1H23 Restaurant Lending Update
- Full-year 2023 restaurant originations (excluding sale leaseback financing) are now projected to be $8.3B, -35% lower than initial expectations at the beginning of the year.
- Lenders report a slight improvement in their borrowers’ financial condition due to higher unit-level sales and easing commodity costs, partially offset by higher borrowing costs.
- Underwriting standards have not changed significantly for QSR but have tightened slightly for FSR.
- Borrowing rates have increased +20% since January, primarily reflecting an increase in benchmark interest rates and higher loan spreads to a lesser extent.
1H23 Restaurant Valuations Update
- Aggregate 1H23 franchisee unit-level EBITDA valuation multiples increased slightly (+2.0% vs. 2H22) but remains -3.7% below 1H16 peak.
- Expectations for a -4.6% 2H23 EBITDA multiple decline vs 1H23 would represent the largest contraction since 1H20 and reflects current headwinds which include: a more difficult lending environment; significantly higher borrowing costs; and disconnect between buyers & sellers as it relates to unit economic forecasts.