THE SM Group on Friday proceeded with plans to consolidate real estate assets under a single unit, a move that is seen to establish the biggest real estate company in the Philippines in terms of market capitalization.

“The board of directors of SM Investments Corp. (SMIC) and SM Prime Holdings, Inc. approved today [Friday] plans to consolidate the property-related businesses of SMIC, under SM Prime, the Philippines’ leading shopping mall owner and operator” according to a joint statement by SMIC and SM Prime.

Also in the same statement, Henry T. Sy, Jr., SM Prime chairman, said, “The enlarged SM Prime will be in a very good position to take the business up to its next phase of growth.”

The asset consolidation will allow SM Land, Inc., a privately held unit of SMIC, to absorb the outstanding shares of residential developer SM Development Corp. (SMDC) and sister upscale developer Highlands Prime, Inc. in exchange for shares in SM Prime.

SM Land will then merge with SM Prime which will be the surviving entity.

According to the statement SM Prime will acquire “specific real estate companies and assets currently held by SMIC in exchange for new shares in SM Prime.”

SM Prime, in a disclosure Friday, moved to double its authorized capital stock to P40 billion from P20 billion to pave the way for the merger.

The reorganization is still subject to the approval of SM Prime stockholders and the Securities and Exchange Commission, the SM Group said, with the process expected to be completed by the end of the year.

“The consolidation is intended to create an integrated real estate company, which will allow the merged entity to undertake larger scale projects with the participation of all of its business units,” the SM Group said

“The merged company will be among the largest integrated property developers in the region with offerings spanning across diverse sectors of mall, office, residential, hotel and leisure development,” it added.

Upon completion, SM Prime’s market capitalization will balloon to $14 billion or around P560 billion from the current P338 billion, dislodging Ayala Corp., which has a P461-billion market capitalization, as the largest local real estate company

Also, SM Prime’s total assets will as a result climb to P284.1 billion from P148.1 billion; revenues will rise to P57.4 billion from P30.7 billion; annual net income will grow to P17.0 billion from P10.9 billion once the consolidation is completed.

Meanwhile, SMIC will control roughly 70-73% of the expanded SM Prime, SMIC Chief Financial Officer Jose T. Sio said in a briefing Friday.

“The broadened organizational capabilities of the new entity will give it the operational and financial muscle to create additional value in our asset base through accelerated and synergistic projects, not just among the property companies but also among the other core businesses of SMIC, which includes retail operations and banking,” he was quoted as saying in the joint statement.

For his part, SM Prime Chief Financial Officer Jeffrey C. Lim said shares of minority stockholders would be converted using a fair valuation scheme.

The inclusion of Belle Corp., which is focused on casino business, and other property assets of the Sy Family, are still being studied, Mr. Lim said.

SMIC profits grew by 24% to P10.13 billion in the first quarter from P8.17 billion in the same period last year driven by banking and property units.

In the same comparative periods, profits of SM Prime went up by 14.23% to P2.89 billion from P2.53 billion on higher leasing sales while SMDC’s net income grew by 12.40% to P1.36 billon from P1.21 billion on higher sales.

SMIC, SM Prime, and Highland’s Prime implemented a voluntary trading suspension on Friday to allow the market the “digest” the announcement. — Cliff Harvey C. Venzon