PHL property giants ready to conquer Southeast Asia

Ayala Land - SM Prime - Southeast Asia

THE country’s two largest property developers are now racing to expand in other parts of Asia, mainly in the 10-member Asean.

Top officials of SM Prime Holdings Inc. and Ayala Land Inc. have expressed interest to expand in Asean, after conquering most of the market at home. Both stirred the economy from a near-frenzied construction of the country’s overt signs of brisk economic activity: from shopping malls to residential condominiums to office towers mainly servicing business-process outsourcing firms.

Since last year, Ayala Land has set foot in Asean after buying a minority stake in a midsized Malaysian property developer and setting its sights in other countries in Southeast Asia.

Meanwhile, SM Prime has confirmed for the first time that it is now looking at expanding in other parts of Asia and possibly in other parts of the globe.

SM Prime is the country’s largest property company with a market capitalization of about P644.11 billion. Ayala Land follows with a market cap of P525.36 billion. While formidable players, Andrew Tan’s Megaworld Corp. and Gokongwei’s Robinsons Land Corp., are still playing catch up with the top 2.

SM Prime is mostly known for its shopping-mall development, while Ayala Land is mostly into property development and commercial leasing space.

“Yes, we’re looking [for opportunities outside of the Philippines],” SM Prime Chairman Henry Sy Jr. said. “[Our moves] will have to encompass the Asean region.”

SM Prime has previously said it only wants to focus on China, rather than other markets, as it still sees growth in the world’s second-largest economy.

Sy said the company received a lot of proposals, starting from when the company was integrated from just a simple listed mall-operator into an integrated real-estate developer after the combination of all SM property development units in one roof, with SM Prime as the surviving entity.

“But we want to disclose that [expansions in Asean] if and when we had the agreements, rather than exploratory,” Sy said.

Jeffrey Lim, SM Prime executive vice president and who now sits at the board of company, said if the company wants to go out of its traditional market, it has to be a long-term investment.

He said the company may still focus on shopping-mall development overseas.

“If we go out of the Philippine market, we have to look for a joint-venture partner because it’s going to be difficult for us to go in without the local knowledge of [that] market,” he said. “In the shopping-mall development, you need retail so the anchor tenant component is very crucial. I don’t think we’re going to any country without having a good partner that can help us for the retail side.”

Lim cited Thailand as a possible location. In Asean members, like Lao PDR and Myanmar, he said there could be problems like the high cost of land.

“If you go to Myanmar, the land is more expensive than in Makati. So I think we just have to be disciplined,” Lim said. “We just have to wait and see first.”

Luis Limlingan, managing director at brokerage firm Regina Capital and Development Corp., said a large company, like SM Prime, has to go out of the country for it to grow further.

“Fund managers still give a big value on China growth, but it makes better sense for them [SM Prime] to look at other countries, like Indonesia,” Limlingan said.

SM Prime’s share price was one of Wednesday’s most traded shares, gaining P0.25, or 1 percent, to close at P22.90. Its parent SM Investments Corp. was the top traded share gaining P3, or 0.31 percent, to P963.

To date, SM Prime has a total of 56 Malls in the Philippines, with total retail space of 7.3 million square meters (sq m). Its China shopping malls have a total of 900,000 sq m.

SM Prime earlier said it is allotting some P20 billion a year through 2018 for its China operations to bring its current portfolio of five malls to nine, while expanding to other sectors, such as the residential and office buildings.

Company officials are now cutting that investment to just P10 billion a year, saying they do not want to spend too much on land banking.

The company’s malls, however, are located in China’s second-tier and third-tier cities.

Currently, the company’s malls in China include Xiamen, Jinjiang, Chengdu, Chongqing, Suzhou, Zibo and Tianjin, which the company still has to open.

The Tianjin mall will be the SM group’s largest mall in China, measuring about 540,000 sq m.

The company also plans to build a mall in Yangzhou City while also going into residential business.

Ayala Land, meanwhile, said it wants to dig deeper into Asean after its acquisition of almost a third of Malaysia’s modular construction technology (MCT).

Ayala Land President Bernard Vincent Dy said the company has no plans of exporting its own brand in Malaysia. However, he said the company is “continuously appraising prospects” in Myanmar and scouting for opportunities in Jakarta, Indonesia and Vietnam’s Ho Chin Minh City.

“Property is not a linear business,” Dy said, adding that it will focus its sights on local soil and Malaysia as it may have specific projects that the company may carry out itself or through MCT.

Ayala Land in March raised P8 billion from a P50-billion bond plan the proceeds of which would be used partly to fund investment in Malaysian development and construction MCT Bhd.

Dy said on Tuesday, “The market continues to be good” and the company is committed to a continued investment in its core businesses.

“If you look at all the segments, it continues to grow,” Dy added. “Traditional markets continue to be quite robust, so we continue to invest in these areas quite heavily.”

Dy noted its growth centers outside Metro Manila is increasing and expanding contribution to the Ayala Land income profile, now standing at about 30 percent of total earnings.

Ayala Land CFO Jaime Ysmael said on Tuesday Ayala Land’s first quarter has been “quite good” based on the initial data of the first three months of the year.

“Indication for the first quarter continues to be strong,” Ysmael said. “Basically, the trend continues to be quite good from the residential point of view, as well as the other business lines. So we still expect the first-quarter performance to be quite good.”


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