t anymore in the experiential retail world, so it is going all out to make its tenant mix a reflection of what the public now demands. This was illustrated clearly in the results for the first quarter, announced on Wednesday, which showed the largest percentage increase in revenue came from ticket sales and other activities associated with the company’s entertainment offerings, including bowling, ice-skating, and cinemas at its malls and mixed-use projects. Altogether, the company generated revenues of 33.3 billion pesos (US$555 million) in the first quarter, an increase of 1.5 per cent year-on-year. Roughly two-thirds of these revenues are derived from rent, which climbed by a healthy 7.9 per cent to 21.6 billion pesos (US$360 million). Another 23 per cent of revenues come from real estate sales, which are more volatile and declined by 15.8 per cent year-on-year. The remaining 12 per cent of revenues came from the entertainment offerings noted above, which shot up by 10.6 per cent. By property segment, mall revenues are the lion’s share, generating 20.4 billion pesos (US$340 million), an increase of 8.1 per cent. Hotels, convention centres and offices’ revenues climbed at just under a double-digit pace. At the same time, residences fell sharply due to slower sales, which in turn are driven by a higher number of cancellations, higher interest rates and generally elevated caution in the real estate market. Company earnings before interest and taxes (EBIT) were flat compared to last year, and so too was net after-tax income at 11.7 billion pesos (US$195 million). The ongoing transformation of malls The transformation of malls into community hubs throughout Asia has occurred in several phases. The first was simply an increase in the amount of tenant space devoted to food, entertainment, and services, with the sophistication and variety of the eateries increasing as simple food courts were joined by fast casual and white-tablecloth dining. Entertainment consisted initially mainly of cinemas, but over time was augmented by kids’ education and play, video gaming and a whole slew of other leisure activities. The second phase of the transformation involved ramping up special events, both in frequency and in line with trends of the day: health, education, culture and sport. Now there is a third phase, in which mall operators are implementing features that are directly tied to government campaigns and to addressing local problems: environmental issues, seasonal heatwaves, cost-of-living pressures, loneliness, eating habits, road safety and so on. These are mutually beneficial joint ventures in which governments, community activists and mall operators collaborate in delivering solutions. SM Prime, for example, has a partnership with the Department of Transportation to develop safe transportation infrastructure in and around its malls. It has an “active mobility” program designed to improve road safety for cyclists, including bike lanes, parking and repair areas for bicycles. It also hosts book donation drives, walking events and events promoting gender equality. Most other large mall operators throughout the region have their own programs that address a range of issues and raise malls’ profiles as community resources. Aeon malls in Japan are now officially heat refuges in the hot summer months. Some malls have futuristic interactive technology installations, like Siam Paragon’s Nextopia in Bangkok, which claims to work with 50 “innovation partners” along with a group of 30 community influencers, activists, and other specialists to “co-create communities”. Huge investments are being made in socially-oriented tenancies and events. More space means more rental income. But it’s still a business. SM Prime now operates 5.1 million square metres of mall gross leasable area (GLA) in the Philippines, an increase of 3 per cent from last year, and it leases space to almost 23,000 tenants. Occupancy is stable in the mid-90s per cent, which means there is still upside to generate higher rental income. (It is not uncommon for well-managed mall portfolios to be up in the high-90s, so SM Prime still has space to squeeze.) SM Prime is a unit of SM Investments, which operates businesses complementary to its retail property business: a portfolio of retail brands and banks. A key part of its strategic growth plan is to extend its services to underserved parts of the country, beyond the relatively affluent Metro Manila. This makes it an important player in the future of the Philippines’ economic and social fabric. It’s a status that the company relishes. The Philippines is a huge retail opportunity SM Prime, like its sibling organisations in the SM Investments group, is decidedly bullish about the future upside in Philippine retail. Filipinos are avid consumers, with about 70 per cent of GDP consumption-driven. But it gets better, because most current consumption doesn’t yet occur in modern retail formats. The numbers people at SM estimate that no more than 30 per cent of food spending occurs in supermarkets and malls, suggesting massive upside potential. The company is steadily expanding its reach into the provincial areas, and at the end of March, it opened its 90th mall in the Philippines, SM Zamboanga in Mindanao. Three more are slated for opening this year: at Sta. Rosa, about 50 kilometres to the southeast of Manila, General Trias, 35 km south of Manila, and Tagum on the southern island of Mindanao. It has a landbank of 4,430ha for future commercial projects. Despite the push into the provinces, the company is still executing mega-projects in Manila itself. Chief among them is the Pasay 360 mixed-use project in Manila Bay, a joint venture between SM Prime and the Pasay City government. The massive project involved reclaiming 360ha from the bay adjacent to the company’s Mall of Asia and will shift the city’s commercial hub. Further reading: SM Prime to invest US$124m in the sustainable upgrade of SM Megamall