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Ruby Tuesday's Court Approval to Sell Eateries Symbolizes Struggle of Casual Dining

Chain's Real Estate Locations Are Largely Clustered Along the East Coast

Photo Courtesy of Adobe Stock.

The approval of Ruby Tuesday's parent company by a court to list for sale some or all of its business and brick-and-mortar locations and leases symbolizes how casual dining chains increasingly need to shed real estate to stay afloat in the pandemic.

RTI Holdings Inc., which filed for Chapter 11 bankruptcy last month, received federal court approval to sell Ruby Tuesday's physical restaurant buildings and leases. The move could involve 236 locations throughout the United States, Guam and five other countries, showing the widespread geographic effects of the coronavirus keeping customers out of dining rooms.

The company has until Dec. 10 to select a “stalking horse” buyer, which sets a minimum price for assets to be sold. The company’s restaurants are scheduled to be sold at auction through Jan. 14. The company didn't return requests for comment from CoStar News.

Ruby Tuesday joins a growing group of casual dining restaurants that have less revenue as the coronavirus keeps Americans out of sit-down eateries, contributing to a near 200% boost in bankruptcy filings this past summer compared to last year, according to Dallas-based bankruptcy firm Allmand Law.

Restaurants nationwide have been closing locations or their businesses entirely as health restrictions limit or prohibit in-person dining, forcing chains to increase to-go and delivery orders that largely haven't brought in the same amount of revenue.

In an email to CoStar News in October, Jenifer Boyd Harmon, chief marketing officer for Ruby Tuesday, said the chain does not plan to go out of business and intends to complete an operational turnaround initiated in 2017.

Ruby Tuesday’s portfolio is largely clustered throughout the East Coast and the Southeast, with a handful of restaurants in the Midwest, according to its bankruptcy filing documents. Some of the states with the highest concentration of Ruby Tuesday restaurants are Florida, New York, Georgia and Ohio.

The average size of a Ruby Tuesday’s restaurant is roughly 4,500 square feet to 5,500 square feet, according to CoStar’s database, which includes 78 of the brand's locations.

'Unprecedented Impact'

At its peak, the chain, which was founded in 1972, operated more than 800 restaurants. In 2017, it was acquired by private equity firm NRD Capital in a deal valued at $335 million and the company began efforts to reinvent the chain.

The plan, dubbed “Plan to Win,” included an exploration of a sale or merger, as well as an overhauled marketing strategy that would aim to reach new customers and a revamped to-go and catering service.

In its announcement of the bankruptcy, CEO Shawn Lederman said the filing gives the Maryville, Tennessee, enterprise a lifeline as it recovers from the “unprecedented impact of COVID-19,” he said.

Ruby Tuesday indicated in its October bankruptcy filings that its two largest creditors, New York City-based Goldman Sachs and Los Angeles-based The TCW Group, are strong potential buyers of some or all of its portfolio.

Finding a buyer for a restaurant chain may still prove a challenge. California Pizza Kitchen, for instance, failed to find a buyer after more than a year-long search. The experience of that restaurant chain, which got approval to exit its bankruptcy last month, reflects a growing hesitancy by investors to spend on casual-dining businesses at a time when so many are struggling to stay afloat.

It also comes as an increasing number of restaurant chains are in the market for buyers.

Friendly's Restaurants, an East Cost icon that started as an ice cream parlor, agreed this month to sell and keep open its 130 locations in a $2 million deal. And the Texas restaurant chain Luby's Inc. recently hired real estate brokerage JLL to sell its corporate-owned real estate assets as part of the liquidation plan.

Luby's owns 69 properties, including the land and buildings, valued at $191.5 million as of the end of August.

Johnny Rockets, the ‘50s-themed burger chain, was acquired by Fat Brands in a $25 million deal in August. Fat Brands plans to use the Johnny Rockets locations to further its "ghost kitchen" concept, which essentially lets online-only restaurant brands use Johnny Rockets’ kitchens to prepare orders from delivery services such as DoorDash and Grubhub, which are experiencing heightened demand.

Source: 2020 CoStar News.

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