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Rental revenues drive Manila's SM Prime Q2 profit
MANILA, Aug 10 (Reuters) - SM Prime Holdings Inc , the largest mall developer in the Philippines, said on Wednesday its second quarter earnings climbed 9.3 percent from a year earlier with a sustained rise in its rental revenues.
SM Prime, a unit of tycoon Henry Sy's conglomerate SM Investments Corp , said the opening of four new malls in the second half would fuel profit growth.
"Prospects for growth continue to be positive for the rest of the year," Jeffrey Lim, vice president for finance, said in a statement.
SM Prime, which owns and operates 20 malls across the country that attract an average of 1.5 million customers per day, said it had net income of 1.17 billion pesos ($21 million) in the second quarter versus 1.07 billion pesos in the same period of 2004.
Analysts expect SM Prime's net profit to rise to 5.3 billion pesos this year, nearly 15 percent higher than its 2004 earnings of 4.62 billion pesos.
SM Prime opened its 20th mall in July -- SM City San Lazaro in downtown Manila -- and expects to add three more malls in the fourth quarter, including the SM Mall of Asia that will be its biggest to date.
SM Mall of Asia, set to open in December, has a floor area of about 450,000 square metres in the Manila Bay area.
Rental income from leases in the malls remained the biggest contributor to total revenues, rising 12 percent in the first half from a year earlier to 4.29 billion pesos.
Gross revenues were 5.19 billion pesos in the first half, 5.5 percent higher than the 4.92 billion pesos a year earlier.
SM Prime, also the largest cinema operator in the Philippines with more than 100 moviehouses in its malls, said earnings per share in the first half were 24.3 centavos against 22.5 centavos in the same period of 2004.
Shares of SM Prime lost 3.8 percent in the second quarter as the main index fell 1.6 percent. On Wednesday, SM Prime closed unchanged at 7.30 pesos while the main index climbed 1.03 percent.
($1 = 55.8 pesos)
Erik de la Cruz
ATR-Kim Eng Securities Inc has maintained its "buy" recommendation on shopping mall operator SM Prime Holdings Inc despite a two-month delay in the opening of its flagship Mall of Asia to February 2006.
SM Prime was earlier planning to open the Mall of Asia, which will be its biggest mall and is now under construction in the Manila Bay area, in December in time for the Christmas holidays.
"We believe [recent] rumors of a delay in the opening of the mall have been the key for SM Prime's recent underperformance despite impressive fundamentals and inexpensive valuations," ATR-Kim Eng analyst Leo Venezuela said.
A company spokesman said SM Prime will make a formal disclosure on the matter as early as Monday next week.
SM Prime management blamed recent bad weather for the delay, Venezuela said.
Assuming it can open by Dec 15, he said the Mall of Asia will likely contribute only 73 million pesos to his full-year revenue forecast of 11.5 billion pesos, and 29 million pesos to a full-year net profit estimate of 5.17 billion.
"For next year, we estimate that every half-month delay will strip 65-70 million pesos from our 15.15 billion pesos revenue forecast and 26-28 million pesos in net profit," Venezuela said.
Net profit at SM Prime in 2006 is likely to come in at around 6.59 billion pesos from an original forecast of 6.79 billion, assuming a Feb 15 opening for the Mall of Asia, he added.
SM Prime will open two more malls before December, bringing the total number of its malls nationwide to 22.
Venezuela noted that the stock is still trading at a discount to his fair value estimate of 8.80 pesos.
Erik de la Cruz
SM Prime Holdings Inc said it still expects 8-10 percent growth in net profit this year despite the delayed opening here of the Mall of Asia, its biggest shopping complex.
"The decision to push back the schedule would not have any impact on the company's financial results for the year," SM Prime said in a statement.
SM Prime posted a net profit of 4.6 billion pesos for 2004.
In the first six months of this year, net profit rose 8 percent year-on-year to 2.41 billion pesos.
The opening of the new mall has been postponed until the first quarter of next year from December this year. SM Prime said recent bad weather delayed the delivery of some construction materials to the Mall of Asia site.
SM Prime said the opening of two more malls before the year ends -- SM Supercenter Valenzuela this month and SM Supercenter Molino next month -- will push through.
This will bring the total number of SM malls nationally to 22.
SM sets opening of largest mall to Q1 next year
Shopping mall giant SM Prime Holdings Inc. has moved the opening of its biggest shopping mall to the first quarter next year to maximize the number of tenants.
The Mall of Asia was initially slated to open by the end of this year.
Although the anchor tenants, SM Department store and SM Hypermarket are ready to welcome their first customers by December 2005, SM Prime management decided to move the opening to the first quarter of 2006 to allow the maximum number of tenants to open together with the anchors. At present, total lease take-up is 75 percent.
SM Prime said the high incidence of rain in the last two months also delayed the turnover of mall space to tenants. "These events have led the company to a decision to postpone the mall’s formal opening to the first quarter of next year," SM Prime said.
