KFC Net Lease (build to suit) 2,299 square feet on 12,085 square feet of land 23-year primary term

18th Avenue just west of 30th Street Rock Island, Illinois

Across from Hy-Vee Supermarket & Wells Fargo Bank

DIRECT ALL INQUIRIES TO

RYAN M. BYRNE and SEAN M. BYRNE ryan@byrnecompany.com sean@byrnecompany.com

BYRNE COMPANY 8525 Ferndale Road Suite 100 Dallas, Texas 75238 214.343.6996 www.byrnecompany.com

Broker of Record DZ Net Lease Realty, LLC License 481.010383

KFC Rock Island, Illinois

TABLE OF CONTENTS I Investment Highlights II Aerial Photograph

Property Photographs III Property Information IV Sales Data V Lease Summary VI Survey

Location Maps VII Demographics VIII Information on KBP Foods (franchisee) X Byrne Company Disclaimer

TREC Agency Disclosure

KFC Rock Island, Illinois

INVESTMENT HIGHLIGHTS

Interior retail location The Property fronts along 18th Avenue and is well-located in a “pocket” of retail uses, heavily surrounded by residential neighborhoods. Additionally, KFC is located next door to Walgreen’s, and directly across the street from Hy-Vee Supermarket and Wells Fargo Bank. National representation In addition to KFC, major national retailers in the immediate area include Anytime Fitness, Checker’s Restaurant, CVS Pharmacy, Hy-Vee Supermarket, McDonald’s, Quizno’s, Shell, Sprint, Subway, Walgreen’s, and Wells Fargo. Absolute net The Lease is absolute net with a 23-year primary lease term and ten years in extension options. Nineteen years remain on the primary term, with rent escalations every five years. Stability The Franchisee is one of the largest KFC franchises in the U.S. and operates nearly 250 quick-serve restaurants in ten states. International brand KFC is the world’s most popular chicken restaurant chain, with over 17,000 restaurants in the United States alone. KFC serves more than 12 million customers each day in over 115 countries and territories around the world

KFC Rock Island, Illinois

AERIAL PHOTO

Washington Junior High

KFC Rock Island, Illinois

PROPERTY PHOTOGRAPHS

Front view of Subject Property

For additional views of this property, please CLICK HERE

Front and street view of Subject Property looking east Note: Wells Fargo across the street

Property Photographs – Page Two

view of Property looking west Note: Wells Fargo and Hy-Vee supermarket across the street

rear view of Property Note: Hy-Vee supermarket across the street

KFC Rock Island, Illinois

PROPERTY INFORMATION PROPERTY The Property offered for sale is a 0.277-acre tract of land with 2,299 square feet of

improvements net leased to FQSR, LLC (franchisee) for the operation of a KFC restaurant. The 23-year lease term commenced April 1, 2011 and expires March 31, 2034. KFC has 10 additional years in lease extension options (in 5-year increments), as set forth in the Lease Summary within this presentation.

The lease is net; Tenant pays for all real estate taxes, insurance, and maintenance on the Property. Please refer to the Lease Summary for further details.

KFC Based in Louisville, Kentucky, KFC Corporation is the franchisor of the world's most

popular chicken restaurant chain, specializing in Original Recipe®, Extra Crispy™, Kentucky Grilled Chicken® and Extra Crispy™ Strips with home-style sides, Hot Wings™ and freshly made chicken sandwiches. KFC has been serving customers complete, freshly prepared, family meals since Colonel Harland Sanders founded the concept in 1952.

Famous for its Original Recipe® fried chicken, which is made with the same secret blend of 11 herbs and spices Colonel Sanders perfected more than a half century ago, it is estimated that, on average, more than 185 million people see a KFC commercial at least once a week – that's more than half the U.S. population.

The KFC system serves more than 12 million customers each day in more than 115 countries and territories around the world. KFC operates more than 17,000 restaurants in the Unites States and internationally. KFC's parent company is Yum! Brands, Inc., the world's largest restaurant company in terms of system restaurants, with more than 40,000 locations in more than 130 countries and territories and employing more than one million associates. Yum! is ranked number 201 on the Fortune 500 List, with revenues exceeding $13 billion in 2012.

FRANCHISEE INFORMATION The franchisee is FQSR, LLC d/b/a KBP Foods, LLC. KBP Foods is one of the largest

KFC franchisees in the U.S. Originally named Zancanelli Management Corp. with ties to the very first KFC franchisee, Zancanelli was bought out by KBP Foods in 2010. The company currently operates almost 250 KFC, Taco Bell, Pizza Hut, and Long John Silver’s restaurants in 10 states including Georgia, Kansas, Missouri, Florida, and Virginia. KBP Foods has been named one of the “Ten Fastest Growing Restaurant Chains” and one of the “Top 100 Fastest Growing Businesses in North America” by Chain Store Guide’s Database of Chain Operations. The company expects to end the 2015 year with at least 278 store units.

MUNICIPAL ADDRESS 2943 18th Avenue, Rock Island, Illinois 61201

Property Information – Page Two LOCATION & SURROUNDING AREA KFC is located along 18th Avenue at 29 ½ Street in Rock Island, Illinois. The Property

is directly across the street from Hy-Vee Supermarket and Well Fargo Bank. Rock Island is located on the Mississippi River, approximately 175 miles west of Chicago. Rock Island is a major city in what is known as the Quad Cities, a region with a population approaching 400,000 that encompasses Rock Island, Moline, and East Moline, Illinois, and Davenport and Bettendorf, Iowa. Rock Island is a comfortable community with a wide variety of housing including historic homes, new downtown condominiums, new construction in the heart of the city, and wooded retreats. The city’s downtown area, known as The District, is replete with art galleries, theaters, nightclubs, coffee shops, and many restaurants. Residents and visitors to Rock Island are entertained by golf courses, parks, a casino, botanical center, marina, historic tours, bike paths, and many festivals throughout the year.

