McDonald's Cap Rates So Far Unaffected by Corporate Turmoil

McDonald’s (NYSE: MCD), a long time behemoth in the net lease sector, has found itself under significant pressure lately. The company’s financial performance is eroding, with 2014 revenue down 2% and profit down 15%. Once a company that posted twelve consecutive years of profit growth, it now faces problems that have complex roots and are difficult to address.

One challenge is that millennials don’t find McDonald’s as appealing as their parents, especially vis-à-vis alternatives like Chipotle and Shake Shack. There has been an underlying change in the preference of customers that, with each passing year, constitute a larger component of America’s prime buying demographic. A demand for healthier options and the perception that McDonald’s serves primarily low quality, unhealthy food doesn’t help. The company is also facing competition from companies like Chick-fil-A, which has a unique model that prevents large profit-centric franchisee chains from emerging, and a resurging Wendy’s. Other problems involve brand-tarnishing labor disputes with corporate and franchisee employees and food safety problems in Asia.