Same Store Sales Trends

Solid 4Q Outlook Improves Further

• RR’s 4Q:19 comp forecast improved to +3.6% from +3.2% last month primarily due to strong results at McDonald’s (+5.0%) and Starbucks (+6.0%).
• Government data shows improving FSR trends and Darden reported that industry comps (excluding OG & LongHorn) increased +0.3% with a -2.3% traffic decline during its fiscal quarter ended 11/24/19.
• Darden reported that consumers are willing to visit brands with compelling value & strong in-store execution and that it faces more pressure on some promotional constructs that have now become permanent parts of menus.
• Weather cooperated during 4Q:19 and December was the 6th warmest on record.

Promotional Composition

FSR follows QSR with Plant Protein & Pivots to Premium

• The average QSR promotion price point declined -4.2% while the average FSR promotion price point increased +12.7% due to more $12+ promotions.
• FSR product innovation benefited from several new bowl options and plant-based meat alternatives (as sit-down seeks to follow-on QSR’s success with this new protein option).

Economic Outlook

1Q:20 GDP Growth Outlook off to a Good Start

• 1Q:20 GDP growth outlook is off to a good start and the markets seem to be discounting a muted impact from the Coronavirus.

Key Cost Trends & Forecasts

Lower Beef & Turnover Helps with Cost Inflation

• While the costs for the vast majority of RR’s tracked commodities remain elevated, beef prices are fortunately subdued.

• Lower quits suggest lower turnover rates.

Franchisee EBITDA Valuations

Valuation Index Turns Bullish

• RR’s Valuation Index turned slightly bullish reflecting favorable financing environment (low rates & ample supply of capital from both traditional lenders and private equity), somewhat offset by cost inflation.

Stock Performance

Buyouts Continue to Support Remaining Restaurant Stocks

• RR’s $1B+ Chain Index increased almost +2%, with FSR slightly outpacing QSR and growth restaurant stocks strongly rebounding after a difficult 2019.
• Acquisition tailwinds help the smaller chains and a +33% increase in Habit Burger reflects Yum Brands buyout plans announced on 1/6.

Marcus & Millichap Cap Rates

Cap Rates Fall to Lowest Level Since 2008

• The single-tenant net-lease market remains strong due a large supply of private investors looking to place 1031 funds and cheap debt that is available for properties associated with national chains.
• In addition, the high level of franchisee consolidation and subsequent sale of underlying real estate over the last several years has improved the strength of guarantors (larger & more diversified).