amended PIS SMPH letterhead

Transcription

June 3, 2013
THE PHILIPPINE STOCK EXCHANGE, INC.
Philippine Stock Exchange Plaza,
Ayala Triangle, Ayala Avenue,
Makati City, Philippines
Attention: JANET A. ENCARNACION
Head, Disclosure Department
Gentlemen:
We hereby submit to the Exchange the Preliminary Information Statement of SM PRIME
HOLDINGS, INC. with the inclusion of the appraisal report prepared by CB Richard Ellis
Philippines, Inc.
Thank you for your kind attention.
Very truly yours,
Teresa Cecilia H. Reyes
Vice President-Finance
COVER SHEET
A S 0 9 4 - 0 0 0 0 8 8
SEC Registration Number
S M
P R I M E
H O L D I N G S
,
I N C .
A N D
S U B S I
DD I A R I E S
(Company’s Full Name)
M a
l
l
o f
C o r a
M a
l
o n e
l
l
A s
W a y
o f
1 0 ,
A s
i
a
A r e n a
c o r
.
i
C o m p l
a
J
A n n e x
. W .
D i
e x ,
o k n o
B r g y
C B P - 1 A ,
P a s a y
C i t y
(Business Address: No. Street City/Town/Province)
Mr. Jeffrey C. Lim
(Contact Person)
1 2
3 1
Mont
h
Day
B u i
.
l d i n g
B l v d .
,
7 6 ,
Z
1 3 0 0
831-1000
(Company Telephone Number)
2 0 - I S
(Form Type)
(Fiscal Year)
0 4
1 6
Mont
h
Day
(Annual
Meeting)
(Secondary License Type, If Applicable)
Dept. Requiring this Doc.
Amended Articles Number/Section
Total Amount of Borrowings
Total No. of Stockholders
Domestic
Foreign
To be accomplished by SEC Personnel concerned
File Number
LCU
Document ID
Cashier
STAMPS
Remarks: Please use BLACK ink for scanning purposes.
SECURITIES AND EXCHANGE COMMISSION
SEC FORM 20-IS
INFORMATION STATEMENT PURSUANT TO SECTION 20
OF THE SECURITIES REGULATION CODE
1.
Check the appropriate box:
[
] Preliminary Information Statement
[
] Definitive Information Statement
2.
Name of Registrant as specified in its charter SM PRIME HOLDINGS, INC.
3.
PHILIPPINES
Province, country or other jurisdiction of incorporation or organization
4.
SEC Identification Number AS094-000088
5.
BIR Tax Identification Code 003-058-789
6.
Mall of Asia Arena Annex Building, Coral Way cor. J.W. Diokno Blvd., Mall of Asia
Complex, Brgy. 76, Zone 10, CBP-1A, Pasay City, Philippines 1300
Address of principal office
Postal Code
7.
Registrant’s telephone number, including area code (632) 831-1000
8.
July 10, 2013, 2:30 P.M., Function Room 3, SMX Convention Center, Seashell Lane, Mall
of Asia Complex, Pasay City
Date, time and place of the meeting of security holders
9.
Approximate date on which the Information Statement is first to be sent or given to security
holders:
June 19, 2013
10.
Securities registered pursuant to Sections 8 and 12 of the Code or Sections 4 and 8 of the
RSA (information on number of shares and amount of debt is applicable only to corporate
registrants):
Title of Each Class
Number of Shares of Common Stock
Outstanding or Amount of Debt Outstanding
Common shares
11.
17,373,677,760
Are any or all of registrant's securities listed in a Stock Exchange?
Yes __ ___
No _______
If yes, disclose the name of such Stock Exchange and the class of securities listed therein:
Common Shares
Philippine Stock Exchange
2
PART I.
INFORMATION REQUIRED IN INFORMATION STATEMENT
A. BUSINESS AND GENERAL INFORMATION
ITEM 1. Date, Time And Place Of Meeting Of Security Holders
The special stockholders’ meeting (the “Meeting”) of SM Prime Holdings, Inc. (“SM Prime” or the
“Corporation”) is scheduled to be held on July 10, 2013, 2:30 p.m. at the Function Room 3, SMX
Convention Center, Seashell Lane, Mall of Asia Complex, Pasay City. The complete mailing address
of the principal office of the registrant is Mall of Asia Arena Annex Building, Coral Way cor. J.W.
Diokno Blvd., Mall of Asia Complex, Brgy. 76, Zone 10, CBP-1A, 1300 Pasay City.
The approximate date on which the Information Statement will be sent or given to the stockholders
is on June 19, 2013.
Statement that proxies are not solicited
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
Voting Securities
The record date for purposes of determining the stockholders entitled to vote is June 18, 2013. The
total number of shares outstanding and entitled to vote in the stockholders’ meeting is
17,373,677,760 shares (net of 18,857,000 treasury shares). Stockholders are entitled to
cumulative voting in the election of the board of directors, as provided by the Corporation Code.
ITEM 2.
Dissenters' Right of Appraisal
A stockholder has the right to dissent and demand payment of the fair value of his shares in the
following instances:
(a)
(b)
(c)
In case any amendment to the articles of incorporation has the effect of changing or
restricting the rights of any stockholders or class of shares, or of authorizing preferences
in any respect superior to those of outstanding shares of any shares of any class, or of
extending or shortening the term of corporate existence.
In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or
substantially all of the corporate property and assets as provided in the Corporation Code;
and,
In case of merger or consolidation.
A stockholder must have voted against the proposed corporate action in order to avail himself of the
appraisal right. The procedure for the exercise by a dissenting stockholder of his appraisal right is
as follows:
(a)
(b)
(c)
The dissenting stockholder shall make a written demand on the corporation within 30
days after the date on which the vote was taken for payment for the fair value of his
shares. The failure of the stockholder to make the demand within the 30 day period shall
be deemed a waiver on his appraisal right;
If the proposed corporate action is implemented or effected, the corporation shall pay to
such stockholder, upon surrender of corresponding certificate(s) of stock within 10 days
after demanding payment for his shares (Sec. 86), the fair value thereof; and,
Upon payment of the agreed or awarded price, the stockholder shall transfer his share to
the corporation.
During the Meeting, the merger of the Corporation with SM Land, Inc., discussed herein under
Item 12, will be presented for approval by the stockholders. Any dissenting stockholder shall have
the right to exercise its/his right of appraisal.
3
ITEM 3. Interest of Certain Persons in or Opposition to Matters to be Acted Upon
There is no matter to be acted upon in which any Director or Executive Officer is involved or had a
direct, indirect or substantial interest. Other than the nominal shares held by the Directors of SM
Land, there are no directors/officer who will swap their shares for SM Prime shares. No Director
has informed the Company of his opposition to any matter to be acted upon.
B. CONTROL AND COMPENSATION INFORMATION
ITEM 4. Voting Securities And Principal Holders Thereof
(1) Number of Common Shares Outstanding
The Company has 17,373,677,760 (net of 18,857,000 treasury shares) common shares
outstanding as of April 230, 2013. Each share is entitled to one vote. All stockholders of record as
at June 18, 2013 are entitled to notice of and to vote at the Special Stockholders’ Meeting.
(2) Manner of Voting
Each share is entitled to one vote. Voting during the Meeting shall be by viva voce.
(3) Security Ownership of Certain Record and Beneficial Owners as of April 30, 2013
The following are the owners of SM Prime’s common stock in excess of 5% of total outstanding
shares:
Title of
Securities
Common
Name of
Beneficial
Owner and
Relationship
with Record
Owner
Name and Address of
Record Owner and Relationship
with Issuer
SM Land, Inc. (Related
Company)1
SM Land,
Inc.2
Citizenship
-do-
SM Investments Corporation
(SMIC) (Parent Company) 3
One Ecom Center, Harbor
Drive, Mall of Asia Complex,
CBP-1A, Pasay City
SMIC4
PCD Nominee Corp. 5
MSE Bldg., Ayala Ave., Makati
City
PCD
Participants5,
6
1.The
Percent of
Class (%)
Filipino
7,116,954,491
(b)
40.96
Filipino
3,761,791,190
(b)
21.65
5,981,987,004
(r)
34.43
One Ecom Center, Harbor
Drive, Mall of Asia Complex,
CBP-1A, Pasay City
-do-
Amount and
Nature of Direct
Record/Beneficial
Ownership (“r” or
“b”)
Filipino 2.80%
Non
Filipino 31.63%
following are the individuals holding the direct beneficial ownership of SM Land, Inc.: Henry
Sy, Sr., Felicidad T. Sy, Teresita T. Sy, Henry T. Sy, Jr., Hans T. Sy, Herbert T. Sy, Harley T. Sy and
Elizabeth T. Sy - 4.00% each.
2. Henry Sy, Sr. and Henry Sy, Jr. are the Chairman and Vice Chairman/ President of SM Land, Inc.,
respectively.
3.The following are the individuals holding the direct beneficial ownership of SMIC: Henry Sy, Sr.1.88%, Felicidad T. Sy-6.47%, Henry T. Sy, J.r-7.51%, Hans T. Sy-8.47%, Herbert T. Sy-8.15%,
Harley T. Sy-7.52%,, Teresita T. Sy-7.33% and Elizabeth Sy-6.00%.
4
4. Henry
Sy, Sr. is the Chairman of SMIC and Teresita T. Sy and Henry Sy, Jr. are the Vice Chairmen
of SMIC.
5.The PCD participants have the power to decide how their shares are to be voted. There are no
other individual stockholders which own more than 5% of the Company.
6 The PCD is not related to the Company.
(4) Security Ownership of Management as of April 30, 2013
Amount and Nature
of Beneficial
Ownership
Title of
Name of Beneficial
(D) Direct (I)
Securities Owner of Common Stock Citizenship
Indirect
Common
-do-do-do-do-do-do-do-do-do-do-do-
Henry Sy, Sr.
Jose L. Cuisia, Jr.
Teresita T. Sy
Henry T. Sy, Jr.
Hans T. Sy
Herbert T. Sy
Elizabeth T. Sy
Gregorio U. Kilayko
Joselito H. Sibayan
Jorge T. Mendiola
Jeffrey C. Lim
Christopher S. Bautista
All directors and
executive officers as a
group
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
14,782,893 (I)
497,661 (D&I)
1,352,902 (D)
15,652 (D)
15,652 (D)
485,128 (D)
2,033,110 (D)
12,500 (D)
1,875 (D)
1,000 (D)
50,000 (D)
37,500 (D)
19,285,873
Class of
Securities
Percent
of
Class
Voting
Voting
Voting
Voting
Voting
Voting
Voting
Voting
Voting
Voting
Voting
Voting
0.09
0.00
0.01
0.00
0.00
0.00
0.01
0.00
0.00
0.00
0.00
0.00
Voting
0.11
There are no persons holding more than 5% of a class under a voting trust or any similar
agreements as of balance sheet date.
There are no existing or planned stock warrant offerings. There are no arrangements which may
result in a change in control of the Company.
There were no matters submitted to a vote of security holders during the first quarter of the
calendar year covered by this report.
ITEM 5. Directors and Executive Officers of the Registrant
(a)
There will be no action to be taken during the Meeting with respect to the election of
directors
ITEM 6. Compensation of Directors and Executive Officers
There will be no action to be taken during the Meeting with regard to: (a) the election of directors;
(b) any bonus, profit sharing or other compensation plan, contract or arrangement in which any
director, nominee for election as a director, or executive officer of the Corporation will participate;
(c) any pension or retirement plan in which any such person will participate; or (d) the granting or
extension to any such person of any option/s, warrant/s or right/s to purchase any securities.
ITEM 7. Independent Public Accountants
There will be no action relating to the election, approval or ratification of the Corporation's
accountant that will be taken-up during the Meeting.
ITEM 8. Compensation Plans
There will be no action to be taken during the Meeting with respect to any plan pursuant to which
cash or non-cash compensation may be paid or distributed.
5
C. ISSUANCE AND EXCHANGE OF SECURITIES
SM Prime intends to enter into several transactions that will involve the issuance of its shares of
common stock as part of a reorganization (the “Reorganization”) that will be undertaken in order
to consolidate the real estate holdings and interest of the real estate companies which are controlled
by the SM Group. The Reorganization will involve a series of transactions that will effectively allow
such companies to combine their real estate assets and interests into SM Prime. The Reorganization
is undertaken to:
Create an integrated real estate platform to further enhance the value of the SM Group’s real
estate businesses
New SM Prime will build on the strong track record of its component businesses, including being
the number one shopping mall developer and operator in the Philippines based on GFA, a leading
residential developer in the Philippines in terms of condominium units sold, and operating growing
office, hotel and leisure segments. New SM Prime is expected to be one of the largest real estate
companies listed in Southeast Asia and on the PSE in terms of market capitalization. New SM
Prime’s increased free float adjusted market capitalization should translate into greater trading
liquidity and increased weighting in regional indices. New SM Prime is expected to have a
significant growth pipeline as underscored by its large and diversified land bank consisting of a
pro-forma area of approximately 920 hectares of retail, commercial, and residential land in prime
locations across the Philippines, which SM Prime believes will be among the largest in the country.
In addition, SMIC has granted a non-binding right of first refusal to SM Prime to purchase
additional land from SMIC to support further development initiatives.
New SM Prime is expected to have a strong mix of recurring income from its mall and office
operations, and profit from development activities from its residential operations. On a pro forma
basis, taking into account the effects of the Exchange Offers and the Reorganization (as discussed in
more detail in “Pro Forma Financial Information”), 73.6% of New SM Prime’s net income for 2012
was derived from recurring sources. SM Prime believes it will have the opportunity to accelerate its
growth by participating in higher growth and higher-return development opportunities in the
residential, commercial, hospitality and tourism sectors due to its fully integrated real estate
platform.
New SM Prime intends to leverage on the diverse skill sets of each of its component companies to
extract optimal value across the real estate value chain. SM Prime believes it can maximize existing
plots of its retail developments that may be underutilized or unutilized by adding residential,
commercial and hospitality developments. SM Prime also believes it will have greater flexibility to
undertake more large scale integrated mixed use developments such as the 60-hectare Mall of Asia
(“MOA”) complex, which are typically built on a larger scale, have more efficient use of land and,
in general, are expected by SM Prime to achieve higher overall rates of return and profit margins.
New SM Prime intends to replicate the MOA complex’s successful development strategy in other
parts of the Philippines. New SM Prime has begun this process with the development of a new
mixed used development, the 30-hectare South Road property in Cebu, known as SM Seaside City.
Simplify corporate structure and increase organizational efficiencies
New SM Prime expects to benefit from an increase in organizational efficiencies and to extract
synergies among the component companies. New SM Prime also expects to have access to a larger
pool of managerial talent with a strong track record and experience across several real estate
classes working together under one entity to focus on maximizing the potential synergies of the
new company. New SM Prime expects to take a more coordinated approach and better utilize its
resources. For example, future land acquisitions will be done at the New SM Prime level, with a
more holistic view of developing mixed used developments instead of individual properties or
projects. New SM Prime intends to better utilize the component companies land bank by increasing
communication and coordination within the group. New SM Prime expects to benefit from the
enlarged group structure by achieving economies of scale resulting in greater bargaining power
6
with its extensive supplier network. In addition, New SM Prime expects to be able to better leverage
and further enhance the already strong ‘SM’ brand through a more coordinated brand management
effort. Rationalization of the selling and general administrative functions is also expected to reap
significant cost synergies for New SM Prime.
Enhanced ability to capitalize on strong economic fundamentals of the Philippines’ property,
consumer and tourism sectors
The government of the Republic of the Philippines (the “Government”) is targeting GDP growth of
approximately 7 – 8%, which will make the Philippines one of the fastest growing economies in the
world. GDP per capita based on purchasing power parity is expected to grow at an average rate of
6.6% from 2013 to 2017 according to Economic Intelligence Unit (“EIU”). The Philippines has a
favorable demographic profile, including the second largest population in Southeast Asia and the
12th largest population in the world. It has the lowest median age of 23.3 years and second largest
population growth amongst the neighboring countries of Malaysia, Vietnam, Indonesia, Singapore
and Thailand, according to CIA World Factbook. SM Prime believes that a growing, young and
increasingly affluent Philippine population will help drive growth in its recurring income from
mall operations as well as drive sales in the residential development segment.
The Philippines is currently enjoying a low-interest rate environment. This is supported by the
recent sovereign credit upgrade to investment grade status as well as a benign inflation outlook,
which is expected to remain around 4% based on consumer price index until 2015, according to
Global Insight. Commercial lending rates are also expected to remain low for the remainder of
2013, at a rate of approximately 6.8%, according to EIU. The continual improvement of mortgage
financing terms, including the rate of interest as well as length of the loan term, combined with low
household borrowing levels is expected to result in greater affordability of home ownership among
the Filipino population. The housing need in the Philippines is expected to reach 5.7 million in
2016, at a CAGR of 32.9% between 2011 and 2016, according to the Housing and Urban
Development Coordinating Council (“HUDCC”). SM Prime believes that the favorable lending
environment along with the expected housing need in the Philippines will provide a sustainable
demand for the residential segment as well as allow it to borrow money on favorable terms to fund
its future growth plans.
OFW remittances and the strong BPO sector have been key components to the Philippine growth
story. OFW remittances have remained strong in recent years, even during the recent global
financial crisis. OFW remittances are expected to grow at a CAGR of 7% between 2013 and 2017
according to EIU. Strong OFW remittance is a key driver in the growth of the Philippine residential
property market as OFWs tend to seek out property investments and provide housing for their
families back home. By 2016, the Philippine IT-BPO and global in-house center industry is
expected to grow to U.S.$25 billion in revenue from U.S.$$11 billion in 2011, representing a CAGR
of 18%, according to the Business Processing Association of the Philippines. This growth in the BPO
sector is expected to provide strong support for demand in the office segment, which New SM
Prime plans to target with its E-Com and Cyber office developments.
It is expected that the Philippines will experience an increase in tourist arrivals in the near future,
something which is widely believed to be long overdue with the Philippines lagging behind
neighbouring countries despite its strategic location and attractive tourist offerings. In response,
the Government has committed a total of U.S.$700 million worth of infrastructure investments to
support the tourism industry in 2013 and 2014. The Department of Public Works and Highways
will be building roads in areas identified in the national tourism plan in order to improve the travel
experience for tourists. As a result, tourist arrivals are forecasted to grow at a CAGR of 7% between
2013 and 2017 according to EIU. In addition, the Philippines’ growing per capita income bodes
well for domestic tourism. This expected increase in foreign and domestic tourist arrivals in the
Philippines should benefit the hospitality and tourism industries, sectors that New SM Prime will be
acutely focused on with its hotels and leisure projects.
7
Further strengthen the balance sheet and provide enhanced capital raising flexibility
SM Prime believes that it will be able to create a more financially sound and profitable company
following the Reorganization. New SM Prime is expected to approximately double its existing asset
base from P148.1 billion as of December 31, 2012 to P284.1 billion on a pro-forma basis. The new
company is also expected to achieve a lower leverage ratio (net debt / equity) of 40.4% on a pro
forma basis from the current 58% of SM Prime as of December 31, 2012. Cash flow is expected to
strengthen under New SM Prime, with EBITDA increasing by 33% from P20.7 billion for the year
ended December 31, 2012 to P27.5 billion on a pro forma basis. New SM Prime believes it will be
able to achieve better financial economies of scale, allowing it to lower its borrowing costs and cost
of capital due to its larger size, liquidity and asset diversification. Such lower borrowing costs and
cost of capital should help New SM Prime to accelerate major organic and inorganic growth
initiatives on more favorable terms than it could without the impact of the Reorganization.
The key steps in the Reorganization are as follows:
·
On June 4, 2013, upon prior approval by its board of directors and stockholders, SM Land, as
stockholder of SM Prime, will launch a tender offer to acquire up to 100% of the outstanding
capital stock of SMDC and Highlands Prime by transferring all or part of its SM Prime shares to
the tendering stockholders of SMDC and Highlands Prime, in exchange for the shares of stock
of SMDC and Highlands Prime. Unless the tender offer period is extended by SM Land and
such extension is approved by the SEC, the tender offer is expected to be settled on July 19,
2013, unless SM Land extends the exchange offer period upon approval by the PSEC.
·
The following stockholders of SMDC and Highlands Prime have undertaken to tender their
respective SMDC and Highlands Prime shares of stock in exchange for SM Prime shares:
Number of SMDC Shares
Percentage of Ownership
SMDC Stockholder
Syntrix Holdings, Inc,
Sy Family
Sysmart Corp.
Sybase Equity Investments Corp.
SMIC
Current Shareholding of SM Land
663,350,828
667,055,940
481,495,721
110,943,856
11,683,813
6,043,148,078
7.155%
7.190%
5.193%
1.197%
.126%
65.182%
TOTAL
7,977,678,236
86.048%
Highlands Prime Stockholder
Belle Corporation
SMIC
Sysmart Corp.
SMDC
Sy Family
TOTAL
Number of Highlands
Prime Shares
804,557,877
453,675,866
396,495,101
337,911,101
27,040,000
35.818%
20.197%
17.651%
15.043%
1.205%
2,019,679,945
89.914%
·
Upon commencement of the tender offer, SMDC and Highlands Prime will initiate a voluntary
delisting process with the PSE in accordance with the PSE Rules on Delisting.
·
On 31 May 2013, the Board of Directors and stockholders of SM Prime will conduct their
respective meetings in order to approve the following:
8
1. The merger of SM Land and SM Prime (the “Merger”) pursuant to Title IX (Merger and
Consolidation) of Batas Pambansa Blg. 68, otherwise known as the Corporation Code of the
Philippines and its tax free character pursuant to Section 40 (C)(2) of the National Internal
Revenue Code, as amended, with SM Prime as the surviving entity (the "New SM Prime");
2. The Plan of Merger which will include the amendment of the articles of incorporation of SM
Prime as the surviving entity of the Merger, in order to: (a) change its primary purpose to
include the business of SM Land; and (b) increase its authorized capital stock from
20,000,000,000 to 40,000,000,000.
3. The issuance of equivalent amount of SM Prime shares of stock to SMIC, Mountain Bliss Resort
& Development Corp. (“Mountain Bliss”) and the Sy Family in exchange for the latter’s shares
in the following companies with their corresponding shareholding interest (the "Share for
Share Swap"):
NAME OF COMPANY TO
BE ACQUIRED
STOCK
HOLDER
NO. OF SHARES
HELD
PERCENTAGE OF
OWNERSHIP
1
Prime Metroestate, Inc.
(formerly Pilipinas Makro
Inc.)
SMIC
271,297
10.00%
2
Rappel Holdings, Inc.
SMIC
1,356,500
50.00%
3
4
Prime Central Limited
Tagaytay Resort
Development Corporation
SMIC
1,085,196
(ownership of
Panther (BVI)
Ltd., a 100%
subsidiary of
Prime Central
Limited in
Prime
Metroestate,
Inc.)
40.00% indirect
ownership in
Prime
Metroestate
Inc. (100%
ownership of
Prime Central,
Inc.)
SMIC
139,999
33.33%
Sy Family
175,001
41.67%
5
SM Hotels and Conventions
Corporation
SMIC
10,999,995
100.00%
6
SM Arena Complex
Corporation
SMIC
3,999,995
100.00%
7
Costa Del Hamilo Inc.
Mountain Bliss
4,157,495
100.00%
4. The issuance of additional and equivalent amount of SM Prime shares of stock to SMIC in
exchange for the following real estate properties ("Property for Share Swap"):
9
Properties/Developments
Classification
Taal Vista Hotel
Land and
Building
Building
Building
Building
Building
Building
Building
Building
Tagaytay
Land
Land
Tagaytay
North Edsa,
QC
Davao
Radisson Cebu Hotel
Pico Sands Hotel
SMX Convention Center
MoA Arena
MoA Arena Annex
Corporate Office
Casino
and
Waste
Treatment Plant
Tagaytay
EDSA West
Water
Park Inn Davao
·
Location
Cebu
Batangas
Pasay
Pasay
Pasay
Pasay
Tagaytay
Building
GFA (sq. m.)/ Asset Type
No. of
Rooms**
47,707
Hospitality
261*
396*
Hospitality
154*
Hospitality
51,097
Hospitality
67,536
Hospitality
95,273 Commercial
46,883 Commercial
19,394 Commercial
132,992
2,910
204*
Land
Land
Hospitality
A vote of the stockholders owning at least two thirds (2/3) of the outstanding capital stock of
SM Prime is required for the above transactions to be approved. The following stockholders of
SM Prime have undertaken to vote favorably to the above matters to be taken up during the
special stockholders’ meeting to be conducted by SM Prime:
SM Prime Stockholder
Number of SM Prime Shares
SM Land
SMIC
PCD Nominee Corporation (Foreign)
Sysmart Corporation
Sy Family
Total
7,116,954,491
3,761,791,190
1,141,121,514
36,483,131
19,357,439
Percentage of
Ownership
40.964%
21.652%
6.568%
.210%
0.111%
12,075,035,663
69.506%
The Merger, including the Plan of Merger, the Share for Share Swap and the Property for Share
Swap will be presented for approval by the stockholders of SM Prime during the Meeting.
Consequently, because SM Prime will not have enough authorized capital stock to cover the above
issuances of shares of common stock, an increase in authorized capital stock (and the consequent
amendment of SM Prime’s articles of incorporation) from Twenty Billion (20,000,000,0000) to
(40,000,000,000) shares of common stock with a par value of One Peso shall additionally be
presented for approval by the stockholders.
·
On May 30, 2013, the Board of Directors and stockholders of SM Land will conduct their
respective meetings in order to approve the Merger; and
·
Subsequent to the approval by the stockholders of SM Prime, the application for approval on
the Merger, Share for Share Swap and Property for Share Swap is expected to be filed with the
Commission and the application for listing of the SM Prime shares of stock issued pursuant to
the Merger, Share for Share Swap and Property for Share Swap shall be subsequently filed with
the PSE.
The completion of the Reorganization shall have the following effects:
·
SM Prime and SM Land shall become a single corporation, with SM Prime as the surviving
corporation designated in the Plan of Merger. The separate existence of SM Prime and SM Land
shall cease. The surviving entity SM Prime shall thereupon and thereafter possess all the rights,
privileges, immunities and franchises of each of SM Prime and SM Land; and all property, real
10
or personal, and all receivables due on whatever account, including subscriptions to shares and
other choses in action, and all and every interest of, or belonging to, or due to each of SM Prime
and SM Land, shall be transferred to and vested in SM Prime without further act or deed;
·
In addition, SM Prime will effectively own the following real and personal properties of the
SM Group:
·
At least 84% direct interest in SMDC
·
At least 89% direct interest in Highlands Prime
·
10% direct interest and 90% indirect interest in Prime Metro Estate Inc.
·
100% direct interest in SM Hotels and Conventions Corporation
·
100% direct interest in SM Arena Complex Corporation
·
100% direct interest in Costa Del Hamilo Inc.
·
75% direct interest and 25% indirect interest (via SMDC) in Tagaytay Resort
Development Corporation; and
·
The following real assets that were previously owned by SMIC:
·
Taal Vista Hotel
·
Radisson Cebu Hotel
·
Pico Sands Hotel
·
·
MoA Arena
·
MoA Arena Annex
·
Corporate Office
·
Casino and Waste Water Treatment Plant
·
Tagaytay
·
EDSA West
·
Park Inn Davao
11
·
1
Post reorganization, the corporate structure and shareholdings of SM Prime, SM Land,
SMDC, Highlands Prime and other real estate companies of the SM Group are as follows:
2
Assuming full acceptance rate of the tender offers; Companies - Prime Metro Estate Inc., Tagaytay Resort & Development Corporation, SM Hotels and Conventions
Corporation, SM Arena Complex Corporation, Costa Del Hamilo Inc.; Assets - Taal Vista hotel, Radisson Cebu Hotel, MoA Arena, etc
ITEM 9. Authorization or Issuance of Securities
As discussed above, to cover all the issuances of shares of stock for the aforementioned transactions,
the Corporation shall apply for an increase in authorized capital stock to P 40,000,000,000.00
comprising of 40,000,000,000 shares of common stock at a par value of 1.00.
SM Prime shall present to its stockholders for approval the issuance of shares of common stock for
the following transactions to the following.:
·
·
·
14,390,923,857 shares of common stock to stockholders of SM Land pursuant to the
Merger;
707,957,409 shares of common stock in exchange for shares of stock in various real estate
companies;
837,764,769 shares of common stock to SMIC in exchange for various real estate
properties;
Common stock stockholders are entitled to dividends but their right to exercise their pre-emptive
right is denied under the Articles of Incorporation of SM Prime.
There is no provision under the Articles of Incorporation and the By-laws of the Corporation that
would delay, defer or prevent a change in control of SM Prime.
12
The terms of the issuance of the authorized capital stock that will remain after the issuances for the
transactions described above shall be determined by the board of directors.
ITEM 10. Modification or Exchange of Securities
There is no action to be taken with respect to the modification of any class of securities of the
Corporation, or the issuance or authorization for issuance of one class of securities of the
Corporation in exchange for outstanding securities of another class.
D. FINANCIAL AND OTHER INFORMATION
ITEM 11. Financial Statements
The Company’s consolidated financial statements as of March 31, 2013 and December 31, 2012
and for the three months ended March 31, 2013 and 2012 are incorporated herein by reference.
Brief Description Of The General Nature And Scope Of The Registrant’s Business And Its
Subsidiaries
SM Prime Holdings, Inc. (“SM Prime” or the “Company”) was incorporated in the Philippines on
January 6, 1994 to develop, conduct, operate and maintain the business of modern commercial
shopping centers and all businesses related thereto such as the conduct, operation and maintenance
of shopping center spaces for rent, amusement centers, or cinema theaters within the compound of
the shopping centers. Its main sources of revenues include rental income from leases in mall and
food court, cinema ticket sales and amusement income from bowling and ice skating. Its registered
office is and principal place of business is Mall of Asia Arena Annex Building, Coral Way cor. J.W.
Diokno Blvd., Mall of Asia Complex, Brgy. 76, Zone 10, CBP-1A, Pasay City.
The subsidiaries of the Company follow:
Company
First Asia Realty Development
Corporation (FARDC)
Premier Central, Inc.
Consolidated Prime Dev. Corp.
(CPDC)
Premier Southern Corp. (PSC)
San Lazaro Holdings
Corporation
First Leisure Ventures Group,
Inc. (FLVGI)
Southernpoint Properties Corp.
(SPC)
Mega Make Enterprises Limited
(Mega Make) and Subsidiaries
Affluent Capital Enterprises
Limited (Affluent) and
Subsidiaries
SM Land (China) Limited (SM
Land China) and Subsidiaries
Springfield Global Enterprises
Limited (Springfield)
Date and Place of
Incorporation
September 7, 1987,
Philippines
March 16, 1998,
Philippines
March 25, 1998,
Philippines
April 7, 1998,
Philippines
March 7, 2001,
Philippines
March 28, 2007,
Philippines
June 10, 2008,
Philippines
July 6, 2007,
British Virgin
Islands
March 20, 2006,
British Virgin
Islands
August 9, 2006,
Hong Kong
September 6, 2007,
British Virgin
Islands
13
Percentage of
Ownership
Malls Owned
74.19
SM Megamall
100.00
SM City Clark
100.00
100.00
SM City Dasmarinas
SM City Batangas and
SM City Lipa
100.00
-na-
50.00
SM by the Bay
100.00
SM Lanang Premier
100.00
SM City Jinjiang
100.00
SM City Xiamen and
SM City Chengdu
100.00
SM City Suzhou and
SM City Chongqing
100.00
-na-
As of May 17, 2013, the Company has forty seven SM Supermalls in the country and five SM
Supermalls in China. All the malls are under SM Prime except for the eleven malls which are
under the subsidiaries mentioned in the above table. The SM by the Bay is an expansion of the Mall
of Asia shopping mall.
FLVGI is accounted for as a subsidiary by virtue of control, as evidenced by the majority members of
the BOD representing the Parent Company, SM Prime. SLHC owns the land where SM City San
Lazaro is constructed.
Management’s Discussion and Analysis or Plan of Operation
2013
Financial and Operational Highlights
(In Million Pesos, except for financial ratios and percentages)
First Quarter
2013
% to
Revenues
2012
% to
Revenues
Revenues
7,830
100%
7,035
100%
11%
Operating Expenses
3,604
46%
3,242
46%
11%
Operating Income
4,226
54%
3,793
54%
11%
Net Income
2,790
36%
2,434
35%
15%
EBITDA
5,339
68%
4,759
68%
12%
Mar 31
2013
% to Total
Assets
Dec 31
2012
% Change
Profit & Loss Data
% to Total
Assets
% Change
Balance Sheet Data
Total Assets
159,669
100%
148,130
100%
8%
Investment Properties
126,017
79%
124,087
84%
2%
Total Debt
60,426
38%
52,239
35%
16%
Net Debt
39,085
24%
39,952
27%
-2%
Total Stockholders' Equity
72,706
46%
69,944
47%
4%
Financial Ratios
Mar 31
2013
Dec 31
2012
Current Ratio
1.80
1.34
Debt to Equity
0.45 : 0.55
0.43 : 0.57
Net Debt to Equity
0.35 : 0.65
0.36 : 0.64
Mar 31
(annualized)
2013
2012
Return on Equity
0.16
0.15
Return on Investment Properties
0.10
0.10
Debt to EBITDA
2.83
2.62
10.17
8.68
Operating Income to Revenues
0.54
0.54
EBITDA Margin
0.68
0.68
Net Income to Revenues
0.36
0.35
Debt Service Coverage Ratio
3.61
4.86
EBITDA to Interest Expense
14
SM Prime Holdings, Inc., the country’s leading shopping mall developer and operator which
currently owns forty six malls in the Philippines and five malls in China, posts 11% increase in
gross revenues for the first quarter 2013 to =
P 7.83 billion from =
P 7.03 billion in the same period
2012. Rental revenues, accounting for 86% of total revenues, grew by 12% amounting to =
P 6.73
billion from same period last year’s =
P 6.03 billion. This is largely due to rentals from new SM
Supermalls opened in 2011 and 2012, namely SM City Masinag, SM City Olongapo, SM City
Consolacion, SM City San Fernando, SM City General Santos and SM Lanang Premier, with a total
gross floor area of 527,000 square meters. Excluding the new malls and expansions, same-store
rental growth is at 7%.
In terms of gross revenues, the five malls in China contributed =
P 0.69 billion in 2013 and =
P 0.62
billion in 2012, or 9% of total consolidated revenues. Likewise, in terms of rental revenues, the
China operations contributed 10% to SM Prime’s consolidated rental revenues. Gross revenues of
the five malls in China increased 11% in 2013 compared to 2012 largely due to improved mall
productivity and lease renewals for the first three malls opened namely SM Xiamen, SM Jinjiang
and SM Chengdu. Average occupancy rate for the first three malls is now at 96%.
For the first quarter 2013, cinema ticket sales increased 8% to =
P 761 million from =
P 703 million in
the same period 2012 due to more blockbuster movies and fully operational digital cinemas which
enable a simultaneous release nationwide. The major blockbusters shown in 2013 were
“Sisterakas,” “One More Try,” “Jack, The Giant Slayer,” “Chinese Zodiac,” and “Hansel and Gretel:
Witch Hunters.” In 2012, major blockbusters shown were “Unofficially Yours,” “Enteng ng Ina
Mo,” “The Hunger Games,” “Underworld 4: Awakening” and “John Carter.”
Amusement income and others likewise increased by 12% to =
P 336 million in the first quarter of
2013 from =
P 301 million in the same period 2012 mainly due to higher income from amusement
rides. This account is mainly composed of amusement income from rides, bowling and ice skating
operations including the SM Science Discovery Center and the SM Storyland.
Operating expenses increased by 11% from =
P 3.24 billion in 2012 to =
P 3.60 billion in 2013 mainly
due to new malls opened in 2012. Same-store growth in operating expenses is 4%. Likewise,
income from operations posted 11% growth from =
P 4.23 billion in 2013.
In terms of operating expenses, the five malls in China contributed =
P
0.39 billion in 2012, or 12% of SM Prime’s consolidated operating expenses. Income from
operations in China went up by 15% from =
Interest and dividend income decreased by 24% to =
P 99 million in 2013 compared to =
P 131 million
in 2012 mainly due to lower average interest rates of temporary investments in the first quarter of
2013 compared to same period last year.
Interest expense for the year likewise decreased by 4% to =
P 525 million in 2013 from =
P 548 million
in 2012 despite new loans, due to the low interest rate environment.
Net income for the first quarter 2013 increased by 15% at =
P 2.43 billion in the
same period last year. On a stand-alone basis, the net income of China operations increased to
=
P 145 million in 2012 for a 19% increase, while net income of
the Philippine operations grew 14% at =
P 2.62 billion in 2013 from =
On the balance sheet side, cash and cash equivalents significantly increased by 96% from
=
P 9.71 billion as of December 31, 2012 to =
P 19.07 billion as of March 31, 2013. This account
includes proceeds from the $200 million loan availed last January 2013 which will be used to fund
capital expenditures both in the Philippines and China.
Investments held for trading likewise decreased by 40% from =
P 759 million as of December 31,
2012 to =
P 457 million as of March 31, 2013, respectively, due to pretermination of investment in
corporate bonds with original maturity of 2016.
Prepaid expenses and other current assets increased by 9% from =
P 1.44 billion as of December 31,
2012 to =
P 1.57 billion as of March 31, 2013, mainly due to prepaid taxes on investment properties
and prepaid insurance.
15
Derivative assets increased by 26% from =
P 110 million as of December 31, 2012 to =
P 138 million as
of March 31, 2013, mainly resulting from unrealized mark-to-market gains on interest rate and
cross currency swaps.
Other noncurrent assets increased by 13% from =
P 4.66
billion as of March 31, 2013. This account mainly consists of deposits to contractors and suppliers
and advances and deposits paid for leased properties.
Long-term debt increased by 16% from =
P 59.63 billion
as of March 31, 2013, due to new loan availment amounting to $200 million, net of prepayments.
Liability for purchased land decreased 14% from =
P 1.04
billion as of March 31, 2013, due to subsequent payments.
The Company’s performance indicators are measured in terms of the following: (1) current ratio
which measures the ratio of total current assets to total current liabilities; (2) debt to equity which
measures the ratio of interest bearing liabilities to stockholders’ equity; (3) net debt to equity which
measures the ratio of interest bearing liabilities net of cash and cash equivalents and investment
securities to stockholders’ equity; (4) debt service coverage ratio (DSCR) which measures the ratio
of annualized operating cash flows to loans payable, current portion of long-term debt and interest
expense, excluding the portion of debt which are fully hedged by cash and cash equivalents and
temporary investments; (5) return on equity (ROE) which measures the ratio of net income to
capital provided by stockholders; (6) return on investment properties (ROI) which measures the
ratio of net income to investment properties excluding shopping mall complex under construction;
(7) earnings before interest, income taxes, depreciation and amortization (EBITDA); (8) debt to
EBITDA which measures the ratio of EBITDA to total interest-bearing liabilities; (9) EBITDA to
interest expense which measures the ratio of EBITDA to interest expense; (10) operating income to
revenues which basically measures the gross profit ratio; (11) EBITDA margin which measures the
ratio of EBITDA to gross revenues and (12) net income to revenues which measures the ratio of net
income to gross revenues. The following discuss in detail the key performance indicators of the
Company.
The Company’s current ratio increased to 1.80:1 from 1.34:1 as of March 31, 2013 and December
31, 2012, respectively, mainly due to proceeds from the $200 million loan still in cash and cash
equivalents.
Similarly, Interest-bearing debt to stockholders’ equity increased to 0.45:0.55 from 0.43:0.57 as of
March 31, 2013 and December 31, 2012, respectively, while net interest-bearing debt to
stockholders’ equity slightly decreased to 0.35:0.65 from 0.36:0.64 as of March 31, 2013 and
December 31, 2012, respectively, due to the additional borrowings. Debt service coverage ratio
decreased to 3.61:1 from 4.86:1 for the three months ended March 31, 2013 and 2012,
respectively, due to higher current portion of long-term debt in 2013 compared to 2012.
In terms of profitability, ROE slightly improved to 16% from 15% for the three months ended
March 31, 2013 and 2012, respectively. EBITDA increased by 12% to =
P 5.34 billion in 2013 from
=
Debt to EBITDA increased to 2.83:1 from 2.62:1 as of March 31, 2013 and 2012, respectively, due
to increase in long-term debt. While EBITDA to interest expense increased to 10.17:1 from 8.68:1
for the quarter ended March 31, 2013 and 2012, respectively, due to higher EBITDA in 2013
compared to 2012.
Consolidated operating income to revenues is healthy at 54% for the period ended March 31, 2013
and 2012. On a stand-alone basis, operating income margin of the Philippines and China
operations is at 55% and 39% in 2013, compared to 55% and 38% in 2012, respectively.
EBITDA margin remains strong at 68% for the periods ended March 31, 2013 and 2012. On a
stand-alone basis, EBITDA margin of the Philippines and China operations is at 69% and 60% in
2013 and 69% and 57% in 2012, respectively.
16
Net income to revenues slightly improved at 36% from 35% for the periods ended March 31, 2013
and 2012, respectively. On a stand-alone basis, net income margin of the Philippines and China
operations is at 37% and 25% in 2013 and 36% and 23% in 2012, respectively.
The Company has no known direct or contingent financial obligation that is material to the
Company, including any default or acceleration of an obligation. There were no contingent
liabilities or assets in the Company’s balance sheet. The Company has no off-balance sheet
transactions, arrangements, obligations during the reporting year as of balance sheet date.
There are no known trends, events, material changes, seasonal aspects or uncertainties that are
expected to affect the company’s continuing operations.
For the year 2013, the Company expects to incur capital expenditures of approximately P35 billion
both for Philippines and China. This will be funded with internally generated funds and external
borrowings.
As of March 31, 2013, SM Prime has forty six Supermalls strategically located in the Philippines
with a total gross floor area of 5.6 million square meters. Likewise, the Company also has five
Supermalls located in the cities of Xiamen, Jinjiang, Chengdu, Suzhou, and Chongqing in China
with a total gross floor area of 0.8 million square meters.
For the rest of 2013, SM Prime is scheduled to launch SM Aura Premier in Taguig and SM City BF
in Paranaque. SM Megamall, on the other hand, will be expanded with an additional 101,000
square meters. By year-end, SM Prime will have 48 malls in the Philippines and five in China with
an estimated combined gross floor area of 6.9 million square meters.
2012
Twelve months ended Dec 31
% to
% to
2011 Revenues
Revenues
2012
% Change
Profit & Loss Data
Revenues
Operating Expenses
Operating Income
Net Income
EBITDA
30,72
6
13,99
5
16,73
1
10,53
0
20,68
7
Dec 31
2012
100%
26,897
100%
14%
46%
12,277
46%
14%
54%
14,620
54%
14%
34%
9,056
34%
16%
67%
18,450
69%
12%
% to Total
Assets
Dec 31
2011
% to Total
Assets
%
Change
Balance Sheet Data
Total Assets
Total Debt
Net Debt
148,13
0
124,08
7
52,239
39,952
69,944
17
100%
128,324
100%
15%
84%
35%
27%
47%
107,836
40,893
29,913
63,774
84%
32%
23%
50%
15%
28%
34%
10%
Dec 31
Financial Ratios
Current Ratio
Debt to Equity
Net Debt to Equity
Return on Equity
Debt to EBITDA
EBITDA Margin
2012
1.34
0.43 :
0.57
0.36 :
0.64
0.16
0.11
2.53
9.42
0.54
0.67
0.34
3.61
2011
1.47
0.39 : 0.61
0.32 : 0.68
0.15
0.10
2.22
9.47
0.54
0.69
0.34
6.72
gross revenues for the year 2012 to =
P 26.90 billion in 2011. Rental revenues,
accounting for 84% of total revenues, grew by 14% amounting to =
P 25.90 billion from last year’s
=
P 22.76 billion. This is largely due to rentals from new SM Supermalls opened in 2011 and 2012,
namely SM City Masinag, SM City Olongapo, SM City Consolacion, SM City San Fernando, SM City
General Santos and SM Lanang Premier, with a total gross floor area of 527,000 square meters.
Excluding the new malls and expansions, same-store rental growth is at 8%.
P 2.05
China operations contributed 10% and 9% to SM Prime’s consolidated rental revenues in 2012 and
2011, respectively. Gross revenues of the five malls in China increased 24% in 2012 compared to
2011 largely due to improvements in the average occupancy rate, lease renewals and the opening
of the SM Xiamen Lifestyle and SM Suzhou which added 182,000 square meters of gross floor area.
SM City Chongqing, the fifth mall in China, opened in December 2012 with a gross floor area of
149,000 square meters. Average occupancy rate for the five malls is now at 92%.
For the year 2012, cinema ticket sales increased 14% to =
P 3.05 billion in 2011
due to more blockbuster movies both local and international, conversion of all screens to digital and
roll-out of cinema turnstile system which made the cinema viewing experience more convenient
for customers that altogether led to an increase in foot traffic. The major blockbusters shown in
2012 were “The Avengers,” “Twilight Saga: Breaking Dawn Part II,” “The Amazing Spiderman,”
“This Guy’s in Love with U Mare,” “The Mistress” and “Sisterakas”. In 2011, major films shown
were “Transformers 3: Dark of the Moon,” “Praybeyt Benjamin,” “Harry Potter & the Deathly
Hallow 2,” “No Other Woman” and “Twilight Saga: Breaking Dawn Part I.”
Amusement and other revenues likewise increased by 24% to =
P 1.35 billion in 2012 from
=
P 1.09 billion in 2011 mainly due to higher income from amusement rides. This account is mainly
composed of amusement income from rides, bowling and ice skating operations including the SM
Science Discovery Center and the SM Storyland.
P 14.0 billion in 2012
mainly due to opening of new malls and increase in administrative expenses particularly, utilities
and manpower expenses. Same-store growth in operating expenses is 8%. Likewise, income from
operations posted a 14% growth from =
P 16.73 billion in 2012. In terms
of operating expenses, the five malls in China contributed =
P 1.05 billion
in 2011, or 9% of SM Prime’s consolidated operating expenses. Income from operations in China
went up by 29% from =
18
Interest and dividend income increased by 12% to =
P 361 million
in 2011 mainly due to higher average balance of temporary investments in 2012 compared to last
year.
Interest expense for the year likewise increased by 13% to =
P 1.95 billion
in 2011 due to new loan availments.
Net income for the twelve months ended 2012 increased by 16% at =
P 10.53 billion from last year’s
=
P 9.06 billion. On a stand-alone basis, the net income of China operations increased to =
P 1.10
billion in 2012 compared to =
P 0.89 billion in 2011 for a 24% increase, while net income of the
Philippine operations grew 15% at =
=
P 8.29 billion to =
P 9.71 billion as of December 31, 2011 and 2012, respectively. This account
includes the remaining proceeds from loans drawn in 2012 amounting to =
P 7.5 billion which will
be used for working capital and capital expenditure requirements.
Investments held for trading decreased by 7% from =
P 813 million to =
P 759 million as of
December 31, 2011 and 2012, respectively, due to maturity of investments in corporate bonds in
March 2012.
Receivables increased by 25% from =
P 4.71 billion to =
P 5.88 billion as of December 31, 2011 and
2012, respectively, mainly due to increase in trade receivables. Likewise, prepaid expenses and
other current assets increased by 13% from =
P 1.28 billion to =
P 1.44 billion as of December 31, 2011
and 2012, respectively, mainly due to prepaid taxes on investment properties and advances to
contractors.
Investment properties increased by 15% from =
P 107.84 billion to =
P 124.09 billion as of
December 31, 2011 and 2012, respectively, because of ongoing new mall projects located in
Taguig, Parañaque and Cebu City in the Philippines and Zibo and Tianjin in China. Expansions and
renovations in SM Megamall, SM City Bacolod, SM City Sta. Rosa, SM City Clark and SM City
Dasmariñas are also in progress.
Derivative assets decreased by 5% from =
P 116 million to =
P 110 million as of December 31, 2011
and 2012, respectively, due to revaluation. On the other hand, derivative liabilities increased by
3% from =
P 238 million to =
P 244 million as of December 31, 2011 and 2012, respectively, mainly
resulting from mark-to-market losses on interest rate swaps used to hedge interest rate exposure on
loans.
P 3.15 billion to =
2011 and 2012, respectively. This account mainly consists of advances and deposits paid for leased
properties.
Deferred tax assets decreased by 25% from =
P 254 million to =
P 190 million as of December 31, 2011
and 2012, respectively, due to reversal of net unrealized foreign exchange losses recognized in
prior year, while deferred tax liabilities increased by 2% from =
P 1.26 billion to =
December 31, 2011 and 2012, respectively, due to net unrealized foreign exchange gains in 2012.
As of December 31, 2012, loans payable consists of unsecured Philippine peso-denominated loans
obtained from a bank amounting to =
P 800 million for working capital.
The increase in accounts payable and other current liabilities by 12% from =
P
11.40 billion as of December 31, 2011 and 2012, respectively, is mainly due to payables to mall
contractors and suppliers and accrued operating expenses.
P 51.44 billion as of December 31, 2011
and 2012, respectively, due to new loan availments amounting to =
P 7.5 billion and $115 million,
net of prepayments.
The increase in tenants’ deposits by 12% from =
P 7.47 billion to =
2011 and 2012, respectively, is due to the new malls and expansions which opened this year. On
19
the other hand, liability for purchased land decreased 22% from =
P 1.55 billion to =
December 31, 2011 and 2012, respectively, due to subsequent payments.
Company.
The Company’s current ratio decreased to 1.34:1 from 1.47:1 as of December 31, 2012 and 2011,
respectively, mainly attributable to loan payments due in 2012.
Interest-bearing debt to stockholders’ equity increased to 0.43:0.57 from 0.39:0.61 as of December
31, 2012 and 2011, respectively, similarly net interest-bearing debt to stockholders’ equity also
increased to 0.36:0.64 from 0.32:0.68 as of December 31, 2012 and 2011, respectively, due to the
additional borrowings. Debt service coverage ratio decreased to 3.61:1 from 6.72:1 for the years
ended December 31, 2012 and 2011, respectively, due to higher current portion of long-term debt
and interest expense in 2012 compared to 2011.
In terms of profitability, ROE slightly improved to 16% from 15% for the years ended December 31,
2012 and 2011, respectively. EBITDA increased by 12% to =
P 18.45
billion in 2011.
Debt to EBITDA increased to 2.53:1 from 2.22:1 as of December 31, 2012 and 2011, respectively,
due to increase in long-term debt. While EBITDA to interest expense slightly decreased to 9.42:1
from 9.47:1 for the years ended December 31, 2012 and 2011, respectively, due to higher interest
expense in 2012.
Consolidated operating income to revenues is healthy at 54% for the years ended December 31,
2012 and 2011. On a stand-alone basis, operating income margin of the Philippines and China
operations is at 55% and 51% in 2012, compared to 55% and 49% in 2011, respectively.
EBITDA margin remains strong at 67% and 69% for the years ended December 31, 2012 and 2011,
respectively. On a stand-alone basis, EBITDA margin of the Philippines and China operations is at
67% and 69% in 2012 and 68% and 72% in 2011, respectively.
Net income to revenues is steady at 34% for the years ended December 31, 2012 and 2011. On a
stand-alone basis, net income margin of the Philippines and China operations is at 33% and 43% in
2012 and 2011.
20
borrowings.
As of December 31, 2012, SM Prime has forty six Supermalls strategically located in the Philippines
For 2013, SM Prime is scheduled to launch SM Aura Premier in Taguig and SM City Cauayan in
Isabela. SM Megamall, on the other hand, will be expanded with an additional 100,000 square
meters. By year-end, SM Prime will have 48 malls in the Philippines and five in China with an
estimated combined gross floor area of 6.9 million square meters.
Changes in and disagreements with accountants on accounting and financial disclosure
There were no significant changes in and disagreements with accountants on accounting and
financial disclosure.
The representatives of the Corporation’s independent public accountant, SGV & Co., are expected to
be present during the Meeting, will have the opportunity to make a statement if they desire to do so
and are expected to be available to respond to appropriate questions during the Meeting.
ITEM 12. Merger with SM Land, Inc.
One of the items for approval during the Meeting will be the merger between SM Prime and SM
Land, wherein SM Land will be absorbed by SM Prime as the surviving corporation.
Consistent with the Reorganization, the Merger is desirable and advantageous in order to
consolidate the real estate holdings and interests in the real estate companies which are controlled
by the SM Group. The Merger aims to:
a. establish pre-eminent real estate company in the Philippines [and Southeast Asia] that is
unparalleled in terms of size, scale and depth;
b. create fully integrated real estate platform that could better enhance the value of the SM
Group's real estate developments;
c. enhanced ability to capitalize on strong economic fundamentals of the Philippines and
Philippine property, consumer and tourism sectors;
d. increase organizational efficiencies and extract synergies; and
e. strengthen the balance sheet providing enhanced capital raising flexibility.
As the surviving corporation, SM Prime shall possess all the rights, privileges, immunities and
franchises of SM Land. Furthermore, all the assets and properties of SM Land, real or personal,
tangible or intangible, and all receivables due on whatever account, including subscription to
shares and choses in action, and all and every other interest of, belonging to, or due to SM Land
shall be deemed transferred to and vested in SM Prime without further act or deed.
Assets of SM Land include all shares of SMDC and Highlands Prime that will be acquired by SM
Land pursuant to the STO as discussed in Section (C) (Issuance and Exchange of Securities).
The Merger meets the requirements of the provisions of Section 40 (C)(2) of the NIRC on the nonrecognition of gain or loss in the exchange of properties and therefore, the transaction should not
be subject to taxes in relation thereto.
As discussed in Section (C) (Issuance and Exchange of Securities), the implementation of the
Merger shall require the following amendments to the articles of incorporation of SM Prime: (i)
21
change in the primary purpose to include the business of SM Land; and (ii) increase in authorized
capital stock from 20,000,000,000 to 40,000,000,000 to support the issuance of shares of stock to
the current stockholders of SM Land in exchange for their issued and outstanding shares of stock in
SM Land.
There is no material difference in the rights of security holders before and after the Merger.
Security holders, whether holders before or after the Merger, enjoy the same rights.
The merger shall be presented to the stockholders of SM Prime and SM Land for approval. Upon
the affirmative vote of stockholders owning at least 2/3 of the outstanding capital stock of both SM
Prime and SM Land, the merger documents shall be submitted to the Commission for its approval.
An application for listing shall be filed with the PSE for the SM Prime shares to be issued relative to
the merger.
Pursuant to the Plan of Merger, SM Prime shall issue new common shares in exchange for all the
issued and outstanding stock of SM Land equivalent to the total net assets.
Each of SM Prime and SM Land does not have dividends in arrears nor has it defaulted in principal
or interest in respect of any security.
Net Sales
Revenues
2012
2011
Or
Operating
SM Prime
SM Land
SM Prime
30,726,309,357
26,897,455,051
4,131,493,005
3,767,687,426
10,529,954,990
9,055,995,525
Book Value Per Share
SM Prime
2012
2011
Income
From
Operations
4.03
4.59
SM Land
Continuing
SM Land
2,876,141,389
2,559,428,614
Cash Dividends Declared
Per Share
SM Prime
2,011
1,766
SM Land
0.29
0.27
Long-Term Obligations
SM Prime
SM Land
51,438,822,603
40,892,608,729
1,834,750,000
1,893,500,000
Income Per Share From Continuing
Operations
SM Prime
34.37
181.2
0.606
0.521
SM Land
147
137
The merger shall be presented to the stockholders of SM Prime and SM Land for approval. Upon
the affirmative vote of stockholders owning at least 2/3 of the outstanding capital stock of both SM
Prime and SM Land, the merger documents shall be submiited to the Commission for its approval.
Simultaneously, an application for listing shall be filed with the Exchange for the SM Prime shares
to be issued relative to the merger.
a)briefly describe the qualifications
The Independent Fairness Opinion for the Share for Share Swap was rendered by Manabat
Sanagustin & Co., CPAs. MS&Co is the local member firm of KPMG International. MS&Co. has
over 10 years experience in providing business valuation and financial advisory services to
both foreign and domestic companies. As a result of this experience, there is an existing team
of competent professionals who possess significant valuation credentials and technical skills.
The said team has successfully delivered valuation services, including fairness opinions,
consistent with the guidelines of the Philippine Stock Exchange. The MS&Co. team is part of
KPMG International’s Global Valuations Team. As needed, the local team can seek expertise
and support from other KPMG member firms in the world.
The engagement team working on Project Century has completed the following recent fairness
opinion and/or valuation engagements:
· Backdoor listing of a local company engaged in the infrastructure sector;
· Additional listing of shares in line with a listed mining company’s debt-to-equity
conversion transactions;
· Acquisition by a Philippine electronics company of a company based in Europe;
· Delisting of a Philippine investment bank;
· IPO support for a company in its pre-listing application in the PSE which includes the
preparation of a prospectus;
22
·
Valuation in line with a hospital’s divestment initiative;
The Independent Fairness Opinion for the Property for Share Swap was appraised by CB
Richard Ellis Philippines Inc. CBRE was established in 1998 and has been prominent in the
Philippine market since 1995 CBRE Philippines has become the leading real estate advisor in
the country with the most comprehensive array of services in the industry including: real estate
sales, leasing, tenant representation, office services, investment sales, property management,
facilities management, asset management, project management, research & consulting,
valuation services, and technical services.
In the early part of 1999, CBRE Valuation and Advisory Services (VAS), a DTI-licensed and
Bangko Sentral ng Pilipinas (BSP)-accredited appraisal company, was incorporated to the
operations of the Company. CBRE VAS provides comprehensive valuation services, which
adopts and adheres to internationally-recognized standards of valuation. CBRE VAS maintains
officers and staff who are duly licensed by the Professional Regulations Commission as Real
Estate Appraisers, and with an average of 10 year experience in the field of Property and
Machinery Appraisal.
Since 1999, CBRE VAS has rendered appraisal/valuation services to corporations, banks,
individuals for a variety of purpose including, mortgage & financing, insurance, estate
partitioning, sale & purchases. We have been called in to render valuation reports for use in
mergers & acquisitions, joint-venture agreement and court arbitration.
b)describe the method of selection of such Appraiser/Valuator
The independent Appraisers/Valuators were selected based on their accreditation credential
with the PSE. KPMG was chosen based on the merit of (i) their competitive quote, (ii) market
reputation as IFAs and (iii) the capabilities of their team and the available manpower to help
meet the necessary deadlines for the delivery of their reports.
MS&Co and CBRE Philippines was chosen based on the merit of (i) their competitive quote, (ii)
market reputation as a property appraiser and (iii) the capabilities of their team and the
available manpower to help meet the necessary deadlines for the delivery of their report.
c)describe any material relationship between the outside party or its affiliates and SM or its
affiliates which existed during the past two years or is mutually understood to be contemplated and
any compensation received or to be received as a result of such relationship;
The Chairman and CEO of MS&Co., Mr. Roberto G. Manabat, served as Board Advisor for
Corporate Governance matters of SMIC. However, he resigned effective April 30, 2013 in
order to avoid any perception of conflict under the valuation engagement. Mr. Manabat’s
involvement was limited to corporate governance matters and did not involve strategic inputs
specifically in the proposed merger and consolidation of SM Land, Inc. and SM Prime Holdings,
Inc. Further, Mr. Manabat is not part of the valuation team preparing the valuation and
fairness opinion reports for the tender offer and merger transactions.
CBRE’s relationship with the Company and its Affiliates is professional in nature and it has not
received any compensation as a result of this relationship for the past years.
d) state whether SM or affiliate determined the amount of consideration to be paid or whether the
outside party recommended the amount of consideration to be paid; and
The amount of consideration to be paid is based on the quote provided, which SM determined
to be reasonable.
e) furnish a summary concerning such opinion or appraisal which shall include, but not limited to,
the procedures followed; the findings and recommendations; the bases for and methods of arriving
23
at such findings and recommendations; instruction received from SM or affiliate; and any limitation
imposed by SM or affiliate on the scope of the investigation.
The purpose of the Appraisal was for CBRE Philippines to render an opinion of the market value of
the real properties to be acquired based on a cut-off date of February 28, 2013. Hence, all relevant
information provided to CBRE were assumed as of the valuation date.
CBRE Philippines estimates that the combined Market Value of the real properties to be acquired is
Php 16,336,413,000.00 as of February 28, 2013.
CBRE made use of, among others, (i) land details including land titles, lot areas, lot plans and
survey plans; (ii) details on ongoing projects or developments including completion status, selling
prices, number of units for sale, inventory of developed and saleable units, land or floor area, and
cost to complete; and (iii) market data. The methodologies used by CBRE to value the properties
included (i) the Income Capitalization Approach and (ii) the Cost Approach. Considering the
nature of the properties under study, CBRE adopted the Cost Approach and the Income
Capitalization Approach to value the properties.
CBRE Philippines relied to a considerable extent on information provided by SMIC such as the
completion status of ongoing project or development including type or characteristics of units for
sale , inventory of developed, saleable units, selling prices, and land or floor area.
There are no Placeholder for material contract, arrangement, understanding, relationship,
negotiation or transaction during the past two fiscal years between SM Prime and SM Land relating
to acquisition of securities; an election of directors; or a sale or other transfer of a material amount
of assets.
Upon the announcement of the merger, the high and low price of SM Prime will be finalized upon
submission of the Definitive Information Statement.
Market for Registrant’s Common Equity and Related Stockholder Matters
CASH DIVIDEND PER SHARE - P 0.29 in 2012, P 0.27 in 2011 and P 0.25 in 2010.
2011
2012
Stock Prices
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
P
High
18.20
17.28
14.32
17.02
P
Low
13.30
12.10
12.54
13.90
P
High
11.76
12.18
13.20
13.84
P
Low
9.96
10.90
10.94
11.50
The Company’s shares of stock is traded in the Philippine Stock Exchange.
As of April 30, 2013, the closing price of the Company’s shares of stock is P19.00/share. For the
two months ending April 30, 2013, stock prices of SM Prime were at a high of P20.30 and a low of
P18.18.
The number of stockholders of record as of April 30, 2013 was 2,479. Capital stock issued and
outstanding as of April 30, 2013 was 17,373,677,760. As of December 31, 2012, there are no
restrictions that would limit the ability of the Company to pay dividends to the common
stockholders, except with respect to Note 17 of the consolidated financial statements.
The top 20 stockholders as of April 30, 2013 are as follows:
1.
2.
3.
4.
5.
6.
Name
SM Land, Inc.
PCD Nominee Corp. (Non-Filipino)
SM Investments Corp.
PCD Nominee Corp. (Filipino)
Sysmart Corporation
Shoemart, Inc.
No. of Shares Held
7,082,905,741
5,495,831,588
3,761,443,402
899,354,978
36,483,131
34,048,750
24
% to Total
41
32
22
5
0
0
7. SM Prime Holdings, inc. (Treasury Shares)
8. Lucky Securities, Inc.
9. Philippine Air Force Educational Fund, Inc.
10. Southwood Mindanao Corporation
11. Elizabeth Sy
12. Regina Capital Dev. Corp.
13. Teresita Sy
14. Jose T. Tan &/or Pacita L. Tan
15. Senen Mendiola
16. Chen Zan Xing
17. Jose Recato Dy
18. Harley Sy
19. Edwin Francis L. Tan
20. Eric Ruben L. Tan
18,857,000
4,092,823
2,140,923
2,034,673
2,033,110
1,696,453
1,352,902
892,126
788,218
771,611
663,552
656,450
610,402
610,402
0
0
0
0
0
0
0
0
0
0
0
0
0
0
There are no recent sales of unregistered or exempt securities for the last two (2) years, except for
the 25% stock dividends declared on April 24, 2012 and distributed on June 20, 2012 which is an
exempt transaction under SRC, Section 10.1(d).
As discussed in Note 16 of the consolidated financial statements, the following securities were
issued as exempt from the registration requirements of the SRC and therefore have not been
registered with the Securities and Exchange Commission:
·
On January 29, 2013, the Company obtained a US$200 million unsecured loan. The loan
bears an interest rate based on London Inter-Bank Offered Rate plus spread, with a bullet
maturity on January 29, 2018. The notes issued are considered as exempt security
pursuant to Section 9.2 of R.A. No. 8799 (SRC).
The Company has no registered debt securities. There are no existing or planned stock options.
There are no registered securities subject to redemption or call. There are no existing or planned
stock warrant offerings.
DIRECTORS AND EXECUTIVE OFFICERS OF SM PRIME
Office
Chairman
Vice Chairman and Independent Director
Independent Director
Director and President
Director
Director
Director
Adviser to the Board of Directors
Adviser to the Board of Directors
Executive Vice President and Chief Finance
Officer
Senior Vice President – Legal and Corporate
Affairs/ Compliance Officer/ Assistant
Corporate Secretary
Vice President – Market Research and
Planning
Vice President – Internal Audit Head
Vice President – Information Technology
Vice President – Finance (China Projects)
Vice President – Finance
Vice President – Legal
Corporate Secretary/ Assistant Compliance
Officer
Name
Henry Sy, Sr.
Jose L. Cuisia, Jr.
Gregorio U. Kilayko
Joselito H. Sibayan
Hans T. Sy
Henry T. Sy, Jr.
Herbert T. Sy
Jorge T. Mendiola
Teresita T. Sy
Elizabeth T. Sy
Citizenship
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Age
88
69
58
54
57
59
56
53
62
60
Jeffrey C. Lim
Filipino
51
Corazon I. Morando
Filipino
71
Ronald G. Tumao
Christopher S. Bautista
Kelsey Hartigan Y. Go
Diana R. Dionisio
Teresa Cecilia H. Reyes
Edgar Ryan C. San Juan
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
54
53
47
40
38
37
Emmanuel C. Paras
Filipino
63
25
Board of Directors
Henry Sy, Sr. has served as Chairman of the Board of Directors of SM Prime since 1994. He is the
founder of the SM Group and is currently Chairman of SM Land, Inc., SM Investments Corp.,
Highlands Prime, Inc. and SM Development Corp. He is likewise Chairman Emeritus of BDO
Unibank, Inc. and Honorary Chairman of China Banking Corporation. He opened the first
ShoeMart store in 1958 and has been at the forefront of SM Group’s diversification into the
commercial centers, retail merchandising, financial services, and real estate development and
tourism businesses.
Jose L. Cuisia, Jr.* has served as Vice Chairman of the Board of Directors of SM Prime since 1994.
In 2011, he took his official diplomatic post as Ambassador Extraordinary and Plenipotentiary to
the United States of America. He was the former President and Chief Executive Officer of the
Philippine American Life and General Insurance Company and is currently the Vice-Chairman of
Philamlife since August 2009. Previously, he served as Governor of the Bangko Sentral ng Pilipinas
from 1990 to 1993 and Administrator of the Social Security System from 1986 to 1990. In May
2011, he was awarded the “Joseph Wharton Award for Lifetime Achievement” by the prestigious
Wharton School of the University of Pennsylvania for an outstanding career in the country’s
banking and social security system.
Gregorio U. Kilayko* is the former Chairman of ABN Amro’s banking operations in the Philippines.
He was the founding head of ING Baring’s stockbrokerage and investment banking business in the
Philippines and a Philippine Stock Exchange Governor in 1996 and 2000. He was a director of the
demutualized Philippine Stock Exchange in 2003. He was elected as Independent Director in 2008.
Joselito H. Sibayan* has spent the past 25 years of his career in investment banking. From 1987 to
1994, and after taking his MBA from University of California in Los Angeles (UCLA), he was in
Head of International Fixed Income Sales at Deutsche Bank in New York and later moved to
Natwest Markets to set up its International Fixed Income and Derivatives Sales/Trading operation.
He then moved to London in 1995 to run Natwest Markets’ International Fixed Income Sales Team.
He is currently the President and CEO of Mabuhay Capital Corporation (MC2), an independent
financial advisory firm. Prior to forming MC2 in 2005, he was Vice Chairman, Investment
Banking - Philippines and Country Manager for Credit Suisse First Boston (CSFB). He put up CSFB's
Manila representative office in 1998, which he later migrated to branch status. He was elected as
an Independent Director in 2011.
* Independent director – the Company has complied with the Guidelines set forth by Securities
Regulation Code (SRC) Rule 38, as amended, regarding the Nomination and Election of
Independent Director. The Company’s By-Laws incorporate the procedures for the nomination and
election of independent director/s in accordance with the requirements of the said Rule.
Hans T. Sy, President, has served as Director since 1994 and as President since 2004. He holds
many key positions in the SM Group, among which are Adviser to the Board of SM Investments
Corporation. He is Director and Chairman of China Banking Corporation, Director of Highlands
Prime, Inc. and SM Land, Inc. He also holds board positions in several companies within the
Group. He is a mechanical engineering graduate of De La Salle University.
Henry T. Sy, Jr. has served as Director since 1994. He is responsible for the real estate acquisitions
and development activities of the SM Group which include the identification, evaluation and
negotiation for potential sites as well as the input of design ideas. At present, he is also Vice
Chairman/ President of SM Land, Inc., Vice Chairman of SM Investments Corporation and SM
Development Corporation, President of Highlands Prime, Inc., Director in BDO Unibank, Inc. and
Chairman of Pico de Loro Beach and Country Club Inc. and President of The National Grid
Corporation of the Philippines. He graduated with a management degree from De La Salle
University.
Herbert T. Sy has served as Director since 1994. He is an Adviser to the Board of SM Investments
Corporation and is currently the Vice Chairman of Supervalue Inc., Super Shopping Market Inc.
and Sanford Marketing Corporation and Director of SM Land, Inc. and China Banking Corporation.
He holds a Bachelor’s degree in management from De La Salle University. He also holds board
positions in several companies within the SM Group.
26
Jorge T. Mendiola was elected as Director in December 2012. He is currently the President of SM
Department Store. He started his career with the SM Department Stores as a Special Assistant to the
Senior Branch Manager in 1989 and rose to become the President in 2011. He is also the Vice
Chairman for Advocacy of the Philippine Retailers Association. He took his Masters in Business
Management from the Asian Institute of Management and has an A.B. Economics degree from
Ateneo de Manila University.
Teresita T. Sy has served as Adviser to the Board since May 2008. She was a Director from 1994
up to April 2008. She has worked with the Group for over 20 years and has varied experiences in
retail merchandising, mall development and banking businesses. A graduate of Assumption
College, she was actively involved in ShoeMart’s development. At present, she is Chairman of BDO
Unibank, Inc., Vice Chairman of SM Investments Corporation and Director of SM Land, Inc. She
also holds board positions in several companies within the SM Group.
Elizabeth T. Sy was elected as Adviser to the Board in April 2012. She was a Senior Vice President
for Marketing from 1994 up to April 2012. She is a Director of SM Development Corporation and
SM Land, Inc., Co-Chairman of Pico de Loro Beach and Country Club Inc. and Adviser to the Board
of SM Investments Corporation. She is also actively involved in the Group’s other tourism and
leisure business endeavors, overseeing operations as well as other marketing and real estate
activities.
Members of the Board of Directors are given a standard per diem of P10,000 per Board meeting,
except for the Chairman and Vice Chairman which are given P20,000 per Board meeting.
Senior Management
Jeffrey C. Lim is the Executive Vice President and the Chief Finance Officer. He is a Director of Pico
de Loro Beach and Country Club Inc. and a member of the Management Board of the Asia Pacific
Real Estate Association. He is a Certified Public Accountant and holds a Bachelor of Science degree
in Accounting from the University of the East. Prior to joining the Company, he worked for a
multi-national company and SGV & Co.
Corazon I. Morando is the Senior Vice President for Legal and Corporate Affairs/ Compliance
Officer/ and Assistant Corporate Secretary of the Company and SM Investments Corporation, and
Compliance Officer of SM Development Corporation. She is also Corporate Secretary of Highlands
Prime, Inc and China Banking Corporation. She holds a Bachelor of Law degree from the
University of the Philippines and took up graduate studies under the MBA-Senior Executive
Program in the Ateneo de Manila University. She was formerly the Director of the Corporate and
Legal Department of the Securities and Exchange Commission in the Philippines.
Ronald G. Tumao is the Vice President for Market Research & Planning. He graduated from De La
Salle University with a degree in BSC - Management of Financial Institutions. He later took his
MBA at the Ateneo Graduate School in Makati City.
He has over 10 years of experience in
banking and finance and more than 10 years of experience in brand management and consumer
marketing. He is in charge of property acquisition for SM. He joined the Company in 2001.
Christopher S. Bautista is the Vice President for Internal Audit (Chief Audit Executive). He was
formerly the Chief Finance Officer of a large palm oil manufacturer based in Jakarta, Indonesia and
was a partner (principal) for several years of an audit and management consulting firm based also
in Jakarta. He started his professional career as staff auditor of SGV & Co. He joined the Company
in 1998.
Kelsey Hartigan Y. Go is the Vice-President for Information Technology. He holds a Bachelor's
Degree in Electronics & Communications Engineering and a Masters of Science Degree in Computer
Science, both from the De La Salle University, Manila. He was previously a professor of a university
in the Philippines and was concurrently the Director of the Information Systems Center of the same
university. He joined the Company in 1997.
27
Diana R. Dionisio is the Vice President for Finance (China Projects). She holds a Bachelor's degree
in Accountancy from the University of Santo Tomas. Prior to joining the company, she was the
accounting manager of a real property company. She started her professional career as staff
auditor of SGV & Co. She joined the Company in 1999.
Teresa Cecilia H. Reyes is the Vice President for Finance. Prior to her joining the Company in June
2004 as a Senior Manager in the Finance Group, she was an Associate Director in the business
audit and advisory group of SGV & Co. She graduated from De La Salle University with degrees in
Bachelor of Science in Accountancy and Bachelor of Arts in Economics and placed 16th in the 1997
Certified Public Accountants board examinations.
Edgar Ryan C. San Juan is the Vice President for Legal. Prior to joining the Company in 2008, he
was a Senior Associate Attorney at Puno and Puno Law Offices. He was also part of the Siguion
Reyna Montecillo and Ongsiako Law Firm and the Bengson Law Firm, respectively. He holds a Juris
Doctor degree from the Ateneo de Manila University School of Law and a Bachelor of Arts in the
Humanities degree with specialization in Political Economy from the University of Asia and the
Pacific.
Emmanuel C. Paras, is the Corporate Secretary and Assistant Compliance Officer of the Company
and other companies in the SM Group. He is a Bachelor of Law graduate of the Ateneo de Manila
and a partner of the SyCip Salazar Hernandez and Gatmaitan Law Offices.
All the Directors and Executive Officers of the Company, except those otherwise stated, have held
their positions since the Company started operations in 1994.
