McDonald's, Macy's Nix REIT Spin-offs

OAK BROOK, IL—McDonald's Corp. has once again put to rest speculation that it would spin off its owned stores into a REIT, with president and CEO Steve Easterbrook telling an investors meeting Tuesday that a spin-off would not be in their best interests. Another large-scale retailer that had recently considered a spin-off, Macy's Inc., has also nixed the idea, revealing its decision Wednesday as part of its third-quarter results.

After weighing the pluses and minuses of a REIT spin-off, McDonald's leadership determined that "the potential upside is not compelling, and the future value at risk too great," Easterbrook said at Tuesday's meeting. Investors including Glenview Capital Management have pushed the fast-food giant to spin off its real estate; earlier this year, Glenview chief Larry Robbins cited a REIT structure as one of a number of ways to boost McDonald's stock prices.

Long-term, the company is moving increasingly toward a franchisee model. It raised its refranchising target Tuesday from 3,500 to 4,000 stores, with the ultimate goal of becoming 95% franchised globally.

The decision announced Tuesday was not the first time McDonald's has nixed a REIT transaction. A September 2005 MarketWatch article, headlined "McDonald's CFO Says REIT is Wrong," noted that the company had "turned a cold shoulder" to the idea four times since 1997.

Macy's, which withstood a year-over-year earnings decline in Q3, said Wednesday that following an "extensive review," it too had decided not to pursue the formation of a REIT at this time. "The board of directors has concluded that a REIT does not offer sufficient upside potential for value creation," according to a company statement. "To the extent that circumstances change, we may revisit this alternative in the future."

Instead, the department store chain will engage in an "expanded relationship" with Tishman Speyer to help with identifying potential store redevelopment projects nationwide. This relationship builds on the collaboration between Macy's and Tishman Speyer to redevelop the store in Downtown Brooklyn. The company also said Wednesday that it had begun to explore joint ventures or other deal structures with third parties to redevelop flagship real estate assets in Manhattan, San Francisco, Chicago and Minneapolis. 

The back-to-back announcements from McDonald's and Macy's come on the heels of Darden Restaurants' monetization of some of its properties into a separate REIT; shares of the standalone Four Corners Property Trust began trading Tuesday on the New York Stock Exchange. Earlier this year, Sears Holdings sold 235 Sears and Kmart stores in a sale-leaseback to spin-off REIT Seritage Growth Properties.