Restaurant Finance & 2H:22 Valuations

Mar 14, 2023 | Insights, Restaurant Research

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Restaurant Finance Executive Summary

  • 2022 traditional restaurant financing volume of $13.4 billion represents a -25% y/y decrease after a record 2021 and was -15% lower than last year’s survey projections.
  • 25% of participating financiers expect to increase 2023 loan originations (vs. 2022) while 19% plan to cut back, resulting in an expected +6.6% net increase to $14.2 billion.
  • 2022 loan portfolio balance increased by +6.2% to $65.6 billion (record high) as higher net new originations more than off-set principal repayments.
  • Lenders indicate a modest deterioration in the financial condition of their QSR borrowers in 2022 (we illustrate with a underwriting model tracking a 2019 credit) but a slight improvement in FSR – QSR borrowers are still outperforming overall.
  • Interest rate spreads remain stable but borrowing indexes have increased dramatically over the last 9 months.
  • Leverage underwriting ratios remain conservative relative to 2019 (although significantly more favorable for QSR) with total debt ratios expected to tighten slightly in 2023.
Annual Originations 2023
Annual Originations 2023

2H:22 Valuations & Cap Rates Executive Summary

  • Aggregate franchisee unit-level EBITDA valuation multiples contracted for the second consecutive period and a 1H:23 EBITDA multiple outlook of a -4.5% decline would be the biggest contraction since 1H:20.
  • Aggregate cap rates for single-tenant net-leased $1B+ chain restaurant properties increased only +10 bps in 2H:22 but recent property price reductions are driving cap rates higher and transaction volume lower.
2H22 EBITDA Valuations
2H22 EBITDA Valuations

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