The Directors of the Company are elected at the annual stockholders’ meeting to hold office until
the next succeeding annual meeting and until their respective successors have been appointed or
elected and qualified. The same set of directors will be nominated in the coming regular annual
stockholders’ meeting. The Directors possess all the qualifications and none of the disqualifications
provided for in the SRC and its Implementing Rules and Regulations.
Nomination of Independent Directors shall be conducted by the Nomination Committee prior to the
stockholders’ meeting. The Nomination Committee shall prepare a Final List of Candidates from
those who have passed the Guidelines, Screening Policies and Parameters for nomination of
independent directors and which list shall contain all the information about these nominees. Only
nominees whose names appear on the Final List of Candidates shall be eligible for election as
Independent Director. No other nomination shall be entertained after the Final List of Candidates
shall have been prepared. No further nomination shall be entertained or allowed on the floor
during the actual annual stockholders’ meeting. In case of resignation, disqualification or cessation
of independent directorship and only after notice has been made with the Commission within five
(5) days from such resignation, disqualification or cessation, the vacancy shall be filled by the vote
of at least a majority of the remaining directors, if still constituting a quorum, upon the nomination
of the Nomination Committee otherwise, said vacancies shall be filled by stockholders in a regular
or special meeting called for that purpose. An Independent Director so elected to fill a vacancy
shall serve only for the unexpired term of his or her predecessor in office.
Aside from the Directors and Executive Officers enumerated above, there are no other employees
expected to hold significant executive/officer position in the Company.
The following are directorships held by Directors and Executive Officers in other reporting
companies at least, in the last five years:
Henry Sy, Sr.
Name of Corporation
Position
SM Investments Corporation. ...........................................
Highlands Prime, Inc. ........................................................
SM Development Corporation ..........................................
China Banking Corporation.. ...........................................
BDO Unibank, Inc... ..........................................................
28
Chairman
Chairman
Chairman
Honorary Chairman
Chairman Emeritus
Jose L. Cuisia, Jr.
Name of Corporation
Position
The Philippine American Life & General Insurance
Company (Philamlife). ......................................................
BPI-Philam Assurance Co. (BPLAC). ................................
PHINMA Corporation. .......................................................
Holcim Philippines, Inc..... ................................................
Manila Water Company, Inc... ..........................................
ICCP Holdings... .................................................................
Beacon Property Ventures... ..............................................
Gregorio U. Kilayko
Name of Corporation
Vice Chairman
Regular Director
Regular Director
Regular Director
Regular Director
Regular Director
Position
Highlands Prime, Inc... ......................................................
Belle Corporation... ............................................................
Vantage Equities, Inc.... ......................................................
Joselito H. Sibayan
Name of Corporation
Position
Pitkin Petroleum PLC, UK..................................................
Hans T. Sy
Name of Corporation
Non-Executive Director
Position
China Banking Corporation .............................................
Highlands Prime, Inc. ........................................................
Henry T. Sy, Jr.
Name of Corporation
Director/ Chairman of the
Board and of Executive
Committee
Director
Adviser to the Board
Position
Highlands Prime, Inc... ......................................................
SM Investments Corporation.. ..........................................
The National Grid Corporation of the Philippines.... .....
Pico de Loro Beach and Country Club Inc.......................
BDO Unibank, Inc... ..........................................................
Herbert T. Sy
Name of Corporation
Vice Chairman/ Chief
Executive Officer
Vice Chairman / President
Vice Chairman
President
Chairman
Director
Position
China Banking Corporation ............................................
SM Investments Corporation ...........................................
Teresita T. Sy
Name of Corporation
Director
Position
BDO Unibank, Inc. ...........................................................
29
Chairperson
Director/ Vice Chairperson
Elizabeth T. Sy
Name of Corporation
Position
Pico de Loro Beach and Country Club Inc.......................
SM Investments Corporation... .........................................
Co-Chairman
Director
The members of the Audit and Risk Management Committee are:
JOSE L. CUISIA, JR.
Chairman (Independent Director)
GREGORIO U. KILAYKO
Member (Independent Director)
JOSELITO H. SIBAYAN
JORGE T. MENDIOLA
Member
JOSE T. SIO
Member
SERAFIN U. SALVADOR
Member
CORAZON I. MORANDO
Member
The members of the Compensation Committee are:
HANS T. SY
GREGORIO U. KILAYKO
JOSELITO H. SIBAYAN
-
Chairman
The members of the Nomination Committee are:
HERBERT T. SY
JOSE L. CUISIA, JR.
GREGORIO U. KILAYKO
-
Chairman
Family Relationships
Mr. Henry Sy, Sr. is the father of Teresita Sy, Elizabeth Sy, Henry Sy, Jr., Hans Sy, Herbert Sy and
Harley Sy. All other directors and officers are not related either by consanguinity or affinity.
Involvement in Legal Proceedings
SM Prime is not aware of any of the following events having occurred during the past five years up
to the date of this report that are material to an evaluation of the ability or integrity of any director
or any member of senior management of the Corporation:
(a) any bankruptcy petition filed by or against any business of which such person was a
general partner or executive officer either at the time of the bankruptcy or within two
years prior to that time;
(b) any conviction by final judgment, including the nature of the offense, in a criminal
proceeding, domestic or foreign, or being subject to a pending criminal proceeding,
domestic or foreign, excluding traffic violations and other minor offenses;
(c) being subject to any order, judgment or decree, not subsequently reversed, suspended or
vacated, of any court of competent jurisdiction, domestic or foreign, permanently or
temporarily enjoining, barring suspending or otherwise limiting his involvement in any
type of business, securities, commodities or banking activities; and
(d) being found by a domestic or foreign court of competent jurisdiction (in a civil action), the
SEC or comparable foreign body, or a domestic or foreign exchange or other organized
trading market or self-regulatory organization, to have violated a securities or commodities
law or regulation, and the judgment has not been reversed, suspended or vacated.
30
DIRECTORS AND EXECUTIVE OFFICERS OF SM LAND
Office
Chairman
Vice Chairman/President
Director
Director
Director
Director
Director
Treasurer
Asst. Treasurer
Chief Finance Officer
Corporate Secretary
Assistant Corporate Secretary
Name
Henry Sy, Sr.
Henry T. Sy, Jr.
Felicidad T. Sy
Teresita T. Sy
Hans T. Sy
Elizabeth T. Sy
Herbert T. Sy
Harley T. Sy
Grace F. Roque
Gemma O. Cheng
Corazon I. Morando
Arthur A. Sy
Citizenship
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Age
88
59
85
62
57
61
50
53
62
48
72
44
Board of Directors
The Directors of the Company are elected at the annual stockholders’ meeting to hold office until
the next succeeding annual meeting and until their respective successors have been appointed or
elected and qualified.
The following are the business experience/s of the Company’s Directors and Officers during the
last five years:
Henry Sy, Sr., is the Chairman of the Board of Directors of SM Land, Inc. He is also the
Chairman of the Board of Directors of SMIC. He is the founder of the SM Group and is
currently Chairman of SM Prime, SM Land, Inc., SM Development, and Highlands Prime Inc.,
among others. Mr. Sy opened the first ShoeMart store in 1958 and has since evolved into a
dynamic group of companies with five lines of businesses - shopping malls, retail, financial
services, real estate development and tourism, hotels and conventions. He is likewise Chairman
Emeritus of BDO Universal Bank, Inc. and Honorary Chairman of China Banking Corporation.
Felicidad T. Sy, Director. Mrs. Sy is the Chairperson of the Board of the Felicidad T. Sy
Foundation, Inc. which is involved in religious and spiritual activities. She is also a member of
the Board of Trustees of SM Foundation, Inc. which is the socio-civic arm of the SM Group of
Companies. SM Foundation is actively involved in promoting its advocacies on education
through free college scholarships and donation of school buildings; on health and wellness
through medical missions nationwide and the rehabilitation of wellness centers for children and
the elderly; and, on livelihood projects through the free training of farmers. Mrs. Sy is also a
Papal awardee.
Henry T. Sy, Jr., is the Vice Chairman and President of SM Land, Inc. He is also the Vice
Chairman of SMIC, Vice Chairman – President of Highlands Prime, Inc., Vice Chairman of SM
Development Corporation, Director of SM Prime Holdings, Inc. and BDO Unibank, Inc. He is
likewise the President of National Grid Corporation of the Philippines. He is responsible for the
real estate acquisitions and development activities of the SM Group which include the
identification, evaluation and negotiation for potential sites as well as the input of design ideas.
He graduated with a Management degree from De La Salle University.
Teresita T. Sy, Director. She is the Chairperson of BDO and was first elected to the Board in
1997. Concurrently, she serves as the Chairperson, Vice Chairperson, and/or Director of various
subsidiaries and affiliates of BDO such as BDO Private Bank, Inc., BDO Leasing & Finance,
Inc., BDO Capital & Investment Corporation, BDO Foundation, Inc., Generali Pilipinas Holding
Company, Inc., Generali Pilipinas Life Assurance Company, Inc., and Generali Pilipinas
Insurance Co.,Inc. Ms. Sy is the Vice Chairperson of SM Investments.
31
Harley T. Sy, Director. He is the President of SMIC, Director of China Banking Corporation
and other companies within the SM Group and Adviser to the Board of Directors of BDO Private
Bank. He is the Executive Vice-president for Merchandising of SM Retail, Inc. He holds a
degree in Bachelor of Science, Major in Finance from De La Salle University.
Hans T. Sy, Director. He holds several key positions in the SM Group. He has served as
President of SM Prime Holdings, Inc. since 2004, Adviser to the Board of SM Investments
Corporation, and a Director of Highlands Prime and SM Keppel Land, Inc. He is Chairman of
China Banking Corporation and Chairman of Tagaytay Highlands International Golf Club, Inc.
He is a graduate of the De La Salle University with a Bachelor of Science degree in Mechanical
Engineering.
Herbert T. Sy, Director. He is a Director of SM Prime Holdings, Inc. since 1994. He is an
Adviser to the Board of SM Investments Corporation and is currently the President of Supervalue
Inc., Super Shopping Market Inc. and Director of China Banking Corporation. He holds a
Bachelor’s degree in management from De La Salle University. He also holds board positions in
several companies within the SM Group.
Elizabeth T. Sy, Director. She primarily oversees the SM Group's increasing involvement in the
tourism and hospitality industry sector. She is the President of SM Hotels & Conventions Corp.,
Director of SM Development Corporation, Director of Banco De Oro Private Bank, Adviser to
the Board of SM Investments Corporation, Adviser to the Board of SM Prime Holdings
Corporation and Co-Chairman of Pico De Loro Beach & Country Club.
SM Land, Inc. Executive Officers
Corazon I. Morando, Corporate Secretary. She is the Senior Vice President, Corporate Legal
Affairs, Compliance Officer and Assistant Corporate Secretary of SMIC. She is also the Vice
President and Corporate Secretary of China Banking Corporation and Corporate Secretary and
Compliance Officer of Highlands Prime, Inc.; Senior Vice President - Corporate Legal Affairs,
Assistant Corporate Secretary and Compliance Officer of SM Prime; and the Corporate Secretary
of Pico de Loro Beach and Country Club, Inc. She holds a Bachelor of Laws degree from the
University of the Philippines and took up graduate studies under the MBA-Senior Executive
Program in the Ateneo de Manila University. She was formerly Director of the Corporate and
Legal Department of the Securities and Exchange Commission in the Philippines.
GEMA O. CHENG, Chief Financial Officer. She has 25 years of work experience in Banking
and Finance, Investments, Insurance and Real Estate. She is currently the Senior Vice President
for Finance for the Property Group of SM Investments. Prior to joining the SM Group of
Companies, she was the Chief Financial Officer and Treasurer of the Malayan Group of
Insurance Companies. She started her career with Citibank Manila. She is a graduate of the
University of the Philippines and Harvard University, Cambridge.
ITEM 13. Acquisition or Disposition of Property
Describe briefly the general character and location of the property.
Taal Vista Hotel
Taal Vista is a 261 room hotel located in Tagaytay. The hotel is a short walk from the PAGCOR
Casino. The hotel features a spa, outdoor pool, gym, restaurant and function rooms.
In 2009, Taal Vista Hotel’s newly constructed east wing with 133 guest rooms (making it a total of
261 rooms) and a 1,000-seater ballroom became fully operational. In the same year, SMX, located
at the MOA complex with a state of the art convention and exhibition facilities, commenced
operation. It hosts major international and local conventions and exhibitions. It is a three-story
32
structure with a gross floor area of 46,647 sq. m. made up of two large exhibit floors which can be
divided into multiple exhibition and function halls.
Radisson Blu Hotel Cebu
In the last quarter of 2010, SM Hotels launched the 400-room Radisson Blu Hotel in Cebu, the first
hotel managed by Carlson International in the Asia-Pacific region to be classified under its “Blu”
upscale hotel brand category. The property has been classified as a deluxe hotel category by the
Department of Tourism and its facilities include an in-house spa, fitness center, business center,
800-sq. m. swimming pool, club lounge, two ballrooms and a number of smaller meeting rooms.
The hotel is strategically located beside SM City Cebu and is adjacent to the international port area.
Pico Sands Hotel
The Pico Sands Hotel opened in July 2011. This hotel is a 154 room resort-type hotel in Hamilo
Coast in Nasugbu, Batangas. The hotel has an outdoor pool, fitness center, spa, bar, restaurant and
meeting and banquet facilities.
Park Inn by Radisson
In March 2013, the Park Inn by Radisson Davao opened an eight story, 204-room hotel located in
Lanang, Davao City behind SM Lanang. The hotel has an outdoor swimming pool, gym, fitness
center, meeting rooms and a 24-hour dining restaurant bar and grill. The Park Inn brand is one of
the hotel brands under Carlson and is the largest mid-market brand for hotels under development
in Europe.
Condrad Hilton
SM Hotels intends to open a Conrad Hilton near the MOA complex in 2016. This hotel is expected
to be an eight-story hotel with 350 guest rooms. The hotel is expected to feature a swimming pool,
business center, fitness club, spa, 24-hour dining restaurant, ballroom and other function and
meeting spaces.
SMX Convention Center Manila
SMX Convention Center Manila, inaugurated in November 2007, is a three-storey structure with a
gross floor area of 46,647 sq. m. with basement parking that can accommodate up to 400 cars and
a leasable area of 21,000 sq. m. The building is made up of two large exhibit floors which can be
divided into multiple exhibition and function halls. Meeting and break-out rooms are provided in
support of trade and function requirements. The SM Hotels intends for SMX Convention Center to
serve as a venue for major conferences, trade exhibitions and shows and similar activities in Metro
Manila.
SMX Convention Center Davao
SMX Convention Center Davao, the sister facility of SMX Convention Center Manila, is located on
the third level of SM City Lanang Mall, or Lanang Premier Mall, which was inaugurated September
28, 2012. The facility has a total floor area of 7,835 sq. m., with 5,240 sq. m. of function space,
divisible into three rooms, and a 1,292 sq. m. pre-function lobby with a concierge counter. This
mixed-use complex is integrated with a 204-room hotel and is located 2.4 kilometres from Davao
International Airport.
In addition, the SM Hotels is assessing the feasibility of establishing additional conference centers,
in conjunction with the mid-market hotels, by using existing land bank situated around SM Prime’s
existing malls.
33
SMX Convention Center Taguig
SMX Convention Center Taguig is the third property under the SMX brand. Located inside the SM
Aura Premier Mall, it has three function rooms and eight meeting rooms. The 6,358 sq. m. building
is the first LEED-certified convention facility in the Philippines.
SM Arena
The SM Arena is a five-storey, first-class multipurpose venue for sporting events, concerts,
entertainment shows, and other similar events. The arena has a seating capacity of approximately
16,000. It occupies approximately two hectares of land and has a gross floor area of approximately
64,000 sq. m. It is adjacent to the upcoming South Parking Building of the MOA and is right in
front of the SMX Convention Center Manila. The SM Arena is connected to a large platform parking
plaza and park that will be built in between the SMX Convention Center Manila and the arena
itself. Provisions for two future office blocks are also included in the arena’s master plan.
Megatrade Hall
Megatrade Hall, located inside SM Megamall, offers 3,878 sq. m. of flexible hall space for various
types of events. This space can also be divided into three different halls, depending on the type of
event and client requirements. An additional 336 sq. m. conference center is also available for
meetings, conferences, and seminars.
Cebu Trade Hall
Cebu Trade Hall, located inside SM City Cebu, offers 1,810 sq. m. of hall space that is also divisible
into three halls. An additional 255 sq. m. conference center, that can be divisible into three meeting
rooms, is also available for smaller functions.
Mall of Asia Arena Annex (Carpark)
MOA Arena Annex is an 11-storey building with total gross floor area of 95,273 sq. m. It is
designed to serve the parking needs of MOA Arena with 1,469 parking slots from ground to 7th
floor. While the 8th to 11th floor with approximately 30,000 sq. m. are leased out as office space.
The current tenants are SM Affiliates occupying 16,000 sq. m. The remaining vacant spaces are
scheduled to be occupied by two BPO companies by 2nd half of 2013.
Casino Building
Casino building is located along Gen. Emilio Aguinaldo Highway, within Barangays Mahabang
Kahoy and Kaybagay, Tagaytay City with total gross floor area of19,394 sq. m. Its main tenant is
Philippine Amusement and Gaming Corp. for a 25-year lease term ending on 2033.
Tagaytay Lot
Tagaytay lot is owned by Tagaytay Resort Development Corporation and is located at along Gen.
Emilio Aguinaldo Highway, within Barangays Mahabang Kahoy and Kaybagay, Tagaytay City with
total land area of 182,857 sq. m. As at December 31, 2012, 9,444 sq. m. of the total area is
occupied by a casino building owned by SMIC. The remainder of the property is currently vacant.
Edsa West Lot
Edsa West lot is located at the corners of E. delos Santos / West Avenues / Bulacan Street, Brgy.
Bungad, Diliman Quezon City with total land area of 2,910 sq. m. The lot is currently being
developed by SM Land to build SM Cyberwest, a 15-storey office building designed for BPO,
Savemore and retail / food shops.
Corporate Office Buildings A to F
Corporate Office buildings are composed of Buildings A to F with a total gross floor area of 46,883
sq. m. Buildings A to E are leased to SM Affiliates while Building F is leased to Teletech Customer
Care Management Corp.
34
State the nature and amount of consideration to be paid or received
An additional and equivalent amount of SM Prime shares of stock will be issued to SMIC in
exchange for the above-stated properties.
To the extent practicable, outline briefly the facts bearing upon the question of the fairness of the
consideration.
The amount of consideration to be paid is based on the quote provided, which SM determined to be
reasonable.
State the name and address of the transferor and the nature of any material relationship of such
person
SMIC directly owns 21.652 % of SM Prime as at April 30, 2013
ITEM 14. Restatement of Accounts
There will be no action to be taken with respect to the restatement of any asset, capital, or surplus
account of SM Prime.
D. OTHER MATTERS
ITEM 15. Action with Respect to Reports
The following are the matters to be acted upon during the Special Stockholders’ Meeting:
1.
2.
3.
4.
5.
6.
7.
The Merger, including the Plan of Merger (discussed under Item 9 AND Item 12)
The Share for Share Swap (discussed under Item 9)
The Property for Share Swap (discussed under Item 9 and Item 13)
Issuance of additional shares in exchange for items 2 and 3
The increase in authorized capital stock (discussed under Item 9)
Change in the primary purpose to a mixed-use real property developer
Amendment of the Articles of Incorporation to effect items 5 and 6
ITEM 16. Amendment of Charter, By-Laws or Other Documents
The articles of incorporation of SM Prime shall be amended to (a) change its primary purpose to
include the business of SM Land; and (b) increase its authorized capital stock from 20,000,000,000
to 40,000,000,000.
ITEM 17. Voting Procedures
Methods by which votes will be counted
All matters subject to vote, except in cases where the law provides otherwise, shall be decided by
the plurality vote of stockholders present in person or by proxy and entitled to vote thereat, a
quorum being present.
Unless required by law, or demanded by a stockholder present in person or by proxy at any
meeting, and entitled to vote thereat, the vote of any question need not be by ballot. Voting may be
done by show of hands or by secret ballot. On a vote by ballot, each ballot shall not be signed by
the stockholder voting, or in his name by his proxy if there be such proxy, and shall state the
number of shares voted by him.
The external auditor of the Company, SGV & Co., will validate the ballots when voting is done by
secret ballot. Likewise, SGV & Co. will count the number of hands raised when voting by show of
hands is done.
35
ITEM 18. Corporate Governance
The Board of Directors, officers and staff have committed themselves to the principles and best
practices contained in the Company’s Corporate Governance Manual, in the belief that good
corporate governance is a necessary component of sound strategic business management.
The Manual establishes the company's compliance system and plan of compliance. It states that
compliance with the principles of good corporate governance starts with the Board of Directors. To
this end, a director must act in a manner characterized by transparency, accountability and
fairness. The Manual further enumerates the general responsibilities and specific duties and
functions of the Board, as well as those of the Board Committees, Corporate Secretary, and the
external and internal auditors.
The Manual mandates the conduct of communication and training programs on corporate
governance. It further provides for the rights of all stockholders and the protection of the interests
of minority stockholders. The Manual likewise sets the penalties for non-compliance with its
provisions.
The Company also adopted policies to govern the acceptance of gifts, insider trading and placement
of advertisements. The Company issued a policy to prohibit its directors, officers and employees
from soliciting or accepting gifts in any form from any business partner, except for corporate giveaways, tokens or promotional items of nominal value. The Company also adopted guidelines to
prohibit its directors, officers and employees from buying or selling shares of stock of the listed SM
companies while in possession of material and confidential information. The Company further
issued a policy to prohibit the placement of advertisements in publications that solicit for such ad
placement prior to the release of the official results of an awarding process conducted by the
publication and where an SM company or executive is one of the nominees vying for the award.
This is to avoid any misconception that the Company influenced the award in any way through the
payment for the advertisement. These rules supplement the existing corporate governance policies
in the Manual on Corporate Governance and Code of Ethics.
In accordance with the requirements of the SEC Revised Code of Corporate Governance, we have
revised the SM Prime Manual on Corporate Governance to incorporate the additions and changes
introduced in the new Code, among which are as follows, to wit:
The Board of Directors (and not merely the Chairman of the Board) shall appoint the Compliance
Officer. The Board shall have at least three independent directors or such number as will constitute
not less than 30% of the members of the Board, but in no case less than three. The Board shall
formulate and implement policies to ensure the integrity of related party transactions; and establish
and maintain an alternative dispute resolution system to settle conflicts involving the Company. In
addition to the qualifications for membership in the Board required in relevant laws, the Board may
provide for additional qualifications. These may include practical understanding of the Company’s
business, membership in good standing in relevant industry, business or professional organizations,
and previous business experience. The absence of a director from a Board meeting due to illness,
death in the immediate family, or serious accident exempts him from the rule that absence for more
than 50% of all meetings of the Board is a ground for temporary disqualification. An independent
director whose beneficial equity ownership in a Company or its subsidiaries and affiliates exceeds
2% of the subscribed capital stock is temporarily disqualified from being a director of the Company,
until his beneficial equity ownership reverts to the 2% limit. The threshold was set at 10% in the
old SEC Code. To make the Manual consistent with the By-Laws, we also revised the provision on
disqualification as a director on grounds of engaging in a competing or antagonistic business.
Likewise, the Audit and Risk Management Committee shall be chaired by an independent director.
An additional qualification for the Corporate Secretary is that he must have a working knowledge
of the operations of the company. The stockholders’ right to appoint a proxy is also expressly
provided.
36
Manabat Sanagustin & Co., CPAs
The KPMG Center, 9/F
6787 Ayala Avenue
Makati City 1226, Metro Manila, Philippines
Telephone
Fax
Internet
E-Mail
+63 (2) 885 7000
+63 (2) 894 1985
www.kpmg.com.ph
[email protected]
Branches · Subic · Cebu · Bacolod · Iloilo
May 30, 2013
Audit and Risk Management Committee
Two E-Com Center, 15th Floor
Harbor Drive, Mall of Asia Complex,
Brgy. 76 Zone 10 Pasay City, Philippines
Attention:
Jose T. Sio
Executive Vice President and Chief Finance Officer
Gentlemen:
Subject:
Valuation and Fairness Opinion Report on the Proposed Merger between SM
Prime Holdings, Inc. and SM Land, Inc.
1
Introduction
1.1
Manabat Sanagustin & Co., CPAs (“MS&Co.” or the “Firm”) is pleased to submit this
Valuation and Fairness Opinion Report (the “Report”) covering the proposed merger between
SM Land, Inc. (“SM Land”) and SM Prime Holdings, Inc. (“SMPHI”), with SMPHI being the
surviving entity. The merger is to be executed by way of a share-for-share swap transaction
between SM Land and SMPHI. SMPHI will issue additional shares in exchange of a 100.0%
equity stake in SM Land. Management shall be using a share-swap ratio of 368.979 SMPHI
shares for every 1 share SM Land. At the end of this transaction, SM Prime shall be the
100.0% owner of SM Land.
1.2
This Report is submitted in accordance with the engagement letter of MS&Co. dated April 5,
2013 (the “Engagement Letter”). The Engagement Letter covers the Firm’s engagement with
SMIC for the valuation of SM Land and SMPHI, as a going concern, as of March 31, 2013
(the agreed “Cut-off Date” or the “Valuation Date” or “3M2013”).
1.3
The Firm was engaged by SMIC to act as the independent financial advisor to the Audit and
Risk Management Committee of SMIC in relation to the fairness of the share swap ratio to be
used in this transaction. As such, the scope of MS&Co.’s work, and consequently, the Report
does not contain and has no intention of forming any statement or opinion as to the
operational or commercial merits or strategic rationale of the Transaction.
1.4
MS&Co.’s work did not include making comments on the commercial feasibility of the
transaction nor was the Firm involved in any way with the conceptualization and execution of
the transaction. No work was done insofar as the different aspects of the transaction are
concerned. This Report is based on the financial information prepared and submitted by both
SM Land and SMPHI and on information gathered from public sources.
1
Fairness Opinion Report
May 30, 2013
These include annual and quarterly reports filed in the Philippine Stock Exchange (“PSE”),
Bureau of Treasury, Damodaran Online, Factiva and various websites of comparable
companies (“CoCos”).
1.5
MS&Co. did not conduct a financial due diligence on the information provided by either SM
Land or SMPHI. It was assumed that all information furnished were complete, accurate and
reflective of the good faith of the management teams of SM Land and SMPHI to describe its
historical status and prospects as of the Cut-off Date from operating and financial points of
view.
1.6
In order to assess the fairness of the share-swap ratio, MS&Co. conducted a valuation of both
SM Land and SMPHI. The ranges of values of these two companies were then used as bases
to determine the fairness of the SMIC management-determined share-swap ratio. MS&Co.
considered four (4) valuation approaches, namely: the cost approach, the market approach, the
income approach, and the sum of the parts approach.
1.6.1
There are no globally accepted rules or standards on the selection of the most appropriate
valuation methodologies for a given valuation engagement.
1.6.2
The broad criteria for the selection of the methodologies are as follows: (i) consistency of the
methodologies given the availability and quality of the data; (ii) appropriateness of the
methodologies with the characteristics of the entity being valued; and (iii) applicability of the
methodologies with the purpose of the valuation. These three (3) criteria were applied to the
specific circumstances of this valuation engagement.
1.7
The following general activities were performed to prepare this Report:
1.7.1
Requested an initial set of information from SM Land and SMPHI management. Based on
the initial set of assumptions and information received from SM Land and SMPHI, the Firm
conducted interviews to clarify certain assumptions and information received in order to test
check the reasonableness of the assumptions and underlying data.
1.7.2
Conducted research and retrieved relevant information from the PSE, Bureau of Treasury,
Damodaran Online, Factiva and various websites of CoCos.
1.8
The opinion, analysis, and resulting observations were based solely on management
representations and on publicly available financial information. It is not the independent
financial advisor’s role to either evaluate or confirm how the transaction, to be executed by
SM Land and SMPHI, will affect the shareholders, other than from a financial point of view.
1.9
The management of SMPHI and SM Land had executed their respective representation letters
stating that the information submitted to us are materially accurate and complete, fair in the
manner of its portrayal and therefore forms a reliable basis for the valuation.
2
May 30, 2013
2
Executive summary
MS&Co. considered the Sum of the Parts Approach for the estimation of the fair range of
market value for SM Land as of the valuation date. For SMPHI, MS&Co. considered the Cost
approach, Market approach, in particular the EV/EBITDA, 60-day weighted average closing
price, closing price as of March 27, 2013, and Income approach as the most appropriate
valuation methodologies in establishing the fair range of values as of the Valuation Date.
2.1
The table below presents the valuation results of SM Land.
Valuation results- SM Land
Per share (PHP)
Sum of the parts
Minimum value
Maximum value
6,753.33
8,315.53
Total (PHP'M)
263,393
324,322
Source: MS&Co. analysis
The valuation approach used for SM Land is the Sum of the Parts Method (“SOTP”). Sum of
the Parts was deemed as the most appropriate due to the following:
2.2
·
Diversity of the companies operating under the umbrella of SM Land.
·
SM Land records its investments at cost and does not consolidate the operations of its
subsidiaries to its books. Thus, the standalone financial statements of SM Land may not
be able to capture the actual operation and status of its subsidiaries.
The table below presents the valuation results of SMPHI.
Valuation results - SMPHI
Cost approach
Incom e approach
7% grow th rate
6% grow th rate
5% grow th rate
Market approach
EV/EBITDA - w eighted average
Closing price as of March 27, 2013
60-day volume-w eighted average share price
Valuation range
Per share (PhP)
19.39
24.22
22.38
20.62
Total (PHP'M)
336,888
420,820
388,790
358,231
18.33
318,525
19.10
331,837
18.68
324,466
18.33 to 24.22 318,525 to 420,820
·
MS&Co. selected 5 methodologies to estimate the fair range of market values for SMPHI.
These are the Cost approach, the Income approach, EV/EBITDA multiple, SMPHI’s
market closing price as of the Valuation Date, and SMPHI’s 60-day weighted average
volume price.
·
In contrast to SMDC, SMPHI generates recurring and stable rental and lease revenues.
As such, MS&Co. selected the Income approach to estimate the fair range of values of
SMPHI since SMPHI’s future cash flows may be estimated using historical financial
figures.
3
May 30, 2013
2.3
·
The Cost approach is applicable to SMPHI as the company also relies heavily on its real
property assets to generate its revenues. Given that CBRE based the fair value of
SMPHI’s malls primarily on discounted cashflows, the appraised values take into account
the recurring revenues attributable to these properties.
·
EV/EBITDA was selected as one of the methodologies to estimate the fair range of
market values for SMPHI. Some of the comparable companies researched over the
course of the valuation work have materially different gearing ratios compared to SMPHI
and apply different accounting treatments. As such, MS&Co. selected EV/EBITDA as an
appropriate multiple to be used as it generally does not take into account differences in
leverage, amortization and tax treatment. Further, MS&Co. used the closing price as of
March 27, 2013 and the 60-day weighted average volume price as this is the traded
market value of SMPHI as of the Valuation date.
Given the above fair range of values, the estimated exchange ratio for the share-for-share
swap transaction is 278.81 to 453.56 SMPHI shares for every 1 share of SM Land. Based on
the management-determined share-swap ratio of 368.979 SMPHI shares for every share of
SM Land, the planned exchange is fair from a financial point of view.
4
May 30, 2013
3
Organization background and structure for SM Land, Inc.
3.1
Corporate information
SM Land, Inc. (“SM Land”) was incorporated on March 10, 1960 and is engaged primarily in
real estate development, investment in shares of stock of other companies, and in leasing and
subleasing of properties. It currently derives income from dividends received from
investments in the shares of SMDC, SMPHI, SMIC, Banco de Oro (“BDO”), Chinabank
(“CBC”), Ayala Corporation, PLDT, Prime Media Holdings, and other companies. SM Land
also earns rental income from lease agreements with third parties and related parties,
including SMIC, SMPHI, SM Mart Inc. (“SM Mart”), Supervalue, Inc. (“SVI”), Super
Shopping Market, Inc. (“SSMI”), and Sanford Marketing Corporation (“Sanford”).
Ownership structure
SM Land is closely held by the Sy Family and SMIC. Below is a summary of shareholdings,
with respective percentage of ownership in SM Land as of 2013.
Sy Family
63.87%
36.13%
SM Land, Inc.
Source: SM Land, Inc. 2013 General Information Sheet
3.3
Financial performance and position
MS&Co. conducted an analysis of the historical financial performance of SM Land in order to
understand the value drivers of the company. The analysis includes historical revenue, cost
and margin analysis. Given that SM Land is a real estate company, the asset base was
likewise studied to understand the different asset groupings and how it relates to value
generation.
The income statements and balance sheets are presented below.
5
May 30, 2013
Statem ent of financial perform ance
Audited
Unaudited
2010 to 2012
PHP'M
2010
2011
2012
3M2013 % to revenue
CAGR
Revenue
Dividend income
1,940.0 2,238.2 2,035.9
39.1
56.1%
2.4%
Rent
1,224.4 1,431.2 1,971.6
497.1
41.1%
26.9%
Amusement income
0.0%
Others
88.5
98.3
123.9
37.8
2.8%
18.3%
Total revenues
3,252.9 3,767.7 4,131.5
574.0
100.0%
12.7%
Cost and expenses
Cost of services
(809.9) (809.5) (896.9)
(241.3)
(22.7%)
5.2%
General and administrative expenses
(320.0) (287.3) (253.0)
(67.4)
(7.9%)
(11.1%)
Total cost and expenses
(1,129.9) (1,096.8) (1,149.9)
(308.6)
(30.6%)
0.9%
Other incom e (expenses)
Interest expense
(156.1) (120.2)
(97.0)
(22.8)
(3.4%)
(21.2%)
Interest income
71.2
93.0
108.7
18.2
2.4%
23.6%
Unrealized foreign exchange gain (loss)
(52.7)
52.9
(0.0)
0.0
(0.1%)
(97.9%)
Impairment loss
(0.1)
Loss on sale of asset
(15.2)
(0.1%)
Income from penalties
1.6
0.0%
Gain on sale of investments in shares of stock 2,848.5
158.3
30.5%
(76.4%)
Others
5.0
3.5
9.8
0.9
0.2%
40.6%
Total other income (expenses)
2,715.9
15.6
179.8
(3.9)
29.4%
(74.3%)
Income before income tax
4,838.9 2,686.5 3,161.5
261.4
98.9%
(19.2%)
Provision for (benefit from) income tax
Current
18.9
36.1
236.7
67.4
2.4%
253.8%
Deferred
(29.0)
90.9
48.6
3.8
0.9%
(46.5%)
(10.1)
127.0
285.3
71.2
3.3%
124.6%
Net incom e
4,848.9 2,559.4 2,876.1
190.2
95.5%
-23.0%
Sources:
SM Land, Inc. 2011 and 2012 audited financial statements, March 31, 2013 unaudited
financial statements; MS&Co. analysis
6
Sources:
SM Land, Inc. 2012 audited financial statements; March 31, 2013 unaudited financial
statements, SM Land, Inc. 2011 audited financial statements, MS&Co. analysis
May 30, 2013
Statem ent of financial position
PHP'M
Assets
Current assets
Cash and cash equivalents
Receivables
Available-for-sale investments -current portion
Other current assets
Total current assets
Noncurrent Assets
Available-for-sale investments -net of current portion
Investments in shares of stock- at cost
Property and equipment- net
Investment properties- net
Net pension asset
Deferred tax assets-net
Other non-current assets
Total non-current assets
Total assets
Liabilities and equity
Current liabilities
Accounts payable and other current liabilities
Loans payable- current portion
Total current liabilities
Noncurrent liabilities
Loans payable- net of current portion
Deposits from tenants and others
Deferred tax liabilities- net
Total non-current liabilities
Equity
Capital stock
Additional paid-in-capital
Other comprehensive income-net deferred tax
Net uinrealized gain on available-for-sale investments
Retained earnings
Appropriated
Unappropriated
Total equity
Total liabilities and equity
Sources:
2010
Audited
2011
2012
Unaudited
2013
2010 to 2012
% of total
CAGR
2,660.3
2,344.2
3,659.4
424.0
9,087.9
999.1
2,341.2
3,466.2
496.6
7,303.2
616.0
2,701.8
5,756.5
521.0
9,595.3
727.5
2,745.6
6,308.2
379.6
10,161.0
3.2%
5.4%
9.3%
1.1%
18.9%
(51.9%)
7.4%
25.4%
10.8%
2.8%
2,760.2 2,615.1
24,256.8 24,257.2
491.9
240.3
7,403.8 9,069.6
8.8
11.0
52.6
233.9
45.7
35,208.0 36,238.9
44,296.0 43,542.1
4,339.9
25,047.4
206.2
9,951.8
16.4
48.6
39,610.3
49,205.6
4,755.6
25,067.8
197.8
10,159.2
17.2
53.6
40,251.2
50,412.2
7.0%
53.8%
0.7%
19.3%
0.0%
0.2%
81.1%
25.4%
1.6%
(35.3%)
15.9%
36.7%
(54.4%)
6.1%
100.0%
5.4%
10,237.0
10,237.0
8,380.9
8,380.9
7,620.0
58.8
7,678.7
7,689.9
58.8
7,748.7
19.3%
0.0%
19.3%
(13.7%)
-13.4%
1,900.0
300.3
2,200.3
1,893.5
349.6
38.3
2,281.4
1,776.0
444.9
87.0
2,307.9
1,725.0
470.9
90.9
2,286.7
4.1%
0.8%
0.1%
5.0%
(3.3%)
21.7%
2.4%
662.2
7,167.0
1,862.2
7,167.0
1,950.1
7,167.0
3.2%
15.7%
71.6%
0.0%
6,312.4
5,974.1
9,989.2
3,900.2
7,167.0
(4.1)
10,956.8
16.1%
25.8%
11,200.0 16,200.0
6,517.1 1,676.5
31,858.7 32,879.8
44,296.0 43,542.1
15,200.0
4,912.6
39,219.0
49,205.6
15,200.0
3,157.0
40,376.8
50,412.2
31.1%
9.5%
75.7%
16.5%
(13.2%)
11.0%
100.0%
5.4%
SM Land, Inc. 2011 and 2012 audited financial statements, March 31, 2013 unaudited
financial statements; MS&Co. Analysis
7
May 30, 2013
4.
Valuation of SM Land, Inc
4.1
Post-tender offer scenario
SM Land is in the process of conducting a tender offer on SMDC and HPI. After the tender
offer transactions, the shareholdings of SM Land shall be as follows:
Summary of SM Land's holdings, post-tender offer
Shares Ow ned by
SM Land
5,314,876,492
9,271,204,239
2,246,244,622
900,000
2,999,300
204,000
SMPHI
SMDC
HPI
ASSODECO
Magenta
SHDC
Total outstanding
shares
17,373,677,760
9,271,204,239
2,246,244,622
900,000
3,000,000
400,000
Ow nership
30.59%
100.00%
100.00%
100.00%
99.98%
51.00%
Source: 2013 schedule of Investments in Stocks; MS&Co. Analysis
4.2
Sum of the Parts Approach
The valuation approach used for SM Land is the Sum of the Parts Method. Sum of the Parts
was deemed as the most appropriate due to the following:
·
·
The operating companies under SM Land were first valued separately, using the appropriate
valuation method/s. The separate values were then summed up to estimate the total intrinsic
value of SM Land.
Sum of the parts
SM Land
30.59%
100.00%
100.00%
SMPHI
SMDC
HPI
100.00%
99.98%
ASSODECO
Magenta
51.00%
SHDC
100.00%
Other Assets and
Liabilities
•Investment Properties
•AFS investments
•Investments in stocks
•Others
Source: 3M2013 schedule of Investments in Stocks; MS&Co. Analysis
·
MS&Co. computed the values of the investments based on the most appropriate valuation
method for each company. The valuation methods are as follows:
8
May 30, 2013
–
The value of the investment in SMPHI is based on the Market approach and the
Income approach because the future cash flows are the main driver of SMPHI’s
value, and it can be estimated using historical financial trends.
–
course of the valuation work have materially different gearing ratios compared to
SMPHI and apply different accounting treatments. As such, MS&Co. selected
EV/EBITDA as an appropriate multiple to be used as it generally does not take into
account differences in leverage, amortization and tax treatment. Further, MS&Co.
used the closing price as of March 27, 2013 and the 60-day weighted average volume
price as this is the traded market value of SMPHI as of the Valuation date.
–
The Cost approach was deemed most appropriate to estimate the fair value of SMDC
because the company relies heavily on the sale of its inventory of real properties to
generate its revenues. The value of SMDC is primarily driven by its asset base which
primarily consists of raw land, condominium units for sale, and properties under
development.
–
Under the Market approach, EV/EBITDA was selected as one of the appropriate
multiples to estimate the fair range of market values for SMDC. EV/EBITDA
multiple is generally not sensitive to differences in capital structures, depreciation and
amortization policies, and tax treatments. In contrast, the P/E multiple will be
sensitive to these differences. As such, MS&Co. considered the use of EV/EBITDA
multiple instead of either the P/E or P/B multiples. The P/B multiple was not
considered as an appropriate method to value SMDC because this multiple does not
take into account the earnings potential of SMDC. Further, a large portion of
SMDC’s assets is comprised of real properties which currently do not reflect the fair
market values of the assets.
–
Actual observed market prices were also used and forms part of the range of values.
The closing price as of March 27, 2013, the last trading day for the month, and the
60-day volume-weighted average prices from the Valuation Date were used.
–
For HPI, the Market approach was deemed most appropriate to estimate the
company’s value, wherein the 60-day volume-weighted average prices from the
Valuation Date were used.
–
The value of the investments in ASSODECO, Magenta, and SHDC are based on Cost
approach.
·
All investment property assets recorded under the books of SM Land were adjusted to
reflect the movement in fair market value as of the Cut-off Date. The fair market value
was based on the appraisal reports prepared by CBRE.
·
The fair market values of AFS Investments and Investments in stocks of CBC, BDO, and
SMIC are based on SM Land’s management computations. For the listed shares, the
values were based on the stock exchange prices. For the PLDT shares owned by SM
Land, the value was based on acquisition cost.
9
May 30, 2013
·
The investments in ASSODECO, Magenta, and SHDC were valued using the Cost
approach. The fair values of ASSODECO’s investment property and Magenta’s PPE were
based on the appraisal reports prepared by CBRE.
The following table summarizes the valuation approaches used to value the “parts” of SM
Land:
SOTP- SM Land fair range of values
Minim um
PHP'M
Valuation basis
Value
Investm ent in subsidiaries and associates
Investment in SMPHI
Market approach
97,441.6
Investment in SMDC
Market approach
62,757.2
Investment in HPI
Market approach
5,045.0
Investments ASODECO
Cost approach
300.4
Investments Magenta
Cost approach
394.4
Investments SHDC
Cost approach
3.6
Other assets
Investment properties
CBRE valuation
81,427.9
AFS Investments
SM Land Management
11,063.9
Investments in stocks (CBC, BDO, SMIC) SM Land Management
10,873.2
Others
Book value
4,121.3
Liabilities
Total liabilities
Book value
10,035.4
Sum of the parts
263,393.2
Numbers of shares outstanding
39,001,970
Valuation range (PHP per share)
6,753.33
Maxim um
Valuation basis
Income approach
Cost approach
Market approach
Cost approach
Cost approach
Cost approach
Value
128,735.2
91,289.8
6,147.5
300.4
394.4
3.6
CBRE valuation
SM Land Management
SM Land Management
Book value
Book value
81,427.9
11,063.9
10,873.2
4,121.3
10,035.4
324,321.9
39,001,970
8,315.53
Source: MS&Co. Analysis
10
May 30, 2013
4.1.1
Valuation of SM Prime Holdings Inc.
After the tender offer by SM Land for HPI and SMDC shares (using SMPHI shares), SM
Land shall own 30.59% of SMPHI. The value of the investment on SMPHI ranges between
PHP97.4 billion and PHP128.7 billion, based on market approach and income, respectively.
The table below presents the summary of values.
Valuation range of SM Land's investm ent in SMPHI
PHP'M
Total equity value
SM Land's ow nership percentage
Valuation range
Minim um value
Basis
Value
Market approach
318,524.5
30.59%
97,442
Maxim um value
Basis
Value
Income approach
420,819.7
30.59%
128,735
Please refer to Section 6 of this report, for further details on the valuation of SMPHI.
4.1.2
Valuation of SM Development Corporation
After the tender offer by SM Land for SMDC shares, SM Land shall own 100.0% of SMDC.
The table below summarizes the range of values of SMDC.
Valuation results - SMDC
Cost approach
Market approach
EV / EBITDA - w eighted average
60-day volume w eighted average share price
Valuation range
Per share (PHP)
9.85
6.77
8.47
8.22
6.77 to 9.85
Total (PHP'M)
91,290
62,757
78,527
76,228
62,757 to 91,290
Cost Approach
The following table summarizes the computation for SMDC net asset value per share as of the
Valuation Date, using the Cost approach.
11
May 30, 2013
Cost approach
Am ounts in PHP'M
Total assets
Total liabilities
Unadjusted NAV
Adjustment to reflect fair value of properties
13-Mar-13
85,253
42,960
42,293
Fair value of available-for-sale securities
Carrying value of available-for-sale securities
Adjusted fair value of real estate properties
Carrying value as of March 31, 2013
Condominium units for sale
Land and development
Advances for project development
6,280
5,762
86,131
1,596
31,666
724
3,667
37,653
Adjusted NAV
Number of shares outstanding
NAV per share
Source:
519
48,478
91,290
9,271,204,239
9.85
Unaudited financial statements as of March 31, 2013; CBRE master property list; MS&Co. analysis
Under the Cost approach, assets and liabilities with available fair market values are markedto-market.
·
All real estate assets recorded under the books of SMDC were adjusted to reflect the
movement in fair market value.
·
The fair market value was based on the appraisal reports prepared by CBRE using various
valuation methods, namely the market data approach and income approach.
·
According to management, only available-for-sale investments and held for trading
investments are subject to market valuation. Listed shares classified as available-for –
sale investments are stated at fair market value. For shares of Tagaytay Resort Dev’t.
Corp. (“TRDC”), MS&Co. adjusted the value based on MS&Co. valuation. MS&Co.
used the Cost approach in valuing TRDC.
The table below presents the breakdown of available-for-sale investments.
Available for sale investm ents
Com pany
Listed shares
Highlands Prime, Inc.
Belle Corporation
Shang Properties, Inc.
Export and Industry Bank, Inc.1
Keppel Philippines Holding, Inc.
Picop Resources, Inc.2
Republic Glass Holdings Corporation
Benguet Corporation
Unlisted shares
Tagaytay Resort Dev't. Corp.
Total
Note:
Source:
Carrying value
as of 3M2013
(In PHP'M)
Num ber of
shares
770
4,193
652
2
15
8
54
2
337,911,101
735,553,561
189,550,548
7,829,000
3,035,836
40,000,000
19,216,512
88,919
66
5,762
105,000
Latest share
price (In PHP)
2.28
5.70
3.44
0.26
5.05
0.21
2.80
17.70
5,565.70
FMV as of
3M2013
(In PHP'M)
770
4,193
652
2
15
8
54
2
584
6,280
(1) Latest available share price is as of May 8, 2009
Available-for-sale schedule as of March 31, 2013 provided by management; PSE; MS&Co. analysis
12
May 30, 2013
The table below presents the appraised values of properties excluded in determining fair
market value of SMDC’s real properties.
Adjustm ents to the approxim ate FMV as of 3M2013
Property
Makati Home Depot
102 EDSA Realty Corp.
Total
Source:
Appraised values
(In PHP'M)
1,602
1,269
2,871
Details
Classified under deposits account
CBRE appraisal as of February 28, 2013; SMDC management
The adjusted fair market value of SMDC’s real properties is shown below:
Adjusted fair m arket value of real properties as of March 31, 2013 (In PHP'M)
Approximate FMV as of 3M2103
Adjustments
Adjusted FMV of real properties as of 3M2013
Source:
89,002
2,871
86,131
CBRE appraisal as of February 28, 2013; SMDC management; MS&Co. analysis
Market approach or capitalized earnings approach
In using the Market approach, MS&Co. gathered information relating to comparable publiclylisted companies operating in the same industry as SMDC. The CoCos were selected based on
the nature of their business and the company structure.
In addition to SMDC, there are 39 property companies listed in the PSE. Out of the 39, 20
companies are engaged in the sale of real estate. From the 20 companies, the list of
comparable companies were evaluated and then chosen based on the following:
·
Majority (more than 50%) of the companies’ operating revenues should be derived from
real estate sales
·
Suite of products should include affordable to mid-end residential units
·
Assets and operating revenues of the company should be relatively similar to SMDC’s
asset and operating revenue levels
After considering the criteria listed above, MS&Co. identified Filinvest Land, Inc. (“FLI”)
and Vista Land and Lifescapes, Inc. (“VLL”) as comparable companies. The table below
presents the summary of the CoCos selection process.
13
May 30, 2013
SMDC CoCos Selection
Products include
affordable to m idend residential
units
Yes
Operating
Total assets as of
revenues as of
Decem ber 31,
Decem ber 31, 2012
2012 (In PHP)
(In PHP)
21,578,437,825
80,197,847,563
Developm ent
type
Revenue m ix
Mid-market
residential units
100% real estate
sales
Affordable, midend and highend residential
units
VLI
units
Excluded
Affordable, midCoCos
end and high(18 com panies) end units
83.2% real estate
sales
Yes
10,575,688,000
81,927,264,000
99.9% real estate
sales
Yes
16,359,932,258
74,331,429,608
All CoCos derive
majority of their
operating revenues
from real estate sales
14 out of the 17
CoCos sell affordable
to mid-end residential
units
Entity nam e
SMDC
Selected
CoCos
FLI
Note:
Source:
Range below
SMDC's level:
PHP15.3 million to
PHP8.80 billion
Range below
SMDC's level
PHP0.48 billion to
PHP35.97 billion
Range above
SMDC's level:
PHP25.37 billion to
49.0 billion
Range above
SMDC's level:
PHP142.72 billion to
PHP231.23 billion
Operating revenues and asset figures were based on CoCos 2012 annual reports (latest available full-year financial information)
SMDC and CoCos 2012 annual reports; CoCos websites
Under the Market approach, MS&Co. considered the price-to-earnings (“P/E”) multiple, the
price-to-book (“P/B”) multiple and the EV/EBITDA multiple in valuing SMDC. The
respective earnings per share, book value per share and EBITDA of the CoCos were lifted
from the Philippine Stock Exchange and quarterly reports as of March 31, 2013 of CoCos.
The share prices used were based on the closing prices as of March 31, 2013.
The calculation for SMDC’s value using the Market approach is shown on the table below.
SMDC EPS, BVS and EBITDA per share
Notes
Earnings per share (PHP)
Net income (In PHP'M) 1
Number of shares outstanding ('000)
Earnings per share
Book value per share
Book value (In PHP'M)
EBITDA per share
EBITDA (In PHP'M) 2
EBITDA per share
Note:
Source:
5,053 March 31, 2013 unaudited FS
9,271,204 March 31, 2013 unaudited FS
0.55
4.56
0.61
(1) LTM net income = December 2012 net income – March 2012 net income + March 2013 net income
(2) LTM EBITDA = December 2012 EBITDA – March 2012 EBITDA + March 2013 EBITDA
MS&Co. analysis
14
May 30, 2013
Market approach - CoCos
Range of values per share
P/E (x)
Earnings per share
0.55
EBITDA per share
Derived multiple (w eighted average)
11.61
Value per share (PHP)
6.33
Range of values
Range of values per share, before adjustments
Number of shares (in millions)
9,271
Range of values, before adjustments
Less: Net debt (PHP'M)
N/A
Minority interest (PHP'M)
N/A
Preferred shares (PHP'M)
N/A
Equity value (PHP'M)
58,674
9,271
Equity value per share (PHP)
6.33
Source:
P/B (x) EV/EBITDA (x)
4.56
1.02
4.66
0.61
14.29
8.72
9,271
9,271
N/A
N/A
N/A
43,207
9,271
4.66
18,086
0
0
62,757
9,271
6.77
MS&Co. analysis
Presented below are the share prices as of March 31, 2013 and its respective 30, 60 and 90
day volume-weighted average share price for SMDC.
Market approach - VWAP
Prior to valuation date
90- day volume w eighted average share price
Source:
Per share
8.47
8.30
8.22
7.85
PSE; Bloomberg
15
May 30, 2013
4.1.3
Valuation of Highlands Prime, Inc
After the tender offer by SM Land for HPI shares, SM Land shall own 100.0% of HPI. The
value the HPI investment based the market approach ranges from PHP5.0 billion to PHP12.0
billion.
Valuation range of SM Land's investm ent in HPI
PHP'M
Total equity value
Valuation range
Source:
Minim um value
Basis
Value
Market approach
5,045.0
100.00%
5,045
Maxim um value
Basis
Value
Market approach
6,147.5
100.00%
6,148
MS&Co. Analysis
In using the Market approach, MS&Co. collated information relating to comparable publiclylisted companies operating in the same industry as HPI. The CoCos were selected based on
In addition to HPI, there are 39 property companies listed in the PSE. Out of the 39, MS&Co.
have identified 20 companies engaged in the sale of real estate. From the 20 companies,
MS&Co. selected the comparables based on the following criteria:
· Company’s product should include high-end residential units
· Residential development projects are proximate with each other within a particular area
· Majority of revenues should come from real estate sales
· Total assets and revenues of the company should be relatively close to HPI’s asset and
real estate sales levels
After considering the criteria listed above, MS&Co. have identified Arthaland Corporation
(“ALCO”), Anchor Land Holdings, Inc. (“ALHI”) and Primex Corporation (“PRMX”) as
CoCos. The table below presents the summary of the CoCos selection process.
16
May 30, 2013
HPI CoCos selection
Areas covered by
Real estate sales for the Total assets level as
residential
of Decem ber 31, 2012
Operating revenue year ended Decem ber
31, 2012 (in PHP)
(in PHP)
m ix
Entity nam e Developm ent type developm ent
HPI
High-end residential Tagaytay, Batangas 100% from real
and leisure
and Cavite
estate sales
521,486,405
4,038,398,665
95.0% from real
estate sales;
5.0 % from rental
income &
management fees
3,597,270,307 (6.90 times
bigger than HPI)
13,321,353,770 (3.30
times bigger than HPI)
100% from real
estate sales
1,453,263,809 (2.79 times
bigger than HPI)
3,641,388,604 (0.90
times smaller than HPI)
11,605,430 (0.02 times
smaller than HPI)
478,248,589 (0.12 times
smaller than HPI)
PHP0.3 billion to PHP32.3
billion
PHP4.2 billion to
PHP231.2 billion
Selected CoCos
Old Manila,
Binonodo, Ermita,
Paranaque, San
Juan
ALHI
Mainly high-end
residential and
commercial
ALCO
Middle and high-end
residential,
Taguig
commercial and
leisure
PRMX
Malabon and
High-end residential
Antipolo
Mix of low -end,
Excluded
middle, and high-end
CoCos (17 residential, leisure,
com panies) commercial, and
industrial
May be w ithin a
certain area or
spread across
various locations
75.9% from real
estate sales;
24.1% from rental
income
All CoCos derived
majority (more than
50.0%) of their
operating income
from real estate
sales
Note:
Source: 2012 Annual Report of the 18 identified CoCos; MS&Co. analysis
Under the Market approach, MS&Co. considered the P/E multiple, the P/B multiple and the
EV/EBITDA multiple in valuing HPI. The respective earnings per share, book value per
share and EBITDA of the CoCos were lifted from their respective financial statements. The
share prices used were based on the closing prices as of 3M2013.
MS&CO.’s calculation for HPI’s value using the Market approach is shown on the table
below.
HPI EPS, BVS and EBITDA per share
Notes
Net income (in PHP'M)
Number of shares ('000)
Book value per share (PHP)
Total equity (in PHP'M)
EBITDA per share (PHP)
EBITDA (in PHP'M)
Note:
Source:
36 March 31, 2013 unaudited FS
0.02
1.23
0.04
MS&Co. analysis
17
May 30, 2013
Market approach - CoCos (HPI)
Weighted average
P/E (x)
Earnings per share
EBITDA per share
Derived multiple
Value per share (PHP/share)
Range of values
Capital stock - preferred (PHP'M)
Equity value per share(PHP)
0.02
1.23
90.11
1.43
3.11
3.82
0.04
63.51
2.58
2,246,245
N/A
N/A
N/A
3,214
2,246,245
1.43
2,246,245
N/A
N/A
N/A
8,573
2,246,245
3.82
2,246,245
756
5,045
2,246,245
2.25
Source: Interim financial statements of HPI as of 3M 2013; Capital IQ; MS&Co. analysis
day volume-weighted average share price for HPI.
Market approach - VWAP (HPI )
Share price
2.28
2.20
2.74
2.64
Source: Bloomberg; PSE
4.1.4
Valuation of ASSODECO
As of March 31, 2013, SM Land owns 100.00% of ASSODECO. The total value of the
investments in ASSODECO is PHP300.4 million. The summary of the fair value of
ASSODECO is as follows:
ASSODECO- Cost approach
PHP'M
Total assets
Total liabilities
Unadjusted NAV
Add: Adjustment to reflect the fair value of properties
Adjusted NAV
Percentage ow nership
Total value of investm ent in ASSODECO
3M2013
221.0
311.1
(90.1)
390.6
300.4
100.0%
300.4
Source: 3M2013 ASSODECO Unaudited Statement of Financial Position; CBRE appraisal report;
MS&Co. Analysis
Assets and liabilities are based on the book values as presented in the unaudited March 31,
2013 statement of financial position. The upward adjustment is meant to adjust the book value
of an investment property from PHP 191.4 million to its fair market value of PHP582.0
million. The fair market value is based on the valuation of CBRE using the income approach.
18
May 30, 2013
4.1.5
Valuation of Magenta
As of March 31, 2013, SM Land owns 99.98% of Magenta. The value of the investment in
Magenta is PHP394.4 million. The summary of the fair value of Magenta is as follows:
Magenta- Cost approach
PHP'M
Total assets
Total liabilities
Unadjusted NAV
Adjusted NAV
Total value of investm ent in Magenta
3M2013
293.4
19.4
274.0
120.5
394.5
100.0%
394.4
Source: 3M2013 Magenta Unaudited Statement of Financial Position; CBRE appraisal report; MS&Co. Analysis
of an property plant and equipment from PHP276.7 million to its fair market value of
PHP397.2 million. The fair market value is based on the valuation of CBRE using the cost
approach.
4.1.6
Valuation of SHDC
As of March 31, 2013, SM land owns 51.00% of SHDC. The total equity value of SHDC is
PHP7.1 million and the total value of the investment in SHDC is PHP3.6 million. The
summary of the fair value of SHDC is as follows:
SHDC- Cost approach
PHP'M
Total assets
Total liabilities
NAV
Total value of investm ent in SHDC
3M2013
457.6
450.5
7.1
51.0%
3.6
Source: 3M2013 SHDC Unaudited Statement of Financial Position; MS&Co. Analysis
2013 statement of financial position.
19
May 30, 2013
4.1.7
Other SM Land assets
The summary of the fair value of other assets is as follows:
Fair values of SM Land's properties
PHP'M
Investm ent properties
AFS investm ents
Ayala Corp.
PLDT
Prime Media Holdings
Others
Allow ance for impairment
Total AFS investments
Investm ents in stocks
BDO
CBC
SMIC
Total investments in stocks
Others
Receivables
Net pension asset
Total other assets
Total
Basis
CBRE Valuation
Fair value
81,427.9
Managament schedules
11,059.1
3.1
0.9
0.8
(0.1)
11,063.9
6,750.3
3,688.5
434.4
10,873.2
Book value
Book value
Book value
Book value
Book value
Book value
727.5
2,745.6
379.6
197.8
17.2
53.6
4,121.3
107,486.3
Source: CBRE appraisal report; 3M2013 Schedule of Investments; 3M2013 Schedule of AFS; MS&Co. Analysis
The fair market values of investment properties are based on the appraisal reports prepared by
CBRE, while the fair market values of AFS investments and investments in stocks of CBC,
BDO, and SMIC are based on SM Land’s management computations. For the listed shares,
the values were based on the stock exchange prices. For the PLDT shares owned by SM
Land, the value was based on acquisition cost. The allowance for impairment pertaining to the
AFS investments pertains to the cost of club shares in the books of SM Land but the
certificates are not in the name of the company.
20
May 30, 2013
4.1.8
Sum of the parts summary
The fair range of values for SM Land using the Sum of the parts approach is PHP263.4 billion
and PHP324.4 billion or PHP6,753.33 and PHP8,316.29 per share. The summary is as
follows:
Minim um
PHP'M
Valuation basis
Value
Investment in SMPHI
Market approach
97,441.6
Investment in SMDC
Market approach
62,757.2
Investment in HPI
Market approach
5,045.0
Investments ASODECO
Cost approach
300.4
Investments Magenta
Cost approach
394.4
Investments SHDC
Cost approach
3.6
Other assets
CBRE valuation
81,427.9
AFS Investments
SM Land Management
11,063.9
10,873.2
Others
Book value
4,121.3
Liabilities
Total liabilities
Book value
10,035.4
Sum of the parts
263,393.2
39,001,970
6,753.33
Maxim um
Valuation basis
Income approach
Cost approach
Market approach
Cost approach
Cost approach
Cost approach
CBRE valuation
SM Land Management
SM Land Management
Book value
Book value
Value
128,735.2
91,289.8
6,177.2
300.4
394.4
3.6
81,427.9
11,063.9
10,873.2
4,121.3
10,035.4
324,351.5
39,001,970
8,316.29
21
May 30,2013
5
Organization background and structure of SM Prime Holdings Inc.
5.1
SM Prime Holdings Inc. (“SMPHI”) is the leading developer and operator of shopping malls
in the Philippines. SMPHI also operates malls in China. Its operations are mainly driven by
rentals from tenants, sales of cinema tickets, income from amusement centers and others.
SMPHI was incorporated in January 6, 1994, and is currently headquartered on Mall of Asia
Arena Annex Building, Coral Way cor. J.W. Diokno Blvd., Mall of Asia Complex, Brgy. 76,
Zone 10, CBP-1 A, Pasay City.
SMPHI competes with local mall operators and other retailers such as Ayala Malls,
Robinsons Malls, Puregold, and Shopwise. The advantage of SMPHI in this competitive
industry rests upon its strategic locations, effective tenant mix, and long-standing brand.
SMPHI has an extensive customer base; the revenue stream of the company is not reliant on
one or a few clients. Major anchor tenants in the Philippines include SM Department Stores,
SM Supermarkets, SM Hypermarkets, Ace Hardware, National Bookstore, KFC, Jollibee,
Watsons (Philippines), Uniqlo, and Forever 21. Major anchor tenants in China include WalMart, SM Laiya Department Stores, Wanda Cinema, McDonald’s, KFC, and Watsons.
Ownership structure
The major shareholders of SMPHI are SM Land Inc., which has a 40.96% stake; PCD
Nominee Corp., which has a 34.43% stake; and SM Investments Corp., which has a 21.65%
stake in SMPHI. SMIC, through SM Land Inc., indirectly owns 27.4% of SMPHI resulting in
an effective ownership of 49.1%
SMPHI is a listed company in the Philippine Stock Exchange. As of March 31, 2013, 5.3
million shares, which represent a 30.5% of the total outstanding shares, are owned by the
public.
The diagram below summarizes the ownership structure of the SMPHI.
Ownership Structure
66.9%
SM Land, Inc
21.65%
PCD Nominee Corp.
(Foreign and Filipino)
34.43%
40.96%
Others
2.96%
SM Prime Holdings, Inc.
Source:
SMPHI 2012 Annual report
22
May 30,2013
5.2
MS&Co. conducted an analysis of the historical financial performance of SMPHI in order to
and margin analysis. Given that SMPHI is a commercial leasing company, the revenues were
likewise studied to understand the behaviour of leasing income and how it relates to value
generation.
Consolidated statem ent of financial perform ance
PHP'M
Total revenues
Operating expenses
Income from operations
Other income (charges)- net
Incom e tax
Current
Deferred
Total income tax
Net incom e
Source:
2010
23,716
(11,271)
12,445
(1,648)
10,797
Audited
2011
26,897
(12,277)
14,620
(2,400)
12,220
2012
30,726
(13,995)
16,731
(2,442)
14,289
Unaudited
3M2013
7,830
(3,604)
4,226
(445)
3,781
(2,450)
(207)
(2,657)
8,140
(2,932)
94
(2,838)
9,382
(3,313)
(53)
(3,367)
10,922
(902)
10
(891)
2,890
2010 to 2012
% of total
CAGR
100.0%
13.8%
-46.2%
11.4%
53.8%
16.0%
-7.9%
21.8%
45.8%
15.0%
-10.7%
-0.2%
-10.9%
16.3%
-49.2%
12.6%
34.9%
15.8%
SMPHI 2012 Annual report; SMPHI 3M2013 financial statements; MS&Co. analysis
23
May 30,2013
Consolidated statem ent of financial position
PHP'M
Assets
Current Assets
Cash and cash equivalent
Short-term investments
Investments held for trading
Receivables
Available-for-sale investments
Prepaid expenses and other current assets
Total Current Assets
Noncurrent Assets
Investment properties - net
Derivative assets
Deferred tax assets
Other noncurrent assets
Total Noncurrent Assets
Total assets
Liabilities and stockholders' equity
Current liabilities
Loans payable
Current portion of long-term debt
Income tax payable
Total Current Liabilities
Noncurrent Liabilities
Long-term debt - net of current portion
Tenants’ deposits
Liability for purchased land - net of current
portion tax liabilities
Deferred
Derivative liabilities
Other noncurrent liabilities
Total Noncurrent Liabilities
Equity
Capital stock
Additional paid-in capital - net
Cumulative translation adjustment
Unrealized gain on AFS
Retained earnings:
Appropriated
Unappropriated
Treasury stock
Non controlling interest
Total equity
Source:
Note:
2010
Audited
2011
2012
Unaudited
2010 to 2012
3M2013 % of total
CAGR
9,720
877
500
3,980
1,104
1,104
17,285
8,290
877
813
4,708
1,000
1,276
16,964
9,707
821
759
5,880
1,000
1,440
19,607
19,068
816
457
5,763
1,000
1,566
28,671
7.1%
0.7%
0.5%
3.7%
0.8%
1.0%
13.8%
-0.1%
-3.2%
23.2%
21.5%
-4.8%
14.2%
6.5%
93,940
738
223
3,946
98,848
116,133
107,836
116
254
3,154
111,360
128,324
124,087
110
190
4,135
128,522
148,130
126,017
138
187
4,656
130,998
159,669
82.9%
0.3%
0.2%
2.9%
86.2%
14.9%
-61.4%
-7.6%
2.4%
14.0%
100.0%
12.9%
6,797
767
404
7,967
10,150
799
623
11,572
800
11,399
1,792
633
14,623
800
11,380
2,611
1,123
15,914
0.2%
7.2%
0.8%
0.4%
8.6%
n/a
29.5%
52.9%
25.2%
35.5%
38,077
6,466
1,619
1,323
710
1,022
49,216
40,094
7,467
1,551
1,259
238
1,797
52,405
49,647
8,386
1,215
1,278
244
1,836
62,607
57,015
8,556
1,042
1,266
237
1,879
69,994
32.5%
5.7%
1.1%
1.0%
0.3%
1.2%
41.8%
14.2%
13.9%
-13.4%
-1.7%
-41.3%
34.0%
12.8%
13,918
8,219
590
4
13,918
8,219
873
-
17,393
8,219
544
-
17,393
8,219
516
-
11.5%
6.3%
0.5%
0.0%
11.8%
0.0%
-3.9%
-100.0%
7,000
7,000
27,000
28,562
33,866
16,890
(101)
(101)
(101)
759
573
955
58,950
64,347
70,900
116,133 128,324 148,130
27,000
19,680
(101)
1,055
73,761
159,669
9.9%
20.8%
-0.1%
0.6%
49.6%
96.4%
-23.1%
0.0%
12.2%
9.7%
100.0%
12.9%
SMPHI 2011 and 2012 Annual report; SMPHI 2011 Audited financial statements; SMPHI 3M2013 financial statements; MS&Co. analysis
Change in policy regarding allowance for doubtful accounts resulted in adjustments in the 2010 amounts
24
May 30,2013
6
Valuation of SM Prime Holdings, Inc.
6.1
Cost Approach
·
Operational malls in the Philippines and in China and other real estate properties recorded
under the books of SMPHI were adjusted to reflect the movement in fair market value.
valuation methods, namely the cost, direct capitalization and discounted cash flow
approaches.
·
Financial liabilities were adjusted to reflect the fair values represented in their 3M2013
interim financial statements as of the Cut-off date.
·
According to management and the 2012 audited financial statements, SMPHI is not
involved in any pending critical litigation. SMPHI’s legal advisors represent that the
company is not involved in any significant cases which may give rise to contingent
liabilities.
25
May 30,2013
6.1.1
The following table summarizes the computation for SMPHI net asset value per share as of
the Valuation Date, using the Cost approach.
Cost approach
PHP'M
Total assets
Total liabilities
Unadjusted NAV
Adjustment to reflect fair value of Philippine properties
Fair value of Philippine malls
Carrying value of Philippine malls
Land
Land use rights & leasehold improvements
Building and improvements
Other assets
Fair value of other Philippine properties
Carrying value of other Philippine properties
3M2013
159,669
85,908
73,761
286,826
(10,559)
(865)
(52,400)
(8,019)
(71,843)
214,983
13,141
(9,691)
3,450
Adjustment to reflect fair value of China properties
Fair value of China malls
Carrying value of China malls
54,642
(15,892)
38,750
Fair value of other China properties
Carrying value of other China properties
19,324
(1,727)
17,597
Adjustment to reflect fair value of financial liabilities
Fair value of financial liabilities
Carrying value of financial liabilities
Long-term debt
Tenant's deposits
Liability for purchased land
Other non-current liabilities
Adjusted NAV
Adjusted minority interest
Adjusted NAV attributable to SMPHI stockholders
NAV per share
Note:
Source:
6.2
(72,872)
59,626
8,556
1,042
1,439
70,663
(2,209)
346,332
(9,443)
336,888
17,374
19.39
Minority interest was deducted to reflect NAV attributable to SMPHI stockholders. Minority interest was adjusted to
reflect fair value adjustments on property attributable to minority interests
MS&Co. analysis
In using the Market approach, MS&Co. collated information relating to comparable publiclylisted companies operating in the same industry as SMPHI. In searching for comparable
companies for SMPHI, MS&Co initially focused on the listed retail real estate companies in
the Philippines. To determine the comparability of the firms in the initial list of property
companies in the PSE, the two criteria used were: (1) the revenue composition of the
company and (2) the scale of the companies’ operations as compared to SMPHI.
With regard to the revenue composition, MS&Co. analyzed the operations of each of the
property companies in the PSE and determined the significant contributors to their revenues.
26
May 30,2013
To be comparable with SMPHI, the firm’s revenues from shopping center operations or
leasing of commercial spaces should be the largest contributor to its total revenues. From the
40 property-related companies in the PSE, only four companies were deemed comparable
based on their revenue composition.
After eliminating companies based on their revenue composition, the firms were then
evaluated based on the scale of their operations. Companies which operate less than 10 malls
were eliminated. Of the four, only Robinsons Land Corporation was able to meet this
requirement with 32 malls as compared to the other companies with only one to five malls.
Upon exhausting the companies in the Philippines, the Firm extended the search for
comparable companies in the region. According to the Factiva database, there are three listed
retail-oriented companies in the South East Asia and East Asia regions. These companies’
revenues are comprised of shopping center operations and leasing of commercial spaces and
these companies have multiple shopping centers in their specific markets. Two of the
companies, Central Pattana Public Co. Ltd. and CapitaMalls Asia Ltd., have operations
centered on high growth economies, Thailand and China. The other company, AEON Mall
Co., Ltd., is focused on the Japanese region and was eliminated since its operations are
primarily focused on the Japanese consumer market. The table below presents the summary
of the CoCos selection process.
CoCos selection
Entity nam e
Selected com panies
Robinsons Land Corporation
Central Pattana Public Co. Ltd.
CapitaMalls Asia Ltd.
Excluded CoCos
(3 com panies)
Mall operations have
the largest revenue
contributions
100.0%
Malls operated should
be m ore than 10
51
Majority of revenues
from grow ing
econom ies
Philippines, China
47.6%
78.4%
99.2%
All CoCos have mall
operations as their largest
revenue contributor
32
21
101
Eliminated local CoCos
have three and five
malls/commercial centers.
Philippines
Thailand
China, Malaysia, India
Eliminated CoCo has
virtually all of its revenues
sourced from Japan
Source: Companies 2012 annual reports
Under the Market approach, the price-to-earnings (“P/E”) multiple, the price-to-book (“P/B”)
multiple and the enterprise value-to-EBITDA (“EV/EBITDA”) multiple were considered in
valuing SMPHI. The respective earnings per share, book value per share, EV and EBITDA
of the CoCos were computed from the latest available financial statements of the CoCos. The
share prices used were based on the closing prices as of March 31, 2013.
27
May 30,2013
6.2.1
The calculations for SMPHI’s EPS, Book value per share and EBITDA per share is shown on
the table below:
SMPHI EPS, BVS and EBITDA per share
Notes
Earnings per share
Adjusted book value (In PHP'M) 2
EBITDA per share
EBITDA (In PHP'M) 3
EBITDA per share
Note:
Source:
6.2.2
0.65
4.18
1.19
(1) Annualized net income was computed by deducting 1Q12 net income and addition of 1Q13 net income
(2) Minority interest was deducted to reflect book value attributable to SMPHI’s shareholders
(3) Annualized EBITDA was computed by deducting 1Q12 EBITDA and addition of 1Q13 EBITDA
March 31, 2013 unaudited FS; MS&Co. analysis
The calculation for SMPHI’s value using the Market approach is shown on the table below.
Earnings per share
EBITDA per share
Derived multiple
Range of values
Source:
6.2.3
Weighted average
P/E (x)
0.65
4.18
1.19
22.66
4.17
17.49
14.71
17.47
20.77
17,373,678
17,373,678
17,373,678
N/A
N/A
255,605
17,373,678
14.71
N/A
N/A
303,488
17,373,678
17.47
41,358
1,055
318,525
17,373,678
18.33
MS&Co. analysis
Presented below are the share prices as March 31, 2013 and its respective 30, 60 and 90 day
volume-weighted average share price for SMPHI.
90- day volume-w eighted average share price
Source:
Share price
19.10
18.66
18.68
18.04
PSE; Bloomberg
28
May 30,2013
6.3
Income approach
In determining the DCF value of SMPHI, three (3) important variables were considered.
These are: (a) the projected free cash flows to the firm, (b) the appropriate discount rate, and
(c) the terminal value.
6.3.1
Projected free cash flow to the firm (“FCFF”)
Projected FCFF is equivalent to the cash flows from operating (except interest income) and
investing activities plus after-tax net interest expense of SMPHI from April 1, 2013 to
December 31, 2018 (the “Forecast Period”). Projected FCFFs are discounted back to the
Valuation Date at an acceptable discount rate to generate a value for the business.
The business plans and the related financial projections of SMPHI were based on
management’s assumptions reflecting conditions it expects would exist and the courses of
action it expects to take during the Forecast Period. MS&Co. would like to highlight that the
management of SMPHI is responsible for representations about their plans and expectations,
and for disclosure of significant information that might affect the ultimate realization of the
business plans and the projected results.
There will usually be differences between the projected and actual results, because events and
circumstances frequently do not occur as expected, and those differences may be material.
Hence, while MS&Co. exercised its best judgment in evaluating the assumptions, MS&Co.
cannot provide assurance on the realization of the financial projections.
Given the uncertainties inherent in projecting financial performance, scenarios have been
created to anticipate volatilities in SMPHI’s revenue streams. Same-store revenue growth of
established malls has been estimated to be 7.0% which approximates the historical same-store
growth rate of SMPHI. However, according to management, mature malls would have a
same-store growth rate of 5.0% for terminal value computation purposes. These two growth
estimates have been used as the aggressive and conservative bases, respectively, for the
projection scenarios with regard to the established malls, since revenues from these properties
comprise over 77% of SMPHI’s revenues over the projection period. An average growth rate
of 6% was also utilized to represent a base case scenario for the revenue growth assumptions.
Projected FCFF are discounted back to the present date at an acceptable discount rate to
generate a fair range of values for the business. Below are the computations of the present
value (“PV”) of SMPHI’s projected cash flows for the three scenarios.
29
May 30,2013
Revenue growth at 7%
Projected free cash flow s - SMPHI
Apr. to Dec.
2013
PHP'M
Net cash flow s from (used in) operating activities
Income (loss) before income tax
12,579
Adjustments for:
Depreciation and depletion
3,325
Interest expense
1,625
Interest income
(337)
Other adjustments
29
Net w orking capital changes
1,711
Taxes
(3,355)
Net cash flow s from (used in) operating
15,577
activities
Capital expenditures
(34,777)
Projected FCFF
(19,200)
Period
0.75
WACC
7.0%
Discount factor
0.9507
Discounted FCFF (from 3M12)
(18,253)
Source:
2014
17,887
2015
19,498
2016
21,560
2017
24,270
2018
27,938
Total
123,732
5,284
2,492
(170)
6,082
3,418
(122)
6,778
3,986
(133)
7,619
4,438
(137)
8,113
4,725
(138)
1,692
(4,152)
2,284
(4,573)
2,217
(5,099)
2,151
(5,682)
2,564
(6,539)
37,201
20,684
(1,038)
29
12,618
(29,400)
23,033
26,587
29,308
32,659
36,662
163,826
(27,091)
(4,058)
1.75
(28,105)
(1,517)
2.75
(28,829)
480
3.75
(22,411)
10,248
4.75
(22,988)
13,674
5.75
