Bubble? What Bubble?
People are now buying McDonald's not because they like the burgers, but because the like the dirt UNDER the burgers!
UPDATE 2-McDonald's real estate stirs investor interest
Thu Aug 11, 2005 05:39 PM ET
(Recasts, adds McDonald's CFO quotes, updates options and share activity)
By Doris Frankel
CHICAGO, Aug 11 (Reuters) - McDonald's Corp. (MCD.N: Quote, Profile, Research) shares soared to a four-and-a-half year high and bullish trading in call options on the company's stock heated up on Thursday due to market talk that private equity firms may seek to take a stake in the fast-food restaurant chain's real estate assets.
"There are rumors that one or more private equity firms may take a stake in McDonald's in a play on their undervalued real estate holdings," said Mark Bell, chief operating officer at Spyglass Trading L.P., a Dallas, Texas-based broker/dealer specializing in institutional options trading.
"This rumor has stimulated call buying by speculators yesterday and today, hoping that the price of the stock will jump," Bell said.
McDonald's spokeswoman Lisa Howard said the company does not comment on market rumors.
By Thursday's close, a combined total of 107,525 calls and 25,798 puts changed hands across the U.S. option exchanges on McDonald's, far exceeding its average daily volume of 4,388 contracts, according to market research firm Track Data.
It was the second straight day of above-average activity in call options on McDonald's stock.
"Today, everyone is on board as buyers of the calls," said one options trader at the Chicago Board Options Exchange, who declined to be named.
Bell noted that the McDonald's calls, which give the right to buy the stock at $32.50 by mid-September, were active on Thursday.
One options strategist said interest in the company's real estate assets had driven buying over the last month.
"McDonald's has rallied sharply from $28 a month ago on value investors being attracted to McDonald's real estate portfolio," said Paul Foster, options strategist at theflyonthewall.com, a financial information Web site.
"Options have stayed robust after they reported earnings, which is unusual," Foster added.
The question of whether McDonald's might spin off or otherwise separate its real estate holdings from its primary fast-food business has come up in the past.
Most recently, Chief Financial Officer Matt Paull told analysts during a conference call in April that while the company looks at such options yearly, he thought a separation would be unlikely.
"It's something that we believe would not add value to McDonald's and would be a tremendous distraction," Paull told analysts. "We do look at it periodically, we share it with our board, but it's very unlikely that we would ever go there."
Some real estate experts dismissed the idea of McDonald's properties being sold for their value.
"I would be stunned to think of McDonald's as a real estate play," said Richard Imperiale, president of Uniplan Real Estate Advisors Inc. He puts the value of McDonald's real estate at $8.80 per share.
Unlike Kmart, which last year sold stores where the retail performance was weaker than the value of the land on which they sat, McDonald's usually makes the real estate even more valuable because of the business it generates, analysts said.
The small size of a McDonald's location would limit redevelopment on that land to another type of fast food restaurant or a stand-alone convenience store, analysts said.
"If I were to acquire a bunch of underperforming locations from McDonald's, what do you with them? Normally if a McDonald's is underperforming in a location, you put a weaker franchisee in there and they die," Imperiale said.
McDonald's shares rose $1.99, or 6.1 percent, to close at $34.69 Thursday. The stock hit a high of $34.70 during the session, its highest level since January of 2001. (Additional reporting by Ilaina Jonas in New York, Jessica Hall in Philadelphia, and Nichola Groom in Los Angeles) |
