Industry Data Report Finance & Valuations 2018 RR s Finance & Valuation IDR is based on survey responses (equally weighted) from 49 finance companies including traditional cash flow franchise lenders, sale leaseback companies, SBA lenders, equipment finance companies and financial consultants/advisors. Report highlights: (1) 2017 restaurant financing volume of $12.8 billion was slightly below the 2016 record but spot on with initial year projections and represented a solid year; (2) 2018 origination prospects are expected to come in slightly higher at $13.1 billion; (3) despite more lenders entering the space and a compression in LIBOR spreads, borrowing rates ticked-up in 2017 due to an increase in index rates and a similar outlook is expected for 2018; (4) private unit level EBITDA valuation multiples for large chains have been trending slightly lower since 2H:16 which reflects higher labor costs, commodities and interest rates while the highest multiples associated with the largest deals compressed the most; (5) 2H:17 public franchisor EV/EBITDA multiples held steady relative to private franchisee EBITDA multiples and the public multiple premium is in the middle of our historic range; and (6) cap rates reached new lows. Table of Contents Page Financing Restaurant Finance Overview 2 Origination Volume & Portfolio Size 3 Estimated Franchisee Financing Needs 4 Key Rates 5 Equity Requirements 6 Leverage Ratios 7 Loan & Amortization Terms 8 Valuations 2H:17 Valuation Update 9-10 EBITDA Multiples by Chain 11 Factors Impacting Valuations 12 Public Company Valuations 13-14 Real Estate Cap Rates 15 Valuation Methodology 16 Survey Participants & Contact Listing Survey Participants & Roster Changes 17 Key Finance & Valuation Contacts 18-19 Copyright: This Restaurant Research LLC document is copyrighted material. Due to the No Electronic Theft (NET) Act of 1997, electronic forwarding or other forms of redistribution, without the express permission of Restaurant Research LLC, are violations of law and could be subject to fines of up to $250,000 and up to five years of imprisonment, even when no financial gain or commercial advantage accrues to the forwarder/re-distributor. Copyright 2018 Restaurant Research LLC. All rights reserved.
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Origination Volumes & Portfolio Size IDR: Finance & Valuations Source: RR Estimates Page 3
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Key Rates IDR: Finance & Valuations Source: RR Estimates Page 5
Equity Requirements IDR: Finance & Valuations Source: RR Estimates Page 6
Leverage Underwriting Ratios IDR: Finance & Valuations Source: RR Estimates Page 7
Loan & Amortization Terms IDR: Finance & Valuations Source: RR Estimates Page 8
Estimated Franchisee Unit Level Valuations RR s franchisee unit level business valuations (post G&A EBITDA multiple) are based on estimates provided by 8 leading appraisal firms (responsible for approximately 2,700 store valuations over the last 6 months across 45 national chains). Multiples are generally indicative to deal sizes below $500k in EBITDA and/or 5 units. Please note the following valuation multiples include a standardized allocation for G&A on a per unit basis. For more detail on the valuation methodology, refer to page 16. IDR: Finance & Valuations Source: RR Estimates Page 9
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Availability of Capital Financing Terms Unit Level Economics Availability of Units for Sale Source: Restaurant Research LLC January 2018 Valuation Survey Summary of Valuation Comments Survey Participant Contact Information Firm Contact Main Number Email Advanced Restaurant Sales, LLC EPK National Restaurant Appraisal FranBizNetwork Hopkins Appraisal Services, Inc. National Franchise Sales National Restaurant Brokers, Inc. Praetorian Group Trinity Capital LLC IDR: Finance & Valuations Source: RR Estimates Page 12
Public Company Valuations (EV/EBITDA) Public restaurant stock market valuation data on pages 13 & 14 were provided by Hedgeye Risk Management. IDR: Finance & Valuations Source: RR Estimates Page 13
IDR: Finance & Valuations Source: RR Estimates Page 14
Marcus & Millichap Real Estate Cap Rates About the Contributing Firm: The Nisbet Group is a member of the National Retail Group of Marcus & Millichap which specializes in representing institutional and private companies in the disposition of multi-tenant and single tenant retail properties. For more information, please contact Hank Wolfer of The Nisbet Group at (206) 826-5730 IDR: Finance & Valuations Source: RR Estimates Page 15
