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SM Prime sets aside P20B yearly for China expansion

Posted on April 14, 2015 11:01:00 PM [ BusinessWorld Online ]
By Krista A. M. Montealegre, Senior Reporter

SM Prime Holdings, Inc. is spending P20 billion annually to beef up its business in China, with focus on building homes for the first time near its malls there ahead of a possible real estate investment trust (REIT) issuance, company officials said yesterday.

SM Prime Holdings, Inc. announced on Tuesday that it has began building a residential tower beside its mall in Chengdu. The property conglomerate is spending P20 billion every year to grow its business in China. -- WWW.SMCITY.CN

In a briefing following the company’s stockholders’ meeting, SM Prime Executive Vice-President Jeffrey C. Lim said the yearly budget will be for expansion of the property conglomerate’s mall business, as well as to support its foray into residential development and grow its land bank in China.

That budget forms part of SM Prime’s up to P200-billion capital spending program in the next two to three years in a bid to double earnings by 2018 from the 2013 level, Hans T. Sy, the company’s president, said in a speech delivered to stockholders.

Up to 40% of the P200-billion capital expenditure (capex) budget will be sourced via external sources, mostly debt, Mr. Lim said.

The property firm may raise P20 billion to P30 billion in five- to 10-year loans in the third quarter to finance its 2016 capital spending program, he added.

Company Chairman Henry Sy, Jr. said SM Prime, the Philippines’ second most valuable and the biggest mall operator, has started the first phase of its maiden residential project in China beside its mall in Chengdu. The development, which will initially have 300-400 units, will offer a total 1,500 units that will cater to the middle market.

“Right now, it’s the best time to go in because land prices are still up within our mall areas and a lot of competition are not that aggressive because of some circumstances in China,” Mr. Sy said.

“Overall, it’s the best time for SMDC to build condominium projects [in China],” he added, referring to SM Development Corp., the residential arm of SM Prime.

More residential projects will follow in Xiamen and Jinjiang -- where SM Prime also has existing malls, Mr. Sy’s brother Hans said. The company also has malls in Chengdu, Suzhou and Chongqing.

SM Prime has opened a mall in Zibo within the Shandong province last year with a grand launch set later this year. It is also opening a portion of its biggest China mall in Tianjin -- its seventh in the mainland -- with a gross floor area of 540,000 square meters towards the end of the year.

“The price point is a little lower [in China] -- about P900,000 compared to the same size of P2 million here. It’s half the price,” he said.

By 2018, or the end of SM Prime’s five-year plan, the property conglomerate will have nine malls in China, but China’s share in the listed firm’s business will likely remain at 10% because its Philippine operations are growing at a much faster pace, Hans Sy said.

SM Prime is still keen on bringing its China business public, Hans Sy said. The firm earlier said it may spin off its overseas projects into a REIT or through listing on the Hong Kong or Singapore bourses.

“It’s still the direction. Of course, it depends on what’s going on in China. What I’m looking at in China is a REIT because of its size,” he said.

REITs are traded in equities markets like stocks, only that they are invested in real estate directly either through properties or mortgages.

Shares of SM Prime rose 0.24% or five centavos to close at P20.50 apiece yesterday.

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