To create largest PH property firm

MANILA, Philippines – The Henry Sy-led SM Investments Corp. on Friday announced a consolidation of its property businesses, to be folded under SM Prime Holdings, creating the country’s largest property company by market capitalization and one of the biggest in Asia as well. 

In a special board of directors meeting on Friday, SM Prime Holdings and SM Investments Corp. approved plans to consolidate the group’s mall and various real estate businesses, including Highlands Prime Inc.

The combined current market capitalization of these Sy property firms is estimated at  P591 billion or close to $14 billion, surpassing Ayala Land’s P461 billion.

“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,” SM Prime Holdings said in a statement.

A three-step process will take place for the proposed consolidation.

The first step consists of exchange offers for the outstanding shares of listed firms residential developer SM Development Corp. (SMDC) and Highlands Prime, Inc. (HP).

A share-for-share swap will take place such that privately-held real estate firm SM Land, will offer existing shares of SM Prime in exchange for the outstanding shares of SMDC and HP. 

Following the completion of the exchange offers, the second step will see a merger of SM Land with SM Prime. 

Lastly, SM Prime will acquire specific real estate companies and assets currently held by parent SM Investments in exchange for new shares in SM Prime.

Henry Sy Jr. will be chairman, brother Hans will sit as president of the merged entity.

“To us, this is just good housekeeping which analysts thought would be a good move,” SM Investments vice-chairperson Teresita Sy said.

Trading for the publicly listed SM Prime, SMDC, Highlands Prime and parent firm SM Investments were voluntarily suspended for the day in the local bourse, to give way to this major announcement.

“Mr. Henry Sy, Sr. has nurtured SM over the past 50 years from a Shoemart store in 1958 to become the Philippines’ leading conglomerate which, after this transaction, will hold one of the leading Asian real estate players today. I am honored to take his legacy forward by announcing this transformational reorganization. The enlarged SM Prime will be in a very good position to take the business up to its next phase of growth,” said Henry Sy, Jr. 

SM Prime President Hans Sy added, “The transaction will help leverage SM’s strong brand franchise and enable us to provide full breadth and depth of management expertise across all our business units. The gain of critical mass should generate economies of scale across various functions including land sourcing, master-planning and coordinated marketing efforts.”

SM Investments CFO Jose Sio said the merger will help the group pursue new growth opportunities

“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.

Streamlining our real estate businesses under SM Prime would likewise allow SMIC to focus on pursuing new growth opportunities,” Sio said.

Jomar Lacson, head of research at Campos, Lanuza & Co. said the consolidation creates a new formidable property player in the country.

“There’s a new big guy in town capable of putting up large scale integrated mixed-use communities, and it will be a credible challenger to Ayala Land. This will create a new pricing equilibrium in the industry,” he said. 

Lacson noted this development within the SM group is seen to encourage more mergers in the property sector in the future, especially as competition for landbanking, marketing and sales come into play. 

SM Prime is the country’s largest shopping mall operator. It reported a 15 percent jump in net profit for the first quarter of 2013 at P2.79 billion. It currently operates 47 malls in the Philippines and five in China, with a combined gross floor area of 12.8 million square meters. 

SM Development Corp. currently has 18 residential projects under the SM Residences brand and one project under the M Place brand. 

Highlands Prime, Inc. meantime, is the leading property developer inside the exclusive Tagaytay Highlands mountain resort and residential complex.