1H:22 Restaurant Valuation & Finance Update
- RR’s 1H:22 Restaurant Valuation & Finance Update Report provides: (1) 1H:22 EBITDA multiple estimates (post G&A) for 45 chains based on survey data from 9 leading appraisal/brokerage firms; (2) a comparison of public restaurant company and private franchisee valuation multiples; (3) 1H:22 restaurant M&A activity; (4) a summary of real estate cap rate trends based on data provided by Marcus & Millichap; and (5) an update on lending availability, changes to underwriting standards, lending rates and borrower financial condition derived from a survey of leading lenders.
- Aggregate 1H:22 franchisee unit-level EBITDA valuation multiples contracted slightly (-2.3% y/y) and are -3.9% below their 2H:16 peak.
- 2H:22 EBITDA multiple outlook (-6% y/y decline) would be the biggest contraction since 1H:20 and reflects weaker unit level economics; higher borrowing costs; and a growing disconnect between seller & buyer perception of going forward profitability.
- 1H:22 $1B+ Chain public restaurant company valuation multiple and premium continued its sharp descent and is now closer to the pre-covid average given lower stock prices which more than offset an EBITDA decline.
- Cap rates for single-tenant net-leased $1B+ Chain restaurant properties declined despite higher interest rates because the majority of transactions in the $1M to $3M range are all cash deals.
- Full-year 2022 restaurant originations (excluding sale leaseback financing) are now projected to be $10.5B which is -23% lower compared to initial expectations.
- Lenders report a decline in QSR borrower financial condition. Notably, while QSR profit margins are generally higher than FSR, QSR profit margins have been shrinking more rapidly.
- Underwriting standards are slightly more conservative since the beginning of the year and remain more conservative for FSR transactions.
- Borrowing rates have increased +40% since January due to an increase in benchmark interest rates while loan spreads remain basically unchanged.