Restaurant Franchise Financing Rebounds to Pre-Pandemic Levels, MUFG Says
According to Brian Geraghty of Mitsubishi UFJ Financial Group (MUFG), restaurant franchise financing has rebounded to pre-pandemic levels in the U.S. Loan terms and pricing are now as competitive as before COVID-19, with rent-adjusted leverage ratios rising to 5.75. Mergers and acquisitions are increasing, particularly among quick-service and fast-casual restaurants, showing significant capital availability. Restaurants learned from the pandemic, leading to improved efficiencies and a focus on drive-through and take-out services. MUFG, a leading global financial institution, boasts total assets of approximately $3.3 trillion.
- Restaurant franchise financing has rebounded to pre-pandemic levels, indicating a recovering market.
- Loan terms and pricing are competitive, with rent-adjusted leverage ratios rising to 5.75.
- Increased mergers and acquisitions activity in the restaurant sector signals healthy capital availability.
- Restaurants have improved efficiencies and customer service post-pandemic, shifting focus to drive-through and take-out.
- Casual-dining and fine-dining establishments face greater challenges compared to quick-service models.
NEW YORK, Dec. 4, 2020 /PRNewswire/ -- Financing for restaurant franchise operators in the large and middle-tier segments has mostly bounced back to what it had been before the onset of the COVID-19 pandemic, according to Brian Geraghty, head of Restaurant Finance at Mitsubishi UFJ Financial Group (MUFG).
A resurgence in rent-adjusted leverage
"In the U.S. we see loan terms and pricing that are as aggressive as they were prior to the full-blown health crisis that came into view in late-March," Mr. Geraghty says, adding that banks have reverted to accepting a higher leverage profile among borrowers for financing. "We see franchisees' rent-adjusted leverage ratios back to 5.75 after tightening by roughly three-quarters of a turn—to 5.0—during the spring of 2020."
Rent adjusted leveraged (RAL), also known as lease-adjusted leverage, is the ratio of debt to EBITDAR (or earnings before interest, taxes, depreciation, amortization and rent costs). Restaurant lenders evaluate the RAL of their borrowers, many of which do not own their properties but rather lease them.
Rise in M&A and franchise purchases
Mr. Geraghty cites recent momentum in merger-and-acquisition (M&A) activity in the quick-service and fast-casual market categories of the restaurant industry, which are defined as establishments offering quick, inexpensive dining with limited preparation and customization, no seating hosts, and no alcoholic beverages.
"Recent restaurant acquisitions in these market categories highlight the substantial amount of readily available capital for deployment," he says. "Financial buyers, in particular, see investment opportunities in large and mid-sized restaurants that are surviving the pandemic, proving the resilience of their business models, and able to provide portfolio diversification as consumer-facing outfits."
Mr. Geraghty also points to an upswing in the valuations and frequency at which franchise establishments are changing hands. "In the mid-sized segment, we see a greater number of franchisee purchases at high prices, which indicate to us the desire of owners to enter into this space or expand their foothold," he says.
Lessons learned from the pandemic
Mr. Geraghty notes that restaurants have emerged from the pandemic with valuable learning experiences that are helping them improve efficiency, enhance customer service and economize.
"The changing economics of quick-service and fast-casual restaurants have led many to shift their focus to drive-through and take-out offerings, and to invest in the technological infrastructure that enables them to field online orders," he says. "All the same, casual-dining, family-dining and fine-dining establishments, which rely more on table service, are facing greater challenges."
MUFG is one of the world's largest financial institutions by assets, with approximately
About Mitsubishi UFJ Financial Group, Inc.'s U.S. Operations including MUFG Americas Holdings Corporation
The U.S. operations of Mitsubishi UFJ Financial Group, Inc. (MUFG), one of the world's leading financial groups, has total assets of
About MUFG
Mitsubishi UFJ Financial Group, Inc. (MUFG) is one of the world's leading financial groups. Headquartered in Tokyo and with more than 360 years of history, MUFG has a global network with over 2,700 locations in more than 50 countries. The Group has over 180,000 employees and offers services including commercial banking, trust banking, securities, credit cards, consumer finance, asset management, and leasing. The Group aims to "be the world's most trusted financial group" through close collaboration among our operating companies and flexibly respond to all of the financial needs of our customers, serving society, and fostering shared and sustainable growth for a better world. MUFG's shares trade on the Tokyo, Nagoya, and New York stock exchanges.
Visit https://www.mufg.jp/english for more information.
1 As of September 30, 2020, at the exchange rate of USD=
Press contact:
Assaf Kedem
T: 212-782-4926
E: akedem@us.mufg.jp
View original content to download multimedia:http://www.prnewswire.com/news-releases/restaurant-franchise-financing-rebounds-to-pre-pandemic-levels-mufg-says-301186435.html
SOURCE MUFG
FAQ
What does MUFG say about restaurant franchise financing trends in December 2020?
What is the current rent-adjusted leverage ratio for restaurant franchise operators according to MUFG?
How has the pandemic affected mergers and acquisitions in the restaurant industry?
What changes have restaurants made post-pandemic according to MUFG?
What are the total assets reported by MUFG as of September 30, 2020?