LEGAL DESCRIPTION Lots six (6) and seven (7) in Block one (1) in that part of the City of Rock Island known

as and called Wallace Grove Addition to said City; situated in Rock Island County, Illinois

LAND AREA Approximately 12,085 square feet 0.277 acre BUILDING AREA 2,299 square feet BUILDING CONSTRUCTION Concrete building with steel frame construction and stucco exterior walls

CONSTRUCTION DATE 1994 PARKING LOT 18 regular and 1 handicapped parking spaces.

The parking lot surface is a mix of concrete and asphalt. FRONTAGE / ACCESS The Property has approximately 138 feet of frontage, and access, along 18th Avenue. ZONING B3 – Community Business District TRAFFIC 18th Avenue is a two-lane avenue. ADDITIONAL KFC KING OPPORTUNITY At the time of this offering, for investors looking for a larger acquisition, Byrne

Company has additional KFC properties for sale in nearby East Moline and Milan, Illinois. Other KFC properties offered for sale are in Nebraska, Kansas, and Missouri. Contact Byrne Company for further details.

KFCRock Island, Illinois

SALES DATA

PURCHASE PRICE $1,277,000.00

TERMS ALL CASH-- or --

Purchaser may obtain third party financing

* OPERATING INCOME CURRENT through March 31, 2019 $70,235.29 Future April 2019 rent increase $77,258.82

April 2024 rent increase $84,984.70April 2029 rent increase $93,483.17

FREE & CLEAR RETURN CURRENT through March 31, 2019 5.50% Future April 2019 rent increase 6.05%

April 2024 rent increase 6.66%April 2029 rent increase 7.32%

Average Primary Term 6.38%

REMAINING YEARS ON PRIMARY LEASE TERM 19 yearsTenant has an additional 10 years in lease extension options.See Lease Summary for details.

* All taxes, insurance, and maintenance are the responsibility of Tenant.

KFC Rock Island, Illinois

LEASE SUMMARY

LEASE DATE April 1, 2011 TENANT FQSR, LLC, a Delaware limited liability company FRANCHISOR KFC Corporation, a Delaware corporation PREMISES 2943 18th Avenue, Rock Island, IL

The Premises shall include all improvements and structures whether now existing or hereafter constructed thereon and the land on which the Improvements are located.

LEASE TERM 23 years COMMENCEMENT April 1, 2011 EXPIRATION March 31, 2034 OPTION TO RENEW Two (2) additional successive periods of five (5) years each TERM EXPIRATION DATE IF FULLY EXTENDED March 31, 2044 RENT 1st – 3rd lease years Apr 1, 2011 – Mar 31, 2014 $48,952.00 per yr $4,079.33 per mo

4th – 8th lease years Apr 1, 2014 – Mar 31, 2019 $70,235.29 per yr $5,852.94 per mo Commencing on the first day of the 9th lease year and on each 5-year anniversary date thereafter during the lease term and any extension thereof, Annual Rent shall increase by 10% over the immediately preceding year. 9th – 13th lease years Apr 1, 2019 – Mar 31, 2024 $77,258.82 per yr $6,438.24 per mo 14th – 18th lease years Apr 1, 2024 – Mar 31, 2029 $84,984.70 per yr $7,082.06 per mo 19th – 23rd lease years Apr 1, 2029 – Mar 31, 2034 $93,483.17 per yr $7,790.26 per mo Extension 1 Apr 1, 2034 – Mar 31, 2039 $102,831.49 per yr $8,569.29 per mo Extension 2 Apr 1, 2039 – Mar 31, 2044 $113,114.64 per yr $9,426.22 per mo

DESTRUCTION OF PREMISES Should the Premises or a material portion thereof be damaged or destroyed within the last 36 months of the

original term or of any extended or renewed term of this Lease, or should any changed in code or building regulations prevent Tenant from restoring, repairing or rebuilding the Premises so it is reasonably usable as a YUM!-branded quick service restaurant, either Landlord or Tenant shall have the right to terminate this lease effective upon the date of such damage or destruction.

TAXES, INSURANCE & MAINTENANCE Payable by Tenant. USE Tenant shall use the Premises solely for the operation of a YUM!-branded quick service restaurant, unless

otherwise approved by Landlord. Tenant shall at all times maintain the Premises in material compliance with all applicable regulations and requirements of all county, municipal, state, federal and other governmental authorities, and instruments of record affecting the Premises which are now in force or which are enacted during the term of this Lease.

NET LEASE It is the intention of the parties hereto that this lease is and shall be treated as an absolute triple net lease,

and that any and all costs, expenses, or charges with respect to the Premises shall be the sole responsibility of Tenant.

