Triton Pacific’s QSR Strategy and the Pandemic’s Third Wave
February 9, 2021 | James Sprow | Blue Vault
In October 2020 we spoke with Brian D. Buehler, President and CEO at Triton Pacific Securities, about the performance of their QSR (Quick Service Restaurant) portfolio during the COVID-19 pandemic. Buehler published a series of white papers on Triton’s website, explaining the strategy of producing long-term value for investors in the pandemic era. Since Triton is fast moving to capitalize on attractive markets, we decided to check back with them to understand the progress.
Buehler’s October 2020 white paper, entitled “Are You Prepared for the Second Wave?” draws parallels between the current crisis and the Spanish Flu pandemic of 1918-1919. He points out the Spanish Flu came in three waves. It ended once the world’s population achieved herd immunity without the benefit of a vaccine. Despite the development of a COVID-19 vaccine, the recent uptick in cases and deaths indicates a third wave is here. Buehler’s white paper is an important resource to guide the savvy investor through this global event.
Buehler stated, “There can be some interesting dialogues that can take place between clients and their advisors when they read this white paper.” In his earlier white papers, available on the Triton Pacific website, he shows how private equity consistently outperforms other asset classes over long periods and in different economic environments.
Operating in the QSR Asset Class
Since our interview with Buehler in October, the closure of full service restaurants, many permanently, has continued. As of December 7, 2020, the National Restaurant Association published a survey that found 110,000 restaurants across the country have closed permanently or long-term as the industry grapples with the devastating impact of the pandemic. The New York State Restaurant Association says the pandemic’s impact in the state, “has been extraordinary.” It estimates that 8,333 New York restaurants, including 4,500 in New York City, have shut their doors. In California, the most recent “Regional Stay at Home Order” from Governor Newsom has devastated many restaurants, and more are likely to close permanently.
Triton Pacific has benefitted from the restrictions placed on full service restaurants, by focusing their portfolio on the QSR portion of the restaurant sector. Drive-thru convenience of fast food franchises has made them the preferred model for Americans to eat out as social distancing and bans on indoor dining have proliferated. Triton Pacific’s slogan is “Invest Where America Eats.” People who observe a packed QSR and wish they owned one can now passively participate in the QSR sector.
As of December 22, 2020, the Triton affiliate has sold over 5.16 million shares of its limited partnership interests for gross proceeds of $125.8 million. In addition, the General Partner has elected to exercise the first of its two six-month extensions to extend the Final Closing of the offering to June 30, 2021.
Tasty Brand’s Portfolio
Triton’s QSR franchises were selected due to the high rankings in their respective categories. As of 12/31/2020, the Triton affiliate portfolio includes 161 Pizza Hut restaurants across seven states, as well as 68 Burger King restaurants across three states. Triton’s affiliate has taken advantage of the shift in customer demand, to add to the portfolio in 2020. This includes adding five Burger King’s in Iowa, and 45 Pizza Hut’s in Virginia, West Virginia, and Tennessee. These acquisitions allow Triton’s affiliate to fill in ‘white space’ in the market, drive sales and profitability via asset actions and operational improvements. Additionally, opportunity exists to drive same store sales above historical levels and improve profit margins.
Triton Pacific’s Management Expertise
Triton Pacific’s executive team utilizes their uniquely deep experience to focus on the operation side of the QSR business. Its affiliate company purchases restaurants from franchise owners who are ready to monetize their investments. Sometimes the owners are the first generation whose children do not want to be in the restaurant business. When owners are ready to sell, Triton Pacific’s affiliate team is often favored by the franchisors like Burger King and Pizza Hut to purchase the stores and optimize their management. Private equity favors the QSR sector because clients have a relationship with food and can easily grasp the value proposition.
Creating Value in the QSR Segment
While most in the QSR segment focus on buying and leasing real estate to add value, Triton consistently demonstrates operational growth results in long term value creation. Triton utilizes economies of scale and shared learning across stores to maximize profitability. This creates deeper buy-in from the franchisee, store management and the community as everyone’s objective is to increase the bottom line of every location.
Inspire Brands Purchase of Dunkin’
Inspire Brands’ December 15th, 2020 purchase of Dunkin’, demonstrates the enduring value of the QSR sector.
While Dunkin’ was established in 1950, over the last ten years, Dunkin’ management worked with private equity firms to aggregate franchisee-owned stores. Inspire Brands rewarded the aggregator for the work they have put into improving the operations of the Dunkin’ portfolio. Under the terms of the merger agreement announced on November 2, 2020, Inspire would commence a tender offer to acquire all outstanding shares of Dunkin’ Brands for $106.50 per share in cash. This represents a premium of approximately 30% to Dunkin’ Brands’ 30-day volume-weighted average price and a premium of approximately 20% per share to Dunkin’ Brands’ closing stock price on October 23, 2020.
Delivering Cash Flow and Growth
The primary objective of those investing in alternative markets is cash flow and growth. Potential investors in Triton can see the portfolio’s impressive cash flows due to its operational efficiencies. Triton is excited to use the first offering to demonstrate the powerful returns on its operational strategy. Buehler believes there are still seven or eight years of aggregation opportunities in the space.
When one considers the number of Burger King and Pizza Hut franchises (over 7,000 of each), it is obvious the Triton portfolio still represents a small percentage of the available franchises. This is good news for Triton and its affiliate’s strategy of monetizing franchises for owners who want to exit their investments, as they can selectively purchase those stores with the greatest potential. Advisors report investing in the QSR market is easy to explain to clients by demonstrating QSRs success during the Great Recession and COVID-19.
Triton Pacific, founded in 2001, is a private equity firm offering income and growth investment programs for both accredited and non-accredited investors.
See www.TritonPacificSecurities.com for further information on the private equity firm.
