McDonald's said Tuesday it would keep its real-estate assets, including restaurants, and increase the number of its franchised restaurants as it pursues a belt-tightening restructuring. As part of the reorganization, the world's leading burger chain had considered spinning off properties into a real-estate investment trust (REIT), which could convey considerable tax advantages.
"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," said Pete Bensen, a senior McDonald's executive, in a statement.
The real-estate assets, which include the rental payments from franchisees, accounted for 22 percent of the company's revenues in 2014.
After scoring a surprise increase in third-quarter sales in its US restaurants, accompanied by forecast-topping earnings, the company told investors Tuesday it was making progress in the renewal program under new chief executive Steve Easterbrook. McDonald's said it would raise its global refranchising target to 4,000 restaurants through 2018, from 3,500 targeted in May.
That would bring the share of franchised restaurants from the current 81 percent to about 93 percent by the end of the year, the company said, setting a new longer-term target of 95 percent. McDonald's has about 35,000 locations worldwide.
The refranchising and restructuring program under way is expected to yield net annual savings of $500 million, most of them by the end of 2017, it said. The previous savings target was $200 million less.
McDonald's, which has been battling increased competition from casual dining chains like Chipotle Mexican Grill and Panera Bread, increased its fourth-quarter 2015 dividend by five percent, to 89 cents per share. It also raised its cash return to shareholders target by $10 billion to about $30 billion for the three years through 2016.
That generosity to shareholders was not appreciated by Standard & Poor's, which lowered McDonald's credit rating for the second time in six months, citing concern about the company's debt.
S&P cut the rating to 'BBB+' from 'A-' but kept its outlook stable.
"The downgrade reflects our assessment of the higher leverage from the sharply higher debt load planned in 2016 to return an additional $10 billion of cash to shareholders by the end of next year," said S&P.
Shares in Dow member McDonald's closed 0.3 percent higher at $113.22.