KFC, Hungry Jacks, Red Rooster, etc..

[Scott No Mates]

Macca's model is basically do the demographics, build it & franchise it. They have a good tenant willing to pay $$$$ as well ad tying them into a fitout and supplier chain for all products.

They are a developer who doesn't have to go far to find a willing tenant.

 

[china]

Although CIP #3 is a couple of years off yet, as usual, passing the time on realcommercial and the Burgess Rawson monthly auction listing, and thinking of where to go to next.....

There are quite a few KFC's, Hungry Jacks etc.. buildings going up for auction as of late.

Does anybody here own any such or similar investments, and what are the pros and cons.

Pros to me would be pretty stable tenants, long term leases, and cashflows. Australia is only getting fatter!!

Cons would be very limited alternative use and I assume some hard negotiations for capital works at the end of the long leases.

Would this be a fair assumption? Any experiences people can share?

How do lenders view these lends? General 30 - 35% CIP deposits, or a specialised use?

I too enjoy reading the Burgess Rawson listings. Makes me feel good wondering what "owning" a bank, or woolworths store feels like.

 

[chilliblue]

Have a good read of their leases and have a thorough understanding of the clauses.

They are often tenant friendly and will have several out clauses.

 

[Trogdor]

Thanks all - useful feedback.

Will be interesting to see if the retail CIP sector get a bit of a boost now with these big IR cuts. Helps investors cashflows, and also helps tenants businesses.

 

[locko24]

As far as Subway is concerned, it's just another commercial type lease. You get a stable long term tenant- and in return for the safety you are perhaps likely to get smaller returns.

Not too safe.

The Subway at Wellington sold recently and closed down soon after - the building is still vacant after months!
I think Subway might be too healthy for good 'ol Wello KFC, Maccas, Eagleboys seem to thrive.

 

[Wandering]

The Burgess Rawson website lists the yields they sell at.
It seems like lately the yields have been getting higher.
Back 12 months ago there were lots going for 5-6%. Now there are more healthy 8-9% yields. Maybe the market has changed?

With regards to people purchasing and then the tenant leaving, it would seem some people are buying without doing any research on comparable rents and business strength. If the building is still vacant and is in a high traffic area then they are chasing too much rent and I guess overpaid for it. Doesn't make it scary, just sometimes people get caught up in the bright lights and forget about what they are trying to actually achieve with the purchase.

 

[AAA]

Understand you get a stable tenant on a long lease when you go for KFC, etc. But the investor seems to sacrifice quite a bit of yield for the security.
Isn't a CIP with a large land content value a better investment?
Granted there is the risk of vacancy, but the upside of capital growth, opportunity to source a better tenant in the future, add value and increase yield seem to be a better opportunity.

 

[T33]

The disadvantage seems to be alternative leassees to kfc is relatively limited... Likely another fast food franchise. A generic retail space or service retail space will open up a lot more options which helps reduce vacancy risk. Also kfc standalone lots don't feed off neighboring retail mix so if kfc pulls the plug as no longer viable..it is unlikely a red rooster or subway will attract a lot more foot traffic to make the space viable. May be safer to go with the same exposures with adjoining strip retail

 

[Scott No Mates]

It largely depends on the site and the lease T33. If the site has a free standing store with carpark & a short lease there may be redevelopment potential. I've seen plenty of ex-food uses changed to suit the current demographic.

 

[DaveM]

I drive past it each day. The signboards were up for the auction for ages, it then had a SOLD sticker on it and the signboards went down.

I think a Red Rooster premises at Blacktown was recently advertised on realcommercial.com.au.

Link here:

http://www.realcommercial.com.au/property-retail-nsw-blacktown-500394595

Looks like it still for sale? Although last time I drove by they had taken the advertising boards down from the front of the premises.

Jason