When Injap Sia listed DoubleDragon Properties in 2014 with Jollibee Chairman Tony Tan Caktiong, he wanted to accomplish his one goal for the company: to build one million square meters of leasable space by year 2020.
Sia saw the opportunity to build a chain of branded community malls in the provinces and prime commercial office buildings in Metro Manila. He computed that in order for him to finance his goal, he would need around Php40 billion to make this happen.
At that time, DoubleDragon, which had just successfully raised Php1 billion from its Initial Public Offering (IPO), had only one property lot in Roxas City where Sia planned to put up his first community mall called CityMall.
Realizing the need to raise additional capital to speed up his expansion plans, Sia went on a series of aggressive fundraising activities by borrowing long-term funds, while building and expanding the leasable assets of DoubleDragon.
Today, more than three years after the IPO, Sia has finally raised the Php40 billion funding he needed to accomplish his goal. He has already achieved more than 30 percent of his one million square meter target to date, which shall start generating revenues next year.
With the required funds at his disposal, Sia is now on track to complete the remaining leasing assets by year 2020. Strong market expectations of DoubleDragon’s growth have previously pushed its stock price by as much as 40 times from its IPO price of Php2 in 2014 to PHP80 in 2016. The stock, however, has since corrected to Php38.45 this year as investors started taking profits.
As the business model of DoubleDragon Properties is slowly shifting from property development to leasing business, what are the prospects of the company becoming a blue chip stock in the future?
Here are the five reasons why DoubleDragon Properties may be the stock to own for the future according to its founder Injap Sia:
1. Accelerating recurring revenue growth
Blue chip stocks are perceived to be relatively safer investments because their earnings are more reliable. Historically, the stock market pays a premium to companies that generate strong recurring earnings because they tend to be least affected by temporary declines in business cycles.
“We expect to have about 400,000 square meters of leasable spaces to be online for the first time next year, which will contribute over Php2 billion in rental revenues. This will come from the four towers of our DoubleDragon Plaza, which are all fully leased out, and 40 Citymalls,” Sia said.
“By the end of 2018 next year, we will have a total of almost 600,000 square meters of leasable spaces available as we complete our fifth and sixth towers,” he added. “This will increase to 800,000 square meters by 2019 and 1.2 million square meters by 2020.”
2. Positioning in dominant locations to ensure growth
One characteristic of a blue chip company is its ability to demonstrate sustainable earnings growth over the long-term. It enjoys the competitive advantage that allows it to protect its long-term earnings and shareholder value.
“We want to position CityMall as the largest landlord by 2020 in the Tier 3 cities, which are emerging growth markets. We want to provide the platform for the modern retail to penetrate in these cities. Tier 3 cities represent about 70 percent of the 148 cities in the Philippines, while the balance represent Tier 1 and Tier 2 cities that are already saturated by the big retail landlords,” Sia said.
3. Providing a defensive platform against the rise of e-commerce
The rise of Internet shopping is reshaping the retail industry. Traditional retailers who want to survive the growth of e-commerce must develop defensive strategies to overcome threats and uncertainties in the future.
“When e-commerce starts to kick in, retailers from Tier 1 cities will be first affected. They have to prepare and expand in Tier 3 cities to neutralize the impact of online shopping. In Tier 3 cities, everything is 10 minutes away from our mall because it is a small city so there is no need to order online,” Sia said.
“There are only two ways for big retailers to prepare to future proof themselves in the next 10 years: bet on e-commerce or expand in Tier 3 cities,” he added. “The chance of succeeding in doing e-commerce is low because it is not easy, no one can tell if they will be able to make it work with Alibaba and Amazon already in the market.
“The only direction for them is to expand in the Tier 3 cities by opening in our malls to prepare themselves in the next five to 10 years.”
4. Keeping balance sheet strong to minimize financial risks
DoubleDragon Properties has raised a total of Php40.4 billion in four different occasions in the last three years. Despite the aggressive fundraising campaign, the company has managed to maintain low debt-to-equity ratio of 1.7x, lower than maximum gross debt-to-equity ratio of 2.33x allowed by its loan covenants.
“We make sure our sources of funding are spread out. We are not concentrated on any institution or any bank. Our borrowings from banks were funded by nine banks and that comprised only 38 percent of our total funding. The rest of the funding came from institutional and retail investors, which make our company stronger and independent,” Sia said.
“We don’t have any loan maturity until 2021 and that gives us time to build up our cash flows and employ the capital efficiently to generate revenues. By the time our first loan matures, our revenues should be able to cover it naturally.”
5. Banking on years of successful business experience
Injap Sia is one of the most admired entrepreneurs in the country, being the founder of Mang Inasal. Sia successfully expanded his fast-food chain to over 300 outlets in a few years that caught the attention of Jollibee founder Tony Tan Caktiong, who acquired 70 percent of his company for Php3 billion in 2010.
Tan Caktiong has built Jollibee to be the largest food service network in the country operating over 2,700 outlets nationwide and one of the best-performing blue chips in the stock market. The combined management experienced of Sia and Tan Caktiong provides a powerful collaboration to ensure success of Double Dragon Properties.
“Tony Tan is an entrepreneur. He built Jollibee from scratch. He knows how it is to build a great company from the startup stage. He knows where our company is going because he is a very smart entrepreneur. We talk all the time about the future of DoubleDragon,” Sia said.
“Every move we make, I make sure he understands and he also gives his inputs. For the past two to three years, he’s more than just in the board because we meet regularly on how we should deploy our capital properly.”
Henry Ong, RFP, is president of Business Sense Financial Advisors. Email Henry for business advice email@example.com or follow him on Twitter @henryong888