“What is the business of McDonalds? Selling hamburgers and french fries? Actually, McDonalds is earning substantially from the real estate through owning the real estate which it operates from.”
I am not sure how many of you have heard the above quote. We have in our midst a local F&B company, BreadTalk who was able to participate in the enhancement of the value of real estate by having an equity stake in the business premise which it operates in.
Let’s look at the past real estate venture the Group has invested with real estate player, Perennial by taking a minority stake in these properties:
|18 November 2009
||Katong Mall (Now known as 112 Katong)
|4 November 2011
|16 April 2013
||Phase 1 and 2 of Beijing Tongzhou Integrated Development
|9 January 2014
As quoted from the relevant announcements, the rationale of these investments is to allow the Group the opportunity to integrate upstream along the retail supply chain by co-investing with the industry veterans; build its presence in a major city where it operates its own stores as well as enjoying the first right of refusal to prime retail space to showcase all or some of its brands, including new concepts.
Bearing fruits of its investment through property divestment
|Jan 26 2017
||Stake in TripleOne Somerset
|Jan 17 2016
||Stake in 112 Katong
BreadTalk, together with its fellow shareholders on the properties has selectively divested its stake in 2 properties listed above and reaped a decent divestment gain for the last 2 financial years.
How does BreadTalk add value to the property?
BreadTalk’s ability to create good brands result in good following by customers. Its most successful venture is probably DinTaiFung. If you are at a shopping mall that has a DinTaiFung during meal times, it is highly likely that you will see a queue of customers waiting for their turn.
The ability of BreadTalk in drawing customers with its stable of brands such as ToastBox, BreadTalk and Food Republic translate to greater footfall into the shopping malls which is one of the key metrics in measuring the performance of a shopping malls which eventually drives property valuation.
Continuous investment in real estate while sharing the fruits of labour with shareholders
It seems like purchasing of real estate by BreadTalk is happening at a more frequent occurrence lately. Towards the end of 2017 and 2018, the Group purchased 2 properties/stakes in properties:
|18 December 2017
||22 and 22A Lorong Mambong
|3 January 2018
||HSR Healthcare Mixed-Use Developments in China
The first investment is a corner freehold shop house located in Holland Village whereby BreadTalk has a full stake in the property while the latter is a minority interest in a joint venture led by Perennial whereby the total committed capital of $33.6 million will be funded progressively upon capital call through internal resources.
Following the sizeable divestment gains from its property stakes in 2016 and 2017, BreadTalk has been progressively rewarding shareholders through an increase in dividend declared of 3.85 cents and 7 cents for 2016 and 2017 respectively.
The above highlight how good brands enhance the value of a real estate, especially following a major redevelopment such as the redevelopment of 112 Katong. At the same time, getting the first right of refusal to the prime portion of 112 Katong with good frontage of the main road also benefit the operations of BreadTalk. This creates a win-win situation in this case between Perennial and BreadTalk and eventually contributed to them being able to divest the property at a significant gain.
P.S The writer has shares in BreadTalk and is also a fan of DinTaiFung and ToastBox =)