Restaurant Finance Update:
- FY24 restaurant loan originations (excluding sale leaseback financing) are now projected to be -9.5% lower than preliminary expectations at the beginning of the year due to a decline in M&A activity (somewhat offset by an increase in development financing).
- While expected FY24 originations are now lower than originally forecasted at the beginning of the year, the current $9.6B target would represent +10% y/y growth vs. 2023.
- Lenders report a slight decline in both QSR & FSR borrowers’ financial condition.
- Underwriting standards have tightened slightly for both QSR & FSR.
- Borrowing rates are slightly higher for both QSR & FSR since January and primarily reflect a small increase in the loan spread as benchmark interest rates are basically unchanged.
- Improving FY25 lender outlook reflects slightly improving 2H24 trends and Fed plans to cut rates.
Unit Level Franchisee Enterprise Valuations Update:
- The average 1H24 franchisee unit-level EBITDA valuation multiple declined slightly (-0.7% vs. 2H23) and remains -3.8% below the 1H16 peak.
- Expectations for a further -3% 2H24 EBITDA multiple decline vs. 1H24 reflect current headwinds expressed by the appraisers, including: a more difficult lending environment; elevated borrowing costs; and a disconnect between buyers & sellers as it relates to unit economic forecasts which has resulted in reduced M&A volume.
- 1H24 $1B+ Chain public restaurant company valuation multiple and private franchisee transaction premium contracted due to stock price declines.
- Cap rates for single-tenant net-leased $1B+ chain restaurant properties remain elevated but basically unchanged during 1H24. FSR transaction volume has declined significantly.
Order Report
