Report Highlights

(1) 1H:21 EBITDA multiple estimates (post G&A) for 44 chains based on survey data from 7 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; and (4) an update on lending availability, changes to underwriting standards, lending rates and borrower financial condition derived from a survey of leading lenders.

Conclusions

(1) Franchisee EBITDA valuation multiples continue to recover and are now only -2.9% below their 2H:16 peak with QSR multiples at a new high and FSR multiples expanding at a faster pace than QSR (although still -13.7% below the 1H:16 peak); (2) while large deal multiple premiums remain below the 1H:18 peak, premiums for deals with $1M+ in aggregate EBITDA continue to rebound off the 1H:20 low; (3) the $1B+ chain public restaurant company valuation multiple and premium declined sharply as normalizing EBITDA levels more than off-set robust stock market appreciation, resulting in the convergence in QSR & FSR public company multiples to 28x; (4) Marcus & Millichap data indicates aggregate cap rates for single-tenant net-leased restaurant properties decreased slightly to 5.63% during 1H:21 from 5.73% in 2H:20 as strong demand and a reduced risk premium more than off-set an increase in interest rates; (5) full year 2021 restaurant originations (excluding sale leaseback financing) are expected to increase +19.1% compared to initial expectations in January; (6) only 37% of surveyed financial institutions are currently lending to FSR borrowers; (7) borrower financial condition reflects current sales trends (QSR outperforming FSR) with renewed concerns over a possible increase in dine-in restrictions representing a headwind for FSR’s recovery.

IDR 1H21 Valuations & Finance – 2021 – Report Outline