The arrangements are a win-win deal for investors and the company, Todd Millang, a commercial real estate broker with CB Richard [image-nocss] Ellis/Hubbell, who has handled several of the transactions, told the newspaper. Millang said investors get to own a piece of property with a secure tenant who takes care of virtually all the responsibilities, including maintenance, taxes and upkeep, while Kum & Go gets back capital that it can invest to build additional stores.
"It's a good deal for me," Jack Stapleton of Ankeny, who owns a Kum & Go store site in Ankeny, Iowa, and just purchased another in Johnston, Iowa, told the paper.
Companies such as Walgreens and some fast-food chains have moved to the leasing concept in recent years for similar reasons, Millang said. The model appeals to a strong retail business such as Kum & Go that is in an expansion mode, he added.
Kum & Go is using the leaseback strategy for new stores and for stores that it remodels and enlarges, said Millang. In the case of a new store, he said, Kum & Go will find the site, hire a contractor and build the store. After the store has opened, the company finds real estate investors, such as Stapleton, who purchase the property at market value and lease it back to Kum & Go on a 15- or 20-year lease, Bergstrom said.
Typical sales have ranged from $1.8 million to $2.3 million, Millang said, with one store selling for as much as $2.8 million.
The leases provide protections for the investor owner if Kum & Go moves to a different site during the lease period, the broker said.
Recent leases have provided owners the equivalent of a 7.5% return on their investment, with options for 1.5% annual increases every five years, said the report.
Any appreciation in the value of the property goes to the investor owners, who also can depreciate the property for tax purposes, Millang said.
So far, about a third of the investors who have purchased store sites are Iowans, like Stapleton. The other owners are individuals or investment groups based outside Iowa, the broker said.
West Des Moines, Iowa-based Kum & Go's 431 stores are spread over 12 states. The chain was founded by retail and banking entrepreneur Bill Krause, and the company now is run by his son, Kyle Krause, said the report.
Kyle Krause put the company on an aggressive growth strategy shortly after taking over in 2003. In 2004, Kum & Go purchased 76 Git-N-Go stores in Missouri and Oklahoma for $8.7 million. Since 2005, though, the chain has focused on remodeling old stores and building others. In the past three years, 56 have been built or rebuilt.
Two new Iowa stores, in Clear Lake and Tipton, are available for sale to investors on lease-back deals, Bergstrom said. Kum & Go's new stores range in size from six to 12 gasoline pumps, he said.
The chief advantage of a sale/lease-back deal, according to Millang, is that it releases capital that is otherwise tied up in a low-returning asset. That allows the company to invest in its higher-return core business or to repay existing debt.
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