Burger King Buys Out Top Franchisee for $1B

Restaurant Brands International Inc. (RBI) announced it plans to boost traffic and reverse years of slumping sales by enhancing the customer experience within stores through new technology.

The owner of Burger King, among other brands, said it is acquiring its largest US franchisee Carrols Restaurant Group Inc. for about $1 billion in cash, Bloomberg reported this week.

The move is reportedly to fast-track an overhaul of hundreds of locations and win back customers.

RBI said it expects to complete its purchase of by the second quarter and spend another $500 million to remodel 600 of Carrols’ more than 1,000 locations.

The price represents about a 23% premium to Carrols’ 30-day volume-weighted average price as of Friday, the company said.

Restaurant industry analysts are taking notice.

Alex Sharrin, Senior Managing Director, as well as the Corporate Capital Markets and Single Tenant Net Lease Platform Co-Lead with JLL Capital Markets, tells GlobeSt.com, “This is an incredible move from a brand to gain fuel and staying power amongst a competitive QSR landscape.

“Although corporates plans are to hand the operations back to local, motivated, and growing franchisees in the platform, they are making a huge statement on commitment to their locations.”

There are 45 planned makeovers slated for this year, with an additional 120 per year for the next five years, Sharrin said.

Real estate owners with Carrols Restaurant Group on their lease as a fixed-income stream are incredibly pleased to see the cash injection, positive momentum, and inherent credit enhancement, Sharrin said.

JLL expects to see the market start to test this narrative in the coming weeks with landlords of Carrols’ operating locations opting to explore disposition.

Sarah Shanks, Vice President, Capital Markets – SRS Real Estate Partners, tells GlobeSt.com that she believes RBI’s intent is to revitalize the restaurants immediately, instead of waiting on its franchisees to remodel the assets over time.

“If RBI chooses to dispose of any of the real estate, the leases will most likely have corporate guarantees on the new leases,” Shanks said.

“However, we caution that if RBI does start to refranchise to smaller regional franchisee groups, as they have stated they plan to do over time, investors will have to weigh the possibility that RBI will no longer corporately guarantee the leases and they’ll have weaker tenant credit on any remaining term.

“Refranchising in the upcoming years will vastly increase M&A activity within the brand but most likely will cause cap rate accretion given less credit on the leases. We’d advise our clients to weigh these longer-term impacts when deciding whether to use their exchange dollars to invest in Burger King NNN properties.”

Morgan Zant, Vice President of Markets – SRS Real Estate Partners, tells GlobeSt.com that 2023 was a tough year for all quick-service restaurants net lease investment sales, but especially Burger King, with bankruptcies declared by some of their larger franchise groups.

“The announcement that it plans to purchase Carrols for $1 billion should immediately generate renewed interest in the brand from net lease investors, as it signals to the investment community that there is a renewed focus on turning the brand around,” Zant said.

“In the near term, this increased demand will translate into cap rate compression. Similarly, when Yum! announced that it would significantly invest in both KFC and Pizza Hut US a few years ago, there was an uptick in interest from the investment community.”

Richard Colloca Audit Partner and National Food and Beverage Practice Leader at Eisner Advisory Group, tells GlobeSt.com that the fast-food market is expected to continue to grow over the next few years with competition rapidly increasing.

“This seems like a proactive strategy to maintain market share and limit competitors and continue to promote Burger King’s brand,’ Colloca said. “Technology platforms for food delivery service have continued to play a significant role in strategy and have enhanced competition now that there are different avenues of getting the food. Convenience is a force in driving consumer behavior.”