SM Prime’s planned US$1 billion Reit listing will give Philippines market a much-needed fillip
[MANILA] SM Prime Holdings – a major developer of malls and offices in the Philippines – is planning to launch the listing of its first real estate investment trust (Reit) later this year.
The company is looking to raise up to US$1 billion, in what will be one of the country’s largest-ever initial public offerings (IPOs).
The listing is poised to reach the levels of Philippine food maker Monde Nissin in 2021, which sold 48.6 billion pesos (S$S1.2 billion) in its IPO.
SM Prime president and executive director Jeffrey Lim said the target valuation is between US$3.5 billion and US$4 billion. The Reit’s portfolio will include between 12 and 15 malls.
The developer has a total of 82 malls in the Philippines, of which 58 are outside Metro Manila. The company will spend 80 billion pesos to open three more malls by the end of the year.
SM Prime is the last major property developer in the Philippines to have a Reit unit listed on the Philippine Stock Exchange.
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Why does SM Prime want to list this year?
Reits, which manage large assets – such as hotels, malls and office buildings – that can generate profits, are popular with investors looking for regular dividends.
Analysts say the planned IPO bodes well for the investor market and consumer confidence, especially as the economy continues its recovery from the pandemic.
Earlier this year, Finance Secretary Benjamin Diokno said the Philippines is experiencing a “dramatic recovery”, in response to the country enduring its toughest recession in the post-war period.
SM Prime’s management thus reckons that the time is right to open up the company’s portfolio. The Reit listing is a sign to investors and the public that the outlook for the Philippines’ property market and stock market is strong.
Property analysts believe the IPO could create demand for income-generating assets that will provide domestic investors with dividend-based income, protection against inflation and portfolio diversification.
What will SM Prime use the IPO proceeds for?
The company said proceeds from the IPO will likely be used to support SM Prime’s 2023 capital-spending budget of 80 billion pesos as well as the completion of its 100 billion-peso Manila Bay reclamation project.
The latter is SM Prime’s biggest project now. There are plans to build numerous office and residential towers as well as a commercial complex on 360 hectares of reclaimed land. This project is adjacent to the developer’s iconic Mall of Asia, the largest shopping complex in the Philippines that was also built on reclaimed land in 2006.
What impact will this have on the market?
A successful listing by SM Prime would send positive ripples throughout the property and stock markets. Analysts said it would also demonstrate the recycling of capital into return-enhancing spending, for better acquisition down the line.
Overall, the move signifies investor confidence pushing for better sector valuations. Zoren Musngi, an analyst at Security Bank Equities, said the listing’s triumph would be a “spark” amid underperforming stocks in the last year due to concerns over rising interest rates and inflationary pressures.
How’s the economy faring?
The Asian Development Bank said last month that it expects the Philippine economy to grow by 6 per cent in 2023, with a rebound anticipated in the services and tourism sectors.
Inflation for the month of April eased to 6.6 per cent, the slowest pace of increase since August 2022, and below the 7 per cent forecast in a Reuters poll. The central bank said the inflation rate for the full year will settle within the official target of 2 per cent and 4 per cent in the fourth quarter.
The Philippines has an adequate buffer against external headwinds. Its gross international reserves stood at US$95.1 billion as at November 2022, and its external debt-to-GDP ratio is fairly low at 26.8 per cent.
Inward remittances have been climbing to pre-pandemic levels, which mean greater foreign exchange reserves.
However, analysts still urge some restraint. Security Bank Equities’ Musngi described the market sentiment as “cautious”. He added that headwinds from many months of sky-high inflation, rising prices and geopolitical volatility could disrupt planned activities such as SM Prime’s Reit listing.
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