(164,200)
(374)
0.8887
(3,607)
0.8307
(1,260)
0.7765
373
0.7259
7,439
0.6785
9,278
2014
2015
(6,030)
MS&Co. analysis
Apr. to Dec.
2013
PHP'M
12,454
Adjustments for:
3,325
Interest expense
1,625
Interest income
(337)
Other adjustments
29
1,648
Taxes
(3,330)
15,414
activities
(34,777)
Projected FCFF
(19,363)
Period
0.75
WACC
7.0%
Discount factor
0.9507
(18,407)
Source:
17,612
19,059
2016
20,924
2017
23,407
2018
26,837
Total
120,293
5,284
2,492
(162)
6,082
3,418
(101)
6,778
3,991
(96)
7,619
4,458
(85)
8,113
4,760
(83)
1,621
(4,092)
2,197
(4,473)
2,124
(4,953)
2,047
(5,481)
2,448
(6,280)
37,201
20,744
(864)
29
12,085
(28,609)
22,756
26,182
28,768
31,965
35,794
160,880
(27,091)
(4,335)
1.75
(28,105)
(1,923)
2.75
(28,829)
(60)
3.75
(22,411)
9,554
4.75
(22,988)
12,806
5.75
(164,200)
(3,321)
0.8887
(3,853)
0.8307
(1,597)
0.7765
(47)
0.7259
6,935
0.6785
8,689
(8,280)
MS&Co. analysis
30
May 30,2013
Apr. to Dec.
2013
PHP'M
12,329
Adjustments for:
3,325
Interest expense
1,625
Interest income
(337)
Other adjustments
29
1,586
Taxes
(3,305)
15,252
activities
(34,777)
Projected FCFF
(19,525)
Period
0.75
WACC
7.0%
Discount factor
0.9507
(18,562)
Source:
6.3.2
2014
17,335
2015
18,617
2016
20,298
2017
22,593
2018
25,800
Total
116,974
5,284
2,497
(153)
6,082
3,435
(87)
6,778
4,028
(85)
7,619
4,511
(85)
8,113
4,833
(83)
1,551
(4,031)
2,113
(4,372)
2,036
(4,808)
1,950
(5,290)
2,341
(6,037)
37,201
20,928
(831)
29
11,577
(27,844)
22,483
25,788
28,248
31,297
34,967
158,034
(27,091)
(4,608)
1.75
(28,105)
(2,317)
2.75
(28,829)
(581)
3.75
(22,411)
8,887
4.75
(22,988)
11,979
5.75
(164,200)
(6,166)
0.8887
(4,095)
0.8307
(1,925)
0.7765
(451)
0.7259
6,451
0.6785
8,128
(10,455)
MS&Co. analysis
Discount rate
Determining an appropriate discount rate, which is reflective of both the general and specific
risks of a company’s future income stream, is an important element of the Income approach
or DCF methodology. The discount rate is also equated with the acceptable rate of return or
“hurdle rate” of an investor for a specific investment opportunity taking into account the
return on alternative investments and risk factor.
For this Report, weighted average cost of capital (“WACC”) was computed as the acceptable
discount rate to be applied to the projected FCFF during the Forecast Period and the projected
FCFF after the explicit Valuation Period.
SMPHI’s after-tax cost of debt, pegged at 3.6%, pertains to the weighted average interest rate
of SMPHI’s interest-bearing liabilities using March 31, 2013 interest rates. For variable rate
loans, the market rate was provided by management. However, for the fixed rate loans,
MS&Co. used the average lending rates of local universal banks for March 25, 2013 sourced
from Business World. A tax rate was not used since SMPHI uses the Optional Standard
Deduction offered by the BIR. As such, interest expense would not be deductible with regard
to computing the income tax to be incurred.
The table on the next page presents the computation for the after-tax cost of debt of SMPHI.
31
May 30,2013
SMPHI Loan payables breakdow n as of March 31, 2013
PHP'M
Parent
PHP LOAN
1.2B PHILAM
2.0B MBTC
5.0B BDO CAP
2.0B BPI
1.0B LBP
1.0B LBP
1.0B MBTC
1.0B BPI
7.0B MBTC
Rate
Am ount
Interest
rate
Weighted
int. rate
Fixed
Fixed
Fixed
PDSTF + margin
PDSTF + margin
PDSTF + margin
PDSTF + margin
PDSTF + margin
PDSTF + margin
PDSTF + margin
Fixed
Fixed
PDSTF + margin
PDSTF + margin
Fixed
Fixed
Fixed
PDSTF + margin
PDSTF + margin
PDSTF + margin
Fixed
Fixed
1,200
800
1,100
2,000
1,000
1,000
880
1,000
2,940
1,960
980
784
3,920
980
1,002
132
3,618
198
3,450
1,000
650
2,350
6.2%
6.2%
6.2%
1.1%
3.3%
3.0%
12.4%
1.6%
0.9%
0.9%
6.2%
6.2%
3.7%
3.7%
6.2%
6.2%
6.2%
4.5%
4.5%
4.5%
6.2%
6.2%
0.1%
0.1%
0.1%
0.0%
0.1%
0.0%
0.2%
0.0%
0.0%
0.0%
0.1%
0.1%
0.2%
0.1%
0.1%
0.0%
0.4%
0.0%
0.3%
0.1%
0.1%
0.2%
MBTC ($150M)
ING ($50M)
LIBOR + spread
LIBOR + spread
LIBOR + spread
LIBOR + spread
LIBOR + spread
LIBOR + spread
LIBOR + spread
LIBOR + spread
LIBOR + spread
LIBOR + spread
LIBOR + spread
LIBOR + spread
LIBOR + spread
LIBOR + spread
204
204
204
204
204
1,224
816
4,488
1,428
5,100
408
1,020
6,120
2,040
2.1%
2.1%
2.1%
2.1%
2.1%
2.1%
2.1%
2.1%
2.0%
2.0%
2.1%
2.1%
2.2%
2.2%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.2%
0.0%
0.2%
0.0%
0.0%
0.2%
0.1%
Subsidiaries
PHP LOAN
500M BPI
PDSTF + margin
500
3.7%
0.0%
1,734
5.8%
0.2%
400
5.8%
0.0%
985
6.2%
0.1%
500
300
61,027
6.2%
6.2%
0.1%
0.0%
3.6%
5.0B MBTC
5.0B RCBC
7.5B MBTC
USD LOAN
25M SMBC
30M HSBC
20M HSBC
270M SCB
50M SMBC
RM B LOAN
350M ICBC
150M ICBC
250M ICBC
Floating rate based on
Central Bank of China
Short-term PHP LOAN
BPI
Fixed
BPI
Fixed
Total interest-bearing liabilities
Source:
SMPHI loan breakdown as of March 31, 2013; BSP loan interest rates during March 25, 2013
32
May 30,2013
SMPHI’s cost of equity was computed using the Capital Asset Pricing Model (“CAPM”),
which states that the Ke is based on the return generated from risk-free investments (“riskfree rate”) plus a premium for the risks associated with the business (“equity risk premium”).
The risk-free rate (“rf”) represents the minimum return investors would expect from credit
risk-free securities. The rf of 4.0% was considered in the valuation of SMPHI. This was
based on the 10-year Philippine Treasury Bond reissued on February 2013, the nearest
auction date to the Valuation Date for an issue of a 10-year treasury bond.
The market risk premium (“RPm”) represents the excess return to compensate investors for
taking a relatively riskier investment. MS&Co. assumed that 4.91% is the RPm, which is
sourced from Aswath Damodaran in his paper “Equity Risk Premiums (ERP): Determinants,
Estimation, and Implications – The 2013 Edition. Damodaran utilizes several methodologies
in determining the equity risk premium, which includes the survey approach, use of historical
premiums and implied equity premiums.
The beta factor represents the measure of risk of a particular asset relative to the risk of a
portfolio of all risky assets, based on the perception that its share prices move in line with the
“market.” Levered beta factors are always considered in the valuation of companies.
Levered beta is the beta that takes into account the risk of SMPHI due to its capital structure
and applicable tax rate.
WACC computation for SMPHI
MS&Co. used the unlevered beta of the real estate industry, specifically in the operations &
services sector, in emerging markets from Aswath Damodaran
MS&Co. relevered the beta to reflect the target capital structure of SMPHI using the
company’s target debt and equity ratios.
Relevered beta
Form ula:
Unlevered beta factor
Tax rate
Debt ratio
Equity ratio
Relevered beta
Unlevered beta * [1 + (1 - tax rate) * (D/E)]
0.65
0.0%
50.0%
50.0%
1.30
Source: Aswath Damodaran website, MS&Co. analysis
The table below shows the computation of cost of equity using CAPM for SMPHI.
Cost of equity ("Ke")
Risk-free rate ("Rf")
Total risk prem ium
Relevered beta
Ke = Rf + β*(Rm-Rf)
Source:
4.0%
4.9%
1.30
10.4%
Bureau of Treasury; Aswath Damodaran – Equity Risk Premiums (ERP): Determinants,
Estimation and Implications - The 2013 Edition; Aswath Damodaran website, MS&Co.
analysis
33
May 30,2013
After performing the procedure as stated above, below is the computed WACC for SMPHI.
Weighted average cost of capital
Debt-equity
proportion
WACC
com putation
50.0%
3.6%
0.0%
3.6%
50.0%
100.0%
4.0%
4.9%
1.30
10.4%
7.0%
Cost of debt
Interest rate
Less: Tax rate
Cost of debt
Cost of equity
Risk free rate (Rf)
Total risk premium (Rp)
Beta (β)
Cost of equity (Rf + β*Rp)
Total / WACC
Source: Bureau of Treasury, Aswath Damodaran website, MS&Co. analysis
6.3.3
Terminal value
The terminal value of a business represents its potential earnings beyond the projection
period. The terminal value is determined by capitalizing the estimated cash flows beyond the
Forecast Periods.
Terminal value and DCF value of SMPHI
The computation of the terminal value and the related present value of SMPHI is presented in
the table below:
Enterprise value - SMPHI
PHP'M
Terminal value cash flow s = (FCFF - last projected year)
WACC
Less: Projected same-store grow th rate after 2018
PV of terminal value cash flow s
Discount factor
Present value of terminal value cash flow s
Total discounted FCFF
Enterprise value
Source:
5% grow th
11,979
7.0%
5.0%
605,856
0.6785
411,098
(10,455)
400,644
6% grow th
12,806
7.0%
5.0%
647,686
0.6785
439,482
(8,280)
431,202
7% grow th
13,674
7.0%
5.0%
691,576
0.6785
469,263
(6,030)
463,232
SMPHI financial projections, MS&Co. analysis
The total present values of projected FCFF in the 5%, 6%, and 7% revenue growth scenarios
are PHP400.6 billion, PHP431.2 billion and PHP463.2 billion. This value represents the
enterprise value of SMPHI as of the Valuation Date. In order to arrive at the equity value,
certain adjustments such as deduction of long-term loans and preferred shares and addition of
cash were made.
After the aforementioned adjustments, the range of values of SMPHI using the Income
Approach is PHP358.2 billion to PHP420.8 billion or equivalent to PHP20.62 to PHP24.22
per share.
34
May 30,2013
Incom e approach - SMPHI
PHP'M
Enterprise value
Less: Net debt
Minority interest
Preferred shares
Equity value
Number of outstanding shares
Equity value per share
Source:
5% grow th
400,644
41,358
1,055
358,231
17,374
20.62
6% grow th
431,202
41,358
1,055
388,790
17,374
22.38
7% grow th
463,232
41,358
1,055
420,820
17,374
24.22
MS&Co. analysis
35
May 30,2013
7
Conclusion and Fairness Opinion
MS&Co. considered the Sum of the Parts for SM Land and for SMPHI MS&Co. considered
Cost approach, Market approach, in particular the EV/EBITDA, 30-day weighted average
closing price, closing price as of March 27, 2013, and Income approach as the most
appropriate valuation methodologies in establishing the fair range of values of SMPHI as of
the Valuation Date.
7.1
The valuation results of SM Land are presented below.
Valuation results- SM Land
Per share (PHP)
Sum of the parts
Minimum value
Maximum value
Total (PHP'M)
6,753.33
8,315.53
263,393
324,322
7.2
The valuation results of SMPHI are presented below.
Cost approach
Incom e approach
7% grow th rate
6% grow th rate
5% grow th rate
Market approach
Valuation range
Per share (PhP)
19.39
24.22
22.38
20.62
Total (PHP'M)
336,888
420,820
388,790
358,231
18.33
318,525
19.10
331,837
18.68
324,466
18.33 to 24.22 318,525 to 420,820
7.3
Given the above fair range of values, the estimated exchange ratio for the share-for-share
swap transaction is 278.81 to 453.56SMPHI shares for every 1 share SM Land. Based on the
share-swap ratio of 368.979 SMPHI shares for every share of SM Land, the planned exchange
is fair from a financial point of view.
36
May 30,2013
Appendix 1 – Overview of comparable companies
SMDC
Filinvest Land, Inc. (“FLI”)
FLI was incorporated on November 24, 1989 and is primarily engaged in the development and sale of
residential property, primarily housing units and subdivision lots. FLI real estate products includes
socialized and affordable housing, medium-rise buildings, farm estates, industrial parks, resorts,
membership clubs and condominiums.
Source: Factiva
Vista Land & Lifescapes, Inc. (“VLL”)
VLL was incorporated on February 28, 2007 and is an investment holding company engaged in real
estate development. VLL currently operates five business units namely Brittany, Crown Asia,
Camella Homes, Communities Philippines, and Vista Residences, Inc. in a broad range of real estate
market from low-cost to high-end.
Source: Factiva, 2012 VLL annual report
Overview of Com parable Com panies ("CoCos")
Com pany
Filinvest Land, Inc.
Country
Philippines
Vista Land & Lifescapes,
Inc.
Philippines
In PHP as of March 31, 2013
Assets (In PHP) Revenue (In PHP)
84,597,227,000
11,038,357,000
76,359,000,000
18,398,109,454
Derived m utiples
P/E
P/B EV/EBITDA
13.27
1.03
16.74
9.89
1.02
11.75
Revenues as of March 31, 2013 were computed as follows: December 2012 revenue – 1Q2012 revenue + 1Q2013 revenue
Note:
Source: FLI and VLL’s 2012 annual report, 1Q2012 financial statements, 1Q2013 financial statements, MS&Co. analysis
HPI
Anchor Land Holdings, Inc.
Anchor Land Holdings, Inc. engages in acquiring, developing, selling, and leasing high-end
residential condominiums and other real estate properties. The company was founded by Stephen Lee
and Li Yi Chiang on July 29, 2004 and is headquartered in Makati, Philippines. The company was
primarily organized for real estate development and marketing with a focus on high-end residential
condominiums within the Manila area. Business operations started on November 25, 2005. Revenues
are expected to come mainly from their existing high-end projects, specifically the Admiral Baysuites
in Roxas Boulevard and the Anchor Skysuites in Binondo. Other current projects include the
SoleMare Parksuites near the Mall of Asia complex, the Clairemont Hills in San Juan City, and the
Oxford Parksuites in Binondo.
May 30,2013
Arthaland Corporation
Arthaland Corporation was incorporated on August 10, 1994 and is primarily engaged in the property
development of residential, commercial, leisure and industrial projects. Its first major development,
Arya Residences, is the first residential high-rise in the Philippines to be registered with US Green
Buildings Council’s Leadership. Arthaland has four subsidiaries also engaged in real estate
development: Cazneau, Inc, Technopod, Inc., Urban Property Holdings, Inc. and Manchesterland
Properties, Inc.
Primex Corporation
Primex Corp. engages in real estate development. Its activities include purchasing, leasing, or
disposing of land and other real property and any interest therein. Its projects include two high-end
residential projects: The Richdale in Antipolo City and Goldendale Village in Malabon. The
company was incorporated and registered with the SEC on July 17, 1986 with the primary purpose of
engaging in real estate development.
Com pany
Country
Assets
Revenue
Anchor Land Holdings, Inc.
Philippines
14,469,555,077
4,131,022,873
13.71
3.34
17.90
Arthaland Corporation
Philippines
4,289,609,717
2,133,937,691
3.05
0.78
3.88
Primex Corporation
Philippines
478,248,589
15,296,981
1,309.84
2.37
800.41
P/E (X)
Multiples
P/B (X) EV/EBITDA (X)
Note:
(1) Revenue pertains to operating revenue, which includes real estate sales and if applicable, rental income, management fees and other items
that can be classified as operating revenue
(2) For valuation purposes, assets, revenue and other financials for Primex Corp. is for the calendar year ending December 31, 2012. Trailing 12month period ending 3M2013 was not used because the company didn’t recognize revenue during the first quarter of 2013. This will affect and
distort the earnings and EBITDA of Primex and may not reflect the true earnings potential of the company
Source: Factiva, Philippine Stock Exchange
SMPHI
Robinsons Land Corporation is a Philippine listed company incorporated on 4 June 1980. It serves as
the real estate investment arm of JG Summit Holdings, Inc. and its subsidiaries. The company is
engaged in the business of selling, acquiring, constructing, developing, leasing, and disposing of real
properties such as land, buildings, shopping malls, commercial centers and housing projects, hotels
and other variants and mixed-used property projects. As of 2011, the company has four (4) whollyowned subsidiaries and ownership in two (2) joint ventures
Central Pattana Public Co. Ltd. engages in the investment and development of real estate properties.
These properties include shopping centers, offices, hotels, residential buildings, water and recreational
parks, and food centers. Segment 1 develops shopping centers, office buildings, and condominiums
for rent, provides utility services, and operates play land and water theme parks in shopping centers.
Segment 2 focuses on the sales of food and beverage in the shopping centres. Segment 3 engages in
the business of hotels. The company was founded on June 17, 1980 and is headquartered in Bangkok,
Thailand.
39
May 30,2013
CapitaMalls Asia Ltd. operates as an investment holding company which owns, develops and
manages shopping malls. The company has an integrated shopping mall business model
encompassing retail real estate investment, development, mall operations, asset management and fund
management capabilities. Its shopping malls portfolio includes ION Orchard, Plaza Singapore,
CapitaMall Xizhimen, CapitaMall Wangjing, Raffles City Beijing and Raffles City Shanghai. The
company operates through three segments: Management Business, Investment Business and Others.
The Management Business segment includes the provision of asset and project management, fund
management and mall management services. The Investment Business segment includes investments
in retail properties held directly through subsidiaries or through associates and jointly controlled
entities. The Others segment includes corporate office and group treasury. CapitaMalls Asia was
founded on October 12, 2004 and is headquartered in Hong Kong.
No. of shopping
centers
32
Multiple
Assets
Revenue EV/EBITDA
P/B
73,311,264,392
7,048,316,090
14.52
2.14
Com pany
Robinsons Land
Corporation
Country
Philippines
P/E
23.55
Central Pattana Public
Co. Ltd.
Thailand
21
101,051,654,897
29,312,499,499
20.92
7.63
30.03
Hong Kong
101
331,665,626,400
12,688,466,471
14.93
1.21
14.26
Source: Factiva, Philippine Stock Exchange, Businessweek
40
Manabat Sanagustin & Co., CPAs
The KPMG Center, 9/F
6787 Ayala Avenue
Makati City 1226, Metro Manila, Philippines
Telephone
Fax
Internet
E-Mail
+63 (2) 885 7000
+63 (2) 894 1985
www.kpmg.com.ph
[email protected]
Branches · Subic · Cebu · Bacolod · Iloilo
May 30, 2013
Audit and Investment Risk Management Committee
Two E-Com Center, 15th Floor
Harbor Drive, Mall of Asia Complex,
Brgy. 76 Zone 10 Pasay City, Philippines
Attention:
Jose T. Sio
Executive Vice President and Chief Finance Officer
Gentlemen:
Subject:
Valuation and Fairness Opinion Report on the Proposed Acquisition of SMIC
properties and unlisted companies by SM Prime Holdings, Inc.
1
Introduction
1.1
Manabat Sanagustin & Co., CPAs (“MS&Co.” or the “Firm”) is pleased to submit this
Valuation and Fairness Opinion Report (the “Report”) covering the acquisition by SM Prime
Holdings, Inc. (“SMPHI”) of SM Hotels and Conventions, Corp. (“SM Hotels”), Prime
Metroestate, Inc. (“Prime Metro”), Costa Del Hamilo, Inc. (“CDHI”), Tagaytay Resort and
Development Corp. (“TRDC”) and SM Arena Complex Corp. (“SMACC”) via share-forshare swap and other properties owned by SMIC via property-for-share swap.
1.2
The following are the proposed share-for-share swap ratios for the transactions as proposed
by SMIC management:
x
23,969.04 shares of SMPHI for every 1 share of SM Hotels
x
140.28 shares of SMPHI for every 1 share of Prime Metro
x
37.60 shares of SMPHI for every 1 share of CDHI
x
285.42 shares of SMPHI for every 1 share of TRDC
x
53.04 shares of SMPHI for every 1 share of SMACC
In addition, the proposed consideration for the SMIC properties to be acquired as listed under
Section 4 of this report is 837,764,770 shares of SMPHI. At the end of this transaction
SMPHI will be 100% owner of the target companies and properties.
1.3
For purposes of this Report, SM Hotels, Prime Metro, CDHI, TRDC, and SMACC will be
collectively referred to as the “Target Companies”.
1.4
This Report is submitted in accordance with the engagement letter of Manabat Sanagustin and
Co., CPAs (“MS&Co.”) dated April 5, 2013 (the “Engagement Letter”). The Engagement
May 30, 2013
Letter covers our engagement with SMIC for the valuation of SMPHI and the Target
Companies, as a going concern, as of March 31, 2013 (the agreed “Cut-off Date” or the
“Valuation Date” or “3M2013”).
1.5
The Firm was engaged by SMIC to act as the independent financial advisor to the Audit and
Risk Management Committee of SMIC in relation to the fairness of the share swap ratio to be
used in this transaction. As such, the scope of MS&Co.’s work, and consequently, the Report
does not contain and has no intention of forming any statement or opinion as to the
operational or commercial merits or strategic rationale of the transaction.
1.6
MS&Co.’s work did not include making comments on the commercial feasibility of the
transaction nor was the Firm involved in any way with the conceptualization and execution of
the transaction. No work was done insofar as the different aspects of the transaction are
concerned. This Report is based on the information financial information prepared and
submitted by both HPI and SMPHI and on information gathered from public sources. These
include annual and quarterly reports filed in the Philippine Stock Exchange (“PSE”), Bureau
of Treasury, Damodaran Online, Factiva and various websites of comparable companies
(“CoCos”).
1.7
MS&Co. did not conduct a financial due diligence on the information provided by either the
Target Companies or SMPHI. It was assumed that all information furnished were complete,
accurate and reflective of the good faith of the management teams of the Target Companies
and SMPHI to describe its historical status and prospects as of the Cut-off Date from
operating and financial points of view.
1.8
In order to assess the fairness of the share-swap ratio, MS&Co. conducted a valuation of both
the Target Companies and SMPHI. The ranges of values of these two companies were then
used as bases to determine the fairness of the SMIC management-determined share-swap
ratio. MS&Co. considered three (3) valuation methodologies, namely: the cost approach, the
market approach and the income approach.
1.8.1
There are no globally accepted rules or standards on the selection of the most appropriate
valuation methodologies for a given valuation engagement.
1.8.2
The broad criteria for the selection of the methodologies are as follows: (i) consistency of the
methodologies given the availability and quality of the data; (ii) appropriateness of the
methodologies with the characteristics of the entity being valued; and (iii) applicability of the
methodologies with the purpose of the valuation. These three (3) criteria were applied to the
specific circumstances of this valuation engagement.
1.9
The following general activities were performed prepare this valuation and fairness opinion
report:
1.9.1
Requested for an initial set of information from the Target Companies and SMPHI
management. Based on the initial set of assumptions and information received from the
Target Companies and SMPHI, the Firm conducted interviews to clarify certain assumptions
and information received in order to test check the reasonableness of the assumptions and
underlying data.
1.9.2
Conducted research and retrieved relevant information from the PSE, Bureau of Treasury,
Damodaran Online, Factiva and various websites of comparable companies (“CoCos”).
1.10
The opinion, analysis, and resulting observations were based solely on management
representations and on publicly available financial information. It is not the independent
financial advisor’s role to either evaluate or confirm how the transaction, to be executed by
May 30, 2013
SM Prime and the Target Companies, will affect the shareholders, other than from a financial
point of view.
1.11
The management of the Target Companies and SMPHI had executed their respective
representation letters stating that the information submitted were materially accurate and
complete, fair in the manner of its portrayal and therefore forms a reliable basis for the
valuation.
2
Executive summary
2.1
We are presenting below the valuation results of the Target Companies.
Valuation results of the target com panies
PHP
Valuation Date
SM Hotels and Conventions, Corp.
March 31, 2013
Prime Metro Estate Corp.
March 31, 2013
Costa del Hamilo, Inc.
March 31, 2013
Tagaytay Resort and Development Corp.
March 31, 2013
SM Arena Complex Corp.
March 31, 2013
Total values of the com panies to be acquired by SMPHI
Per Share (PHP)
461,337.29
2,635.45
735.38
5,565.70
1,034.23
Total (PHP)
1,153,343,213
7,149,969,000
3,057,348,442
1,753,196,723
413,693,822
13,527,551,199
x
The companies under SM Hotels are the operating companies for the SMIC-owned hotel
and resort properties included in the transaction. The Cost approach is deemed to be the
most appropriate methodology in valuing SM Hotels since the value that can be derived
from its prospective cashflows could not be ascertained. There are uncertainties inherent
in the stability of the earnings of SM Hotels due to the relatively recent operations of
some of its subsidiaries and the losses incurred in previous years.
x
TRDC and Prime Metro were valued using the Cost approach. Since both companies
have limited operations and only act as property holding companies, MS&Co. deemed
that the Cost approach would be an appropriate method of valuation.
x
The Cost approach was deemed appropriate to estimate the fair value of CDHI because
the company relies heavily on the sale of its inventory of real properties and club shares
to generate its revenues. The value of CDHI is primarily driven by its asset base which
primarily consists of condominium units and club shares for sale.
x
Since SMACC has just started operations in 2012, it has yet to establish enough stability
to be able to produce reliable financial projections supported by historical trends. As
such, the Cost approach would be the most appropriate methodology in valuing SMACC.
In addition, its assets still approximate their fair values given its relatively recent
establishment as per management inquiry.
Presented below are the fair values of the properties to be acquired by SMPHI
May 30, 2013
SMIC properties - appraised values
PHP'M
Taal Vista Hotel
Radisson Cebu Hotel
Pico Sands Hotel
MoA Arena
MoA Arena Annex
Corporate Office
Casino and Waste Water Treatment Plant (located at
tagaytay lot ow ned by Tagaytay Resort Devt Corp)
Tagaytay
EDSA West
Ongoing Project - Park Inn Davao
Total
Valuation used
Cost
Cost
DCF
Cost
Cost
Cost
Cost
Appraised value
2,014
2,375
704
1,608
3,369
1,673
895
DCF
861
2,034
209
594
16,336
Market data
Market data
Cost
Source: CBRE Appraisal report as of February 28, 2013
2.2
We are presenting below the valuation results of SMPHI.
Valuation results of SMPHI post-m erger as of March 31, 2013
PHP'M
Sum of the parts
SM Land, Inc.
Less: Ow nership of SM Land in SMPHI
Post-merger valuation of SMPHI
Price per share
Minim um
Valuation approach
Market approach
Sum of the Parts
Market approach
Values
318,525
263,393
(97,442)
484,476
26,475
18.30
Maxim um
Valuation approach
Income approach
Sum of the Parts
Income approach
Values
420,820
324,322
(128,735)
616,406
26,475
23.28
2.3
x
MS&Co. used the Sum of the Parts Method to value SMPHI due to the lack of
information on SMPHI after its merger with SM Land. Post-merger SMPHI primarily
consists of the value of SMPHI pre-merger and the value of SM Land after acquiring
SMDC and HPI.
x
The value used for the pre-merger SMPHI was the value derived using the Income
approach. Given the recurring nature of SMPHI’s revenue streams, the Income approach
was deemed the most appropriate method of valuing the mall operations of SMPHI.
x
The valuation approach used for SM Land is the Sum of the Parts Method. Sum of the
Parts was deemed as the most appropriate due to the following: (1) Diversity of the
companies operating under the umbrella of SM Land; (2) Lack of information on SM
Land, post tender offer; and (3) SM Land records its investments at cost and does not
consolidate the operations of its subsidiaries to its books. Thus, the standalone financial
statements of SM Land may not be able to capture the actual operation and status of its
subsidiaries.
Given the above fair range of values, the estimated ratio for the share-for-share swap
transactions are as follows:
x
x
x
19,814.35 to 25,210.09 shares of SMPHI for 1 share of SM Hotels;
113.19 to 144.02 shares of SMPHI for 1 share of Prime Metro;
31.58 to 40.19 shares of SMPHI for 1 share of CDHI;
May 30, 2013
x
x
239.05 to 304.14 shares of SMPHI for 1 share of TRDC;
44.42 to 56.52 shares of SMPHI for 1 share of SMACC;;
2.4
In addition, given the above fair range of values, the estimated number of shares required to
acquire the SMIC properties range from 701,645,738.36 to 892,714,579.12 SMPHI shares.
2.5
Based on the proposed share swap and property-for-share swap ratios indicated in Section 1.2
and the fair range of values as summarized in sections 2.1 to 2.4, the planned exchange is fair
from a financial point of view.
May 30, 2013
3
Organization background and structure of the Target Companies
3.1
SM Hotels and Conventions Corp. (“SM Hotels”)
SM Hotels, a wholly-owned subsidiary of SMIC, was established for the purpose of operating
and maintaining the SM group’s hotels and conventions portfolio. As of the March 31, 2013
Cut-off Date, SMIC owns 99.8% of SM Hotels
SM Hotels was incorporated on April 2, 2008 under its former name of SM Hotels and
Entertainment Corporation. SM Hotels was later renamed as SM Hotels and Conventions
Corp. in March 2010. its principal office at 10/F One E-com Center, Harbor Drive, Mall of
Asia Complex, Pasay City.
Subsidiaries
SM Hotels has six subsidiaries as presented below:
SM Hotels Subsidiaries
Com pany Inform ation
Properties Operated
Hotel Specialist (Manila) Inc.
("HSI Manila")
Date of
Incorporation Principal Office
% direct
ow nership
of SM Hotels
10/24/2008
One E-com Center,
Harbor Drive, Mall of Asia
Complex, Pasay City
99.80%
Hotel Specialist (Tagaytay) Inc.
("HSI Tagaytay")
Taal Vista Hotel
2/5/1998
Taal Vista Hotel, National
Road, Brgy. Kaybagal,
Tagaytay City
90.50%
Hotel Specialist (Cebu) Inc.
("HSI Cebu")
Radisson Blu Hotel Cebu
10/29/2008
Serging Osmena Blvd.
cor. Juan Luna Avenue,
Cebu City
99.80%
Hotel Specialist (Pico de Loro) Inc.
("HSI Pico")
Pico Sands Hotel
9/14/2010
Brgy. Papaya, Nasugbu,
Batangas, Philippines
99.99%
Hotel Specialist (Davao) Inc.
("HSI Davao")
Park Inn by Radisson Davao
8/10/2012
SM City Lanang Complex,
J.P. Laurel Avenue,
Davao City
99.80%
7/23/2009
SMX Convention Center,
Mall of Asia Complex,
CBP-1A, Pasay City,
Philippines 1300
99.80%
SMX Convention Specialist Corp.
("SMX Convention")
Note:
SM Hotels General Information Sheet
MS&Co. conducted an analysis of the historical financial performance of SM Hotels in order
to understand the value drivers of the company. The analysis includes historical revenue, cost
and margin analysis. Given that SM Hotels operates hotels and convention centers, the
revenues were likewise studied to understand the different asset groupings and how it relates
to value generation.
May 30, 2013
PHP'000
Service income
Cost of services
Gross profit
Taxes and licenses
Salaries, w ages and other benefits
Rental expense
Professional fees
Depreciation and amortization
Communication, light and w ater
Miscellaneous expenses
Total operating expenses
Income (loss) from operations
Dividend income
Interest income
Foreign exchange gain
Total other income
Income before tax
Income tax expense
Total com prehensive incom e
2010
28,315
0
28,315
100
13,645
1,651
1,985
1,360
1,285
8,145
28,170
145
0
14
0
14
0
43
115
Audited
2011
2012
Unaudited
3M2013
31,882
28,318
3,564
254
1,563
711
1,656
453
51
40
4,728
(1,164)
0
3,454
0
3,454
2,290
0
2,290
39,945
33,307
6,638
2,497
2,143
989
884
522
88
82
7,205
(567)
65,539
1,217
21
66,777
66,211
147
66,063
11,938
27,327
(15,389)
(15,389)
242
242
(15,147)
(15,147)
2010 to 2012
% to total
CAGR
100.0%
18.8%
57.4%
n/a
42.6%
(51.6%)
2.5%
399.4%
19.5%
(60.4%)
3.5%
(22.6%)
4.8%
(33.3%)
2.5%
(38.1%)
1.6%
(73.9%)
9.7%
(90.0%)
44.1%
(49.4%)
(1.5%)
n/a
54.7%
n/a
4.6%
847.1%
0.0%
n/a
59.4%
6914.4%
0.6
n/a
0.2%
84.3%
57.7%
2297.9%
Source: SM Hotels 2011 to 2012 financial statements; SM Hotels 3M2013 financial statements; MS&Co. analysis
Audited
PHP'000
Assets
Receivables
Investments in shares of stock
Property and equipment - net
Refundable deposit
Total assets
Liabilities
Accounts payable and accrued expenses
Income tax payable
Subscriptions payable
Deposits for future stock subscriptions
Retirement liability
Total non-current liabilities
Equity
Capital stock
Deposits for future stock subscriptions
Retained eamings:
Total equity
2010
2011
Unaudited
2012
708,660
80,691
559
789,911
864,241
4,688
160
869,089
1,658,999
73,031
48,963
17,269
144,362
38,535
2,275
128,834
195,600
979,061
984,060
4,577
5,056
0
0
983,637
989,116
1,112,472 1,184,716
557,790
557,790
1,099,750
1,073
1,100,823
8,309
15,116
8,309
15,116
1,099,750 1,099,750
1,736
1,110
1,101,486 1,100,860
250
137
387
1,658,999
250
250
2,427
68,490
2,677
68,740
1,112,472 1,184,716
3M2013
47,911
89,128
94
137,133
1,024,060
4,677
1,028,737
1,165,870
13,416
(2,186)
188
11,417
0
1,110
1,110
250
1,099,750
53,343
1,153,343
1,165,870
Source: SM Hotels 2011 to 2012 financial statements; SM Hotels 3M2013 financial statements; MS&Co. analysis
2010 to 2012
% to total
CAGR
17.8%
6.2%
1.2%
25.2%
74.4%
0.4%
0.0%
74.8%
100.0%
(73.7%)
33.8%
101.7%
(50.2%)
6.7%
3.9%
(100.0%)
6.7%
(15.5%)
11.9%
0.0%
0.0%
11.9%
86.0%
0.1%
86.1%
(83.5%)
n/a
n/a
(83.5%)
0.0%
1.7%
0.0%
0.0%
0.0%
2.0%
2.0%
100.0%
0.0%
n/a
2134.5%
1232.4%
(15.5%)
May 30, 2013
3.1.1
Financial information of Hotel Specialist (Manila), Inc. (“HSI Manila”)
MS&Co. conducted an analysis of the historical financial performance of HSI Manila in order
and margin analysis.
PHP'000
Interest incom e
Total expenses
Net incom e (net loss)
2010
0
15
(14)
(14)
(14)
Audited
2011
0
13
(13)
(13)
(13)
2012
0
20
(19)
(19)
(19)
Unaudited
3M2013
0
7
(7)
(7)
(7)
Source: HSI Manila 2011 to 2012 audited financial statements; HSI Manila 2013 financial
statements
PHP'000
Assets
Current Assets
Receivables
Noncurrent Assets
Input VAT
Total noncurrent assets
Total Assets
Current Liabilities
Accrued expense
Total liabilities
Equity
Capital stock
Retained earnings
Total equity
Total Liabilities and Equity
2010
Audited
2011
2012
Unaudited
3M2013
30
30
26
26
22
22
50
188
0
238
0
0
30
0
0
26
0
0
22
238
10
10
19
19
35
35
70
70
63
(42)
20
30
63
(55)
7
26
63
(75)
(12)
22
250
(82)
168
238
2010 to 2012
% of total CAGR
99.8%
99.8%
-14.0%
n/a
n/a
-14.0%
0.2%
0.2%
0.0%
0.0%
100.0%
-14.0%
87.0%
87.0%
86.5%
86.5%
242.2%
-229.2%
13.0%
0.0%
n/a
n/a
100.0%
-14.0%
Source: HSI Manila 2011 to 2012 audited financial statements; HSI Manila 2013 financial statements; MS&Co. analysis
3.1.2
Financial information of Hotel Specialist (Tagaytay), Inc. (“HSI Tagaytay”)
MS&Co. conducted an analysis of the historical financial performance of HSI Tagaytay in
order to understand the value drivers of the company. The analysis includes historical
revenue, cost and margin analysis. Given that HSI Tagaytay operates hotels, the revenues
were likewise studied to understand the behaviour of HSI Tagaytay’s revenue streams and
how it relates to value generation.
May 30, 2013
PHP'000
Total revenues
Total expenses
Incom e Tax
Current
Deferred
Net incom e
Audited
2010
2011
2012
293,211 297,436 340,702
281,511 287,129 331,837
11,700
10,307
8,865
1,514
88
10,098
1,350
310
8,648
Unaudited
3M2013
109,416
92,910
16,506
2,050
(78)
6,893
16,506
2010 to 2012
% of total
CAGR
100.0%
7.8%
96.6%
8.6%
3.4%
-13.0%
0.5%
0.0%
16.4%
n/a
2.8%
-17.4%
Source: HSI Tagaytay 2011 to 2012 audited financial statements; HSI Tagaytay 2013 financial statements; MS&Co. analysis
PHP'000
Assets
Current Assets
Receivables
Inventories
Noncurrent Assets
Hotel property and equipment
Pension asset
Deferred tax assets
Total Assets
Liabilities and Equity
Current Liabilities
Deposit for future stock subscription
Deferrred tax liability-net
Total liabilities
Equity
Capital stock
Deposit for future subscription
Retained earnings
Appropriated
Unapproriated
Total equity
Total Liabilites and Equity
2010
Audited
2011
2012
Unaudited
3M2013
2010 to 2012
% of total
CAGR
134,579
16,630
6,620
23,155
180,985
88,617
22,617
7,228
11,008
129,470
75,794
28,506
7,128
12,643
124,071
52,632
42,258
3,668
12,878
111,436
36.7%
8.7%
2.7%
5.7%
53.8%
-25.0%
30.9%
3.8%
-26.1%
-17.2%
110,504
283
1,008
18,935
130,730
311,715
94,124
1,734
699
14,248
110,805
240,275
115,689
1,770
9,521
126,980
251,051
115,083
11,291
126,374
237,810
40.2%
0.5%
0.2%
5.3%
46.2%
2.3%
150.2%
-100.0%
-29.1%
-1.4%
100.0%
-10.3%
163,861
163,861
63,953
63,953
92,370
92,370
63,090
63,090
38.7%
38.7%
-24.9%
-24.9%
117,680
117,680
281,541
137,500
137,500
201,453
137,500
467
137,967
230,337
63,090
49.9%
0.1%
50.0%
88.6%
8.1%
n/a
8.3%
-9.5%
12,500
-
12,500
-
12,500
-
12,500
137,500
4.7%
0.0%
n/a
17,000
674
30,174
311,715
17,000
9,322
38,822
240,275
8,214
20,714
251,051
24,721
174,721
237,810
4.2%
2.5%
11.4%
-100.0%
249.1%
-17.1%
100.0%
-10.3%
Source: HSI Tagaytay 2011 to 2012 audited financial statements; HSI Tagaytay 2013 financial statements; MS&Co. analysis
May 30, 2013
3.1.3
Financial information of Hotel Specialist (Cebu), Inc. (“HSI Cebu”)
MS&Co. conducted an analysis of the historical financial performance of HSI Cebu in order
and margin analysis. Given that HSI Cebu operates hotels, the revenues were likewise
studied to understand the behaviour of HSI Cebu’s revenue streams and how it relates to
value generation.
PHP'000
Total revenues
Total expenses
Provision for income tax
Net Incom e (net loss)
Audited
Unaudited
2010
2011
2012
3M2013
54,620
361,171 532,115
165,490
191,207
546,189 585,812
161,812
(136,587) (185,018) (53,697)
3,677
(136,587) (185,018) (53,697)
3,677
808
(136,587) (185,018) (54,505)
3,677
2010 to 2012
% of total
CAGR
100.0% 212.1%
203.8%
75.0%
-103.8%
n/a
-103.8%
n/a
n/a
-130.2%
n/a
Source: HSI Cebu 2011 to 2012 audited financial statements; HSI Cebu 2013 financial statements
PHP'000
Assets
Current Assets
Receivables
Inventories
Noncurrent Assets
Hotel property and equipment
Total Assets
Current Liabilities
Accrued pension liability
Total Liabilities
Equity
Capital stock
Deficit
Total equity
2010
Audited
2011
2012
Unaudited
3M2013
2010 to 2012
% of total
CAGR
715,646
12,786
7,394
16,713
752,539
16,082
24,247
8,777
26,423
75,528
24,376
37,978
14,080
22,207
98,641
64,134
46,379
4,088
58,849
173,450
23.6%
5.1%
1.9%
4.1%
34.8%
-81.5%
72.3%
38.0%
15.3%
-63.8%
347,336
59,124
406,460
1,158,999
308,671
76,739
385,409
460,937
262,307
68,309
330,616
429,258
248,236
35,221
283,457
456,908
52.7%
12.6%
65.2%
-13.1%
7.5%
-9.8%
100.0%
-39.1%
670,414
670,414
157,371
157,371
173,965
173,965
204,169
204,169
44.2%
44.2%
-49.1%
-49.1%
649,750
649,750
1,320,164
649,750
649,750
807,121
6,231
649,750
655,981
829,946
204,169
0.5%
116.1%
116.6%
160.8%
n/a
n/a
n/a
-20.7%
250
(161,416)
(161,166)
1,158,999
250
(346,434)
(346,184)
460,937
250
(400,939)
(400,689)
429,258
250
649,750
(397,261)
252,739
456,908
0.0%
0.0%
-60.8%
-60.8%
n/a
n/a
100.0%
-39.1%
Source: HSI Cebu 2011 to 2012 audited financial statements; HSI Cebu 2013 financial statements; MS&Co. analysis
May 30, 2013
3.1.4
Financial information on Hotel Specialist (Pico de Loro), Inc. (“HSI Pico de Loro”)
MS&Co. conducted an analysis of the historical financial performance of HSI Pico de Loro in
revenue, cost and margin analysis. Given that HSI Pico de Loro operates hotels, the revenues
were likewise studied to understand the behaviour of HSI Pico de Loro’s revenue streams and
how it relates to value generation.
PHP'000
Total revenues
Total expenses
Total com prehensive incom e (loss)
Audited
2010
2011
6
32,330
829
56,776
(823) (24,446)
(823) (24,446)
(823) (24,446)
2012
84,366
95,843
(11,477) (11,477)
(11,477)
Unaudited
3M2013
25,036
23,755
1,281
1,281
1,281
2011 to 2012
% of total
CAGR
100.0%
161.0%
144.6%
68.8%
-44.6%
-53.1%
-44.6%
-44.6%
-53.1%
-53.1%
Source: HSI Pico de Loro 2011 to 2012 audited financial statements; HSI Pico de Loro 3M2013 financial statements; MS&Co. analysis
PHP'000
Assets
Current Assets
Receivables
Inventories
Total currrent assets
Noncurrent Assets
Property and equipment
Total Assets
2010
Audited
2011
2012
Unaudited
3M2013
2011 to 2012
% of total
CAGR
4,182
4,182
32,711
7,110
2,814
5,837
48,472
31,478
11,030
3,331
1,125
46,963
44,921
33,948
3,196
7,765
89,829
36.5%
10.4%
3.5%
3.9%
54.2%
-3.8%
55.1%
18.4%
-80.7%
-3.1%
4,182
39,035
3,426
42,461
90,933
32,431
5,799
38,230
85,194
30,295
2,710
33,006
122,835
40.5%
5.3%
45.8%
-16.9%
69.3%
-10.0%
100.0%
-6.3%
16,202
16,202
20,946
20,946
58,300
58,300
21.2%
21.2%
29.3%
29.3%
16,202
995
995
21,940
58,300
0.6%
0.6%
21.8%
n/a
n/a
35.4%
5,000
95,000
(25,269)
74,731
90,933
5,000
95,000
(36,746)
63,254
85,194
5,000
95,000
(35,465)
64,535
122,835
5.7%
108.0%
-35.5%
78.2%
0.0%
0.0%
45.4%
-15.4%
100.0%
-6.3%
Current Liabilities
5
5
Accrued pension liability
Total noncurrent liabilities
Total liabiliites
5
Equity
Capital stock
5,000
Deficit
(823)
Total equity
4,177
4,182
Source: HSI Pico de Loro 2011 to 2012 audited financial statements; HSI Pico de Loro 3M2013 financial statements; MS&Co. analysis
May 30, 2013
3.1.5
Financial information on Hotel Specialist (Davao), Inc. (“HSI Davao”)
MS&Co. conducted an analysis of the historical financial performance of HSI Davao in order
and margin analysis. Given that HSI Davao operates hotels, the revenues were likewise
studied to understand the behaviour of HSI Davao’s revenue streams and how it relates to
value generation.
Audited
PHP'000
Revenues
Rooms
Food and beverages
Rent and other income
Inerest income
Total Revenues
Expenses
Operating Expenses
Total expenses
2010 2011
-
-
-
-
Unaudited
2012
1
1
6,370
6,370
(6,369)
(6,369)
(6,369)
3M2013
4,898
1,804
235
6,937
20,382
20,382
(13,445)
(13,445)
(13,445)
Source: HSI Davao 2012 audited financial statements; HSI Davao 3M2013 financial
statements
May 30, 2013
PHP'000
Assets
Current Assets
Receivables
Noncurrent assets
Softw are and licenses
Total assets
Audited
2010 2011
2012
1,921
879
2,800
Unaudited
3M2013
-
-
25,010
1,846
12,777
39,633
-
-
13
2,813
Current Liabilities
Accounts payables
Other Payables
Total Liabilities
-
-
4,029
154
4,183
16,181
Equity
Capital stock
Deposits for future subscriptions
Retained earnings:
Total equity
-
-
250
4,750
(6,369)
(1,369)
2,813
250
44,750
(19,814)
25,186
41,366
13
-
1,734
1,734
41,366
16,181
Source: HSI Davao 2012 audited financial statements; HSI Davao 3M2013 financial statements
3.1.6
Financial information on SMX Convention Specialist Corp. (“SMX Convention”)
MS&Co. conducted an analysis of the historical financial performance of SMX Convention in
revenue, cost and margin analysis. Given that SMX Convention operates convention centers,
the revenues were likewise studied to understand the behaviour of SMX Convention’s
revenue streams and how it relates to value generation.
Audited
PHP'000
2010
2011
2012
Total Revenues
242,363 296,155 329,612
Total Expenses
237,783 241,832 274,269
4,579
54,323
55,342
Incom e Tax
Current
1,399
14,950
15,316
Deffered
(49)
(305)
(263)
Total provision for (benefit from) income tax
1,351
14,645
15,053
Net incom e
Total com prehensive incom e
3,228
3,228
39,678
39,678
40,290
40,290
Unaudited
3M2013
78,430
59,464
18,967
2010 to 2012
% of total
CAGR
100.0%
16.6%
87.7%
7.4%
5,690
5,690
3.4%
-0.1%
3.4%
230.8%
n/a
233.8%
13,277
13,277
9.0%
9.0%
253.3%
253.3%
Source: SMX Convention 2011 to 2012 audited financial statements; SMX Convention 3M2013 financial statements
May 30, 2013
PHP'000
Assets
Current Assets
Trade and other receivables
Prepayments and other assets
Noncurrent assets
Net pension asset
Deferred tax assets - net
Other noncurrent assets - net
Total assets
Current Liabilities
Trade and other current liabilities
Dividends payable
Income tax payable
Deferred tax liabilities
Tenants' deposits and others
Total Liabilities
Equity
Capital stock
Retained earnings:
Appropriated
Unappropriated
Total equity
2010
Audited
2011
2012
Unaudited
3M2013
2010 to 2012
% of total
CAGR
187,992
25,912
12,092
225,996
123,491
31,596
13,802
168,889
201,121
42,904
12,338
256,363
159,113
40,910
18,415
218,438
66.4%
13.3%
5.1%
84.9%
3.4%
28.7%
1.0%
6.5%
45,564
783
49
46,395
272,391
36,819
1,163
354
38,336
207,226
25,901
1,658
617
28,175
284,538
31,058
2,772
33,830
252,268
14.5%
0.5%
0.1%
0.0%
15.1%
-24.6%
45.5%
256.3%
n/a
-22.1%
100.0%
2.2%
189,188
189,188
82,590
1,756
84,346
118,552
42,991
2,825
164,368
79,673
8,515
88,188
50.3%
5.0%
0.6%
56.0%
-20.8%
n/a
n/a
-6.8%
79,750
79,750
268,938
79,750
79,750
164,096
79,750
79,750
244,118
497
30,137
30,634
118,822
31.9%
0.0%
0.0%
31.9%
87.9%
0.0%
n/a
n/a
0.0%
-4.7%
250
250
250
250
0.1%
0.0%
3,000
202
3,452
272,391
3,000
39,880
43,130
207,226
40,170
40,420
284,538
53,446
79,750
133,446
252,268
0.8%
11.1%
12.1%
-100.0%
1309.3%
n/a
242.2%
100.0%
2.2%
Source: SMX Convention 2011 to 2012 audited financial statements; SMX Convention 3M2013 financial statement
May 30, 2013
3.2
Costa Del Hamilo Inc. (“CDHI”)
3.2.1
Organizational background and structure
Costa Del Hamilo Inc. (“CDHI”) was incorporated on September 26, 2006 and is engaged
primarily in real estate development. Its property assets and construction projects consist
mainly of condominium buildings and macro-infrastructure located at Hamilo Coast in
Nasugbu, Batangas. Income of CDHI is sourced from two components: sale of real estate
properties and sale of Pico de Loro Beach and Country Club (“Pico de Loro”) club shares.
Ownership
CDHI is owned by MBRDC, with SMIC as its Ultimate Parent Company. The stockholders
of CDHI and the corresponding ownership are presented below:
100.0%
Mountain Bliss Resort
and Development Corp.
100.0
Costa Del
Hamilo Inc.
Source: General Information Sheet of Costa Del Hamilo Inc. as of 2012
3.2.2
Financial information
MS&Co. conducted an analysis of the historical financial performance of CDHI in order to
and margin analysis. Given that CDHI is a real estate company, the asset base was likewise
studied to understand the different asset groupings and how it relates to value generation.
May 30, 2013
PHP'M
Revenue
Real estate
Club shares
Total revenue
Costs
Real estate
Club shares
Total costs
Gross profit
Operating expenses
Other incom e (charges)
Income from forfeited deposits and others
Interest expense
Interest income
Loss on retirement of property and equipment
Rent income
Foreign exchange gain (loss) - net
Other income
Total other income (charges)
Income before tax
Current
Deferred
Net incom e
2010
Audited
2011
2012
Unaudited
2010 to 2012
3M2013 % to revenue
CAGR
1,012
321
1,332
740
105
845
370
71
441
46
12
58
82.5%
17.5%
100.0%
(39.5%)
(53.0%)
(42.5%)
(682)
(193)
(875)
457
(213)
(409)
(57)
(465)
380
(263)
(157)
(38)
(195)
247
(224)
(18)
(6)
(24)
34
(44)
(45.0%)
(9.9%)
(54.9%)
45.1%
(32.6%)
(52.1%)
(55.7%)
(52.8%)
(26.5%)
2.6%
10
(112)
2
(0)
(100)
144
21
(20)
10
0
11
129
40
(18)
11
(3)
2.0
(0)
32
55
(22)
3
(0)
3
(16)
(26)
4.1%
(4.9%)
1.2%
(0.2%)
0.2%
(0.0%)
0.0%
0.4%
12.8%
95.9%
(60.1%)
117.4%
19.9%
(38.5%)
6
3
9
135
6
19
25
104
8
1
8
47
1
(11)
(10)
(16)
0.9%
0.9%
1.8%
16.5%
(59.7%)
(4.3%)
11.0%
(41.4%)
Source: 2012 Financial Statements of CDHI (for 2012 and 2011); 2011 Financial Statements of CDHI (for 2010); Unaudited Financial Statements as
of March 31, 2013; MS&Co. analysis
May 30, 2013
PHP'M
Assets
Receivables
Club shares for sale
Pension asset
Deferred tax assets
Other assets
Total assets
Liabilities
Loans payable
Accounts payable and other liabilities
Payable to related parties
Deferred tax liabilities - net
Total liabilities
Equity
Capital stock
Retained earnings
Net income
Total equity
2010
Audited
2011
2012
Unaudited
3M2013
2010 to 2012
% of total
CAGR
57
560
177
919
662
152
2
2
349
2,881
304
561
152
862
1,114
183
3
340
3,519
83
1,028
718
824
374
159
5
317
3,509
64
1,079
699
818
128
162
5
270
3,226
4.3%
21.6%
10.3%
26.6%
21.8%
5.0%
0.1%
0.0%
10.3%
21.2%
35.4%
101.3%
(5.3%)
(24.9%)
2.4%
65.9%
(100.0%)
(4.7%)
100.0%
10.4%
180
1,121
1,165
2,465
810
736
1,208
17
2,771
949
717
1,364
17
3,047
949
449
1,376
6
2,780
18.8%
26.7%
37.9%
0.3%
83.7%
129.6%
(20.0%)
8.2%
11.2%
188
228
416
2,881
188
228
333
748
3,519
416
47
462
3,509
416
47
(16)
447
3,226
7.9%
2.2%
6.2%
0.0%
16.3%
48.9%
(54.8%)
5.5%
100.0%
10.4%
Source: 2012 Financial Statements of CDHI (for 2012 and 2011); 2011 Financial Statements of CDHI (for 2010); Unaudited Financial Statements as
of March 31, 2013; MS&Co. analysis
3.3
Tagaytay Resort Development Corporation (“TRDC”)
3.3.1
TRDC was incorporated and registered with the SEC on August 29, 1988 and is engaged
primarily in the purchase, lease, management and sale of land and other real properties.
TRDC has an authorized capital stock of PHP100.0 million with par value of PHP100.0 per
share.
As of December 31, 2012, management has not started its commercial operations. The
financial statements of TRDC have been prepared in accordance with the Philippine Financial
Reporting Standards for Small and Medium-sized entities (PFRS for SMEs).
Ownership structure
As of 3M2013, TRDC has seven (7) stockholders owning the 420,000 subscribed shares.
Illustrated below are TRDC’s stockholders and their relative holdings in the company in
percentage.
May 30, 2013
SMIC
Teresita Sy
SMDC
33.33 %
25.00%
10.42%
TRDC
Henry Sy, Jr.
Hans Sy
0.00%
10.42%
Herbert Sy
Harley Sy
10.41%
10.42%
Sources: TRDC 2013 General information sheet
3.3.2
MS&Co. conducted an analysis of the historical financial performance of TRDC in order to
and margin analysis. Given that TRDC is a real estate company, the asset base was likewise
studied to understand the different asset groupings and how it relates to value generation.
PHP'000
2010
Interest income
Expenses
Taxes and licenses
Professional fees
Miscellaneous
Total expenses
Net loss
Other comprehensive income
Total com prehensive incom e (loss)
Audited
2011
0
0
531
25
1
556
(556)
(556)
Unaudited
3M2013
2012
0
1,216
15
1
1,232
(1,232)
(1,232)
0
1,216
15
1
1,231
(1,231)
(1,231)
0
0
% to
total
n/a
51.4%
n/a (22.5%)l
n/a (12.3%)l
48.8%
n/a
48.8%
n/a
n/a
n/a
48.8%
Source: TRDC Audited financial statements as of December 31, 2012
PHP'000
2010
Current assets
Cash in bank
Non-current assets
Total assets
Accounts payable and accrued expenses
Total liabilities
Capital stock
Deficit
Total equity
Sources:
58
79,745
79,803
38,785
38,785
42,000
(983)
41,017
79,803
Audited
2011
56
79,745
79,802
40,016
40,016
42,000
(2,214)
39,786
79,802
2012
58
77,959
78,017
39,462
39,462
42,000
(3,445)
38,555
78,017
Unaudited
3M2013
% to
total
CAGR
0.1%
(0.1%)
99.9%
100.0%
49.8%
49.8%
53.0%
(2.8%)
50.2%
100.0%
(1.1%)
(1.1%)
0.9%
0.9%
0.0%
87.2%
(3.0%)
(1.1%)
58
77,959
78,017
39,462
39,462
42,000
(3,445)
38,555
78,017
TRDC Audited financial statements as of December 31, 2012, TRDC Unaudited financial statements as of
March 31, 2013
CAGR
n/a (17.6%)l
May 30, 2013
3.4
Prime Metroestate Inc.
3.4.1
Formerly known as Pilipinas Makro, Inc., Prime Metroestate, Inc. (“Prime Metro”) was
incorporated on June 1, 1995 and is engaged primarily in the acquiring of properties including
but not limited to real estate for sale or for lease. The current nature of operations started in
2012 when it shifted from retailing activities which involved trading and selling of both food
and non-food products.
Prime Metro is 50.0%-owned by Rappel Holdings, Inc. (“Rappel”), 40% by Panther (BVI)
Ltd., and 10% by SM Investments Corporation (“SMIC”). Through its ownership interest in
Rappel, SMIC manages Prime Metro’s financial and operating policies and accordingly
exercises control over Prime Metro. This, therefore, makes SMIC the Parent Company of
Prime Metro. Prime Metro’s registered office and primary place of business is domiciled at
10th floor, One E-Com Center, Harbor Drive, Mall of Asia Complex, Pasay City.
May 30, 2013
Ownership structure
The stockholders of Prime Metro and their corresponding ownership are presented in the
diagram below:
Panther (BVI) Ltd.
100%
Rappel Holdings, Inc.
40.0%
50.0%
10.0%
Prime
Metroestate,
Inc.
Source: General Information Sheet of Prime Metroestate, Inc. as of January 2013
3.4.2
MS&Co. conducted an analysis of the historical financial performance of Prime Metro in
revenue, cost and margin analysis. Given that Prime Metro is a real estate company, the asset
base was likewise studied to understand the different asset groupings and how it relates to
value generation.
May 30, 2013
Statem ents of financial perform ance
PHP'M
Revenue
Rental income
Sale of goods
Total revenue
Costs of sales and services
Cost of services
Cost of sales
Total costs
Gross profit
Other operating expenses (incom e)
Other operating expenses
Other operating income
Total operating expenses (income)
Operating profit
Finance incom e (cost)
Finance income
Finance cost
Total finance income (cost)
Profit before tax
Tax expense
Net incom e
2010
6,196
6,196
Audited
2011
2012
Unaudited
2010 to 2012
3M2013 % to revenue
CAGR
196
2,799
2,995
169
168.7
33
33
35.5%
64.5%
100.0%
(100.0%)
(83.5%)
- (115)
(5,441) (2,504)
(5,441) (2,619)
755
377
(94)
(94)
75
(2)
(2)
31
(19.8%)
(57.1%)
(77.0%)
23.0%
(100.0%)
(86.9%)
(68.5%)
(74.1%)
(62.5%)
1,005
(660)
345
410
520
(291)
229
148
67
(93)
(25)
100
8
(6)
2
29
24.5%
(25.1%)
(0.6%)
23.6%
(50.6%)
39
39
449
130
319
47
(27)
20
167
50
118
64
64
164
43
121
17
17
45
12
34
13.4%
(0.3%)
13.1%
36.7%
9.8%
27.9%
27.9%
(39.5%)
(42.4%)
27.0%
(38.4%)
Source: 2012 Financial Statements of Prime Metro (for 2012 and 2011); 2011 Financial Statements of Prime Metro (for 2010); Interim financial
statements of Prime Metro as of March 31, 2013 (for 3M2013); MS&Co. analysis
May 30, 2013
Statem ents of financial position
PHP'M
Assets
Current Assets
Trade and other receivables
Merchandise inventories
Non-current assets
Investment in a subsidiary
Deferred tax assets
Property and equipment - net
Total assets
Current liabilities
Trade and other payables
Non-current liabilities
Retirement benefit obligation
Total liabilities
Equity
Capital stock
Retained earnings
Total equity
2010
Audited
2011
2012
Unaudited
3M2013
2010 to 2012
% of total
CAGR
1,421
116
380
71
1,989
1,303
209
43
1,555
2,038
210
119
2,367
1,965
43
90
2,098
31.3%
3.5%
2.3%
1.5%
38.6%
19.7%
34.4%
(100.0%)
29.9%
9.1%
1,410
43
9
2,099
50
3,611
5,600
3,364
43
11
25
3,443
4,998
2,386
43
21
2,450
4,817
2,684
43
21
2,749
4,847
47.3%
0.8%
0.1%
12.5%
0.6%
61.4%
30.1%
0.0%
(100.0%)
(100.0%)
(34.9%)
(17.6%)
100.0%
(7.3%)
1,129
422
119
116
10.4%
(67.5%)
12
1,141
422
119
116
0.1%
10.4%
(100.0%)
(67.6%)
2,713
1,746
4,459
5,600
2,713
1,863
4,576
4,998
2,713
1,984
4,697
4,817
2,713
2,018
4,731
4,847
53.0%
36.5%
89.6%
0.0%
6.6%
2.6%
100.0%
(7.3%)
Source: 2012 Financial Statements of Prime Metro (for 2012 and 2011); 2011 Financial Statements of Prime Metro (for 2010); Interim financial
statements of Prime Metro as of March 31, 2013 (for 3M2013); MS&Co. analysis
3.5
SM Arena Complex Corporation (“SMACC”)
3.5.1
SM Arena Complex Corporation (“SMACC”) was incorporated and registered with the
Philippine Securities and Exchange Commission on March 15, 2012 and is engaged primarily
in the management of the operations of Mall of Asia Arena, an entertainment and sporting
events facility. SMACC is a wholly-owned subsidiary of SM Investments Corporation.
SMACC has an authorized and paid-up capital stock of PHP400.0 million with par value of
PHP100.0 per share as of March 31, 2013 (the ‘Cut-off date”). As of the cut-off date, the
Company has a total number of six (6) stockholders.
Ownership structure
As of March 31, 2013 (the “Cut-off date”) TRDC has six (6) stockholders owning the 4.0
million subscribed shares. SMIC holds 99.9% of SMACC’s stocks. The other five
stockholders own one (1) share each. Illustrated below are SMACC’s stockholders.
May 30, 2013
SMIC
99.99 %
Jose Sio
SMACC
Edgar Tejerero
Corazon Morando
Ma. Ruby Cano
Grace Roque
Sources: SMACC 2013 General information sheet
3.5.2
Financial highlights
MS&Co. conducted an analysis of the historical financial performance of SMACC in order to
and margin analysis. Given that SMACC operates the MOA Arena, the revenues were
likewise studied to understand the behaviour of SMACC’s revenue streams and how it relates
to value generation.
PHP'M
Total revenues
Cost of sales
Operating expenses
Total cost and expenses
Interest and others
Total other income (charges)
Income before income tax and minority interest
Income tax
Income before minority interest
Net incom e
Unaudited
2012
689.3
484.8
190.1
674.9
14.4
4.3
18.7
(5.0)
13.7
13.7
Unaudited
3M2013
107.2
3.1
78.7
81.8
25.4
2.2
2.2
27.6
27.6
27.6
% to
total
100.0%
70.3%
27.6%
97.9%
2.1%
0.0%
0.6%
2.7%
(0.7%)
2.0%
2.0%
Sources: SMACC Unaudited financial statements as of December 31, 2012, SMACC Unaudited financial statements
as of March 31, 2013; MS&Co. analysis
May 30, 2013
PHP'M
Accounts Receivables - Others
Merchandise inventories
Prepaid Expenses and other current assets
Property and equipment-net
Total Assets
Income tax payable
Tenants' deposits
Total Liabilities
Capital stock
Unappropriated Retained Earnings
Unaudited
2012
99.7
368.6
2.3
38.7
509.3
300.7
300.7
810.0
Unaudited
3M2013
96.5
325.2
1.4
38.7
461.8
286.2
286.2
748.0
% to
total
12.3%
45.5%
0.3%
4.8%
62.9%
37.1%
37.1%
387.1
5.0
392.1
4.2
4.2
396.3
400.0
13.7
413.7
810.0
302.6
302.6
4.2
4.2
306.8
400.0
41.3
441.3
748.0
47.8%
0.6%
48.4%
0.5%
0.5%
48.9%
49.4%
1.7%
51.1%
100.0%
100.0%
Sources: SMACC Unaudited financial statements as of December 31, 2012, SMACC Unaudited financial statements
as of March 31, 2013
4
Valuation of Target Companies and properties owned by SMIC
4.1
Cost Approach
x
The fair market values of the subject properties were based on the appraisal reports
prepared by CBRE using various valuation methods, namely the cost, market data and
discounted cash flow approaches.
The following table summarizes the computation for the Target Companies’ net asset value
using the Cost approach.
PHP
Valuation Date
March 31, 2013
March 31, 2013
March 31, 2013
March 31, 2013
March 31, 2013
Source:
Per Share (PHP)
461,337.29
2,635.45
735.38
5,565.70
1,034.23
Total (PHP)
1,153,343,213
7,149,969,000
3,057,348,442
1,753,196,723
413,693,822
13,527,551,199
MS&Co. analysis
SM Hotels
The consolidated NAV of SM Hotels was no longer adjusted since the hotels being managed
by this company’s subsidiaries are owned by SMIC and have already been appraised and
May 30, 2013
accounted for in this transaction. There were no appraisals conducted for the equipment and
facilities owned by the SM Hotel Group.
The stand-alone NAV of SM Hotels was used for the cost approach computation and no
adjustments were made for the deficits in its subsidiaries’ financial statements. Despite the
significant losses incurred by HSI Cebu, HSI Pico de Loro and HSI Davao during their first
years of operation, these losses may not be indicative of the companies’ impairment and could
be due to their recent establishment as they are still building their market base. Such losses
may be recouped at a later period.
Cost approach - SM Hotels
PHP'M
Total assets
Total liabilities
Unadjusted NAV
NAV per share
Source:
3M2013
1,166
13
1,153
2,500
461,337.29
MS&Co. analysis; SM Hotels 3M2013 financial statements
Prime Metro
The investment properties recorded under the books of Prime Metro were adjusted to reflect
their movement in fair market value.
After the acquisition, Prime Metro would be wholly-owned by SMPHI through the
acquisition of the 10% stake of SMIC and the shareholdings of two other companies, Panther
Limited (BVI Co.) and Rappel Holdings, Inc, which own 40% and 50% of Prime Metro,
respectively.
SMPHI will acquire Panther Limited’s stake in Prime Metro through the acquisition of
Panther Limited’s ultimate parent, Prime Central (BVI Co.). Presented below are the owners
of the 40% stake in Prime Metro and their respective parent companies.
Prime Central
(BVI Co.)
(Owns 100% of
Galway)
Galway Pacific
Ltd. (BVI Co.)
(Owns 100% of
Celton)
Celton Group
Limited (BVI
Co.)
(Owns 100% of
Panther)
Panther Limited
(BVI Co.)
(Owns 1,085,200
shares of PMI)
40%
Prime Metro
2,713,000
Cost approach - Prim e Metro
PHP'M
Total assets
Total liabilities
Unadjusted NAV
Fair value of Prime Metro properties
Carrying value of Prime Metro properties
Adjusted NAV
Number of shares outstanding (in thousands)
NAV per share
Source:
3M2013
4,847
116
4,731
5,103
(2,684)
2,419
7,150
2,713
2,635.45
MS&Co, analysis; Prime Metro 3M2013 financial statements; CBRE appraisal report as of February 28, 2013
May 30, 2013
CDHI
The land, condominium units, and club shares recorded under the books of CDHI were
adjusted to reflect the movement in fair market value.
Cost approach - CDHI
PHP'M
Total assets
Total liabilities
Unadjusted NAV
Fair value of CDHI properties
Clubshares
3M2013
3,509
3,047
462
4,230
(102)
(699)
(818)
(1,620)
Adjusted NAV
NAV per share
Source:
2,611
3,073
4,158
739.17
MS&Co. analysis; CDHI 3M2013 audited financial statements; CBRE appraisal report as of February 28, 2013
TRDC
The investment property recorded under the books of TRDC was adjusted to reflect their
Cost approach - TRDC
PHP'M
Total assets
Total liabilities
Unadjusted NAV
Fair value of TRDC properties
Carrying value of TRDC properties
Adjusted NAV
SMIC ow nership %
NAV attributable to SMIC
Number of shares outstanding ow ned by SMIC (in thousands)
NAV per share
Source:
3M2013
78
39
39
2,377
(78)
MS&Co. analysis; TRDC 3M2013 financial statements; CBRE appraisal report as of February 28, 2013
2,299
2,338
75%
1,753
315
5,565.70
May 30, 2013
SMACC
The NAV of SMACC was no longer adjusted since the facilities being managed by the
company are owned by SMIC and have already been appraised and accounted for in this
transaction. According to management, the company was just recently established and its
assets still approximate their market values.
Cost approach - SMACC
PHP'M
Total assets
Total liabilities
Unadjusted NAV
NAV per share
Source:
3M2013
810
396
414
400
1,034.23
MS&Co. analysis; SMACC 3M2013 financial statements
SMIC properties
The breakdown of the fair market values for the real estate assets are as follows:
PHP'M
Taal Vista Hotel
Radisson Cebu Hotel
Pico Sands Hotel
MoA Arena
MoA Arena Annex
Corporate Office
Tagaytay
EDSA West
Total
Source:
CBRE appraisal report as of February 28, 2013
Valuation used
Cost
Cost
DCF
Cost
Cost
Cost
Cost
DCF
Market data
Market data
Cost
Appraised value
2,014
2,375
704
1,608
3,369
1,673
895
861
2,034
209
594
16,336
May 30, 2013
5
Organization background and structure of SM Prime Holdings Inc.
5.1
SM Prime Holdings Inc. (“SMPHI”) is the leading developer and operator of shopping malls
in the Philippines. SMPHI also operates malls in China. Its operations are mainly driven by
rentals from tenants, sales of cinema tickets, income from amusement centers and others.
SMPHI was incorporated in January 6, 1994, and is currently headquartered on Mall of Asia
Arena Annex Building, Coral Way cor. J.W. Diokno Blvd., Mall of Asia Complex, Brgy. 76,
Zone 10, CBP-1 A, Pasay City.
SMPHI competes with local mall operators and other retailers such as Ayala Malls,
Robinsons Malls, Puregold, and Shopwise. The advantage of SMPHI in this competitive
industry rests upon its strategic locations, effective tenant mix, and long-standing brand.
SMPHI has an extensive customer base; the revenue stream of the company is not reliant on
one or a few clients. Major anchor tenants in the Philippines include SM Department Stores,
SM Supermarkets, SM Hypermarkets, Ace Hardware, National Bookstore, KFC, Jollibee,
Watsons (Philippines), Uniqlo, and Forever 21. Major anchor tenants in China include WalMart, SM Laiya Department Stores, Wanda Cinema, McDonald’s, KFC, and Watsons.
Ownership structure
The major shareholders of SMPHI are SM Land Inc., which has a 40.96% stake; PCD
Nominee Corp., which has a 34.43% stake; and SM Investments Corp., which has a 21.65%
stake in SMPHI. SMIC, through SM Land Inc., indirectly owns 27.4% of SMPHI resulting in
an effective ownership of 49.1%
SMPHI is a listed company in the Philippine Stock Exchange. As of March 31, 2013, 5.3
million shares, which represent a 30.5% of the total outstanding shares, are owned by the
public.
The diagram below summarizes the ownership structure of the SMPHI.
Ownership Structure
66.9%
SM Land, Inc
21.65%
PCD Nominee Corp.
(Foreign and Filipino)
34.43%
40.96%
Source:
SMPHI 2012 Annual report
Others
2.96%
May 30, 2013
5.2
MS&Co. conducted an analysis of the historical financial performance of SMPHI in order to
and margin analysis. Given that SMPHI is a commercial leasing company, the revenues were
likewise studied to understand the behaviour of leasing income and how it relates to value
generation.
Consolidated statem ent of financial perform ance
PHP'M
Total revenues
Operating expenses
Other income (charges)- net
Incom e tax
Current
Deferred
Total income tax
Net incom e
Source:
2010
23,716
(11,271)
12,445
(1,648)
10,797
Audited
2011
26,897
(12,277)
14,620
(2,400)
12,220
2012
30,726
(13,995)
16,731
(2,442)
14,289
Unaudited
3M2013
7,830
(3,604)
4,226
(445)
3,781
(2,450)
(207)
(2,657)
8,140
(2,932)
94
(2,838)
9,382
(3,313)
(53)
(3,367)
10,922
(902)
10
(891)
2,890
SMPHI 2012 Annual report; SMPHI 3M2013 financial statements; MS&Co. analysis
2010 to 2012
% of total
CAGR
100.0%
13.8%
-46.2%
11.4%
53.8%
16.0%
-7.9%
21.8%
45.8%
15.0%
-10.7%
-0.2%
-10.9%
16.3%
-49.2%
12.6%
34.9%
15.8%
May 30, 2013
Consolidated statem ent of financial position
PHP'M
Assets
Current Assets
Cash and cash equivalent
Receivables
Noncurrent Assets
Derivative assets
Deferred tax assets
Total assets
Liabilities and stockholders' equity
Current liabilities
Loans payable
Income tax payable
Tenants’ deposits
Liability for purchased land - net of current
Deferred tax liabilities
Other noncurrent liabilities
Equity
Capital stock
Additional paid-in capital - net
Cumulative translation adjustment
Unrealized gain on AFS
Retained earnings:
Appropriated
Unappropriated
Treasury stock
Non controlling interest
Total equity
Source:
Note:
2010
Audited
2011
2012
Unaudited
2010 to 2012
3M2013 % of total
CAGR
9,720
877
500
3,980
1,104
1,104
17,285
8,290
877
813
4,708
1,000
1,276
16,964
9,707
821
759
5,880
1,000
1,440
19,607
19,068
816
457
5,763
1,000
1,566
28,671
7.1%
0.7%
0.5%
3.7%
0.8%
1.0%
13.8%
-0.1%
-3.2%
23.2%
21.5%
-4.8%
14.2%
6.5%
93,940
738
223
3,946
98,848
116,133
107,836
116
254
3,154
111,360
128,324
124,087
110
190
4,135
128,522
148,130
126,017
138
187
4,656
130,998
159,669
82.9%
0.3%
0.2%
2.9%
86.2%
14.9%
-61.4%
-7.6%
2.4%
14.0%
100.0%
12.9%
6,797
767
404
7,967
10,150
799
623
11,572
800
11,399
1,792
633
14,623
800
11,380
2,611
1,123
15,914
0.2%
7.2%
0.8%
0.4%
8.6%
n/a
29.5%
52.9%
25.2%
35.5%
38,077
6,466
1,619
1,323
710
1,022
49,216
40,094
7,467
1,551
1,259
238
1,797
52,405
49,647
8,386
1,215
1,278
244
1,836
62,607
57,015
8,556
1,042
1,266
237
1,879
69,994
32.5%
5.7%
1.1%
1.0%
0.3%
1.2%
41.8%
14.2%
13.9%
-13.4%
-1.7%
-41.3%
34.0%
12.8%
13,918
8,219
590
4
13,918
8,219
873
-
17,393
8,219
544
-
17,393
8,219
516
-
11.5%
6.3%
0.5%
0.0%
11.8%
0.0%
-3.9%
-100.0%
7,000
7,000
27,000
28,562
33,866
16,890
(101)
(101)
(101)
759
573
955
58,950
64,347
70,900
116,133 128,324 148,130
27,000
19,680
(101)
1,055
73,761
159,669
9.9%
20.8%
-0.1%
0.6%
49.6%
96.4%
-23.1%
0.0%
12.2%
9.7%
100.0%
12.9%
SMPHI 2011 and 2012 Annual report; SMPHI 2011 Audited financial statements; SMPHI 3M2013 financial statements; MS&Co. analysis
Change in policy regarding allowance for doubtful accounts resulted in adjustments in the 2010 amounts
May 30, 2013
6
Valuation of SMPHI
The approach used to value the post-merger SMPHI, is the Sum of the Parts Method. Sum of
the Parts was deemed as the most appropriate approach due to the following:
x
Diversity of the companies operating under the umbrella of SMPHI, after the merging
with SM Land.
x
Lack of information on SMPHI, post-merger.
In determining the Sum of the Parts, we first determined the pre-merger value of SM Land
and SMPHI. The value of SMPHI after the merger is the sum of the pre-merger values less
SM Land’s investment in SMPHI shares.
6.1
Pre-merger valuation of SMPHI
We are presenting below the valuation results of SMPHI.
Cost approach
Incom e approach
7% grow th rate
6% grow th rate
5% grow th rate
Market approach
Valuation range
Per share (PhP)
19.39
24.22
22.38
20.62
Total (PHP'M)
336,888
420,820
388,790
358,231
18.33
318,525
19.10
331,837
18.78
326,278
18.33 to 24.22 318,525 to 420,820
6.1.1
Income approach
Under the Income approach of SMPHI, three (3) important variables were considered. These
are: (a) the projected free cash flows to the firm, (b) the appropriate discount rate, and (c) the
terminal value.
Projected free cash flow to the firm (“FCFF”)
Projected FCFF is equivalent to the cash flows from operating (except interest income) and
investing activities plus after-tax net interest expense of SMPHI from April 1, 2013 to
December 31, 2018 (the “Forecast Period”). Projected FCFFs are discounted back to the
Valuation Date at an acceptable discount rate to generate a value for the business.
The business plans and the related financial projections of SMPHI are based on the
management’s assumptions reflecting conditions it expects would exist and the courses of
action it expects to take during the Forecast Period. MS&Co. would like to highlight that the
management of SMPHI is responsible for representations about their plans and expectations,
and for disclosure of significant information that might affect the ultimate realization of the
business plans and the projected results.
May 30, 2013
There will usually be differences between the projected and actual results, because events and
circumstances frequently do not occur as expected, and those differences may be material.
Hence, while MS&Co. will exercise its best judgment in evaluating the assumptions,
MS&Co. cannot provide assurance on the realization of the financial projections.
Given the uncertainties inherent in projecting financial performance, scenarios have been
created to anticipate volatilities in SMPHI’s revenue streams. Same-store revenue growth of
established malls has been estimated to be 7.0% which approximates the historical same-store
growth rate of SMPHI. However, according to management, mature malls would have a
same-store growth rate of 5.0% for terminal value computation purposes. These two growth
estimates have been used as the aggressive and conservative bases, respectively, for the
projection scenarios with regard to the established malls, since revenues from these properties
comprise over 77% of SMPHI’s revenues over the projection period. An average growth rate
of 6% was also utilized to represent a base case scenario for the revenue growth assumptions.
Projected FCFF are discounted back to the present date at an acceptable discount rate to
generate a fair range of values for the business. Below are the computations of the present
value (“PV”) of SMPHI’s projected cash flows for the three scenarios.
Apr. to Dec.
2013
PHP'M
12,579
Adjustments for:
3,325
Interest expense
1,625
Interest income
(337)
Other adjustments
29
1,711
Taxes
(3,355)
15,577
activities
(34,777)
Projected FCFF
(19,200)
Period
0.75
WACC
7.0%
Discount factor
0.9507
(18,253)
Source:
MS&Co. analysis
2014
17,887
2015
19,498
2016
21,560
2017
24,270
2018
27,938
5,284
2,492
(170)
6,082
3,418
(122)
6,778
3,986
(133)
7,619
4,438
(137)
8,113
4,725
(138)
1,692
(4,152)
2,284
(4,573)
2,217
(5,099)
2,151
(5,682)
2,564
(6,539)
Total
123,732
37,201
20,684
(1,038)
29
12,618
(29,400)
23,033
26,587
29,308
32,659
36,662
163,826
(27,091)
(4,058)
1.75
(28,105)
(1,517)
2.75
(28,829)
480
3.75
(22,411)
10,248
4.75
(22,988)
13,674
5.75
(164,200)
(374)
0.8887
(3,607)
0.8307
(1,260)
0.7765
373
0.7259
7,439
0.6785
9,278
(6,030)
May 30, 2013
Apr. to Dec.
2013
PHP'M
12,454
Adjustments for:
3,325
Interest expense
1,625
Interest income
(337)
Other adjustments
29
1,648
Taxes
(3,330)
15,414
activities
(34,777)
Projected FCFF
(19,363)
Period
0.75
WACC
7.0%
Discount factor
0.9507
(18,407)
Source:
2014
17,612
2015
19,059
2016
20,924
2017
23,407
2018
26,837
5,284
2,492
(162)
6,082
3,418
(101)
6,778
3,991
(96)
7,619
4,458
(85)
8,113
4,760
(83)
1,621
(4,092)
2,197
(4,473)
2,124
(4,953)
2,047
(5,481)
2,448
(6,280)
Total
120,293
37,201
20,744
(864)
29
12,085
(28,609)
22,756
26,182
28,768
31,965
35,794
160,880
(27,091)
(4,335)
1.75
(28,105)
(1,923)
2.75
(28,829)
(60)
3.75
(22,411)
9,554
4.75
(22,988)
12,806
5.75
(164,200)
(3,321)
0.8887
(3,853)
0.8307
(1,597)
0.7765
(47)
0.7259
6,935
0.6785
8,689
2014
2015
2016
(8,280)
MS&Co. analysis
Apr. to Dec.
2013
PHP'M
12,329
Adjustments for:
3,325
Interest expense
1,625
Interest income
(337)
Other adjustments
29
1,586
Taxes
(3,305)
15,252
activities
(34,777)
Projected FCFF
(19,525)
Period
0.75
WACC
7.0%
Discount factor
0.9507
(18,562)
Source:
17,335
18,617
20,298
2017
22,593
2018
25,800
5,284
2,497
(153)
6,082
3,435
(87)
6,778
4,028
(85)
7,619
4,511
(85)
8,113
4,833
(83)
1,551
(4,031)
2,113
(4,372)
2,036
(4,808)
1,950
(5,290)
2,341
(6,037)
Total
116,974
37,201
20,928
(831)
29
11,577
(27,844)
22,483
25,788
28,248
31,297
34,967
158,034
(27,091)
(4,608)
1.75
(28,105)
(2,317)
2.75
(28,829)
(581)
3.75
(22,411)
8,887
4.75
(22,988)
11,979
5.75
(164,200)
(6,166)
0.8887
(4,095)
0.8307
(1,925)
0.7765
(451)
0.7259
6,451
0.6785
8,128
MS&Co. analysis
Discount rate
Determining an appropriate discount rate, which is reflective of both the general and specific
risks of a company’s future income stream, is an important element of the Income approach
or DCF methodology. The discount rate is also equated with the acceptable rate of return or
“hurdle rate” of an investor for a specific investment opportunity taking into account the
return on alternative investments and risk factor.
For this Report, weighted average cost of capital (“WACC”) was computed as the acceptable
discount rate to be applied to the projected FCFF during the Forecast Period and the projected
FCFF after the explicit Valuation Period.
SMPHI’s after-tax cost of debt, pegged at 3.6%, pertains to the weighted average interest rate
of SMPHI’s interest-bearing liabilities using March 31, 2013 interest rates. For variable rate
loans, the market rate was provided by management. However, for the fixed rate loans,
(10,455)
May 30, 2013
MS&Co. used the average lending rates of local universal banks for March 25, 2013 sourced
from Business World. A tax rate was not used since SMPHI is using the Optional Standard
Deduction offered by the BIR. As such, interest expense would not be deductible with regard
to computing the income tax to be incurred.
The table on the next page presents the computation for the after-tax cost of debt of SMPHI.
May 30, 2013
SMPHI Loan payables breakdow n as of March 31, 2013
PHP'M
Parent
PHP LOAN
1.2B PHILAM
2.0B MBTC
5.0B BDO CAP
2.0B BPI
1.0B LBP
1.0B LBP
1.0B MBTC
1.0B BPI
7.0B MBTC
Rate
Am ount
Interest
rate
Weighted
int. rate
Fixed
Fixed
Fixed
PDSTF + margin
PDSTF + margin
PDSTF + margin
PDSTF + margin
PDSTF + margin
PDSTF + margin
PDSTF + margin
Fixed
Fixed
PDSTF + margin
PDSTF + margin
Fixed
Fixed
Fixed
PDSTF + margin
PDSTF + margin
PDSTF + margin
Fixed
Fixed
1,200
800
1,100
2,000
1,000
1,000
880
1,000
2,940
1,960
980
784
3,920
980
1,002
132
3,618
198
3,450
1,000
650
2,350
6.2%
6.2%
6.2%
1.1%
3.3%
3.0%
12.4%
1.6%
0.9%
0.9%
6.2%
6.2%
3.7%
3.7%
6.2%
6.2%
6.2%
4.5%
4.5%
4.5%
6.2%
6.2%
0.1%
0.1%
0.1%
0.0%
0.1%
0.0%
0.2%
0.0%
0.0%
0.0%
0.1%
0.1%
0.2%
0.1%
0.1%
0.0%
0.4%
0.0%
0.3%
0.1%
0.1%
0.2%
MBTC ($150M)
ING ($50M)
LIBOR + spread
LIBOR + spread
LIBOR + spread
LIBOR + spread
LIBOR + spread
LIBOR + spread
LIBOR + spread
LIBOR + spread
LIBOR + spread
LIBOR + spread
LIBOR + spread
LIBOR + spread
LIBOR + spread
LIBOR + spread
204
204
204
204
204
1,224
816
4,488
1,428
5,100
408
1,020
6,120
2,040
2.1%
2.1%
2.1%
2.1%
2.1%
2.1%
2.1%
2.1%
2.0%
2.0%
2.1%
2.1%
2.2%
2.2%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.2%
0.0%
0.2%
0.0%
0.0%
0.2%
0.1%
Subsidiaries
PHP LOAN
500M BPI
PDSTF + margin
500
3.7%
0.0%
1,734
5.8%
0.2%
400
5.8%
0.0%
985
6.2%
0.1%
500
300
61,027
6.2%
6.2%
0.1%
0.0%
3.6%
5.0B MBTC
5.0B RCBC
7.5B MBTC
USD LOAN
25M SMBC
30M HSBC
20M HSBC
270M SCB
50M SMBC
RM B LOAN
350M ICBC
150M ICBC
250M ICBC
Short-term PHP LOAN
BPI
Fixed
BPI
Fixed
Source:
SMPHI loan breakdown as of March 31, 2013; BSP loan interest rates during February 11-15, 2013
May 30, 2013
SMPHI’s cost of equity was computed using the Capital Asset Pricing Model (“CAPM”),
which states that the Ke is based on the return generated from risk-free investments (“riskfree rate”) plus a premium for the risks associated with the business (“equity risk premium”).
The risk-free rate (“rf”) represents the minimum return investors would expect from credit
risk-free securities. The rf of 4.0% was considered in the valuation of SMPHI. This was
based on the 10-year Philippine Treasury Bond reissued on February 2013, the nearest
auction date to the Valuation Date for an issue of a 10-year treasury bond.
The market risk premium (“RPm”) represents the excess return to compensate investors for
taking a relatively riskier investment. MS&Co. assumed that 4.91% is the RPm, which is
sourced from Aswath Damodaran in his paper “Equity Risk Premiums (ERP): Determinants,
Estimation, and Implications – The 2013 Edition. Damodaran utilizes several methodologies
in determining the equity risk premium, which includes the survey approach, use of historical
premiums and implied equity premiums.
The beta factor represents the measure of risk of a particular asset relative to the risk of a
portfolio of all risky assets, based on the perception that its share prices move in line with the
“market.” Levered beta factors are always considered in the valuation of companies.
Levered beta is the beta that takes into account the risk of SMPHI due to its capital structure
and applicable tax rate.
WACC computation for SMPHI
MS&Co. used the unlevered beta of the real estate industry, specifically in the operations &
services sector, in emerging markets from Aswath Damodaran
MS&Co. relevered the beta to reflect the target capital structure of SMPHI using the
company’s target debt and equity ratios.
Relevered beta
Form ula:
Unlevered beta factor
Tax rate
Debt ratio
Equity ratio
Relevered beta
Unlevered beta * [1 + (1 - tax rate) * (D/E)]
0.65
0.0%
50.0%
50.0%
1.30
Source: Aswath Damodaran website, MS&Co. analysis
The table below shows the computation of cost of equity using CAPM for SMPHI.
Cost of equity ("Ke")
Risk-free rate ("Rf")
Total risk prem ium
Relevered beta
Ke = Rf + ȕ*(Rm-Rf)
Source:
4.0%
4.9%
1.30
10.4%
Bureau of Treasury; Aswath Damodaran – Equity Risk Premiums (ERP): Determinants, Estimation and
Implications - The 2013 Edition; Aswath Damodaran website, MS&Co. analysis
After performing the procedure as stated above, below is the computed WACC for SMPHI.
May 30, 2013
Weighted average cost of capital
Debt-equity
proportion
WACC
com putation
50.0%
3.6%
0.0%
3.6%
50.0%
100.0%
4.0%
4.9%
1.30
10.4%
7.0%
Cost of debt
Interest rate
Less: Tax rate
Cost of debt
Cost of equity
Risk free rate (Rf)
Total risk premium (Rp)
Beta (ȕ)
Cost of equity (Rf + ȕ*Rp)
Total / WACC
Source: Bureau of Treasury, Aswath Damodaran website, MS&Co. analysis
Terminal value
The terminal value of a business represents its potential earnings beyond the projection
period. The terminal value is determined by capitalizing the estimated cash flows beyond the
Forecast Periods.
Terminal value and DCF value of SMPHI
The computation of the terminal value and the related present value of SMPHI is presented in
the table below:
Enterprise value - SMPHI
PHP'M
Terminal value cash flow s = (FCFF - last projected year)
WACC
Less: Projected same-store grow th rate after 2018
PV of terminal value cash flow s
Discount factor
Present value of terminal value cash flow s
Total discounted FCFF
Enterprise value
Source:
5% grow th
11,979
7.0%
5.0%
605,856
0.6785
411,098
(10,455)
400,644
6% grow th
12,806
7.0%
5.0%
647,686
0.6785
439,482
(8,280)
431,202
7% grow th
13,674
7.0%
5.0%
691,576
0.6785
469,263
(6,030)
463,232
The total present values of projected FCFF in the 5%, 6%, and 7% revenue growth scenarios
are PHP400.6 billion, PHP431.2 billion and PHP463.2 billion. This value represents the
enterprise value of SMPHI as of the Valuation Date. In order to arrive at the equity value,
certain adjustments such as deduction of long-term loans and preferred shares and addition of
cash were made.
May 30, 2013
After the aforementioned adjustments, the range of values of SMPHI using the Income
Approach is PHP358.2 billion to PHP420.8 billion or equivalent to PHP20.62 to PHP24.22
per share.
Incom e approach - SMPHI
PHP'M
Enterprise value
Less: Net debt
Minority interest
Preferred shares
Equity value
Number of outstanding shares
Equity value per share
Source:
6.1.2
5% grow th
400,644
41,358
1,055
358,231
17,374
20.62