Valuation Methodology (1) Business Value is determined by using an appropriate multiple of adjusted EBITDA. - - - - Some typical EBITDA adjustments include: (2) Real Estate Value (land and building) is determined by: - - Example - Fee Restaurant Property Business Value Real Estate Value Sales Adjusted EBITDAR Implied Rent Adjusted EBITDA Multiple Business Value Implied Rent/Sales Implied Rental Income Cap Rate Real Estate Value Total Value Development agreements IDR: Finance & Valuations Source: RR Estimates Page 16
Industry Player Roster Changes New Entrants Exits M&A/Partnerships (1) Primarily SBA lending. (2) (3) IDR: Finance & Valuations Source: RR Estimates Page 17
Company Contact Phone # Amegy Bank ApplePie Capital Atlantic Capital Bank Bank of America Bankers One Capital BBVA Compass BMO Harris Bank Franchise Finance Bridge Funding Group Byline Bank SBA Franchise Lending Cadence Bank CIT Bank, N.A. LLC (Mid Cap) CIT Direct Capital Citizens Bank Restaurant Finance City National Bank City National Capital Finance Customers Bank Commercial Finance ECN Capital Fifth Third Bank First Fidelity Bank First Franchise Capital Corporation First Tennessee Bank Franchise Finance Flagstar Bank Gulf Coast Restaurant and Franchise Finance Huntington National Bank Live Oak Bank M & T Bank Manufacturers Bank Marlin Business Services Corp. Northern Bank Pacific Premier Franchise Capital Pinnacle Commercial Capital ReadyCap Lending, LLC Regions Restaurant Bank Signature Financial Southwest Bank Sterling National Bank TCF Franchise Finance Restaurant Research Franchise Finance Contacts - 2018 Regional Focus Industries Served Type of Financing Real Restaurant C&G Other Retail Estate Equipment Enterprise SBA Sale- Leaseback Finance Companies Development Financing Typical Deal size Min Max Avg Minimum Requirements Yrs. In Business Units Owned
Company Contact Phone # TD Bank - Restaurant & Franchise Finance Texas Capital Bank Umpqua Bank United Business Bank Vendor Alliance Capital, Inc. Wells Fargo Bank - Restaurant Finance Western Alliance Bank Western Equipment Finance Wintrust Franchise Finance Zions First National Bank CapitalSpring The Nisbet Group of Marcus & Millichap Pacific Management Consulting Group Peak Franchise Capital LLC Trinity Capital, LLC Advanced Restaurant Sales EPK National Restaurant Appraisal FranBizNetwork Hopkins Appraisal Services, Inc. National Franchise Sales National Restaurant Brokers, Inc. Praetorian Group Restaurant Research Franchise Finance Contacts - 2018 Regional Focus Industries Served Type of Financing Real Restaurant C&G Other Retail Estate Equipment Enterprise SBA Sale- Leaseback Finance Companies Private Investment Companies Sale Leaseback Companies Financial Advisors Valuation Experts/Brokers Development Financing Typical Deal size Min Max Avg Minimum Requirements Yrs. In Business Units Owned
Visit www.chainrestaurantdata.com or contact us at (860) 352-2198 or info@chainrestaurantdata.com Ask us about custom research projects Ask to be added to complimentary RR Thermometer email distribution list Copyright: This Restaurant Research LLC document is copyrighted material. Copyright 2017 Restaurant Research LLC. All rights reserved. Disclosure: Restaurant Research LLC often sells report subscriptions to concepts under our coverage. Disclaimer of Liability: Although the information in this report has been obtained from sources Restaurant Research LLC believes to be reliable, RR does not guarantee its accuracy. The views expressed herein are subject to change without notice and in no case can be considered as an offer or solicitation with regard to the purchase or sales of any securities. Restaurant Research s analyses and opinions are not a guarantee of the future performance of any company or individual franchisee. RR disclaims all liability for any misstatements or omissions that occur in the publication of this report. In making this report available, no client, advisory, fiduciary or professional relationship is implied or established. This report is intended to provide an overview of the restaurant industry, but cannot be used as a substitute for independent investigations and sound business judgment.