The Mall of Asia is envisioned to be the country’s premier shopping destination and tourist attraction revitalizing the Roxas Boulevard Bay area.
It is designed to become not just the Philippines’ largest, but also the most complete and innovative shopping complex.
The 381,000-square-meter complex consists of four buildings linked by elevated walkways. These buildings will feature a wide array of stores and venues for dining, entertainment, leisure, arts and culture.
The Main Mall will include shopping and dining establishments, the food court, and the country’s first Olympic-sized ice skating rink.
The North Parking building,on the other hand, will house the SM Department store and half of the 5,000 parking spaces while the South Parking building will include the SM Hypermarket and more dining areas.
The Mall of Asia’s newest attraction is the Entertainment Plaza which will house 10 theaters, including a director’s club and the country’s first IMAX theater.
SM Prime said its decision to push back the schedule would not have any impact on the company’s financial results for the year.
The company is confident of achieving an eight percent increase in its net income for 2005, on higher revenues from its new shopping malls, including SM City Batangas and SM City Dasmariñas, which were opened in 2004, and SM City San Lazaro, which was opened in July this year.
SM Prime reported a net income of P2.41 billion in the first half of 2005, up eight percent from the previous level. It is scheduled to open two more shopping malls before the end of the year – SM Supercenter Valenzuela in October and SM Supercenter Molino in November.
This year, SM Prime has earmarked P5 billion for the construction of new malls and acquisition of real estate properties for future expansion.
With a total land bank of 173 hectares in prime locations, SM Prime is set for continuous expansion within the next five years.
BY PAOLO JOSEPH L. LISING, Reporter
SM Prime Holdings, Inc. is looking into developing the lot to be vacated by the Manila City jail. But before it could get its hand on the property it will have to partner with the government in building new prison facilities.
The Department of Interior and Local Government plans to bid out the construction of a P4-billion integrated jail system aimed at decongesting prison facilities in Metro Manila. To attract bidders it is dangling the five-hectare old city jail as payment.
"SM Prime just talked to us about the facility. They are interested. The technical working group on the other hand is already working with the terms of reference [for the bidding] and we are hoping that it could be finished by the end of next month so we can start the bidding by early next year," said Marius P. Corpus, Interior and Local Government undersecretary.
An SM source confirmed officials are in talks with the government, but said these are "highly exploratory."
Megaworld Corp. had also signified interest in the project because it was also reportedly keen on the old jail property.
The contract would include converting the five-hectare Manila City jail into a commercial and high-rise residential area to serve as the government’s payment to the winning developer.
Four sites are being considered for the new jail: a 300-hectare lot in Tanay, Rizal; 200 hectares in Fairview, Quezon City; 70 hectares in Rodriguez, Rizal; and 50 hectares in San Mateo, also in Rizal.
Mr. Corpus said the Bureau of Jail and Management Penology, which will oversee the project, had endorsed San Mateo to be the site of the facility but the Interior and Local Government deparment "will still approve of the proposal."
He said because of the project’s funding requirement, the construction of the jail would be divided into four phases, each to be finished in one year.
Mr. Corpus said the group drafting the bidding terms expects to finish by end-November a rationalization report on the functions of some 5,000 employees of the agency.
Jennee Grace U. Rubrico
The SM group of companies is spending almost a billion pesos to expand two malls.
A group insider told BusinessWorld the expansion of SM City North Edsa in Quezon City and SM Supercenter Sucat in Paranaque has a tag of around P975 million.
"The funds will be raised through internally generated cash," the source said.
The two new buildings will be opened next year, with construction costs at P13,000 per square meter.
For SM North, one of the biggest malls of the group, the company will add another 50,000-square meter building.
The mall, which was opened in 1985 and located at North Avenue and EDSA, has a land area of 16.1 hectares and a current gross floor area of 275,419 square meters. Its anchor tenants are the SM Department Store, SM Cinemas, Super Sale Club, SM Food Court, SM Supermarket, SM Bowling Lanes.
SM Sucat, meanwhile, will add a second building which will have a gross area of 25,000 square meters.
The mall stands on a 6.5-hectare property along A. Santos Ave. and currently has a total floor area of 66,150 square meters.
SM Hypermarket, SM Cinemas, SM Food Court are the anchor stores.
The company source said the new buildings will likely be used as mall space rather than call centers. He also said talks with locators have begun, but added that the tenant mix has yet to be finalized.
The new space in the two malls will form part of the additional shopping space SM is planning to build next year. SM is also set to open four malls in 2006 -the 60-hectare SM Mall of Asia and much smaller malls in Sta. Rosa, Laguna, Lipa, Batangas, and Clark.
Yesterday, SM also opened its 21st store, the 61,000-square meter SM Supercenter Valenzuela. Another SM mall, the 48,000-square meter SM Supercenter in Molino, Cavite, will also be opened before yearend.
Company officials said there are no plans to close any SM outlets, even though some of the malls - particularly the one in Bacoor and the soon to be opened branch in Molino - are near each other.