6% grow th
431,202
41,358
1,055
388,790
17,374
22.38
7% grow th
463,232
41,358
1,055
420,820
17,374
24.22
Market approach
In using the Market approach, MS&Co. collated information relating to comparable publiclylisted companies operating in the same industry as SMPHI. In searching for comparable
companies for SMPHI, MS&Co initially focused on the listed retail real estate companies in
the Philippines. To determine the comparability of the firms in the initial list of property
companies in the PSE, the two criteria used were: (1) the revenue composition of the
company and (2) the scale of the companies’ operations as compared to SMPHI.
With regard to the revenue composition, MS&Co. analyzed the operations of each of the
property companies in the PSE and determined the significant contributors to their revenues.
To be comparable with SMPHI, the firm’s revenues from shopping center operations or
leasing of commercial spaces should be the largest contributor to its total revenues. From the
40 property-related companies in the PSE, only four companies were deemed comparable
based on their revenue composition.
After eliminating companies based on their revenue composition, the firms were then
evaluated based on the scale of their operations. Companies which operate less than 10 malls
were eliminated. Of the four, only Robinsons Land Corporation was able to meet this
requirement with 32 malls as compared to the other companies with only one to five malls.
Upon exhausting the companies in the Philippines, the Firm extended the search for
comparable companies in the region. According to the Factiva database, there are three listed
retail-oriented companies in the South East Asia and East Asia regions. These companies’
revenues are comprised of shopping center operations and leasing of commercial spaces and
these companies have multiple shopping centers in their specific markets. Two of the
companies, Central Pattana Public Co. Ltd. and CapitaMalls Asia Ltd., have operations
centered on high growth economies, Thailand and China. The other company, AEON Mall
Co., Ltd., is focused on the Japanese region and was eliminated since its operations are
primarily focused on the Japanese consumer market. The table below presents the summary
of the CoCos selection process.
May 30, 2013
CoCos selection
Entity nam e
Selected com panies
Excluded CoCos
(3 com panies)
Mall operations have
the largest revenue
contributions
100.0%
Malls operated should
be m ore than 10
51
Majority of revenues
from grow ing
econom ies
Philippines, China
47.6%
78.4%
99.2%
All CoCos have mall
operations as their largest
revenue contributor
32
21
101
Eliminated local CoCos
have three and five
malls/commercial centers.
Philippines
Thailand
China, Malaysia, India
Eliminated CoCo has
virtually all of its revenues
sourced from Japan
Source: Companies 2012 annual reports
Under the Market approach, the price-to-earnings (“P/E”) multiple, the price-to-book (“P/B”)
multiple and the enterprise value-to-EBITDA (“EV/EBITDA”) multiple were considered in
valuing SMPHI. The respective earnings per share, book value per share, EV and EBITDA
of the CoCos were computed from the latest available financial statements of the CoCos. The
share prices used were based on the closing prices as of March 31, 2013.
May 30, 2013
The calculations for SMPHI’s EPS, Book value per share and EBITDA per share is shown on
the table below:
SMPHI EPS, BVS and EBITDA per share
Notes
Earnings per share
Adjusted book value (In PHP'M) 2
EBITDA per share
EBITDA (In PHP'M) 3
EBITDA per share
Note:
Source:
0.65
4.18
1.19
(1) Annualized net income was computed by deducting 1Q12 net income and addition of 1Q13 net income
(2) Minority interest was deducted to reflect book value attributable to SMPHI’s shareholders
(3) Annualized EBITDA was computed by deducting 1Q12 EBITDA and addition of 1Q13 EBITDA
March 31, 2013 unaudited FS; MS&Co. analysis
The calculation for SMPHI’s value using the Market approach is shown on the table below.
Earnings per share
EBITDA per share
Derived multiple
Range of values
Source:
Weighted average
P/E (x)
0.65
4.18
1.19
22.66
4.17
17.49
14.71
17.47
20.77
17,373,678
17,373,678
17,373,678
N/A
N/A
255,605
17,373,678
14.71
N/A
N/A
303,488
17,373,678
17.47
41,358
1,055
318,525
17,373,678
18.33
MS&Co. analysis
Presented below are the share prices as March 31, 2013 and its respective 30, 60 and 90 day
volume-weighted average share price (“VWAP”) for SMPHI.
90- day volume-w eighted average share price
Source:
Philippine Stock Exchange; MS&Co. analysis
Share price
19.10
18.66
18.68
18.04
May 30, 2013
6.2
Pre-merger valuation of SM Land
6.2.1
Post-tender offer scenario
SM Land is in the process of conducting a tender offer on SMDC and HPI. After the tender
offer transactions, the shareholdings of SM Land shall be as follows:
Sum m ary of SM Land's holdings, post-tender offer
Shares Ow ned by
SM Land
5,314,876,492
9,271,204,239
2,246,244,622
900,000
2,999,300
204,000
SMPHI
SMDC
HPI
ASSODECO
Magenta
SHDC
Total outstanding
shares
17,373,677,760
9,271,204,239
2,246,244,622
900,000
3,000,000
400,000
Ow nership
30.59%
100.00%
100.00%
100.00%
99.98%
51.00%
6.2.2
The valuation approach used for SM Land is the Sum of the Parts Method. Sum of the Parts
was deemed as the most appropriate due to the following:
x
x
The operating companies under SM Land were first valued separately, using the appropriate
valuation method/s. The separate values were then summed up to estimate the total intrinsic
value of SM Land.
Sum of the parts
SM Land
30.59%
100.00%
100.00%
SMPHI
SMDC
HPI
100.00%
99.98%
ASSODECO
Magenta
51.00%
SHDC
100.00%
Other Assets and
Liabilities
•Investment Properties
•AFS investments
•Investments in stocks
•Others
Source: 3M2013 schedule of Investments in Stocks; MS&Co. Analysis
x
MS&Co. computed the values of the investments based on the most appropriate valuation
method for each company. The valuation methods are as follows:
May 30, 2013
o
The value of the investment in SMPHI is based on the Market and Income approach
because the future cash flows are the main driver of SMPHI’s value, and it can be
estimated using historical financial trends.
o
course of the valuation work have materially different gearing ratios compared to
SMPHI and apply different accounting treatments. As such, MS&Co. selected
EV/EBITDA as an appropriate multiple to be used as it generally does not take into
account differences in leverage, amortization and tax treatment. Further, MS&Co.
used the closing price as of March 27, 2013 and the 60-day weighted average volume
price as this is the traded market value of SMPHI as of the Valuation date.
o
The Market and Cost approach was deemed most appropriate to estimate the fair
value of SMDC because the company relies heavily on the sale of its inventory of real
properties to generate its revenues. The value of SMDC is primarily driven by its
asset base which primarily consists of raw land, condominium units for sale, and
properties under development.
o
EV/EBITDA was selected as one of the appropriate multiples to estimate the fair
range of market values for SMDC. EV/EBITDA multiple is generally not sensitive to
differences in capital structures, depreciation and amortization policies, and tax
treatments. In contrast, the P/E multiple will be sensitive to these differences. As
such, MS&Co. considered the use of EV/EBITDA multiple instead of either the P/E
or P/B multiples. The P/B multiple was not considered as an appropriate method to
value SMDC because this multiple does not take into account the earnings potential
of SMDC. Further, a large portion of SMDC’s assets is comprised of real properties
which currently do not reflect the fair market values of the assets.
o
Actual observed market prices were also used and forms part of the range of values.
The closing price as of March 27, 2013, the last trading day for the month, and the
60-day volume-weighted average prices from the Valuation Date were used.
o
For HPI, the Market approach was deemed most appropriate to estimate the
company’s value, wherein the 60-day volume-weighted average prices from the
Valuation Date were used.
o
The value of the investments in ASSODECO, Magenta, and SHDC are based on Cost
approach.
x
All investment property assets recorded under the books of SM Land were adjusted to
reflect the movement in fair market value as of the Cut-off Date. The fair market value
was based on the appraisal reports prepared by CBRE.
x
The fair market values of AFS Investments and Investments in stocks of CBC, BDO, and
SMIC are based on SM Land’s management computations. For the listed shares, the
values were based on the stock exchange prices. For the PLDT shares owned by SM
Land, the value was based on acquisition cost.
x
The investments in ASSODECO, Magenta, and SHDC were valued using the Cost
approach. The fair values of ASSODECO’s investment property and Magenta’s PPE were
based on the appraisal reports prepared by CBRE.
May 30, 2013
The following table summarizes the valuation approaches used to value the “parts” of SM
Land:
Minim um
PHP'M
Valuation basis
Value
Investment in SMPHI
Market approach
97,441.6
Investment in SMDC
Market approach
62,757.2
Investment in HPI
Market approach
5,045.0
Investments ASODECO
Cost approach
300.4
Investments Magenta
Cost approach
394.4
Investments SHDC
Cost approach
3.6
Other assets
CBRE valuation
81,427.9
AFS Investments
SM Land Management
11,063.9
10,873.2
Others
Book value
4,121.3
Liabilities
Total liabilities
Book value
10,035.4
Sum of the parts
263,393.2
39,001,970
6,753.33
Maxim um
Valuation basis
Income approach
Cost approach
Market approach
Cost approach
Cost approach
Cost approach
CBRE valuation
SM Land Management
SM Land Management
Book value
Book value
Value
128,735.2
91,289.8
6,147.5
300.4
394.4
3.6
81,427.9
11,063.9
10,873.2
4,121.3
10,035.4
324,321.9
39,001,970
8,315.53
6.2.3
Valuation of SM Prime Holdings Inc.
After the tender offer by SM Land for HPI and SMDC shares (using SMPHI shares), SM
Land shall own 30.59% of SMPHI. The value of the investment on SMPHI based on the
Income approach is PHP109.6 billion and PHP128.7 billion, based on revenue growth rate
assumptions of 5.0% and 7.0%, respectively. The table below presents the summary of
values.
Valuation range of SM Land's investm ent in SMPHI
PHP'M
Total equity value
Valuation range
Minim um value
Basis
Value
Market approach
318,524.5
30.59%
97,442
Maxim um value
Basis
Value
Income approach
420,819.7
30.59%
128,735
Please refer to Section 6.1 of this report, for further details on the valuation of
SMPHI.
6.2.4
Valuation of SM Development Corporation
After the tender offer by SM Land for SMDC shares, SM Land shall own 100.0% of SMDC.
The table below summarizes the range of values of SMDC.
May 30, 2013
Valuation results - SMDC
Cost approach
Market approach
EV / EBITDA - w eighted average
Valuation range
Per share (PHP)
9.85
Total (PHP'M)
91,290
6.77
8.47
8.22
6.77 to 9.85
62,757
78,527
76,228
62,757 to 91,290
Cost Approach
The following table summarizes the computation for SMDC net asset value per share as of the
Valuation Date, using the Cost approach.
Cost approach
Am ounts in PHP'M
Total assets
Total liabilities
Unadjusted NAV
Fair value of available-for-sale securities
Carrying value of available-for-sale securities
Adjusted fair value of real estate properties
Advances for project development
Adjusted NAV
NAV per share
Source:
13-Mar-13
85,253
42,960
42,293
6,280
5,762
519
86,131
1,596
31,666
724
3,667
37,653
48,478
91,290
9,271,204,239
9.85
Unaudited financial statements as of March 31, 2013; CBRE master property list; MS&Co. analysis
x
All real estate assets recorded under the books of SMDC were adjusted to reflect the
x
valuation methods, namely the market data approach and income approach.
x
According to management, only available-for-sale investments and held for trading
investments are subject to market valuation. Listed shares classified as available-for –
sale investments are stated at fair market value. For shares of Tagaytay Resort Dev’t.
Corp. (“TRDC”), MS&Co. adjusted the value based on MS&Co. valuation. MS&Co.
used the Cost approach in valuing TRDC.
The table below presents the breakdown of available-for-sale investments.
May 30, 2013
Available for sale investm ents
Com pany
Listed shares
Highlands Prime, Inc.
Belle Corporation
Shang Properties, Inc.
Export and Industry Bank, Inc.1
Keppel Philippines Holding, Inc.
Picop Resources, Inc.2
Republic Glass Holdings Corporation
Benguet Corporation
Unlisted shares
Tagaytay Resort Dev't. Corp.
Total
Note:
Source:
Carrying value
as of 3M2013
(In PHP'M)
Num ber of
shares
770
4,193
652
2
15
8
54
2
337,911,101
735,553,561
189,550,548
7,829,000
3,035,836
40,000,000
19,216,512
88,919
66
5,762
105,000
Latest share
price (In PHP)
2.28
5.70
3.44
0.26
5.05
0.21
2.80
17.70
5,565.70
FMV as of
3M2013
(In PHP'M)
770
4,193
652
2
15
8
54
2
584
6,280
Available-for-sale schedule as of March 31, 2013 provided by management; PSE; MS&Co. analysis
The table below presents the appraised values of properties excluded in determining fair
market value of SMDC’s real properties.
Adjustm ents to the approxim ate FMV as of 3M2013
Property
Makati Home Depot
102 EDSA Realty Corp.
Total
Source:
Appraised values
(In PHP'M)
1,602
1,269
2,871
Details
CBRE appraisal as of February 28, 2013; SMDC management
The adjusted fair market value of SMDC’s real properties is shown below:
Adjusted fair m arket value of real properties as of March 31, 2013 (In PHP'M)
Approximate FMV as of 3M2103
Adjustments
Adjusted FMV of real properties as of 3M2013
Source:
89,002
2,871
86,131
CBRE appraisal as of February 28, 2013; SMDC management; MS&Co. analysis
In using the Market approach, MS&Co. gathered information relating to comparable publiclylisted companies operating in the same industry as SMDC. The CoCos were selected based on
In addition to SMDC, there are 39 property companies listed in the PSE. Out of the 39, 20
companies are engaged in the sale of real estate. From the 20 companies, the list of
comparable companies were evaluated and then chosen based on the following:
x
Majority (more than 50%) of the companies’ operating revenues should be derived from
real estate sales
x
Suite of products should include affordable to mid-end residential units
May 30, 2013
x
Assets and operating revenues of the company should be relatively similar to SMDC’s
asset and operating revenue levels
After considering the criteria listed above, MS&Co. identified Filinvest Land, Inc. (“FLI”)
and Vista Land and Lifescapes, Inc. (“VLL”) as comparable companies. The table below
presents the summary of the CoCos selection process.
SMDC CoCos Selection
Products include
affordable to m idend residential
units
Yes
Operating
Total assets as of
revenues as of
Decem ber 31,
Decem ber 31, 2012
2012 (In PHP)
(In PHP)
21,578,437,825
80,197,847,563
Developm ent
type
Revenue m ix
Mid-market
residential units
100% real estate
sales
units
Affordable, midVLI
end and highend residential
units
Affordable, midExcluded
end and highCoCos
(18 com panies) end units
83.2% real estate
sales
Yes
10,575,688,000
81,927,264,000
99.9% real estate
sales
Yes
16,359,932,258
74,331,429,608
All CoCos derive
majority of their
operating revenues
from real estate sales
14 out of the 17
CoCos sell affordable
to mid-end residential
units
Entity nam e
SMDC
Selected
FLI
Note:
Source:
Range below
SMDC's level:
PHP15.3 million to
PHP8.80 billion
Range below
SMDC's level
PHP0.48 billion to
PHP35.97 billion
Range above
SMDC's level:
PHP25.37 billion to
49.0 billion
Range above
SMDC's level:
PHP142.72 billion to
PHP231.23 billion
SMDC and CoCos 2012 annual reports; CoCos websites
price-to-book (“P/B”) multiple and the enterprise value-to-EBITDA (“EV/EBITDA”)
multiple in valuing SMDC. The respective earnings per share, book value per share and
EBITDA of the CoCos were lifted from the Philippine Stock Exchange and quarterly reports
as of March 31, 2013 of CoCos. The share prices used were based on the closing prices as of
March 31, 2013.
The calculation for SMDC’s value using the Market approach is shown on the table below.
May 30, 2013
SMDC EPS, BVS and EBITDA per share
Notes
Earnings per share
Book value (In PHP'M)
EBITDA per share
EBITDA (In PHP'M)2
EBITDA per share
Note:
Source:
0.55
4.56
0.61
MS&Co. analysis
P/E (x)
Earnings per share
0.55
EBITDA per share
Derived multiple (w eighted average)
11.61
6.33
Range of values
9,271
N/A
N/A
Preferred shares (PHP'M)
N/A
58,674
9,271
6.33
Source:
4.56
1.02
4.66
0.61
14.29
8.72
9,271
9,271
N/A
N/A
N/A
43,207
9,271
4.66
18,086
0
0
62,757
9,271
6.77
MS&Co. analysis
day volume-weighted average share price (“VWAP”) for SMDC. The VWAP computations
were based on the closing price for the day and the total volume traded for the day.
90- day volume w eighted average share price
Source:
PSE; MS&Co. analysis
Per share
8.47
8.30
8.22
7.85
May 30, 2013
6.2.5
Valuation of Highlands Prime, Inc
After the tender offer by SM Land for HPI shares, SM Land shall own 100.0% of HPI. The
value the HPI investment based on its 60-day volume-weighted average price is PHP5.5
billion. The table below summarizes the range of values for HPI.
Valuation results (HPI)
Per share (PHP)
Market approach
EV/ EBITDA - w eighted average
Valuation range
Source:
2.25
2.28
2.74
2.25 to 2.74
Total (PHP'M)
5,045
5,121
6,148
5,045 to 6,148
MS&Co. Analysis
In using the Market approach, MS&Co. collated information relating to comparable publiclylisted companies operating in the same industry as HPI. The CoCos were selected based on
In addition to HPI, there are 39 property companies listed in the PSE. Out of the 39, MS&Co.
have identified 20 companies engaged in the sale of real estate. From the 20 companies,
MS&Co. selected the comparables based on the following criteria:
x Company’s product should include high-end residential units
x Residential development projects are proximate with each other within a particular area x Majority of revenues should come from real estate sales
x Total assets and revenues of the company should be relatively close to HPI’s asset and
real estate sales levels
After considering the criteria listed above, MS&Co. have identified Arthaland Corporation
(“ALCO”), Anchor Land Holdings, Inc. (“ALHI”) and Primex Corporation (“PRMX”) as
CoCos. The table below presents the summary of the CoCos selection process.
May 30, 2013
HPI CoCos selection
Real estate sales for the Total assets level as
Areas covered by
of Decem ber 31, 2012
residential
Operating revenue year ended Decem ber
31, 2012 (in PHP)
m ix
Entity nam e Developm ent type developm ent
(in PHP)
HPI
High-end residential Tagaytay, Batangas 100% from real
and leisure
and Cavite
estate sales
521,486,405
4,038,398,665
95.0% from real
estate sales;
5.0 % from rental
income &
management fees
3,597,270,307 (6.90 times
bigger than HPI)
13,321,353,770 (3.30
times bigger than HPI)
100% from real
estate sales
1,453,263,809 (2.79 times
bigger than HPI)
3,641,388,604 (0.90
times smaller than HPI)
11,605,430 (0.02 times
smaller than HPI)
478,248,589 (0.12 times
smaller than HPI)
PHP0.3 billion to PHP32.3
billion
PHP4.2 billion to
PHP231.2 billion
Selected CoCos
Old Manila,
Binonodo, Ermita,
Paranaque, San
Juan
ALHI
Mainly high-end
residential and
commercial
ALCO
Middle and high-end
residential,
Taguig
commercial and
leisure
PRMX
High-end residential
Mix of low -end,
middle, and high-end
Excluded
CoCos (17 residential, leisure,
com panies) commercial, and
industrial
Malabon and
Antipolo
May be w ithin a
certain area or
spread across
various locations
75.9% from real
estate sales;
24.1% from rental
income
All CoCos derived
majority (more than
50.0%) of their
operating income
from real estate
sales
Note:
Source: 2012 Annual Report of the 18 identified CoCos; MS&Co. analysis
price-to-book (“P/B”) multiple and the Enterprise value-to-EBITDA (“EV/EBITDA”)
multiple in valuing HPI. The respective earnings per share, book value per share and
EBITDA of the CoCos were lifted from their respective financial statements. The share
prices used were based on the closing prices as of 3M2013.
MS&CO.’s calculation for HPI’s value using the Market approach is shown on the table
below.
HPI EPS, BVS and EBITDA per share
Notes
Net income (in PHP'M)
Total equity (in PHP'M)
EBITDA (in PHP'M)
Note:
Source:
0.02
1.23
0.04
MS&Co. analysis
May 30, 2013
Market approach - CoCos (HPI)
Weighted average
P/E (x)
Earnings per share
EBITDA per share
Derived multiple
Value per share (PHP/share)
Range of values
Capital stock - preferred (PHP'M)
Equity value per share(PHP)
0.02
1.23
90.11
1.43
3.11
3.82
0.04
63.51
2.58
2,246,245
N/A
N/A
N/A
3,214
2,246,245
1.43
2,246,245
N/A
N/A
N/A
8,573
2,246,245
3.82
2,246,245
756
5,045
2,246,245
2.25
Source: Interim financial statements of HPI as of 3M 2013; Capital IQ; MS&Co. analysis
day volume-weighted average share price (“VWAP”) for HPI. The VWAP computations
were based on the closing price for the day and the total volume traded for the day.
Market approach - VWAP (HPI )
6.2.6
Share price
2.28
2.20
2.75
2.64
Valuation of ASSODECO
As of March 31, 2013, SM Land owns 100.00% of ASSODECO. The total value of the
investments in ASSODECO is PHP300.4 million. The summary of the fair value of
ASSODECO is as follows:
ASSODECO- Cost approach
PHP'M
Total assets
Total liabilities
Unadjusted NAV
Adjusted NAV
Total value of investm ent in ASSODECO
3M2013
221.0
311.1
(90.1)
390.6
300.4
100.0%
300.4
Source: 3M2013 ASSODECO Unaudited Statement of Financial Position; CBRE appraisal report; MS&Co. Analysis
of an investment property from PHP 191.4 million to its fair market value of PHP582.0
million. The fair market value is based on the valuation of CBRE using the income approach.
May 30, 2013
6.2.7
Valuation of Magenta
As of March 31, 2013, SM Land owns 99.98% of Magenta. The value of the investment in
Magenta is PHP394.4 million. The summary of the fair value of Magenta is as follows:
Magenta- Cost approach
PHP'M
Total assets
Total liabilities
Unadjusted NAV
Adjusted NAV
Total value of investm ent in Magenta
3M2013
293.4
19.4
274.0
120.5
394.5
100.0%
394.4
Source: 3M2013 Magenta Unaudited Statement of Financial Position; CBRE appraisal report; MS&Co. Analysis
of an property plant and equipment from PHP276.7 million to its fair market value of
PHP397.2 million. The fair market value is based on the valuation of CBRE using the cost
approach.
6.2.8
Valuation of SHDC
As of March 31, 2013, SM land owns 51.00% of SHDC. The total equity value of SHDC is
PHP7.1 million and the total value of the investment in SHDC is PHP3.6 million. The
summary of the fair value of SHDC is as follows:
SHDC- Cost approach
PHP'M
Total assets
Total liabilities
NAV
Total value of investm ent in SHDC
3M2013
457.6
450.5
7.1
51.0%
3.6
Source: 3M2013 SHDC Unaudited Statement of Financial Position; MS&Co. Analysis
2013 statement of financial position.
May 30, 2013
6.2.9
Other SM Land assets
The summary of the fair value of other assets is as follows:
Fair values of SM Land's properties
PHP'M
Investm ent properties
AFS investm ents
Ayala Corp.
PLDT
Prime Media Holdings
Others
Allow ance for impairment
Total AFS investments
Investm ents in stocks
BDO
CBC
SMIC
Total investments in stocks
Others
Receivables
Net pension asset
Total other assets
Total
Basis
CBRE Valuation
Fair value
81,427.9
11,059.1
3.1
0.9
0.8
(0.1)
11,063.9
6,750.3
3,688.5
434.4
10,873.2
Book value
Book value
Book value
Book value
Book value
Book value
727.5
2,745.6
379.6
197.8
17.2
53.6
4,121.3
107,486.3
Source: CBRE appraisal report; 3M2013 Schedule of Investments; 3M2013 Schedule of AFS; MS&Co. Analysis
The fair market values of investment properties are based on the appraisal reports prepared by
CBRE, while the fair market values of AFS investments and investments in stocks of CBC,
BDO, and SMIC are based on SM Land’s management computations. For the listed shares,
the values were based on the stock exchange prices. For the PLDT shares owned by SM
Land, the value was based on acquisition cost. The allowance for impairment pertaining to the
AFS investments pertains to the cost of club shares in the books of SM Land but the
certificates are not in the name of the company.
52
May 30, 2013
6.2.10 Sum of the parts summary
The fair range of values for SM Land using the SOTP approach is PHP263.4 billion and
PHP324.3 billion or PHP6,753.33 and PHP8,315.53 per share. The summary is as follows:
Minim um
PHP'M
Valuation basis
Value
Investment in SMPHI
Market approach
97,441.6
Investment in SMDC
Market approach
62,757.2
Investment in HPI
Market approach
5,045.0
Investments ASODECO
Cost approach
300.4
Investments Magenta
Cost approach
394.4
Investments SHDC
Cost approach
3.6
Other assets
CBRE valuation
81,427.9
AFS Investments
SM Land Management
11,063.9
10,873.2
Others
Book value
4,121.3
Liabilities
Total liabilities
Book value
10,035.4
Sum of the parts
263,393.2
39,001,970
6,753.33
Maxim um
Valuation basis
Income approach
Cost approach
Market approach
Cost approach
Cost approach
Cost approach
CBRE valuation
SM Land Management
SM Land Management
Book value
Book value
Value
128,735.2
91,289.8
6,147.5
300.4
394.4
3.6
81,427.9
11,063.9
10,873.2
4,121.3
10,035.4
324,321.9
39,001,970
8,315.53
53
May 30, 2013
6.3
The value of SMPHI after the merger with SM Land is the sum of the pre-merger value of
SMPHI and pre-merger value of SM Land, less the remaining investment of SM Land in
SMPHI. Deducting the investment in SMPHI shall avoid double counting, since this
represents reciprocal holdings.
Post-merger structure of SMPHI
SM Land’s
SMPHI
investment
SM Land
in SMPHI
The table below presents the post-merger value of SMPHI.
PHP'M
Sum of the parts
SM Land, Inc.
Price per share
Minim um
Valuation approach
Market approach
Sum of the Parts
Market approach
Values
318,525
263,393
(97,442)
484,476
26,475
18.30
Maxim um
Valuation approach
Income approach
Sum of the Parts
Income approach
Values
420,820
324,322
(128,735)
616,406
26,475
23.28
54
May 30, 2013
7
Conclusion and Fairness Opinion
7.1
The fair range of values for SM Land using the SOTP approach is PHP275.9 billion and
PHP355.0 billion or PHP14,147.20 and PHP18,206.56 per share. The summary is as follows:
PHP
Valuation Date
March 31, 2013
March 31, 2013
March 31, 2013
March 31, 2013
March 31, 2013
Per Share (PHP)
461,337.29
2,635.45
735.38
5,565.70
1,034.23
Total (PHP)
1,153,343,213
7,149,969,000
3,057,348,442
1,753,196,723
413,693,822
13,527,551,199
7.2
Presented below are the fair values of the SMIC properties included in the transaction
PHP'M
Taal Vista Hotel
Radisson Cebu Hotel
Pico Sands Hotel
MoA Arena
MoA Arena Annex
Corporate Office
Tagaytay
EDSA West
Total
Valuation used
Cost
Cost
DCF
Cost
Cost
Cost
Cost
Appraised value
2,014
2,375
704
1,608
3,369
1,673
895
DCF
861
2,034
209
594
16,336
Market data
Market data
Cost
Source: CBRE appraisal report as of February 28, 2013
7.3
Presented below are the valuation results of SMPHI.
PHP'M
Sum of the parts
SM Land, Inc.
Price per share
Minim um
Valuation approach
Market approach
Sum of the Parts
Market approach
Values
318,525
263,393
(97,442)
484,476
26,475
18.30
Maxim um
Valuation approach
Income approach
Sum of the Parts
Income approach
Values
420,820
324,322
(128,735)
616,406
26,475
23.28
7.4
Given the above fair range of values, the estimated ratio for the share-for-share swap
transactions are as follows:
55
Presented to:
SM INVESTMENTS
CORPORATION
Various Philippine locations
As of: 28 February 2013
SM INVESTMENTS CORPORATION
28 February 2013
15 March 2013
10th Floor One E-Com Center
Harbour Drive, Mall of Asia Complex
Pasay City, Metropolitan Manila, Philippines
Attention: Ms. Ruby LL. Cano
Senior Vice President - Controllership
-------------------------------------------------------Gentlemen:
Re: Appraisal of Property
---------------------------------
1.0
INTRODUCTION
1.1
Instructions
In fulfilment of our agreement as outlined in the Letter of Engagement
dated 15 February 2013, we are pleased to submit herewith our
Executive Summary Report on the opinion of Market Value for those
certain real estate properties consisting of eighteen (18) assets at
various Philippine locations, appraised as of 28 February 2013 (the
“valuation date”). The appraisal has been prepared in connection with
SM Prime Holdings, Inc.'s proposed acquisition of certain real property
assets and companies owned by SM Investments Corporation.
The property appraised consists of land, buildings, other land
improvements and building machinery & equipment. All other assets not
mentioned above are excluded in this report.
The various sites, subject of this engagement, are segregated into three
(3) main categories, namely: Investment Properties; Development
Properties; and Land (portion with investment). Investment Properties
are properties with completed developments; Development Properties
are properties which are still in development phase and not yet
completed; while Land (portion with investment) pertains to large tracts
of land with a section having a completed development and a section
still vacant. The Investment properties are further sub-categorized as
Office, Hospitality and Convention Center while the Development
Properties are sub-categorized as Office.
We confirm that we have inspected the sites on various dates in March
2013. The inspection date differs from the valuation date, following
your instructions. We therefore need to assume that no material change
has occurred between inspection date and the valuation date.
Valuation & Advisory Services
Page 1
CB RICHARD ELLIS PHILIPPINES, INC.
28 February 2013
The Valuers supervising this appraisal exercise are Messrs. Wenceslao
D. Fuentes, Jr., Jacqueline T. Guerta, Rogel P. Cayamanda and Jesus
Constance M. Castro. Their relevant qualification and experience,
together with the appraisers involved are attached in the Individual
Profiles Section of this Executive Summary Report.
1.2
Definition of Terms
The appraisal is made on the basis of Market Value which is defined
under IVS 2011 as “the estimated amount for which an asset should
exchange on the valuation date between a willing buyer and a willing
seller in an arm’s-length transaction, after proper marketing and where
the parties had each acted knowledgeably, prudently and without
compulsion.”
Our valuation has been made on the assumption that the owner sells
the Property on the open market without the benefit of a deferred terms
contract, leaseback, joint venture, management agreement or any
similar arrangement which would affect the value of the Property.
1.3
Assumptions and Limiting Conditions
This valuation is subject to the following assumptions and limiting
conditions:
The valuation is based on the condition of the economy and the
purchasing power of the Philippine Peso as of the effective date of
valuation.
Legal descriptions, including leases, information, maps, signed or
unsigned surveys, estimates and opinions furnished or made available
to the appraiser and contained in this study were obtained from sources
considered reliable and believed to be true and correct. However, no
responsibility for accuracy and legality of such items furnished can be
assumed by the appraiser.
This valuation assumes no responsibility for the validity of legal matters
affecting the property. The ownership history reported in this valuation
is based on the appraiser’s research of public records, which are
assumed to be accurate and complete. It is not the intent of the
valuation to offer a legal opinion of title. It is further assumed that the
property has good title, responsible ownership and competent
management. Any liens or encumbrances which may now exist have
been disregarded.
Any maps or plot plans reproduced and included in the report are
intended only for the purpose of showing spatial relationship. They are
not necessarily measured surveys or measured maps, and we will not
Page 2
28 February 2013
be responsible for topographic or surveying errors. The appraiser has
made no survey of the property. No liability will be assumed for soil
conditions, bearing capacity of the subsoil or for engineering matters
related to proposed or existing structures.
It is assumed that there is full compliance with all applicable Philippine
environmental regulations and laws unless non-compliance is stated,
defined, and considered in this appraisal report.
When the study contains a valuation relating to an estate in land that is
less than the whole fee simple estate, the value reported for such estate
relates to a fractional interest only in the real estate involved, and the
value of this fractional interest plus the value of all other fractional
interests may or may not equal the value of the entire fee simple estate
which is considered the whole.
We assume that the fee simple interest is marketable and in compliance
with the applicable laws of the Philippines.
When the valuation report contains an allocation of the total valuation
between land and building improvements, such allocation applies only
under the existing program of utilization. The separate valuations for
land and building cannot be used in conjunction with any other
valuation/appraisal and will be invalid if so used.
It is assumed that all applicable zoning and use regulations have been
complied with, unless a nonconformity is stated, defined and considered
in the study. It is also assumed that all required licenses, certificates of
occupancy, consents, or other legislative or administrative authority
from the Philippine government or private entity or organization have
been or can be obtained or renewed for any use on which the value
estimate contained in this study is based.
No information was furnished to the appraiser regarding the presence
of Radon seepage in the subject site or that it has ever been used as, or
part of, a sanitary landfill or toxic waste dump.
Unless otherwise stated in this report, the existence of hazardous
materials, and gases and other noxious emissions that may or may not
be present on the property, were not observed by the appraiser. The
appraiser has no knowledge of the existence of such materials or gases
affecting the property. The appraiser, however, is not qualified to detect
such substances. The presence of asbestos building materials, ureaformaldehyde
foam
insulation,
poly-chlorinated
biphenyl
filled
transformers, aluminum based electrical wiring, or other elements of
potentially hazardous materials not currently recommended by the
Uniform Building Codes may affect the value of the property. The value
Page 3
28 February 2013
estimate is predicated on the assumption that there is no such material
on or in the property that would cause a loss in value. No responsibility
is assumed for any such conditions, or for any expertise or engineering
knowledge required to discover them.
Information provided by informed local sources, such as government
agencies, financial institutions, Realtors, buyers, seller and others, was
weighed in the light in which it was supplied and checked by secondary
means;
however,
no
responsibility
is
assumed
for
possible
misinformation.
Possession of this report, or a copy thereof, does not carry with it the
right of publication. This report may not be used by anyone except the
client, and then only with proper qualification. All copies will originate
at CB Richard Ellis Philippines Inc. and will be signed and dated as
such.
The appraiser is not required to give testimony or attendance in court by
reason of this valuation, with reference to the property in question,
unless arrangements have been previously made.
This report shall not be conveyed in whole or in part to the public
through advertising, public relations, news, sales, or other media
without the written consent and approval of the author. This applies
particularly to written conclusions, the identity of the appraiser or firm
with which he or she is connected.
The delivery and acceptance of this report completes this assignment.
1.4
Confidentiality and Disclaimer
This report and valuation shall be used only in its entirety and no part
shall be used without the whole report. It may not be used for any
purposes other than the intended purpose mentioned above.
Possession of this report or any copy thereof does not carry with it the
right of copying or publication. All copies will originate from CB
Richard Ellis Philippines, Inc. and will be signed and dated as such.
Neither the whole nor any part of the report or any reference to our
name, our valuation and our report may be included in any document,
circular or statement nor published without our prior written consent to
the form and context in which it may appear.
The liability of CB Richard Ellis Phils., Inc. and its directors and
employees is limited to the addressee of this report only. No
accountability, obligation or liability to any third party is accepted. In the
event we are subject to any liability in connection with this engagement,
regardless of legal theory advanced, such liability will be limited to the
amount of fees we received for this engagement.
Page 4
28 February 2013
2.0
VALUER’S CERTIFICATION
We certify that, to the best of our knowledge and belief:
The statements of fact contained in this report are true and correct and
no important facts have been withheld or overlooked.
The reported analyses, opinions and conclusions are limited only by the
reported assumptions and limiting conditions, and our personal,
unbiased professional analyses, opinions, and conclusions.
We have no present or prospective interest in the property that is the
subject of this report, and we have no personal interest or bias with
respect to the parties involved.
Our compensation is not contingent upon the reporting of a
predetermined value or direction in value that favors the cause of the
client, the amount of the value estimate, the attainment of a stipulated
result, the approval of a loan, or the occurrence of a subsequent event.
Our analyses, opinions, and conclusions were developed, and this
report has been prepared, in conformity with the International Valuation
Standards (IVS) as set out by IVSC.
We certify that our knowledge and experience are sufficient to allow us
to competently complete this valuation.
We made a personal inspection of the subject property, and no
significant professional assistance was provided by anyone in the report
preparation.
That the Value of the subject property, appraised as of 28 February
2013, amounts to that specified in the pertinent sections of this Report.
___________________________________
______________________________
WENCESLAO D. FUENTES, JR., CPV®
Director
Licensed Real Estate Appraiser
PRC Reg. No. 422
Date Issued and Validity: 04/14/2011 - 04/15/2014
PTR No. 3685230 - 01/15/2013; Makati City
JACQUELINE T. GUERTA, CPV®
Director
PRC Registration No. 949
_____________________________
____________________________________
ROGEL P. CAYAMANDA, CPV®
Associate Director
PRC Reg. No. 392
JESUS CONSTANCE M. CASTRO, CPV®
Senior Manager
PRC Reg. No. 423
Page 5
28 February 2013
3.0
EXECUTIVE SUMMARY
Premised on the foregoing, the market value of the property is estimated as
under:
Market Value
Office
Hospitality
Convention Center
PhP2,568,000,000
6,548,093,000
4,977,320,000
-----------------------PhP14,093,413,000
Total for Investment Properties
Development Properties
Office
PhP209,000,000
Land (portion with investment)
PhP2,034,000,000
-----------------------PhP16,336,413,000
===========
TOTAL
The values reflected herein are as of 28 February 2013, the (“valuation date”).
This valuation report is provided subject to the assumptions,
qualifications, limitations and disclaimers detailed throughout this
report which are made in conjunction with those included within the
Assumptions, Qualifications, Limitations & Disclaimers section located
at Section 1.3 of this Summary report. Reliance on this report and
extension of our liability is conditioned upon the reader’s
acknowledgement and understanding of these statements. This
valuation is for the use only of the party to whom it is addressed and
for no other purpose. No responsibility is accepted to any third party
who may use or rely on the whole or any part of the content of this
valuation. The valuer has no pecuniary interest that would conflict with
the proper valuation of the property.
Assumptions,
Disclaimers,
Limitations &
Qualifications
Prepared by
:
CB RICHARD ELLIS PHILS., INC.
_________________________
RAFAEL J. CENZON, CPV®
Director
PRC Reg. No. 213
Page 6
28 February 2013
4.0
VALUATION RATIONALE
The appraisal service shall report the market value of the properties.
4.1
Appraisal Methodology
In arriving at our opinion of market value, appraised as of 28 February
2013, we have considered relevant general economic factors and
conditions. A variety of approaches have been considered with regards
to the nature and scale of the various properties. The determination of
the appropriate approach for a given property is based on the quality
and quantity of data available, particularly its relevance to the property
under appraisement. If more than one valuation approach is utilized,
the resulting values are reconciled or one value is recommended to
produce a final value conclusion. For this engagement, we have
adopted the Market Data Approach for vacant land and cost approach
for improved properties. Income approach, both Direct Capitalization
Method and Discounted Cash Flow Analysis, was likewise adopted for
income generating properties.
Briefly describing the valuation methods used, the Cost Approach is
based on the principle of substitution, which holds that an informed
buyer would not pay more for a given property than the cost of buying
an equally desirable alternative. The methodology of the Cost Approach
is a set of procedures that estimate the current reproduction cost of the
improvements, then deducting accrued depreciation from all sources,
and adding the value of the land.
The Market Data (or Direct Sales Comparison) Approach is a method of
comparing prices paid for comparable properties sold in the market
against the subject property. The weight given to this approach is
dependent on the availability of recent confirmed sales of properties
considered comparable to the property under appraisement. These sold
properties are compared to the subject in key units of comparison.
Appropriate adjustments are made for differences between the subject
and the comparables, resulting in adjusted sales values for each of the
comparables. These adjusted values are then reconciled for a value
conclusion by the Sales Comparison Approach.
The Income Approach is based on the premise that the value of a
property is directly related to the income it generates. This approach
converts anticipated future gains to present worth by projecting
reasonable income and expenses for the subject property. The Income
Capitalization
Approach
is
considered
appropriate
for
valuing
investment properties, as it mirrors the analysis of typical investors.
Page 7
28 February 2013
Under the Income Approach, we have adopted both the Direct
Capitalization Method and the Discounted Cash Flow Analysis, briefly
described below.
In Direct Capitalization Method, a one year net operating income
forecast is divided by an overall rate.
All parameters of a typical
investor return expectations are represented either explicitly or implicitly
in either income forecast or the capitalization rate. These expectations
include current operating income and cash flow, income growth, the
security of that income and equity build up through amortization. The
direct capitalization rate, as the ratio of income to value, serves as a
proxy for investor return assumptions.
Discounted Cash Flow Analysis, on the other hand, is a form of analysis
that allows an investor or owner to make an assessment of the longterm return that is likely to be derived from a property with a
combination of rental and capital growth over an assumed investment
horizon. In undertaking this analysis, a wide range of assumptions are
made including base rental, rental growth, statutory and operating
expenses, and sale price and disposal of the property at the end of the
investment period.
Page 8
28 February 2013
5.0
GENERAL VALUATION ASSUMPTIONS
Land details including land titles, lot areas, lot plans and survey plans
were based on information furnished us.
In some cases, two or three approaches to value were considered in our
valuation, as one or more may be applicable to the subject
property/assets. In some situations, elements of two or three
approaches may be combined to reach a value conclusion. However,
our recommended opinion of value is based on the approach we
deemed to be the most appropriate to use.
In valuing vast tract or large parcels of land comprising of several lots
presently utilized or intended to be utilized for a common type of
property development, valuation of the land is as a whole or for the
entirety of the land, considering the highest and best use.
In our valuation of Condominium and Subdivision projects, we relied
considerably on selling prices furnished to us by the client. We have
investigated these selling prices and have adopted the same as the
average selling prices in our valuation. Our valuation is based on the
total market value of these saleable units as of valuation date.
Provisions for cost to complete of projects under construction and cost of
sale however were deducted from the property value.
All on-going condominium and subdivision projects were assumed to
be completed as planned.
When the property involves improvements erected on land under lease
in which the lessor or land owner is a related Company, land was
valued in fee simple in favour of the lessor or land owner.
For land considered for prospective development, as an alternative
valuation method to Direct Sales Comparison Approach, we have
likewise considered the Land Residual Method. In our analysis and in
the development of the recommended value of the site, reference was
heavily relied either on an anticipated development scheme according
to the concept presented to us or a predominant development plan
based on our findings gathered during our inspection. However, when
the value by Land Residual Method was arrived at using a concept
presented to us, no further study to determine the feasibility or
investigation for legal permissibility for such a concept was conducted.
Likewise, in the absence of a full feasibility study, no provision for
possible synergy with other property development of the client was
considered in the valuation.
Page 9
28 February 2013
Valuation Date is 28 February 2013. All relevant information provided
to us such as selling prices and number of unsold units/lots for
condominium and subdivision projects and rent rolls for income
generating assets among others, were assumed as of the valuation
date.
Page 10
Presented to:
TAGAYTAY RESORT &
DEVELOPMENT CORP.
Tagaytay City, Philippines
TAGAYTAY RESORT & DEVELOPMENT CORP.
Tagaytay City
28 February 2013
15 March 2013
10/F Mall of Asia Arena Annex Building
Coral Way corner J.W. Diokno Boulevard
Mall of Asia Complex, Pasay City
Metropolitan Manila, Philippines
Attention: Ms. Ruby LL. Cano
Senior Vice President - Controllership
-------------------------------------------------------Gentlemen:
---------------------------------
1.0
INTRODUCTION
1.1
Instructions
Executive Summary Report on the opinion of Market Value for certain
real estate property located in Tagaytay City, Philippines, appraised as
of 28 February 2013 (the “valuation date”). The appraisal has been
prepared in connection with SM Prime Holdings, Inc.'s proposed
acquisition of certain real property assets and companies owned by SM
Investments Corporation.
The property appraised consists of land only. All other assets not
mentioned above are excluded in this report.
Part of the land is actually improved. The improvements, however, are
owned by the tenant and were valued under a separate cover. For
purposes of this report, the subject land is categorized as “Land (portion
with investment)”.
We confirm that we have inspected the site in March 2013. The
inspection date differs from the valuation date, following your
instructions. We therefore need to assume that no material change has
occurred between inspection date and the valuation date.
Page 1
Tagaytay City
28 February 2013
1.2
Definition of Terms
compulsion.”
1.3
conditions:
valuation.
been disregarded.
Page 2
Tagaytay City
28 February 2013
foam
insulation,
poly-chlorinated
biphenyl
filled
Page 3
Tagaytay City
28 February 2013
means;
however,
no
responsibility
is
assumed
for
possible
misinformation.
such.
1.4
Page 4
Tagaytay City
28 February 2013
2.0
preparation.
___________________________________
______________________________
Director
PRC Reg. No. 422
Director
_____________________________
____________________________________
Associate Director
PRC Reg. No. 392
Senior Manager
PRC Reg. No. 423
Page 5
Tagaytay City
28 February 2013
3.0
EXECUTIVE SUMMARY
under:
Market Value
-
PhP2,377,000,000
===========
The value reflected herein is as of 28 February 2013, the (“valuation date”).
Assumptions,
Disclaimers,
Limitations &
Qualifications
Prepared by
:
_________________________
Director
PRC Reg. No. 213
Page 6
Tagaytay City
28 February 2013
4.0
VALUATION RATIONALE
4.1
adopted the Market Data Approach since the property covers land only.
Briefly describing the valuation method used, the Market Data (or Direct
Sales Comparison) Approach is a method of comparing prices paid for
comparable properties sold in the market against the subject property.
The weight given to this approach is dependent on the availability of
recent confirmed sales of properties considered comparable to the
property under appraisement. These sold properties are compared to
the subject in key units of comparison. Appropriate adjustments are
made for differences between the subject and the comparables,
resulting in adjusted sales values for each of the comparables. These
adjusted values are then reconciled for a value conclusion by the Sales
Comparison Approach.
Page 7
Tagaytay City
28 February 2013
5.0
presented to us, no further study to determine the feasibility nor
Page 8
Tagaytay City
28 February 2013
date.
Page 9
Presented to:
SM PRIME
HOLDINGS, INC.
Various Philippine and China
locations
SM PRIME HOLDINGS, INC.
Various Philippine and China locations
28 February 2013
15 March 2013
10/F Mall of Asia Arena Annex Building
Coral Way corner J.W. Diokno Boulevard
Mall of Asia Complex, Pasay City
Metropolitan Manila, Philippines
Attention: Ms. Teresa Cecilia H. Reyes
Vice President - Finance
-------------------------------------------------Gentlemen:
---------------------------------
1.0
INTRODUCTION
1.1
Instructions
certain real estate properties consisting of seventy (70) assets at various
Philippine and China locations, appraised as of 28 February 2013 (the
the proposed merger of SM Prime Holdings, Inc. and SM Land, Inc.
The property appraised consists of land, leasehold rights on land,
buildings, other land improvements and building machinery &
equipment. All other assets not mentioned above are excluded in this
report.
Properties; and Rawland. Investment Properties are properties with
completed developments; Development Properties are properties which
are still in development phase and not yet completed; while Rawland
pertains to vacant lots (land bank). The Investment properties are further
sub-categorized as Retail while the Development Properties are subcategorized as Retail and Residential.
Page 1
28 February 2013
1.2
Definition of Terms
compulsion.”
For the leasehold rights on the land, our valuation wishes to establish
the Leasehold Value or Lessee’s Interest, which is defined to mean as
“the estimated value of a leasehold interest, that is, right to the use,
enjoinment and profit existing by virtue of the rights granted under a
lease instrument. The value of the leasehold interest is the present
(discounted) worth of the rent savings when the contractual rent at the
time of the appraisal is less than the current market rent.”
1.3
conditions:
valuation.
Page 2
28 February 2013
been disregarded.
Page 3
28 February 2013
foam
insulation,
poly-chlorinated
biphenyl
filled
means;
however,
no
responsibility
is
assumed
for
possible
misinformation.
such.
Page 4
28 February 2013
1.4
Page 5
28 February 2013
2.0
preparation.
___________________________________
______________________________
Director
PRC Reg. No. 422
Director
_____________________________
____________________________________
Associate Director
PRC Reg. No. 392
Senior Manager
PRC Reg. No. 423
Page 6
28 February 2013
EXECUTIVE SUMMARY
3.0
under:
Market Value
Retail
PhP341,468,369,000
Retail
Residential
PhP17,320,771,000
2,003,100,000
-----------------------PhP19,323,871,000
Total for Development Properties
Rawland
TOTAL
16,196,200,000
------------------------PhP376,988,440,000
============
Assumptions,
Disclaimers,
Limitations &
Qualifications
Prepared by
:
_________________________
Director
PRC Reg. No. 213
Page 7
28 February 2013
4.0
VALUATION RATIONALE
4.1
Capitalization
Approach
is
considered
appropriate
for
valuing
Page 8
28 February 2013
described below.
investment period.
Page 9
28 February 2013
5.0
Wherever possible, we have personally inspected the properties covered
by this valuation. However, due to the nature of ongoing construction
and condominium projects partly completed or under completion, we
were not able to conduct full detailed inspection of building or
unit interiors. In accordance with the International Valuation Standards
Committee (IVSC), our valuations were based on all relevant documents
necessary to arrive at our opinion of value. We have relied to a
considerable extent on information provided to us such as building
plans, completion status of ongoing project or development including
type
or
characteristics
of
units
for
sale,
inventory
of
developed, saleable units, land or floor area. It is our opinion however
that although the valuation is limited, the results are reliable and
credible for its intended purpose and use.
Page 10
28 February 2013
date.
Page 11
Presented to:
SM LAND, INC.
SM LAND, INC.
28 February 2013
15 March 2013
SM LAND, INC.
Attention: MS. GEMA ONG CHENG
Senior Vice President – Finance
Thru:
Mr. Gil C. Somblingo
Senior Asst. Vice President
– Controllership/SM Land
-------------------------------------------------Gentlemen:
---------------------------------
1.0
INTRODUCTION
1.1
Instructions
certain real estate properties consisting of thirty (30) assets at various
Philippine locations, appraised as of 28 February 2013 (the “valuation
date”). The appraisal has been prepared in connection with the
proposed merger of SM Prime Holdings, Inc. and SM Land, Inc.
The property appraised consists of land, leasehold rights on land,
buildings, other land improvements and building machinery &
equipment. All other assets not mentioned above are excluded in this
report.
The various sites, subject of this engagement, are segregated into four
Properties; Land (portion with investment); and Rawland. Investment
Properties are properties with completed developments; Development
Properties are properties which are still in development phase and not
yet completed; Land (portion with investment) are large tracts of land
with a section having a completed development and a section still
vacant; while Rawland pertains to vacant lots (land bank). The
Investment properties are further sub-categorized as Retail, Office,
Page 1
SM LAND, INC.
28 February 2013
Industrial and Ferry/Breakwater while the Development Properties are
sub-categorized as Office, Hospitality and Ferry/Breakwater.
1.2
Definition of Terms
compulsion.”
For the leasehold rights on the land, our valuation wishes to establish
the Leasehold Value or Lessee’s Interest, which is defined to mean as
“the estimated value of a leasehold interest, that is, right to the use,
enjoinment and profit existing by virtue of the rights granted under a
;lease instrument. The value of the leasehold interest is the present
(discounted) worth of the rent savings when the contractual rent at the
time of the appraisal is less than the current market rent.”
1.3
conditions:
valuation.
Page 2
SM LAND, INC.
28 February 2013
been disregarded.
Page 3
SM LAND, INC.
28 February 2013
foam
insulation,
poly-chlorinated
biphenyl
filled
means;
however,
no
responsibility
is
assumed
for
possible
misinformation.
such.
Page 4
SM LAND, INC.
28 February 2013
1.4
Page 5
SM LAND, INC.
28 February 2013
2.0
preparation.
___________________________________
______________________________
Director
PRC Reg. No. 422
Director
_____________________________
____________________________________
Associate Director
PRC Reg. No. 392
Senior Manager
PRC Reg. No. 423
Page 6
SM LAND, INC.
28 February 2013
3.0
EXECUTIVE SUMMARY
under:
Market Value
Retail
PhP11,674,436,000
Office
8,081,014,000
Industrial
2,659,703,000
Ferry/Breakwater
86,697,000
-----------------------Total for Investment Properties
PhP22,501,850,000
Office
Hospitality
Ferry/Breakwater
PhP540,877,000
395,000,000
35,555,000
--------------------PhP971,432,000
Total for Development Properties
PhP58,772,000,000
Rawland
PhP161,800,000
----------------------PhP82,407,082,000
===========
TOTAL
Assumptions,
Disclaimers,
Limitations &
Qualifications
Prepared by
:
_________________________
Director
PRC Reg. No. 213
Page 7
SM LAND, INC.
28 February 2013
4.0
VALUATION RATIONALE
4.1
Capitalization
Approach
is
considered
appropriate
for
valuing
Page 8
SM LAND, INC.
28 February 2013
described below.
investment period.
Page 9
SM LAND, INC.
28 February 2013
5.0
type
or
characteristics
of
units
for
sale,
inventory
of
Page 10
SM LAND, INC.
28 February 2013
date.
Page 11
Presented to:
SM DEVELOPMENT
CORPORATION
SM DEVELOPMENT CORP.
28 February 2013
15 March 2013
SM DEVELOPMENT CORPORATION
Thru:
Mr. Joel T. Ong
Vice President - Controllership
-----------------------------------------------Gentlemen:
---------------------------------
1.0
INTRODUCTION
1.1
Instructions
certain real estate properties consisting of sixty-three (63) assets at
SM Land's proposed acquisition of a 100% stake in SM Development
Corporation.
The property appraised consists of land and condominium projects. All
other assets not mentioned above are excluded in this report.
sub-categorized as Residential while the Development Properties are
also sub-categorized as Residential.
Page 1
28 February 2013
1.2
Definition of Terms
compulsion.”
1.3
conditions:
valuation.
Page 2
28 February 2013
been disregarded.
such substances. The presence of asbestos building materials, ureaValuation & Advisory Services
Page 3
28 February 2013
formaldehyde
foam
insulation,
poly-chlorinated
biphenyl
filled
means;
however,
no
responsibility
is
assumed
for
possible
misinformation.
such.
Page 4
28 February 2013
1.4
Page 5
28 February 2013
2.0
preparation.
___________________________________
______________________________
Director
PRC Reg. No. 422
Director
_____________________________
____________________________________
Associate Director
PRC Reg. No. 392
Senior Manager
PRC Reg. No. 423
Page 6
28 February 2013
3.0
EXECUTIVE SUMMARY
under:
Market Value
Residential
PhP3,949,937,000
Residential
44,295,975,000
Rawland
43,053,930,000
----------------------PhP91,299,842,000
===========
TOTAL
Assumptions,
Disclaimers,
Limitations &
Qualifications
Prepared by
:
_________________________
Director
PRC Reg. No. 213
Page 7
28 February 2013
4.0
VALUATION RATIONALE
4.1
adopted the Market Data Approach for vacant land and condominium
projects. Income approach (Residual Method) was likewise adopted for
some vacant lots.
Briefly describing the valuation methods used, the Market Data (or
Direct Sales Comparison) Approach is a method of comparing prices
paid for comparable properties sold in the market against the subject
property. The weight given to this approach is dependent on the
availability of recent confirmed sales of properties considered
comparable to the property under appraisement. These sold properties
are compared to the subject in key units of comparison. Appropriate
adjustments are made for differences between the subject and the
comparables, resulting in adjusted sales values for each of the
Capitalization
Approach
is
considered
appropriate
for
valuing
Page 8
28 February 2013
5.0
type
or
characteristics
of
units
for
sale,
inventory
of
Page 9
28 February 2013
date.
Page 10
Presented to:
PRIME METRO ESTATE
CORPORATION
PRIME METRO ESTATE CORPORATION
28 February 2013
15 March 2013
Thru:
Mr. Gil C. Somblingo
Senior Asst. Vice President
– Project Audit Group
------------------------------------------------Gentlemen:
---------------------------------
1.0
INTRODUCTION
1.1
Instructions
certain real estate properties consisting of fifteen (15) assets at various
Philippine locations, appraised as of 28 February 2013 (the “valuation
date”). The appraisal has been prepared in connection with SM Prime
Holdings, Inc.'s proposed acquisition of certain real property assets and
companies owned by SM Investments Corporation.
The property appraised consists of land, buildings and other land
improvements. All other assets not mentioned above are excluded in
this report.
The various sites, subject of this engagement, are segregated into two
(2) main categories, namely: Investment Properties; and Rawland.
Investment Properties are properties with completed developments;
while Rawland pertains to vacant lots (land bank). The Investment
properties are further sub-categorized as Retail.
Page 1
28 February 2013
1.2
Definition of Terms
compulsion.”
1.3
conditions:
valuation.
been disregarded.
Page 2
28 February 2013
foam
Page 3
insulation,
poly-chlorinated
biphenyl
filled
28 February 2013
means;
however,
no
responsibility
is
assumed
for
possible
misinformation.
such.
Page 4
28 February 2013
1.4
Page 5
28 February 2013
2.0
preparation.
___________________________________
______________________________
Director
PRC Reg. No. 422
Director
_____________________________
____________________________________
Associate Director
PRC Reg. No. 392
Senior Manager
PRC Reg. No. 423
Page 6
28 February 2013
3.0
EXECUTIVE SUMMARY
under:
Market Value
Retail
PhP4,563,000,000
Rawland
540,446,000
---------------------PhP5,103,446,000
===========
TOTAL
Assumptions,
Disclaimers,
Limitations &
Qualifications
Prepared by
:
_________________________
Director
PRC Reg. No. 213
Page 7
28 February 2013
4.0
VALUATION RATIONALE
4.1
for improved properties.
Page 8
28 February 2013
5.0
Page 9
28 February 2013
date.
Page 10
Presented to:
COSTA DEL HAMILO,
INC.
Nasugbu, Batangas
Philippines
COSTA DEL HAMILO, INC.
Nasugbu, Batangas
28 February 2013
15 March 2013
Thru:
MS. EVANGELINE R. ENDAY
Assistant Vice President
--------------------------------------------------Gentlemen:
---------------------------------
1.0
INTRODUCTION
1.1
Instructions
certain real estate properties consisting of fifteen (15) assets in
Nasugbu, Batangas, Philippines, appraised as of 28 February 2013
(the “valuation date”). The appraisal has been prepared in connection
with SM Prime Holdings, Inc.'s proposed acquisition of certain real
property assets and companies owned by SM Investments Corporation.
The property appraised consists of land, condominium projects and
clubshares. All other assets not mentioned above are excluded in this
report.
The various sites, subject of this engagement, are segregated into two
(2) main categories, namely: Investment Properties; and Rawland.
Investment Properties are properties with completed developments;
while Rawland pertains to vacant lots (land bank). The Investment
properties are further sub-categorized as Residential, Hospitality and
Clubshares.
Page 1
Nasugbu, Batangas
28 February 2013
1.2
Definition of Terms
compulsion.”
1.3
conditions:
valuation.
been disregarded.
Page 2
Nasugbu, Batangas
28 February 2013
foam
insulation,
poly-chlorinated
biphenyl
filled
Page 3
Nasugbu, Batangas
28 February 2013
means;
however,
no
responsibility
is
assumed
for
possible
misinformation.
such.
Page 4
Nasugbu, Batangas
28 February 2013
1.4
Page 5
Nasugbu, Batangas
28 February 2013
2.0
preparation.
___________________________________
______________________________
Director
PRC Reg. No. 422
Director
_____________________________
____________________________________
Associate Director
PRC Reg. No. 392
Senior Manager
PRC Reg. No. 423
Page 6
Nasugbu, Batangas
28 February 2013
3.0
EXECUTIVE SUMMARY
under:
Market Value
Residential
Hospitality
Clubshares
PhP1,515,227,000
51,976,000
1,823,050,000
---------------------PhP3,390,253,000
Total for Investment Properties
Rawland
840,143,000
---------------------PhP4,230,396,000
===========
TOTAL
Assumptions,
Disclaimers,
Limitations &
Qualifications
Prepared by
:
_________________________
Director
PRC Reg. No. 213
Page 7
Nasugbu, Batangas
28 February 2013
4.0
VALUATION RATIONALE
4.1
adopted the Market Data Approach for vacant land, condominium
projects and clubshares.
Briefly describing the valuation method used, the Market Data (or Direct
Sales Comparison) Approach is a method of comparing prices paid for
comparable properties sold in the market against the subject property.
The weight given to this approach is dependent on the availability of
recent confirmed sales of properties considered comparable to the
property under appraisement. These sold properties are compared to
the subject in key units of comparison. Appropriate adjustments are
made for differences between the subject and the comparables,
resulting in adjusted sales values for each of the comparables. These
adjusted values are then reconciled for a value conclusion by the Sales
Comparison Approach.
Page 8
Nasugbu, Batangas
28 February 2013
5.0
Page 9
Nasugbu, Batangas
28 February 2013
date.
Page 10
Presented to:
HIGHLANDS PRIME,
INC.
HIGHLANDS PRIME, INC.
28 February 2013
15 March 2013
Thru:
MR. ROEL B. PARIAN
Vice President - Finance
------------------------------------------------Gentlemen:
---------------------------------
1.0
INTRODUCTION
1.1
Instructions
certain real estate properties consisting of twenty-seven (27) assets at
SM Land's proposed acquisition of a 100% stake in Highlands Prime.
The property appraised consists of land, building and condominium
units. All other assets not mentioned above are excluded in this report.
sub-categorized as Residential while the Development Properties are
also further sub-categorized as Residential.
Page 1
28 February 2013
1.2
Definition of Terms
compulsion.”
1.3
conditions:
valuation.
Page 2
28 February 2013
been disregarded.
Page 3
28 February 2013
foam
insulation,
poly-chlorinated
biphenyl
filled
means;
however,
no
responsibility
is
assumed
for
possible
misinformation.
such.
Page 4
28 February 2013
1.4
Page 5
28 February 2013
2.0
preparation.
___________________________________
______________________________
Director
PRC Reg. No. 422
Director
_____________________________
____________________________________
Associate Director
PRC Reg. No. 392
Senior Manager
PRC Reg. No. 423
Page 6
28 February 2013
3.0
EXECUTIVE SUMMARY
under:
Market Value
Residential
PhP190,930,000
Residential
PhP3,671,560,000
Rawland
PhP16,493,879,000
----------------------PhP20,356,369,000
===========
TOTAL
Assumptions,
Disclaimers,
Limitations &
Qualifications
Prepared by
:
_________________________
Director
PRC Reg. No. 213
Page 7
28 February 2013
4.0
VALUATION RATIONALE
4.1
adopted the Market Data Approach for vacant land and condominium
units and cost approach for improved properties.
Page 8
28 February 2013
5.0
type
or
characteristics
of
units
for
sale,
inventory
of
Page 9
28 February 2013
date.
Page 10
COVER SHEET
A S 0 9 4 - 0 0 0 0 8 8
SEC Registration Number
S M
P R I M E
H O L D I N G S ,
I N C .
A N D
S U B S I
DD I A R I E S
(Company’s Full Name)
M a l l
,
o f
C o r a l
. ,
M a l l
Z o n e
A s i a
W a y
o f
1 0 ,
A r e n a
c o r .
A s i a
A n n e x
J . W .
D i o k n o
C o m p l e x ,
C B P - 1 A ,
B u i l d i n g
P a s a y
B l v d
B r g y .
C i t y
7 6
1 3 0 0
(Business Address: No. Street City/Town/Province)
Mr. Jeffrey C. Lim
831-1000
(Contact Person)
(Company Telephone Number)
0 3
3 1
Month
Day
1 7 - Q
(Form Type)
Month
(Fiscal Year)
Day
(Annual Meeting)
(Secondary License Type, If Applicable)
Dept. Requiring this Doc.
Amended Articles Number/Section
Total Amount of Borrowings
Total No. of Stockholders
Domestic
Foreign
To be accomplished by SEC Personnel concerned
File Number
LCU
Document ID
Cashier
STAMPS
Remarks: Please use BLACK ink for scanning purposes.
SECURITIES AND EXCHANGE COMMISSION
SEC FORM 17-Q
QUARTERLY REPORT PURSUANT TO SECTION 17 OF THE SECURITIES
REGULATION CODE AND SRC RULE 17(2)(b) THEREUNDER
1. For the quarterly period ended MARCH 31, 2013
2. SEC Identification Number AS0940000-88
3. BIR Tax Identification No. 003-058-789
4. Exact name of registrant as specified in its charter SM PRIME HOLDINGS, INC.
5.
PHILIPPINES
Province, Country or other jurisdiction of
incorporation or organization
6.
(SEC Use Only)
Industry Classification Code:
7. Mall of Asia Arena Annex Building, Coral Way cor. J.W Diokno Blvd., Mall of Asia
Complex, Brgy. 76, Zone 10, CBP-1A, Pasay City
1300
Address of principal office
Postal Code
8. ( 632) 831-1000
________
Registrant's telephone number, including area code
9. __________________________________________
Former name, former address, and former fiscal year, if changed since last report.
10. Securities registered pursuant to Sections 4 and 8 of the SRC
Title of Each Class
CAPITAL STOCK, P 1 PAR VALUE
Number of Shares of Common Stock
Outstanding and Amount of Debt Outstanding
17,373,677,760
11. Are any or all of these securities listed on the Philippine Stock Exchange.
Yes [X]
No [ ]
12. Indicate by check mark whether the registrant:
(a) has filed all reports required to be filed by Section 11 of the Securities Regulation Code (SRC)
and SRC Rule 11(a)-1 thereunder and Sections 26 and 141 of The Corporation Code of the Philippines
during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports);
Yes [X]
No [ ]
(b) has been subject to such filing requirements for the past 90 days.
Yes [X]
No [ ]
ǡǤ
&RQVROLGDWHG)LQDQFLDO6WDWHPHQWV
0DUFKDQG'HFHPEHU
DQG7KUHH0RQWKV(QGHG0DUFKDQG
SM PRIME HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
Current Assets
Cash and cash equivalents (Notes 6, 20, 22 and 23)
Short-term investments (Notes 7, 20, 22 and 23)
Investments held for trading (Notes 8, 20, 22 and 23)
Receivables (Notes 9, 20, 22 and 23)
Available-for-sale investments (Notes 10, 20, 22 and 23)
Prepaid expenses and other current assets (Note 11)
Noncurrent Assets
Investment properties - net (Notes 12 and 20)
Derivative assets (Notes 22 and 23)
Deferred tax assets (Note 18)
Other noncurrent assets (Note 13)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Loans payable (Notes 14, 22 and 23)
(Notes 15, 20, 22 and 23)
Current portion of long-term debt (Notes 16, 20, 22 and 23)
Income tax payable
Long-term debt - net of current portion (Notes 16, 20, 22 and 23)
Tenants’ deposits (Notes 21, 22 and 23)
Liability for purchased land - net of current portion
Deferred tax liabilities (Note 18)
Derivative liabilities (Notes 22 and 23)
Other noncurrent liabilities (Notes 12, 20, 22 and 23)
Equity Attributable to Equity Holders of the Parent
Capital stock (Notes 17 and 24)
Additional paid-in capital - net (Note 17)
Cumulative translation adjustment (Note 17)
Retained earnings (Note 17):
Appropriated
Unappropriated
Treasury stock (Notes 17 and 24)
Total Equity Attributable to Equity Holders of the Parent
(Note 22)
Non-controlling Interests (Note 17)
Total Stockholders’ Equity
See accompanying Notes to Consolidated Financial Statements.
March 31,
2013
(Unaudited)
December 31,
2012
(Audited)
P
=19,067,990,992
816,000,000
457,335,307
5,763,218,412
1,000,000,000
1,566,130,723
28,670,675,434
=
P9,706,857,361
821,000,000
759,300,343
5,880,081,880
1,000,000,000
1,440,189,139
19,607,428,723
124,087,439,798
126,016,836,866
109,978,821
138,453,670
190,463,028
187,135,958
4,134,582,818
4,656,023,197
128,522,464,465
130,998,449,691
P148,129,893,188
P
=159,669,125,125 =
P
=800,000,000
=
P800,000,000
11,379,624,231
2,611,101,353
1,123,474,226
15,914,199,810
11,398,520,838
1,791,703,848
632,900,873
14,623,125,559
57,014,784,008
8,555,929,087
1,041,570,404
1,265,932,906
236,996,850
1,878,660,112
69,993,873,367
49,647,118,755
8,386,248,204
1,214,756,670
1,278,194,418
244,330,399
1,836,373,166
62,607,021,612
17,392,534,760
8,219,067,298
515,624,547
17,392,534,760
8,219,067,298
544,146,167
27,000,000,000
19,680,474,032
(101,474,705)
27,000,000,000
16,890,136,797
(101,474,705)
69,944,410,317
72,706,225,932
955,335,700
1,054,826,016
70,899,746,017
73,761,051,948
P148,129,893,188
P
=159,669,125,125 =
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31
2012
2013
REVENUE
Rent (Notes 12, 20 and 21)
Cinema ticket sales
Amusement income and others
COSTS AND EXPENSES
Depreciation and amortization (Note 12)
Administrative (Notes 19, 20 and 21)
Business taxes and licenses
Film rentals
Management fees (Note 20)
Rent (Note 21)
Insurance
Others
INCOME FROM OPERATIONS
OTHER INCOME (CHARGES) - Net
Interest expense (Notes 14, 16, 20 and 23)
Interest and dividend income (Notes 6, 7, 8, 10 and 20)
Others - net (Notes 8, 13, 16 and 23)
INCOME BEFORE INCOME TAX
PROVISION FOR (BENEFIT FROM) INCOME TAX (Note 18)
Current
Deferred
NET INCOME
Attributable to
Equity holders of the parent (Note 24)
Non-controlling interests (Notes 2 and 17)
Basic/Diluted Earnings Per Share (Note 24)
P
=6,733,166,810
760,985,046
335,996,144
7,830,148,000
=
P6,031,051,208
702,995,400
300,910,656
7,034,957,264
1,113,037,415
846,257,085
487,815,444
408,114,998
227,906,285
221,722,330
72,317,453
227,250,938
3,604,421,948
965,467,766
841,311,184
457,044,503
376,973,735
218,023,064
162,549,657
55,964,608
164,356,938
3,241,691,455
4,225,726,052
3,793,265,809
(525,160,262)
99,269,070
(18,724,554)
(444,615,746)
3,781,110,306
901,697,307
(10,414,552)
891,282,755
(548,142,801)
131,095,258
(37,314,449)
(454,361,992)
3,338,903,817
787,906,058
18,280,390
806,186,448
P
=2,889,827,551
=
P2,532,717,369
P
=2,790,337,235
99,490,316
P
=2,889,827,551
=
P2,433,869,469
98,847,900
=
P2,532,717,369
P
=0.161
=
P0.140
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
2012
2013
NET INCOME
OTHER COMPREHENSIVE LOSS - Net
Foreign currency differences of subsidiaries
Net fair value changes on cash flow hedges (see Note 23)
Total Other Comprehensive Loss
TOTAL COMPREHENSIVE INCOME
Attributable to
Equity holders of the parent
P
=2,889,827,551
(6,771,761)
(21,749,859)
(28,521,620)
=
P2,532,717,369
(104,268,826)
–
(104,268,826)
P
=2,861,305,931
=
P2,428,448,543
P
=2,761,815,615
99,490,316
P
=2,861,305,931
=
P2,329,600,643
98,847,900
=
P2,428,448,543
P
= 17,392,534,760
=
P13,917,800,067
–
=
P13,917,800,067
At March 31, 2013
At January 1, 2012
Total comprehensive income
At March 31, 2012
P
= 17,392,534,760
–
At January 1, 2013
Capital Stock
(Notes 17
and 24)
=
P8,219,067,298
=
P8,219,067,298
–
P
= 8,219,067,298
=
P768,390,036
=
P872,658,862
(104,268,826)
P
= 515,624,547
P
= 544,146,167
(28,521,620)
Adjustment
(Note 17)
Capital - Net
(Note 17)
P
= 8,219,067,298
–
Cumulative
Translation
Additional
Paid-in
=
P7,000,000,000
=
P7,000,000,000
–
P
= 27,000,000,000
P
= 27,000,000,000
–
=
P36,299,479,445
=
P33,865,609,976
2,433,869,469
P
= 19,680,474,032
P
= 16,890,136,797
2,790,337,235
Appropriated Unappropriated
(Note 17)
(Note 17)
Retained Earnings
Total
(P
=101,474,705) =
P66,103,262,141
(P
=101,474,705) =
P63,773,661,498
–
2,329,600,643
(P
= 101,474,705) P
= 72,706,225,932
(P
= 101,474,705) P
= 69,944,410,317
–
2,761,815,615
Treasury Stock
(Notes 17 and 24)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
=
P671,992,323
=
P573,144,423
98,847,900
P
= 1,054,826,016
P
= 955,335,700
99,490,316
Interests
(Note 17)
Non-controlling
=
P66,775,254,464
=
P64,346,805,921
2,428,448,543
P
= 73,761,051,948
P
= 70,899,746,017
2,861,305,931
Total
CONSOLIDATED STATEMENTS OF CASH FLOWS
2012
2013
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax and non-controlling interests
Adjustments for:
Unrealized mark-to-market loss (gain) on derivatives (Note 21)
Unrealized foreign exchange gain - net
Mark-to-market gain on investments held for trading (Note 8)
Mark-to-market gain on derivatives (Note 23)
Operating income before working capital changes
Decrease (increase) in:
Receivables
Increase (decrease) in:
Tenants’ deposits
Cash generated from operations
Income taxes paid
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Investment properties (Note 12)
Interest and dividend received
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from availment of loans (Notes 14, 16 and 20)
Payments of:
Loans (Notes 16 and 20)
Interest
Payments to unwinding of interest rate swaps
Net cash provided by financing activities
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS
NET INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
CASH AND CASH EQUIVALENTS AT END OF PERIOD
P
=3,781,110,306
=
P3,338,903,817
1,113,037,415
525,160,262
(99,269,070)
(31,558,257)
2,069,546
657,000
–
5,291,207,202
965,467,766
548,142,801
(131,095,258)
44,724,681
8,424,118
1,396,500
1,114,580
4,777,079,005
128,478,054
(126,043,568)
309,367,621
(521,308,492)
(77,351,041)
171,892,499
5,388,183,146
(409,617,243)
4,978,565,903
(674,313,010)
201,251,284
4,092,076,408
(385,670,837)
3,706,405,571
(3,261,540,668)
(527,277,225)
299,914,286
84,746,173
(3,404,157,434)
(4,622,337,748)
19,359,540
56,137,107
100,405,970
(4,446,435,131)
9,151,125,000
10,356,250,000
(894,583,967)
(466,855,444)
–
7,789,685,589
(1,039,692,935)
(373,337,781)
(4,287,500)
8,938,931,784
(2,960,427)
9,361,133,631
9,706,857,361
P
=19,067,990,992
5,730,737
8,204,632,961
8,290,216,039
=
P16,494,849,000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Corporate Information
SM Prime Holdings, Inc. (SMPH or the Parent Company) was incorporated in the Philippines and
registered with the Securities and Exchange Commission (SEC) on January 6, 1994. The Parent
Company and its subsidiaries (collectively referred to as “the Company”) develop, conduct,
operate and maintain the business of modern commercial shopping centers and all businesses
related thereto, such as the conduct, operation and maintenance of shopping center spaces for rent,
amusement centers, or cinema theaters within the compound of the shopping centers. Its main
sources of revenue include rent income from leases in mall and food court, cinema ticket sales and
amusement income from bowling, ice skating and others.
The Parent Company’s shares of stock are publicly traded in the Philippine Stock Exchange
(PSE).
The Parent Company is 21.65% and 40.96% directly-owned by SM Investments Corporation
(SMIC) and SM Land, Inc. (SM Land), respectively. SM Land is a 66.89% owned subsidiary of
SMIC. SMIC, the ultimate parent company, is a Philippine corporation which listed its common
shares with the PSE in 2005.
The registered office and principal place of business of the Parent Company is Mall of Asia Arena
Annex Building, Coral Way cor. J.W. Diokno Blvd., Mall of Asia Complex, Brgy. 76, Zone 10,
CBP-1A, Pasay City 1300.
2. Basis of Preparation
The accompanying consolidated financial statements have been prepared on a historical cost basis,
except for derivative financial instruments, investments held for trading and available-for-sale
(AFS) investments which have been measured at fair value. The consolidated financial statements
are presented in Philippine peso, which is the Parent Company’s functional and presentation
currency under Philippine Financial Reporting Standards (PFRS). All values are rounded to the
nearest peso, except when otherwise indicated.
Statement of Compliance
The accompanying consolidated financial statements have been prepared in compliance with
PFRS. PFRS includes statements named PFRS, Philippine Accounting Standards (PAS) and
Philippine Interpretations from the International Financial Reporting and Interpretations
Committee (IFRIC) issued by the Financial Reporting Standards Council (FRSC).
Changes in Accounting Policies and Disclosures
The accounting policies adopted are consistent with those of the previous financial year, except for
the following amended PFRS and PAS which the Company has adopted during the year:

