Offering of Kal Tire locations opens up investment opportunities

Strong brand recognition and strong covenants underpinned the recent sale of a portfolio of seven Kal Tire locations across southern B.C. on June 30. 

The seven stores, with a gross leaseable area of approximately 50,000 square feet, were located in Castlegar, Courtenay, Hope, Golden, Lillooet, Lumby and Nakusp. A private investor from Greater Vancouver acquired them for just short of the asking price of $9.28 million. 

“We positioned the seven geographically diverse assets as a single, income property portfolio, while also offering flexibility for investors to acquire individual assets,” explained Joe Genest, first vice-president, investments, with Marcus & Millichap, which held the listing on behalf of Vernon-based Arrowleaf Real Estate Holdings Ltd., a private investor affiliated with Kal Tire. 

Twenty qualified bids were received, with the successful purchaser – represented by Stuart Wright of Avison Young – buying the whole portfolio. 

The transaction reflected the ongoing appetite for turnkey assets generating stable cash flow, particularly those in secondary and tertiary markets where national brands like Kal Tire stand out. 

“The interesting thing about Kal Tire was the number of people that came to us saying how much they liked the company, and that they’re customers,” he said. “A lot of people identified with Kal Tire as a brand.” 

Kal Tire describes itself as one of Canada’s largest independent tire service dealers, with over 270 Kal Tire stores across Canada, an extensive supply chain network made up of distribution centres and its own transport division. It also operates 16 manufacturing facilities. 

The seven B.C. locations sold in June represent a fraction of Kal Tire’s total network. A second round of locations in tertiary markets, primarily in northern B.C., will be coming to market shortly. 

“These locations serve a critical purpose for Kal Tire as an operator, and very important markets for their network,” Genest said. “But they’re not core real estate investment assets for Arrowleaf.” 

This led Arrowleaf to divest itself of the assets, rebalancing its own portfolio while creating opportunities for other investors. 

The level of interest in the stand-alone stores reflects the long-term appeal of triple-net assets occupied by quick-service restaurants, gas bars, and – at a larger scale – grocery-anchored retail centres. 

What makes triple-net assets unique, however, is that tenants are responsible for all operating costs, making them relatively carefree investments for the owners. 

Triple-net assets in secondary markets have been particularly attractive in recent years because of the stable returns they provide when occupied by in-demand services. 

While rents may be lower, resulting in a lower offering price, the services they provide ensure steady traffic through the individual locations and in turn virtually recession-proof income. 

And in the case of Kal Tire, the tenancies are backed by corporate infrastructure. Six of the locations operate under new, 10-year leases while one is on a five-year term. 

“You’ve got a recognizable tenant that seemingly everyone loves, and you’ve got a price point that the majority of the investment market can play in,” Genest explained. “And you’ve got the Kal Tire head office and all of the infrastructure they have, operationally, looking after the stores in these smaller markets like they’re one of the primary stores in the network.” 

The result is an attractive offering with solid fundamentals. 

Genest expects similarly strong interest when the next tranche of eight locations comes to market this summer. 

“Our team was thrilled with the market’s response and excited to announce round two in the next couple of weeks,” Genest said July 15.