Quick Service Restaurant Report | 2018As 2017 drew to a close, net lease investors maintained a high level of interest in Quick Service Restaurant (QSR) investments. A primary attraction

Quick Service Restaurant Report | 2018

UNITED STATES MAP REGIONS

NORTHEAST

MID-ATLANTIC

SOUTH

MIDWEST

MOUNTAIN

WEST

1

WashingtonOregonCalifornia

MontanaIdahoWyomingNevada

UtahColoradoArizonaNew Mexico

North DakotaSouth DakotaMinnesotaWiconsinMichiganNebraskaIowa

IllinoisIndianaOhioKansasMissouriWest VirginiaOklahoma

TexasArkansasKentuckyTennesseeMississippiAlabama

North CarolinaSouth CarolinaGeorgiaFlorida

PennsylvaniaNew JerseyMarylandDelawareWashington D.C.Virginia

New YorkVermontNew HampshireMaineMassachusettsConnecticutRhode Island

WEST MOUNTAIN MIDWEST SOUTH MID-ATLANTIC NORTHEAST

toon DDD.CC. saachuseettsaaMMMain

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2

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

Arby's Burger King Chick-Fil-A Dunkin' Donuts KFC McDonald's Panera Bread Popeyes Sonic Starbucks Taco Bell Wendy's

Northeast Mid-Atlantic South Midwest Mountain West

No D

ata

Avai

labl

e

AVERAGE LISTING CAP RATE BY REGION | 0-10 YEARS TERM REMAINING

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

Arby's Burger King Chick-Fil-A Dunkin' Donuts KFC McDonald's Panera Bread Popeyes Sonic Starbucks Taco Bell Wendy's

Northeast Mid-Atlantic South Midwest Mountain West

AVERAGE LISTING CAP RATE BY REGION | 11-20 YEARS TERM REMAINING

Avai

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$1,650,000 $1,736,000

$2,898,088

$1,683,500$1,352,000

$2,025,000

$3,354,805

$2,333,000

$1,747,000

$2,210,000$1,825,000 $1,954,545

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

$3,500,000

$4,000,000

Arby's BurgerKing

Chick-Fil-A Dunkin'Donuts

KFC McDonald's PaneraBread

Popeyes Sonic Starbucks Taco Bell Wendy's

5.75% 5.75%

3.85%

5.25% 5.50%

4.20%

5.00% 5.32%

6.25%

4.90%5.50% 5.50%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

Arby's BurgerKing



Popeyes Sonic Starbucks TacoBell

Wendy's

3

MEDIAN ASKING PRICE

MEDIAN ASKING CAP RATE

4.20%

$1$1,650650,000000000000 $1$1,73367336,000000$2,025,00000

$2$2$2$2$2$2



$1,689,246$1,843,332

$3,429,191

$1,645,885$1,418,908

$1,909,346

$3,210,929

$2,398,136

$1,821,258

$2,341,404

$1,957,710$2,286,026

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

$3,500,000

$4,000,000

Arby's BurgerKing




5.86% 5.84%

3.81%

5.36%5.88%

4.28%

5.01% 5.27%

6.44%

4.76%

5.52% 5.54%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

Arby's BurgerKing




4

AVERAGE ASKING PRICE

AVERAGE ASKING CAP RATE

4.28%

1,689,246666$ , , 11111,90909090909099999,333444446666

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As 2017 drew to a close, net lease investors maintained a high level of interest in Quick Service Restaurant (QSR) investments. A primary attraction to these assets is their neutrality to e-commerce. While many retailers fear the surge of digital shopping, QSRs remain unphased by the ability to purchase goods online.

Investors, straying from the possibilities of vacancies and/or financial responsibilities, are driving the QSR sub-sector. 1031 exchange and private buyers have been, and will continue to be, drawn to these lower CAP rate assets. This is due to their long-term leases, minimal-to-no landlord responsibilites and rental increases throughout their base terms and options. The strucutre of these leases deem this asset to be a “safer” investment than others, resulting in a large shift in the supply and demand curve (surplus of demand, but a deficit of supply).

