Franchise Finance After the Dust Settles—Wrap-Up Webinar
Sale-leasebacks of real estate, mergers & acquisitions, credit availability and other finance topics are the focus of a webinar today presented by Franchise Times, Restaurant Finance Monitor, Food on Demand and Foodservice News.
By now, most landlords have been bombarded with pleas from tenants for immediate rent relief. To be successful, experts on a franchise finance webinar said today, tenants must answer this question: What are you willing to do for that?
"Everybody wants a fast result on the tenant's side and wants the rent to go poof! and it's gone," said Glen Kunofsky, founder of STNL Advisors and NNN Pro and a panelist. "People just forget that the landlord's business is collecting rent. That's their EBITDA" or cash flow.
"When it's a partnership and the tenant's willing to commit resources, it works." But when tenants just say "I want free rent, it doesn't work that well. Once people become numb to it, you have to look at everything."
Open up the lease agreement, he advises, and "talk to the landlord about not just what the tenants want, but what the landlord needs. Play with a lot of different levers: lease terms, unit economics, escalations, and really dig in deep."
Moderated by John Hamburger and presented by Franchise Times, Restaurant Finance Monitor, Foodservice News and Food On Demand, today's webinar was the fourth in a four-part series this week called Restaurant Recovery Week II, focused on reopening restaurants as governments begin to ease lockdown restrictions.
Carty Davis, founder of investment bank C Squared Advisors and a panelist, fielded an audience question about whether emerging brands, typically defined as those under 100 units, could raise equity in this environment.
"It's going to be tough" to do M&A deals, not only for emerging brands but also overall, he said. "There's a disconnect there between buyers, sellers and investors" because this disruption, caused by COVID-19 and blanket government-mandated store closures, is different from the financial meltdown of 2008/09.
"Unlike past situations where you could make more macro statements about the greater economy, it's going to be site-specific, franchisee-specific, franchisor-specific," he said. "In the near term we're going to see a flight to quality and only the best deals are going to get done."
Thomas Hung, managing director of First Horizon Restaurant Finance and a panelist, agreed the economic shock this time around is different from the Great Recession.
"This is certainly very different. It came on a lot quicker. It almost felt like an overnight change to the industry," he said. "Realistically what restaurant operators should expect is more uncertainty than there was in 08/09. With more uncertainty means more risk, and more risk means tighter lending standards. There's going to be more scrutiny and more tightness around availability of credit."
Uncertainty will continue well into this fall. "The truth of the matter is, the restaurant industry is drastically different than just a few months ago. Using something like 2019 cash flows, it's a useful data point, but it's not something that's a leveragable number," he said. "Banks and equity groups are probably going to need a few months, perhaps a few quarters, with post-COVID performance, to understand what the new normal is."