SM Prime expanding BPO portfolio in next wave cities

MANILA, Philippines - SM Prime Holdings Inc. is beefing up its office property portfolio by branching out into second- and third-tier cities to leverage on the group’s enlarged and geographically diverse landbank.

The family of retail tycoon Henry Sy aims to create a broader national network as business process outsourcing (BPO) firms move to next wave cities and other key urban areas to bring stability to their operations.

In a prospectus, SM Prime said it plans to expand its office space presence in Cebu, Davao, Pampanga and Iloilo – areas where BPO firms are currently expanding their operations due to favorable labor market conditions.

Areas outside Metro Manila are becoming increasingly attractive to foreign BPO companies given rising labor costs.

The expansion is in line with efforts to capitalize on the robust BPO sector outlook as well as increasing flight to quality developments. According to studies, the Philippine BPO industry total revenue is expected to reach $25 billion by 2016 from $13 billion in 2012.

SM Prime plans to launch one to two BPO buildings per year, both inside and outside the Mall of Asia complex with a target of doubling total office GFA (gross floor area). Existing developments are enjoying strong take-up with

newly-constructed Cyberwest already being 100 percent leased out prior to its completion.

Real estate consultancy CBRE Philippines noted that with 75 percent of BPO firms already located in Metro Manila’s central business districts investors are looking into development and expansion opportunities outside these areas.

Declining office supply and competitive rates have pushed rents up in key cities in Metro Manila to as much as P1,200 per square meter.

Metro Cebu is still in the top 10 list of best outsourcing destinations while Clark is emerging as one of the best prospects in BPO lifestyle developments with most of its infrastructure still in good condition.

Under the five-year growth plan, SM Prime seeks to double its office space through seven projects with a GFA of 460,000 sqm from the current three with a GFA of 150,000 sqm.

Last year, the SM Group acquired five office buildings and some parcels of land within the E-Square Information Technol- ogy Park in Bonifacio Global City.

SM Prime has earmarked P70.57 billion for capital spending this year, 55 percent of which will be channeled to malls and 28 percent for the residential segment.

It plans to fund its capex through recurring income flows and ex- ternal financing and proceeds of a planned fixed rate bond offering. The property holding company filed with the Securities and Exchange Commission an application for the issuance of P15 billion worth of fixed-rate rate peso retail bonds with an option to upsize it to P25 billion. BDO Capital and First Metro Investment Corp. will serve as the lead underwriters for the offering. As of the end of March this year, SM Prime is the largest mall operator in the country with 48 malls across 39 cities and an additional five malls in China.

The group currently has a landbank of 9.14 million square meters including around MOA complex, South Road properties in Cebu, Clark in Pampanga and North EDSA, and residential condominium projects across Metro Manila.