Manila - It’s been a fast ascent for college dropout Edgar “Injap”
Sia, who less than a decade ago was selling barbecue chicken in the
Philippines. He now leads the real estate developer with the best stock gains
in Asia.
His company, DoubleDragon Properties, went public
in the Philippines in 2014 and has surged 2 500 percent since it began trading
in April that year through January 31, beating 460 other Asian developers worth at
least $500 million. That surge has inflated DoubleDragon’s market value
to 115.1 billion pesos ($2.3 billion), propelling it to the nation’s top
five developers even though it owns and manages a fraction of the real estate
held by its rivals.
Sia was studying architecture when he dropped out at 19
to start a business venture with classmates. Now 40, Sia ranks among the
youngest tycoons in the Philippines. In 2003, he started a chicken shop in
Iloilo City before turning it into a nationwide chain that overtook McDonald’s
Corp. in store count in 2010. That year, he sold his Mang Inasal chicken chain
to Jollibee Foods, and later partnered with its founder Tony Tan Caktiong
and with SM Investments, owner of the nation’s largest retailer, to
venture into property and malls.
With the same lofty ambitions he used to expand his
chicken empire, Sia aims to operate 100 CityMall outlets by 2020 to help meet
the basic needs of shoppers in smaller provinces. DoubleDragon is a minnow
among Asian developers - it had $844.5 million of assets in the third quarter
of 2016, about 0.6 percent of the assets of Asia’s largest real estate company,
China Evergrande Group.
“The stock has outperformed because many investors
believe in its business model, which is geared towards addressing geographical
gaps in retail,” said Cristina Ulang, head of research at Manila-based First
Metro Investment Corp. “DoubleDragon is very focused on penetrating smaller
cities that are growth areas of the future. It’s already positioned ahead of
the others when growth filters into these smaller cities. ”
Since DoubleDragon’s 2014 initial public offering, the
only developers worldwide to beat its gain have been a Venezuelan real estate
investment trust and a US-listed Chinese provider of real estate services.
The stock surge inflated DoubleDragon’s market value to a record in June that
then made it the third-most valuable Philippine builder, dislodging Megaworld, the largest landlord for call centers. While DoubleDragon shares are
down 26 percent from their all-time high, the stock may rebound to a new record
if the company delivers on mall roll-out and earnings growth pledges, Ulang
said.
Fundraising
Sia is also raising long-term funds to buy and develop
property. The builder has raised 30.7 billion pesos from the sale of bonds and
preferred shares in the past three years, augmenting the 1.1 billion peso
proceeds from its IPO. The amount is 75 percent of its 40.4 billion peso budget
to build a million square meters of malls and offices for lease by 2020. Sia
said another 9.7 billion pesos of retail bonds will be sold this year to
complete the budget, which also includes the expansion of two hotel brands.
DoubleDragon will post a sevenfold gain in recurring
revenue to 9.43 billion pesos by 2020 from about 1.35 billion pesos this year
as most of its leaseable portfolio start to contribute from 2018 onward, Sia
said.
“We have already passed the toughest phase in bridging
DoubleDragon’s transition into a business with sustainable recurring
revenue," Sia said in an interview on January 26. “Our leasing revenue has
kicked in and will start to surge as we focus on execution."
Sia said the company is on track to meet targets he has
set, including a billion peso profit in 2016, completing the construction of 50
malls this year and operating at least 50 outlets in 2018.
Operational concerns
“Investors bought the stock on what the company would or
could do, not on what it had. But I’d be cautious because of operational
concerns,” said Rens Cruz, an analyst at Regina Capital Development Corp. who
has a hold rating on the stock. The company is “still in a transition phase
from one that gets revenue from interim project to one that gets earnings from
leasing.”
DoubleDragon planned its CityMall complexes to have a
uniform format -- one level of no more than one hectare (2.5 acres) each, with
only one tenant per retail category that includes banking, grocery,
pharmaceutical, food and entertainment. It’s meant to provide the basic needs
of community dwellers in smaller provincial cities that may not be readily
attractive to bigger developers like SM Prime Holdings and Robinsons Land, Sia said.
DoubleDragon builds most of its malls in cities with
populations of 100 000 to 150 000, which he said comprise about 80 percent of
the nation’s 145 cities. He expects the bigger retailers’ interest in these
smaller communities will only rise as sales growth slows in larger and more
populated areas due to saturation and competition.
Jollibee, which has more than five restaurant brands, and
SM Investments, a partner in DoubleDragon’s shopping mall unit CityMall
Commercial Centers Inc., are anticipating the trend. The two groups typically
lease two-thirds of a CityMall outlet, Sia said.
“When we opened Mang Inasal in 2003, we promised 100
stores in five years, and we opened our 100th outlet four years and a month
later,” Sia said. “These smaller provincial cities, starting in the next two to
three years, will be the most important areas for modern retail. Once you spot
a gap that big players missed or nobody has paid attention to in a transition,
you will own that space for many decades.”