EXCLUSIVE

Article I. Largest US Five Guys Franchisee Looks for New Deals,

Expands Holdings

Encore Restaurants to Build Portfolio During Pandemic as Some Restaurateurs Struggle

A Five Guys location in Denver is owned by Encore Enterprises. (Encore Enterprises) By Candace Carlisle CoStar News November 4, 2020 | 6:04 P.M. Encore Restaurants, the dining arm of commercial property firm Encore Enterprises and the largest U.S. franchisee of Five Guys, is adding locations to the fast-casual burger chain and seeking more quick-service brands to diversify its portfolio. Unlike some fast-casual restaurants financially hit by the pandemic, including Kitchen, Rubio's and Friendly's, Lorton, Virginia-based Five Guys was potentially better suited for delivery and carry- out customers, said Dale Doerhoff, president of Encore Restaurants. He plans to eventually have more than 200 Five Guys, roughly double the number the company has now.

Five Guys has matched its same-store sales year over year, with some sales increasing 10% to 18% depending on the location, as it pivoted quickly to mobile delivery methods during government-mandated restaurant closings, said Doerhoff.

"We have stores and restaurants from California to Boston, and every state has handled the pandemic differently," Doerhoff said in an interview with CoStar News. "In markets where dining rooms have been completely shut down, we have restaurants with delivery and curbside pickup only. We were able to adapt quickly in March and we have seen a very positive increase in revenues."

Dale Doerhoff is the president of Encore Restaurants, the restaurant arm of Encore Enterprises. (Encore Restaurants) Not all restaurants are doing well these days. In September, the National Restaurant Association released a survey reporting nearly 1 in 6 restaurants were permanently shut down or closed for the long term in the first six months of the pandemic. If restaurants are unable to access additional government aid, the survey reports 40% of operators believe it unlikely their restaurants will still be in business by March.

As some eateries such as CEC Entertainment, the parent company of Chuck E. Cheese and Peter Piper Pizza, find no buyers during the Chapter 11 bankruptcy protection process, Encore Restaurants not only wants to expand its Five Guys holdings but is shopping brands to buy to diversify its portfolio.

Doerhoff said Encore Restaurants wants to buy an additional quick-service brand or two with a couple hundred restaurant locations with a low enough square footage to give the company "some runway."

"We always have known we have a loyal following, but no one could expect how things would go in March, we were in uncharted territory, but the brand has sustained and improved," he said. "We shifted to higher sales in delivery versus in-store dining, but it's starting to come back. We are getting more of a balance."

This week, Dallas-based Encore Restaurants bought the formerly corporate-owned 27 new Five Guys locations from Five Guys Operations as part of a two-step deal. Terms of the deal were not disclosed.

In the two deals, the restaurant franchisee also bought the majority of the development rights in Texas to build 65 Five Guys locations in major Texas cities such as Austin, Dallas, El Paso, Houston and San Antonio, and the Interstate 35 corridor running north to south of the Lone Star State.

With the recently closed deal, Encore Restaurants owns 109 existing Five Guys locations throughout the including in California, Colorado, Massachusetts, Oklahoma and Texas. Nearly half of those existing Five Guys restaurants owned by Encore Restaurants are in Texas. Eventually, Doerhoff said the restaurant group plans to own more than 200 franchised locations of Five Guys, with 110 of those sites being in Texas. In the next six years, he said, the company plans to continually build new restaurant locations in the firm's "back yard" of Texas.

The deal closed on Nov. 1 after being delayed for months by the pandemic. Here's a list of the 27 new properties added to the firm's portfolio:

• Central Texas: 10000 Research Blvd. in Austin; 398 East FM 1382 in Cedar Hill; 201 E. Central Texas Expressway in Harker Heights; 1321 N Loop 1604 E in San Antonio; 5215 De Zavala Road in San Antonio; 20811 U.S. Highway 281 N in San Antonio. • North Texas: 4245 S. Cooper St. in Arlington; 3400 E. Hebron Parkway in Carrollton; 13350 Dallas Parkway in Dallas; 1715 South Loop 288 in Denton; 1304 W. Pipeline Road in Hurst; 6440 N. MacArthur Blvd. in Irving; 859 state Highway 121 in Lewisville; 1725 N. Town East Blvd. in Mesquite; 8240 Preston Road in Plano; 1201 E. Spring Creek Parkway in Plano; 1035 E. Interstate 30 in Rockwall. • South Texas: 5425 S. Padre Island Drive in Corpus Christi; 28920 Highway 290 in Cypress, Texas; 9762 Katy Freeway in Houston; 14303 East Sam Houston Parkway N in Houston; 6927 FM 1960 West in Houston; 1715 Post Oak Blvd. in Houston; 8505 S. Main St. in Houston; 7405 FM 1960 Road in Humble. • West Texas: 655 Sunland Park Drive in El Paso and 1327 George Dieter Drive in El Paso.