Property giant SM Prime Holdings Inc. is allotting P20 billion yearly capital expenditures (capex) until 2018 to open in China a total of nine malls with integrated residential, office and hotels known as “microcities.”
Jeffrey Lim, SM Prime executive vice president, said the P20 billion yearly capex is part of the company’s five-year master plan from 2013 to 2018 to spend P400 billion to double net income and existing portfolio of malls, offices, hotels and other leisure-related developments.
“For China, we’re looking at about P20 billion capex per year,” Lim told reporters after their stockholders meeting on Tuesday.
For 2015 to 2018, the company will spend as much as P300 billion in line with the five-year plan. This year, they intend to spend P85 billion capex.
The amount will fund four more malls to add to the existing five malls in China, allocation for land bank, and the per phase development of the mid-income segment of its residential projects.
The “microcity” developments in China refer to SM Prime building small-scale integrated township type projects near the nine malls. This will comprise of mid-income residential units, office units and hotels.
Referring to its entry into the mid-income housing in China, SM Prime Chairman Henry
Sy Jr. said: “I do believe that right now, it’s the best time to go in because land prices still are up, especially in our mall areas and a lot of our competition right now are not that aggressive because of some circumstances in China. But we do believe that overall, the situation is the best time for SM Prime to go in, to build condominiums.”
This year, the company will start its residential condominium projects in Chengdu with an initial development phase of 300 to 400 units from the planned scale of 1,500 units.
After Chengdu, other residential projects to follow are in Xiamen and Jinjiang. By 2018, SM developments in China still account for a low 10 percent of the revenue contributors given the continuous ramp up of projects locally, as well.
Sy said the company has complied with the guidelines of the Chinese government to capitalize on the middle market housing segment instead of the “super luxurious” housing sector.
Hans Sy, SM Prime president, said in an ambush interview that the residential units are priced lower in China compared to its counterparts in the Philippines — priced at about P900,000 per unit compared to the P2 million same size unit in the Philippines.
The SM Prime president said that with the China expansion plotted, listing prospects are still ongoing depending on the market conditions and demand in China.
“We’ll see. That was the plan [to list]. Sometimes, China’s numbers are so big. We don’t want to be a little kid there. So we’ll watch [listing opportunities],” Hans Sy said.
“It is still the direction. Of course, it depends on what’s going on in China, but most likely we will still [go ahead with the listing]. But we’re just looking for REIT [real estate investment trust]because of its size,” he added.
This year, SM Prime is set to open five malls in the Philippines including the large-scale SM Seaside City Cebu, as well as the two malls in China — SM Zibo in March or April and the 530,000-sqm SM Tianjin by end-2015.
The P85 billion capex this year will be sourced from internally generated funds (60 percent) and from debt fund raisings (40 percent).
SM Prime, property subsidiary of listed conglomerate SM Investments Corp. (SMIC), increased its first half net income to P9.80 billion from P8.8 billion for the same period in 2013.
Aside from SM Prime, SMIC also has interests in banking (BDO Unibank Inc.) and retail (SM Retail Inc.), and has affiliates in casino and entertainment segments (Belle Corp. and Premium Leisure Corp).