MANILA, Philippines - SM Investments Corp. (SMIC), the investment holding firm of the Sy family, is studying the possibility of listing its China assets as a real estate investment trust (REIT) on the Hong Kong Stock Exchange, according to a top company official.
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.
SMIC chief finance officer Jose T. Sio said the group may take its China unit public or list REITs in Hong Kong which could provide a price-earnings ratio of 25 times compared to only 14 times to 15 times in the Philippines.
Sio said the group will list its China assets only when it has built eight to 10 malls there. The SM Group, through SM Land (China) Ltd. currently owns three malls – SM Xiamen, Jinjiang and Chengdu. Targeted for opening in the next three years are Chonggqing, Suzhou, and Zibo.
Suzhou, with a gross floor area of 73,000 square meters, is under construction and is expected to open early 2010. Zibo and Chongqing, which has the biggest population in China, are scheduled to open in 2011 and 2012, respectively.
The SM malls in China contribute five percent to total revenues and two percent to the net income of SMLC unit 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.
Sio said the group, through SM Prime, is also interested in launching a REIT in the Philippines as soon as the REIT law is passed. “The REIT law in the Philippines has been passed by Congress. Assuming it is signed into law, many companies, including SM Prime, would avail themselves of a REIT.”
REITs are getting a green light despite the current economic downturn and the negative sentiment toward real estate innovations following the recent subprime mortgage crisis in the United States.
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.
REITs are required to distribute 90 percent of their income, which may be taxable in the hands of the investors.