SM Prime to raise $300 million for expansion

MANILA, Philippines - Shopping mall giant SM Prime Holdings Corp. is eyeing to raise $300 million through a property trust listing designed to help fund its expansion here and in China, according to a top company official.

SM Prime chief financial officer Jeffrey Lim said the real estate investment trust (REIT) will package some of the firm’s shopping malls which the firm has yet to identify. “We haven’t decided yet which malls to include but we’re looking at some that would be attractive to overseas investors as well. We hope to unlock the value of our properties and maximize total return,” Lim said.

Lim said the REITs to be listed do not include the group’s shopping malls in China. The company earlier said it was looking to list its China assets as a REIT on the Hong Kong Stock Exchange. He said this would happen when the company has built eight to 10 malls in China. The group, through SM Land (China) currently owns three malls the – SM Xiamen, Jinjiang and Chengdu.

REITs can apply to properties or mortgages, often for shopping malls, office buildings, apartments, warehouses, hotels and car parks. Individual investors can buy REIT shares directly on a stock exchange or by investing in a mutual fund that specializes in real estate. 

Lim said the group is currently waiting for the implementing rules and regulations for the REIT which he said should hopefully be finalized in the next three months. 

REITs can offer the less wealthy the chance to invest in large shopping malls and high-grade offices by buying just a slice of the whole property portfolio. They are required to distribute 90 percent of their income, which may be taxable in the hands of the investors.

“I think this should be good for the capital market. It would allow investors to buy these instruments,” Lim said.

Lim said the company will appoint a financial advisor to help structure its planned property trust. 

Proceeds from the REIT will be used to bankroll SM Prime’s domestic and international expansion and pay down debt. It has $30 million in maturing debt in 2011.

The company has earmarked P12 billion for its capital expenditures this year to fund the construction of five malls locally and at least one mall in China. Among the malls slated for opening this year are in Calamba, Laguna; Tarlac, Novaliches, Masinag in Marcos Highway, and San Pablo, Laguna. 

For 2011, the company will open four to five new malls located in Gen. Santos,Mindanao; Commonwealth; Lanang, Davao City; and La Consolacion, Cebu.

In China, targeted for opening are Suzhou, Chongquing, and Zibo.

Suzhou, with a gross floor area of 73,000 square meters is under construction and is expected to open this year. Zibo and Chongqing, which has the biggest population in China) are scheduled to open in 2012 and 2011, respectively.

The SM malls in China contribute five percent to total revenues and two percent to net income of SM Prime Holdings Inc., the country’s largest shopping mall operator.           

Revenue contribution of the China malls are expected to increase to 10 percent by 2013 to 2014, SM Prime officials earlier said.

Lim said the company is expected to post a growth of eight to nine percent in net income in 2009 on the back of a 12 to 15 percent rise in revenues. In 2008, SM Prime reported a net profit of P6.41 billion on revenues of P17.8 billion.

Given the firm’s strong performance last year, Lim is confident that SM Prime would “continue to deliver good growth this year.”

The company expects to end the year with a total of 41 malls with a gross floor area of 4.5 million square meters.