KFC Rock Island, Illinois

LOCATION MAP

SUBJECT PROPERTY

KFC Rock Island, Illinois

LOCATION MAP

SUBJECT PROPERTY

Demographic and Income ProfileKFC Rock Island Prepared by Esri2943 18th Ave, Rock Island, Illinois, 61201 Latitude: 41.49342Ring: 5 mile radius Longitude: -90.55826

Summary Census 2010 2015 2020Population 158,828 159,863 161,919Households 66,374 67,261 68,342Families 38,935 38,917 39,185Average Household Size 2.31 2.29 2.29Owner Occupied Housing Units 43,194 42,330 42,799Renter Occupied Housing Units 23,180 24,931 25,543Median Age 37.1 37.8 38.4

Trends: 2015 - 2020 Annual Rate Area State NationalPopulation 0.26% 0.21% 0.75%Households 0.32% 0.26% 0.77%Families 0.14% 0.14% 0.69%Owner HHs 0.22% 0.18% 0.70%Median Household Income 2.77% 2.80% 2.66%

2015 2020 Households by Income Number Percent Number Percent

<$15,000 10,227 15.2% 10,223 15.0%$15,000 - $24,999 8,131 12.1% 6,376 9.3%$25,000 - $34,999 8,204 12.2% 7,076 10.4%$35,000 - $49,999 10,746 16.0% 10,418 15.2%$50,000 - $74,999 12,544 18.6% 12,299 18.0%$75,000 - $99,999 8,629 12.8% 10,892 15.9%$100,000 - $149,999 5,864 8.7% 7,471 10.9%$150,000 - $199,999 1,688 2.5% 2,149 3.1%$200,000+ 1,227 1.8% 1,438 2.1%

Median Household Income $43,697 $50,104Average Household Income $57,199 $64,544Per Capita Income $24,391 $27,554

Census 2010 2015 2020 Population by Age Number Percent Number Percent Number Percent

0 - 4 10,595 6.7% 10,132 6.3% 10,141 6.3%5 - 9 9,921 6.2% 9,971 6.2% 9,795 6.0%10 - 14 9,765 6.1% 9,529 6.0% 10,042 6.2%15 - 19 10,941 6.9% 10,434 6.5% 10,526 6.5%20 - 24 11,801 7.4% 11,951 7.5% 11,231 6.9%25 - 34 22,414 14.1% 22,375 14.0% 21,795 13.5%35 - 44 18,750 11.8% 19,042 11.9% 20,520 12.7%45 - 54 22,134 13.9% 19,720 12.3% 18,273 11.3%55 - 64 19,135 12.0% 20,866 13.1% 20,457 12.6%65 - 74 11,388 7.2% 13,803 8.6% 16,478 10.2%75 - 84 7,988 5.0% 7,822 4.9% 8,542 5.3%

85+ 3,994 2.5% 4,218 2.6% 4,121 2.5%Census 2010 2015 2020

Race and Ethnicity Number Percent Number Percent Number PercentWhite Alone 128,168 80.7% 125,882 78.7% 124,089 76.6%Black Alone 16,139 10.2% 16,974 10.6% 17,980 11.1%American Indian Alone 521 0.3% 527 0.3% 535 0.3%Asian Alone 2,662 1.7% 3,456 2.2% 4,429 2.7%Pacific Islander Alone 58 0.0% 71 0.0% 89 0.1%Some Other Race Alone 5,541 3.5% 6,303 3.9% 6,993 4.3%Two or More Races 5,740 3.6% 6,649 4.2% 7,805 4.8%

Hispanic Origin (Any Race) 16,150 10.2% 18,493 11.6% 21,154 13.1%Data Note: Income is expressed in current dollars.

Source: U.S. Census Bureau, Census 2010 Summary File 1. Esri forecasts for 2015 and 2020.

August 26, 2015

©2015 Esri Page 5 of 6

Demographic and Income ProfileKFC Rock Island Prepared by Esri2943 18th Ave, Rock Island, Illinois, 61201 Latitude: 41.49342Ring: 5 mile radius Longitude: -90.55826

AreaStateUSA

Trends 2015-2020Trends 2015-2020

Ann

ual Rat

e (i

n pe

rcen

t) 2.5

2

1.5

1

0.5

0Population Households Families Owner HHs Median HH Income

20152020

Population by AgePopulation by Age

Perc

ent

14

12

10

8

6

4

2

00-4 5-9 10-14 15-19 20-24 25-34 35-44 45-54 55-64 65-74 75-84 85+

2015 Household Income 2015 Household Income

<$15K15.2%

$15K - $24K12.1%$25K - $34K

12.2%

$35K - $49K16.0%

$50K - $74K18.7% $75K - $99K

12.8%

$100K - $149K8.7%

$150K - $199K2.5%

$200K+1.8%

2015 Population by Race2015 Population by Race

Perc

ent

70

60

50

40

30

20

10

0White Black Am. Ind. Asian Pacific Other Two+

2015 Percent Hispanic Origin: 11.6%

Source: U.S. Census Bureau, Census 2010 Summary File 1. Esri forecasts for 2015 and 2020.

August 26, 2015

©2015 Esri Page 6 of 6

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KBP acquires 24 KFC unitsLisa JenningsTue, 2015-06-30 16:44

Franchisee plans to expand with acquisitions

KBP Foods LLC, one of the nation’s largest KFC franchisees, added 24 more locations to its portfolio as part of an ongoing plan to grow by acquisition, the company said Tuesday.

The agreement brings KBP’s unit count to 247 locations. All of the restaurants are KFC units, with a large portion of dual-branded locations among them. The newly acquired restaurants are located in Kansas, Missouri and Florida.

Overland Park, Kan.-based KBP said the acquisition is the first deal since the company was recapitalized in a management buyout of its private-equity owners in April.

