SM Prime Q1 profit up 11%, sets P25-B bond offer

MANILA, Philippines - Property firm SM Prime Holdings Inc. posted a double-digit profit growth in the first quarter as the strength of the rental business offset the poor performance of the residential segment.

SM Prime is tapping the retail bond market for the first time with the issuance of as much as P25 billion worth of debt papers to support expansion projects and long-term growth, the company said in a regulatory filing.

Consolidated net income of the integrated property firm climbed 11 percent to P4.58 billion for the first three months of 2014 from P4.11 billion a year ago while consolidated revenues improved three percent to P15.35 billion from P14.95 billion year-on-year.

“We are off to a good start this year maintaining a steady growth for the first quarter of 2014. As we move towards our five-year roadmap, we are very optimistic that SM Prime will achieve its targets,” said SM Prime president Hans T. Sy.

Rental revenues, which accounted for 56 percent of consolidated revenues, climbed 12 percent to P8.56 billion in the first quarter from P7.63 billion a year ago.

“The increase in rental revenue was primarily due to the new malls opened in 2012 and 2013: SM City Olongapo, SM City Consolacion, SM City San Fernando, SM City General Santos, SM Lanang Premier, SM Aura Premier and SM City BF Parañaque with a total gross floor area of 818,000 square meters,” SM Prime said. Excluding the new malls and expansions, same-store rental grew seven percent.

However, real estate sales sank 17 percent to P5.02 billion in the first quarter from P6.01 billion a year ago.

“The decrease is primarily due to sales take-up attributable to only two project launches in 2012 of about 4,600 units from Breeze and Grace Residences compared to the nine project launches in 2010 and 2011 of about 26,700 units mainly from Jazz, Light, Wind, Shell and Green Residences,” SM Prime said, adding that on the average, it takes about two years before revenues are recognized due to the percentage of completion accounting.

For its part, cinema ticket sales surged 40 percent to P1.06 billion from P760 million due to opening of digital cinemas at the new malls and the showing of local blockbuster movies.

Amusement and other revenues improved 30 percent to P710 million from P546 million mainly due to the opening of new amusement rides in the Sky Ranch in Tagaytay and the reopening of ice skating rink in SM Megamall.

To support, long-term growth, the company’s board of directors “approved the issuance of fixed-rate peso retail bonds up to P25 billion” with a tenor of five years and six months, seven and 10 years.

“We’re doing the due diligence now. Hopefully it will be done towards the end of May,” said SM Prime chief financial officer Jeffrey Lim. SM Prime will file its application to the Securities and Exchange Commission after the due diligence.

Lim said SM Prime targets to initially raise P20 billion that can be upsized by another P5 billion should there be strong demand in the first retail bond offering of the mall operator and condominium developer.

“The proceeds of the bonds will be used to finance capital expenditures for the expansion of the company’s malls, offices and hotel operations,” SM Prime said.

The property holding firm of the Philippines’ richest man Henry Sy Sr. is doubling its income and revenues in the next five years as it grows its office, mall, leisure, hotel and residential portfolio by two-fold in the same period.

SM Prime allotted P400 billion in the medium term to support its expansion in the Philippines, China and Southeast Asia.

In May last year, mall and banking giant SM Group announced the merger of its real estate businesses, creating the most valuable property firm in Southeast Asia. It merged upscale Tagaytay Highlands developer Highlands Prime Inc., condominium builder SM Development Corp. and private firm SM Land Inc. into mall developer SM Prime.