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Biggest Pizza Hut Franchisee May Leave Pizza Business, Auctioning Off Hundreds of Leases

NPC International Seeks to Sell Pizza Hut and Wendy's Divisions in Bankruptcy Court

Photo Courtesy of CoStar.

The biggest Pizza Hut franchisee could get out of the pizza business entirely.

NPC International is selling leases at 163 former Pizza Hut locations across the United States as it pursues the separate sale of its entire Pizza Hut division and Wendy’s division through the Chapter 11 bankruptcy protection process.

The Leawood, Kansas-based company is the biggest franchisee of Pizza Hut Inc., a chain based in Plano, Texas, and a subsidiary of Yum! Brands Inc. NPC International has 1,227 Pizza Hut locations, and is the biggest Wendy's franchisee with about 390 restaurants.

NPC International has been gradually closing under-performing Pizza Hut stores since it filed for Chapter 11 bankruptcy protection in July in Houston federal court with $903 million in debt.

NPC International has battled falling profitability and shrinking liquidity for the past two years as the Pizza Hut brand has gradually lost market share to rivals. NPC International points the blame at Pizza Hut Inc., arguing the parent hasn’t invested enough to revitalize the brand and introduce menu items as the emergence of DoorDash and GrubHub means pizza is no longer the food dominating the delivery game. Pizza Hut Inc.’s competitors Domino’s and Papa John’s have done better at adapting digital options more quickly, said Eric Koza, NPC International’s chief restructuring officer, in court filings.

In August, Yum! Brands and NPC International reached a deal to allow NPC International to close 300 mostly dine-in locations, but did not identify where. NPC International agreed to pay corporate parent Pizza Hut Inc. about $11.65 million in royalties and other advertising fees to close the unprofitable restaurants, according to court documents.

The bid deadline for the 163 closed restaurants scattered throughout 26 states is Oct. 23. Potential buyers would purchase the right to take over the leases as so-called straight leasing assignments, rather than sign a sublease with NPC International, said Joe McKeska of A&G Real Estate Partners, which is marketing the leasing assignments on behalf of NPC International.

Splintering Franchisee Relations

Pizza Hut Inc. is angling to have more of a say over would-be buyers of NPC International’s entire Pizza Hut division. NPC International postponed bid deadlines on the sale process to late November after Pizza Hut Inc. objected to the original timeline. Charles Gibbs, an attorney with corporate Pizza Hut Inc., expressed concern in a Sept. 25 hearing that a shortened timeline would give lenders an unfair advantage in placing a credit bid on the assets, essentially allowing them to use the debt owed to them to scoop up the assets without much competition.

Bidders have until Nov. 20 to place a bid on the entire Pizza Hut division. NPC International estimated the value of those assets was $325 million and prefers to sell the division to one main buyer, according to court documents.

The bid deadline for the Wendy’s division, valued at $400 million, is Nov. 10. Bidders can also buy both the Wendy's and Pizza Hut divisions with a bid deadline of Nov. 20, according to court documents.

Yum! Brands, Pizza Hut Inc. and Wendy's did not immediately respond to emails and phone calls requesting comment.

Pizza Hut Inc. blamed NPC International for lackluster results at some Pizza Hut locations, calling NPC International “a bottom- quartile performing franchisee" even before the coronavirus pandemic, according to court filings. NPC International owed Pizza Hut Inc. $17.68 million at the time of its bankruptcy filing.

Meanwhile, NPC International said in court filings that among the restaurants it is keeping open, those stores have been faring well or sometimes better than the rest of the Pizza Hut chain.

Pizza Hut Inc. saw same stores sales fall 9% in the second quarter when about 3,500 locations were temporarily closed because of coronavirus restrictions, according to parent company’s Yum! Brands most recent earnings. Yum! Brands’ CEO Dan Gibbs told investors July 30 that NPC International’s bankruptcy represented “an opportunity to create a better future for Pizza Hut restaurants owned by NPC and, therefore, the overall system in the U.S.”

2020 CoStar News.

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