Related

KFC launches brand overhaul

KFC sues 3 companies in China over alleged rumors

More restaurant finance news

Terms of the deal were not disclosed. The 24 units were sold by D-Carr Investments and related entities, and all are base KFC units, with some as co-branded locations, including five KFC/Taco Bell locations, four KFC/Long John Silver’s units, and one KFC/Pizza Hut Express restaurant, said Monica Reinert, KBP director of communications.

Barry Dubin, KBP chief development officer, said in a statement that growing by acquisition has been successful.

“With our recent recapitalization, we are continuing to seek out opportunities for KBP to add 50 to 60 new units a year over the next five years,” Dubin said.

Reinert said the company is in talks for another acquisition this year, although it will likely be outside Yum! Brands Inc.

KBP first invested in KFC as the Louisville, Ky.-based company refranchised, Reinert said. With that refranchising effort now complete, KBP will look to expand with other brands, but the company is not yet ready to reveal the direction it’s headed, she said.

Contact Lisa Jennings at lisa.jennings@penton.com.Follow her on Twitter: @livetodineout

Source URL: http://nrn.com/corporate-news/kbp-acquires-24-kfc-units

Page 1 of 1KBP acquires 24 KFC units

9/2/2015http://nrn.com/print/corporate-news/kbp-acquires-24-kfc-units

Tue, 2015-06-30

KBP Foods LLC, one of the nation’s largest KFC franchisees,

print | close

KBP Foods completes management buyoutJonathan MazeTue, 2015-04-28 16:01

KBP Foods Inc., recently completed a management-led buyout of its private equity owners, Boyne Capital, in a deal that will enable the company to double the number of senior managers with ownership in the business.

“For us it’s great,” Michael Kulp, CEO of the Overland Park, Kan-based KFC and Taco Bell franchisee, said this week. “We’re bringing key members of our management team involved in the equity side of the business. That helps create wealth for their futures and for their families.”

Yet, just because management has bought out private equity doesn’t mean the company is about to slow its remarkable growth.

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More restaurant franchising news

KBP has quadrupled in size in the four years under Boyne’s ownership, and now has 223 locations in the Midwest and Southeast. Most of those locations are KFC units, but the company also owns Taco Bell and Long John Silver’slocations.

KBP already has deals in place for 54 locations, and expects to end the year with at least 278 units, Kulp said. He expects growth to continue for the next few years.

“Our goal is to double the size of the business in five years,” Kulp said.

If the company continues buying 50 units a year for the next five years, he said, it would have about 550 locations and $600 million in revenue.

With those growth projections and a strong recent track record, KBP did not have trouble finding potential investors for its buyout. Many private-equity firms and other investors are eager to fund large, growing franchisees. The operator initially had a dozen investors interested in the deal.

That enabled KBP to be choosy about its investors. The company chose three investors, who each offered a small amount, to provide the franchisee with the ability to enable future growth.

The investors are all Small Business Investment Companies — professionally managed investment funds that work with the U.S. Small Business Administration to fund small businesses.

The deal illustrates a growing trend in the franchise business. At a time when private equity has been pumping dollars into large-scale franchisees, a few management teams at large operators have been looking for alternatives. For instance, the Ontario Teachers’ Pension Plan invested $300 million in Flynn Restaurant Group last year.

Such investors have longer time horizons, and they don’t charge management fees like many private-equity funds do.

Page 1 of 2KBP Foods completes management buyout

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Tue, 2015-04-28

KBP has quadrupled in size i

d expects to end the year with at least 278 units,

In KBP’s situation, the investors were only looking for minority investments, enabling management to regain control of the company.

In addition, the low cost of debt enabled management to borrow at low rates to fund the deal.

“It was the perfect storm, with the capital markets being right, our success at growing and the stability of the business,” Kulp said. “We were able to go out and find partners in a minority capacity and take over majority control of the business.”

The company expects to be able to grow in part because 150 of its units are in the KFC system, which has largely avoided the consolidation wave that hit many franchised systems in recent years. KFC has a large number of legacy operators that may look to sell in future years, which could provide a springboard for KBP’s continued growth.

“It’s a brand that’s ripe for some consolidation,” Kulp said.

"A big three years"(Continued from page 1)

Kulp joined KBP in 2000, when it was known as Zancanelli Management Corp. and had just 12 KFC locations in western Colorado. The company grew to 65 units by late 2009, when the original owners looked to sell their interest in the company. The next year, Boyne bought a controlling interest and Kulp remained.

KBP then began acquiring KFC units. The chain’s sales struggled in the aftermath of the recession, and prices for many locations were relatively low.

“There aren’t a lot of big, institutional, sophisticated operators in the system,” Kulp said. “It’s a challenging system to operate. It takes a grassroots, on-the-ground, hands-on restaurant approach to be good inside the business.”

Kulp said many locations have gone too long without investment in assets and infrastructure. The company looks for acquisitions in which sales are strong, but where it only needs to make a few changes to improve profitability.

“We’re seeing deals where we’re paying what the seller feels is a fair multiple,” Kulp said.

But with reinvestment in assets, infrastructure and people using the company’s financial model, profits improve and the sale price looks better.

Currently, KFC has a lot of momentum. The chain’s same-store sales have improved in recent quarters, including a 7-percent increase in the first quarter this year. In February, the franchisor pledged to invest $185 million in the brand over the next three years.

“It’s going to be a big three years,” Kulp said.

He noted that the addition of more advertising dollars behind the brand could radically change its image with the consumer.

“This is my 14th year I’ve been involved with the brand,” Kulp said. “There’ve been some good years and some not-so-good years. KFC can be a difficult brand to operate. But when the brand is done right, there is a ton of opportunities for growth.”

