Corporate News

Shareholders approve merger of SM Prime with SM Land

Posted on July 11, 2013

SHAREHOLDERS of SM Prime Holdings, Inc. have approved the firm’s merger with SM Land, Inc., paving the way for the consolidation of SM Group’s real estate assets under the listed mall developer.

In a special stockholders’ meeting in Pasay City yesterday, stockholders also allowed the company to amend its articles of incorporation to include mixed-use development as one of its businesses.

Under the consolidation process, SM Land -- a privately held unit of SM Investments Corp. (SMIC) -- will absorb the outstanding shares of condominium builder SM Development Corp. (SMDC), and upscale developer Highlands Prime, Inc. in exchange of shares in SM Prime, the operator of SM malls.

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

SM Prime will then acquire “specific real estate companies and assets currently held by SMIC in exchange for new shares in SM Prime,” SMIC had said.

SM Prime Chief Financial Officer Jeffrey C. Lim said the company will seek the approval of the Securities and Exchange Commission for the merger. The process is expected to be wrapped up by the end of this year, he said.

Citing the opinion of the company’s financial advisers, Mr. Lim said SM Prime will become the biggest real estate developer in Southeast Asia once consolidation is completed. Asked if the company will take advantage of its scale to raise fresh capital, Mr. Lim said: “That is an option.”

While he did not rule out the possibility of expansion in the Southeast Asian region, Mr. Lim said the company’s focus for international expansion will remain on China.

SM Prime already have five malls there, two are being constructed while three others are being negotiated.

“SMDC will look into that opportunity since we have the SM malls there, if they can do some residential component, then we will look into that,” Mr. Lim said. “[But] the Philippines will still be the main market.”

For instance, the company is looking to build more “lifestyle cities” or commercial/residential complexes similar to the SM Mall of Asia.

The company is eyeing Davao City to be the location of its next “lifestyle city.”

The company is already building its second one in a 30-hectare property in Cebu, which has a budget of P25 billion. It will be completed in the next three to four years, Mr. Lim said.

SM Group had said the “consolidation is intended to create an integrated real estate company” which will be among the largest in the region with offerings spanning across diverse sectors of mall, office, residential, hotel and leisure development.

Once completed, SM Prime’s market capitalization will balloon to $14 billion or around P560 billion from the existing P338 billion. It will dislodge Ayala Land, Inc. -- with P409.56-billion market capitalization as of yesterday -- as the largest local real estate company at present.

Also, SM Prime’s total assets will also increase to P284.1 billion from P148.1 billion; revenues will rise to P57.4 billion from P30.7 billion; and annual net income will grow to P17 billion from P10.9 billion once consolidation is finished.

Meanwhile, SMIC (SM Prime’s parent firm) will control approximately 70%-73% of the expanded SM Prime, SMIC Chief Financial Officer Jose T. Sio also said when the consolidation was first announced in May.

Mr. Lim had said shares of minority stockholders would be converted using a fair valuation scheme.

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

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.

SMDC’s net income grew by 12.40% to P1.36 billion from P1.21 billion on higher sales, while Highlands Prime’s net income surged to P3.60 million from P122,000 also on higher revenues during the same quarter.

Shares of SMIC grew by P22 or 2.63% to close at P860 apiece yesterday. SMDC shares were unchanged at P7.60. SM Prime shares dropped by 20 centavos or 1.21% to P16.30, while Highlands Prime shares were unchanged at P2.40 apiece yesterday. -- Cliff Harvey C. Venzon