More than any other industry, the CAP rates for QSR investments are directly effected by the guarantee of the lease. In other sectors, such as drug stores, dollar stores, c-stores, etc., QSR leases can be either corporately or franchisee guaranteed. However, there is more beneath the surface. The more units a franchisee operates, the stronger the franchisee. The stronger the franchisee, the lower the CAP rate can be. The difference between a property with a corporately guaranteed lease rather than one guaranteed by a franchisee can range between 25-50 basis points.

With the new tax plan now in place, it should have an impact on single tenant investments moving forward. For starters, 1031 exchanges are here to stay, however real estate is the only industry still allowing this capital gains tax deferring exchange. This new tax plans reduces the corporate tax rate, and allows businesses set up as partnerships, sole proprietorships, or S-Corporations to see a 20% tax deduction. Investors who choose to deduct interest expenses on commercial loans, will now be able to do so at an uncapped rate.

The new year should provide a lot of activity, and we’ll keep an eye on it moving forward to see how all factors influence the QSR sector.

Jack in the Box Sells Qdoba Mexican GrillAfter growing Qdoba Mexican Grill from 85 locations in 16 states to over 700 units in 47 states and the District of Columbia throughout 14 years, Jack in the Box has decided to sell the fast casual Mexican chain. Private Equity Firm, Apollo Global Management, has agreed to pay $305 Million in cash for this brand.

Arby’s Owner Buys Buffalo Wild WingsOnce a publicly traded company, Buffalo Wild Wings will go private following the sale to Arby’s parent company, Roark Capital Group. Roark will look to turn around Buffalo Wild Wings’ 2-year sales skid.

Panera Bread Gets Acquired By Krispe Kreme Parent CompanyParent company to both Krispe Kreme Doghnuts and Caribou Coffee, JAB Holdings, has bought bakery chain Panera Bread for $7.2 Billion. This is the largest-ever U.S. restaurant deal.

New York Based Private Equity Firm Buys Checker’s Drive-In RestaurantsOak Hill Capital Partners, a New York private Equity Firm, struck a deal with another New York based firm, Sentinel Capital Partners, transferring ownership of the 31-year old burger chains, Checkers and Rally’s. This deal is said to be worth $525 Million for both brands.

CAP RATE TRENDS & ECONOMIC NEWS

QSR INDUSTRY NEWS

5



6

Company Stock Price 52-Week Low 52-Week High 1-YR Target Est.Stock information accurate as of close of business on Feb. 9, 2018

Arby’s Private

Burger King / Popeyes (QSP.UN) ' $70.71 $66.99 $87.77 N/A

Chick-Fil-A Private

Dunkin’ Donuts (DNKN) $58.57 $50.89 $68.45 $63.05

KFC / Taco Bell (YUM) $79.31 $62.85 $86.93 $85.50

McDonald’s (MCD) $160.80 $124.52 $178.70 $189.68

Panera Bread '' Private

Sonic (SONC) $24.37 $22.11 $30.05 $29.80

Starbucks (SBUX) $54.58 $52.58 $64.87 $64.35

Wendy’s (WEN) $15.66 $13.03 $17.66 $17.67

Other Economic Benchmark Figures

Libor (1-Month) 1.38%

5-Year Treasury Bill 2.26%

10-Year Treasury Bill 2.48%

5-Year CD 2.00%

10-Year CD 2.40%

' Traded on the Toronto Stock Exchange'' Was public (PNRA) until bought by private fund, JAB Holdings in April, 2017

Fixed Rate Regional Lenders Debt Fund

Term LTV Interest Rates LTV Interest Rates

5 Years 55% to 75% 3.90% to 4.50% 55% to 75% 3.94% to 4.57%

7 Years 55% to 75% 4.13% to 4.73% 55% to 70% 4.125% to 4.75%

10 Years 55% to 70% 4.20% to 4.875% 55% to 70% 4.25% to 4.95%


QSR STOCK PRICES

Quick Service Restaurant Report | 2018As 2017 drew to a close, net lease investors maintained a high level of interest in Quick Service Restaurant (QSR) investments. A primary attraction

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