Contact Jonathan Maze at jonathan.maze@penton.com.Follow him on Twitter: @jonathanmaze

Source URL: http://nrn.com/corporate-news/kbp-foods-completes-management-buyout

Page 2 of 2KBP Foods completes management buyout

9/2/2015http://nrn.com/print/corporate-news/kbp-foods-completes-management-buyout?page=1

Currently, KFC has a lot of momentum. The chain’s same-store sales have improved in recent quarters, including a 7-percent increase in the first quarter this year.

From the Kansas City Business Journal:http://www.bizjournals.com/kansascity/news/2015/04/06/kbp-foods-fast-food-franchisee-growth.html

KC-area fast-food exec knows how to feed the beastApr 6, 2015, 1:40pm CDT Updated: Apr 6, 2015, 2:43pm CDT

Rob RobertsReporter- Kansas City Business JournalEmail | Twitter | LinkedIn | Google+

Michael Kulp is enjoying life in the fast-food lane.

As CEO of Overland Park-based KBP Foods LLC, Kulp leads one of the nation's 10 fastest-growing restaurant chains. Created with the 1999 purchase of five KFC restaurants in Colorado, the quick-service franchisee has grown to 227 KFC, Taco Bell and Long John Silver's locations in 10 states.

In just the past four years, KBP Foods has quadrupled its holdings, Kulp said, and there's no slowing the fast-food juggernaut down now.

See Also

• Profits to go: Fast-food giant's holding firm makes investor millions

"Our five-year proforma takes our business to around $600 million in revenue, which is right at double what we'll end this year at," Kulp said. "We'll open 50 to 60 new units a year over the next five years, which is what we've done the past four years.

"We're fully capitalized, locked and loaded, and ready to do that."

KBP Foods was originally named Zancanelli Management Corp. by founders Gary Zancanelli and his son Gary Jr., who had worked for Harman Management Corp., the very first Kentucky Fried Chicken franchisee. Kulp began working with the Zancanellis shortly after they purchased their first five KFCs. And when the father and son wanted to cash out in 2010, Kulp brought in several equity investors to help him buy the founders' shares.

Kulp renamed with business KPB Foods, with the "K" standing for Kulp; the "B" for Boyne Capital Partners LLC, the company's largest equity investor; and the "P" for Partners. But through a new recapitalization completed in March, KBP Foods bought out its previous equity providers, who on average netted a healthy cash-on-cash return of "just north of 6x," Kulp said.

On the flip side, KPB brought in three new institutional investors in smaller capacities and allowed seven more senior managers of the company to buy in, increasing its total number of key employees with equity holdings to 15.

The recapitalization also allowed Kulp to regain control of the firm's holding company board, which he now serves as chairman, and left enough powder dry for future acquisitions.

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"We've got about $60 million (in acquisitions) teed up that we'll be closing on before year-end," Kulp said.

KBP's buying strategy begins with sticking to its three franchise brands, which were originally owned by Yum! Brands, though Long John Silver's has since been spun off.

"Originally, there wasn't a lot of strategy; Yum! Brands was what (the Zancanellis) were familiar with," Kulp said. "And when Yum! started divesting a significant number of (company-owned) restaurants several years ago, we had already built up a strong record of performance, so they came to us with a lot of initial divestitures. For example, the 21-store Kansas City acquisition that brought us to Overland Park was a Yum! corporate divestiture."

Six years later, in 2009, Yum! offered KPB another large group of restaurants, in Florida.

"Those were really our two large clumps of growth," Kulp said, "and then we built franchise markets around them through smaller acquisitions. We've never left that (KFC, Taco Bell and Long John Silver's) space because we know it and we've been successful with it."

KBP prefers to buy existing restaurants rather than opening new ones, Kulp said, "because you can buy four or five restaurants for the price of building one."

As for its selection strategy, KBP likes to buy dense clusters of restaurants with high revenue but low profitability.

"The reason we look for (low profitability) is that, in our business, you buy based on multiples of existing cash flow," he said. "So I can come to you and offer a very fair market multiple. But by the the time I've integrated the business, I've paid a third of that on an effective basis. Over the past 150 stores we've done, we've paid something like 5x (cash flow), but we've integrated them to 1.7x."

KBP is able to improve new store performance quickly through a highly regimented management system "that allow us to spell out what happens every 15 minutes in our restaurants," Kulp said.

The company's management structure is another part of KBP's secret sauce, he said.

Most quick-service chains sandwich two or three levels of middle management between the store and vice president levels, Kulp explained. "We make every one of our vice presidents an equity holder, which gives us the ability to attract top talent to those positions," he said, "and then we put those guys two levels away from the restaurant. So in our infrastructure, it goes from restaurant to an area manager, who reports directly to a vice president that has a stake and lives in his restaurants."

KBP's headquarters location also helps the company find top talent, Kulp said.

Over the past couple of years, he said, the company has hired a CFO who was previously CFO for Lockton Cos. for 13 years and a human resources director who was the top HR executive for U.S. Bank.

"If we were in Chicago or New York or Atlanta, individuals like that would never sniff a business like this," Kulp said. "They'd be looking at Coca-Cola or businesses like that for career progression — not a $250 million to $300 million fast-food franchisee."

A total of 15 people now work in KBP's Overland Park office. But it takes many more than that to feed a ravenous fast-foot beast. From store level through C-level, Kulp said, the company now employs nearly 5,000.

