Report Highlights

1H:20 EBITDA multiple estimates (post G&A) for 45 chains based on survey data from 8 leading appraisal firms; (2) a comparison of public restaurant company and private franchisee valuation multiples; (3) a summary of real estate cap rate trends based on data provided by Marcus & Millichap; (4) an update on lending availability, changes to underwriting standards, lending rates and borrower financial condition derived from a survey of leading lenders; and (5) an overview of RR’s DCF valuation model useful for smoothing out temporary disruptions.

Conclusions

(1) While 1H:20 franchisee EBITDA valuation multiples declined 7.0% to 4.63x, it is 7.4% higher than the 12-year low (4.31x) set in 2009 and only -3.9% below the 10-year average (4.82x); (2) full year 2020 restaurant loan originations are expected to come-in -42.7% lower at $5.3 billion compared to initial expectations in January – this would represent the lowest origination amount since 2011 ($4.6B); (3) 84% of the 38 survey participants indicate that they are currently lending. Of those 32, only 9 have outlined lending terms for FSR borrowers suggesting that the vast majority are not lending to this segment; (4) while loan underwriting standards are relatively unchanged for QSR, FSR standards are significantly more stringent; (5) the public $1B+ chain restaurant company valuation multiple and premium continued to expand due to strength in QSR, reaching the highest level in at least 10 years; and (6) aggregate cap rates for single-tenant net-leased restaurant properties decreased slightly as lower interest rates fully off-set an increased risk premium.

1H20 Valuations & Finance Update – Outline