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SM Prime eyes rosy year after mall rentals lift Q1 net income

Posted on April 19, 2011 09:59:19 PM [ BusinessWorld Online ]
MALL DEVELOPER SM Prime Holdings, Inc. will likely post double-digit profit growth this year after operations here and in China already lifted first-quarter net income by more than a tenth, officials yesterday said.
So far, SM Prime has hiked consolidated profits from January to March by 12% to P2.12 billion, faster than the 10% increase to P1.9 billion seen in the same period last year, according to a disclosure to the local bourse.
“The growth is coming from same-store sales and the new malls we opened last year. We also had a good contribution from SM China, whose net income grew by 100% to P100 million,” Jeffrey C. Lim, SM Prime executive vice-president and chief finance officer, later said in a briefing after the company’s annual stockholders’ meeting.
The rise in profits comes as revenues rose by 13% to P6.07 billion in the first quarter over year-ago levels, SM Prime said.
Rental fees collected from tenants amounting to P5.26 billion accounted for the largest share of consolidated revenues, the mall operator said.
Growth in this revenue stream was attributed to four malls opened in 2010 -- SM City Tarlac, SM City San Pablo, SM City Calamba, and SM City Novaliches -- and a slight 6% spike in rental earnings from existing malls.
The first-quarter performance should be sustained throughout the year, SM Prime President Hans T. Sy said in the briefing.
“While we keenly monitor the current economic developments such as inflation and fuel price hikes, as well as the political situation in the Middle East, we remain optimistic that the company’s growth trend seen in the first quarter will be sustained,” Mr. Sy said.
Last year, the company posted a 12% profit hike to P7.9 billion on the back of higher revenues.
The upbeat outlook comes even as the firm plans to spend less capital this year.
Capital expenditure for 2011 has been pegged at P18 billion, a tenth less than the P20 billion earlier allocated for the year.
The P2 billion was shaved off as several land acquisition deals did not push through, Mr. Sy said.
Half of the P18 billion will be spent for expansion in the country while the other half will be spent in China, he added.
“China should continue to contribute in 5%-7% [of the business] in the next year or so. We are seeing revenues increasing by 20% and income by as much as 30%-40% there,” Mr. Lim said.
“By 2013, there will be seven to eight operating malls in China. If you look beyond 2013, contribution will be more than 7%-10%,” Mr. Lim said.
To date, SM Prime already operates three malls in China.
The company may spin off operations in China to a subsidiary “at the end of 2013 or 2014 if we have a critical mass,” Mr. Lim added.
“We have to see whether the value is in the range of $500 million. If were able to probably generate that $500 million by that time, we will consider a separate listing,” Mr. Lim said, noting that shares will likely be sold in Hong Kong or Singapore.
In March, the mall developer already raised P5 billion from corporate notes to bankroll general corporate expenses.
By the end of the year, SM Prime will have 43 malls nationwide with a gross floor area of 5.2 million square meters. Including the SM malls in China, the company’s gross floor area will reach 5.9 million square meters.
Shares in SM Prime were unchanged at P11.70 each yesterday.
Luxury affiliate
In a related development, Highlands Prime, Inc. -- a luxury leisure property developer also run by the Sy family -- yesterday reported a 66% drop in profits to P8.2 million for 2010.
This comes after Highlands Prime registered a “61% decrease in revenues from real estate sales to P427 million in 2010 from P1.1 billion in 2009,” the company said in its financial report.
“The decrease is primarily due to low reservation sales and low average construction completion rate of sold units,” it added.
Cost of sales, meanwhile, fell 73% to P230.3 million.
The latest figures show a tempered slide in net income.
Profits of Highlands Prime already declined to P24 million in 2009 from P183.68 million in 2008.
Last year, the high-end leisure property developer launched two new projects worth P2 billion.
The new projects -- The Woodridge Place Phase 2 at The Highlands and The Glass Terrace at the Midlands -- cater to increasing demand from Tagaytay in Batangas.
Highlands Prime has so far developed subdivision lots and finished residential units exclusively in Tagaytay.
Shares in Highlands Prime were last traded on April 6 at P2 each. -- Neil Jerome C. Morales
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