Rob reports on real estate and development.

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S&P Capital IQ Equity Analyst T. Amobi, CFA CPA

GICS Sector Consumer DiscretionarySub-Industry Restaurants

Summary This company operates, franchises or licenses the largest number of fast foodrestaurants in the world, with more than 41,000 units in over 125 countries, including theKFC, Pizza Hut and Taco Bell chains.

Key Stock Statistics (Source S&P Capital IQ, Vickers, company reports)

52-Wk Range $95.90– 65.81 S&P Oper. EPS 2015E 3.57 Market Capitalization(B) $34.018 Beta 0.79Trailing 12-Month EPS $2.04 S&P Oper. EPS 2016E 4.10 Yield (%) 2.08 S&P 3-Yr. Proj. EPS CAGR(%) 11Trailing 12-Month P/E 38.7 P/E on S&P Oper. EPS 2015E 22.1 Dividend Rate/Share $1.64 S&P Quality Ranking A+$10K Invested 5 Yrs Ago $19,649 Common Shares Outstg. (M) 431.2 Institutional Ownership (%) 78

Price Performance

O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N

2011 2012 2013 2014 2015

34

3 3

DownUp No Change

Volume

12-Mo. Target Price Below Avg.Relative Strength

30-Week Mov. Avg. Above Avg. STARSGAAP Earnings vs. Previous Year10-Week Mov. Avg.

63

Sha

re P

rice

40

50

80

100

0102030

Vol

ume(

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5

1

Past performance is not an indication of future performance and should not be relied upon as such.

Analysis prepared by Equity Analyst T. Amobi, CFA CPA on Jul 15, 2015 10:49 AM, when the stock traded at $89.42.

Highlights

➤ Revenues are likely to rise 5.9% in 2015, as non-China growth is partly offset by lower Chinarevenues (51% of 2014 sales) because of suppli-er issues there, as well as unfavorable curren-cy rates on translation. For 2015, mixed same-store sales results in the first half of the yearshould be outweighed by new store openingsand improved second half comparable-storesales. YUM plans to open more than 1,400 newinternational units in 2015, not including 700planned in China, and additional units in India.Sales will likely rise 8.7% in 2016.

➤ We look for restaurant margins to benefit assame-store sales rise. We expect a partial re-covery in China profitability in 2015. After anoth-er difficult year in China, limiting YUM operatingmargin improvement, we expect noticeablegains in late 2015. Refinancing activity in 2014should reduce 2015 interest costs.

➤ We estimate operating EPS of $3.57 for 2015and $4.10 in 2016, up from an adjusted $3.09 in2014. Long-term EPS growth should benefitfrom a rapidly expanding store base. In mid-Ju-ly, the company reaffirmed its 2015 financialtarget for at least 10% EPS growth.

Investment Rationale/Risk

➤ After relatively mixed 2015 first half results, wesee some easing challenges in the second half-- consistent with management's outlook -- asthe company gradually recovers from the ef-fects of the supplier food handling issue in Chi-na, where we see a significant potential forlong-term growth. Elsewhere, we see contin-ued traction for Taco Bell, and to large extentthe KFC division as well. Conversely, we antici-pate some lingering challenges for Pizza Hutthat could nonetheless ease in the second half.

➤ Risks to our recommendation and target priceinclude protracted turnaround challenges inChina, intensifying cost pressures (energy, foodand labor costs), a sharp pullback in globalconsumer spending and potentially severe for-eign currency headwinds.

➤ In May, activist hedge fund Third Point dis-closed its stake in YUM. Our 12-month targetprice of $100, which implies a relatively ampleP/E of 28X our 2015 EPS estimate. This multiplerepresents a modest discount to peers, but po-tentially includes an activist investor premium(versus the 10-year historic average of 24.0X).YUM recently offered a dividend yield of 1.8%.

Analyst's Risk Assessment

LOW MEDIUM HIGH

YUM competes primarily in the fast food industry,in which its concepts possess a very strong brandname presence domestically, and in certainforeign markets. However, operating margins canvary widely due to fluctuations in food costs.Further, YUM's profits can be affected bychanging currency exchange rates given its largeand fast-growing international business.

Revenue/Earnings Data

Revenue (Million U.S. $)1Q 2Q 3Q 4Q Year

2015 2,622 3,105 -- -- --2014 2,724 3,204 3,354 3,997 13,2792013 2,535 2,904 3,466 4,179 13,0842012 2,743 3,168 3,569 4,153 13,6332011 2,425 2,816 3,274 4,111 12,6262010 2,345 2,574 2,862 3,562 11,343

Earnings Per Share (U.S. $)2015 0.81 0.53 E1.10 E0.98 E3.572014 0.87 0.73 0.89 -0.20 2.322013 0.72 0.61 0.33 0.70 2.362012 0.96 0.69 1.00 0.72 3.382011 0.54 0.65 0.80 0.75 2.742010 0.50 0.59 0.74 0.56 2.38Fiscal year ended Dec. 31. Next earnings report expected: EarlyOctober. EPS Estimates based on S&P Capital IQ OperatingEarnings; historical GAAP earnings are as reported in Companyreports.

Dividend Data

Amount($)

DateDecl.

Ex-Div.Date

Stk. ofRecord

PaymentDate

0.410 Sep 10 Oct 15 Oct 17 Nov 7 '140.410 Nov 20 Jan 14 Jan 16 Feb 6 '150.410 Mar 25 Apr 8 Apr 10 May 1 '150.410 May 1 Jul 15 Jul 17 Aug 7 '15Dividends have been paid since 2004. Source: Company reports.