PFRS 7, Financial Instruments: Disclosures - Offsetting Financial Assets and Financial
Liabilities, became effective for annual periods beginning on or after January 1, 2013.
-2
PFRS 10, Consolidated Financial Statements, became effective for annual periods beginning
on or after January 1, 2013.

PFRS 11, Joint Arrangements, became effective for annual periods beginning on or after
January 1, 2013.

PFRS 12, Disclosure of Interests in Other Entities, became effective for annual periods
beginning on or after January 1, 2013.

PFRS 13, Fair Value Measurement, became effective for annual periods beginning on or after
January 1, 2013.

PAS 1, Presentation of Financial Statements - Presentation of Items of Other Comprehensive
Income (OCI), became effective for annual periods beginning on or after July 1, 2012.

PAS 19, Employee Benefits (Revised), became effective for annual periods beginning on or
after January 1, 2013.

PAS 27, Separate Financial Statements (as revised in 2011), became effective for annual
periods beginning on or after January 1, 2013

PAS 28, Investments in Associates and Joint Ventures (as revised in 2011), became effective
for annual periods beginning on or after January 1, 2013.

Philippine Interpretation IFRIC 20, Stripping Costs in the Production Phase of a Surface
Mine, became effective for annual periods beginning on or after January 1, 2013.
The standards that have been adopted are deemed to have no material impact on the consolidated
financial statements of the Company.
Future Changes in Accounting Policies
Standards and Interpretations
The Company did not early adopt the following standards and Philippine Interpretations that have
been approved but are not yet effective. The Company will adopt these standards and
interpretations on their effective dates.

PFRS 9, Financial Instruments: Classification and Measurement, will become effective for
annual periods beginning on or after January 1, 2015. PFRS 9 reflects the first phase of the
work on the replacement of PAS 39, Financial Instruments: Recognition and Measurement,
and applies to classification and measurement of financial assets and financial liabilities as
defined in PAS 39. Work on impairment of financial instruments and hedge accounting is still
ongoing, with a view to replacing PAS 39 in its entirety. PFRS 9 requires all financial assets
to be measured at fair value at initial recognition. A debt financial asset may, if the fair value
option (FVO) is not invoked, be subsequently measured at amortized cost if it is held within a
business model that has the objective to hold the assets to collect the contractual cash flows
and its contractual terms give rise, on specified dates, to cash flows that are solely payments of
principal and interest on the principal outstanding. All other debt instruments are
subsequently measured at fair value through profit or loss. All equity financial assets are
measured at fair value either through other comprehensive income or profit or loss. Equity
financial assets held for trading must be measured at fair value through profit or loss. For
FVO liabilities, the amount of change in the fair value of a liability that is attributable to
-3-
changes in credit risk must be presented in other comprehensive income. The remainder of
the change in fair value is presented in profit or loss, unless presentation of the fair value
change in respect of the liability’s credit risk in other comprehensive income would create or
enlarge an accounting mismatch in profit or loss. All other PAS 39 classification and
measurement requirements for financial liabilities have been carried forward into PFRS 9,
including the embedded derivative separation rules and the criteria for using the FVO. The
Company made an evaluation of the impact of the adoption of the standard and decided not to
early adopt PFRS 9 for the 2012 reporting ahead of its effectivity date on January 1, 2015.
Therefore, the consolidated financial statements as at March 31, 2013 do not reflect the impact
of this new standard. The adoption of the first phase of PFRS 9 will have an effect on the
classification and measurement of the Company’s financial assets but will potentially have no
impact on the classification and measurement of financial liabilities.

PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial
Liabilities, will become effective for annual periods beginning on or after January 1, 2014.
These amendments to PAS 32 clarify the meaning of “currently has a legally enforceable right
to set-off” and also clarify the application of the PAS 32 offsetting criteria to settlement
systems (such as central clearing house systems) which apply gross settlement mechanisms
that are not simultaneous. The amendments to PAS 32 are to be applied retrospectively. The
Company is currently assessing the impact of these amendments on its consolidated financial
statements.

Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate, covers
accounting for revenue and associated expenses by entities that undertake the construction of
real estate directly or through subcontractors. The interpretation requires that revenue on
construction of real estate be recognized only upon completion, except when such contract
qualifies as construction contract to be accounted for under PAS 11, Construction Contracts,
or involves rendering of services in which case revenue is recognized based on stage of
completion. Contracts involving provision of services with the construction materials and
where the risks and reward of ownership are transferred to the buyer on a continuous basis
will also be accounted for based on stage of completion. The SEC and the FRSC have
deferred the effectivity of this interpretation until the final Revenue standard is issued by
International Accounting Standards Board and an evaluation of the requirements of the final
Revenue standard against the practices of the Philippine real estate industry is completed.
This interpretation will have no impact on the consolidated financial statements.
Improvements to PFRSs
The amendments are effective for annual periods beginning on or after January 1, 2013 and are
applied retrospectively. Earlier application is permitted.

PFRS 1, First-time Adoption of PFRS - Borrowing Costs, clarifies that, upon adoption of
PFRS, an entity that capitalized borrowing costs in accordance with its previous generally
accepted accounting principles, may carry forward, without any adjustment, the amount
previously capitalized in its opening statement of financial position at the date of transition.
Subsequent to the adoption of PFRS, borrowing costs are recognized in accordance with
PAS 23, Borrowing Costs. The amendment does not apply to the Company as it is not a firsttime adopter of PFRS.
-4
PAS 1, Presentation of Financial Statements - Clarification of the Requirements for
Comparative Information, clarifies the requirements for comparative information that are
disclosed voluntarily and those that are mandatory due to retrospective application of an
accounting policy, or retrospective restatement or reclassification of items in the financial
statements. An entity must include comparative information in the related notes to the
financial statements when it voluntarily provides comparative information beyond the
minimum required comparative period. The additional comparative period does not need to
contain a complete set of financial statements. On the other hand, supporting notes for the
third balance sheet (mandatory when there is a retrospective application of an accounting
policy, or retrospective restatement or reclassification of items in the financial statements) are
not required. The amendments affect disclosures only and have no impact on the Company’s
financial position or performance.

PAS 16, Property, Plant and Equipment - Classification of Servicing Equipment, clarifies that
spare parts, stand-by equipment and servicing equipment should be recognized as property,
plant and equipment when they meet the definition of property, plant and equipment and
should be recognized as inventory if otherwise. The Company does not expect this
amendment to have material impact on its consolidated financial statements.

PAS 32, Financial Instruments: Presentation - Tax Effect of Distribution to Holders of Equity
Instruments, clarifies that income taxes relating to distributions to equity holders and to
transaction costs of an equity transaction are accounted for in accordance with PAS 12. The
Company does not expect this amendment to have material impact on its consolidated
financial statements.

PAS 34, Interim Financial Reporting - Interim Financial Reporting and Segment Information
for Total Assets and Liabilities, clarifies that the total assets and liabilities for a particular
reportable segment need to be disclosed only when the amounts are regularly provided to the
chief operating decision maker and there has been a material change from the amount
disclosed in the entity’s previous annual financial statements for that reportable segment. The
amendment affects disclosures only and has no impact on the Company’s financial position or
performance.
Basis of Consolidation
The consolidated financial statements include the accounts of the Parent Company and the
following subsidiaries:
Company
First Asia Realty Development Corporation
Premier Southern Corp.
San Lazaro Holdings Corporation
Southernpoint Properties Corp. (SPC)
First Leisure Ventures Group Inc. (FLVGI)
Affluent Capital Enterprises Limited (Affluent)
and Subsidiaries
Mega Make Enterprises Limited (Mega Make)
and Subsidiaries
Springfield Global Enterprises Limited
SM Land (China) Limited (SM Land China)
and Subsidiaries
Country of
Incorporation
Philippines
- do - do - do - do - do - do British Virgin
Islands (BVI)
2011
2012
74.19
74.19
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
50.00
50.00
100.00
100.00
- do - do-
100.00
100.00
100.00
100.00
Hong Kong
100.00
100.00
SM Malls Owned
SM Megamall
SM City Clark
SM City Dasmariñas
SM City Batangas and SM City Lipa
–
SM Lanang Premier
SM by the Bay
SM City Xiamen and
SM City Chengdu
SM City Jinjiang
–
SM City Suzhou and
SM City Chongqing
FLVGI is accounted for as a subsidiary by virtue of control, as evidenced by the majority
members of the BOD representing the Parent Company.
-5-
The financial statements of the subsidiaries are prepared for the same reporting year as the Parent
Company, using consistent accounting policies.
All intracompany balances, transactions, income and expenses resulting from intracompany
transactions are eliminated in full.
Subsidiaries are consolidated from the date of acquisition, being the date on which the Company
obtains control, and continue to be consolidated until the date that such control ceases.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an
equity transaction. If the Company loses control over a subsidiary, it:

Derecognizes the assets (including goodwill) and liabilities of the subsidiary;

Derecognizes the carrying amount of any non-controlling interest;

Derecognizes the cumulative translation differences recorded in equity;

Recognizes the fair value of the consideration received;

Recognizes the fair value of any investment retained;

Recognizes any surplus or deficit in profit or loss;

Reclassifies the parent’s share of components previously recognized in other comprehensive
income to profit or loss or retained earnings, as appropriate.
Non-controlling interests represent the portion of profit or loss and net assets not held by the
Company and are presented separately in the consolidated statements of income and within
stockholders’ equity in the consolidated balance sheets, separately from equity attributable to
equity holders of the parent.
3. Significant Accounting Judgments, Estimates and Assumptions
The preparation of the Company’s consolidated financial statements requires management to make
judgments, estimates and assumptions that affect the reported amounts of revenue, expenses,
assets and liabilities, and the disclosures of contingent liabilities, at balance sheet date. However,
uncertainty about the assumptions and estimates could result in outcomes that could require a
material adjustment to the carrying amount of the asset or liability affected in the future.
Judgments
In the process of applying the Company’s accounting policies, management has made the
following judgments, apart from those involving estimates and assumptions, which have the most
significant effect on the amounts recognized in the consolidated financial statements.
Operating Lease Commitments - Company as Lessor. The Company has entered into commercial
property leases on its investment property portfolio. The Company has determined, based on an
evaluation of the terms and conditions of the arrangements, that it retains all the significant risks
and rewards of ownership of the properties and thus accounts for the contracts as operating leases.
Rent income amounted to =
P6,733 million and =
P6,031 for the three months ended March 31, 2013
and 2012, respectively (see Note 21).
-6-
Operating Lease Commitments - Company as Lessee. The Company has entered into various
lease agreements as a lessee. Management has determined that all the significant risks and
benefits of ownership of the properties, which the Company leases under operating lease
arrangements, remain with the lessor. Accordingly, the leases were accounted for as operating
leases.
Rent expense amounted to =
P222 million and =
P163 million for the three months ended March 31,
2013 and 2012, respectively (see Note 21).
Estimates and Assumptions
The key estimates and assumptions that may have significant risks of causing material adjustments
to the carrying amounts of assets and liabilities within the next financial year are discussed below.
Estimation of Allowance for Impairment Losses on Receivables. The Company maintains an
allowance for impairment losses at a level considered adequate to provide for potential
uncollectible receivables. The level of allowance is evaluated by the Company on the basis of
factors that affect the collectability of the accounts. These factors include, but are not limited to,
the length of the Company’s relationship with the customers, average age of accounts and
collection experience. The Company performs a regular review of the age and status of these
accounts, designed to identify accounts with objective evidence of impairment and provide the
appropriate allowance for impairment losses. The amount and timing of recorded expenses for
any period would differ if the Company made different judgments or utilized different
methodologies. An increase in allowance for impairment losses would increase the recorded costs
and expenses and decrease current assets.
The carrying value of receivables amounted to =
P5,880 million as at March 31,
2013 and December 31, 2012, respectively (see Note 9).
Impairment of AFS Investments. The Company treats AFS investments as impaired when there
has been a significant or prolonged decline in the fair value below its cost or whether other
objective evidence of impairment exists. The determination of what is ‘significant’ or ‘prolonged’
requires judgment. The Company treats ‘significant’ generally as 20% or more of the original cost
of investment, and ‘prolonged’ as period longer than 12 months. In addition, the Company
evaluates other factors, including normal volatility in share price for quoted equities and future
cash flows and the discount factors for unquoted equities.
The carrying value of AFS investments amounted to =
P1,000 million as at March 31, 2013 and
December 31, 2012 (see Note 10).
Estimation of Useful Lives of Investment Properties. The useful life of each of the Company’s
investment property is estimated based on the period over which the asset is expected to be
available for use. Such estimation is based on a collective assessment of industry practice, internal
technical evaluation and experience with similar assets. The estimated useful life of each asset is
reviewed periodically and updated if expectations differ from previous estimates due to physical
wear and tear, technical or commercial obsolescence and legal or other limitations on the use of
the asset. It is possible, however, that future results of operations could be materially affected by
changes in the amounts and timing of recorded expenses brought about by changes in the factors
mentioned above. A reduction in the estimated useful life of any investment property would
increase the recorded costs and expenses and decrease investment properties.
There were no changes in the estimated useful lives of investment properties in 2013 and 2012.
-7-
Impairment of Nonfinancial Assets. The Company assesses at each balance sheet date whether
there is an indication that investment properties may be impaired. The recoverable amount of the
investment properties is the higher of the asset’s fair value less costs to sell and its value in use.
When the carrying amounts of the investment properties exceed their recoverable amounts, the
investment properties are considered impaired and are written down to their recoverable amounts.
The net book value of investment properties amounted to P
=126,017 million and =
P124,087 million
as at March 31, 2013 and December 31, 2012, respectively (see Note 12).
Realizability of Deferred Tax Assets. The Company’s assessment on the recognition of deferred
tax assets on deductible temporary differences is based on the projected taxable income in the
succeeding periods. This projection is based on the Company’s past and future results of
operations.
Deferred tax assets amounted to =
P187 million and =
P190 million as at March 31, 2013 and
December 31, 2012, respectively (see Note 18).
Pension Cost. The determination of the Company’s obligation and cost of pension benefits is
dependent on the selection of certain assumptions used by actuaries in calculating such amounts.
Those assumptions are described in Note 19 and include, among others, the discount rate,
expected rate of return on plan assets and salary increase rate. In accordance with PFRS, actual
results that differ from the assumptions are accumulated and amortized over future periods and
therefore, generally affect the recognized expense and recorded obligation in such future periods.
Fair Value of Financial Assets and Liabilities. The Company carries certain financial assets and
liabilities at fair value in the consolidated balance sheets. Determining the fair value of financial
assets and liabilities requires extensive use of accounting estimates and judgment. The significant
components of fair value measurement were determined using verifiable objective evidence
(i.e., foreign exchange rates, interest rates, volatility rates). However, the amount of changes in
fair value would differ if the Company utilized different valuation methodologies and
assumptions. Any changes in the fair value of these financial assets and liabilities would affect
profit and loss and other comprehensive income.
The methods and assumptions used to estimate the fair value of financial assets and liabilities are
discussed in Note 23.
Contingencies. The Company has various legal claims. The Company’s estimates of the probable
costs for the resolution of these claims have been developed in consultation with in-house as well
as outside counsel handling the prosecution and defense of the cases and are based upon an
analysis of potential results. The Company currently does not believe these legal claims will have
a material adverse effect on its consolidated financial position and results of operations. It is
possible, however, that future results of operations could be materially affected by changes in the
estimates or in the effectiveness of strategies relating to these proceedings. No provisions were
made in relation to these claims.
-8-
4. Summary of Significant Accounting and Financial Reporting Policies
Cash and Cash Equivalents
Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid
investments that are readily convertible to known amounts of cash with original maturities of three
months or less from dates of acquisitions and are subject to an insignificant risk of change in
value.
Financial Instruments - Initial Recognition and Subsequent Measurement
Date of Recognition. The Company recognizes a financial instrument in the consolidated balance
sheets when it becomes a party to the contractual provisions of the instrument. In the case of a
regular way purchase or sale of financial assets, recognition and derecognition, as applicable, is
done using settlement date accounting. Regular way purchases or sales are purchases or sales of
financial assets that require delivery of assets within the period generally established by regulation
or convention in the market place. Derivatives are recognized on a trade date basis.
Initial Recognition of Financial Instruments. Financial instruments are recognized initially at fair
value, which is the fair value of the consideration given (in case of an asset) or received (in case of
a liability). The initial measurement of financial instruments, except for those categorized as at
fair value through profit or loss (FVPL), includes transaction costs.
The Company classifies its financial instruments in the following categories: financial assets and
financial liabilities at FVPL, loans and receivables, held-to-maturity (HTM) investments, AFS
investments and other financial liabilities. The classification depends on the purpose for which the
instruments are acquired and whether they are quoted in an active market. Management
determines the classification at initial recognition and, where allowed and appropriate, reevaluates this classification at every balance sheet date.
Determination of Fair Value. The fair value of financial instruments traded in active markets at
the balance sheet date is based on their quoted market price or dealer price quotations (bid price
for long positions and ask price for short positions), without any deduction for transaction costs.
When current bid and asking prices are not available, the price of the most recent transaction
provides evidence of the current fair value as long as there has not been a significant change in
economic circumstances since the time of the transaction.
For all other financial instruments not listed in an active market, the fair value is determined by
using appropriate valuation techniques. Valuation techniques include net present value
techniques, comparison to similar instruments for which market observable prices exist, options
pricing models, and other relevant valuation models.
Day 1 Difference. Where the transaction price in a non-active market is different from the fair
value based on other observable current market transactions in the same instrument or based on a
valuation technique whose variables include only data from observable market, the Company
recognizes the difference between the transaction price and fair value (a ‘Day 1’ difference) in the
consolidated statements of income unless it qualifies for recognition as some other type of asset.
In cases where unobservable data is used, the difference between the transaction price and model
value is only recognized in the consolidated statements of income only when the inputs become
observable or when the instrument is derecognized. For each transaction, the Company
determines the appropriate method of recognizing the ‘Day 1’ difference amount.
-9-
Financial Assets and Liabilities at FVPL. Financial assets and liabilities at FVPL include
financial assets and liabilities held for trading and financial assets and liabilities designated upon
initial recognition as at FVPL.
Financial assets and liabilities are classified as held for trading if they are acquired for the purpose
of selling in the near term. Derivatives, including any separated derivatives, are also classified
under financial assets or liabilities at FVPL, unless these are designated as hedging instruments in
an effective hedge or financial guarantee contracts. Gains or losses on investments held for
trading are included in the consolidated statements of income under the “Others - net” account.
Interest income on investments held for trading is included in the consolidated statements of
income under the “Interest and dividend income” account. Instruments under this category are
classified as current assets/liabilities if these are hold primarily for the purpose of trading or
expected to be realized/settled within 12 months from balance sheet date. Otherwise, these are
classified as noncurrent assets/liabilities.
Financial assets and liabilities may be designated by management at initial recognition as at FVPL
when any of the following criteria is met:

the designation eliminates or significantly reduces the inconsistent treatment that would
otherwise arise from measuring the assets and liabilities or recognizing gains or losses on a
different basis; or

the assets and liabilities are part of a group of financial assets, financial liabilities or both
which are managed and their performance are evaluated on a fair value basis, in accordance
with a documented risk management or investment strategy; or

the financial instrument contains an embedded derivative, unless the embedded derivative
does not significantly modify the cash flows or it is clear, with little or no analysis, that it
would not be separately recorded.
Classified as financial assets at FVPL are the Company’s investments held for trading and
derivative assets. The aggregate carrying values of financial assets under this category amounted
to =
P596 million and =
P869 million as at March 31, 2013 and December 31, 2012, respectively.
Included under financial liabilities at FVPL are the Company’s derivative liabilities. The carrying
values of financial liabilities at FVPL amounted to P
=237 million and =
P244 million as at March 31,
2013 and December 31, 2012, respectively (see Note 23).
Loans and Receivables. Loans and receivables are nonderivative financial assets with fixed or
determinable payments that are not quoted in an active market. They are not entered into with the
intention of immediate or short-term resale and are not designated as AFS investments or financial
assets at FVPL. Loans and receivables are included in current assets if maturity is within
12 months from balance sheet date. Otherwise, these are classified as noncurrent assets.
After initial measurement, loans and receivables are subsequently measured at amortized cost
using the effective interest method, less allowance for impairment. Amortized cost is calculated
by taking into account any discount or premium on acquisition and fees that are an integral part of
the effective interest rate. Gains and losses are recognized in the consolidated statements of
income when the loans and receivables are derecognized and impaired, as well as through the
amortization process.
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Classified under this category are the Company’s cash and cash equivalents, short-term
investments and receivables. The aggregate carrying values of financial assets under this category
amounted to =
P16,408 million as at March 31, 2013 and December 31, 2012,
respectively (see Note 23).
HTM Investments. HTM investments are quoted nonderivative financial assets with fixed or
determinable payments and fixed maturities for which the Company’s management has the
positive intention and ability to hold to maturity. Where the Company sells other than an
insignificant amount of HTM investments, the entire category would be tainted and reclassified as
AFS investments. After initial measurement, these investments are measured at amortized cost
using the effective interest method, less impairment in value. Amortized cost is calculated by
taking into account any discount or premium on acquisition and fees that are an integral part of the
effective interest rate. Gains and losses are recognized in the consolidated statements of income
when the HTM investments are derecognized or impaired, as well as through the amortization
process. Assets under this category are classified as current assets if maturity is within 12 months
from balance sheet date and as noncurrent assets if maturity date is more than 12 months from
balance sheet date.
The Company has no financial assets under this category as at March 31, 2013 and December 31,
2012.
AFS Investments. AFS investments are nonderivative financial assets that are designated in this
category or are not classified in any of the other categories. They are purchased and held
indefinitely, and may be sold in response to liquidity requirements or changes in market
conditions. Subsequent to initial recognition, AFS investments are carried at fair value in the
consolidated balance sheets. Changes in the fair value of such assets are reported as unrealized
gain or loss on AFS investments recognized as other comprehensive income in the consolidated
statements of comprehensive income until the investment is derecognized or the investment is
determined to be impaired. On derecognition or impairment, the cumulative gain or loss
previously reported in consolidated statements of comprehensive income is transferred to the
consolidated statements of income. Assets under this category are classified as current assets if
management intends to sell these financial assets within 12 months from balance sheet date.
Otherwise, these are classified as noncurrent assets.
Classified under this category are the Company’s investments in corporate notes. The carrying
values of financial assets classified under this category amounted to =
P1,000 million as at March
31, 2013 and December 31, 2012 (see Note 23).
Other Financial Liabilities. This category pertains to financial liabilities that are not held for
trading or not designated as at FVPL upon the inception of the liability. These include liabilities
arising from operations or borrowings.
Other financial liabilities are recognized initially at fair value and are subsequently carried at
amortized cost, taking into account the impact of applying the effective interest method of
amortization (or accretion) for any related premium, discount and any directly attributable
transaction costs. Gains and losses are recognized in the consolidated statements of income when
the liabilities are derecognized, as well as through the amortization process. Other financial
liabilities are classified as current liabilities if settlement is within 12 months from balance sheet
date. Otherwise, these are classified as noncurrent liabilities.
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Classified under this category are the Company’s loans payable, accounts payable and other
current liabilities, long-term debt, tenants’ deposits, liability for purchased land and other
noncurrent liabilities (except for taxes payables and other payables covered by other accounting
standards). The aggregate carrying values of financial liabilities under this category amounted to
=
P74,311 million as at March 31, 2013 and December 31, 2012, respectively
(see Note 23).
Classification of Financial Instruments Between Debt and Equity
A financial instrument is classified as debt if it provides for a contractual obligation to:

deliver cash or another financial asset to another entity;

exchange financial assets or financial liabilities with another entity under conditions that are
potentially unfavorable to the Company; or

satisfy the obligation other than by the exchange of a fixed amount of cash or another financial
asset for a fixed number of own equity shares.
If the Company does not have an unconditional right to avoid delivering cash or another financial
asset to settle its contractual obligation, the obligation meets the definition of a financial liability.
The components of issued financial instruments that contain both liability and equity elements are
accounted for separately, with the equity component being assigned the residual amount after
deducting from the instrument as a whole the amount separately determined as the fair value of the
liability component on the date of issue.
Debt Issuance Costs
Debt issuance costs are deducted against long-term debt and are amortized over the terms of the
related borrowings using the effective interest method.
Derivative Financial Instruments and Hedge Accounting
The Company uses derivative financial instruments such as long-term currency swaps, foreign
currency call options, non-deliverable forwards, foreign currency range options, interest rate
swaps and cross currency swaps to hedge the risks associated with foreign currency and interest
rate fluctuations (see Note 23). Such derivative financial instruments are initially recognized at
fair value on the date on which the derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as
liabilities when the fair value is negative.
Any gains or losses arising from changes in fair value on derivatives during the period that do not
qualify for hedge accounting are taken directly in the consolidated statements of income under
“Others - net” account.
For the purpose of hedge accounting, hedges are classified as: (1) fair value hedges when hedging
the exposure to changes in the fair value of a recognized financial asset or liability or an
unrecognized firm commitment (except for foreign-currency risk); or (2) cash flow hedges when
hedging to variability in cash flows that is either attributable to a particular risk associated with a
recognized financial asset or liability or a highly probable forecast transaction or the foreigncurrency risk in an unrecognized firm commitment; or (3) hedges of a net investment in a foreign
operation.
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At the inception of a hedge relationship, the Company formally designates and documents the
hedge relationship to which the Company wishes to apply hedge accounting and the risk
management objective and strategy for undertaking the hedge. The documentation includes
identification of the hedging instrument, the hedged item or transaction, the nature of the risk
being hedged and how the entity will assess the effectiveness of changes in the hedging
instrument’s fair value in offsetting the exposure to changes in the hedged item’s fair value or cash
flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving
offsetting changes in the fair value or cash flows and are assessed on an ongoing basis to
determine that they actually have been highly effective throughout the financial reporting periods
for which they were designated.
Hedges which meet the strict criteria for hedge accounting are accounted for as follows:
Fair value hedges
The change in the fair value of a hedging derivative is recognized in the consolidated statements of
income. The change in the fair value of a hedged item attributable to the risk being hedged is
recorded as part of the carrying value of the hedged item and is also recognized in the consolidated
statements of income under “Others - net” account (see note 23).
The fair value for financial instruments traded in active markets at the end of the reporting period
is based on their quoted market price or dealer price quotations (bid price for long positions and
ask price for short positions), without any deduction for transaction costs. When current bid and
asking prices are not available, the price of the most recent transaction provides evidence of the
current fair value as long as there has not been a significant change in economic circumstances
since the time of the transaction. For all other financial instruments not listed in an active market,
the fair value is determined by using appropriate valuation techniques. Valuation techniques
include net present value techniques, comparison to similar instruments for which market
observable prices exist, option pricing models, and other relevant valuation models.
When an unrecognized firm commitment is designated as hedged item, the subsequent cumulative
change in the fair value of the firm commitment attributable to the hedged risk is recognized as
financial asset or liability with a corresponding gain or loss recognized in the consolidated
statements of income. The changes in the fair value of the hedging instrument are also recognized
the consolidated statements of income.
Cash flow hedges
The effective portion of the gain or loss on the hedging instrument is recognized directly in the
consolidated statements of comprehensive income under “Cumulative translation adjustment”
account, while any ineffective portion is recognized immediately in the consolidated statements of
income under “Other - net” account (see note 23).
Amounts taken to comprehensive income are transferred to the consolidated statements of income
when the hedged transaction affects the consolidated statements of income, such as when the
hedged financial income or financial expense is recognized or when a forecast sale occurs. When
the hedged item is the cost of a non-financial asset or non-financial liability, the amounts taken to
other comprehensive income are transferred to the initial carrying amount of the non-financial
asset or liability.
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If the forecast transaction or firm commitment is no longer expected to occur, amounts previously
recognized in the other comprehensive income are transferred to the consolidated statements of
income. If the hedging instrument expires or is sold, terminated or exercised without replacement
or rollover, or if its designation as a hedge is revoked amounts previously recognized in other
comprehensive income remain in other comprehensive income until the forecast transaction or
firm commitment occurs.
Embedded Derivative. An embedded derivative is a component of a hybrid instrument that also
includes a nonderivative host contract with the effect that some of the cash flows of the hybrid
instrument vary in a way similar to a stand-alone derivative. An embedded derivative is separated
from the host contract and accounted for as a derivative if all of the following conditions are met:
a) the economic characteristics and risks of the embedded derivative are not closely related to the
economic characteristics and risks of the host contract; b) a separate instrument with the same
terms as the embedded derivative would meet the definition of a derivative; and c) the hybrid
instrument is not recognized at FVPL.
The Company assesses whether embedded derivatives are required to be separated from the host
contracts when the Company becomes a party to the contract. Subsequent reassessment is
prohibited unless there is a change in the terms of the contract that significantly modifies the cash
flows that otherwise would be required under the contract, in which case reassessment is required.
The Company determines whether a modification to cash flows is significant by considering the
extent to which the expected future cash flows associated with the embedded derivative, the host
contract or both have changed and whether the change is significant relative to the previously
expected cash flow on the contract.
Derecognition of Financial Assets and Liabilities
Financial Assets. A financial asset (or, where applicable, a part of a financial asset or part of a
group of similar financial assets) is derecognized when:

the rights to receive cash flows from the asset have expired;

the Company retains the rights to receive cash flows from the asset, but has assumed an
obligation to pay them in full without material delay to a third party under a “pass-through”
arrangement; or

