SM Prime Mulls REIT Listing

SM PRIME Holdings, Inc. can raise between $500 million and $1 billion should it launch a real estate investment trust (REIT) on the stock exchange, an option the company continues to explore amid plans to undertake more reclamation and other projects.

Listing a REIT on the Philippine Stock Exchange (PSE) remains an option for the property arm of SM Investments Corp. to finance future projects, its Executive Vice-President and Corporate Information Officer Jeffrey C. Lim told reporters and analysts in an Aug. 4 briefing in Pasay City.

Asked on the sidelines how much SM Prime expects to raise from listing such a trust, Mr. Lim said: “[It’s] dependent on the market but given the size of SM Prime now and the number of malls, I think it can easily be $500 million to $1 billion.”

Mr. Lim cited the potential of launching a REIT in raising capital particularly for the reclamation of 1,500 hectares in Cordova, Cebu. The local government awarded the P138-billion contract to SM Prime last year.

Venturing into the REIT market may allow SM Prime to undertake the Cebu project simultaneously with the reclamation of another 660 hectares of the Manila Bay under a plan awaiting approval from the Office of the President.

SM Prime won separate contracts worth P54.5 billion and P50.19 billion to reclaim and develop around 300 hectares within the jurisdiction of Pasay City and Parañaque City in 2013 and 2014, respectively.

“As you may have known, we have a P60 billion actually in shelf registration for a retail bond and I think the liquidity also in the local market is there that if we are given the go signal, we can immediately start,” Mr. Lim said.

“I think pronouncements from the government seem to indicate that they’re willing to review the REIT implementing rules and regulation so that’s another avenue for us to actually raise the funds for these reclamations,” he added.

Republic Act. No. 9856, which lapsed into law in December 2009, allows for the establishment of REITs or stock corporations using a pool of investor fund to purchase and manage income-generating real estate assets.

SM Prime had intended to launch a REIT sometime in the second half of 2010 to raise $500 million. It would later shelve the plan because of stringent rules on the public float requirement and tax structure.

The Aquino government had applied a 12% value-added tax on initial transfers of assets to a REIT and required 67% of outstanding shares in the trust be passed onto public investors in three years.

“REIT will be good for the Philippine economy as a whole because there will be more investors coming in, there will be more foreign investors also investing in REIT,” SM Executive Vice-President, Chief Financial Officer and Corporate Information Officer Jose T. Sio noted.

“In the case of SMIC, I think the property group, being one of the largest, if not the largest in Southeast Asia, it’s very advantageous for SM Prime, especially the mall and commercial business and the hotel business to be implemented under the REIT listing,” he added.

Aside from expanding its mall and other operations generating recurring revenues, SM Prime is diversifying its residential business with a foray into affordable housing development.

SM Prime intends to build 2,000 to 5,000 affordable housing units within properties spanning at least 20 hectares. The company is investing P1 billion to launch such a development initially in Cabanatuan within the year, Mr. Lim said.

“It’s more of testing the market. Depending on the take up and reception, we’re buying more properties for economic housing -- we call it affordable -- mostly [in] North Luzon and South Luzon,” added Mr. Lim, who was expected to assume SM Prime’s presidency starting Oct. 1.