In December 2006, 12% Letter readers bought McDonald's Corporation. Most people think McDonald's is a burger-flipping company. The reality is, the franchisees flip the burgers and manage the restaurants. McDonald's owns the properties and collects 9% royalties. In other words, McDonald's is just a glorified landlord.
The MDC uses a similar model. It buys property from convenience stores, gas stations, and fast-food restaurants. It then leases it back to store operators through long-term contracts. The retail chains get a cash-injection to grow their businesses. The MDC gets the property and a 9% rental yield.
That's it. It's a very simple model. In the industry, this arrangement is called a "sale-leaseback." But you and I can think of the MDC as a retail landlord.
Unlike McDonald's, the MDC is set up as a REIT, so it pays no corporate tax as long as it distributes all of its profits back to shareholders each year in dividends.
Sale-leasebacks release valuable capital from unproductive, volatile assets, like property, and allow business owners to focus capital on their core business. The stock market rewards companies that grow earnings with much higher multiples than asset-rich companies, so sale-leasebacks push up share prices.
And private-equity groups and corporate raiders use sale-leasebacks to raise money for their takeovers. Conversely, asset-rich companies use sale-leasebacks to make themselves less attractive to the raiders.
Right now, the sale-leaseback business is hot. The financial world has figured out that retail companies have hidden treasure in their balance sheets.
Over the last 10 years, the MDC has averaged $220 million per year in new property acquisitions. In 2006, using exactly the same strategies and underwriting standards it has always used, it acquired $770 million... that's 3.5 times its regular volume.
The MDC uses a similar model. It buys property from convenience stores, gas stations, and fast-food restaurants. It then leases it back to store operators through long-term contracts. The retail chains get a cash-injection to grow their businesses. The MDC gets the property and a 9% rental yield.
That's it. It's a very simple model. In the industry, this arrangement is called a "sale-leaseback." But you and I can think of the MDC as a retail landlord.
Unlike McDonald's, the MDC is set up as a REIT, so it pays no corporate tax as long as it distributes all of its profits back to shareholders each year in dividends.
Sale-leasebacks release valuable capital from unproductive, volatile assets, like property, and allow business owners to focus capital on their core business. The stock market rewards companies that grow earnings with much higher multiples than asset-rich companies, so sale-leasebacks push up share prices.
And private-equity groups and corporate raiders use sale-leasebacks to raise money for their takeovers. Conversely, asset-rich companies use sale-leasebacks to make themselves less attractive to the raiders.
Right now, the sale-leaseback business is hot. The financial world has figured out that retail companies have hidden treasure in their balance sheets.
Over the last 10 years, the MDC has averaged $220 million per year in new property acquisitions. In 2006, using exactly the same strategies and underwriting standards it has always used, it acquired $770 million... that's 3.5 times its regular volume.
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