the Company has transferred its rights to receive cash flows from the asset and either (a) has
transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor
retained substantially all the risks and rewards of the asset, but has transferred control of the
asset.
When the Company has transferred its rights to receive cash flows from an asset and has neither
transferred nor retained substantially all the risks and rewards of the asset, nor transferred control
of the asset, the asset is recognized to the extent of the Company’s continuing involvement in the
asset. Continuing involvement that takes the form of a guarantee over the transferred asset is
measured at the lower of original carrying amount of the asset and the maximum amount of
consideration the Company could be required to repay.
Financial Liabilities. A financial liability is derecognized when the obligation under the liability
is discharged or cancelled or expired.
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When an existing financial liability is replaced by another from the same lender on substantially
different terms, or the terms of an existing liability are substantially modified, such modification is
treated as a derecognition of the original liability and the recognition of a new liability, and the
difference in the respective carrying amounts is recognized in the consolidated statements of
income.
Impairment of Financial Assets
The Company assesses at each balance sheet date whether a financial asset or a group of financial
assets is impaired. A financial asset or a group of financial assets is deemed to be impaired, if and
only if, there is objective evidence of impairment as a result of one or more events that occurred
after the initial recognition of the asset (an incurred loss event) and that loss event has an impact
on the estimated future cash flows of the financial asset or a group of financial assets that can be
reliably estimated. Objective evidence of impairment may include indications that the borrower or
a group of borrowers is experiencing significant financial difficulty, default or delinquency in
interest or principal payments, the probability that they will enter bankruptcy or other financial
reorganization and where observable data indicate that there is measurable decrease in the
estimated future cash flows, such as changes in arrears or economic conditions that correlate with
defaults.
Financial Assets Carried at Amortized Cost. If there is objective evidence that an impairment loss
on financial assets carried at amortized cost has been incurred, the amount of the loss is measured
as the difference between the asset’s carrying amount and the present value of estimated future
cash flows (excluding future credit losses that have not been incurred) discounted at the financial
asset’s original effective interest rate (i.e., the effective interest rate computed at initial
recognition). The carrying amount of the asset shall be reduced through the use of an allowance
account. The amount of the loss shall be recognized in the consolidated statements of income.
The Company first assesses whether objective evidence of impairment exists individually for
financial assets that are individually significant, and individually or collectively for financial
assets that are not individually significant. If it is determined that no objective evidence of
impairment exists for an individually assessed financial asset, whether significant or not, the asset
is included in a group of financial assets with similar credit risk characteristics and that group of
financial assets is collectively assessed for impairment. Assets that are individually assessed for
impairment and for which an impairment loss is or continues to be recognized are not included in
a collective assessment of impairment.
If, in a subsequent period, the amount of impairment loss decreases and the decrease can be related
objectively to an event occurring after the impairment was recognized, the previously recognized
impairment loss is reversed by adjusting the allowance account. The amount of the reversal is
recognized in the consolidated statements of income under “Provision for (reversal of) impairment
losses” account, to the extent that the carrying value of the asset does not exceed its amortized cost
at reversal date. Interest income continues to be accrued on the reduced carrying amount based on
the original effective interest rate of the asset. Assets together with the associated allowance are
written off when there is no realistic prospect of future recovery and all collateral, if any, has been
realized or has been transferred to the Company. If a future write-off is later recovered, the
recovery is recognized in the consolidated statements of income under “Others - net” account.
Financial Assets Carried at Cost. If there is objective evidence that an impairment loss has been
incurred in an unquoted equity instrument that is not carried at fair value because its fair value
cannot be reliably measured, or on a derivative asset that is linked to and must be settled by
delivery of such an unquoted equity instrument, the amount of the loss is measured as the
difference between the asset’s carrying amount and the present value of estimated future cash
- 15 -
flows discounted at the current market rate of return for a similar financial asset.
AFS Investments. In the case of equity instruments classified as AFS investments, evidence of
impairment would include a significant or prolonged decline in fair value of investments below its
cost. Where there is evidence of impairment, the cumulative loss - measured as the difference
between the acquisition cost and the current fair value, less any impairment loss on that financial
asset previously recognized in the consolidated statements of income - is removed from the
consolidated statements of comprehensive income and recognized in the consolidated statements
of income. Impairment losses on equity investments are not reversed through the consolidated
statements of income. Increases in fair value after impairment are recognized directly in the
consolidated statements of comprehensive income.
In the case of debt instruments classified as AFS investments, impairment is assessed based on the
same criteria as financial assets carried at amortized cost. Future interest income is based on the
reduced carrying amount of the asset and is accrued based on the rate of interest used to discount
future cash flows for the purpose of measuring impairment loss. Such accrual is recorded as part
of “Interest and dividend income” account in the consolidated statements of income. If, in
subsequent year, the fair value of a debt instrument increased and the increase can be objectively
related to an event occurring after the impairment loss was recognized in the consolidated
statements of income, the impairment loss is reversed through the consolidated statements of
income.
Offsetting Financial Instruments
Financial assets and financial liabilities are offset and the net amount is reported in the
consolidated balance sheets if, and only if, there is a currently enforceable legal right to offset the
recognized amounts and there is an intention to settle on a net basis, or to realize the asset and
settle the liability simultaneously. This is not generally the case with master netting agreements,
where the related assets and liabilities are presented gross in the consolidated balance sheets.
Business Combinations
Business combinations involving entities or businesses under common control are business
combinations in which all of the combining entities or businesses are ultimately controlled by the
same party or parties both before and after the business combination, and that control is not
transitory. Business combinations under common control are accounted for similar to pooling of
interest method.
In applying the pooling of interest method, the assets, liabilities and stockholders’ equity of the
acquired companies for the reporting period in which the common control business combinations
occur and for the comparative periods presented, are included in the consolidated financial
statements at their carrying amounts as if the combinations had occurred from the beginning of the
earliest period presented in the financial statements, regardless of the actual date of the
combination. The excess of the cost of business combinations over the net carrying amounts of
the identifiable assets and liabilities of the acquired companies is considered as equity adjustment
from business combinations, included under “Additional paid-in capital - net” account in the
stockholders’ equity section of the consolidated balance sheets.
Acquisition of Non-controlling Interests
Changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control are
accounted for as equity transactions (i.e., transactions with owners in their capacity as owners). In
such circumstances, the carrying amounts of the controlling and non-controlling interests shall be
adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between
the amount by which the non-controlling interests are adjusted and the fair value of the
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consideration paid shall be recognized directly in stockholders’ equity and included under
“Additional paid-in capital - net” account in the stockholders’ equity section of the consolidated
balance sheets.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets are expenses paid in advance and recorded as assets
before they are utilized.
Investment properties represent land and land use rights, buildings, structures, equipment and
improvements of the shopping malls and shopping mall complex under construction.
Investment properties, except land and shopping mall complex under construction, are measured
initially at cost, including transaction costs, less accumulated depreciation and amortization and
accumulated impairment in value, if any. The carrying amount includes the cost of replacing part
of an existing investment property at the time that cost is incurred if the recognition criteria are
met, and excludes the costs of day-to-day servicing of an investment property.
Land is stated at cost less any impairment in value.
Shopping mall complex under construction is stated at cost and includes the cost of land,
construction costs, property and equipment, and other direct costs. Cost also includes interest on
borrowed funds incurred during the construction period, provided that the carrying amount does
not exceed the amount realizable from the use or sale of the asset.
Depreciation and amortization is calculated on a straight-line basis over the following estimated
useful lives of the assets:
Land use rights
Buildings and improvements
Building equipment, furniture and others
40-60 years
35 years
3-15 years
The residual values, useful lives and method of depreciation and amortization of the assets are
reviewed and adjusted, if appropriate, at each financial year-end.
Shopping mall complex under construction is not depreciated until such time that the relevant
assets are completed and put into operational use.
When each major inspection is performed, the cost is recognized in the carrying amount of the
investment properties as a replacement, if the recognition criteria are met.
Investment property is derecognized when either it has been disposed or when it is permanently
withdrawn from use and no future economic benefit is expected from its disposal. Any gains or
losses on the retirement or disposal of an investment property are recognized in the consolidated
statements of income in the year of retirement or disposal.
Investment in Associate
Investment in associate is accounted for under the equity method of accounting. An associate is
an entity in which the Company has significant influence and which is neither a subsidiary nor a
joint venture.
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Under the equity method, investment in an associate is carried in the consolidated balance sheets
at cost plus post-acquisition changes in the Company’s share in net assets of the associate.
Goodwill relating to an associate is included in the carrying amount of the investment and is not
amortized. After application of the equity method, the Company determines whether it is
necessary to recognize any additional impairment loss with respect to the Company’s net
investment in the associate. The consolidated statements of income reflect the share in the results
of operations of the associate. Where there has been a change recognized directly in the equity of
the associate, the Company recognizes its share in any changes and discloses this, when
applicable, in the consolidated statements of comprehensive income. Profits and losses resulting
from transactions between the Company and the associate are eliminated to the extent of the
interest in the associate.
The Company discontinues the use of equity method from the date when it ceases to have
significant influence over an associate and accounts for the investment in accordance with
PAS 39, from that date, provided the associate does not become a subsidiary or a joint venture as
defined in PAS 31. When the Company’s interest in an investment in associate is reduced to zero,
additional losses are provided only to the extent that the Company has incurred obligations or
made payments on behalf of the associate to satisfy obligations of the investee that the Company
has guaranteed or otherwise committed. If the associate subsequently reports profits, the
Company resumes recognizing its share of the profits if it equals the share of net losses not
recognized.
The financial statements of the associate are prepared for the same reporting period as the Parent
Company. The accounting policies of the associate conform to those used by the Company for
like transactions and events in similar circumstances.
Impairment of Nonfinancial Assets
The carrying value of investment properties and other nonfinancial assets is reviewed for
impairment when events or changes in circumstances indicate that the carrying value may not be
recoverable. If any such indication exists, and if the carrying value exceeds the estimated
recoverable amount, the assets or cash-generating units are written down to their recoverable
amounts. The recoverable amount of investment properties and other nonfinancial assets is the
greater of fair value less costs to sell or value in use. The fair value less costs to sell is the amount
obtainable from the sale of an asset in an arm’s length transaction less costs to sell. In assessing
value in use, the estimated future cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value of money and the risks
specific to the asset. For an asset that does not generate largely independent cash inflows, the
recoverable amount is determined for the cash-generating unit to which the asset belongs.
Impairment losses are recognized in the consolidated statements of income in those expense
categories consistent with the function of the impaired asset.
An assessment is made at each balance sheet date as to whether there is any indication that
previously recognized impairment losses may no longer exist or may have decreased. If such
indication exists, the recoverable amount is estimated. A previously recognized impairment loss is
reversed only if there has been a change in the estimates used to determine the asset’s recoverable
amount since the last impairment loss was recognized. If that is the case, the carrying amount of
the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying
amount that would have been determined, net of depreciation and amortization, had no impairment
loss been recognized for the asset in prior years. Such reversal is recognized in profit or loss.
After such a reversal, the depreciation and amortization charges are adjusted in future periods to
allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its
remaining useful life.
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Capital Stock
Capital stock is measured at par value for all shares issued. When shares are sold at a premium,
the difference between the proceeds and the par value is credited to “Additional paid-in capital net” account.
Retained Earnings
Retained earnings represent accumulated earnings, net of dividends declared.
Treasury Stock
Own equity instruments which are acquired (treasury shares) are deducted from stockholders’
equity and accounted for at cost. No gain or loss is recognized in the consolidated statements of
income on the purchase, sale, issuance or cancellation of the Company’s own equity instruments.
Revenue Recognition
Revenue is recognized when it is probable that the economic benefits associated with the
transaction will flow to the Company and the amount of the revenue can be reliably measured.
Revenue is measured at the fair value of the consideration received, excluding discounts and sales
taxes. The following specific recognition criteria must also be met before revenue is recognized:
Rent. Revenue is recognized on a straight-line basis over the lease term or based on the terms of
the lease, as applicable.
Cinema Ticket Sales, Amusement Income and Other Revenue. Revenue is recognized upon receipt
of cash from the customer which coincides with the rendering of services.
Interest. Revenue is recognized as the interest accrues, taking into account the effective yield on
the asset.
Dividend. Revenue is recognized when the right to receive the payment is established.
Management Fees
Management fees are recognized as expense in accordance with the terms of the management
contracts.
Costs and Expenses
Operating and interest expenses are recognized as incurred.
Pension Cost
The Parent Company is a participant in the SM Corporate and Management Companies Employer
Retirement Plan. The plan is a funded, noncontributory defined benefit retirement plan
administered by a Board of Trustees covering all regular full-time employees. The cost of
providing benefits under the defined benefit plan is determined using the projected unit credit
method. This method reflects service rendered by employees to the date of valuation and
incorporates assumptions concerning the employees’ projected salaries. Pension cost includes
current service cost, interest cost, expected return on plan assets, amortization of unrecognized
past service costs, recognition of actuarial gains (losses) and effect of any curtailments or
settlements. Past service cost is amortized over a period until the benefits become vested. The
portion of the actuarial gains and losses is recognized when it exceeds the “corridor” (10% of the
greater of the present value of the defined benefit obligation or fair value of the plan assets) at the
previous balance sheet date, divided by the expected average remaining working lives of active
plan members.
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The amount recognized as net pension asset or liability is the net of the present value of the
defined benefit obligation at balance sheet date, plus any actuarial gains (less any actuarial losses)
not recognized minus past service cost not yet recognized minus the fair value of plan assets at
balance sheet date out of which the obligations are to be settled directly.
Foreign Currency-denominated Transactions
Transactions in foreign currencies are initially recorded in the functional currency rate at the date
of the transaction. Monetary assets and liabilities denominated in foreign currencies are restated at
the functional currency rate of exchange at balance sheet date. All differences are taken to the
consolidated statements of income. Non-monetary items that are measured in terms of historical
cost in a foreign currency are translated using the exchange rates as at the dates of the initial
transactions. Non-monetary items measured at fair value in a foreign currency are translated using
the exchange rates at the date when the fair value was determined.
Foreign Currency Translations
The assets and liabilities of foreign operations are translated into Philippine peso at the rate of
exchange ruling at the balance sheet date and their respective statements of income are translated
at the weighted average rates for the year. The exchange differences arising on the translation are
included in the consolidated statements of changes in stockholders’ equity under “Cumulative
translation adjustment” account. On disposal of a foreign entity, the deferred cumulative amount
of exchange differences recognized in stockholders’ equity relating to that particular foreign
operation is recognized in profit or loss.
Leases
The determination of whether an arrangement is, or contains, a lease is based on the substance of
the arrangement at inception date of whether the fulfillment of the arrangement is dependent on
the use of a specific asset or assets or the arrangement conveys a right to use the asset.
Company as Lessor. Leases where the Company does not transfer substantially all the risks and
benefits of ownership of the asset are classified as operating leases. Rent income from operating
leases are recognized as income on a straight-line basis over the lease term or based on the terms
of the lease, as applicable. Initial direct costs incurred in negotiating an operating lease are added
to the carrying amount of the leased asset and recognized over the lease term on the same basis as
rent income. Contingent rents are recognized as revenue in the period in which they are earned.
Company as Lessee. Leases which do not transfer to the Company substantially all the risks and
benefits of ownership of the asset are classified as operating leases. Operating lease payments are
recognized as expense in the consolidated statements of income on a straight-line basis over the
lease term. Associated costs, such as maintenance and insurance, are expensed as incurred.
Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive) as a
result of a past event, it is probable that an outflow of resources embodying economic benefits will
be required to settle the obligation, and a reliable estimate can be made of the amount of the
obligation. If the effect of the time value of money is material, provisions are determined by
discounting the expected future cash flows at a pre-tax rate that reflects current market
assessments of the time value of money and, where appropriate, the risks specific to the liability.
Where discounting is used, the increase in the provision due to the passage of time is recognized
as interest expense. Where the Company expects a provision to be reimbursed, the reimbursement
is recognized as a separate asset but only when the receipt of the reimbursement is virtually
certain.
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Borrowing Costs
Borrowing costs are generally expensed as incurred. Borrowing costs are capitalized if they are
directly attributable to the acquisition or construction of a qualifying asset. Capitalization of
borrowing costs commences when the activities to prepare the asset are in progress and
expenditures and borrowing costs are being incurred. Borrowing costs are capitalized until the
assets are substantially ready for their intended use. If the carrying amount of the asset exceeds its
recoverable amount, an impairment loss is recognized. Borrowing costs include interest charges
and other costs incurred in connection with the borrowing of funds used to finance the shopping
mall complex.
Taxes
Current Tax. Current tax assets and liabilities for the current and prior periods are measured at the
amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax
laws used to compute the amount are those that are enacted or substantively enacted at balance
sheet date.
Deferred Tax. Deferred tax is provided using the balance sheet liability method on temporary
differences at the balance sheet date between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes. Deferred tax liabilities are recognized for all
taxable temporary differences, except for those that are stated under the standard.
Deferred tax assets are recognized for all deductible temporary differences to the extent that it is
probable that taxable profit will be available against which the deductible temporary differences
can be utilized.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to
the extent that it is no longer probable that sufficient taxable profit will be available to allow all or
part of the deferred tax assets to be utilized.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the
year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have
been enacted or substantively enacted at balance sheet date.
Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss.
Deferred tax items are recognized in correlation to the underlying transaction either in other
comprehensive income or directly in stockholders’ equity.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to
offset current tax assets against current tax liabilities and the deferred taxes relate to the same
taxable entity and the same taxation authority.
Sales Tax. Revenue, expenses and assets are recognized net of the amount of sales tax, except:

where the sales tax incurred on a purchase of assets or services is not recoverable from the
taxation authority, in which case the sales tax is recognized as part of the cost of acquisition of
the asset or as part of the expense item as applicable; and

receivables and payables that are stated with the amount of sales tax included.
The net amount of sales tax recoverable from, or payable to, the taxation authority is included as
part of “Prepaid expenses and other current assets” or “Accounts payable and other current
liabilities” accounts in the consolidated balance sheets.
- 21 -
Basic/Diluted Earnings Per Share (EPS)
Basic/diluted EPS is computed by dividing the net income for the year by the weighted average
number of issued and outstanding shares of stock during the year, with retroactive adjustments for
any stock dividends declared.
Geographical Segment
The Company’s business of shopping mall development and operations is organized and managed
separately according to geographical areas where the Company operates, namely the Philippines
and China. This is the basis upon which the Company reports its primary segment information
presented in Note 5 to the consolidated financial statements.
Contingencies
Contingent liabilities are not recognized in the consolidated financial statements. They are
disclosed in the notes to consolidated financial statements unless the possibility of an outflow of
resources embodying economic benefits is remote. Contingent assets are not recognized in the
consolidated financial statements but are disclosed in the notes to consolidated financial
statements when an inflow of economic benefits is probable.
Events after the Reporting Date
Post year-end events that provide additional information about the Company’s financial position at
balance sheet date (adjusting events) are reflected in the consolidated financial statements. Post
year-end events that are not adjusting events are disclosed in the notes to consolidated financial
statements when material.
5. Segment Information
For management purposes, operating segment is monitored through geographical location as the
Company’s risks and rates of return are affected predominantly by differences in economic and
political environments where they operate. Each geographical area is organized and managed
separately and viewed as a distinct strategic business unit that caters to different markets.
As at March 31, 2013, the Company owns forty-six (46) shopping malls in the Philippines and five
shopping malls in China.
Management monitors the operating results of its business units separately for the purpose of
making decisions about resource allocation and performance assessment. Segment performance is
evaluated based on operating profit or loss and is measured consistently with operating profit or
loss in the consolidated financial statements.
Inter-segment Transactions
Transfer prices between geographical segments are set on an arm’s length basis similar to
transactions with related parties. Such transfers are eliminated in consolidation.
- 22 -
Geographical Segment Data
Philippines
China
2013
Eliminations
Consolidated
(In Thousands)
Revenue
P
=7,143,279
P
=686,869
P
=–
P
=7,830,148
Segment results:
Net income
P
=3,515,441
797,060
P
=2,718,381
P
=265,669
94,222
P
=171,447
P
=–
–
P
=–
P
=3,781,110
891,282
P
=2,889,828
Net income attributable to:
Non-controlling interests
P
=2,618,891
99,490
P
=171,447
–
P
=–
–
P
=2,790,338
99,490
Segment profit
P
=3,958,480
P
=267,246
P
=–
P
=4,225,726
Segment assets
P
=145,647,541
P
=28,614,538
(P
=14,592,954)
P
=159,669,125
P
=79,051,230
P
=21,407,551
(P
=14,550,707)
P
=85,908,074
P
=970,663
2,523,358
P
=142,374
738,183
(Forward)
Segment liabilities
Other information:
Philippines
P
=–
–
P
=1,113,037
3,261,541
2012
China
Eliminations
Consolidated
(In Thousands)
Revenue
=
P6,416,103
=
P618,854
=
P–
=
P7,034,957
Segment results:
Net income
=
P3,114,861
726,681
=
P2,388,180
=
P224,043
79,506
=
P144,537
=
P–
–
=
P–
=
P3,338,904
806,187
=
P2,532,717
=
P2,289,331
98,848
=
P144,538
–
=
P–
–
=
P2,433,869
98,848
Segment profit
=
P3,560,052
=
P233,214
=
P–
=
P3,793,266
=
P845,347
3,990,731
=
P120,121
348,154
=
P–
–
=
P965,468
4,338,885
Other information:
For the three months ended March 31, 2013 and 2012, there were no revenue transactions with a
single external customer which accounted for 10% or more of the consolidated revenue from
external customer.
- 23 -
6. Cash and Cash Equivalents
This account consists of:
Cash on hand and in banks (see Note 20)
Temporary investments (see Note 20)
March 31,
2013
P
=1,200,593,357
17,867,397,635
P
=19,067,990,992
December 31,
2012
=
P608,689,838
9,098,167,523
=
P9,706,857,361
Cash in banks earn interest at the respective bank deposit rates. Temporary investments are made
for varying periods of up to three months depending on the immediate cash requirements of the
Company, and earn interest at the respective temporary investment rates.
Interest income earned from cash in banks and temporary investments amounted to =
P65 million
and =
P96 million for the three months ended March 31, 2013 and 2012, respectively.
7. Short-term Investments
This account pertains to a time deposit with Banco de Oro Unibank, Inc. (BDO) amounting to
=
P816 million and =
P821 million as at March 31, 2013 and December 31, 2012, respectively, with
fixed interest rate of 3.24%. Such deposit is intended to meet short-term cash requirements and
may be preterminated anytime by the Company.
Interest income earned from short-term investments amounted to =
P7 million for the three months
ended March 31, 2013 and 2012.
8. Investments Held for Trading
This account consists of investments in Philippine government and corporate bonds amounting to
=
P457 million and =
P759 million as at March 31, 2013 and December 31, 2012, respectively, with
yields ranging from 4.90% to 8.64% in 2013 and 2012. These Philippine peso-denominated and
U.S. dollar-denominated investments have various maturities ranging from 2014 to 2017.
Investments held for trading have mark-to-market loss amounting to =
P1 million for the three
months ended March 31, 2013 and 2012, the amounts of which are included under “Others - net”
account in the consolidated statements of income. Cumulative unrealized mark-to-market gain
amounted to =
P23 million and =
P25 million as at March 31, 2013 and December 31, 2012,
respectively.
Interest income earned from investments held for trading amounted to =
P10 million and =
P11
million for the three months ended March 31, 2013 and 2012, respectively.
- 24 -
9. Receivables
Rent:
Third parties
Related parties (see Note 20)
Advances to suppliers
Advances to related parties (see Note 20)
Receivable from a co-investor
Accrued interest (see Note 20)
Others
March 31,
2013
December 31,
2012
P
=2,071,737,635
1,636,728,613
672,205,375
531,152,457
245,380,282
61,645,969
544,368,081
P
=5,763,218,412
=
P2,259,198,897
1,885,424,402
636,116,922
471,660,550
246,078,722
47,123,072
334,479,315
=
P5,880,081,880
Rent receivables generally have terms of 30-90 days.
Receivable from a co-investor represents the consideration receivable by Tennant Range
Corporation (TRC), a BVI subsidiary holding company of SM Land China, in connection with the
agreement with a third party (see Note 13).
Advances to suppliers, accrued interest and other receivables are normally collected throughout
the financial year.
The aging analysis of receivables follows:
Neither past due nor impaired
Past due but not impaired:
91-120 days
Over 120 days
March 31,
2013
P
=5,641,743,405
December 31,
2012
=
P5,803,169,481
61,142,349
60,332,658
P
=5,763,218,412
25,227,376
51,685,023
=
P5,880,081,880
Receivables are assessed by the Company’s management as not impaired, good and collectible.
10. Available-for-Sale Investments
This account consists of investments in corporate notes issued by BDO amounting to
=
P1,000 million as at March 31, 2013 and December 31, 2012 with fixed interest rate of 6.80% (see
Note 20). Investments in corporate notes are intended to meet short-term cash requirements.
Interest income earned from AFS investments amounted to =
P17 million for the three months ended
March 31, 2013 and 2012.
There were no movements in the net unrealized gain on AFS investments for the periods ended
March 31, 2013 and December 31, 2012.
- 25 -
11. Prepaid Expenses and Other Current Assets
Prepaid expenses
Input taxes
Advances to contractors (see Note 12)
Others
March 31,
2013
P
=842,689,899
279,017,621
272,021,734
172,401,469
P
=1,566,130,723
December 31,
2012
=
P505,182,400
455,205,277
294,261,122
185,540,340
=
P1,440,189,139
Prepaid expenses mainly consist of prepayments for insurance and real property taxes.
12. Investment Properties
Cost
Balance at beginning of period
Additions
Transfers/Reclassifications
Translation adjustments
Balance at end of period
Accumulated Depreciation
and Amortization
Net Book Value
Shopping Mall
Complex Under
Construction
Land and Land
Use Rights
Buildings and
Improvements
P
=26,323,231,387
192,368,995
–
(8,741,244)
26,506,859,138
P
=92,842,697,696
181,156,490
863,982,917
(42,865,251)
93,844,971,852
P
=20,813,411,298
156,033,121
(696,883,293)
(5,131,949)
20,267,429,177
P
=15,245,333,081
2,580,163,164
(167,099,624)
(14,749,676)
17,643,646,945
P
=155,224,673,462
3,109,721,770
–
(71,488,120)
158,262,907,112
483,922,654
16,085,948
(622,403)
499,386,199
P
=26,007,472,939
20,207,557,966
692,407,935
(1,682,360)
20,898,283,541
P
=72,946,688,311
10,445,753,044
404,543,532
(1,896,070)
10,848,400,506
P
=9,419,028,671
–
–
–
–
P
=17,643,646,945
31,137,233,664
1,113,037,415
(4,200,833)
32,246,070,246
P
=126,016,836,866
Land and Land
Use Rights
Cost
Additions
Transfers
and Amortization
Net Book Value
March 31, 2013
Building
Equipment,
Furniture
and Others
Buildings and
Improvements
December 31, 2012
Building
Equipment,
Furniture
and Others
Shopping Mall
Complex Under
Construction
Total
Total
=
P22,402,878,158
3,821,792,513
258,453,905
(159,893,189)
26,323,231,387
=
P80,235,045,499
5,526,303,910
7,692,439,017
(611,090,730)
92,842,697,696
=
P16,950,695,663
2,672,922,112
1,261,365,355
(71,571,832)
20,813,411,298
=
P15,546,814,568
9,131,389,005
(9,212,258,277)
(220,612,215)
15,245,333,081
=
P135,135,433,888
21,152,407,540
–
(1,063,167,966)
155,224,673,462
437,595,529
56,559,550
(10,232,425)
483,922,654
=
P25,839,308,733
17,718,731,839
2,565,080,499
(76,254,372)
20,207,557,966
=
P72,635,139,730
9,142,890,393
1,334,001,550
(31,138,899)
10,445,753,044
=
P10,367,658,254
–
–
–
–
=
P15,245,333,081
27,299,217,761
3,955,641,599
(117,625,696)
31,137,233,664
=
P124,087,439,798
Included under “Land” account are the 212,119 square meters of real estate properties with a
carrying value of =
P445 million and =
P447 million as at March 31, 2013 and December 31, 2012,
respectively, and a fair value of =
P13,531 million as at August 2007, planned for residential
development in accordance with the cooperative contracts entered into by Mega Make and
Affluent with Grand China International Limited (Grand China) and Oriental Land Development
- 26 -
Limited (Oriental Land) on March 15, 2007. The value of these real estate properties were not
part of the consideration amounting to =
P10,827 million paid by the Parent Company to Grand
China and Oriental Land. Accordingly, the assets were recorded at their carrying values under
“Investment properties - net” account and a corresponding liability equivalent to the same amount,
which is shown as part of “Other noncurrent liabilities” account in the consolidated balance sheets.
Portions of investment properties located in China with carrying value of =
P4,217 million and
=
P4,852 million as at March 31, 2013 and December 31, 2012, respectively, and estimated fair
value of =
P10,874 million as at March 31, 2013 and December 31, 2012,
respectively, were mortgaged as collaterals to secure the domestic borrowings in China (see Note
16).
Rent income from investment properties amounted to =
P6,031 million for the
three months ended March 31, 2013 and 2012, respectively. Direct operating expenses from
investment properties that generated rent income amounted to =
P3,242 million
for the three months ended March 31, 2013 and 2012, respectively.
The fair value of investment properties amounted to =
P218,071 million as at July 31, 2010 as
determined by an independent appraiser who holds a recognized and relevant professional
qualification. The valuation of investment properties was based on market values using income
approach. The fair value represents the amount at which the assets can be exchanged between a
knowledgeable, willing seller and a knowledgeable, willing buyer in an arm’s length transaction at
the date of valuation, in accordance with International Valuation Standards as set out by the
International Valuation Standards Committee.
Below are the significant assumptions used in the valuation:
Discount rate
Capitalization rate
Average growth rate
11.75%
8.00%
6.00%
While fair value of the investment properties was not determined as at March 31, 2013, the
Company’s management believes that there were no conditions present in 2013 and 2012 that
would significantly reduce the fair value of the investment properties from that determined in
2010.
The Company’s management believes that the carrying values of the newly opened malls after the
date of the valuation approximate their fair values.
In 2013, shopping mall complex under construction mainly pertains to costs incurred for the
development of SM Aura Premier, SM City BF Parañaque, SM Seaside City Cebu, SM City
Cauayan, SM Tianjin and SM Zibo and the ongoing expansions and renovations of SM City
Bacolod, SM City Sta. Rosa, SM City Clark, SM City Dasmariñas, SM City Lipa, SM Megamall
and SM Mall of Asia.
development of SM Aura Premier, SM City BF Parañaque, SM Seaside City Cebu, SM Tianjin
and SM Zibo, and the ongoing expansions and renovations of SM City Bacolod,
SM City Clark, SM City Dasmariñas, SM City Sta. Rosa and SM Megamall.
- 27 -
Shopping mall complex under construction includes cost of land amounting to =
P1,630 million and
=
P1,615 million as at March 31, 2013 and December 31, 2012, respectively.
Construction contracts with various contractors related to the construction of the above-mentioned
projects amounted to =
P53,965 million as at March 31, 2013 and December
31, 2012, respectively, inclusive of overhead, cost of labor and materials and all other costs
necessary for the proper execution of the works. The outstanding contracts are valued at =
P12,104
million and =
P14,393 million as at March 31, 2013 and December 31, 2012, respectively.
Interest capitalized to shopping mall complex under construction amounted to =
P9 million and
=
P114 million as at March 31, 2013 and December 31, 2012, respectively. Capitalization rates used
were 5.99% and 6.13% as at March 31, 2013 and December 31, 2012, respectively.
13. Other Noncurrent Assets
Bonds and deposits
Investment in associate
Others
March 31,
2013
P
=2,987,632,250
251,343,795
1,417,047,152
P
=4,656,023,197
December 31,
2012
=
P2,519,247,536
252,059,209
1,363,276,073
=
P4,134,582,818
Bonds and deposits mainly consist of deposits to contractors and suppliers to be applied
throughout construction and advances and deposits paid for leased properties to be applied at the
last term of the lease.
On April 10, 2012, TRC entered into Memorandum of Agreement with Trendlink Holdings
Limited (THL), a third party, wherein Fei Hua Real Estate Company (FHREC), a 100% subsidiary
of TRC, issued new shares to THL equivalent to 50% equity interest. In addition, THL undertakes
to pay TRC amounting to =
P22 million (¥3 million) for the difference between cash invested and
50% equity of FHREC and =
P224 million (¥34 million) representing the difference between the
current market value and cost of the investment properties of FHREC. FHREC was incorporated
in China. TRC is a wholly owned subsidiary of SM Land China.
As at March 31, 2013, TRC owns 50% equity interest in FHREC. Management assessed that the
Company lost control over FHREC by virtue of agreement with the shareholders of THL.
Consequently, FHREC became an associate of the Company. Gain on dilution of equity interest
over FHREC as a result of issuance of new shares to THL, included under “Others - net” account
in the consolidated statements of income, amounted to =
P224 million in 2012.
As at March 31, 2013, the aggregated assets and liabilities of FHREC amounted to
=
P562 million, respectively.
- 28 -
14. Loans Payable
This account consists of unsecured Philippine peso-denominated loans obtained from a bank
amounting to =
P800 million as at March 31, 2013 and December 31, 2012. These loans will mature
in October 2013 with interest rate of 3.25% in 2013 and 3.75% in 2012.
Interest expense incurred from loans payable amounted to =
P7 million for the three months ended
March 31, 2013.
15. Accounts Payable and Other Current Liabilities
Trade
Accrued utilities expense
Accrued operating expenses:
Third parties
Taxes payable
Accrued interest (see Notes 16 and 20)
Others
March 31,
2013
P
=4,246,903,294
1,654,958,075
December 31,
2012
=
P5,863,568,314
830,320,247
2,121,692,671
2,875,747,386
121,321,472
109,422,102
1,313,471,783
1,341,720,408
316,453,310
211,887,019
312,103,146
378,870,029
519,589,895
560,115,918
P11,398,520,838
P
=11,379,624,231 =
Trade payables primarily consist of liabilities to suppliers and contractors, which are noninterestbearing and are normally settled within a 30-day term.
Accrued operating expenses mainly pertain to accrued administrative expenses such as security
and janitorial, accrued management fees and rent payables which are normally settled throughout
the financial year.
Liability for purchased land, taxes, accrued interest and other payables are expected to be settled
throughout the financial year.
16. Long-term Debt
Parent Company
U.S. dollar-denominated loans:
Five-year term loans
Five-year term syndicated loans
Five-year, three-year and two-year bilateral loans
Other U.S. dollar loans
(Forward)
March 31,
2013
December 31,
2012
P
=10,844,329,048
7,959,673,978
1,016,465,569
3,420,617,730
=
P10,896,961,563
–
1,021,242,099
2,438,112,216
- 29 -
Philippine peso-denominated loans:
Five-year and ten-year fixed and floating rate notes
Five-year, seven-year and ten-year corporate notes
Five-year, seven-year and ten-year fixed and
floating rate notes
Five-year floating rate notes
Five-year and ten-year corporate notes
Five-year, seven-year and ten-year fixed rate notes
Other bank loans
Subsidiaries
China yuan renminbi-denominated loans:
Five-year loan
Three-year loan
Five-year loan
Philippine peso-denominated loans Five-year bilateral loan
Less current portion
March 31,
2013
December 31,
2012
7,395,512,561
6,631,441,639
7,442,919,136
6,823,838,758
4,917,485,262
4,873,048,801
1,092,376,167
795,504,488
7,061,947,547
4,966,460,223
4,920,827,931
1,092,151,201
795,341,665
7,159,490,419
1,734,427,200
984,852,153
400,100,820
1,871,134,000
1,111,112,318
401,239,650
498,102,398
59,625,885,361
2,611,101,353
P
=57,014,784,008
497,991,424
51,438,822,603
1,791,703,848
=
P49,647,118,755
Parent Company
U.S. Dollar-denominated Five-Year Term Loans
This represents a US$270 million and US$145 unsecured loan obtained as at December 31, 2012
and 2011, respectively, from a US$270 million facility. The loans bear interest rates based on
LIBOR plus spread, with a bullet maturity on March 21, 2016 (see Notes 22 and 23).
U.S. Dollar-denominated Five-Year Syndicated Loan
This represents a US$200 million unsecured loan obtained on January 29, 2013. The loan bears
an interest rate based on London Inter-Bank Offered Rate (LIBOR) plus spread, with a bullet
maturity on January 29, 2018 (see Notes 22 and 23).
U.S. Dollar-denominated Five-Year, Three-Year and Two-Year Bilateral Loans
The US$75 million unsecured loans were obtained in November 2008. The loans bear interest
rates based on LIBOR plus spread, with bullet maturities ranging from two to five years. The
Company prepaid the US$20 million and the US$30 million unsecured loans on June 1, 2009 and
November 30, 2010, with original maturity dates of November 19, 2010 and November 28, 2011,
respectively. The related unamortized debt issuance costs charged to expense amounted to
=
P4 million in 2010 (see Notes 22 and 23). The remaining balance of US$25 million will mature
on November 20, 2013.
Other U.S. Dollar Loans
This account consists of the following:

US$10 million and US$25 million, out of US$50 million five-year bilateral unsecured loan,
obtained on December 7, 2012 and January 15, 2013, respectively. The loan bears interest
rate based on LIBOR plus spread, with a bullet maturity on August 30, 2017 (see Note 22).

US$30 million and a US$20 million five-year bilateral unsecured loan drawn on
November 30, 2010 and April 15, 2011, respectively. The loans bear interest rate based on
LIBOR plus spread, with a bullet maturity on November 30, 2015 (see Notes 22 and 23).
- 30
US$20 million three-year bilateral unsecured loan drawn on July 13, 2010. The loan bears
interest rate based on LIBOR plus spread, with a bullet maturity on January 14, 2013. The
loan was prepaid on January 13, 2012. The related unamortized debt issuance costs charged to
expense amounted to =
P25 million in 2012 (see Notes 22 and 23).
Philippine Peso-denominated Five-Year and Ten-Year Floating and Fixed Rate Notes
This represents a five-year and ten-year floating and fixed rate notes obtained on June 19, 2012
amounting to =
P1,000 million for the floating and =
P680 million and
=
P2,370 million for the fixed, respectively. The loans bear an interest rate based on Philippine
Dealing System Treasury Fixing (PDST-F) plus margin for the floating and 6.22% and 6.81% for
the five-year and ten-year fixed, respectively. The loans have bullet maturities in 2017 and 2022,
respectively. The Company prepaid a portion of fixed rate notes amounting to =
P50 million on
March 19, 2013, the related unamortized debt issuance costs charged to expense amounted to =
P0.4
million (see Note 22).
Philippine Peso-denominated Five-Year, Seven-Year and Ten-Year Corporate Notes
This represents a five-year floating and five-year, seven-year and ten-year fixed rate notes
amounting to =
P3,000 million, =
P1,134 million, =
P52 million and =
P814 million, respectively, out of
=
P7,000 million facility obtained on December 20, 2010. The remaining =
P2,000 million floating
rate note was obtained on June 13, 2011. The loans bear an interest rate based on PDST-F plus
margin for the five-year floating and 5.79%, 5.89% and 6.65% for the five-year, seven-year and
ten-year fixed, respectively. The loans have bullet maturities in 2015, 2017 and 2020,
respectively. The Company prepaid a portion of fixed rate notes amounting to =
P196 million on
March 20, 2013, the related unamortized debt issuance costs charged to expense amounted to =
P2
million (see Note 22).
Philippine Peso-denominated Five-Year, Seven-Year and Ten-Year Fixed and Floating Rate Notes
This represents a five-year floating, five-year, seven-year and ten-year fixed rate notes obtained on
January 12, 2012 amounting to =
P200 million, =
P1,012 million, =
P133 million, and =
P3,655 million,
respectively. The loans bear an interest rate based on PDST-F plus margin for the five-year
floating and 5.86%, 5.97% and 6.10% for the five-year, seven-year and ten-year fixed,
respectively. The loans have bullet maturities in 2017, 2019 and 2022, respectively (see Note 22).
Philippine Peso-denominated Five-Year Floating Rate Notes
This represents five-year floating rate notes obtained on March 18, 2011 and June 17, 2011
amounting to =
P1,000 million, respectively. The loans bear an interest rate
based on PDST-F plus margin and will mature on March 19, 2016 and June 18, 2016, respectively
(see Note 22).
Philippine Peso-denominated Five-Year and Ten-Year Corporate Notes
This represents a five-year floating and fixed rate and ten-year fixed rate notes obtained on
April 14, 2009 amounting to =
P200 million, =
P1,100 million, respectively. The
loans bear an interest rate based on PDST-F plus margin for the five-year floating and 8.4% and
10.1% for the five-year and ten-year fixed, respectively. The loans have bullet maturities in 2014
and 2019, respectively. The Company prepaid the =
P200 million and =
P3,700 million loans on
April 15, 2012, with original maturity date of April 15, 2014. The related unamortized debt
issuance costs charged to expense amounted to =
P17 million in 2012 (see Note 22).
- 31 -
Philippine Peso-denominated Five-Year, Seven-Year and Ten-Year Fixed Rate Notes
This represents a five-year, seven-year and ten-year fixed rate notes obtained on June 17, 2008
amounting to =
P1,000 million, =
P800 million, respectively. The loans bear fixed
interest rates of 9.31%, 9.60% and 9.85%, respectively, and will mature on June 17, 2013, 2015
and 2018, respectively. The loans amounting to =
P1,200 were prepaid on
June 17, 2011 and 2012, respectively. The related unamortized debt issuance costs charged to
P5 million and =
P4 million in 2012 and 2011, respectively (see Notes 22
and 23).
Other Bank Loans

Five-year loan obtained on June 29, 2010 amounting to =
P1,000 million and will mature on
June 29, 2015. The loan carries an interest rate based on PDST-F plus an agreed margin
(see Note 22).

Five-year inverse floating rate notes obtained on June 23, 2010 amounting to =
P1,000 million.
The loans bear an interest rate based on agreed fixed rate less PDST-F and will mature on June
23, 2015. The Company prepaid =
P100 million on March 25, 2013, the related balance of
unamortized debt issuance cost charged to expense amounted to =
P0.8 million June 23, 2015
(see Notes 22 and 23).

Five-year bullet loan obtained on January 13, 2010 amounting to =
P1,000 million and will
mature on January 13, 2015. The loan carries an interest rate based on PDST-F plus an agreed
margin (see Note 22).

Five-year bullet loan obtained on November 3, 2009 amounting to =
mature on November 3, 2014. The loan carries interest based on PDST-F plus on agreed

Five-year bullet loans obtained on October 16, 2009 amounting to =
P2,000 million. The loan
bears an interest rate based on PDST-F plus an agreed margin and will mature on October 16,
2014 (see Note 22).

Ten-year bullet fixed rate loan obtained on August 16, 2006 amounting to =
P1,200 million.
The loan carries a fixed interest rate of 9.75% and will mature on August 16, 2016
(see Note 22).
All the above Philippine peso-denominated loans of the Parent Company are unsecured.
Subsidiaries
China Yuan Renminbi-denominated Five-Year Loan
This represents a five-year loan obtained on August 26, 2009 amounting to ¥350 million to
finance the construction of shopping malls. The loan is payable in semi-annual installments
until 2014. The loan has a floating rate with an annual re-pricing at prevailing rate dictated by
Central Bank of China less 10%. The loan carries an interest rate of 5.76% in 2013 and 2012 (see
Note 22).
- 32 -
China Yuan Renminbi-denominated Three-Year Loan
This represents a three-year loan obtained on March 28, 2011 amounting to ¥187 million to
finance the construction of shopping malls. Partial drawdown totaling ¥169 million was made as
at December 31, 2012. The loan has a floating rate with an annual re-pricing at prevailing rate
dictated by Central Bank of China less 5% and will mature on March 27, 2014. The loan bears
interest rate of 6.20% in 2013 and 2012, respectively (see Note 22).
finance the construction of shopping malls. Partial drawdown totaling ¥61 million was made as at
December 31, 2012. The loan is payable in 2015. The loan has a floating rate with an annual repricing at prevailing rate dictated by Central Bank of China less 10%. The loan carries an interest
rate of 5.76% in 2013 and 2012 (see Note 22).
China Yuan Renminbi-denominated Eight-Year Loan
This represents an eight-year loan obtained on December 28, 2005 amounting to ¥155 million to
finance the construction of shopping malls. The loan is payable in annual installments with two
years grace period until December 2012. The loan has a floating rate with an annual re-pricing at
prevailing rate dictated by Central Bank of China less 10%. The loan bears interest rate of 6.35%
in 2012 and 2011 (see Note 22).
The China yuan renminbi-denominated loans are secured by investment properties in China
(see Note 12).
Philippine Peso-denominated Five-Year Bilateral Loans

Five-year term loan obtained on September 28, 2007 and November 6, 2007 amounting to
=
P250 million to finance the construction of a project called “SM by the Bay.” The loan is
payable in equal quarterly installments of =
P16 million starting December 2008 up to
September 2012 and carries an interest rate based on PDST-F plus an agreed margin
(see Note 22).

Five-year term loan obtained on October 24, 2011 amounting to =
P500 million and will mature
on October 24, 2016. The loan carries an interest rate based on PDST-F plus an agreed
All the above Philippine peso-denominated loans of the subsidiaries are unsecured.
The re-pricing frequencies of floating rate loans range from three to six months.
The loan agreements provide certain restrictions and requirements principally with respect to
maintenance of required financial ratios (i.e., current ratio of not less than 1.00:1.00, debt to equity
ratio of not more than 0.70:0.30 and debt service coverage ratio of not less than 1.10:1.00) and
material change in ownership or control. As at March 31, 2013 and December 31, 2012, the
Company is in compliance with the terms of its loan covenants.
- 33 -
Debt Issuance Costs
The movements in unamortized debt issuance costs are as follows:
Additions
Amortization
March 31,
2013
P
=407,413,365
230,315,373
(36,193,926)
P
=601,534,812
December 31,
2012
=
P457,844,346
112,637,407
(163,068,388)
=
P407,413,365
Amortization of debt issuance costs is recognized in the consolidated statements of income under
“Others - net” account.
Repayment Schedule
Repayments of long-term debt are scheduled as follows:
Year
2013
2014
2015
2016
2017
2018 to 2022
Amount
=
P1,425,982,514
5,716,256,839
11,244,680,820
17,648,500,000
6,606,900,000
17,585,100,000
=
P60,227,420,173
17. Stockholders’ Equity
Capital Stock
The Company has an authorized capital stock of 20,000,000,000 shares with a par value of =
P1 a
share. The movements of the capital stock of the Company are as follows:
Number of shares at beginning of period
Issuance during the year through stock dividends
Number of shares at end of period
March 31,
2013
17,392,534,760
–
17,392,534,760
December 31,
2012
13,917,800,067
3,474,734,693
17,392,534,760
On April 24, 2012, the BOD and stockholders approved the declaration of stock dividends
equivalent to 25% based on the par value per share in favor of stockholders of record as at
May 24, 2012, payable on or before June 20, 2012. Accordingly, retained earnings amounting to
=
P3,474 million were transferred to capital stock.
- 34 -
The following summarizes the information on the Company's registration of securities under the
Securities Regulation Code:
Date of SEC Approval/
Notification to SEC
March 15, 1994
April 22, 1994
May 29, 2007
May 20, 2008
October 14, 2010
Authorized
Shares
10,000,000,000
–
10,000,000,000
–
–
No. of Shares
Issued
–
6,369,378,049
–
912,897,212
569,608,700
Issue/Offer
Price
=
P–
5.35
–
11.86
11.50
The Company declared stock dividends in 2012, 2007, 1996 and 1995. The total number of
shareholders is 2,479 and 2,493 as at March 31, 2013 and December 31, 2012, respectively.
Additional Paid-in Capital
On April 15, 2009, the Parent Company, through a wholly-owned subsidiary, acquired additional
24,376,743 FARDC shares, which is equivalent to 19.82% of the total outstanding common stock
of FARDC. The acquisition of such non-controlling interests amounting to =
P3,384 million is
accounted for as an equity transaction. Accordingly, the carrying amounts of SMPH’s investment
and the share of non-controlling interests were adjusted to reflect the changes in their relative
interests in FARDC. The difference between the amount by which the non-controlling interests
were adjusted and the fair value of the consideration paid was recognized directly in equity and
attributed to the owners of the parent, and is shown as part of “Additional paid-in capital - net”
account in the stockholders’ equity section of the consolidated balance sheets.
International Placement of Shares
On October 14, 2010, the Parent Company has undergone an international placement of its shares
to raise capital to finance strategic expansion programs in the Philippines and in China as well as
for general working capital.
In connection with the international placement of its shares, the Parent Company engaged into a
Placement Agreement with SM Land (the Selling Shareholder) and CLSA Limited and Macquarie
Capital (Singapore) Pte. Limited (the “Joint Bookrunners”) on October 14, 2010. As stated in the
Placement Agreement, SM Land shall sell its 570 million SMPH Common Shares (the “Sale
Shares”) with a par value of =
P1 per share at =
P11.50 (Offer Price) per share to the Joint
Bookrunners, or to investors that the Joint Bookrunners may procure outside the Philippines
(the “International Placement”).
Contemporaneous with the signing of the Placement Agreement, the Parent Company likewise
entered into a Subscription Agreement with SM Land. As stated in the Subscription Agreement,
SM Land will not directly receive any proceeds from the International Placement, but instead
SM Land has conditionally agreed to subscribe for, and the Parent Company has conditionally
agreed to issue, out of its authorized but unissued capital stock, new SMPH common shares in an
amount equal to the aggregate number of the Sale Shares sold by SM Land in the International
Placement at a subscription price of =
P11.50 per share, which is equal to the Offer Price of the Sale
Shares.
SM Land was able to sell through the Joint Bookrunners the total Sale Shares of 570 million
SMPH common shares. Likewise, SM Land subscribed for and the Parent Company issued to
SM Land the same number of new SMPH common shares. The proceeds of =
P6,414 million, net of
transaction costs capitalized, add up to the capital of the Parent Company.
- 35 -
Cumulative Translation Adjustment
The tax effects relating to each component of other comprehensive income are as follows:
Net fair value gains (losses) on cash flow hedges
Foreign currency differences of subsidiaries
Number of shares at end of period
March 31,
2013
(P
=21,749,859)
(6,771,761)
(P
=28,521,620)
March 31,
2012
(P
=104,268,826)
–
(P
=104,268,826)
Retained Earnings
On April 24, 2012 and March 22, 2002, the BOD approved the appropriation of retained earnings
amounting to =
P7,000 million, respectively, for future corporate expansion
programs. As at March 31, 2013 and December 31, 2012, the amount of retained earnings
appropriated for the continuous corporate and mall expansions amounted to =
P27,000 million.
As at March 31, 2013, included in shopping mall complex under construction are SM Aura
Premier, SM City BF Parañaque, SM Seaside City Cebu, SM City Cauayan, SM Tianjin and SM
Zibo and the ongoing expansions and renovations of SM City Bacolod, SM City Sta. Rosa, SM
City Clark, SM City Dasmariñas, SM City Lipa, SM Megamall and SM Mall of Asia.
Over the next three years, the Company expects to incur =
P88,000 million for its capital
expenditures in the Philippines and China.
The retained earnings account is restricted for the payment of dividends to the extent of
=
P7,895 million as at March 31, 2013 and December 31, 2012, respectively,
representing the cost of shares held in treasury (P
=101 million as at March 31, 2013 and December
31, 2012) and accumulated equity in net earnings of the subsidiaries totaling =
P8,541 million and
=
P7,794 million as at March 31, 2013 and December 31, 2012, respectively. The accumulated
equity in net earnings of the subsidiaries is not available for dividend distribution until such time
that the Parent Company receives the dividends from the subsidiaries.
Treasury Stock
Treasury stock, totaling 18,857,000 shares, is stated at acquisition cost.
18. Income Tax
The components of deferred tax assets and liabilities are as follows:
Deferred tax assets Unrealized foreign exchange losses and others
Deferred tax liabilities Undepreciated capitalized interest, unrealized
foreign exchange gains and others
March 31,
2013
December 31,
2012
P
=187,135,958
=
P190,463,028
P
=1,265,932,906
=
P1,278,194,418
On November 26, 2008, the Bureau of Internal Revenue issued Revenue Regulations No. 16-2008
which implemented the provisions of Republic Act No. 9504 on optional standard deduction
(OSD). This regulation allowed both individual and corporate tax payers to use OSD in
- 36 -
computing their taxable income. For corporations, they may elect a standard deduction in an
amount equivalent to 40% of gross income, as provided by law, in lieu of the itemized allowed
deductions.
For the three months ended March 31, 2013 and 2012, the Company, opted to use OSD in
computing their taxable income.
The reconciliation of statutory tax rate to effective tax rates are as follows:
Statutory tax rate
Income tax effects of:
Interest income subjected to final tax and
dividend income exempt from income tax
Change in enacted tax rates and others
Effective tax rates
2013
30.0%
2012
30.0%
(0.8)
(5.6)
23.6%
(1.2)
(4.7)
24.1%
19. Pension Cost
The Company is a participant in SM Corporate Management Companies Employer Retirement
Plan (the Retirement Plan) covering all regular full-time employees. The Retirement Plan is in the
form of a trust administered by a trustee bank.
The following tables summarize the components of the Company’s pension plan as at March 31,
2013 and December 31, 2012:
Net Pension Cost
Current service cost
Net interest on net defined benefit liability
Net pension cost
2013
P
=2,009,905
105,116
P
=2,115,021
2012
=
P7,242,901
387,728
=
P7,630,629
Actual return on plan assets
P
=3,518,558
=
P11,817,977
Net Pension Asset
Defined benefit obligation
Fair value of plan assets
Net pension asset
2013
P
=147,322,136
(104,228,496)
P
=43,093,640
2012
=
P133,914,030
(97,021,049)
=
P36,892,981
- 37 -
The changes in the present value of the defined benefit obligation are as follows:
Balance at beginning of year
Interest cost on benefit obligation
Benefits paid
Actuarial loss - changes in actuarial assumptions
Actuarial gain - experience
Balance at end of year
2013
P
=133,914,030
2,009,905
2,045,537
–
9,972,437
(619,773)
P
=147,322,136
2012
=
P83,590,852
7,242,901
5,893,155
(223,533)
39,889,748
(2,479,093)
=
P133,914,030
2013
P
=97,021,049
1,940,421
–
3,688,888
1,578,138
P
=104,228,496
2012
=
P70,979,267
5,505,427
(223,533)
14,447,338
6,312,550
=
P97,021,049
The changes in the fair value of plan assets are as follows:
Interest income
Benefits paid
Contributions
Remeasurement gain
The Company expects to contribute =
P15 million to its defined benefit pension plan in 2013.
The carrying amounts and fair values of the plan assets as at December 31, 2012 are as follows:
Investments in:
Debt and other securities
Common trust funds
Equity securities
Government securities
Other financial assets
Carrying
Amount
=
P5,903,287
Fair Value
=
P5,903,287
10,670,837
38,332,750
3,193,021
38,181,958
739,196
=
P97,021,049
10,670,837
38,332,750
3,193,021
38,181,958
739,196
=
P97,021,049
The plan assets consist of the following:

Cash and cash equivalents includes regular savings and time deposits;

Investments in debt and other securities consists of short-term and long-term corporate loans,
notes and bonds which bear interest ranging from 5.45% to 8.46% and have maturities ranging
from 2014 to 2022;

Investments in common trust funds pertain to unit investment trust fund;

Investments in equity securities consist of listed and unlisted equity securities;

Investments in government securities consist of retail treasury bonds which bear interest
ranging from 5.00% to 11.14% and have maturities ranging from 2013 to 2037; and

Other financial assets include accrued interest income on cash deposits and debt securities
held by the Retirement Plan.
- 38 -
As at and for the year ended December 31, 2012, the following table summarizes the outstanding
balances and transactions of the Retirement Plan with BDO, an affiliate:
Interest income on cash and cash equivalents
Investments in common trust funds
Gains from investments in common trust funds
Amount
=
P5,903,287
83,291
38,332,750
8,555,366
The principal assumptions used in determining pension obligations for the Company’s plan are
shown below:
Discount rate
Expected rate of return on plan assets
Future salary increases
2013
6.1%
6.0%
11.0%
2012
6.1%
6.0%
11.0%
The overall expected rate of return on plan assets is determined based on the market prices
prevailing on that date, applicable to the period within which the obligation is to be settled.
The amounts for the period ended March 31, 2013 and previous three years ended December 31,
2012, 2011 and 2010 are as follows:
Plan assets
Deficit (excess plan assets)
Experience adjustments
on plan liabilities
Experience adjustment on plan assets
2013
P
=147,322,136
104,228,496
43,093,640
(619,773)
1,578,138
2012
=
P133,914,030
97,021,049
36,892,981
(2,479,093)
6,312,550
2011
=
P83,590,852
70,979,267
12,611,585
2010
=
P54,108,736
54,135,272
(26,536)
18,221,688
142,650
(5,496,062)
4,272,897
20. Related Party Transactions
Parties are considered to be related if one party has the ability, directly or indirectly, to control the
other party in making financial and operating decisions and the parties are subject to common
control. Related parties may be individuals or corporate entities.
Affiliates
SM Laiya/FHREC
2013
P
=–
2012
–
2013 2,142,429
2012 1,892,987
–
2013
2012
–
2013
–
2012
–
2013
–
2012
–
2013 P
=2,142,429
2012 1,892,987
Rent
Rent
Accrued Advances Advances
Rent Expense Payables
Management
Made to Related
(see
(see Management
Receivables
Fees During the
Parties
(see Note 9) Note 21) Note 15)
Fees (see Note 15)
Period (see Note 9)
(In Thousands)
P
=– P
=12,364
P
=4,557
P
=–
P
=–
P
=–
P
=–
–
11,512
4,579
–
–
–
–
1,626,531
–
–
–
–
–
–
1,885,424
–
–
–
–
–
–
–
52,012
12,208
–
–
–
–
–
46,613
16,847
–
–
–
–
–
–
–
227,906
92,657
–
–
–
–
–
218,023
99,895
–
–
–
–
–
–
–
60,831
531,152
–
471,661
471,661
–
–
–
–
P
=1,626,531 P
=64,376 P
=16,765
P
=227,906
P
=92,657
P
=60,831 P
=531,152
1,885,424
58,125
21,426
218,023
99,895
471,661
471,661
P
=3,339
4,623
75,571
108,492
–
–
–
–
–
–
P
=78,910
113,115
P
=–
7,294
52,784
26,386
–
–
–
–
–
–
P
=52,784
33,680
P
=–
14,663
–
–
–
–
–
–
–
–
P
=–
14,663
P
=–
P
=–
12,382
–
– 14,488,502
– 5,258,955
–
–
–
–
–
–
–
–
–
–
–
–
P
=– P
=14,488,502
12,382 5,258,955
P
=–
299,957
–
–
–
–
–
–
–
–
P
=–
299,957
P
=–
–
1,000,000
1,000,000
–
–
–
–
–
–
P
=1,000,000
1,000,000
There have been no guarantees/collaterals provided or received for any related party receivables or payables. For the three months ended March 31, 2013 and 2012, the Company has not
recorded any impairment of receivables relating to amounts owed by related parties. This assessment is undertaken each financial year through examining the financial position of the related
party and the market in which the related party operates.
The above transactions with related parties are made at terms equivalent to those that prevail in arm’s length transactions. As at March 31, 2013 and December 31, 2012, outstanding balances
at year-end are unsecured, noninterest-bearing, generally settled within 30 to 90 days and settlement occurs in cash except cash and cash equivalents, short-term investments, investments held
for trading, AFS investments and long-term debt. For the terms and conditions of cash and cash equivalents, short-term investments, investments held for trading, AFS investments and longterm debt, please refer to Notes 6, 7, 8, 10 and 16, respectively.
P
=–
–
816,000
821,000
–
–
–
–
–
–
P
=816,000
821,000
P
=–
697,900
–
–
–
–
–
–
–
–
P
=–
697,900
Accrued
Accrued
Interest
Interest
Investments
Cash
Long-term
Receivable
Payables and Cash Short-term
Held for
AFS
Debt
(see Interest
(see Equivalents Investments
(see
Interest
Trading Investments
Note 9) Expense Note 15) (see Note 6) (see Note 7) (see Note 8) (see Note 10)
Note 16)
Income
Affiliate refers to an entity that is neither a parent, subsidiary, nor an associate, with stockholders common to the SM Group or under common control.
Affiliate
Affiliates
SM Management Group
Affiliates
Parent
Relationship Year
SM Retail Group and
SM Banking Group
SM Land
SMIC
Related Party
Rent
Income
(see
Note 21)
The significant related party transactions entered into by the Company with its ultimate parent company and affiliates and the amounts included in the consolidated financial statements with
respect to such transactions follow:
- 39 -
- 40 -
Below are the nature of the transactions with related parties:
SMIC
The Company leases land and maintains certain investments held for trading and long-term debt.
The lease of land is for a period of 50 years, renewable upon mutual agreement of the parties. The
Company pays a minimum fixed amount or a certain percentage of its gross rent income,
whichever is higher.
SM Retail Group and SM Banking Group
The Company leases out its mall spaces and maintains certain bank accounts, short-term
investments, investments held for trading and AFS investments.
SM Land
The Company leases land where one of its malls is located for a period of 50 years, renewable
upon mutual agreement of the parties. The Company pays a minimum fixed amount or a certain
percentage of its gross rent income, whichever is higher.
SM Management Group
The Company pays management fees to its affiliates, Shopping Center Management Corporation,
West Avenue Theaters Corporation and Family Entertainment Center, Inc. for managing the
operations of the malls.
SM China Companies
In 2012, SM City Xiamen entered into an offshore loan agreement with SM Laiya
(SM Department Store in China). The loan is unsecured and bears an interest rate of 5.6%. As of
March 31, 2013, interest amounting to =
P2.7 million was collected. Also, SM China Companies
provide noninterest-bearing cash advances to FHREC, an associate. The SM China Companies entered into land development contracts with Grand China and Oriental
Land to jointly develop certain sites in the cities of Jinjiang, Chengdu and Xiamen, with areas of
158,727 square meters, 19,952 square meters and 33,440 square meters, respectively, as at March
31, 2013 and December 31, 2012. Under the terms of the contracts, the SM China Companies will
provide the land use rights while Grand China and Oriental Land will fund the development
expenses, among others.
Key Management Compensation
The total compensation paid to key management personnel of the Company amounted to
=
P10 million and =
P8 million for the three months ended March 31, 2013 and 2012, respectively.
No special benefits are paid to management personnel other than the usual monthly salaries and
government mandated bonuses.
21. Lease Agreements
The Company’s lease agreements with its tenants are generally granted for a term of one year,
with the exception of some of the larger tenants operating nationally, which are granted initial
lease terms of five years, renewable on an annual basis thereafter. Upon inception of the lease
agreement, tenants are required to pay certain amounts of deposits. Tenants likewise pay either a
fixed monthly rent, which is calculated with reference to a fixed sum per square meter of area
leased, or pay rent on a percentage rental basis, which comprises a basic monthly amount and a
percentage of gross sales or a minimum set amount, whichever is higher.
- 41 -
P6,031 million for the three months ended March
31, 2013 and 2012, respectively.
The Company also leases certain parcels of land where some of its malls are situated or
constructed. The terms of the lease are for periods ranging from 15 to 50 years, renewable for the
same period under the same terms and conditions. Rent payments are generally computed based
on a certain percentage of the Company’s gross rent income or a certain fixed amount, whichever
is higher.
The minimum lease payables under the noncancellable operating leases as at March 31, 2013 and
December 31. 2012 are as follows:
Within one year
After one year but not more than five years
After five years
December 31,
March 31,
2012
2013
=
P530,659,607
P
=532,091,819
2,252,319,501
2,267,131,512
26,548,199,613 26,707,806,776
P29,490,785,884
P
=29,347,422,944 =
Rent expense included under “Costs and expenses” account in the consolidated statements of
income amounted to =
P222 million and =
P163 million for the three months ended March 31, 2013
and 2012, respectively.
22. Financial Risk Management Objectives and Policies
The Company’s principal financial instruments, other than derivatives, comprise of cash and cash
equivalents, short-term investments, investments held for trading, accrued interest and other
receivables, AFS investments and bank loans. The main purpose of these financial instruments is
to finance the Company’s operations. The Company has various other financial assets and
liabilities such as rent receivables and trade payables, which arise directly from its operations.
The Company also enters into derivative transactions, principally interest rate swaps, cross
currency swaps, foreign currency call options, non-deliverable forwards and foreign currency
range options. The purpose is to manage the interest rate and currency risks arising from the
Company’s operations and its sources of finance (see Note 23).
The main risks arising from the Company’s financial instruments are interest rate risk, foreign
currency risk, credit risk and liquidity risk. The Company’s BOD and management review and
agree on the policies for managing each of these risks as summarized below.
Interest Rate Risk
The Company’s exposure to interest rate risk relates primarily to its financial instruments with
floating interest and/or fixed interest rates. Fixed rate financial instruments are subject to fair
value interest rate risk while floating rate financial instruments are subject to cash flow interest
rate risk. Re-pricing of floating rate financial instruments is done every three to six months.
Interest on fixed rate financial instruments is fixed until maturity of the instrument. The details of
financial instruments that are exposed to interest rate risk are disclosed in Notes 6, 8, 10 and 16.
- 42 -
The Company’s policy is to manage its interest cost using a mix of fixed and floating rate debts.
To manage this mix in a cost-efficient manner, the Company enters into interest rate swaps, in
which the Company agrees to exchange, at specified intervals, the difference between fixed and
floating rate interest amounts calculated by reference to an agreed-upon notional principal amount.
These swaps are designated to economically hedge underlying debt obligations. As at March 31,
2013 and December 31, 2012, after taking into account the effect of interest rate swaps,
approximately 52% and 45%, respectively, of the Company’s long-term borrowings excluding
China yuan renminbi-denominated loans, are at a fixed rate of interest (see Note 23).
Floating Rate
U.S. dollar-denominated fiveyear term loans
Interest rate
Interest rate
U.S. dollar-denominated
bilateral loans
Interest rate
Interest rate
Philippine peso-denominated
corporate notes
Interest rate
floating rate notes
Interest rate
five-year bilateral loans
Interest rate
Other bank loans
Interest rate
China yuan renminbidenominated loans
Interest rate
Fixed Rate
corporate notes
Interest rate
fixed rate notes
Interest rate
Other bank loans
Interest rate
$–
$50,000,000
LIBOR+spread
$–
$–
P
=50,000,000
PDST-F+margin%
P
=44,500,000
PDST-F+margin%
P
=–
P
=3,008,980,000
PDST-F+margin%
¥210,000,000
5.76%–6.20%
$25,000,000
LIBOR+spread
$–
P
=50,000,000
PDST-F+margin%
P
=96,500,000
PDST-F+margin%
P
=–
P
=8,980,000
PDST-F+margin%
¥203,905,956
5.76%–6.20%
¥60,900,000
5.76%
P
=2,862,080,000
PDST-F+margin%
P
=–
P
=96,500,000
PDST-F+margin%
P
=4,800,000,000
PDST-F+margin%
$–
$–
$–
$–
P
=78,000,000
5.86%-6.81%
P
=–
$–
P
=30,000,000
6.22%-6.81%
P
=–
P
=78,000,000
5.86%-6.81%
P
=–
P
=968,000,000
5.79%–6.65%
3-<4 Years
$–
P
=18,000,000
5.79%–6.65%
2-<3 Years
P
=18,000,000
5.79%–6.65%
1-<2 Years
P
=–
$–
$–
$–
$270,000,000
LIBOR+spread
P
=78,000,000
5.86%-6.81%
P
=1,200,000,000
9.75%
P
=8,000,000
6.65%
4-<5 Years
March 31, 2013
¥–
P
=500,000,000
PDST-F+margin%
P
=–
P
=4,846,500,000
PDST-F+margin%
Interest Rate Risk Table
The Company’s long-term debt, presented by maturity profile, are as follows:
- 43 -
¥–
P
=–
P
=–
P
=3,514,000,000
PDST-F+margin%
P
=–
$35,000,000
LIBOR+spread
$–
$–
$–
P
=1,656,900,000
5.86%-6.81%
P
=–
P
=8,000,000
6.65%
5-<6 Years
¥–
P
=–
P
=–
P
=950,000,000
PDST-F+margin%
P
=–
$–
$–
$200,000,000
LIBOR+spread
$–
P
=6,631,100,000
5.86%-9.85%
P
=–
P
=1,844,000,000
6.65%–10.11%
>6 Years
–
(P
=601,534,812)
P
=60,227,420,173
(13,207,823)
(1,897,602)
(60,581,003)
(23,255,972)
(47,382,270)
(3,534,431)
(200,326,022)
3,119,380,173
5,880,040,000
500,000,000
9,548,000,000
4,900,000,000
3,468,000,000
1,020,000,000
8,160,000,000
(171,670,952)
(4,884,629)
1,200,000,000
11,016,000,000
(57,867,886)
(P
=16,926,222)
8,552,000,000
P
=2,864,000,000
Total
Unamortized
Debt Issuance
Costs
P
=59,625,885,361
3,119,380,173
5,866,832,177
498,102,398
9,487,418,997
4,876,744,028
3,420,617,730
1,016,465,569
7,959,673,978
10,844,329,048
1,195,115,371
8,494,132,114
P
=2,847,073,778
Carrying Value
Floating Rate
Interest rate
bilateral loans
Interest rate
Interest rate
corporate notes
Interest rate
floating rate notes
Interest rate
Interest rate
Other bank loans
Interest rate
Interest rate
Fixed Rate
corporate notes
Interest rate
fixed rate notes
Interest rate
Other bank loans
Interest rate
$50,000,000
LIBOR+spread
$–
=
P50,000,000
PDST-F+margin%
=
P96,500,000
PDST-F+margin%
=
P–
=
P3,010,000,000
PDST-F+margin%
¥375,168,446
5.76%–6.20%
=
P50,000,000
PDST-F+margin%
=
P96,500,000
PDST-F+margin%
=
P–
=
P10,000,000
PDST-F+margin%
¥77,476,000
5.76%–6.20%
¥60,900,000
5.76%
=
P2,960,000,000
PDST-F+margin%
=
P–
=
P96,500,000
PDST-F+margin%
=
P4,800,000,000
PDST-F+margin%
$–
$–
$25,000,000
LIBOR+spread
$–
$–
=
P78,500,000
5.86%-6.81%
=
P–
$–
=
P78,500,000
5.86%-6.81%
=
P–
=
P78,500,000
5.86%-6.81%
=
P–
=
P1,097,300,000
5.79%–6.65%
3-<4 Years
$–
=
P20,000,000
5.79%–6.65%
2-<3 Years
=
P20,000,000
5.79%–6.65%
1-<2 Years
¥–
=
P500,000,000
PDST-F+margin%
=
P–
=
P4,846,500,000
PDST-F+margin%
=
P–
$–
$–
$270,000,000
LIBOR+spread
=
P78,500,000
5.86%-6.81%
=
P1,200,000,000
9.75%
=
P8,660,000
5.79%–6.65%
4-<5 Years
December 31, 2012
- 44 -
¥–
=
P–
=
P–
=
P3,514,000,000
PDST-F+margin%
=
P–
$10,000,000
LIBOR+spread
$–
$–
=
P1,685,900,000
5.86%-6.81%
=
P–
=
P57,485,000
5.89%–6.65%
5-<6 Years
¥–
=
P–
=
P–
=
P950,000,000
PDST-F+margin%
=
P–
$–
$–
$–
=
P6,650,100,000
5.86%-9.85%
=
P–
=
P1,856,555,000
5.89%–10.11%
>6 Years
–
(P
=407,413,365)
=
P51,846,235,968
(15,322,281)
(2,008,576)
(64,381,639)
(25,829,459)
(24,887,784)
(5,007,901)
3,383,485,968
5,980,000,000
500,000,000
9,600,000,000
4,900,000,000
2,463,000,000
1,026,250,000
(186,538,437)
(5,187,300)
1,200,000,000
11,083,500,000
(60,069,406)
(P
=18,180,582)
8,650,000,000
=
P3,060,000,000
Total
Unamortized
Debt Issuance
Costs
=
P51,438,822,603
3,383,485,968
5,964,677,719
497,991,424
9,535,618,361
4,874,170,541
2,438,112,216
1,021,242,099
10,896,961,563
1,194,812,700
8,589,930,594
=
P3,041,819,418
Carrying Value
- 45 -
Interest Rate Risk Sensitivity Analysis
The following table demonstrates the sensitivity to a reasonably possible change in interest rates,
with all other variables held constant, of the Company’s income before income tax. The impact on
the Company’s stockholders’ equity, due to changes in fair value of AFS investments, is
immaterial.
2013
2012
Increase (Decrease) in Basis Points
100
50
(100)
(50)
100
50
(100)
(50)
Effect on Income
Before Income Tax
(P
=67,826,972)
(33,913,486)
67,826,972
33,913,486
(P
=41,005,451)
(20,502,725)
41,005,451
20,502,725
Fixed rate debts, although subject to fair value interest rate risk, are not included in the sensitivity
analysis as these are carried at amortized costs. The assumed movement in basis points for
interest rate sensitivity analysis is based on the currently observable market environment, showing
a significantly higher volatility as in prior years.
Foreign Currency Risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument
will fluctuate because of changes in foreign exchange rates. To manage its foreign currency risk,
stabilize cash flows and improve investment and cash flow planning, the Company enters into
foreign currency swap contracts, cross-currency swaps, foreign currency call options, nondeliverable forwards and foreign currency range options aimed at reducing and/or managing the
adverse impact of changes in foreign exchange rates on financial performance and cash flows
(see Note 23).
The Company’s foreign currency-denominated monetary assets and liabilities amounted to
=
P15,315 million (US$375 million) and =
P15,741 million (US$386 million), respectively, as at
March 31, 2013, and =
P14,581 million (US$355 million) and =
P14,909 million (US$363 million),
respectively, as at December 31, 2012.
In translating the foreign currency-denominated monetary assets and liabilities to peso amounts,
the exchange rates used were =
P40.80 to US$1.00 and P
=41.05 to US$1.00, the Philippine peso to
U.S. dollar exchange rate as at March 31, 2013 and December 31, 2012, respectively.
The following table demonstrates the sensitivity to a reasonably possible change in =
P/US$
exchange rate, with all other variables held constant, of the Company’s income before income tax
(due to changes in the fair value of monetary assets and liabilities, including the impact of
derivative instruments). There is no impact on the Company’s stockholders’ equity.
2013
Appreciation (Depreciation) of =
P
P
=1.50
1.00
(1.50)
(1.00)
Effect on Income
before Income Tax
P
=3,914,137
2,609,425
(3,914,137)
(2,609,425)
- 46 -
2012
Effect on Income
before Income Tax
=
P43,424,277
28,949,518
(43,424,277)
(28,949,518)
P
=
P1.50
1.00
(1.50)
(1.00)
Credit Risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument
or customer contract, leading to a financial loss. It is the Company’s policy that all prospective
tenants are subject to screening procedures. In addition, receivable balances are monitored on an
ongoing basis with the result that the Company’s exposure to bad debts is not significant. Given
the Company’s diverse base of tenants, it is not exposed to large concentrations of credit risk.
With respect to credit risk arising from the other financial assets of the Company, which comprise
of cash and cash equivalents, short-term investments, investments held for trading, AFS
investments and certain derivative instruments, the Company’s exposure to credit risk arises from
the default of the counterparty, with a maximum exposure equal to the carrying amount of these
instruments. The fair values of these financial instruments are disclosed in Note 23.
Since the Company trades only with recognized third parties, there is no requirement for collateral.
Credit Quality of Financial Assets
The credit quality of financial assets is determined by the Company using high quality and
standard quality as internal credit ratings.
High Quality. Pertains to financial assets with counterparties who are not expected by the
Company to default in settling its obligations, thus credit risk exposure is minimal. This normally
includes large prime financial institutions, companies and government agencies.
Standard Quality. Other financial assets not belonging to high quality financial assets are
included in this category.
The credit quality of the Company’s financial assets is as follows:
March 31, 2013
Neither Past Due nor Impaired
Past Due
High
Standard
but not
Quality
Quality
Impaired
Loans and Receivables
Cash and cash equivalents*
Receivables from:
Rent
Accrued interest
Advances to suppliers and others
Financial Assets at FVPL
Investments held for trading Corporate and government bonds
Derivative assets
AFS Investments
Corporate notes
Total
P
= 18,948,475,987
816,000,000
P
=–
–
P
=–
–
P
= 18,948,475,987
816,000,000
–
61,645,969
–
3,586,991,241
–
1,993,106,195
121,475,007
–
–
3,708,466,248
61,645,969
1,993,106,195
457,335,307
138,453,670
–
–
–
–
457,335,307
138,453,670
1,000,000,000
P
= 21,421,910,933
–
P
= 5,580,097,436
–
P
= 121,475,007
1,000,000,000
P
= 27,123,483,376
* Excluding cash on hand amounting to =
P 120 million.
- 47 -
December 31, 2012
Past Due
High
Standard
but not
Quality
Quality
Impaired
Receivables from:
Rent
Accrued interest
Derivative assets
AFS Investments
Corporate notes
Total
=
P9,663,575,278
821,000,000
=
P–
–
=
P–
–
=
P9,663,575,278
821,000,000
–
47,123,072
–
4,067,710,900
–
1,688,335,509
76,912,399
–
–
4,144,623,299
47,123,072
1,688,335,509
759,300,343
109,978,821
–
–
–
–
759,300,343
109,978,821
1,000,000,000
=
P12,400,977,514
–
=
P5,756,046,409
–
=
P76,912,399
1,000,000,000
=
P18,233,936,322
P 43 million.
Liquidity Risk
The Company seeks to manage its liquidity profile to be able to finance its capital expenditures
and service its maturing debts. The Company’s objective is to maintain a balance between
continuity of funding and flexibility through evaluation of projected and actual cash flow
information. Liquidity risk arises from the possibility that the Company may encounter
difficulties in raising funds to meet commitments from financial instruments or that a market for
derivatives may not exist in some circumstance.
The Company’s financial assets, which have maturity of less than 12 months and used to meet its
short-term liquidity needs, are cash and cash equivalents, short-term investments and investments
held for trading amounting to =
P19,068 million, =
P816 million and =
P457 million, respectively, as at
March 31, 2013, and =
P9,707 million, =
P821 million and =
December 31, 2012. Also included in the Company’s financial assets used to meet its short-term
liquidity needs are current AFS investments amounting to =
P1,000 million as at March 31, 2013
and December 31, 2012.
The table below summarizes the maturity profile of the Company’s financial liabilities based on
contractual undiscounted payments:
Loans payable
Accounts payable and other current
liabilities*
Long-term debt (including current
portion)
Derivative liabilities - interest rate
swaps
Tenants’ deposits
Other noncurrent liabilities*
Less than
12 Months
P
= 800,000,000
March 31, 2013
More than
2 to 5 Years
5 Years
P
=–
P
=–
Total
P
= 800,000,000
11,167,737,213
–
–
11,167,737,213
3,249,634,073
47,430,834,292
19,404,139,646
70,084,608,011
–
–
–
–
P
= 15,217,371,286
236,996,850
8,555,929,087
1,041,570,404
1,439,390,067
P
= 58,704,720,700
–
–
–
–
P
=0
236,996,850
8,555,929,087
1,041,570,404
1,439,390,067
P
= 93,326,231,632
* Excluding nonfinancial liabilities included in “Accounts payable and other current liabilities” and “Other noncurrent liabilities”
accounts amounting to =
P 212 million and =
P 439 million, respectively.
- 48 -
Loans payable
liabilities*
portion)
swaps
Tenants’ deposits
December 31, 2012
More than
2 to 5 Years
5 Years
=
P–
=
P–
Less than
12 Months
=
P800,000,000
Total
=
P800,000,000
11,082,067,528
–
–
11,082,067,528
3,565,265,400
46,540,835,301
11,485,043,650
61,591,144,351
17,428,372
–
–
–
=
P15,464,761,300
51,987,472
8,386,248,204
1,214,756,670
1,389,211,697
=
P57,583,039,344
14,046,843
–
–
–
=
P11,499,090,493
83,462,687
8,386,248,204
1,214,756,670
1,389,211,697
=
P84,546,891,137
P 316 million and =
P 447 million, respectively.
Capital Management
Capital includes equity attributable to equity holders of the parent.
The primary objective of the Company’s capital management is to ensure that it maintains a strong
credit rating and healthy capital ratios in order to support its business and maximize shareholder
value.
The Company manages its capital structure and makes adjustments to it, in the light of changes in
economic conditions. To maintain or adjust the capital structure, the Company may adjust the
dividend payment to shareholders, payoff existing debts, return capital to shareholders or issue
new shares.
The Company monitors capital using gearing ratio, which is interest-bearing debt divided by total
capital plus interest-bearing debt and net interest-bearing debt divided by total capital plus net
interest-bearing debt. Interest-bearing debt includes all short-term and long-term debt while net
interest-bearing debt includes all short-term and long-term debt net of cash and cash equivalents,
short-term investments, investments held for trading and AFS investments.
As at March 31, 2013 and December 31, 2012, the Company’s gearing ratios are as follows:
Interest-bearing Debt to Total Capital plus Interest-bearing Debt
Loans payable
Total interest-bearing debt (a)
Total equity attributable to equity holders of
the parent
Total interest-bearing debt and equity attributable
to equity holders of the parent (b)
Gearing ratio (a/b)
March 31,
2013
P
=800,000,000
2,611,101,353
57,014,784,008
60,425,885,361
December 31,
2012
=
P800,000,000
1,791,703,848
49,647,118,755
52,238,822,603
72,706,225,932
69,944,410,317
P122,183,232,920
P
=133,132,111,293 =
45%
43%
- 49 -
Net Interest-bearing Debt to Total Capital plus Net Interest-bearing Debt
March 31,
2013
P
=800,000,000
2,611,101,353
57,014,784,008
December 31,
2012
=
P800,000,000
1,791,703,848
49,647,118,755
35%
36%
Loans payable
Less cash and cash equivalents, short-term
investments, investments held for trading
and AFS investments
(21,341,326,300) (12,287,157,704)
Total net interest-bearing debt (a)
39,951,664,899
39,084,559,061
Total equity attributable to equity holders of the parent
69,944,410,316
72,706,225,932
Total net interest-bearing debt and equity attributable
P109,896,075,215
P
=111,790,784,993 =
Gearing ratio (a/b)
23. Financial Instruments
Carrying Values
The table below presents a comparison of the carrying amounts of the Company’s financial
instruments by category:
March 31, 2013
Carrying
Amount
Fair Value
Financial Assets
Loans and receivables:
Receivables from:
Rent
Accrued interest
Financial assets at FVPL:
Derivative assets
AFS investments Corporate notes
December 31, 2012
Carrying
Amount
Fair Value
P
= 19,067,990,992
816,000,000
P
= 19,067,990,992
816,000,000
=
P9,706,857,361
821,000,000
=
P9,706,857,361
821,000,000
3,708,466,248
61,645,969
1,993,106,195
25,647,209,404
3,708,466,248
61,645,969
1,993,106,195
25,647,209,404
4,144,623,299
47,123,072
1,688,335,509
16,407,939,241
4,144,623,299
47,123,072
1,688,335,509
16,407,939,241
457,335,307
138,453,670
595,788,977
457,335,307
138,453,670
595,788,977
759,300,343
109,978,821
869,279,164
759,300,343
109,978,821
869,279,164
1,000,000,000
P
= 27,242,998,381
1,000,000,000
P
= 27,242,998,381
1,000,000,000
=
P18,277,218,405
1,000,000,000
=
P18,277,218,405
- 50 -
March 31, 2013
Carrying
Amount
Fair Value
Financial Liabilities
Financial liabilities at FVPL Derivative liabilities
Other financial liabilities:
Loans payable
liabilities*
Long-term debt (including
current portion)
Tenants’ deposits
December 31, 2012
Carrying
Amount
Fair Value
P
= 236,996,850
P
= 236,996,850
=
P244,330,399
=
P244,330,399
800,000,000
800,000,000
800,000,000
800,000,000
11,167,737,213
11,167,737,213
11,082,067,528
11,082,067,528
59,625,885,361
8,555,929,087
1,041,570,404
1,439,390,067
82,630,512,132
P
= 82,867,508,982
62,293,365,055
8,200,406,031
998,290,208
1,379,579,338
84,839,377,845
P
= 85,076,374,695
51,438,822,603
8,386,248,204
1,214,756,670
1,389,211,697
74,311,106,702
=
P74,555,437,101
53,227,448,393
7,976,094,815
1,155,345,530
1,321,268,336
75,562,224,602
=
P75,806,555,001
P 212 million and =
P 439 million, respectively, as at March 31, 2013, and =
P 316 million and =
P 447 million,
The following methods and assumptions were used to estimate the fair value of each class of
financial instrument for which it is practicable to estimate such value:
Cash and Cash Equivalents and Short-term Investments. The carrying amounts approximate fair
values due to the short-term nature of the instruments.
Receivables. The net carrying value approximates the fair value due to the short-term maturities
of the receivables.
Investments Held for Trading. The fair values are based on quoted market prices of the
instruments at balance sheet date.
AFS Investments. The fair value of investments that are actively traded in organized financial
markets is determined by reference to quoted market bid prices at the close of business at balance
sheet date. For investments where there is no active market, the fair value is based on the present
value of future cash flows discounted at prevailing interest rates. Discount rate used was 4.74% as
at December 31, 2012.
Derivative Instruments. The fair values are based on quotes obtained from counterparties.
Loans Payable, Accounts Payable and Other Current Liabilities. The carrying values
approximate the fair values due to the short-term maturities of these liabilities.
Long-term Debt. Fair value is based on the following:
Debt Type
Fixed Rate Loans
Fair Value Assumptions
Estimated fair value is based on the discounted value of future
cash flows using the applicable rates for similar types of loans.
Discount rates used range from 1.40% to 4.55% as at March 31,
2013, and 1.52% to 5.35% as at December 31, 2012.
- 51 -
Debt Type
Variable Rate Loans
For variable rate loans that re-price every 3 months, the face value
approximates the fair value because of the recent and regular repricing based on current market rates. For variable rate loans that
re-price every 6 months, the fair value is determined by discounting
the principal amount plus the next interest payment using the
prevailing market rate from the period up to the next re-pricing
date. Discount rates used range from 1.76% to 6.46% as at
March 31, 2013, and 1.73% to 5.91% as at December 31, 2012.
Tenants’ Deposits, Liability for Purchased Land and Other Noncurrent Liabilities. The estimated
fair values are based on the discounted value of future cash flows using the applicable rates for
similar types of loans. Discount rates used range from 1.86% to 3.60% as at March 31, 2013, and
1.99% to 4.06% as at December 31, 2012.
Fair Value Hierarchy
The Company uses the following hierarchy for determining and disclosing the fair value of
financial instruments by valuation technique:
Level 1: Quoted prices in active markets for identical assets or liabilities;
Level 2: Those involving inputs other than quoted prices included in Level 1 that are observable
for the asset or liability, either directly (as prices) or indirectly (derived from prices); and,
Level 3: Those with inputs for the asset or liability that are not based on observable market data
(unobservable inputs).
The following table shows the Company’s financial instruments carried at fair value as at
March 31, 2013 and December 31, 2012 based on Levels 1 and 2:
2013
Level 1
Financial Assets
Derivative assets
P
= 457,335,307
–
457,335,307
Level 2
P
=–
138,453,670
138,453,670
– 1,000,000,000
P
= 457,335,307 P
= 1,138,453,670
P
=–
P
= 236,996,850
2012
Level 1
=
P759,300,343
–
759,300,343
Level 2
=
P–
109,978,821
109,978,821
– 1,000,000,000
=
P759,300,343 =
P1,109,978,821
=
P–
=
P244,330,399
During the periods ended March 31, 2013 and December 31, 2012, there were no transfers
between Level 1 and Level 2 fair value measurements. There are no financial instruments
classified under Level 3.
Derivative Financial Instruments
To address the Company’s exposure to market risk for changes in interest rates arising primarily
from its long-term floating rate debt obligations and to manage its foreign currency risk, the
Company entered into various derivative transactions such as interest rate swaps, cross-currency
swaps, foreign currency call options, non-deliverable forwards and foreign currency range options.
- 52 -
Cross Currency Swaps (CCS). In 2013, the Parent Company entered into cross currency swap
transactions to hedge both the foreign currency and interest rate exposure on the Group’s foreign
currency denominated term loan facilities arranged by Standard Chartered Bank (Hong Kong),
Ltd. for a total principal amount of US$200 million. Such loans bear an annual interest of 6month LIBOR plus spread and will mature on January 29, 2018.
The Table below provides the details of the Parent Company’s outstanding cross currency swaps
as of March 31, 2013:
Counterparty
Notional Amount
Receive Leg (interest rate)
Pay Leg (interest rate)
USD:PHP rate used
Maturity Date
Market valuation gain or loss as of
March 31, 2013
Metropolitan Bank & Trust Co.
$150,000,000.00
3.70%
6 Mos Libor + 1.70%
40.67
January 29, 2018
=
P4,144,277.61
ING Bank, NV-Manila
$50,000,000.00
3.70%
6 Mos Libor + 1.70%
40.67
January 29, 2018
=
P (105,863.00)
Under these agreements, the Parent Company effectively receives at inception =
P8,134 million
and pays US$200 million notional amount. Every interest payment date, the Parent Company will
receive variable interest based on the US$200 million notional and will pay fixed interest based on
the =
P8,134 million notional amount up to January 29, 2018. At maturity date, the Parent Company
will receive US$200 million notional amount and pay =
P8,134 million notional amount. The US$
receipts from the CCS correspond to 100% of the expected interest and principal payment due on
the hedged loan. With this, the variability in the cash flows of the CCS is expectedly to partially
offset the variability in cash flows of the hedged loan due to changes in =
P/US$ exchange rate and
6-month LIBOR plus spread. Effectively, the CCS transformed 100% of the floating interest US
dollar-denominated loan into fixed interest Philippine peso-denominated loan (see Note 16). The
effective portion of the change in fair values of these cross currency swaps amounting to =
P22
million for the period ended March 31, 2013 was taken to equity under other comprehensive
income. The ineffective portion of the hedge is nil as the hedging relationship is 100% effective.
The table below shows information on the Company’s interest rate swaps presented by maturity
profile.
March 31, 2013
<1 Year
>1-<2 Years
>2-<5 Years
Floating-Fixed
Outstanding notional amount
Receive-floating rate
Pay-fixed rate
$145,000,000
$145,000,000
$145,000,000
6 months LIBOR+margin% 6 months LIBOR+margin% 6 months LIBOR+margin%
2.91%–3.28%
2.91%–3.28%
2.91%–3.28%
Pay-fixed rate
$30,000,000
$30,000,000
$30,000,000
3.53%
3.53%
3.53%
Pay-fixed rate
$20,000,000
$20,000,000
6 months LIBOR+margin% 6 months LIBOR+margin%
3.18%
3.18%
$–
Pay-fixed rate
(Forward)
$25,000,000
6 months LIBOR+margin%
4.10%
$–
$–
- 53 March 31, 2013
<1 Year
>1-<2 Years
>2-<5 Years
Fixed-Floating
Receive-fixed rate
Pay-floating rate
P
=970,000,000
5.44%
3MPDST-F
P
=960,000,000
5.44%
3MPDST-F
P
=950,000,000
5.44%
3MPDST-F
Receive-fixed rate
Pay-floating rate
P
=970,000,000
7.36%
3MPDST-F+margin%
P
=960,000,000
7.36%
3MPDST-F+margin%
P
=950,000,000
7.36%
3MPDST-F+margin%
December 31, 2012
<1 Year
>1-<2 Years
>2-<5 Years
Floating-Fixed
Pay-fixed rate
$145,000,000
2.91%–3.28%
$145,000,000
2.91%–3.28%
$145,000,000
2.91%–3.28%
Pay-fixed rate
$30,000,000
3.53%
$30,000,000
3.53%
$30,000,000
3.53%
Pay-fixed rate
$20,000,000
3.18%
$20,000,000
3.18%
$–
Pay-fixed rate
$25,000,000
4.10%
$–
$–
Fixed-Floating
Receive-fixed rate
Pay-floating rate
=
P970,000,000
5.44%
3MPDST-F
=
P960,000,000
5.44%
3MPDST-F
=
P950,000,000
5.44%
3MPDST-F
Receive-fixed rate
Pay-floating rate
=
P970,000,000
7.36%
3MPDST-F+margin%
=
P960,000,000
7.36%
3MPDST-F+margin%
=
P950,000,000
7.36%
3MPDST-F+margin%
Interest Rate Swaps (IRS). In 2011, the Parent Company entered into floating to fixed US$
interest rate swap agreements with aggregate notional amount of US$145 million. Under the
agreements, the Parent Company effectively converts the floating rate U.S. dollar-denominated
term loan into fixed rate loan with semi-annual payment intervals up to March 21, 2015 (see Note
16). As at March 31, 2013 and December 31, 2012, the floating to fixed interest rate swaps have
aggregate negative fair value of =
P152 million and =
The Parent Company also entered into US$ interest rate swap agreement with notional amount of
US$20 million in 2011. Under the agreement, the Parent Company effectively converts the
floating rate U.S. dollar-denominated five-year bilateral unsecured loan into fixed rate loan with
semi-annual payment intervals up to November 30, 2014 (see Note 16). As at March 31, 2013 and
December 31, 2012, the floating to fixed interest rate swaps has negative fair value of =
P16 million
and =
In 2010, the Parent Company entered into the following interest rate swap agreements:

