“That said, we’re still looking for opportunities,” Mr. Bensen said. “We’re seeing operators of other brands that are closing up shop and we’re taking advantage of those opportunities.”