July 26, 2024 – SLB Capital advisors shared insights with QSR Magazine regarding sale leasebacks in the QSR space
“For many restaurants, [the recent increase in interest rates] has impacted profitability and presented a barrier to supporting the rebound of the food service industry . . . An attractive financing option that restaurants with owned real estate can consider is a sale leaseback. These transactions are often considered a hybrid capital alternative, and with debt markets functioning well but still expensive, SLBs are now even more attractive on a comparative basis.”
“Sale leaseback transactions involve the selling of owned properties and then simultaneously leasing them back from the buyer under a long-term lease, unlocking valuable capital that is tied up in real estate. This freed-up capital can then be used to fund M&A, new unit development, and to pay down debt, among other use cases.”
“Not only is the sale leaseback a cost-effective financing mechanism, it is in many cases a tool to create additional value for the operator. As businesses typically transact on the basis of EBITDA multiples, sale leaseback valuations can effectively be translated into multiples for a straight-forward comparison. Most QSR sale leasebacks see multiples in the 13 to 15x range, with some north of 16x. Any time a QSR business is valued inside the SLB multiple, there is an arbitrage to be captured simply by the exercise of executing a sale leaseback.”
SLB also shared perspectives regarding Red Lobster and the company’s use of the sale leaseback: “the private equity investors did what they do best: efficiently capitalize investments in companies they intend to grow and improve. In the case of Red Lobster, the pandemic, food inflation and competitive pressure ultimately led to the firm’s unfortunate bankruptcy.”
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