A US$ interest rate swap agreement with nominal amount of US$30 million. Under the
agreement, the Parent Company effectively converts the floating rate U.S. dollar-denominated
five-year bilateral unsecured loan into fixed rate loan with semi-annual payment intervals up
to November 30, 2015 (see Note 16). As at March 31, 2013 and December 31, 2012, the
- 54 -
floating to fixed interest rate swap has a negative fair value of =
P47 million and =
P48 million,
respectively.

Two Philippine peso interest rate swap agreements with notional amount of =
P1,000 million
each, with amortization of =
P10 million every anniversary. The combined net cash flows of the
two swaps effectively converts the Philippine peso-denominated five-year inverse floating rate
notes into floating rate notes with quarterly payment intervals up to June 2015 (see Note 16).
As at March 31, 2013 and December 31, 2012, these swaps have positive fair values of =
P134
million and =

A US$ interest rate swap agreement with notional amount of US$20 million. Under the
three-year bilateral unsecured loan into fixed rate loan with semi-annual payment intervals up
to January 14, 2013 (see Note 16). As at December 31, 2011, the floating to fixed interest rate
swap has a negative fair value of =
P3 million. In January 2012, the interest rate swap
agreement was preterminated as a result of the prepayment of the underlying loan. Fair value
changes from the preterminated swap recognized in the consolidated statements of income
amounted to =
P1 million loss in 2012.
In 2009, the Parent Company entered into US$ interest rate swap agreements with notional
amount of US$25 million. Under these agreements, the Parent Company effectively converts the
floating rate U.S. dollar-denominated five-year bilateral loan into fixed rate loan with semi-annual
payment intervals up to November 2013 (see Note 16). As at March 31, 2013 and December 31,
2012, the floating to fixed interest rate swap has a negative fair value of =
P22 million.
Non-deliverable Forwards. In 2013 and 2012, the Parent Company entered into sell =
P and buy
US$ forward contracts. It also entered into sell US$ and buy =
P forward contracts with the same
aggregate notional amount. Net fair value changes from the settled forward contracts recognized
in the consolidated statements of income amounted to =
P10 million gain and =
P7 million gain in
March 31, 2013 and 2012, respectively.
Fair Value Changes on Derivatives
The net movements in fair value of all derivative instruments are as follows:
Net changes in fair value during the year
Less fair value of settled derivatives
March 31,
2013
(P
=134,351,578)
66,442,086
(30,633,688)
(P
=98,543,180)
December 31,
2012
(P
=122,361,246)
24,406,448
(36,396,780)
(P
=134,351,578)
In 2013, the net changes in fair value amounting to =
P66 million comprise of interest paid
amounting to =
P21 million, which is included under “Interest expense” account in the consolidated
statements of income and net mark-to-market gain on derivatives amounting to =
P45 million, which
is included under “Others - net” account in the consolidated statements of income.
amounting to =
P27 million, which is included under “Interest expense” account in the consolidated
P51 million, which
is included under “Others - net” account in the consolidated statements of income.
- 55 -
The reconciliation of the amounts of derivative assets and liabilities recognized in the consolidated
balance sheets follows:
Derivative assets
March 31,
2013
P
=138,453,670
(236,996,850)
(P
=98,543,180)
December 31,
2012
=
P109,978,821
(244,330,399)
(P
=134,351,578)
24. Basic/Diluted Earnings Per Share Computation
Basic/diluted EPS is computed as follows:
Net income attributable to equity holders of the
parent (a)
Common shares issued at beginning of year *
Stocks dividends (see Note 17)*
Common shares issued at end of year
Less treasury stock (see Note 17)
Weighted average number of common shares
outstanding (b)
Earnings per share (a/b)
*Retroactively adjusted for stock dividends declared
2013
2012
P
=2,790,337,235
=
P2,433,869,469
17,373,677,760
–
17,373,677,760
18,857,000
13,917,800,067
3,455,877,693
17,373,677,760
18,857,000
17,354,820,760
17,354,820,760
P
=0.161
=
P0.140
FINANCIAL RATIOS - KEY PERFORMANCE INDICATORS
AS OF MARCH 31, 2013 AND 2012
i.
ii.
Mar 31
2013
Mar 31
2012
1.80
1.96
Debt-to-equity ratio
Total equity attributable to equity holders of the parent + Total
interest-bearing liabilities
0.45 : 0.55
0.43 : 0.57
Net debt-to-equity ratio
Total interest-bearing liabilities less cash and cash equivalents and
investment securities
interest-bearing liabilities less cash and cash equivalents and
0.35 : 0.65
0.32 : 0.68
2.20
2.14
Mar 31
2013
Mar 31
2012
3.61
4.86
10.17
8.68
2.83
2.62
0.16
0.15
0.10
0.10
Current ratio
iii. Asset to equity ratio
Total assets
(Annualized)
Debt service coverage ratio
Operating cash flows
Total loans payable, current portion of long-term debt and interest
expense (excluding the portion of debt which are fully hedged by
cash and cash equivalents and temporary investments)
iv. Earnings before interest, income taxes, depreciation and amortization
(EBITDA) to interest expense
EBITDA
Interest expense
Debt to EBITDA
EBITDA
v. Return on equity
Net income attributable to equity holders of the parent
Total average equity attributable to equity holders of the parent
Return on investment properties
Total average investment properties (excluding shopping mall complex
under construction)
Management’s Discussion and Analysis or Plan of Operation
2013
First Quarter
2013
% to
Revenues
2012
% to
Revenues
Revenues
7,830
100%
7,035
100%
11%
Operating Expenses
3,604
46%
3,242
46%
11%
% Change
Profit & Loss Data
Operating Income
4,226
54%
3,793
54%
11%
Net Income
2,790
36%
2,434
35%
15%
EBITDA
5,339
68%
4,759
68%
12%
Mar 31
2013
% to Total
Assets
Dec 31
2012
% to Total
Assets
%
Change
Balance Sheet Data
Total Assets
159,669
100%
148,130
100%
8%
126,017
79%
124,087
84%
2%
Total Debt
60,426
38%
52,239
35%
16%
Net Debt
39,085
24%
39,952
27%
-2%
72,706
46%
69,944
47%
4%
Financial Ratios
Current Ratio
Mar 31
2013
Dec 31
2012
1.80
1.34
Debt to Equity
0.45 : 0.55
0.43 : 0.57
Net Debt to Equity
0.35 : 0.65
0.36 : 0.64
Mar 31
(annualized)
2013
2012
Return on Equity
0.16
0.15
0.10
0.10
Debt to EBITDA
2.83
2.62
10.17
8.68
0.54
0.54
EBITDA Margin
0.68
0.68
0.36
0.35
3.61
4.86
gross revenues for the first quarter 2013 to =
P7.83 billion from =
P7.03 billion in the same period
2012. Rental revenues, accounting for 86% of total revenues, grew by 12% amounting to =
P6.73
billion from same period last year’s =
P6.03 billion. This is largely due to rentals from new SM
Supermalls opened in 2011 and 2012, namely SM City Masinag, SM City Olongapo, SM City
Consolacion, SM City San Fernando, SM City General Santos and SM Lanang Premier, with a total
gross floor area of 527,000 square meters. Excluding the new malls and expansions, same-store
rental growth is at 7%.
P0.69 billion in 2013 and =
P0.62
China operations contributed 10% to SM Prime’s consolidated rental revenues. Gross revenues of
the five malls in China increased 11% in 2013 compared to 2012 largely due to improved mall
productivity and lease renewals for the first three malls opened namely SM Xiamen, SM Jinjiang
and SM Chengdu. Average occupancy rate for the first three malls is now at 96%.
For the first quarter 2013, cinema ticket sales increased 8% to =
P761 million from =
P703 million in
the same period 2012 due to more blockbuster movies and fully operational digital cinemas which
enable a simultaneous release nationwide. The major blockbusters shown in 2013 were
“Sisterakas,” “One More Try,” “Jack, The Giant Slayer,” “Chinese Zodiac,” and “Hansel and
Gretel: Witch Hunters.” In 2012, major blockbusters shown were “Unofficially Yours,” “Enteng ng
Ina Mo,” “The Hunger Games,” “Underworld 4: Awakening” and “John Carter.”
Amusement income and others likewise increased by 12% to =
P 336 million in the first quarter of
2013 from =
P301 million in the same period 2012 mainly due to higher income from amusement
rides. This account is mainly composed of amusement income from rides, bowling and ice skating
operations including the SM Science Discovery Center and the SM Storyland.
P3.24 billion in 2012 to =
P 3.60 billion in 2013 mainly
due to new malls opened in 2012. Same-store growth in operating expenses is 4%. Likewise,
income from operations posted 11% growth from =
P4.23 billion in 2013. In
terms of operating expenses, the five malls in China contributed =
P0.42 billion in 2013 and =
P0.39
billion in 2012, or 12% of SM Prime’s consolidated operating expenses. Income from operations in
China went up by 15% from =
P0.27 billion in 2013.
Interest and dividend income decreased by 24% to =
P99 million in 2013 compared to =
P131 million
in 2012 mainly due to lower average interest rates of temporary investments in the first quarter of
2013 compared to same period last year.
Interest expense for the year likewise decreased by 4% to =
P525 million in 2013 from =
P548 million
in 2012 despite new loans, due to the low interest rate environment.
Net income for the first quarter 2013 increased by 15% at =
P2.79 billion from =
P2.43 billion in the
same period last year. On a stand-alone basis, the net income of China operations increased to
=
P171 million in 2013 compared to =
P145 million in 2012 for a 19% increase, while net income of
the Philippine operations grew 14% at =
P2.62 billion in 2013 from P
=2.29 billion in 2012.
=
P9.71 billion as of December 31, 2012 to =
P19.07 billion as of March 31, 2013. This account
includes proceeds from the $200 million loan availed last January 2013 which will be used to fund
capital expenditures both in the Philippines and China.
Investments held for trading likewise decreased by 40% from =
P759 million as of December 31,
2012 to =
P457 million as of March 31, 2013, respectively, due to pretermination of investment in
corporate bonds with original maturity of 2016.
Prepaid expenses and other current assets increased by 9% from =
P1.44 billion as of December 31,
2012 to =
P1.57 billion as of March 31, 2013, mainly due to prepaid taxes on investment properties
and prepaid insurance.
Derivative assets increased by 26% from =
P110 million as of December 31, 2012 to =
P138 million as
of March 31, 2013, mainly resulting from unrealized mark-to-market gains on interest rate and
cross currency swaps.
P4.66
billion as of March 31, 2013. This account mainly consists of deposits to contractors and suppliers
and advances and deposits paid for leased properties.
P59.63 billion as
of March 31, 2013, due to new loan availment amounting to $200 million, net of prepayments.
Liability for purchased land decreased 14% from =
P1.04
billion as of March 31, 2013, due to subsequent payments.
Company.
The Company’s current ratio increased to 1.80:1 from 1.34:1 as of March 31, 2013 and December
31, 2012, respectively, mainly due to proceeds from the $200 million loan still in cash and cash
equivalents.
Similarly, Interest-bearing debt to stockholders’ equity increased to 0.45:0.55 from 0.43:0.57 as of
March 31, 2013 and December 31, 2012, respectively, while net interest-bearing debt to
stockholders’ equity slightly decreased to 0.35:0.65 from 0.36:0.64 as of March 31, 2013 and
December 31, 2012, respectively, due to the additional borrowings. Debt service coverage ratio
decreased to 3.61:1 from 4.86:1 for the three months ended March 31, 2013 and 2012, respectively,
due to higher current portion of long-term debt in 2013 compared to 2012.
In terms of profitability, ROE slightly improved to 16% from 15% for the three months ended
March 31, 2013 and 2012, respectively. EBITDA increased by 12% to =
P5.34 billion in 2013 from
=
P4.76 billion in 2012.
Debt to EBITDA increased to 2.83:1 from 2.62:1 as of March 31, 2013 and 2012, respectively, due
to increase in long-term debt. While EBITDA to interest expense increased to 10.17:1 from 8.68:1
for the quarter ended March 31, 2013 and 2012, respectively, due to higher EBITDA in 2013
compared to 2012.
Consolidated operating income to revenues is healthy at 54% for the period ended March 31, 2013
and 2012. On a stand-alone basis, operating income margin of the Philippines and China operations
is at 55% and 39% in 2013, compared to 55% and 38% in 2012, respectively.
EBITDA margin remains strong at 68% for the periods ended March 31, 2013 and 2012. On a
stand-alone basis, EBITDA margin of the Philippines and China operations is at 69% and 60% in
2013 and 69% and 57% in 2012, respectively.
Net income to revenues slightly improved at 36% from 35% for the periods ended March 31, 2013
and 2012, respectively. On a stand-alone basis, net income margin of the Philippines and China
operations is at 37% and 25% in 2013 and 36% and 23% in 2012, respectively.
borrowings.
As of March 31, 2013, SM Prime has forty six Supermalls strategically located in the Philippines
For the rest of 2013, SM Prime is scheduled to launch SM Aura Premier in Taguig and SM City BF
in Paranaque. SM Megamall, on the other hand, will be expanded with an additional 101,000
square meters. By year-end, SM Prime will have 48 malls in the Philippines and five in China with
an estimated combined gross floor area of 6.9 million square meters.
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SIGNATURES
Pursuant to the requirements of the Securities Regulation Code, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Registrant
Date: May 10, 2013
JEFFREY C. LIM
Executive Vice-President
SyCip Gorres Velayo & Co.
6760 Ayala Avenue
1226 Makati City
Philippines
Phone: (632) 891 0307
Fax:
(632) 819 0872
www.sgv.com.ph
BOA/PRC Reg. No. 0001,
December 28, 2012, valid until December 31, 2015
SEC Accreditation No. 0012-FR-3 (Group A),
November 15, 2012, valid until November 16, 2015
INDEPENDENT AUDITORS REPORT
The Stockholders and the Board of Directors
Mall of Asia Arena Annex Building
Coral Way cor. J.W. Diokno Blvd.
Mall of Asia Complex, Brgy. 76, Zone 10
CBP-1A, Pasay City 1300
We have audited the accompanying consolidated financial statements of SM Prime Holdings, Inc. and
Subsidiaries, which comprise the consolidated balance sheets as at December 31, 2012 and 2011, and
the consolidated statements of income, statements of comprehensive income, statements of changes in
stockholders equity and statements of cash flows for each of the three years in the period ended
December 31, 2012, and a summary of significant accounting policies and other explanatory
information.
Managements Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with Philippine Financial Reporting Standards, and for such internal control
as management determines is necessary to enable the preparation of consolidated financial statements
that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those
standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the consolidated financial statements. The procedures selected depend on the auditors judgment,
including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entitys preparation and fair presentation of the consolidated financial statements in
order to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entitys internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the consolidated
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
*SGVMG200157*
A member firm of Ernst & Young Global Limited
-2-
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of SM Prime Holdings, Inc. and Subsidiaries as at December 31, 2012 and 2011, and
their financial performance and their cash flows for each of the three years in the period ended
December 31, 2012 in accordance with Philippine Financial Reporting Standards.
SYCIP GORRES VELAYO & CO.
Belinda T. Beng Hui
Partner
CPA Certificate No. 88823
SEC Accreditation No. 0943-A (Group A),
March 18, 2010, valid until March 17, 2013
Tax Identification No. 153-978-243
BIR Accreditation No. 08-001998-78-2012,
June 19, 2012, valid until June 18, 2015
PTR No. 3669663, January 2, 2013, Makati City
February 18, 2013
*SGVMG200157*
CONSOLIDATED BALANCE SHEETS
December 31
ASSETS
Current Assets
Cash and cash equivalents (Notes 6, 20, 22 and 23)
Short-term investments (Notes 7, 20, 22 and 23)
Investments held for trading (Notes 8, 20, 22 and 23)
Receivables (Notes 9, 20, 22 and 23)
Available-for-sale investments (Notes 10, 20, 22 and 23)
Prepaid expenses and other current assets (Note 11)
Noncurrent Assets
Investment properties - net (Notes 12 and 20)
Derivative assets (Notes 22 and 23)
Deferred tax assets (Note 18)
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Loans payable (Notes 14, 22 and 23)
(Notes 15, 20, 22 and 23)
Current portion of long-term debt (Notes 16, 20, 22 and 23)
Income tax payable
Long-term debt - net of current portion (Notes 16, 20, 22 and 23)
Tenants deposits (Notes 21, 22 and 23)
Liability for purchased land - net of current portion
Deferred tax liabilities (Note 18)
Derivative liabilities (Notes 22 and 23)
Other noncurrent liabilities (Notes 12, 20, 22 and 23)
Capital stock (Notes 17 and 24)
Additional paid-in capital - net (Note 17)
Retained earnings (Note 17):
Appropriated
Unappropriated
Treasury stock (Notes 17 and 24)
Total Equity Attributable to Equity Holders of the Parent
(Note 22)
Non-controlling Interests (Note 17)
Total Stockholders Equity
2012
2011
=9,706,857,361
P
821,000,000
759,300,343
5,880,081,880
1,000,000,000
1,440,189,139
19,607,428,723
=
P8,290,216,039
876,800,000
812,953,412
4,708,033,726
1,000,000,000
1,276,452,460
16,964,455,637
107,836,216,127
124,087,439,798
115,618,680
109,978,821
254,132,999
190,463,028
3,153,887,932
4,134,582,818
111,359,855,738
128,522,464,465
P128,324,311,375
=148,129,893,188 =
P
=800,000,000
P
=
P
11,398,520,838
1,791,703,848
632,900,873
14,623,125,559
10,150,278,123
799,086,409
623,013,182
11,572,377,714
49,647,118,755
8,386,248,204
1,214,756,670
1,278,194,418
244,330,399
1,836,373,166
62,607,021,612
40,093,522,320
7,467,302,387
1,551,018,812
1,258,514,789
237,979,926
1,796,789,506
52,405,127,740
17,392,534,760
8,219,067,298
544,146,167
13,917,800,067
8,219,067,298
872,658,862
27,000,000,000
16,890,136,797
(101,474,705)
7,000,000,000
33,865,609,976
(101,474,705)
63,773,661,498
69,944,410,317
573,144,423
955,335,700
64,346,805,921
70,899,746,017
P128,324,311,375
=148,129,893,188 =
P
*SGVMG200157*
CONSOLIDATED STATEMENTS OF INCOME
2012
REVENUE
Rent (Notes 12, 20 and 21)
Cinema ticket sales
Amusement income and others
COSTS AND EXPENSES
Administrative (Notes 19, 20 and 21)
Film rentals
Business taxes and licenses
Management fees (Note 20)
Rent (Note 21)
Insurance
Others
INCOME FROM OPERATIONS
OTHER INCOME (CHARGES) - Net
Others - net (Notes 8, 13, 16 and 23)
INCOME BEFORE INCOME TAX
PROVISION FOR (BENEFIT FROM) INCOME
TAX (Note 18)
Current
Deferred
NET INCOME
Attributable to
Equity holders of the parent (Note 24)
Basic/Diluted Earnings Per Share (Note 24)
Years Ended December 31
2011
2010
P
= 25,902,081,684
3,477,261,663
1,346,966,010
30,726,309,357
=
P22,759,402,156
3,051,716,588
1,086,336,307
26,897,455,051
=
P19,992,948,925
2,764,775,099
958,207,627
23,715,931,651
3,955,641,599
3,886,571,608
1,877,504,253
1,760,649,386
860,534,994
801,810,102
247,640,906
604,797,438
13,995,150,286
3,829,971,166
3,228,409,525
1,650,121,989
1,510,242,916
794,923,211
589,134,834
201,918,532
472,774,273
12,277,496,446
3,501,183,977
3,206,359,610
1,494,236,340
1,326,394,330
647,342,667
503,533,075
216,230,268
376,101,148
11,271,381,415
16,731,159,071
14,619,958,605
12,444,550,236
(2,195,557,761)
406,214,974
(653,110,383)
(2,442,453,170)
(1,948,257,322)
361,227,330
(812,537,877)
(2,399,567,869)
(1,746,215,754)
251,102,302
(152,588,284)
(1,647,701,736)
14,288,705,901
12,220,390,736
10,796,848,500
3,313,221,804
53,337,830
3,366,559,634
2,932,357,842
(94,188,973)
2,838,168,869
2,449,966,767
206,748,328
2,656,715,095
P
= 10,922,146,267
=
P9,382,221,867
=
P8,140,133,405
P
= 10,529,954,990
392,191,277
P
= 10,922,146,267
=
P9,055,995,525
326,226,342
=
P9,382,221,867
=
P7,856,348,789
283,784,616
=
P8,140,133,405
P
= 0.606
=
P0.521
=
P0.464
*SGVMG200157*
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
2012
NET INCOME
OTHER COMPREHENSIVE INCOME (LOSS) Net
Unrealized loss on available-for-sale investments net of tax (Notes 10 and 17)
TOTAL COMPREHENSIVE INCOME
Attributable to
P
= 10,922,146,267
2011
=
P9,382,221,867
2010
=
P8,140,133,405
(328,512,695)
282,958,497
(91,770,374)

(328,512,695)
(3,745,323)
279,213,174
1,230,084
(90,540,290)
P
= 10,593,633,572
=
P9,661,435,041
=
P8,049,593,115
P
= 10,201,442,295
392,191,277
P
= 10,593,633,572
=
P9,335,208,699
326,226,342
=
P9,661,435,041
=
P7,765,808,499
283,784,616
=
P8,049,593,115
*SGVMG200157*
P
= 17,392,534,760
=
P13,917,800,067

=
P13,917,800,067
=
P13,348,191,367

569,608,700

=
P13,917,800,067
At December 31, 2012
At January 1, 2011
Cash dividends - =
P0.27 a share
Dividends of a subsidiary
At January 1, 2010
Additional issuance of shares
Cash dividends - =
P0.25 a share
P
= 13,917,800,067

3,474,734,693

At January 1, 2012
Appropriation
Cash dividends - =
P0.29 a share
Stock dividends - 25%
Capital Stock
(Notes 17
and 24)
=
P8,219,067,298
=
P2,375,440,999

5,843,626,299

=
P8,219,067,298
=
P8,219,067,298

P
= 8,219,067,298
=
P589,700,365
=
P681,470,739
(91,770,374)

=
P872,658,862
=
P589,700,365
282,958,497

P
= 544,146,167
P
= 872,658,862
(328,512,695)

Adjustment
(Note 17)
Capital - Net
(Note 17)
P
= 8,219,067,298

Cumulative
Translation
Additional
Paid-in
=
P3,745,323
=
P2,515,239
1,230,084

=
P
=
P3,745,323
(3,745,323)

P
=
P
=

Investments
(Notes 10 and 17)
Unrealized Gain
on Availablefor-Sale
=
P7,000,000,000
=
P7,000,000,000

=
P7,000,000,000
=
P7,000,000,000

P
= 27,000,000,000
P
= 7,000,000,000

20,000,000,000

=
P28,562,329,066
=
P24,043,028,119
7,856,348,789

(3,337,047,842)

=
P33,865,609,976
=
P28,562,329,066
9,055,995,525
(3,752,714,615)

P
= 16,890,136,797
P
= 33,865,609,976
10,529,954,990
(20,000,000,000)
(4,030,693,476)
(3,474,734,693)

Appropriated Unappropriated
(Note 17)
(Note 17)
Retained Earnings
Total
(P
=101,474,705)
(P
=101,474,705)

(P
=101,474,705)
(P
=101,474,705)

=
P58,191,167,414
=
P758,715,232
=
P681,128,328
283,784,616

(206,197,712)
=
P573,144,423
=
P758,715,232
326,226,342

(511,797,151)
P
= 955,335,700
P
= 573,144,423
392,191,277

(10,000,000)
Interests
(Note 17)
Non-controlling
Total
=
P58,949,882,646
=
P48,030,300,086
8,049,593,115
6,413,234,999
(3,337,047,842)
(206,197,712)
=
P64,346,805,921
=
P58,949,882,646
9,661,435,041
(3,752,714,615)
(511,797,151)
P
= 70,899,746,017
P
= 64,346,805,921
10,593,633,572

(4,030,693,476)

(10,000,000)
*SGVMG200157*
=
P47,349,171,758
7,765,808,499
6,413,234,999
(3,337,047,842)

=
P63,773,661,498
=
P58,191,167,414
9,335,208,699
(3,752,714,615)

(P
=101,474,705) P
= 69,944,410,317
= 63,773,661,498
(P
=101,474,705) P

10,201,442,295

(4,030,693,476)

Treasury Stock
(Notes 17 and 24)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS
2012
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax and non-controlling interests P
= 14,288,705,901
Adjustments for:
3,955,641,599
2,195,557,761
Interest and dividend income (Notes 6, 7, 8, 10
and 20)
(406,214,974)
Unrealized foreign exchange loss (gain) - net
(100,497,563)
Mark-to-market loss (gain) on derivatives (Note 23)
16,277,832
Mark-to-market loss (gain) on investments held for
trading (Note 8)
706,500
Operating income before working capital changes
19,950,177,056
Increase in:
Receivables
(1,196,584,369)
(165,253,383)
Increase in:
816,102,704
Tenants deposits
952,539,475
Cash generated from operations
20,356,981,483
Income taxes paid
(3,274,142,314)
Net cash provided by operating activities
17,082,839,169
CASH FLOWS FROM INVESTING ACTIVITIES
Investment properties (Note 12)
(21,114,932,036)
(1,013,987,073)
38,508,319

Interest and dividend received
404,648,011
Net cash used in investing activities
(21,685,762,779)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from availment of loans (Notes 14, 16 and 20)
19,066,750,000
Payments of:
Loans (Notes 16 and 20)
(6,673,225,943)
Dividends
(4,040,693,476)
Interest
(2,308,977,632)
Payments to unwinding of interest rate swaps
(4,287,500)
Proceeds from additional issuance of shares (Note 17)

Net cash provided by (used in) financing activities
6,039,565,449
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS
(20,000,517)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
1,416,641,322
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR
8,290,216,039
CASH AND CASH EQUIVALENTS AT END
P
= 9,706,857,361
OF YEAR
2011
2010
=
P12,220,390,736
=
P10,796,848,500
3,829,971,166
1,948,257,322
3,501,183,977
1,746,215,754
(361,227,330)
120,523,863
226,901,219
(251,102,302)
(84,810,032)
(29,839,113)
(13,439,353)
17,971,377,623
(14,231,667)
15,664,265,117
(706,117,333)
(165,159,468)
(515,862,483)
(295,988,909)
3,093,279,729
981,080,452
21,174,461,003
(2,711,823,417)
18,462,637,586
870,437,601
762,974,229
16,485,825,555
(2,572,575,448)
13,913,250,107
(16,550,283,823)
854,989,275
(299,379,882)
100,000,000
348,964,295
(15,545,710,135)
(11,221,050,968)
(1,299,686,629)
(99,638,981)

239,534,893
(12,380,841,685)
15,894,082,275
14,224,724,000
(14,142,267,058)
(4,006,411,766)
(2,028,628,142)
(76,220,800)

(4,359,445,491)
(10,338,573,989)
(3,543,245,554)
(2,355,255,672)

6,413,234,999
4,400,883,784
13,015,795
(40,644)
(1,429,502,245)
5,933,251,562
9,719,718,284
3,786,466,722
=
P8,290,216,039
=
P9,719,718,284
*SGVMG200157*
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Corporate Information
SM Prime Holdings, Inc. (SMPH or the Parent Company) was incorporated in the Philippines and
registered with the Securities and Exchange Commission (SEC) on January 6, 1994. The Parent
Company and its subsidiaries (collectively referred to as the Company) develop, conduct,
operate and maintain the business of modern commercial shopping centers and all businesses
related thereto, such as the conduct, operation and maintenance of shopping center spaces for rent,
amusement centers, or cinema theaters within the compound of the shopping centers. Its main
sources of revenue include rent income from leases in mall and food court, cinema ticket sales and
amusement income from bowling, ice skating and others.
The Parent Companys shares of stock are publicly traded in the Philippine Stock Exchange
(PSE).
The Parent Company is 21.65% and 40.96% directly-owned by SM Investments Corporation
(SMIC) and SM Land, Inc. (SM Land), respectively. SM Land is a 66.89% owned subsidiary of
SMIC. SMIC, the ultimate parent company, is a Philippine corporation which listed its common
shares with the PSE in 2005.
The registered office and principal place of business of the Parent Company is Mall of Asia Arena
Annex Building, Coral Way cor. J.W. Diokno Blvd., Mall of Asia Complex, Brgy. 76, Zone 10,
CBP-1A, Pasay City 1300.
The accompanying consolidated financial statements were approved and authorized for issue in
accordance with a resolution by the Board of Directors (BOD) on February 18, 2013.
2. Basis of Preparation
The accompanying consolidated financial statements have been prepared on a historical cost basis,
except for derivative financial instruments, investments held for trading and available-for-sale
(AFS) investments which have been measured at fair value. The consolidated financial statements
are presented in Philippine peso, which is the Parent Companys functional and presentation
currency under Philippine Financial Reporting Standards (PFRS). All values are rounded to the
nearest peso, except when otherwise indicated.
Statement of Compliance
The accompanying consolidated financial statements have been prepared in compliance with
PFRS. PFRS includes statements named PFRS, Philippine Accounting Standards (PAS) and
Philippine Interpretations from the International Financial Reporting and Interpretations
Committee (IFRIC) issued by the Financial Reporting Standards Council (FRSC).
Changes in Accounting Policies and Disclosures
The accounting policies adopted are consistent with those of the previous financial year, except for
the following amended PFRS and PAS which the Company has adopted during the year:
§
PFRS 7, Financial Instruments: Disclosures (Amendments) - Transfers of Financial Assets,
became effective for annual periods beginning on or after July 1, 2011.
*SGVMG200157*
-2-
§
PAS 12, Income Taxes (Amendments) - Deferred Tax: Recovery of Underlying Assets, became
effective for annual periods beginning on or after January 1, 2012.
The standards that have been adopted are deemed to have no material impact on the consolidated
financial statements of the Company.
Future Changes in Accounting Policies
Standards and Interpretations
The Company did not early adopt the following standards and Philippine Interpretations that have
been approved but are not yet effective. The Company will adopt these standards and
interpretations on their effective dates.
§
PFRS 7, Financial Instruments: Disclosures - Offsetting Financial Assets and Financial
The amendments require an entity to disclose information about rights of set-off and related
arrangements (such as collateral agreements). The new disclosures are required for all
recognized financial instruments that are set-off in accordance with PAS 32, Financial
Instruments: Presentation. These disclosures also apply to recognized financial instruments
that are subject to an enforceable master netting arrangement or similar agreement,
irrespective of whether they are set-off in accordance with PAS 32. The amendments require
entities to disclose, in a tabular format unless another format is more appropriate, the
following minimum quantitative information. This is presented separately for financial assets
and financial liabilities recognized at the end of the reporting period:
(a) The gross amounts of those recognized financial assets and recognized financial liabilities;
(b) The amounts that are set-off in accordance with the criteria in PAS 32 when determining
the net amounts presented in the statement of financial position;
(c) The net amounts presented in the statement of financial position;
(d) The amounts subject to an enforceable master netting arrangement or similar agreement
that are not otherwise included in (b) above, including:
i. Amounts related to recognized financial instruments that do not meet some or all of
the offsetting criteria in PAS 32; and
ii. Amounts related to financial collateral (including cash collateral); and
(e) The net amount after deducting the amounts in (d) from the amounts in (c) above.
The amendments to PFRS 7 are to be applied retrospectively. The amendments affect
disclosures only and have no impact on the Companys financial position or performance.
§
PFRS 9, Financial Instruments: Classification and Measurement, will become effective for
annual periods beginning on or after January 1, 2015. PFRS 9 reflects the first phase of the
work on the replacement of PAS 39, Financial Instruments: Recognition and Measurement,
and applies to classification and measurement of financial assets and financial liabilities as
defined in PAS 39. Work on impairment of financial instruments and hedge accounting is still
ongoing, with a view to replacing PAS 39 in its entirety. PFRS 9 requires all financial assets
to be measured at fair value at initial recognition. A debt financial asset may, if the fair value
*SGVMC215040*
-3-
option (FVO) is not invoked, be subsequently measured at amortized cost if it is held within a
business model that has the objective to hold the assets to collect the contractual cash flows
and its contractual terms give rise, on specified dates, to cash flows that are solely payments of
principal and interest on the principal outstanding. All other debt instruments are
subsequently measured at fair value through profit or loss. All equity financial assets are
measured at fair value either through other comprehensive income or profit or loss. Equity
financial assets held for trading must be measured at fair value through profit or loss. For
FVO liabilities, the amount of change in the fair value of a liability that is attributable to
changes in credit risk must be presented in other comprehensive income. The remainder of
the change in fair value is presented in profit or loss, unless presentation of the fair value
change in respect of the liabilitys credit risk in other comprehensive income would create or
enlarge an accounting mismatch in profit or loss. All other PAS 39 classification and
measurement requirements for financial liabilities have been carried forward into PFRS 9,
including the embedded derivative separation rules and the criteria for using the FVO. The
Company made an evaluation of the impact of the adoption of the standard and decided not to
early adopt PFRS 9 for the 2012 reporting ahead of its effectivity date on January 1, 2015.
Therefore, the consolidated financial statements as at December 31, 2012 do not reflect the
impact of this new standard. The adoption of the first phase of PFRS 9 will have an effect on
the classification and measurement of the Companys financial assets but will potentially have
no impact on the classification and measurement of financial liabilities.
§
PFRS 10, Consolidated Financial Statements, will become effective for annual periods
beginning on or after January 1, 2013. This standard replaces the portion of PAS 27,
Consolidated and Separate Financial Statements, that addresses the accounting for
consolidated financial statements. It also includes the issues raised in Standing Interpretations
Committee (SIC)-12 Consolidation - Special Purpose Entities. PFRS 10 establishes a single
control model that applies to all entities including special purpose entities. The changes
introduced by PFRS 10 will require management to exercise significant judgment to determine
which entities are controlled, and therefore, are required to be consolidated by a parent,
compared with the requirements that were in PAS 27. Based on the reassessment of control
following the provisions of this new standard as at December 31, 2012, the adoption of
PFRS 10 will have no impact on the consolidated financial statements.
§
PFRS 11, Joint Arrangements, will become effective for annual periods beginning on or after
January 1, 2013. This standard replaces PAS 31, Interests in Joint Ventures, and SIC-13
Jointly-controlled Entities - Non-monetary Contributions by Venturers, and removes the
option to account for jointly controlled entities (JCEs) using proportionate consolidation.
Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity
method. Based on the Companys reassessment, this standard will have no impact on its
consolidated financial statements.
§
PFRS 12, Disclosure of Interests in Other Entities, will become effective for annual periods
beginning on or after January 1, 2013. This standard includes all of the disclosures that were
previously in PAS 27 related to consolidated financial statements, as well as all of the
disclosures that were previously included in PAS 31 and PAS 28, Investments in Associates.
These disclosures relate to an entitys interests in subsidiaries, joint arrangements, associates
and structured entities. A number of new disclosures are also required. The adoption of
PFRS 12 will affect disclosures only and have no impact on the Companys financial position
or performance.
*SGVMC215040*
-4-
§
PFRS 13, Fair Value Measurement, will become effective for annual periods beginning on or
after January 1, 2013. This standard establishes a single source of guidance under PFRS for
all fair value measurements. PFRS 13 does not change when an entity is required to use fair
value, but rather provides guidance on how to measure fair value under PFRS when fair value
is required or permitted. The Company does not anticipate that the adoption of this standard
will have a significant impact on its financial position and performance.
§
PAS 1, Presentation of Financial Statements - Presentation of Items of Other Comprehensive
Income (OCI), will become effective for annual periods beginning on or after July 1, 2012.
The amendments to PAS 1 change the grouping of items presented in OCI. Items that could
be reclassified (or recycled) to profit or loss at a future point in time (for example, upon
derecognition or settlement) would be presented separately from items that will never be
reclassified. The amendments affect presentation only and have no impact on the Companys
§
PAS 19, Employee Benefits (Revised), will become effective for annual periods beginning on
or after January 1, 2013. Amendments range from fundamental changes such as removing the
corridor mechanism and the concept of expected returns on plan assets to simple clarifications
and re-wording. The revised standard also requires new disclosures such as, among others, a
sensitivity analysis for each significant actuarial assumption, information on asset-liability
matching strategies, duration of the defined benefit obligation, and disaggregation of plan
assets by nature and risk. Once effective, the Company has to apply the amendments
retroactively to the earliest period presented. This revised standard will have no material
impact on the Companys financial position or performance.
§
PAS 27, Separate Financial Statements (as revised in 2011), will become effective for annual
periods beginning on or after January 1, 2013. As a consequence of the new PFRS 10 and
PFRS 12, what remains of PAS 27 is limited to accounting for subsidiaries, jointly controlled
entities, and associates in separate financial statements. The Company does not expect this
revised standard to have material impact on its consolidated financial statements.
§
PAS 28, Investments in Associates and Joint Ventures (as revised in 2011), will become
effective for annual periods beginning on or after January 1, 2013. As a consequence of the
new PFRS 11 and PFRS 12, PAS 28 has been renamed PAS 28, Investments in Associates
and Joint Ventures, and describes the application of the equity method to investments in joint
ventures in addition to associates. The Company does not expect this revised standard to have
material impact on its consolidated financial statements.
§
PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial
These amendments to PAS 32 clarify the meaning of currently has a legally enforceable right
to set-off and also clarify the application of the PAS 32 offsetting criteria to settlement
systems (such as central clearing house systems) which apply gross settlement mechanisms
that are not simultaneous. The amendments to PAS 32 are to be applied retrospectively. The
Company is currently assessing the impact of these amendments on its consolidated financial
statements.
§
Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate, covers
accounting for revenue and associated expenses by entities that undertake the construction of
real estate directly or through subcontractors. The interpretation requires that revenue on
construction of real estate be recognized only upon completion, except when such contract
qualifies as construction contract to be accounted for under PAS 11, Construction Contracts,
*SGVMC215040*
-5-
or involves rendering of services in which case revenue is recognized based on stage of
completion. Contracts involving provision of services with the construction materials and
where the risks and reward of ownership are transferred to the buyer on a continuous basis
will also be accounted for based on stage of completion. The SEC and the FRSC have
deferred the effectivity of this interpretation until the final Revenue standard is issued by
International Accounting Standards Board and an evaluation of the requirements of the final
Revenue standard against the practices of the Philippine real estate industry is completed.
This interpretation will have no impact on the consolidated financial statements.
§
Philippine Interpretation IFRIC 20, Stripping Costs in the Production Phase of a Surface
Mine, will become effective for annual periods beginning on or after January 1, 2013. This
interpretation applies to waste removal costs that are incurred in surface mining activity during
the production phase of the mine (production stripping costs) and provides guidance on the
recognition of production stripping costs as an asset and measurement of the stripping activity
asset. This interpretation will have no impact on the consolidated financial statements.
Improvements to PFRSs
The amendments are effective for annual periods beginning on or after January 1, 2013 and are
applied retrospectively. Earlier application is permitted.
§
PFRS 1, First-time Adoption of PFRS - Borrowing Costs, clarifies that, upon adoption of
PFRS, an entity that capitalized borrowing costs in accordance with its previous generally
accepted accounting principles, may carry forward, without any adjustment, the amount
previously capitalized in its opening statement of financial position at the date of transition.
Subsequent to the adoption of PFRS, borrowing costs are recognized in accordance with
PAS 23, Borrowing Costs. The amendment does not apply to the Company as it is not a firsttime adopter of PFRS.
§
PAS 1, Presentation of Financial Statements - Clarification of the Requirements for
Comparative Information, clarifies the requirements for comparative information that are
disclosed voluntarily and those that are mandatory due to retrospective application of an
accounting policy, or retrospective restatement or reclassification of items in the financial
statements. An entity must include comparative information in the related notes to the
financial statements when it voluntarily provides comparative information beyond the
minimum required comparative period. The additional comparative period does not need to
contain a complete set of financial statements. On the other hand, supporting notes for the
third balance sheet (mandatory when there is a retrospective application of an accounting
policy, or retrospective restatement or reclassification of items in the financial statements) are
not required. The amendments affect disclosures only and have no impact on the Companys
§
PAS 16, Property, Plant and Equipment - Classification of Servicing Equipment, clarifies that
spare parts, stand-by equipment and servicing equipment should be recognized as property,
plant and equipment when they meet the definition of property, plant and equipment and
should be recognized as inventory if otherwise. The Company does not expect this
amendment to have material impact on its consolidated financial statements.
§
PAS 32, Financial Instruments: Presentation - Tax Effect of Distribution to Holders of Equity
Instruments, clarifies that income taxes relating to distributions to equity holders and to
transaction costs of an equity transaction are accounted for in accordance with PAS 12. The
Company does not expect this amendment to have material impact on its consolidated
*SGVMC215040*
-6-
§
PAS 34, Interim Financial Reporting - Interim Financial Reporting and Segment Information
for Total Assets and Liabilities, clarifies that the total assets and liabilities for a particular
reportable segment need to be disclosed only when the amounts are regularly provided to the
chief operating decision maker and there has been a material change from the amount
disclosed in the entitys previous annual financial statements for that reportable segment. The
amendment affects disclosures only and has no impact on the Companys financial position or
performance.
Basis of Consolidation
The consolidated financial statements include the accounts of the Parent Company and the
following subsidiaries:
Company
San Lazaro Holdings Corporation
Southernpoint Properties Corp. (SPC)
First Leisure Ventures Group Inc. (FLVGI)
Affluent Capital Enterprises Limited (Affluent)
and Subsidiaries
Mega Make Enterprises Limited (Mega Make)
and Subsidiaries
Springfield Global Enterprises Limited
SM Land (China) Limited (SM Land China)
and Subsidiaries
Country of
Incorporation
Philippines
- do - do - do - do - do - do British Virgin
Islands (BVI)
2011
2012
74.19
74.19
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
50.00
50.00
100.00
100.00
- do - do-
100.00
100.00
100.00
100.00
Hong Kong
100.00
100.00
SM Malls Owned
SM Megamall
SM City Clark
SM City Dasmariñas
SM City Batangas and SM City Lipa

SM Lanang Premier
SM by the Bay
SM City Xiamen and
SM City Chengdu
SM City Jinjiang