Past performance is not an indication of future performance and

should not be relied upon as such.

Stock Report | September 5, 2015 | NYS Symbol: YUM | YUM is in the S&P 500

YUM! Brands Inc.S&P Capital IQRecommendation

HOLD ★ ★ ★ ★ ★ Price$78.89 (as of Sep 04, 2015 4:00 PM ET)

12-Mo. Target Price$100.00

Report CurrencyUSD

Investment StyleLarge-Cap Growth

Please read the Required Disclosures and Analyst Certification on the last page of this report.Redistribution or reproduction is prohibited without written permission.This document is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors should seekindependent financial advice regarding the suitability and/or appropriateness of making an investment or implementing the investment strategies discussed in this document and should understand that statements regarding future prospects may not be realized.Investors should note that income from such investments, if any, may fluctuate and that the value of such investments may rise or fall. Accordingly, investors may receive back less than they originally invested. Investors should seek advice concerning anyimpact this investment may have on their personal tax position from their own tax advisor. Please note the publication date of this document. It may contain specific information that is no longer current and should not be used to make an investment decision.Unless otherwise indicated, there is no intention to update this document.

Business Summary July 15, 2015

CORPORATE PROFILE. Yum! Brands (YUM) has the world's largest quick service restaurant (QSR) system,with over 41,000 restaurants, including licensee units, in more than 125 countries and territories. The com-pany operates and franchises restaurants under the KFC, Pizza Hut and Taco Bell concepts. In February2012, YUM acquired a controlling interest in Little Sheep, a leading casual dining concept in China.

Starting with 2014, YUM's business consists of five reporting segments: YUM China (the China division),and YUM Restaurants India (the India division). The KFC and Pizza Hut division include all their respectiveconcept operations outside of the China and India divisions. The Taco Bell division includes all operationsof the Taco Bell concept outside of the India division.

The China division, which is comprised of about 6,715 restaurants in mainland China, generated revenuesof $6.9 billion and operating profit of $713 million in 2014. Meanwhile, the India division has 833 units, andrecorded revenues of approximately $141 million, and an operating loss of $9 million.

KFC (originally Kentucky Fried Chicken) is the leader in the U.S. chicken QSR segment, according to NPDGroup CREST. As of year-end 2014, KFC had 14,197 stores operating outside China and India. It recordedrevenues of about $3.2 billion, and operating profit of $708 million in 2014.

Pizza Hut is the largest restaurant chain specializing in ready-to-eat pizza products, with about a 16% mar-ket share of the U.S. pizza QSR segment. As of year-end 2014, Pizza Hut had 13,602 units outside China andIndia. It reported $1.1 billion in revenues, and $295 million in operating profit in 2014..

Taco Bell is the leader in the U.S. Mexican food QSR segment. As of year-end 2014, there were 6,199 TacoBell units outside China and India. It recorded $1.9 billion in revenues, and operating profit of $480 million in2014.

CORPORATE STRATEGY. YUM sees greater growth opportunity outside the U.S., particularly in China,which has a population of 1.3 billion and a rapidly growing economy. The company plans to increase thenumber of units in China at a double-digit rate with same-store sales growth of at least 5%. For YRI, YUM'slong-term targets are unit growth of 3%-4% and same-store sales growth of at least 2%.

For its U.S. business, YUM plans to grow its operating profit at a rate of 5% per year by improving its brandposition through differentiated products. The company is also focused on returning substantial cash flowsto its shareholders via dividends and share repurchases. YUM is targeting an annual dividend payout ratioof 35% to 40% of net income, and has increased the quarterly dividend at a double-digit rate each yearsince inception in 2004.

IMPORTANT DEVELOPMENTS. In July 2014, an undercover report was televised in China showing improp-er food handling practices by a local food supplier in China. As a result, many customers shied away forYUM's locations. The company terminated its relationship with the supplier globally, with minimal in-restaurant disruption. Even though the violator was a small supplier, sales at KFC and Pizza Hut were dis-proportionately impacted. Since then, China Division has experienced a significant, negative impact tosales and profits at both KFC and Pizza Hut.

FINANCIAL TRENDS. We think the company remains committed to repurchasing shares and paying divi-dends to shareholders. At year-end 2014, the company had shares repurchases authorization to buybackup to $1.1 billion of common stock.

Corporate Information

Investor ContactS. Schmitt (888-298-6986)

Office1441 Gardiner Lane, Louisville, KY 40213.

Telephone502-874-8300.

Fax502-874-8323.

Emailyum.investors@yum.com

Websitehttp://www.yum.com

Officers

ChrmnD.C. Novak

CEOG. Creed

Vice ChrmnJ.S. Su

COOR.G. Eaton

SVP, Secy & GeneralCounselC.L. Campbell

Board MembersM. J. CavanaghD. W. DormanM. M. Graddick-WeirT. C. NelsonT. M. RyanJ. S. Su

G. CreedM. FerragamoJ. S. LinenD. C. NovakE. B. StockR. D. Walter

DomicileNorth Carolina

Founded1997

Employees537,000

Stockholders58,368

AuditorKPMG

Stock Report | September 5, 2015 | NYS Symbol: YUM

YUM! Brands Inc.

Redistribution or reproduction is prohibited without written permission.

Quantitative Evaluations

S&P Capital IQFair ValueRank

1+ 1 2 3 4 5LOWEST HIGHESTBased on S&P Capital IQ's proprietary quantitative model, stocksare ranked from most overvalued (1) to most undervalued (5).

