No REIT for SM group due to ownership rule

The SM Group, one of the biggest corporate land holder in the country, decided to pass on the forming of a Real Estate Investment Trust (REIT) due to a provision that required at least 40 percent public ownership on the firm.

REITs are formed to pool capital of a company to manage real estate assets and the forming of these are given incentives under the REITs law.

The pullout of the SM Group from the scheme may lead other companies to think twice before entering the REIT scheme.

SM Prime Holdings EVP Jeffrey Lim said the SM Group will see how things go first on the REIT as he noted that under the original proposal, required public ownership on REITs was placed at 33 percent and later, through the intervention of the Department of Finance, the limit was raised to 40 percent.

Finance Secretary Cesar Purisima that the higher public ownership in REIT firms will assure that these are not formed merely for the incentives but to achieve the purpose of the REIT law that is to allow public participation in the scheme.

Lim added that Asia Pacific Real Estate Association (Aprea) submitted a position paper regarding the minimum public ownership which he said was not incorporated in the implementing rules on REITs.

He also noted that the tax incentives to be placed in escrow if companies fail to meet the requirements in three years acts as a disincentive. “We’ll have to move on with expansion without REIT,” he said.

Meanwhile, SM Investments Corp. CFO Jose Sio said the SM group should have a controlling interest on firms it will form under the REIT law. He noted that aside from financial aspects of the company, investors will look at the management of these firms.

“We are prevented in doing it. You should control the company. In all our major subsidiaries, the SM group has control,” he added.

Lim added since the group had decided to wave participation in the REIT scheme, the group will maintain commercial borrowings for its funding needs.

Sio noted that aside from REITs, the group has several options in raising funds.

On the group’s property dispute in Bacolod with Ayala Land, Lim said the court granted a temporary restraining order (TRO) for 60 days.

He said the move was to protect their rights as they were the first to submit an unsolicited proposal for the property and in the second bidding, the group submitted the highest proposal but was not recognized.

For its investment in Atlas mining, Sio said the group’s infusion was part of its non-core investments and will not be consolidated in the SM group as it currently owns only about 17 percent.

“It will be a long-term investment, we’ll be relying on dividends, and cap price appreciation,” he said.

Meanwhile, SMIC president Harley Sy said the group is sticking to its core mall business and the hotel and conventions development.

“We see very good opportunities and potentials but we are still sticking to our core business. SMDC is quite aggressive, (while) for SM Prime, China stores are very interesting. Our other core businesses are busy, having a lot of projects,” he said.

He also noted that bringing SM group’s expertise to China will be concentrated on malls. “If there are opportunities, if it’s related to what we can do. We believe we cannot transfer from here to there,” he said.

SM Investments Corp. (SMIC) realized a 13 percent increase in its net income to P9.64 billion for the first half from P8.53 billion during the same period in 2010 led by its bank subsidiaries and property business.

Its consolidated revenues increased by nine percent to P92.94 billion from P84.99 billion in 2010 driven by the robust performance of SM’s property group, particularly its residential development business, and the sustained growth of its banking subsidiaries.

Sy said SM consistently met its targets during the first six months of this year brought about by the positive results regularly turned in by the core businesses in spite of domestic and global challenges. “We intend to maintain this healthy level of performance, thus we are committed to challenge ourselves further and to continue seeking opportunities for added growth and expansion,” he said.

Among SM’s core businesses, banks contributed the most to the company’s net income, accounting for 31.4 percent, followed by retail and shopping malls with 30.4 percent and 23.3 percent, respectively, while SM’s real estate business accounted for 14.9 percent.

Banco de Oro Unibank Inc. (BdO) registered an unaudited net income of P5 billion in the first half of 2011, representing a 20 percent growth over the P4.2 billion earned in the same period last year. BdO continued to leverage on its strong business franchise to post above-industry growth and create a more diversified and sustainable revenue stream. Net interest income increased to P17.1 billion, while gross customer loans expanded by 24 percent to P610.1 billion.

China Banking Corp. (China Bank) recorded an 11.4 percent increase to P2.35 billion in first-half profits for the six months ended June 30, 2011, which translates to a return on equity of 14.9 percent was driven by improvements in the bank’s core operations as well as increased contributions from bancassurance. Net interest income rose 4.3 percent to P4.41 billion. –Danessa O. Rivera, Daily Tribune