‘Sub-$5m sweet spot' favoured as regional KFC sets new yield benchmark
A KFC restaurant near Nowra on the NSW south coast has sold on the lowest yield yet for a fast food outlet, 2.89 per cent, at a portfolio auction this week, as wealthy investors focus on cash flow rather than rising interest rates and inflation.
The property at Bomaderry, about 2½ hours’ drive from Sydney, was purchased by a high net worth investor from Melbourne for $3.35 million.
Offered for sale by Woolworths (through its development arm Fabcot) and standing on a pad site opposite a Woolworths supermarket, it sold with a 16-year lease to Southern Restaurants Group, the country’s biggest KFC operator. It has fixed annual rental increases of 3 per cent, well below inflation.
Michael Collins, a partner at Stonebridge Property Group, which put together the portfolio auction, said he had scoured sales records and was unable to find any fast food outlet to sell on a lower yield.
“We’re pretty sure it’s a record,” he said.
With interest rates rising and inflation climbing, Mr Collins said it would ordinarily not make sense for an investor to purchase on such low yields if they were using debt.
But, he said, many wealthy investors were buying assets debt free, with sub-$5 million properties the “sweet spot”.
The KFC was one of four properties to sell under the hammer at or below $5 million as part of the Stonebridge portfolio auction. Three higher-priced properties were passed in.
“Investors see fast food and convenience retail in general as intergenerational assets that they are happy to lock away,” Mr Collins said.
“At these price points, they are not as worried about yield as they are locking away consistent cash flows.”
Above $5 million, Mr Collins said, investors generally require more debt and then interest rates and yields come into play.
“We do think interest rates will have an impact on yield [at higher price points],” he said.
This view was given weight by the sales this month of 16 small retail properties spread across suburban Melbourne that generated more than $29 million in total sales. The most expensive property sold for $2.51 million.
The average yield across the portfolio was 3 per cent, representing a lower return than five- and 10-year risk-free government bonds.
Reinforcing the appeal of the sub-$5 million price point, a Bridgestone retail and industrial property in Pinkenba in Brisbane sold for $4.25 million on a 3.99 per cent yield to a Sydney investor, and two Toowoomba childcare centres sold for a combined $9.3 million as part of the Stonebridge auction.
However, two south-east Queensland properties – a Taco Bell restaurant in Beenleigh that was expected to sell for about $7 million and a Pizza Hut in Deception Bay priced above $5 million – were both passed in, as was a United petrol station priced above $6 million.
