The Bank of Thailand categorizes the “Wholesale and Retail Sector” as one of the economic indicators. In 2017, the overall wholesale and retail sector grew by approximately 6.3%. Various product categories saw growth, such as durable goods (+2.5%), automotive sales and repairs (+8.5%), and department stores and shops (+7.1%).

               Thailand had over 18.9 million square meters of “shopping center space” in 2017. The most prominent public retail company is Central Pattana Group (CPN or Central Pattana plc.), which holds the largest market share at 21%, followed by The Mall Group at 5% and Robinson at 4%. TerraBKK invites you to explore whether CPN, with its rapid expansion of shopping center space, is also seeing a good rental rate? How will the strong trend of online shopping impact them? Here are the details.

  CPN is not just about shopping centers  

               Looking at the figures, “number of locations” indicates that half of CPN Central Pattana plc.'s entire business consists of shopping centers (32 locations), while the other half includes other businesses such as food courts (28 locations), hotels (2 locations), office buildings (7 locations), and residential buildings (1 location). In terms of “revenue share”, it is clear that income from shopping centers is the highest at 82% of the total. In summary, shopping centers remain CPN's core business.

  CPN's rental space has increased, but the rental rate has decreased  

               In the past 5 years, CPN Central Pattana plc. has increased its rental space by over 388,000 square meters nationwide. As of 2017, the total rental space was 1.66 million square meters, with Bangkok accounting for 912,000 square meters and provincial areas 751,000 square meters. However, in terms of “rental rates”, although the overall rate remains above 90%, there has been a slight downward trend each year. This is partly due to the modernization of existing shopping centers, such as Central World and Central Plaza Rama 3. Recently, the rental rate in Bangkok for 2017 was 91% (down from 93% in 2016), while in provincial areas it was 93% (down from 94% in 2016).

  CPN's nationwide shopping center rental rates  

               Although the rental rates of existing shopping centers remain around 90%, new shopping centers opened in the past two years have launched with rental rates dropping to around 80% at the time of opening. For example, Central Plaza Nakhon Si Thammarat at 89%, Central Plaza Nakhon Ratchasima at 80%, and Central Plaza Mahachai at 85%. The latest data shows that in 2017, CPN Central Pattana plc. had the following rental rates nationwide:

               If we ask about the revenue growth of existing shopping centers, known as Same Store Rental Revenue Growth, the answer is approximately 3.5% growth from the previous year, which does not seem to be a high figure. How will CPN Central Pattana plc. proceed with this business strategy?

    What path will CPN choose to follow?    

              The solution for CPN Central Pattana plc. to improve profit figures is to manage costs effectively, focusing on reducing utility costs, such as energy-saving measures. This has led to a 3.2% reduction in utility costs, which account for 30% of total rental and service costs in 2017.

               The threat of the booming online shopping trend is significant, and it seems to genuinely replace shopping in shopping centers. Beyond just product selection, “Center of Life” is CPN Central Pattana plc.'s strategy to attract people to live diverse lives in shopping centers, not just traditional shopping anymore. Examples include Food Destination and Think Space. This is because what online shopping cannot provide is the creation of community and customer lifestyle.

               In addition to the main strategies mentioned, CPN Central Pattana plc. is also opening opportunities for investment with new partners, such as joint ventures with Dusit Thani Public Company Limited (DTC) to develop land at the corner of Silom Road and Rama 4 Road into a MIX USE project, with an investment ratio of 85% in shopping centers, 100% in office buildings, and 40% in hotels. Additionally, they have launched a new brand, Central Village (Bangkok Outlet Experience), the first outlet near Suvarnabhumi Airport, aiming to attract brand-conscious customers both Thai and international, set to open in the second quarter of 2019.

               REIT funds are another strategy that CPN Central Pattana plc. has chosen for fundraising, channeling money from asset sales into REIT funds to develop other projects while still retaining ownership of the land after the lease expires (REITs are leasehold, meaning the right to use the property for a specified period). Currently, CPN has sold assets into two REITs, namely CPNCG, which includes land and office buildings at The Offices at Central World (except for some areas on the G floor, the 3rd floor, and basement B1-B3) and the right to use parking spaces for 1,271 vehicles. The latest was at the end of 2017, which is CPNREIT for the Central Plaza Rama 2 project, Central Plaza Rama 3 project, Central Plaza Pinklao project, Central Plaza Chiang Mai Airport project, Central Festival Pattaya Beach project, and Hilton Pattaya hotel.

In conclusion, CPN Central Pattana plc. aims to maintain stable business growth over the next five years (2018-2022) with an average revenue growth rate (CAGR) of 13% per year. TerraBKK believes that if achieved, CPN could become another key company driving Thailand's retail sector forward. ---TerraBKK

Article by: TerraBKK Investment Tips
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