SM Group eyes REITs to raise capital for its hotel projects

MANILA, Philippines - The SM Group of retail tycoon Henry Sy, is eyeing a real estate investment trust (REIT) offering of its hotels to take advantage of the significant tax benefits of listing.

SM Investments Corp. chief finance officer Jose T. Sio said the group, through its SM Hotels & Conventions Corp. will tap the REIT market when it already has seven to eight hotels in its portfolio. Already operational is the Taal Vista Hotel, which is the preferred hotel in the area considering its proximity to Manila and the Calabarzon.

Set for soft opening on Monday is the 400 room-Radisson Blu Hotel Cebu which will be managed by the Carson Group, a global hospitality firm. It is located at Cebu City’s North Reclamation Area which is in close proximity to the international port area.

Under construction is the 150-room Pico Sands Hotel in Batangas, targeted for opening in 2011.

In the pipeline is another hotel to be managed by Carson, which will rise at the Mall of Asia to complement the SMX Convention Center.

Elizabeth T. Sy, president of SM Hotels & Conventions, said the group is still interested in venturing into the budget hotel business. “We’re still looking at that but we’d like to focus first on our new offering which is Radisson Blu Hotel,” she said.

Aside from hotels, the SM Group, through shopping mall giant SM Prime Holdings Corp. is planning to raise up to $500 million through a REIT listing.  It has already tapped CLSA and Macquarie as advisers for its planned REIT offer.

A REIT is an instrument that trades like a stock on major exchanges. It provides small and large investors with options to participate directly in the ownership of large-scale real estate projects.

REITS have been widely adopted in the United States, Australia and more recently Japan, Singapore, Hong Kong and Taiwan.

Under the Implementing Rules and Regulations, a company applying to list REITs on the stock exchange must have a minimum capitalization of P300 million and distribute annually at least 90 percent of its distributable income as dividends to its shareholders.