Why The Success Of Darden's REIT Matters For McDonald's
McDonald's Corporation (NYSE: MCD) managed to report better than expected second-quarter earnings earlier today, with positive comps in Europe partially offsetting declines in other regions.
David Palmer, RBC Capital Markets, was on CNBC recently to weigh in on the company's earnings and discuss whether it should spin off its real estate holding into a REIT.
'The U.S. Is A Real Grind'
"It was very much in line from a comp perspective in the U.S.," Palmer began. "The international side actually was worse than expected. But that's the very area of their P&L that they think is going to get better more quickly in the second half.
"The U.S. is a real grind. They have some things that are going on, everything from Minions Happy Meals to new platform for innovation. And then the bigger news might be the Breakfast All Day that's coming fourth quarter; I believe that they are very excited about the prospects for that."
REIT Spin Off
On McDonald spinning off its real estate holding into a REIT, Palmer said, "The REIT thing has been more openly discussed by this company in conferences than we would have expected them to be talking about at this point, and certainly Darden is going through a little bit of an experiment that everyone is watching."
He explained, "Right now, they are pursuing the REIT and whatever cap rate they get for that, McDonald's would most certainly go through that and could become a provocative reason for them to pursue it. But, I think, first things first they need to make sure that their franchisees and their system is on firm footing before they do anything funkier like that," Palmer said.
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