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A slice of Tesco Lotus’s success

As the UK’s biggest supermarket struggles to remain relevant in the e-commerce age, can its Retail Growth Freehold and Leasehold Property Fund continue to show profit?

Despite the ongoing growth and profitability of retail businesses in the East, the review currently being undertaken by the UK’s biggest supermarket chain Tesco of a possible exit from its  Asian operations including Thailand’s Tesco Lotus could well be the right decision at the right time.

UK-based Tesco said in its statement released on Sunday (December 8) that it may sell Tesco Lotus in Thailand to focus more on its home market where competition is becoming fiercer as a result of technology disruption. Westerners, it seems, prefer purchasing online to traditional shopping at stores.

It’s still the other way round here in the East, but while traditional retail businesses continue to expand and generate profit, they are all aware that they could face up to the same disruption trend in the future.

Thailand-based Tesco Lotus, which is operated by Ek-Chai Distribution System Co Ltd, posted total income of Bt198.32 billion with net profit of Bt9.63 billion, coming in second only to CP All of Charoen Pokphand Group.

The chain is also open to investment from the public with just Bt1,000 required to invest in Tesco Lotus through Tesco Lotus Retail Growth Freehold and Leasehold Property Fund (TLGF).

Established in 2012, SET-listed TLGF invests in the freehold and leasehold of retail-focused properties across Thailand. Initial public offering of its units hit a historical high at Bt18.408 billion. The current net asset value is about Bt52 billion.

The fund is managed by Krungthai Asset Management, while Tesco Lotus manages TLGF properties.

Tesco Lotus is the fund’s biggest unit-holder with 25 per cent of total units. The Government Pension Fund holds 8.57 per cent, while Bangkok Life Assurance owns 5.73 per cent and the Social Security Fund 4.86 per cent.

In the initial period of its establishment, TLGF invested in freehold and leasehold of 17 shopping malls anchored by Tesco Lotus hypermarket across the country.

So far, the fund, whose main income comes from rental fee charged to outsiders who rent Tesco Lotus areas, has invested in 23 shopping malls run by Tesco Lotus. Rental rates are raised every year, while occupancy rates are almost 100 per cent.

Of the total 23 shopping malls in which it has invested, TLGF has the freehold of 13 properties (land and buildings) in 12 provinces, namely Chiang Rai, Bangkok, Nonthaburi, Pathumthani, Singburi, Nakhon Pathom, Samut Sakhon, Prachuap Khiri Khan, Ranong, Nakhon Si Thammarat, Phuket to Krabi. The fund also holds the freehold on parts of land and buildings and the leasehold on the rest of the land in two projects in Koh Samui, Surat Thani and Phitsanulok.

Six TLGF projects with leaseholds on land and freehold of buildings are in Amata Nakorn Industrial Estate, Phetchabun, Pathumthani and Samut Prakan. It also holds the leasehold on  the land and building on a Rama I project.

As of October 31 this year, TLGF registered total assets of Bt29.75 billion with net asset value of Bt12.7275 per unit.

The fund has made 30 dividend payments with average dividend of Bt6.0083 per unit. The dividend yield is about 4-5 per cent.

Huge gains and returns on assets of Tesco Lotus could help its parent company survive a crisis. However, there could be great challenges for those who buy into such a traditional retailer when a large number of consumers have shifted their buying behaviour to online.

 

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