McDonald's will not put properties into REIT, CEO says

(Reuters) - McDonald's Corp MCD.N will not spin off its properties into a real estate investment trust (REIT), Chief Executive Steve Easterbrook said at the company's investor meeting on Tuesday.

A McDonald's logo is seen at one of the chain's restaurants in San Francisco, California, May 6, 2015. REUTERS/Robert Galbraith

The announcement came as executives at the world’s biggest fast-food company by sales laid out plans for luring back diners, cutting more costs, shifting restaurant ownership to franchisees and returning more cash to investors.

After significant deliberation, Easterbrook said, company leaders determined that a REIT was not the best interest of shareholders. The potential upside was not compelling and the risks were too great, he said.

Larry Robbins, chief executive of shareholder Glenview Capital Management, had lobbied for the REIT.

Real estate is an important part of McDonald’s business. The company collects rents from franchisees and those payments increased 26 percent from 2009 to 2014. Last year, when sales and profits dropped, rents accounted for more than 22 percent of McDonald’s total revenue.

McDonald’s shares have been trading at record highs since Easterbrook said on Oct. 22 that a rebound in quarterly sales at established restaurants showed his turnaround plan was beginning to take hold.

McDonald’s executives are searching for ways to bring more diners through the chain’s doors. They reported that all-day breakfast in the United States is performing well since being launched on Oct. 6. They also are rethinking value menus and planning more restaurant renovations.

The breakfast expansion, hailed by so-called “breakfastarians,” irked some restaurant operators who worried that it would slow service and ding sales of more profitable lunch and dinner items.

“All-day breakfast will be our next growth platform,” said McDonald’s USA President Mike Andres. He and other executives declined to quantify the sales lift from the new program.

McDonald’s also announced plans to step up restaurant sales to franchisees and to cut even more costs.

The company whet investor appetite by raising its quarterly dividend to 89 cents per share from 85 cents. Executives said McDonald’s would take on additional debt to help fund its plan to give more money back to shareholders through share buybacks and other programs.

For 2016, McDonald’s expects overall restaurant sales to increase 3 percent to 5 percent and operating income to grow 5 percent to 7 percent, excluding charges.

Shares of the chain, which was among the fast-food companies targeted in a multicity protests for higher wages on Tuesday, closed little changed at $113.22.

Reporting by Lisa Baertlein in Los Angeles; Editing by Meredith Mazzilli, Bernard Orr and Steve Orlofsky