McDonald's drops realty, focuses on turnaround plan

The world's largest hamburger chain McDonald's has decided not to take up the plan of hiving off its real estate assets and dropped the plan of Real estate investment trust (REIT). The hamburger chain is focusing on expanding refranchise network of restaurants, while aiming at achieving turnaround by implementing restructuring the US operations. 

The Oak Brook, Illinois-based food chain giant is in the process of turnaround plan and was considering a plan to float real estate investment trust to take some tax advantages. Now, McDonald's is considering a plan to refranchise 4,000 restaurants. Previous target was 3,500 restaurants. The longer-term goal includes 95 percent of total restaurants to be on franchise basis. 

Speaking at McDonald's investor meeting, Pete Bensen, Chief Administrative Officer, said: "Any possible value that could have been created with the REIT was outweighed by significant financial and operational risks to the business and the ongoing progress of its turnaround."

The world's biggest fast food company by sales has taken the decision to attract diners in large numbers, cut down on costs, enhancing franchise-based restaurants and rewarding shareholders with more cash. The company's board was under view that REIT was not the best option for shareholders as it involves more risk. 

According to Reuters, the real estate is crucial for McDonald's business as it gets rental revenues from franchisees. The rental revenues were up 26 percent during 2009-2014. Rents contributed 22 percent of revenues to McDonald's in the wake of falling sales. 

McDonald's board has approved five percent rise in dividend payout. It'll pay quarterly dividend of 89 cents on 15 December to shareholders and the record date is 1 December for dividends.As part of the hamburger chain's plan to reward the shareholders with much more value, the board has decided to increase dividend pay. The total payout would be $30billion for three years including 2016 and this is $10 billion higher than previous target. 

The Wall Street Journal (WSJ) news report reads that indicating investors' positive response, McDonald's stock rose 0.3 perce4nt to $113.29 showing its new high. The shares were up 21 percent this year so far. The dropping of REIT plan was in line of market expectations. Some investors argued that the spinning off real estate assets would unlock billions of dollars in value. But, McDonald's board favored dropping the idea and focusing on turnaround plan.

The hamburger chain is tweaking to food process including toasting buns longer and searing burgers to make them juicier. For Egg McMuffins, McDonald's returned to butter and regular English muffins instead of margarine and whole grain muffins. 

McDonald's is positioning a new buttermilk chicken sandwich as its premium offering. The hamburger chain is confident that this would generate more sales at outlets. The menu card has been simplified to speed up the service and enhance clarity of orders.