The following data is based on RR’s Annual Lender Unit Economic Survey representing more than 15,400 franchised units (14,800 QSR and 600 FSR across 29 chains) for FYE 2020.
Notably, lower FSR franchisee representation in lender portfolios reflects: (1) increased franchisor acquisitions of large franchisees (Buffalo Wild Wings, Chili’s and TGI Friday’s); (2) lenders reducing exposure to FSR franchisees through loan sales or payoffs; and (3) a move out of the performing portfolio group from stressed FSR borrowers.
2020 rent as a percent of portfolio sales declined 60 bps to 6.1% for QSR (benefit of sales leverage) but increased 140 bps for FSR (sales deleverage and longer-term impact of rent escalations associated with the use of sale leaseback financing).
As rent represents an average for the portfolio (including a combination of both leasehold and fee collateral) the percentage should not be misconstrued for actual rent payments.
QSR franchisee adjusted leverage (Debt+Rent*8)/EBITDAR) declined to 4.45x in 2020 from 5.14x in 2019, also reflecting this segment’s strong results.
The QSR average Fixed Charge Coverage Ratio “FCCR” (Annual Debt Service Payments + Rent)/EBITDAR) improved to 1.94x in 2020 from 1.60x in 2019 and far exceeds the typical minimum 1.25x ratio used to underwrite franchise loans.
FSR leverage ratios are not available as the sharp sales declines distorted EBITDA (negative in some situations) with liquidity becoming the main focus for these borrower.