SM Prime Holds Flat Earnings in First Half as Cost Growth Offsets Revenue Gains

Resilience Amid Pressure

SM Prime Holdings posted net income of P24.5 billion for the first half of 2026, flat compared to the same period last year, as rising operational costs absorbed most of the company's revenue expansion. The Manila-based property developer, which operates the Philippines' largest portfolio of shopping malls, saw revenues climb five percent to P71.7 billion from P68 billion, yet costs and expenses grew nearly six percent to P35.6 billion during the period.

Second-quarter consolidated net income edged up just one percent year-on-year to P12.9 billion, according to SM Prime, reflecting the narrow margin between revenue gains and cost escalation. Higher depreciation and amortization charges, fixed overhead, and construction expenses accounted for much of the pressure on the bottom line.

Mall Operations Drive Revenue

Rental income from malls, offices, hospitality properties, and meetings and conventions facilities contributed 61 percent of total revenues in the first six months. Mall revenues alone grew eight percent to P41.8 billion from P38.6 billion, driven by improved occupancy rates, stronger tenant sales, and operational efficiency gains across SM Prime's 80-plus shopping centers in the Philippines and China.

Jeffrey Lim, president of SM Prime, said tenant relationships and customer experience initiatives helped cushion performance. Commercial demand held up across the portfolio despite what the company described as challenging market conditions.

Office and warehouse revenues rose nine percent to P5 billion from P4.6 billion, supported by higher space take-up as firms expanded or relocated. Hospitality revenues, covering hotels and convention centers, climbed eight percent to P4.4 billion from P4.1 billion on increased bookings and higher average daily room rates.

Residential Segment Slips

Real estate sales, which accounted for 27 percent of total revenues, contributed P20.6 billion in the first half, down one percent from the prior year. SM Prime attributed the decline to lower revenue recognition from prior-year sales, a timing effect common in project-based residential development.

The residential portfolio spans core, leisure, and premium offerings, with projects concentrated in Metro Manila, provincial cities, and select resort destinations. The segment's performance contrasts with the growth seen in commercial and office operations, underscoring the uneven recovery across property asset classes.

Cinema ticket sales, food and beverage operations, amusement offerings, and related services generated the remaining 12 percent of revenues during the period.

Cost Structure Under Scrutiny

The near-parity between revenue growth and cost escalation leaves SM Prime with limited earnings leverage in the near term. Depreciation and amortization charges have risen as the company brought new properties online and expanded existing facilities. Fixed overhead costs remain elevated, and construction expenses continue to weigh on margins as SM Prime advances its development pipeline.

The company has emphasized cost management as a priority, yet the current expense trajectory suggests that meaningful margin expansion will require either faster revenue growth or structural adjustments to the cost base.

Regional Context

SM Prime's results reflect broader dynamics in Southeast Asian property markets, where developers face a combination of elevated construction costs, moderating consumer spending, and competition for tenants. The Philippines posted weaker-than-expected second-quarter GDP growth, adding to uncertainty about the pace of commercial real estate recovery.

Regional peers in Indonesia, Thailand, and Vietnam have reported similar pressures, with mall operators contending with shifting retail patterns and office landlords navigating hybrid work trends. SM Prime's scale and diversified revenue base provide some insulation, yet the company is not immune to macroeconomic headwinds affecting consumer discretionary spending and corporate space demand.

Looking ahead, SM Prime's ability to improve profitability will hinge on sustaining occupancy gains, extracting higher rents as leases renew, and controlling the pace of cost growth. The company has not disclosed specific guidance for the second half, but management commentary suggests a focus on operational efficiency and selective capital deployment as priorities through year-end.