McDonald’s Tenant Overview
Updated: February 3, 2023
- High credit
- Increases in primary term
- Low price point
- Low cap rates
- New leases are flat for first 10 years
- Ground leases don't allow for depreciation
- Q4 2022 Earnings per share: $2.59 vs. $2.45 expected
- The company reported Q4 2022 net income of $1.9 billion, or $2.59 per share, up from $1.64 billion, or $2.18 per share, a year earlier.
- Globally, same-store sales climbed 12.6% in the quarter, fueled by strong demand in the U.S. and its largest European markets
McDonald's, with its "golden arches" and Dollar Menu, remains the dominant brand in the QSR space. With primary, secondary, and tertiary market locations, McDonald's size and reach provide a strategic competitive advantage, as well as varying risk/return investment opportunities for net lease property buyers. Brand recognition, operating stability, and strong credit ratings reinforce McDonald's standing as a prime net lease investment property.
McDonald's remains the best example of a "flight to quality" in net lease investing. As cap rates have adjusted across the board for all net lease investments, McDonald's assets continue to attract multiple buyers and trade at a significant premium over other properties. This aggressive pricing is a result of the high credit of the tenant, overall lease terms, and general lack of supply in the marketplace. While McDonald's, like most QSR brands, franchise the vast majority of their locations(approximately 93%), when leasing a location they almost exclusively select locations and guaranty leases on a corporate level.
The "Golden Arches" have long been a business school case study of a real estate business that happens to sell hamburgers, as they prefer to purchase the real estate of their restaurants versus leasing, which has in-turn, created a lack of supply in the net lease market. When they do lease a location, it is almost exclusively done so through a ground lease, generally for 20 years with 3 to 5 renewal options of five (5) years each. Previously McDonald's has been willing to offer rental increases of 10-15% every five (5) years of the lease, however lately they have been able to scale back their rental increases to 10%, and are currently signing leases that will be flat for the first ten (10) years. In terms of the underlying real estate, McDonald's needs 0.75 - 1.25 acres of land with premier access and visibility. While McDonald's has used their strength to negotiate lower rental rates, that has translated into easier rents to replace in the unlikely event a site were to be vacant. That situation is viewed as extremely unlikely given their lofty credit and significant financial investment in each location by paying for the construction of their own structure.
McDonald's Corporation is the world's largest chain of quick-service restaurants (QSR), with over 37,000 restaurants in over 100 countries serving burgers and fries. Approximately 93% of McDonald’s restaurants are currently operated by independent franchisees. McDonald’s has set a goal to franchise approximately 95% of all locations.
McDonald's restaurants are either company-owned and operated or operated by franchisees. There are over 14,000 restaurants in the US alone. McDonald’s Corporation’s revenues come from the rent, royalties, and fees paid by the franchisees, as well as sales in company-operated restaurants.
Average Cap Rate
12 mo avg with 10+ yr lease term
Average Property & Lease
|Average Sale Price
||0.75 - 1.25 Acres
||10% Every 5 Years
Average Cap Rate Trend
Rates reflect last 12 mos, short and long-term
Recent Sales Comps
|North Las Vegas, NV
Featured Tenant Profiles
Avg. Cap Rate: 4.80%
Sector: Big Box
Avg. Cap Rate: 5.68%
Sector: Casual Dining
Avg. Cap Rate: 5.71%