Merger of SM property units eyed

HENRY SY SR.. INQUIRER file photo

The family of tycoon Henry Sy Sr. is considering an external proposal to consolidate property-related businesses, including residential property arm SM Development Corp. and flagship shopping mall unit SM Prime Holdings, into a single publicly listed entity.

The proposal was to fold SMDC and the family’s privately held SM Land Inc. into SM Prime to create a full-range property development arm that would combine residential, hotel, office and shopping mall businesses into one vehicle, Inquirer sources said.

“Some investment bankers are proposing this and the SM group is studying it,” a top official from the SM group told the Inquirer on condition of anonymity. No decision has been yet been made on the proposal, which the group is evaluating carefully.

Both SMDC and SM Prime are publicly listed companies and part of the country’s benchmark Philippine Stock Exchange index. Some stock market pundits are betting that even leisure estate and gaming firm Belle Corp., also majority-controlled by the Sy family, could be included if the family were to agree on the consolidation.

A prospective consolidation is seen creating a property company with stable recurring earnings from the shopping mall, hotel, office and tourism-oriented ventures while taking advantage of a favorable environment for residential development. SMDC has a market capitalization of about P82 billion while SM Prime has P328 billion. Belle, which is also part of the PSEi, is valued at P56 billion.

The combined market capitalization of all three companies is about P466 billion, potentially bigger than the P425-billion current market capitalization of Ayala Land Inc., the country’s largest property development company.

Shares of SM-related stocks have been rising in recent days on speculation that the consolidation of property interests would push through. The movement of the SM-related stocks are, in turn, helping to drive up the main-share PSEi to record highs.

As of yesterday, SMIC was the most valuable company in the stock market with 621.15 billion in market capitalization, slightly beating Philippine Long Distance Telephone Co.’s  615.76 billion.

SM Prime recently reported a 16-percent growth in its 2012 net profit to P10.53 billion on the back of revenues from new and existing malls, including those in mainland China. The company said it exceeded its profit growth target for a second straight year.

Total revenues for the year rose 14 percent to P30.73 billion while cash flow as measured by earnings before interest, taxes, depreciation and amortization (Ebitda) increased by 12 percent to P20.7 billion, for an Ebitda margin of 67 percent.

Although already a household brand in the Philippines, SM Prime has a growing revenue stream from overseas operations. Last year’s robust results included the operations of the five SM malls in China, in the cities of Xiamen, Jinjiang, Chengdu, Suzhou and Chongqing. Shopping malls in China alone chalked up a net income of P1.1 billion in 2012, 24-percent higher than the bottomline in the previous year.