Investing Like McDonald's With Net Lease REITs by Brad Thomas
Summary
- For those of you who aren’t familiar with the term - net leases are about as sweet a spot as a landlord can get.
- The owner doesn’t have to worry about much of anything other than providing the building itself.
- Realty Income remains my second-largest holding and I wanted to provide readers with three good reasons why I maintain healthy exposure in this all-purpose SWAN.
- Looking for a portfolio of ideas like this one? Members of iREIT on Alpha get exclusive access to our model portfolio. Get started today »
If I asked you what the largest real estate company in the world was, what would your answer be?
Quickly. And without consulting Google, Alexa, Siri, or any other such source of artificial intelligence.
Put on the spot like that, you might have come up with some pretty good answers, such as:
- The Blackstone Group (BX)
- Brookfield Asset Management (BAM)
- Simon Property Group (SPG)
If you went with any of those possibilities, you’d definitely be on track. Two of them made Forbes’ Top 10 in its “World’s Largest Real Estate Companies 2018” list.
As of June 6, 2018, Brookfield was actually No. 1 on there, with sales of $47.59 billion, profit of $2.34 billion, assets of $195.94 billion, and market value of $38.91 billion.
Simon Property Group, another REIT, made No. 3. And Blackstone wasn’t included at all, probably because it’s a private equity firm, first and foremost.
Though, with $157 billion of real estate-related investor capital under management, I still say it’s a good guess.
Then again, according to National Real Estate Investor, the same could be said if you’d answered “McDonald's” (MCD) too.
Photo Source
A Massive Real Estate Empire
If that last line sounded like an out-of-the-blue subject switch, it really wasn’t. And I’m sure the information below can convince you as much.
It’s compelling data to take in, to say the least.
On Nov. 6, National Real Estate Investor released a very interesting review. “Under New Leadership,” the headline read, “Will McDonald’s Grill Up a New Real Estate Strategy?”
It went on to detail how:
Steve Easterbrook became president and CEO of McDonald’s Corp. in March 2015, just eight months before the fast-food chain rejected the idea of spinning off its vast real estate holdings into a REIT. But now that Easterbrook has been ousted as the head honcho of McDonald’s, will the country’s No. 1 fast-food chain, as measured by revenue, revisit the REIT route?
I won’t make you guess about that answer. Because the writer immediately provides an opinion for his own question.
Though I will mention, in case you didn’t know, that Easterbrook’s ousting wasn’t job performance related. He was seeing someone within the company – something McDonald’s apparently doesn’t tolerate.
At all.
Especially in the #MeToo era (even though the affair was entirely consensual, by all reports).
That aside, here's the article’s solid opinion on McDonald’s spinning off a real estate investment trust:
“Don’t count on it, experts say. It’s about as likely that McDonald’s would launch a REIT spinoff as it would be to spot the new president and CEO, Chris Kempczinski, chowing down on a Burger King or Wendy’s hamburger.”
Considering the figures McDonald’s is working with, I don’t see any reason to disagree. Besides, the IRS no longer allows C-Corps to spin real estate into a REIT, the ruling only works now for REIT-to-REIT spins.
...Originally Posted On Seeking Alpha
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