Fair ValueCalculation

$64.20 Analysis of the stock's current worth, based on S&P Capital IQ'sproprietary quantitative model suggests that YUM is overvalued by$14.69 or 18.6%.

InvestabilityQuotientPercentile

99LOWEST = 1 HIGHEST = 100

YUM scored higher than 99% of all companies for which an S&PCapital IQ Report is available.

Volatility LOW AVERAGE HIGH

TechnicalEvaluation

BEARISH Since July, 2015, the technical indicators for YUM have beenBEARISH.

Insider Activity UNFAVORABLE NEUTRAL FAVORABLE

Expanded Ratio Analysis

2014 2013 2012 2011Price/Sales 2.49 2.66 2.30 2.25Price/EBITDA 11.87 12.67 10.94 10.82Price/Pretax Income 23.13 22.47 14.64 17.11P/E Ratio 31.40 31.95 19.67 21.52Avg. Diluted Shares Outstg (M) 453.0 461.0 473.0 481.0Figures based on calendar year-end price

Key Growth Rates and Averages

Past Growth Rate (%) 1 Year 3 Years 5 Years 9 YearsSales 1.49 1.11 4.44 4.39Net Income -3.67 -10.08 -0.23 5.41

Ratio Analysis (Annual Avg.)Net Margin (%) 7.91 9.32 9.72 9.38% LT Debt to Capitalization 62.11 57.81 58.40 66.50Return on Equity (%) 56.61 NA 68.48 102.99

For further clarification on the terms used in this report, please visit www.spcapitaliq.com/stockreportguide

Company Financials Fiscal Year Ended Dec. 31

Per Share Data (U.S. $) 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005Tangible Book Value 1.22 1.44 0.95 1.83 0.94 NM NM 0.27 0.81 1.04Cash Flow 3.95 3.93 4.74 4.05 3.59 3.42 3.10 2.67 2.46 2.07Earnings 2.32 2.36 3.38 2.74 2.38 2.22 1.96 1.68 1.46 1.28S&P Capital IQ Core Earnings NA 2.70 3.19 2.76 2.40 2.16 1.76 1.69 1.51 1.26Dividends 1.52 1.38 1.19 1.04 0.88 0.78 0.68 0.52 0.26 0.22Payout Ratio 66% 58% 35% 38% 37% 35% 35% 31% 18% 17%Prices:High 83.58 78.68 74.75 59.79 52.47 36.96 41.73 40.60 31.84 26.90Prices:Low 65.81 59.68 58.40 46.27 32.49 23.37 21.50 27.51 22.11 22.37P/E Ratio:High 36 33 22 22 22 17 21 24 22 21P/E Ratio:Low 28 25 17 17 14 11 11 16 15 18

Income Statement Analysis (Million U.S. $)Revenue 13,279 13,084 13,633 12,626 11,343 10,836 11,279 10,416 9,561 9,349Operating Income 2,781 2,751 2,872 2,624 2,435 2,185 1,971 1,808 1,724 1,538Depreciation 739 721 645 628 589 580 560 533 479 469Interest Expense 130 152 169 156 175 212 253 199 154 127Pretax Income 1,427 1,551 2,145 1,659 1,594 1,396 1,280 1,191 1,108 1,026Effective Tax Rate 28.5% 31.4% 25.0% 19.5% 26.1% 22.4% 24.7% 23.7% 25.6% 25.7%Net Income 1,051 1,091 1,597 1,319 1,158 1,071 964 909 824 762S&P Capital IQ Core Earnings NA 1,248 1,505 1,330 1,170 1,041 863 913 849 754

Balance Sheet & Other Financial Data (Million U.S. $)Cash 578 573 776 1,198 1,426 353 164 789 319 158Current Assets 1,646 1,691 1,909 2,321 2,313 1,208 951 1,481 901 837Total Assets 8,345 8,695 9,011 8,834 8,316 7,148 6,506 7,242 6,353 5,698Current Liabilities 2,411 2,265 2,188 2,450 2,448 1,653 1,722 2,062 1,724 1,605Long Term Debt 3,077 2,918 2,932 2,997 2,915 3,207 3,564 2,924 2,045 1,649Common Equity 1,547 2,166 2,154 1,823 1,576 1,025 -112 1,139 1,437 1,449Total Capital 4,954 5,257 5,254 5,326 4,677 4,321 3,509 4,063 3,482 3,098Capital Expenditures 1,033 1,049 1,099 940 796 797 935 742 614 609Cash Flow 1,790 1,812 2,242 1,947 1,747 1,651 1,524 1,442 1,303 1,231Current Ratio 0.7 0.8 0.9 1.0 0.9 0.7 0.6 0.7 0.5 0.5% Long Term Debt of Capitalization 62.1 55.5 55.8 56.3 62.3 74.2 101.6 71.9 58.7 53.2% Net Income of Revenue 7.9 8.3 11.7 10.4 10.2 9.9 8.6 8.7 8.6 8.2% Return on Assets 12.3 12.3 NA 15.4 15.0 15.7 14.0 13.4 13.6 13.4% Return on Equity 56.6 50.5 NA 77.8 89.0 NM NM 70.6 57.1 50.1

Stock Report | September 5, 2015 | NYS Symbol: YUM

YUM! Brands Inc.

Data as originally reported in Company reports.; bef. results of disc opers/spec. items. Per share data adj. for stk. divs.; EPS diluted. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-UnderReview.

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