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Research Report

Tenant Profile – McDonald’s

McDonald’s was founded in 1940 in San Bernardino, CA by brothers Dick and Mac McDonald as a Bar-B-Q restaurant. In 1948, the McDonald brothers remodeled and reopened the restaurant as a “self-service drive-in restaurant” with nine items on the menu: hamburgers, cheeseburgers, soft drinks, milk, coffee, potato chips, and a slice of pie.

 

Tenant Description

McDonald’s took off after Ray Kroc visited the restaurant looking to sell milkshake mixers and left as their franchise agent. Ray Kroc opened a restaurant in Des Plaines, IL in 1955 and acquired the rights to the McDonald’s company in 1961. Today, McDonald’s has grown into the largest quick service chain in the world with 37,855 restaurants located in over 120 countries.

Net Lease Overview

McDonalds, QSR, STNL McDonald’s is a highly desirable net lease tenant due to investor-friendly leases, a strong corporate guarantee, and good real estate fundamentals. McDonald’s tends to sign ground leases, where they agree to lease the land and develop their own buildings. These types of leases leave investors with no landlord responsibility, and the periodic rental increases outlined in the lease agreement offer a hedge against inflation.
McDonald’s investment-grade credit (S&P BBB+) guaranteeing the lease reduces the risk for investors. McDonald’s restaurants tend to be in great locations. McDonald’s corporate real estate team will analyze traffic and walking patterns, census data, and other relevant information to ensure long-term sales and profit potential. These factors make these pieces of real estate attractive to any retail tenant. The floorplan of McDonald’s also make it easy for another QSR tenant to use the space if McDonald’s were to vacate.

McDonald’s has the second highest average sales per location amongst the major QSR burger chains. In US Systemwide sales, McDonald’s is much larger than any competitor.

McDonald’s has consistently sold at a significant premium to the STNL average. Their investor friendly leases and quality locations are large factors in their high valuations. McDonald’s has long been a best in class tenant in an Internet-resistant sector. The QSR industry as a whole is unlikely to be disrupted by online competitors due to the immediate need/want of the customer and the difficulty of shipping hot food.

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Amanda WillisTenant Profile – McDonald’s

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