Posted on 09:07 PM, December 17, 2009 [ BusinessWorld Online ]
Sy-led SM Prime Holdings, Inc. is considering putting the assets of its Hong Kong-based property unit under a Chinese real estate investment trust (REIT) to solidify its overseas market presence.
This is an alternative to an offshore public listing, an option which the country’s largest mall operator is also studying.
In an interview, Jose T. Sio, the chief financial officer of SM Investments Corp., said such plans would likely take off within five years, after the company establishes eight to 10 malls in China.
“The [company’s plan] in China is that once we get a good number of malls and the condition is still good, we can either do an initial public offering (IPO) or a REIT offering,” Mr. Sio said.
SM Prime is the mall unit of SM Investments, the holding company of Philippines’ richest man Henry Sy, Sr.
“In China, if you do an IPO or REIT, you can sell as high as 25 times of your capital. [Here in the Philippines,] it is only 14 or 15 times. So the upside potential in China is huge,” Mr. Sio said.
A REIT is a publicly listed corporation that invests in income-producing real estate assets like apartments, office buildings and warehouses.
In June, the Chinese government was reported as considering introducing REITs to help increase financing channels for real estate developers.
The scheme, which originated in the United States in 1960, has gained popularity in many countries, including Australia, Germany, Singapore and Hong Kong.
In the Philippines, a REIT bill is still awaiting the President’s approval, although Philippine Stock Exchange (PSE) President Francis Ed. Lim had expressed confidence that it would be implemented next year.
Asked whether SM Prime will join the local REIT market, Mr. Sio said yes.
“If that law is passed, there will be many local companies that will be availing themselves of the REIT and SM Prime will be one of them,” he said, adding that tax incentives under the bill are attractive.
“Under the system, a company that owns a property has to declare 90% of its net income annually but its income is not subject to income tax. It will be the shareholders who will be subject to the income tax,” Mr. Sio said.
But should the SM group plan do an IPO, SM Prime’s Hong Kong-based unit might be listed in Hong Kong, Singapore, or Shanghai.
SM Investments plans to spend P211 billion in the next five years for the expansion of property developments, retail outlets and malls in the Philippines and China.
While the strategy of the company right now is to open one mall a year, SM Prime had this might be increased to three malls a year in the next two to three years.
SM Prime’s China malls are in Xiamen, JinJiang and Chengdu. It plans to open three more in Chongqing, Suzhou and Zibo in the next three years.
The malls are held through Megamake Enterprises Ltd. (BVI), Affluent Capital Enterprises Ltd. (BVI) and SM Land (China) Ltd. Megamake owns the Xiamen and Chengdu malls, while Affluent owns the one in JinJiang. Chongqing, Suzhou and Zibo meanwhile, will be owned by an unlisted unit, SM Land, Inc.
SM Prime plans to restructure the three companies so that all of them will be under SM Land.
The China malls contribute 5% to the total revenues of SM Prime and 2% to net income.
SM Prime is the country’s largest mall developer with 36 malls nationwide. Profits of the company grew by 8% to P5.1 billion from January to September.
Shares in the company did not move at P9.60 apiece yesterday. -- K. J. R. Liu
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