SM's mall developer and operator, publicly listed SM Prime Holdings Inc., posted a net income of P2.41 billion in the first half, up from P2.23 billion in the same period last year, due mainly to rental income from leases in the malls and food courts. Revenues, meanwhile, rose to P5.19 billion from P4.92 billion last year.
By Zinnia B. Dela Peña
The Philippine Star
SM Prime Holdings Inc. will bid for a 27,351-square meter property in Cebu as it beefs up its landbank to ensure its continued expansion and growth.
its board approved yesterday a proposal to participate in the bidding of a property owned by the Province of Cebu located along Gov. M. Cuenco Avenue in Banilad, Cebu City.
Erik de la Cruz
JP MORGAN said it maintaining its "overweight" rating for mall operator SM Prime Holdings Inc, with earnings likely to rise 21 percent in next year.
"Going into 2006, we continue to be positive on SM Prime's growth and dividend prospects," JP Morgan said.
SM Prime, having opened new malls this year, expects to post 8-10 percent year-on-year growth in net profit for 2005, after booking 4.6 billion pesos in net profit in 2004.
"We forecast 2006 profit growth of 21 percent, while free cash flow should peak in 2005," JP Morgan said in a research note.
"Management indicates that our expectation of a 70-percent dividend payout is likely to happen, translating into a yield of 6 percent," it said.
SM Prime now operates 22 malls around the country and will open its biggest yet in the first quarter of next year.
Reason why SMPH going down?
PHILIPPINE retailers and manufacturers are bracing for their worst Christmas in years with Filipino consumers spending much less despite record preholiday cash transfers from relatives abroad, according to economists.
Bernardo Villegas, Manila-based University of Asia and the Pacific vice president, blamed political uncertainties and soaring oil prices for the descent of the spirit of Scrooge over Christmas.
Villegas said major industry players are reporting sales volume declines of between 5.0 and 10 percent as they approach what is normally their peak season when this overwhelmingly Roman Catholic nation of 84 million normally opens its purse strings to splurge on gifts and consumer items.
However, shopping mall traffic in Manila, which accounts for nearly a third of the country’s domestic economic output, has been noticeably sparse, with the parking lots of giant malls nearly empty.
“Practically all consumer goods are suffering sales declines,” Villegas, a prominent economist, told a news conference.
“We will have a bleak Christmas. We will not have the usual big increase in sales,” he said. “ If you talk to retailers, they have very sad faces.”
Even in the provinces, trade and industry officials have noticed a distinct change in spending habits in the runup to Christmas.
Merly Cruz, regional trade and industry director in the southern city of Davao, told a newspaper that people are buying less and “showing a preference for inexpensive items” this year.
The dismal sales figures are being chalked up even as the eight million-plus Filipinos living or working abroad are driving the peso to their highest levels this year with annual salary remittances expected to top the $10-billion mark.
This amount is equivalent to more than 10 percent of the Philippine gross domestic product.
Villegas said consumer research surveys indicate that “Filipinos are afraid of the future and they are saving more.”
These surveys also indicate they are spending a bigger fraction of their incomes on transport and energy-related expenses “for obvious reasons,” he added, referring to substantially higher oil and power rates.
Villegas said the retail malaise has been noticeable for the past 18 months in the aftermath of the bitterly disputed May 2004 presidential elections, in which President Arroyo was accused of cheating but survived an impeachment complaint in September.
In general, Villegas said Filipinos are also “abstaining from eating at fast-food restaurants to buy more [mobile phone] cell cards,” a development which also “has had a negative influence on consumer spending.”
Nevertheless, he said the country’s top retailers continue to build giant shopping malls because “they are seeing this as a temporary phenomenon.”
Luz Lorenzo, an economist with ATR-Kim Eng Securities Inc., said there was “anecdotal evidence” to suggest spending patterns have changed although he was more optimistic than Villegas.
“The government does not produce retail spending data so the only evidence we have to go on is what we actually see for ourselves. Although shopping malls appear to be quite full we have found there has been a proliferation of flea markets in the past year.
“These markets appeal to a cross section of people as they provide a wide variety of goods at cheap prices.”
Henry Sy, founder of the leading SM chain of shopping malls, told another newspaper in a rare interview recently: “I’m optimistic about the year 2006 for the Philippine economy, especially for tourism growth potential.”
His daughter Teresita Sy, who runs her father’s vast empire, added: “Our family is confident the new year will be better for the Philippine economy, notwithstanding the troubles in politics.”
Villegas said he expects Philippine GDP to muddle through this year and next, helped by a possible shift toward a parliamentary government and new national elections in 2006 or 2007 that would give Mrs. Arroyo a “graceful exit” and lift the gloom on the retail sector.
However, the projected GDP growth of less than 6 percent annually over the next six years are “not good enough” with Philippine neighbors growing at a faster clip.
“If we don’t grow at least 6 percent to 9 percent like our neighbors we will never be able to overcome the poverty that we are experiencing,” he said, adding that a 7-percent to 8-percent growth over the next 10 years would be the minimum requirement.
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