KFC restaurant offers a recipe for tasty returns

10:07 AM Monday September 15, 2014 Colin Taylor

The KFC property at 145 Newton St, Mt Maunganui.

Mt Maunganui's KFC restaurant has been put on the market by Restaurant Brands, the NZX-listed operator of KFC, Pizza Hut, Starbucks and Carl's Jr outlets in New Zealand, which is offering to sell and lease it back long term.

The freehold premises at 145 Newton St is featured in Colliers International's fourth New Zealand Portfolio magazine for 2014 and will be auctioned at 1pm on Friday, October 10, at the Trinity Wharf Hotel, Dive Crescent, Tauranga.

The property earns net annual rental income of $177,846 plus GST on a new 12-year lease with six further rights of renewal of six years each.

"This gives a total potential lease term of 48 years," says Colliers' Auckland agent Charlie Oscroft, who is marketing it with Tauranga-based colleague Simon Clark.

Oscroft says the offer presents an excellent opportunity to acquire a quality commercial asset occupied by an exceptional tenant on a new, long-term lease that will provide long-term income security for investors.

"It also offers the potential for future income growth through market rent reviews every three years," he says.

Clark says the KFC is part of the community in Mt Maunganui, having operated there for more than 25 years. "In 2010 the well-known store was totally redeveloped and opened to the locals with a completely new restaurant presentation that was very well received."

The single-level, 341sq m building occupies a 1670sq m site with a drive-through and 27 off-street car parks.

Clark says the store, "which is presented in excellent condition after being totally rebuilt four years ago," is well-located on a busy site on the corner of Newton St and Hewletts Rd, near the Maunganui Rd intersection.

"It occupies a high-profile location carefully chosen for its large catchment, high traffic count and closeness to arterial roads," Clark says.

"With visibility from three road frontages, very impressive exposure is given for the KFC brand and this has contributed to the store being among Restaurant Brands' top performers nationwide in recent years."

Clark says Hewletts Rd and Maunganui Rd are the main arterials in Mt Maunganui, feeding traffic from the growth suburbs of Bayfair and Papamoa to the Tauranga CBD, the Port of Tauranga, downtown Mt Maunganui and the main beach.

He says growth trends in Tauranga and Mt Maunganui further increase the attractiveness of the investment.

"Tauranga's population, which includes Mt Maunganui, increased by 10.5 per cent between the Censuses conducted in 2006 and in 2013."

This growth, along with Mt Maunganui's status as one of the North Island's top summer holiday locations, makes the city a very attractive location for businesses.

Oscroft says this type of business makes an ideal commercial tenant.

"The occupier is well-established, large and has a strategy in place for further growth, as well as demonstrating a successful financial history. It makes a very attractive long-term, passive, income-generating holding."

Clark describes it as a simple investment in a popular asset class.

"We think it will prove attractive to a range of local buyers, and also expect to receive interest from national and offshore investors looking for long-term income and capital growth opportunities."

John Bowring, Colliers International's national auction manager, says the popularity of retail investment properties is going from strength to strength.

"Retail property that offers investors easily understood fundamentals in good locations with strong tenants and long leases are being snapped up," Bowring says.

"Despite increases in borrowing rates, we are seeing many people in our auction rooms looking to bolster their investment portfolios with strongly tenanted retail properties."

Clark says the strength of Restaurant Brands' covenant is a considerable plus for investors.

"The business runs some of the world's most famous fast-food brands and reported total group revenue for the year ending February 24, 2014, was $330.4 million."

Restaurant Brands is a corporate franchisee with a support centre and head office in Penrose, Auckland. It has 176 stores, employs more than 3700 staff and serves more than 65,000 customers a day in NZ.

Colliers has successfully sold several properties on behalf of Restaurant Brands in recent years, including KFC stores in Greenlane and Lower Hutt and Carl's Jr properties in Hamilton and Hastings.

Oscroft says KFC is one of the company's top-performing brands in this country. "Growth from KFC stores contributed strongly to the 5.6 per cent overall growth in total group revenue last year and KFC sales also grew to a new high of $241.5 million in the year ending February 2014, despite competitive market conditions."

He says Restaurant Brands is expanding further in NZ, particularly with Carl's Jr stores.

"The company's food brands are distinguished worldwide for their product, as well as the look, style and ambience of their outlets."