SM City Suzhou and
SM City Chongqing
FLVGI is accounted for as a subsidiary by virtue of control, as evidenced by the majority
members of the BOD representing the Parent Company.
The financial statements of the subsidiaries are prepared for the same reporting year as the Parent
Company, using consistent accounting policies.
All intracompany balances, transactions, income and expenses resulting from intracompany
transactions are eliminated in full.
Subsidiaries are consolidated from the date of acquisition, being the date on which the Company
obtains control, and continue to be consolidated until the date that such control ceases.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an
equity transaction. If the Company loses control over a subsidiary, it:
§
Derecognizes the assets (including goodwill) and liabilities of the subsidiary;
§
Derecognizes the carrying amount of any non-controlling interest;
§
Derecognizes the cumulative translation differences recorded in equity;
§
Recognizes the fair value of the consideration received;
§
Recognizes the fair value of any investment retained;
§
Recognizes any surplus or deficit in profit or loss;
§
Reclassifies the parents share of components previously recognized in other comprehensive
income to profit or loss or retained earnings, as appropriate.
*SGVMC215040*
-7-
Non-controlling interests represent the portion of profit or loss and net assets not held by the
Company and are presented separately in the consolidated statements of income and within
stockholders equity in the consolidated balance sheets, separately from equity attributable to
equity holders of the parent.
3. Significant Accounting Judgments, Estimates and Assumptions
The preparation of the Companys consolidated financial statements requires management to make
judgments, estimates and assumptions that affect the reported amounts of revenue, expenses,
assets and liabilities, and the disclosures of contingent liabilities, at balance sheet date. However,
uncertainty about the assumptions and estimates could result in outcomes that could require a
material adjustment to the carrying amount of the asset or liability affected in the future.
Judgments
In the process of applying the Companys accounting policies, management has made the
following judgments, apart from those involving estimates and assumptions, which have the most
significant effect on the amounts recognized in the consolidated financial statements.
Operating Lease Commitments - Company as Lessor. The Company has entered into commercial
property leases on its investment property portfolio. The Company has determined, based on an
evaluation of the terms and conditions of the arrangements, that it retains all the significant risks
and rewards of ownership of the properties and thus accounts for the contracts as operating leases.
P25,902 million, =
P19,993 million for the years
ended December 31, 2012, 2011 and 2010, respectively (see Note 21).
Operating Lease Commitments - Company as Lessee. The Company has entered into various
lease agreements as a lessee. Management has determined that all the significant risks and
benefits of ownership of the properties, which the Company leases under operating lease
arrangements, remain with the lessor. Accordingly, the leases were accounted for as operating
leases.
Rent expense amounted to =
P802 million, =
P589 million and =
P504 million for the years ended
December 31, 2012, 2011 and 2010, respectively (see Note 21).
Estimates and Assumptions
The key estimates and assumptions that may have significant risks of causing material adjustments
to the carrying amounts of assets and liabilities within the next financial year are discussed below.
Estimation of Allowance for Impairment Losses on Receivables. The Company maintains an
allowance for impairment losses at a level considered adequate to provide for potential
uncollectible receivables. The level of allowance is evaluated by the Company on the basis of
factors that affect the collectability of the accounts. These factors include, but are not limited to,
the length of the Companys relationship with the customers, average age of accounts and
collection experience. The Company performs a regular review of the age and status of these
accounts, designed to identify accounts with objective evidence of impairment and provide the
appropriate allowance for impairment losses. The amount and timing of recorded expenses for
any period would differ if the Company made different judgments or utilized different
methodologies. An increase in allowance for impairment losses would increase the recorded costs
and expenses and decrease current assets.
*SGVMC215040*
-8-
The carrying value of receivables amounted to =
P4,708 million as at
December 31, 2012 and 2011, respectively (see Note 9).
Impairment of AFS Investments. The Company treats AFS investments as impaired when there
has been a significant or prolonged decline in the fair value below its cost or whether other
objective evidence of impairment exists. The determination of what is significant or prolonged
requires judgment. The Company treats significant generally as 20% or more of the original cost
of investment, and prolonged as period longer than 12 months. In addition, the Company
evaluates other factors, including normal volatility in share price for quoted equities and future
cash flows and the discount factors for unquoted equities.
The carrying value of AFS investments amounted to =
P1,000 million as at December 31, 2012 and
2011 (see Note 10).
Estimation of Useful Lives of Investment Properties. The useful life of each of the Companys
investment property is estimated based on the period over which the asset is expected to be
available for use. Such estimation is based on a collective assessment of industry practice, internal
technical evaluation and experience with similar assets. The estimated useful life of each asset is
reviewed periodically and updated if expectations differ from previous estimates due to physical
wear and tear, technical or commercial obsolescence and legal or other limitations on the use of
the asset. It is possible, however, that future results of operations could be materially affected by
changes in the amounts and timing of recorded expenses brought about by changes in the factors
mentioned above. A reduction in the estimated useful life of any investment property would
increase the recorded costs and expenses and decrease investment properties.
There were no changes in the estimated useful lives of investment properties in 2012 and 2011.
Impairment of Nonfinancial Assets. The Company assesses at each balance sheet date whether
there is an indication that investment properties may be impaired. The recoverable amount of the
investment properties is the higher of the assets fair value less costs to sell and its value in use.
When the carrying amounts of the investment properties exceed their recoverable amounts, the
investment properties are considered impaired and are written down to their recoverable amounts.
The net book value of investment properties amounted to =
P107,836 million
as at December 31, 2012 and 2011, respectively (see Note 12).
Realizability of Deferred Tax Assets. The Companys assessment on the recognition of deferred
tax assets on deductible temporary differences is based on the projected taxable income in the
succeeding periods. This projection is based on the Companys past and future results of
operations.
Deferred tax assets amounted to =
P190 million and =
P254 million as at December 31, 2012 and
2011, respectively (see Note 18).
Pension Cost. The determination of the Companys obligation and cost of pension benefits is
dependent on the selection of certain assumptions used by actuaries in calculating such amounts.
Those assumptions are described in Note 19 and include, among others, the discount rate,
expected rate of return on plan assets and salary increase rate. In accordance with PFRS, actual
results that differ from the assumptions are accumulated and amortized over future periods and
therefore, generally affect the recognized expense and recorded obligation in such future periods.
*SGVMC215040*
-9-
Fair Value of Financial Assets and Liabilities. The Company carries certain financial assets and
liabilities at fair value in the consolidated balance sheets. Determining the fair value of financial
assets and liabilities requires extensive use of accounting estimates and judgment. The significant
components of fair value measurement were determined using verifiable objective evidence
(i.e., foreign exchange rates, interest rates, volatility rates). However, the amount of changes in
fair value would differ if the Company utilized different valuation methodologies and
assumptions. Any changes in the fair value of these financial assets and liabilities would affect
profit and loss and other comprehensive income.
The methods and assumptions used to estimate the fair value of financial assets and liabilities are
discussed in Note 23.
Contingencies. The Company has various legal claims. The Companys estimates of the probable
costs for the resolution of these claims have been developed in consultation with in-house as well
as outside counsel handling the prosecution and defense of the cases and are based upon an
analysis of potential results. The Company currently does not believe these legal claims will have
a material adverse effect on its consolidated financial position and results of operations. It is
possible, however, that future results of operations could be materially affected by changes in the
estimates or in the effectiveness of strategies relating to these proceedings. No provisions were
made in relation to these claims.
4. Summary of Significant Accounting and Financial Reporting Policies
Cash and Cash Equivalents
Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid
investments that are readily convertible to known amounts of cash with original maturities of three
months or less from dates of acquisitions and are subject to an insignificant risk of change in
value.
Financial Instruments - Initial Recognition and Subsequent Measurement
Date of Recognition. The Company recognizes a financial instrument in the consolidated balance
sheets when it becomes a party to the contractual provisions of the instrument. In the case of a
regular way purchase or sale of financial assets, recognition and derecognition, as applicable, is
done using settlement date accounting. Regular way purchases or sales are purchases or sales of
financial assets that require delivery of assets within the period generally established by regulation
or convention in the market place. Derivatives are recognized on a trade date basis.
Initial Recognition of Financial Instruments. Financial instruments are recognized initially at fair
value, which is the fair value of the consideration given (in case of an asset) or received (in case of
a liability). The initial measurement of financial instruments, except for those categorized as at
fair value through profit or loss (FVPL), includes transaction costs.
The Company classifies its financial instruments in the following categories: financial assets and
financial liabilities at FVPL, loans and receivables, held-to-maturity (HTM) investments, AFS
investments and other financial liabilities. The classification depends on the purpose for which the
instruments are acquired and whether they are quoted in an active market. Management
determines the classification at initial recognition and, where allowed and appropriate, reevaluates this classification at every balance sheet date.
*SGVMC215040*
- 10 -
Determination of Fair Value. The fair value of financial instruments traded in active markets at
the balance sheet date is based on their quoted market price or dealer price quotations (bid price
for long positions and ask price for short positions), without any deduction for transaction costs.
When current bid and asking prices are not available, the price of the most recent transaction
provides evidence of the current fair value as long as there has not been a significant change in
economic circumstances since the time of the transaction.
For all other financial instruments not listed in an active market, the fair value is determined by
using appropriate valuation techniques. Valuation techniques include net present value
techniques, comparison to similar instruments for which market observable prices exist, options
pricing models, and other relevant valuation models.
Day 1 Difference. Where the transaction price in a non-active market is different from the fair
value based on other observable current market transactions in the same instrument or based on a
valuation technique whose variables include only data from observable market, the Company
recognizes the difference between the transaction price and fair value (a Day 1 difference) in the
consolidated statements of income unless it qualifies for recognition as some other type of asset.
In cases where unobservable data is used, the difference between the transaction price and model
value is only recognized in the consolidated statements of income only when the inputs become
observable or when the instrument is derecognized. For each transaction, the Company
determines the appropriate method of recognizing the Day 1 difference amount.
Financial Assets and Liabilities at FVPL. Financial assets and liabilities at FVPL include
financial assets and liabilities held for trading and financial assets and liabilities designated upon
initial recognition as at FVPL.
Financial assets and liabilities are classified as held for trading if they are acquired for the purpose
of selling in the near term. Derivatives, including any separated derivatives, are also classified
under financial assets or liabilities at FVPL, unless these are designated as hedging instruments in
an effective hedge or financial guarantee contracts. Gains or losses on investments held for
trading are included in the consolidated statements of income under the Others - net account.
Interest income on investments held for trading is included in the consolidated statements of
income under the Interest and dividend income account. Instruments under this category are
classified as current assets/liabilities if these are hold primarily for the purpose of trading or
expected to be realized/settled within 12 months from balance sheet date. Otherwise, these are
classified as noncurrent assets/liabilities.
Financial assets and liabilities may be designated by management at initial recognition as at FVPL
when any of the following criteria is met:
§
the designation eliminates or significantly reduces the inconsistent treatment that would
otherwise arise from measuring the assets and liabilities or recognizing gains or losses on a
different basis; or
§
the assets and liabilities are part of a group of financial assets, financial liabilities or both
which are managed and their performance are evaluated on a fair value basis, in accordance
with a documented risk management or investment strategy; or
§
the financial instrument contains an embedded derivative, unless the embedded derivative
does not significantly modify the cash flows or it is clear, with little or no analysis, that it
would not be separately recorded.
*SGVMC215040*
- 11 -
Classified as financial assets at FVPL are the Companys investments held for trading and
derivative assets. The aggregate carrying values of financial assets under this category amounted
to =
P869 million and =
P929 million as at December 31, 2012 and 2011, respectively. Included under
financial liabilities at FVPL are the Companys derivative liabilities. The carrying values of
financial liabilities at FVPL amounted to =
P244 million and =
P238 million as at December 31, 2012
Loans and Receivables. Loans and receivables are nonderivative financial assets with fixed or
determinable payments that are not quoted in an active market. They are not entered into with the
intention of immediate or short-term resale and are not designated as AFS investments or financial
assets at FVPL. Loans and receivables are included in current assets if maturity is within
12 months from balance sheet date. Otherwise, these are classified as noncurrent assets.
After initial measurement, loans and receivables are subsequently measured at amortized cost
using the effective interest method, less allowance for impairment. Amortized cost is calculated
by taking into account any discount or premium on acquisition and fees that are an integral part of
the effective interest rate. Gains and losses are recognized in the consolidated statements of
income when the loans and receivables are derecognized and impaired, as well as through the
amortization process.
Classified under this category are the Companys cash and cash equivalents, short-term
investments and receivables. The aggregate carrying values of financial assets under this category
amounted to =
P16,408 million and P
=13,875 million as at December 31, 2012 and 2011, respectively
(see Note 23).
HTM Investments. HTM investments are quoted nonderivative financial assets with fixed or
determinable payments and fixed maturities for which the Companys management has the
positive intention and ability to hold to maturity. Where the Company sells other than an
insignificant amount of HTM investments, the entire category would be tainted and reclassified as
AFS investments. After initial measurement, these investments are measured at amortized cost
using the effective interest method, less impairment in value. Amortized cost is calculated by
taking into account any discount or premium on acquisition and fees that are an integral part of the
effective interest rate. Gains and losses are recognized in the consolidated statements of income
when the HTM investments are derecognized or impaired, as well as through the amortization
process. Assets under this category are classified as current assets if maturity is within 12 months
from balance sheet date and as noncurrent assets if maturity date is more than 12 months from
balance sheet date.
The Company has no financial assets under this category as at December 31, 2012 and 2011.
AFS Investments. AFS investments are nonderivative financial assets that are designated in this
category or are not classified in any of the other categories. They are purchased and held
indefinitely, and may be sold in response to liquidity requirements or changes in market
conditions. Subsequent to initial recognition, AFS investments are carried at fair value in the
consolidated balance sheets. Changes in the fair value of such assets are reported as unrealized
gain or loss on AFS investments recognized as other comprehensive income in the consolidated
statements of comprehensive income until the investment is derecognized or the investment is
determined to be impaired. On derecognition or impairment, the cumulative gain or loss
previously reported in consolidated statements of comprehensive income is transferred to the
consolidated statements of income. Assets under this category are classified as current assets if
management intends to sell these financial assets within 12 months from balance sheet date.
Otherwise, these are classified as noncurrent assets.
*SGVMC215040*
- 12 -
Classified under this category are the Companys investments in corporate notes. The carrying
values of financial assets classified under this category amounted to P
=1,000 million as at
December 31, 2012 and 2011 (see Note 23).
Other Financial Liabilities. This category pertains to financial liabilities that are not held for
trading or not designated as at FVPL upon the inception of the liability. These include liabilities
arising from operations or borrowings.
Other financial liabilities are recognized initially at fair value and are subsequently carried at
amortized cost, taking into account the impact of applying the effective interest method of
amortization (or accretion) for any related premium, discount and any directly attributable
transaction costs. Gains and losses are recognized in the consolidated statements of income when
the liabilities are derecognized, as well as through the amortization process. Other financial
liabilities are classified as current liabilities if settlement is within 12 months from balance sheet
date. Otherwise, these are classified as noncurrent liabilities.
Classified under this category are the Companys loans payable, accounts payable and other
current liabilities, long-term debt, tenants deposits, liability for purchased land and other
noncurrent liabilities (except for taxes payables and other payables covered by other accounting
standards). The aggregate carrying values of financial liabilities under this category amounted to
=
=61,180 million as at December 31, 2012 and 2011, respectively
(see Note 23).
Classification of Financial Instruments Between Debt and Equity
A financial instrument is classified as debt if it provides for a contractual obligation to:
§
deliver cash or another financial asset to another entity;
§
exchange financial assets or financial liabilities with another entity under conditions that are
potentially unfavorable to the Company; or
§
satisfy the obligation other than by the exchange of a fixed amount of cash or another financial
asset for a fixed number of own equity shares.
If the Company does not have an unconditional right to avoid delivering cash or another financial
asset to settle its contractual obligation, the obligation meets the definition of a financial liability.
The components of issued financial instruments that contain both liability and equity elements are
accounted for separately, with the equity component being assigned the residual amount after
deducting from the instrument as a whole the amount separately determined as the fair value of the
liability component on the date of issue.
Debt Issuance Costs
Debt issuance costs are deducted against long-term debt and are amortized over the terms of the
related borrowings using the effective interest method.
*SGVMC215040*
- 13 -
The Company uses derivative financial instruments such as long-term currency swaps, foreign
currency call options, non-deliverable forwards, foreign currency range options, interest rate
swaps and cross currency swaps to hedge the risks associated with foreign currency and interest
rate fluctuations (see Note 23). Such derivative financial instruments are initially recognized at
fair value on the date on which the derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as
liabilities when the fair value is negative.
The Companys derivative instruments provide economic hedges under the Companys policies
but are not designated as accounting hedges.
Embedded Derivative. An embedded derivative is a component of a hybrid instrument that also
includes a nonderivative host contract with the effect that some of the cash flows of the hybrid
instrument vary in a way similar to a stand-alone derivative. An embedded derivative is separated
from the host contract and accounted for as a derivative if all of the following conditions are met:
a) the economic characteristics and risks of the embedded derivative are not closely related to the
economic characteristics and risks of the host contract; b) a separate instrument with the same
terms as the embedded derivative would meet the definition of a derivative; and c) the hybrid
instrument is not recognized at FVPL.
The Company assesses whether embedded derivatives are required to be separated from the host
contracts when the Company becomes a party to the contract. Subsequent reassessment is
prohibited unless there is a change in the terms of the contract that significantly modifies the cash
flows that otherwise would be required under the contract, in which case reassessment is required.
The Company determines whether a modification to cash flows is significant by considering the
extent to which the expected future cash flows associated with the embedded derivative, the host
contract or both have changed and whether the change is significant relative to the previously
expected cash flow on the contract.
Derecognition of Financial Assets and Liabilities
Financial Assets. A financial asset (or, where applicable, a part of a financial asset or part of a
group of similar financial assets) is derecognized when:
§
the rights to receive cash flows from the asset have expired;
§
the Company retains the rights to receive cash flows from the asset, but has assumed an
obligation to pay them in full without material delay to a third party under a pass-through
arrangement; or
§
the Company has transferred its rights to receive cash flows from the asset and either (a) has
transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor
retained substantially all the risks and rewards of the asset, but has transferred control of the
asset.
When the Company has transferred its rights to receive cash flows from an asset and has neither
transferred nor retained substantially all the risks and rewards of the asset, nor transferred control
of the asset, the asset is recognized to the extent of the Companys continuing involvement in the
asset. Continuing involvement that takes the form of a guarantee over the transferred asset is
measured at the lower of original carrying amount of the asset and the maximum amount of
consideration the Company could be required to repay.
*SGVMC215040*
- 14 -
Financial Liabilities. A financial liability is derecognized when the obligation under the liability
is discharged or cancelled or expired.
When an existing financial liability is replaced by another from the same lender on substantially
different terms, or the terms of an existing liability are substantially modified, such modification is
treated as a derecognition of the original liability and the recognition of a new liability, and the
difference in the respective carrying amounts is recognized in the consolidated statements of
income.
Impairment of Financial Assets
The Company assesses at each balance sheet date whether a financial asset or a group of financial
assets is impaired. A financial asset or a group of financial assets is deemed to be impaired, if and
only if, there is objective evidence of impairment as a result of one or more events that occurred
after the initial recognition of the asset (an incurred loss event) and that loss event has an impact
on the estimated future cash flows of the financial asset or a group of financial assets that can be
reliably estimated. Objective evidence of impairment may include indications that the borrower or
a group of borrowers is experiencing significant financial difficulty, default or delinquency in
interest or principal payments, the probability that they will enter bankruptcy or other financial
reorganization and where observable data indicate that there is measurable decrease in the
estimated future cash flows, such as changes in arrears or economic conditions that correlate with
defaults.
Financial Assets Carried at Amortized Cost. If there is objective evidence that an impairment loss
on financial assets carried at amortized cost has been incurred, the amount of the loss is measured
as the difference between the assets carrying amount and the present value of estimated future
cash flows (excluding future credit losses that have not been incurred) discounted at the financial
assets original effective interest rate (i.e., the effective interest rate computed at initial
recognition). The carrying amount of the asset shall be reduced through the use of an allowance
account. The amount of the loss shall be recognized in the consolidated statements of income.
The Company first assesses whether objective evidence of impairment exists individually for
financial assets that are individually significant, and individually or collectively for financial
assets that are not individually significant. If it is determined that no objective evidence of
impairment exists for an individually assessed financial asset, whether significant or not, the asset
is included in a group of financial assets with similar credit risk characteristics and that group of
financial assets is collectively assessed for impairment. Assets that are individually assessed for
impairment and for which an impairment loss is or continues to be recognized are not included in
a collective assessment of impairment.
If, in a subsequent period, the amount of impairment loss decreases and the decrease can be related
objectively to an event occurring after the impairment was recognized, the previously recognized
impairment loss is reversed by adjusting the allowance account. The amount of the reversal is
recognized in the consolidated statements of income under Provision for (reversal of) impairment
losses account, to the extent that the carrying value of the asset does not exceed its amortized cost
at reversal date. Interest income continues to be accrued on the reduced carrying amount based on
the original effective interest rate of the asset. Assets together with the associated allowance are
written off when there is no realistic prospect of future recovery and all collateral, if any, has been
realized or has been transferred to the Company. If a future write-off is later recovered, the
recovery is recognized in the consolidated statements of income under Others - net account.
*SGVMC215040*
- 15 -
Financial Assets Carried at Cost. If there is objective evidence that an impairment loss has been
incurred in an unquoted equity instrument that is not carried at fair value because its fair value
cannot be reliably measured, or on a derivative asset that is linked to and must be settled by
delivery of such an unquoted equity instrument, the amount of the loss is measured as the
difference between the assets carrying amount and the present value of estimated future cash
flows discounted at the current market rate of return for a similar financial asset.
AFS Investments. In the case of equity instruments classified as AFS investments, evidence of
impairment would include a significant or prolonged decline in fair value of investments below its
cost. Where there is evidence of impairment, the cumulative loss - measured as the difference
between the acquisition cost and the current fair value, less any impairment loss on that financial
asset previously recognized in the consolidated statements of income - is removed from the
consolidated statements of comprehensive income and recognized in the consolidated statements
of income. Impairment losses on equity investments are not reversed through the consolidated
statements of income. Increases in fair value after impairment are recognized directly in the
consolidated statements of comprehensive income.
In the case of debt instruments classified as AFS investments, impairment is assessed based on the
same criteria as financial assets carried at amortized cost. Future interest income is based on the
reduced carrying amount of the asset and is accrued based on the rate of interest used to discount
future cash flows for the purpose of measuring impairment loss. Such accrual is recorded as part
of Interest and dividend income account in the consolidated statements of income. If, in
subsequent year, the fair value of a debt instrument increased and the increase can be objectively
related to an event occurring after the impairment loss was recognized in the consolidated
statements of income, the impairment loss is reversed through the consolidated statements of
income.
Offsetting Financial Instruments
Financial assets and financial liabilities are offset and the net amount is reported in the
consolidated balance sheets if, and only if, there is a currently enforceable legal right to offset the
recognized amounts and there is an intention to settle on a net basis, or to realize the asset and
settle the liability simultaneously. This is not generally the case with master netting agreements,
where the related assets and liabilities are presented gross in the consolidated balance sheets.
Business combinations involving entities or businesses under common control are business
combinations in which all of the combining entities or businesses are ultimately controlled by the
same party or parties both before and after the business combination, and that control is not
transitory. Business combinations under common control are accounted for similar to pooling of
interest method.
In applying the pooling of interest method, the assets, liabilities and stockholders equity of the
acquired companies for the reporting period in which the common control business combinations
occur and for the comparative periods presented, are included in the consolidated financial
statements at their carrying amounts as if the combinations had occurred from the beginning of the
earliest period presented in the financial statements, regardless of the actual date of the
combination. The excess of the cost of business combinations over the net carrying amounts of
the identifiable assets and liabilities of the acquired companies is considered as equity adjustment
from business combinations, included under Additional paid-in capital - net account in the
stockholders equity section of the consolidated balance sheets.
*SGVMC215040*
- 16 -
Acquisition of Non-controlling Interests
Changes in a parents ownership interest in a subsidiary that do not result in a loss of control are
accounted for as equity transactions (i.e., transactions with owners in their capacity as owners). In
such circumstances, the carrying amounts of the controlling and non-controlling interests shall be
adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between
the amount by which the non-controlling interests are adjusted and the fair value of the
consideration paid shall be recognized directly in stockholders equity and included under
Additional paid-in capital - net account in the stockholders equity section of the consolidated
balance sheets.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets are expenses paid in advance and recorded as assets
before they are utilized.
Investment properties represent land and land use rights, buildings, structures, equipment and
improvements of the shopping malls and shopping mall complex under construction.
Investment properties, except land and shopping mall complex under construction, are measured
initially at cost, including transaction costs, less accumulated depreciation and amortization and
accumulated impairment in value, if any. The carrying amount includes the cost of replacing part
of an existing investment property at the time that cost is incurred if the recognition criteria are
met, and excludes the costs of day-to-day servicing of an investment property.
Land is stated at cost less any impairment in value.
Shopping mall complex under construction is stated at cost and includes the cost of land,
construction costs, property and equipment, and other direct costs. Cost also includes interest on
borrowed funds incurred during the construction period, provided that the carrying amount does
not exceed the amount realizable from the use or sale of the asset.
Depreciation and amortization is calculated on a straight-line basis over the following estimated
useful lives of the assets:
Land use rights
Buildings and improvements
Building equipment, furniture and others
40-60 years
35 years
3-15 years
The residual values, useful lives and method of depreciation and amortization of the assets are
reviewed and adjusted, if appropriate, at each financial year-end.
Shopping mall complex under construction is not depreciated until such time that the relevant
assets are completed and put into operational use.
When each major inspection is performed, the cost is recognized in the carrying amount of the
investment properties as a replacement, if the recognition criteria are met.
Investment property is derecognized when either it has been disposed or when it is permanently
withdrawn from use and no future economic benefit is expected from its disposal. Any gains or
losses on the retirement or disposal of an investment property are recognized in the consolidated
statements of income in the year of retirement or disposal.
*SGVMC215040*
- 17 -
Investment in Associate
Investment in associate is accounted for under the equity method of accounting. An associate is
an entity in which the Company has significant influence and which is neither a subsidiary nor a
joint venture.
Under the equity method, investment in an associate is carried in the consolidated balance sheets
at cost plus post-acquisition changes in the Companys share in net assets of the associate.
Goodwill relating to an associate is included in the carrying amount of the investment and is not
amortized. After application of the equity method, the Company determines whether it is
necessary to recognize any additional impairment loss with respect to the Companys net
investment in the associate. The consolidated statements of income reflect the share in the results
of operations of the associate. Where there has been a change recognized directly in the equity of
the associate, the Company recognizes its share in any changes and discloses this, when
applicable, in the consolidated statements of comprehensive income. Profits and losses resulting
from transactions between the Company and the associate are eliminated to the extent of the
interest in the associate.
The Company discontinues the use of equity method from the date when it ceases to have
significant influence over an associate and accounts for the investment in accordance with
PAS 39, from that date, provided the associate does not become a subsidiary or a joint venture as
defined in PAS 31. When the Companys interest in an investment in associate is reduced to zero,
additional losses are provided only to the extent that the Company has incurred obligations or
made payments on behalf of the associate to satisfy obligations of the investee that the Company
has guaranteed or otherwise committed. If the associate subsequently reports profits, the
Company resumes recognizing its share of the profits if it equals the share of net losses not
recognized.
The financial statements of the associate are prepared for the same reporting period as the Parent
Company. The accounting policies of the associate conform to those used by the Company for
like transactions and events in similar circumstances.
Impairment of Nonfinancial Assets
The carrying value of investment properties and other nonfinancial assets is reviewed for
impairment when events or changes in circumstances indicate that the carrying value may not be
recoverable. If any such indication exists, and if the carrying value exceeds the estimated
recoverable amount, the assets or cash-generating units are written down to their recoverable
amounts. The recoverable amount of investment properties and other nonfinancial assets is the
greater of fair value less costs to sell or value in use. The fair value less costs to sell is the amount
obtainable from the sale of an asset in an arms length transaction less costs to sell. In assessing
value in use, the estimated future cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value of money and the risks
specific to the asset. For an asset that does not generate largely independent cash inflows, the
recoverable amount is determined for the cash-generating unit to which the asset belongs.
Impairment losses are recognized in the consolidated statements of income in those expense
categories consistent with the function of the impaired asset.
An assessment is made at each balance sheet date as to whether there is any indication that
previously recognized impairment losses may no longer exist or may have decreased. If such
indication exists, the recoverable amount is estimated. A previously recognized impairment loss is
reversed only if there has been a change in the estimates used to determine the assets recoverable
amount since the last impairment loss was recognized. If that is the case, the carrying amount of
the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying
*SGVMC215040*
- 18 -
amount that would have been determined, net of depreciation and amortization, had no impairment
loss been recognized for the asset in prior years. Such reversal is recognized in profit or loss.
After such a reversal, the depreciation and amortization charges are adjusted in future periods to
allocate the assets revised carrying amount, less any residual value, on a systematic basis over its
remaining useful life.
Capital Stock
Capital stock is measured at par value for all shares issued. When shares are sold at a premium,
the difference between the proceeds and the par value is credited to Additional paid-in capital net account.
Retained Earnings
Retained earnings represent accumulated earnings, net of dividends declared.
Treasury Stock
Own equity instruments which are acquired (treasury shares) are deducted from stockholders
equity and accounted for at cost. No gain or loss is recognized in the consolidated statements of
income on the purchase, sale, issuance or cancellation of the Companys own equity instruments.
Revenue Recognition
Revenue is recognized when it is probable that the economic benefits associated with the
transaction will flow to the Company and the amount of the revenue can be reliably measured.
Revenue is measured at the fair value of the consideration received, excluding discounts and sales
taxes. The following specific recognition criteria must also be met before revenue is recognized:
Rent. Revenue is recognized on a straight-line basis over the lease term or based on the terms of
the lease, as applicable.
Cinema Ticket Sales, Amusement Income and Other Revenue. Revenue is recognized upon receipt
of cash from the customer which coincides with the rendering of services.
Interest. Revenue is recognized as the interest accrues, taking into account the effective yield on
the asset.
Dividend. Revenue is recognized when the right to receive the payment is established.
Management Fees
Management fees are recognized as expense in accordance with the terms of the management
contracts.
Costs and Expenses
Operating and interest expenses are recognized as incurred.
Pension Cost
The Parent Company is a participant in the SM Corporate and Management Companies Employer
Retirement Plan. The plan is a funded, noncontributory defined benefit retirement plan
administered by a Board of Trustees covering all regular full-time employees. The cost of
providing benefits under the defined benefit plan is determined using the projected unit credit
method. This method reflects service rendered by employees to the date of valuation and
incorporates assumptions concerning the employees projected salaries. Pension cost includes
current service cost, interest cost, expected return on plan assets, amortization of unrecognized
past service costs, recognition of actuarial gains (losses) and effect of any curtailments or
*SGVMC215040*
- 19 -
settlements. Past service cost is amortized over a period until the benefits become vested. The
portion of the actuarial gains and losses is recognized when it exceeds the corridor (10% of the
greater of the present value of the defined benefit obligation or fair value of the plan assets) at the
previous balance sheet date, divided by the expected average remaining working lives of active
plan members.
The amount recognized as net pension asset or liability is the net of the present value of the
defined benefit obligation at balance sheet date, plus any actuarial gains (less any actuarial losses)
not recognized minus past service cost not yet recognized minus the fair value of plan assets at
balance sheet date out of which the obligations are to be settled directly.
Foreign Currency-denominated Transactions
Transactions in foreign currencies are initially recorded in the functional currency rate at the date
of the transaction. Monetary assets and liabilities denominated in foreign currencies are restated at
the functional currency rate of exchange at balance sheet date. All differences are taken to the
consolidated statements of income. Non-monetary items that are measured in terms of historical
cost in a foreign currency are translated using the exchange rates as at the dates of the initial
transactions. Non-monetary items measured at fair value in a foreign currency are translated using
the exchange rates at the date when the fair value was determined.
Foreign Currency Translations
The assets and liabilities of foreign operations are translated into Philippine peso at the rate of
exchange ruling at the balance sheet date and their respective statements of income are translated
at the weighted average rates for the year. The exchange differences arising on the translation are
included in the consolidated statements of changes in stockholders equity under Cumulative
translation adjustment account. On disposal of a foreign entity, the deferred cumulative amount
of exchange differences recognized in stockholders equity relating to that particular foreign
operation is recognized in profit or loss.
Leases
The determination of whether an arrangement is, or contains, a lease is based on the substance of
the arrangement at inception date of whether the fulfillment of the arrangement is dependent on
the use of a specific asset or assets or the arrangement conveys a right to use the asset.
Company as Lessor. Leases where the Company does not transfer substantially all the risks and
benefits of ownership of the asset are classified as operating leases. Rent income from operating
leases are recognized as income on a straight-line basis over the lease term or based on the terms
of the lease, as applicable. Initial direct costs incurred in negotiating an operating lease are added
to the carrying amount of the leased asset and recognized over the lease term on the same basis as
rent income. Contingent rents are recognized as revenue in the period in which they are earned.
Company as Lessee. Leases which do not transfer to the Company substantially all the risks and
benefits of ownership of the asset are classified as operating leases. Operating lease payments are
recognized as expense in the consolidated statements of income on a straight-line basis over the
lease term. Associated costs, such as maintenance and insurance, are expensed as incurred.
Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive) as a
result of a past event, it is probable that an outflow of resources embodying economic benefits will
be required to settle the obligation, and a reliable estimate can be made of the amount of the
obligation. If the effect of the time value of money is material, provisions are determined by
discounting the expected future cash flows at a pre-tax rate that reflects current market
*SGVMC215040*
- 20 -
assessments of the time value of money and, where appropriate, the risks specific to the liability.
Where discounting is used, the increase in the provision due to the passage of time is recognized
as interest expense. Where the Company expects a provision to be reimbursed, the reimbursement
is recognized as a separate asset but only when the receipt of the reimbursement is virtually
certain.
Borrowing Costs
Borrowing costs are generally expensed as incurred. Borrowing costs are capitalized if they are
directly attributable to the acquisition or construction of a qualifying asset. Capitalization of
borrowing costs commences when the activities to prepare the asset are in progress and
expenditures and borrowing costs are being incurred. Borrowing costs are capitalized until the
assets are substantially ready for their intended use. If the carrying amount of the asset exceeds its
recoverable amount, an impairment loss is recognized. Borrowing costs include interest charges
and other costs incurred in connection with the borrowing of funds used to finance the shopping
mall complex.
Taxes
Current Tax. Current tax assets and liabilities for the current and prior periods are measured at the
amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax
laws used to compute the amount are those that are enacted or substantively enacted at balance
sheet date.
Deferred Tax. Deferred tax is provided using the balance sheet liability method on temporary
differences at the balance sheet date between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes. Deferred tax liabilities are recognized for all
taxable temporary differences, except for those that are stated under the standard.
Deferred tax assets are recognized for all deductible temporary differences to the extent that it is
probable that taxable profit will be available against which the deductible temporary differences
can be utilized.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to
the extent that it is no longer probable that sufficient taxable profit will be available to allow all or
part of the deferred tax assets to be utilized.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the
year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have
been enacted or substantively enacted at balance sheet date.
Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss.
Deferred tax items are recognized in correlation to the underlying transaction either in other
comprehensive income or directly in stockholders equity.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to
offset current tax assets against current tax liabilities and the deferred taxes relate to the same
taxable entity and the same taxation authority.
*SGVMC215040*
- 21 -
Sales Tax. Revenue, expenses and assets are recognized net of the amount of sales tax, except:
§
where the sales tax incurred on a purchase of assets or services is not recoverable from the
taxation authority, in which case the sales tax is recognized as part of the cost of acquisition of
the asset or as part of the expense item as applicable; and
§
receivables and payables that are stated with the amount of sales tax included.
The net amount of sales tax recoverable from, or payable to, the taxation authority is included as
part of Prepaid expenses and other current assets or Accounts payable and other current
liabilities accounts in the consolidated balance sheets.
Basic/Diluted Earnings Per Share (EPS)
Basic/diluted EPS is computed by dividing the net income for the year by the weighted average
number of issued and outstanding shares of stock during the year, with retroactive adjustments for
any stock dividends declared.
Geographical Segment
The Companys business of shopping mall development and operations is organized and managed
separately according to geographical areas where the Company operates, namely the Philippines
and China. This is the basis upon which the Company reports its primary segment information
presented in Note 5 to the consolidated financial statements.
Contingencies
Contingent liabilities are not recognized in the consolidated financial statements. They are
disclosed in the notes to consolidated financial statements unless the possibility of an outflow of
resources embodying economic benefits is remote. Contingent assets are not recognized in the
consolidated financial statements but are disclosed in the notes to consolidated financial
statements when an inflow of economic benefits is probable.
Events after the Reporting Date
Post year-end events that provide additional information about the Companys financial position at
balance sheet date (adjusting events) are reflected in the consolidated financial statements. Post
year-end events that are not adjusting events are disclosed in the notes to consolidated financial
statements when material.
5. Segment Information
For management purposes, operating segment is monitored through geographical location as the
Companys risks and rates of return are affected predominantly by differences in economic and
political environments where they operate. Each geographical area is organized and managed
separately and viewed as a distinct strategic business unit that caters to different markets.
As at December 31, 2012, the Company owns forty-six (46) shopping malls in the Philippines and
five shopping malls in China.
Management monitors the operating results of its business units separately for the purpose of
making decisions about resource allocation and performance assessment. Segment performance is
evaluated based on operating profit or loss and is measured consistently with operating profit or
loss in the consolidated financial statements.
*SGVMC215040*
- 22 -
Inter-segment Transactions
Transfer prices between geographical segments are set on an arms length basis similar to
transactions with related parties. Such transfers are eliminated in consolidation.
Geographical Segment Data
Philippines
China
2012
Eliminations
Consolidated
(In Thousands)
Revenue
P
=28,189,308
P
=2,537,001
P
=
P
=30,726,309
Segment results:
Net income
=12,874,530
P
3,055,659
=9,818,871
P
=1,414,176
P
310,901
=1,103,275
P
P
=

=
P
=14,288,706
P
3,366,560
=10,922,146
P
=9,426,680
P
392,191
=1,103,275
P

P
=

=10,529,955
P
392,191
Segment profit
P
=15,441,507
P
=1,289,652
P
=
P
=16,731,159
Segment assets
P
=134,054,768
P
=27,915,625
(P
=13,840,500)
P
=148,129,893
P
=70,155,088
P
=20,873,312
(P
=13,798,253)
P
=77,230,147
P3,496,435
=
16,275,265
=459,207
P
4,839,667
Segment liabilities
Other information:
Philippines
P
=

P3,955,642
=
21,114,932
2011
China
Eliminations
Consolidated
(In Thousands)
Revenue
=
P24,850,809
=
P2,046,646
=
P
=
P26,897,455
Segment results:
Net income
=
P11,107,990
2,614,818
=
P8,493,172
=
P1,112,401
223,351
=
P889,050
=
P

=
P
=
P12,220,391
2,838,169
=
P9,382,222
=
P8,166,946
326,226
=
P889,050

=
P

=
P9,055,996
326,226
Segment profit
=
P13,620,404
=
P999,555
=
P
=
P14,619,959
Segment assets
=
P114,376,213
=
P23,894,033
(P
=9,945,935)
=
P128,324,311
=
P56,254,710
=
P17,626,483
(P
=9,903,688)
=
P63,977,505
=
P3,365,603
13,657,420
=
P464,368
2,892,864
Segment liabilities
Other information:
=
P

=
P3,829,971
16,550,284
*SGVMC215040*
- 23 -
Philippines
2010
China
Eliminations
Consolidated
(In Thousands)
Revenue
=
P22,303,583
=
P1,412,349
=
P
=
P23,715,932
Segment results:
Net income
=
P10,269,711
2,558,041
=
P7,711,670
=
P527,137
98,674
=
P428,463
=
P

=
P
=
P10,796,848
2,656,715
=
P8,140,133
=
P7,427,885
283,785
=
P428,463

=
P

=
P7,856,348
283,785
Segment profit
=
P11,859,018
=
P585,532
=
P
=
P12,444,550
Segment assets
=
P105,595,830
=
P20,898,769
(P
=10,361,155)
=
P116,133,444
=
P53,896,588
=
P15,803,227
(P
=10,318,908)
=
P59,380,907
=
P3,088,745
8,540,941
=
P412,439
2,680,110
Segment liabilities
Other information:
=
P

=
P3,501,184
11,221,051
For the years ended December 31, 2012, 2011 and 2010, there were no revenue transactions with a
single external customer which accounted for 10% or more of the consolidated revenue from
external customer.
6. Cash and Cash Equivalents
Cash on hand and in banks (see Note 20)
Temporary investments (see Note 20)
2012
P
=608,689,838
9,098,167,523
P
=9,706,857,361
2011
=2,029,711,118
P
6,260,504,921
=8,290,216,039
P
Cash in banks earn interest at the respective bank deposit rates. Temporary investments are made
for varying periods of up to three months depending on the immediate cash requirements of the
Company, and earn interest at the respective temporary investment rates.
Interest income earned from cash in banks and temporary investments amounted to =
P268 million,
=
P208 million and P
=127 million for the years ended December 31, 2012, 2011 and 2010,
respectively.
7. Short-term Investments
This account pertains to a time deposit with Banco de Oro Unibank, Inc. (BDO) amounting to
=
P821 million and P
=877 million as at December 31, 2012 and 2011, respectively, with fixed interest
rate of 3.24%. Such deposit is intended to meet short-term cash requirements and may be
preterminated anytime by the Company.
*SGVMC215040*
- 24 -
Interest income earned from short-term investments amounted to P
=27 million for the year ended
December 31, 2012 and =
P28 million each for the years ended December 31, 2011 and 2010.
8. Investments Held for Trading
This account consists of investments in Philippine government and corporate bonds amounting to
=
P759 million and P
=813 million as at December 31, 2012 and 2011, respectively, with yields
ranging from 4.90% to 8.64% in 2012 and 3.18% to 12.29% in 2011. These Philippine pesodenominated and U.S. dollar-denominated investments have various maturities ranging from 2014
to 2017.
Investments held for trading have mark-to-market loss amounting to =
P1 million for the year ended
December 31, 2012, and mark-to-market gain amounting to =
P13 million and P
=14 million for the
years ended December 31, 2011 and 2010, respectively, the amounts of which are included under
Others - net account in the consolidated statements of income. Cumulative unrealized mark-tomarket gain amounted to P
=25 million and =
P28 million as at December 31, 2012 and 2011,
respectively.
Interest income earned from investments held for trading amounted to =
P43 million, =
P42 million
and =
P13 million for the years ended December 31, 2012, 2011 and 2010, respectively.
9. Receivables
Rent:
Third parties
Advances to suppliers
Advances to related parties (see Note 20)
Receivable from a co-investor
Accrued interest (see Note 20)
Others
2012
2011
P
=2,259,198,897
1,885,424,402
636,116,922
471,660,550
246,078,722
47,123,072
334,479,315
P
=5,880,081,880
=2,202,631,655
P
1,587,324,781
578,440,037

45,556,109
294,081,144
=4,708,033,726
P
Rent receivables generally have terms of 30-90 days.
Receivable from a co-investor represents the consideration receivable by Tennant Range
Corporation (TRC), a BVI subsidiary holding company of SM Land China, in connection with the
agreement with a third party (see Note 13).
Advances to suppliers, accrued interest and other receivables are normally collected throughout
the financial year.
*SGVMC215040*
- 25 -
The aging analysis of receivables follows:
Neither past due nor impaired
Past due but not impaired:
91-120 days
Over 120 days
2012
P
=5,803,169,481
2011
=4,611,021,460
P
25,227,376
51,685,023
P
=5,880,081,880
28,964,032
68,048,234
=4,708,033,726
P
Receivables are assessed by the Companys management as not impaired, good and collectible.
10. Available-for-Sale Investments
This account consists of investments in corporate notes issued by BDO amounting to
=
P1,000 million as at December 31, 2012 and 2011 with fixed interest rate of 6.80% (see Note 20).
Investments in corporate notes are intended to meet short-term cash requirements.
Interest income earned from AFS investments amounted to P
=68 million each for the years ended
December 31, 2012, 2011 and 2010.
The movements in net unrealized gain on AFS investments are as follows:
Loss due to changes in fair value
of AFS investments
2012
P
=

P
=
2011
=3,745,323
P
(3,745,323)
=
P
11. Prepaid Expenses and Other Current Assets
Prepaid expenses
Input taxes
Advances to contractors (see Note 12)
Others
2012
P
=505,182,400
455,205,277
294,261,122
185,540,340
P
=1,440,189,139
2011
=366,033,201
P
591,293,627
151,283,101
167,842,531
=1,276,452,460
P
Prepaid expenses mainly consist of prepayments for insurance and real property taxes.
*SGVMC215040*
- 26 -
12. Investment Properties
Cost
Additions
Transfers
and Amortization
Net Book Value
Cost
Additions
Transfers
and Amortization
Net Book Value
2012
Building
Equipment,
Furniture
and Others
Shopping Mall
Complex Under
Construction
Land and Land
Use Rights
Buildings and
Improvements
= 22,402,878,158
P
3,821,792,513
258,453,905
(159,893,189)
26,323,231,387
= 80,235,045,499
P
5,526,303,910
7,692,439,017
(611,090,730)
92,842,697,696
= 16,950,695,663
P
2,672,922,112
1,261,365,355
(71,571,832)
20,813,411,298
= 15,546,814,568
P
9,131,389,005
(9,212,258,277)
(220,612,215)
15,245,333,081
= 135,135,433,888
P
21,152,407,540

(1,063,167,966)
155,224,673,462
437,595,529
56,559,550
(10,232,425)
483,922,654
= 25,839,308,733
P
17,718,731,839
2,565,080,499
(76,254,372)
20,207,557,966
= 72,635,139,730
P
9,142,890,393
1,334,001,550
(31,138,899)
10,445,753,044
= 10,367,658,254
P

= 15,245,333,081
P
27,299,217,761
3,955,641,599
(117,625,696)
31,137,233,664
= 124,087,439,798
P
Land and Land
Use Rights
Buildings and
Improvements
2011
Building
Equipment,
Furniture
and Others
=
P19,524,757,159
2,093,747,242
631,214,391
153,159,366
22,402,878,158
=
P72,278,698,603
1,625,733,325
5,942,660,350
387,953,221
80,235,045,499
=
P15,707,347,346
626,763,170
552,191,221
64,393,926
16,950,695,663
401,895,611
27,969,238
7,730,680
437,595,529
=
P21,965,282,629
15,111,732,471
2,547,427,337
59,572,031
17,718,731,839
=
P62,516,313,660
7,873,969,685
1,254,574,591
14,346,117
9,142,890,393
=
P7,807,805,270
Total
Shopping Mall
Complex Under
Construction
=
P9,817,096,213
12,669,351,155
(7,126,065,962)
186,433,162
15,546,814,568

P
=15,546,814,568
Total
=
P117,327,899,321
17,015,594,892

791,939,675
135,135,433,888
23,387,597,767
3,829,971,166
81,648,828
27,299,217,761
=
P107,836,216,127
Included under Land account are the 212,119 square meters of real estate properties with a
carrying value of =
P447 million and =
P474 million as at December 31, 2012 and 2011, respectively,
and a fair value of =
P13,531 million as at August 2007, planned for residential development in
accordance with the cooperative contracts entered into by Mega Make and Affluent with Grand
China International Limited (Grand China) and Oriental Land Development Limited (Oriental
Land) on March 15, 2007. The value of these real estate properties were not part of the
consideration amounting to =
P10,827 million paid by the Parent Company to Grand China and
Oriental Land. Accordingly, the assets were recorded at their carrying values under Investment
properties - net account and a corresponding liability equivalent to the same amount, which is
shown as part of Other noncurrent liabilities account in the consolidated balance sheets.
Portions of investment properties located in China with carrying value of =
P4,852 million and
=
P3,896 million as at December 31, 2012 and 2011, respectively, and estimated fair value of
=
P13,541 million as at December 31, 2012 and 2011, respectively, were
mortgaged as collaterals to secure the domestic borrowings in China (see Note 16).
*SGVMC215040*
- 27 -
Rent income from investment properties amounted to P
=25,902 million, P
=22,759 million and
=
P19,993 million for the years ended December 31, 2012, 2011 and 2010, respectively. Direct
operating expenses from investment properties that generated rent income amounted to
=
P13,995 million, =
=11,271 million for the years ended December 31, 2012,
2011 and 2010, respectively.
The fair value of investment properties amounted to =
P218,071 million as at July 31, 2010 as
determined by an independent appraiser who holds a recognized and relevant professional
qualification. The valuation of investment properties was based on market values using income
approach. The fair value represents the amount at which the assets can be exchanged between a
knowledgeable, willing seller and a knowledgeable, willing buyer in an arms length transaction at
the date of valuation, in accordance with International Valuation Standards as set out by the
International Valuation Standards Committee.
Below are the significant assumptions used in the valuation:
Discount rate
Capitalization rate
Average growth rate
11.75%
8.00%
6.00%
While fair value of the investment properties was not determined as at December 31, 2012, the
Companys management believes that there were no conditions present in 2012 and 2011 that
would significantly reduce the fair value of the investment properties from that determined in
2010.
The Companys management believes that the carrying values of the newly opened malls after the
date of the valuation approximate their fair values.
development of SM Aura Premier, SM City BF Parañaque, SM Seaside City Cebu, SM Tianjin
and SM Zibo, and the ongoing expansions and renovations of SM City Bacolod,
SM City Clark, SM City Dasmariñas, SM City Sta. Rosa and SM Megamall.
development of SM Aura Premier, SM City Consolacion Cebu, SM City General Santos,
SM City Olongapo, SM City San Fernando, SM Lanang Premier, SM City Chongqing,
SM Tianjin and SM Zibo.
Shopping mall complex under construction includes cost of land amounting to P
=1,615 million and
=
P1,575 million as at December 31, 2012 and 2011, respectively.
Construction contracts with various contractors related to the construction of the above-mentioned
projects amounted to =
P39,240 million as at December 31, 2012 and 2011,
respectively, inclusive of overhead, cost of labor and materials and all other costs necessary for the
proper execution of the works. The outstanding contracts are valued at =
P14,393 million and
=
P10,268 million as at December 31, 2012 and 2011, respectively.
Interest capitalized to shopping mall complex under construction amounted to =
P114 million and
=
P54 million as at December 31, 2012 and 2011, respectively. Capitalization rates used were
6.13% and 5.71% as at December 31, 2012 and 2011, respectively.
*SGVMC215040*
- 28 -
13. Other Noncurrent Assets
Bonds and deposits
Investment in associate
Others
2012
P
=2,519,247,536
252,059,209
1,363,276,073
P
=4,134,582,818
2011
=2,609,489,374
P

544,398,558
=3,153,887,932
P
Bonds and deposits mainly consist of deposits to contractors and suppliers to be applied
throughout construction and advances and deposits paid for leased properties to be applied at the
last term of the lease.
On April 10, 2012, TRC entered into Memorandum of Agreement with Trendlink Holdings
Limited (THL), a third party, wherein Fei Hua Real Estate Company (FHREC), a 100% subsidiary
of TRC, issued new shares to THL equivalent to 50% equity interest. In addition, THL undertakes
to pay TRC amounting to P
=22 million (¥3 million) for the difference between cash invested and
50% equity of FHREC and =
P224 million (¥34 million) representing the difference between the
current market value and cost of the investment properties of FHREC. FHREC was incorporated
in China. TRC is a wholly owned subsidiary of SM Land China.
As at December 31, 2012, TRC owns 50% equity interest in FHREC. Management assessed that
the Company lost control over FHREC by virtue of agreement with the shareholders of THL.
Consequently, FHREC became an associate of the Company. Gain on dilution of equity interest
over FHREC as a result of issuance of new shares to THL, included under Others - net account
in the consolidated statements of income, amounted to =
As at December 31, 2012, the aggregated assets and liabilities of FHREC amounted to
=
=560 million, respectively.
14. Loans Payable
This account consists of unsecured Philippine peso-denominated loans obtained from a bank
amounting to =
P800 million as at December 31, 2012. These loans bear interest rate of 3.25% and
will mature in 2013.
Interest expense incurred from loans payable amounted to =
P1 million for the year ended
December 31, 2012.
15. Accounts Payable and Other Current Liabilities
Trade
Accrued utilities expense
Accrued operating expenses:
Third parties
2012
P
=5,863,568,314
830,320,247
2011
=4,914,654,211
P
737,207,458
2,121,692,671
121,321,472
2,155,500,940
102,408,081
(Forward)
*SGVMC215040*
- 29 -
Taxes payable
Accrued interest (see Notes 16 and 20)
Others
2011
2012
=1,304,436,777
P
=1,313,471,783 P
203,919,456
316,453,310
314,938,946
312,103,146
417,212,254
519,589,895
P10,150,278,123
P
=11,398,520,838 =
Trade payables primarily consist of liabilities to suppliers and contractors, which are noninterestbearing and are normally settled within a 30-day term.
Accrued operating expenses mainly pertain to accrued administrative expenses such as security
and janitorial, accrued management fees and rent payables which are normally settled throughout
the financial year.
Liability for purchased land, taxes, accrued interest and other payables are expected to be settled
throughout the financial year.
16. Long-term Debt
2012
Parent Company
U.S. dollar-denominated loans:
Five-year term loans
P
=10,896,961,563
Five-year, three-year and two-year bilateral loans
1,021,242,099
2,438,112,216
Philippine peso-denominated loans:
Five-year and ten-year fixed and floating rate notes
7,442,919,136
Five-year, seven-year and ten-year corporate notes
6,823,838,758
Five-year, seven-year and ten-year fixed and
floating rate notes
4,966,460,223
Five-year floating rate notes
4,920,827,931
Five-year and ten-year corporate notes
1,092,151,201
Five-year, seven-year and ten-year fixed rate notes
795,341,665
Other bank loans
7,159,490,419
Subsidiaries
China yuan renminbi-denominated loans:
Five-year loan
1,871,134,000
Three-year loan
1,111,112,318
Five-year loan
401,239,650
Eight-year loan

Philippine peso-denominated loans Five-year bilateral loan
497,991,424
51,438,822,603
Less current portion
1,791,703,848
P
=49,647,118,755
2011
=6,101,532,979
P
1,084,929,299
3,030,778,585

6,884,170,665

4,962,413,247
4,960,399,612
1,985,674,872
7,161,770,104
2,177,495,800
1,299,441,045
422,323,230
277,388,000
544,291,291
40,892,608,729
799,086,409
=40,093,522,320
P
*SGVMC215040*
- 30 -
Parent Company
U.S. Dollar-denominated Five-Year Term Loans
This represents a US$270 million and US$145 unsecured loan obtained as at December 31, 2012
and 2011, respectively, from a US$270 million facility. The loans bear interest rates based on
London Inter-Bank Offered Rate (LIBOR) plus spread, with a bullet maturity on March 21, 2016
U.S. Dollar-denominated Five-Year, Three-Year and Two-Year Bilateral Loans
The US$75 million unsecured loans were obtained in November 2008. The loans bear interest
rates based on LIBOR plus spread, with bullet maturities ranging from two to five years. The
Company prepaid the US$20 million and the US$30 million unsecured loans on June 1, 2009 and
November 30, 2010, with original maturity dates of November 19, 2010 and November 28, 2011,
respectively. The related unamortized debt issuance costs charged to expense amounted to
=
P4 million in 2010 (see Notes 22 and 23). The remaining balance of US$25 million will mature
on November 20, 2013.
Other U.S. Dollar Loans
§
US$10 million out of US$50 million five-year bilateral unsecured loan obtained on
December 7, 2012. The loan bears interest rate based on LIBOR plus spread, with a bullet
maturity on August 30, 2017 (see Note 22).
§
US$30 million and a US$20 million five-year bilateral unsecured loan drawn on
November 30, 2010 and April 15, 2011, respectively. The loans bear interest rate based on
LIBOR plus spread, with a bullet maturity on November 30, 2015 (see Notes 22 and 23).
§
US$20 million three-year bilateral unsecured loan drawn on July 13, 2010. The loan bears
interest rate based on LIBOR plus spread, with a bullet maturity on January 14, 2013. The
loan was prepaid on January 13, 2012. The related unamortized debt issuance costs charged to
P25 million in 2012 (see Notes 22 and 23).
§
US$20 million three-year bilateral unsecured loan obtained on October 15, 2009. The loan
bears interest rate based on LIBOR plus spread, with a bullet maturity on October 15, 2012.
The loan was prepaid on April 15, 2011 and the related unamortized debt issuance costs
charged to expense amounted to =
Philippine Peso-denominated Five-Year and Ten-Year Floating and Fixed Rate Notes
This represents a five-year and ten-year floating and fixed rate notes obtained on June 19, 2012
amounting to =
=1,000 million for the floating and P
=680 million and
=
P2,370 million for the fixed, respectively. The loans bear an interest rate based on Philippine
Dealing System Treasury Fixing (PDST-F) plus margin for the floating and 6.22% and 6.81% for
the five-year and ten-year fixed, respectively. The loans have bullet maturities in 2017 and 2022,
respectively (see Note 22).
Philippine Peso-denominated Five-Year, Seven-Year and Ten-Year Corporate Notes
This represents a five-year floating and five-year, seven-year and ten-year fixed rate notes
amounting to =
P3,000 million, =
P1,134 million, =
P52 million and P
=814 million, respectively, out of
=
P7,000 million facility obtained on December 20, 2010. The remaining P
=2,000 million floating
rate note was obtained on June 13, 2011. The loans bear an interest rate based on PDST-F plus
margin for the five-year floating and 5.79%, 5.89% and 6.65% for the five-year, seven-year and
*SGVMC215040*
- 31 -
ten-year fixed, respectively. The loans have bullet maturities in 2015, 2017 and 2020, respectively
(see Note 22).
Philippine Peso-denominated Five-Year, Seven-Year and Ten-Year Fixed and Floating Rate Notes
This represents a five-year floating, five-year, seven-year and ten-year fixed rate notes obtained on
January 12, 2012 amounting to =
P200 million, =
P1,012 million, P
=133 million, and P
=3,655 million,
respectively. The loans bear an interest rate based on PDST-F plus margin for the five-year
floating and 5.86%, 5.97% and 6.10% for the five-year, seven-year and ten-year fixed,
respectively. The loans have bullet maturities in 2017, 2019 and 2022, respectively (see Note 22).
Philippine Peso-denominated Five-Year Floating Rate Notes
This represents five-year floating rate notes obtained on March 18, 2011 and June 17, 2011
amounting to =
=1,000 million, respectively. The loans bear an interest rate
based on PDST-F plus margin and will mature on March 19, 2016 and June 18, 2016, respectively
(see Note 22).
Philippine Peso-denominated Five-Year and Ten-Year Corporate Notes
This represents a five-year floating and fixed rate and ten-year fixed rate notes obtained on
April 14, 2009 amounting to =
P200 million, =
P1,100 million, respectively. The
loans bear an interest rate based on PDST-F plus margin for the five-year floating and 8.4% and
10.1% for the five-year and ten-year fixed, respectively. The loans have bullet maturities in 2014
and 2019, respectively. The Company prepaid the =
P200 million and =
P3,700 million loans on
April 15, 2012, with original maturity date of April 15, 2014. The related unamortized debt
issuance costs charged to expense amounted to P
=17 million in 2012 (see Note 22).
Philippine Peso-denominated Five-Year, Seven-Year and Ten-Year Fixed Rate Notes
This represents a five-year, seven-year and ten-year fixed rate notes obtained on June 17, 2008
amounting to =
P1,000 million, =
P800 million, respectively. The loans bear fixed
interest rates of 9.31%, 9.60% and 9.85%, respectively, and will mature on June 17, 2013, 2015
and 2018, respectively. The loans amounting to P
=1,000 million and =
P1,200 were prepaid on
June 17, 2011 and 2012, respectively. The related unamortized debt issuance costs charged to
P5 million and =
P4 million in 2012 and 2011, respectively (see Notes 22
and 23).
Other Bank Loans
§
Five-year loan obtained on June 29, 2010 amounting to P
=1,000 million and will mature on
June 29, 2015. The loan carries an interest rate based on PDST-F plus an agreed margin
(see Note 22).
§
Five-year inverse floating rate notes obtained on June 23, 2010 amounting to =
P1,000 million.
The loans bear an interest rate based on agreed fixed rate less PDST-F and will mature on
June 23, 2015 (see Notes 22 and 23).
§
Five-year bullet loan obtained on January 13, 2010 amounting to =
mature on January 13, 2015. The loan carries an interest rate based on PDST-F plus an agreed
§
Five-year bullet loan obtained on November 3, 2009 amounting to =
mature on November 3, 2014. The loan carries interest based on PDST-F plus on agreed
*SGVMC215040*
- 32 -
§
Five-year bullet loans obtained on October 16, 2009 amounting to =
P2,000 million and
=
P830 million. The loans bear an interest rate based on PDST-F plus an agreed margin and will
mature on October 16, 2014 and October 16, 2012, respectively. The Company prepaid the
=
P830 million loan on April 13, 2011, the related unamortized debt issuance costs charged to
§
Four-year bullet loan obtained on April 15, 2009 amounting to =
on April 15, 2013. The loan carries an interest rate based on Philippine Reference Rate
(PHIREF) plus margin. The loan was prepaid on October 17, 2011, the related balance of
unamortized debt issuance cost charged to expense amounted to P
=3 million in 2011
§
Five-year bullet loan obtained on March 3, 2008 amounting to =
P1,000 million and will mature
on March 3, 2013. The loan carries a fixed interest rate of 7.18%. The loan was prepaid on
March 3, 2011, the related balance of unamortized debt issuance cost charged to expense
amounted to =
§
Ten-year bullet fixed rate loan obtained on August 16, 2006 amounting to =
P1,200 million.
The loan carries a fixed interest rate of 9.75% and will mature on August 16, 2016
(see Note 22).
All the above Philippine peso-denominated loans of the Parent Company are unsecured.
Subsidiaries
finance the construction of shopping malls. The loan is payable in semi-annual installments
until 2014. The loan has a floating rate with an annual re-pricing at prevailing rate dictated by
Central Bank of China less 10%. The loan carries an interest rate of 5.76% and 6.21% in 2012
China Yuan Renminbi-denominated Three-Year Loan
This represents a three-year loan obtained on March 28, 2011 amounting to ¥250 million to
finance the construction of shopping malls. Partial drawdown totaling ¥169 million was made as
at December 31, 2012. The loan has a floating rate with an annual re-pricing at prevailing rate
dictated by Central Bank of China less 5% and will mature on March 27, 2014. The loan bears
interest rate of 6.20% and 6.65% in 2012 and 2011, respectively (see Note 22).
finance the construction of shopping malls. Partial drawdown totaling ¥61 million was made as at
December 31, 2012. The loan is payable in 2015. The loan has a floating rate with an annual repricing at prevailing rate dictated by Central Bank of China less 10%. The loan carries an interest
rate of 5.76% and 6.20% in 2012 and 2011, respectively (see Note 22).
China Yuan Renminbi-denominated Eight-Year Loan
This represents an eight-year loan obtained on December 28, 2005 amounting to ¥155 million to
finance the construction of shopping malls. The loan is payable in annual installments with two
years grace period until December 2012. The loan has a floating rate with an annual re-pricing at
prevailing rate dictated by Central Bank of China less 10%. The loan bears interest rate of 6.35%
in 2012 and 2011 (see Note 22).
*SGVMC215040*
- 33 -
The China yuan renminbi-denominated loans are secured by investment properties in China
(see Note 12).
Philippine Peso-denominated Five-Year Bilateral Loans
§
Five-year term loan obtained on September 28, 2007 and November 6, 2007 amounting to
=
P250 million to finance the construction of a project called SM by the Bay. The loan is
payable in equal quarterly installments of =
P16 million starting December 2008 up to
September 2012 and carries an interest rate based on PDST-F plus an agreed margin
(see Note 22).
§
Five-year term loan obtained on October 24, 2011 amounting to =
on October 24, 2016. The loan carries an interest rate based on PDST-F plus an agreed
All the above Philippine peso-denominated loans of the subsidiaries are unsecured.
The re-pricing frequencies of floating rate loans range from three to six months.
The loan agreements provide certain restrictions and requirements principally with respect to
maintenance of required financial ratios (i.e., current ratio of not less than 1.00:1.00, debt to equity
ratio of not more than 0.70:0.30 and debt service coverage ratio of not less than 1.10:1.00) and
material change in ownership or control. As at December 31, 2012 and 2011, the Company is in
compliance with the terms of its loan covenants.
Debt Issuance Costs
The movements in unamortized debt issuance costs are as follows:
Additions
Amortization
2012
P
=457,844,346
112,637,407
(163,068,388)
P
=407,413,365
2011
=263,713,789
P
393,909,193
(199,778,636)
=457,844,346
P
Amortization of debt issuance costs is recognized in the consolidated statements of income under
Others - net account.
Repayment Schedule
Repayments of long-term debt are scheduled as follows:
Year
2013
2014
2015
2016
2017
2018 to 2022
Amount
=1,791,703,848
P
5,726,792,470
11,486,039,650
17,717,160,000
5,667,885,000
9,456,655,000
=51,846,235,968
P
*SGVMC215040*
- 34 -
17. Stockholders Equity
Capital Stock
The Company has an authorized capital stock of 20,000,000,000 shares with a par value of P
=1 a
share. The movements of the capital stock of the Company are as follows:
Number of shares at beginning of year
Issuance during the year through stock dividends
Number of shares at end of year
2012
13,917,800,067
3,474,734,693
17,392,534,760
2011
13,917,800,067

13,917,800,067
On April 24, 2012, the BOD and stockholders approved the declaration of stock dividends
equivalent to 25% based on the par value per share in favor of stockholders of record as at
May 24, 2012, payable on or before June 20, 2012. Accordingly, retained earnings amounting to
=
P3,474 million were transferred to capital stock.
The following summarizes the information on the Company's registration of securities under the
Securities Regulation Code:
Date of SEC Approval/
Notification to SEC
March 15, 1994
April 22, 1994
May 29, 2007
May 20, 2008
October 14, 2010
Authorized
Shares
10,000,000,000

10,000,000,000

No. of Shares
Issued

6,369,378,049

912,897,212
569,608,700
Issue/Offer
Price
=
P
5.35

11.86
11.50
The Company declared stock dividends in 2012, 2007, 1996 and 1995. The total number of
shareholders is 2,493 and 2,567 as at December 31, 2012 and 2011, respectively.
Additional Paid-in Capital
On April 15, 2009, the Parent Company, through a wholly-owned subsidiary, acquired additional
24,376,743 FARDC shares, which is equivalent to 19.82% of the total outstanding common stock
of FARDC. The acquisition of such non-controlling interests amounting to P
=3,384 million is
accounted for as an equity transaction. Accordingly, the carrying amounts of SMPHs investment
and the share of non-controlling interests were adjusted to reflect the changes in their relative
interests in FARDC. The difference between the amount by which the non-controlling interests
were adjusted and the fair value of the consideration paid was recognized directly in equity and
attributed to the owners of the parent, and is shown as part of Additional paid-in capital - net
account in the stockholders equity section of the consolidated balance sheets.
International Placement of Shares
On October 14, 2010, the Parent Company has undergone an international placement of its shares
to raise capital to finance strategic expansion programs in the Philippines and in China as well as
for general working capital.
In connection with the international placement of its shares, the Parent Company engaged into a
Placement Agreement with SM Land (the Selling Shareholder) and CLSA Limited and Macquarie
Capital (Singapore) Pte. Limited (the Joint Bookrunners) on October 14, 2010. As stated in the
Placement Agreement, SM Land shall sell its 570 million SMPH Common Shares (the Sale
Shares) with a par value of P
=1 per share at P
=11.50 (Offer Price) per share to the Joint
Bookrunners, or to investors that the Joint Bookrunners may procure outside the Philippines
(the International Placement).
*SGVMC215040*
- 35 -
Contemporaneous with the signing of the Placement Agreement, the Parent Company likewise
entered into a Subscription Agreement with SM Land. As stated in the Subscription Agreement,
SM Land will not directly receive any proceeds from the International Placement, but instead
SM Land has conditionally agreed to subscribe for, and the Parent Company has conditionally
agreed to issue, out of its authorized but unissued capital stock, new SMPH common shares in an
amount equal to the aggregate number of the Sale Shares sold by SM Land in the International
Placement at a subscription price of =
P11.50 per share, which is equal to the Offer Price of the Sale
Shares.
SM Land was able to sell through the Joint Bookrunners the total Sale Shares of 570 million
SMPH common shares. Likewise, SM Land subscribed for and the Parent Company issued to
SM Land the same number of new SMPH common shares. The proceeds of =
P6,414 million, net of
transaction costs capitalized, add up to the capital of the Parent Company.
Cumulative Translation Adjustment and Unrealized Loss on Available-for-Sale Investments
The tax effects relating to each component of other comprehensive income are as follows:
2011
2012
Before Tax
Amount
Tax Benefit
Net-of-tax
Amount
(P
= 328,512,695)
P282,958,497
P
= (P
= 328,512,695) =
=
P
=
P282,958,497

(P
= 328,512,695)
(4,161,471)

P278,797,026
P
= (P
= 328,512,695) =
Before Tax
Amount
Cumulative translation
adjustment
Unrealized loss on
AFS investments
Tax Benefit
Net-of-tax
Amount
416,148
=
P416,148
(3,745,323)
=
P279,213,174
Retained Earnings
On April 24, 2012 and March 22, 2002, the BOD approved the appropriation of retained earnings
amounting to =
=7,000 million, respectively, for future corporate expansion
programs. As at December 31, 2012 and 2011, the amount of retained earnings appropriated for
the continuous corporate and mall expansions amounted to P
=27,000 million and P
=7,000 million,
respectively.
As at December 31, 2012, included in shopping mall complex under construction are SM Aura
Premier, SM City BF Parañaque, SM Seaside City Cebu, SM Tianjin and SM Zibo, and the
ongoing expansions and renovations of SM City Bacolod, SM City Clark, SM City Dasmariñas,
SM City Sta. Rosa and SM Megamall.
Over the next five years, the Company expects to incur around =
P25,000 million to =
P35,000 million
for its capital expenditures.
The retained earnings account is restricted for the payment of dividends to the extent of
=
P5,214 million as at December 31, 2012 and 2011, respectively, representing
the cost of shares held in treasury (P
=101 million as at December 31, 2012 and 2011) and
accumulated equity in net earnings of the subsidiaries totaling =
P5,113 million
as at December 31, 2012 and 2011, respectively. The accumulated equity in net earnings of the
subsidiaries is not available for dividend distribution until such time that the Parent Company
receives the dividends from the subsidiaries.
Treasury Stock
Treasury stock, totaling 18,857,000 shares, is stated at acquisition cost.
*SGVMC215040*
- 36 -
18. Income Tax
The components of deferred tax assets and liabilities are as follows:
2012
2011
Deferred tax assets Unrealized foreign exchange losses and others
P
=190,463,028
=254,132,999
P
Deferred tax liabilities Undepreciated capitalized interest, unrealized
foreign exchange gains and others
P
=1,278,194,418
=
P1,258,514,789
On November 26, 2008, the Bureau of Internal Revenue issued Revenue Regulations No. 16-2008
which implemented the provisions of Republic Act No. 9504 on optional standard deduction
(OSD). This regulation allowed both individual and corporate tax payers to use OSD in
computing their taxable income. For corporations, they may elect a standard deduction in an
amount equivalent to 40% of gross income, as provided by law, in lieu of the itemized allowed
deductions.
For the years ended December 31, 2012, 2011 and 2010, the Company, except SPC and FLVGI in
2010, opted to use OSD in computing their taxable income.
The reconciliation of statutory tax rate to effective tax rates are as follows:
Statutory tax rate
Income tax effects of:
Interest income subjected to final tax and
dividend income exempt from income tax
Change in enacted tax rates and others
Effective tax rates
2012
30.0%
2011
30.0%
2010
30.0%
(0.9)
(5.5)
23.6%
(0.9)
(5.9)
23.2%
(0.7)
(4.7)
24.6%
19. Pension Cost
The Company is a participant in SM Corporate Management Companies Employer Retirement
Plan (the Retirement Plan) covering all regular full-time employees. The Retirement Plan is in the
form of a trust administered by a trustee bank.
The following tables summarize the components of the Companys pension plan:
Net Pension Cost
Expected return on plan assets
Net actuarial loss recognized
Effect on asset limit
Net pension cost
Actual return on plan assets
2012
P7,242,901
=
5,893,155
(4,685,470)
934,979

=9,385,565
P
P
=11,817,977
2011
=
P4,987,201
4,290,823
(3,606,172)
398,518

=
P6,070,370
2010
=
P2,904,989
3,690,383
(2,282,117)
5,811,580
1,950
=
P10,126,785
=
P4,908,807
=
P8,559,473
*SGVMC215040*
- 37 -
Net Pension Asset
2011
=
P83,590,852
(70,979,267)
12,611,585
(35,473,482)
(P
=22,861,897)
2012
=133,914,030
P
(97,021,049)
36,892,981
(64,816,651)
(P
=27,923,670)
Fair value of plan assets
Unfunded obligation
Unrecognized net actuarial losses
Net pension asset
The changes in the present value of the defined benefit obligation are as follows:
Benefits paid
Actuarial losses on obligation
Transfer to the plan
2012
=83,590,852
P
7,242,901
5,893,155
(223,533)
37,410,655

=133,914,030
P
2011
=
P54,108,736
4,987,201
4,290,823

20,204,092

=
P83,590,852
2010
=
P32,745,187
2,904,989
3,690,383
(72,195)
11,796,920
3,043,452
=
P54,108,736
2011
=
P54,135,272
3,606,172

11,935,188
1,302,635

=
P70,979,267
2010
=
P30,494,754
2,282,117
(72,195)
12,109,788
6,277,356
3,043,452
=
P54,135,272
The changes in the fair value of plan assets are as follows:
Expected return on plan assets
Benefits paid
Contributions
Actuarial gains
Transfer to the plan
2012
=70,979,267
P
4,685,470
(223,533)
14,447,338
7,132,507

=97,021,049
P
The Company expects to contribute P
=15 million to its defined benefit pension plan in 2013.
The carrying amounts and fair values of the plan assets as at December 31, 2012 are as follows:
Investments in:
Debt and other securities
Common trust funds
Equity securities
Government securities
Other financial assets
Carrying
Amount
=5,903,287
P
Fair Value
=5,903,287
P
10,670,837
38,332,750
3,193,021
38,181,958
739,196
=97,021,049
P
10,670,837
38,332,750
3,193,021
38,181,958
739,196
=97,021,049
P
The plan assets consist of the following:
§
Cash and cash equivalents includes regular savings and time deposits;
§
Investments in debt and other securities consists of short-term and long-term corporate loans,
notes and bonds which bear interest ranging from 5.45% to 8.46% and have maturities ranging
from 2014 to 2022;
*SGVMC215040*
- 38 -
§
Investments in common trust funds pertain to unit investment trust fund;
§
Investments in equity securities consist of listed and unlisted equity securities;
§
Investments in government securities consist of retail treasury bonds which bear interest
ranging from 5.00% to 11.14% and have maturities ranging from 2013 to 2037; and
§
Other financial assets include accrued interest income on cash deposits and debt securities
held by the Retirement Plan.
As at and for the year ended December 31, 2012, the following table summarizes the outstanding
balances and transactions of the Retirement Plan with BDO, an affiliate:
Amount
=5,903,287
P
83,291
38,332,750
8,555,366
Interest income on cash and cash equivalents
Investments in common trust funds
Gains from investments in common trust funds
The principal assumptions used in determining pension obligations for the Companys plan are
shown below:
Discount rate
Expected rate of return on plan assets
Future salary increases
2011
7.1%
6.0%
10.0%
2012
6.1%
6.0%
11.0%
2010
7.9%
6.0%
11.0%
The overall expected rate of return on plan assets is determined based on the market prices
prevailing on that date, applicable to the period within which the obligation is to be settled.
The amounts for the current and previous four years are as follows:
Plan assets
Deficit (excess plan assets)
Experience adjustments
on plan liabilities
Experience adjustment on plan assets
2012
P
= 133,914,030
97,021,049
36,892,981
(2,479,093)
7,132,507
2011
=
P83,590,852
70,979,267
12,611,585
2010
=
P54,108,736
54,135,272
(26,536)
2009
=
P32,745,187
30,494,754
2,250,433
18,221,688
1,302,635
(5,496,062)
6,277,356
9,761,099
1,836,326
2008
=
P18,098,581
15,807,447
2,291,134
(1,426,249)
(1,197,299)
20. Related Party Transactions
Parties are considered to be related if one party has the ability, directly or indirectly, to control the
other party in making financial and operating decisions and the parties are subject to common
control. Related parties may be individuals or corporate entities.
*SGVMC215040*
Related Party
Affiliate
Affiliates
Affiliates
SM Land
SM Management Group
SM Laiya/FHREC
2012
P
=
2011

2010

2012 8,440,077
2011 7,279,897
2010 6,664,015
2012

2011

2010

2012

2011

2010

2012

2012 P
= 8,440,077
2011 7,279,897
2010 6,664,015
Accrued
Accrued
Cash
Rent
Rent
Accrued Advances Advances
Interest
Interest
Investments
Long-term
Rent Expense Payables
Management
Made to Related
Receivable
Payables and Cash Short-term
Held for
AFS
Debt
(see Management
(see Interest
(see Equivalents Investments
(see
(see
Receivables
Fees During the
Parties Interest
Trading Investments
(see
Note
9)
Note
9)
Note
15)
Note
16)
(see Note 9) Note 21) Note 15)
(see
Note
15)
(see
Note
6)
(see
Note
7)
(see
Note
8)
(see
Note
10)
Fees
Year
Income
Expense
(In Thousands)
P
= 4,579
P
=
P
=
P
=
P
= P
= 18,493
P
= 7,294 P
=16,944
P
=
P
=
P
=
P
= 299,957
P
=
P
=
P
= P
= 48,732

45,273
4,579

16,594
7,295
58,678
12,382

355,458

697,900

41,744

205,628

1,885,424

301,775
26,386

5,258,955
821,000

1,000,000

1,587,325

284,437
34,000
6,791
4,190,969
876,800

1,000,000

215,305

42,813

201,526
16,847

181,083
13,514

163,605

860,535
99,895

794,923
84,314

647,343

471,661
471,661

P
= 1,885,424 P
= 250,258 P
= 21,426
P
= 860,535
P
= 99,895 P
= 471,661 P
= 471,661 P
= 320,268
P
= 33,680 P
= 16,944
P
= P
= 5,258,955 P
= 821,000 P
= 299,957
P
= 1,000,000
P
=
1,587,325 226,356
18,093
794,923
84,314

301,031
41,295
65,469
12,382 4,190,969
876,800
355,458
1,000,000
697,900
205,349

647,343

215,305
248,441

*SGVMC215040*
There have been no guarantees/collaterals provided or received for any related party receivables or payables. For the years ended December 31, 2012, 2011 and 2010, the Company has not
recorded any impairment of receivables relating to amounts owed by related parties. This assessment is undertaken each financial year through examining the financial position of the related
party and the market in which the related party operates.
The above transactions with related parties are made at terms equivalent to those that prevail in arms length transactions. As at December 31, 2012 and 2011, outstanding balances at year-end
are unsecured, noninterest-bearing, generally settled within 30 to 90 days and settlement occurs in cash except cash and cash equivalents, short-term investments, investments held for trading,
AFS investments and long-term debt. For the terms and conditions of cash and cash equivalents, short-term investments, investments held for trading, AFS investments and long-term debt,
please refer to Notes 6, 7, 8, 10 and 16, respectively.
Affiliate refers to an entity that is neither a parent, subsidiary, nor an associate, with stockholders common to the SM Group or under common control.
Affiliates
Parent
Relationship Year
SM Retail Group and
SM Banking Group
SMIC
Rent
Income
(see
Note 21)
The significant related party transactions entered into by the Company with its ultimate parent company and affiliates and the amounts included in the consolidated financial statements with
respect to such transactions follow:
- 39 -
- 40 -
Below are the nature of the transactions with related parties:
SMIC
The Company leases land and maintains certain investments held for trading and long-term debt.
The lease of land is for a period of 50 years, renewable upon mutual agreement of the parties. The
Company pays a minimum fixed amount or a certain percentage of its gross rent income,
whichever is higher.
SM Retail Group and SM Banking Group
The Company leases out its mall spaces and maintains certain bank accounts, short-term
investments, investments held for trading and AFS investments.
SM Land
The Company leases land where one of its malls is located for a period of 50 years, renewable
upon mutual agreement of the parties. The Company pays a minimum fixed amount or a certain
percentage of its gross rent income, whichever is higher.
SM Management Group
The Company pays management fees to its affiliates, Shopping Center Management Corporation,
West Avenue Theaters Corporation and Family Entertainment Center, Inc. for managing the
operations of the malls.
SM China Companies
In 2012, SM City Xiamen entered into an offshore loan agreement with SM Laiya
(SM Department Store in China). The loan is unsecured and bears an interest rate of 5.6% with
maturity in March 2013. Also, SM China Companies provide noninterest-bearing cash advances
to FHREC, an associate.
The SM China Companies entered into land development contracts with Grand China and Oriental
Land to jointly develop certain sites in the cities of Jinjiang, Chengdu and Xiamen, with areas of
158,727 square meters, 19,952 square meters and 33,440 square meters, respectively, as at
December 31, 2012 and 2011. Under the terms of the contracts, the SM China Companies will
provide the land use rights while Grand China and Oriental Land will fund the development
expenses, among others.
Key Management Compensation
The total compensation paid to key management personnel of the Company amounted to
=
P36 million, =
P32 million and =
P28 million in 2012, 2011 and 2010, respectively. No special
benefits are paid to management personnel other than the usual monthly salaries and government
mandated bonuses.
21. Lease Agreements
The Companys lease agreements with its tenants are generally granted for a term of one year,
with the exception of some of the larger tenants operating nationally, which are granted initial
lease terms of five years, renewable on an annual basis thereafter. Upon inception of the lease
agreement, tenants are required to pay certain amounts of deposits. Tenants likewise pay either a
fixed monthly rent, which is calculated with reference to a fixed sum per square meter of area
leased, or pay rent on a percentage rental basis, which comprises a basic monthly amount and a
percentage of gross sales or a minimum set amount, whichever is higher.
*SGVMC215040*
- 41 -
P25,902 million, =
P19,993 million for the years
ended December 31, 2012, 2011 and 2010, respectively.
The Company also leases certain parcels of land where some of its malls are situated or
constructed. The terms of the lease are for periods ranging from 15 to 50 years, renewable for the
same period under the same terms and conditions. Rent payments are generally computed based
on a certain percentage of the Companys gross rent income or a certain fixed amount, whichever
is higher.
The minimum lease payables under the noncancellable operating leases as at December 31 are as
follows:
Within one year
After one year but not more than five years
After five years
2011
2012
=524,651,330
P
P
=530,659,607
2,198,070,538
2,252,319,501
26,707,806,776 27,292,715,346
P30,015,437,214
P
=29,490,785,884 =
Rent expense included under Costs and expenses account in the consolidated statements of
income amounted to =
P802 million, =
P589 million and P
=504 million for the years ended
December 31, 2012, 2011 and 2010, respectively.
22. Financial Risk Management Objectives and Policies
The Companys principal financial instruments, other than derivatives, comprise of cash and cash
equivalents, short-term investments, investments held for trading, accrued interest and other
receivables, AFS investments and bank loans. The main purpose of these financial instruments is
to finance the Companys operations. The Company has various other financial assets and
liabilities such as rent receivables and trade payables, which arise directly from its operations.
The Company also enters into derivative transactions, principally interest rate swaps, cross
currency swaps, foreign currency call options, non-deliverable forwards and foreign currency
range options. The purpose is to manage the interest rate and currency risks arising from the
Companys operations and its sources of finance (see Note 23).
The main risks arising from the Companys financial instruments are interest rate risk, foreign
currency risk, credit risk and liquidity risk. The Companys BOD and management review and
agree on the policies for managing each of these risks as summarized below.
Interest Rate Risk
The Companys exposure to interest rate risk relates primarily to its financial instruments with
floating interest and/or fixed interest rates. Fixed rate financial instruments are subject to fair
value interest rate risk while floating rate financial instruments are subject to cash flow interest
rate risk. Re-pricing of floating rate financial instruments is done every three to six months.
Interest on fixed rate financial instruments is fixed until maturity of the instrument. The details of
financial instruments that are exposed to interest rate risk are disclosed in Notes 6, 8, 10 and 16.
*SGVMC215040*
- 42 -
The Companys policy is to manage its interest cost using a mix of fixed and floating rate debts.
To manage this mix in a cost-efficient manner, the Company enters into interest rate swaps, in
which the Company agrees to exchange, at specified intervals, the difference between fixed and
floating rate interest amounts calculated by reference to an agreed-upon notional principal amount.
These swaps are designated to economically hedge underlying debt obligations. As at
December 31, 2012 and 2011, after taking into account the effect of interest rate swaps,
approximately 45% and 55%, respectively, of the Companys long-term borrowings excluding
China yuan renminbi-denominated loans, are at a fixed rate of interest (see Note 23).
*SGVMC215040*
Floating Rate
Interest rate
bilateral loans
Interest rate
Interest rate
corporate notes
Interest rate
floating rate notes
Interest rate
Interest rate
Other bank loans
Interest rate
Interest rate
Fixed Rate
corporate notes
Interest rate
fixed rate notes
Interest rate
Other bank loans
Interest rate
$50,000,000
LIBOR+spread
$
P
= 50,000,000
PDST-F+margin%
P
= 96,500,000
PDST-F+margin%
P
=
= 3,010,000,000
P
PDST-F+margin%
¥375,168,446
5.76%6.20%
P
= 50,000,000
PDST-F+margin%
P
= 96,500,000
PDST-F+margin%
P
=
= 10,000,000
P
PDST-F+margin%
¥77,476,000
5.76%6.20%
¥60,900,000
5.76%
= 2,960,000,000
P
PDST-F+margin%
P
=
P
= 96,500,000
PDST-F+margin%
P
= 4,800,000,000
PDST-F+margin%
$
$
$25,000,000
LIBOR+spread
$
$
P
= 78,500,000
5.86%-6.81%
=
P
$
P
= 78,500,000
5.86%-6.81%
=
P
P
= 78,500,000
5.86%-6.81%
=
P
P
= 1,097,300,000
5.79%6.65%
3-<4 Years
$
P
= 20,000,000
5.79%6.65%
2-<3 Years
P
= 20,000,000
5.79%6.65%
1-<2 Years
P
=
$
$
$270,000,000
LIBOR+spread
P
= 78,500,000
5.86%-6.81%
= 1,200,000,000
P
9.75%
P
= 8,660,000
5.79%6.65%
4-<5 Years
2012
¥
P
= 500,000,000
PDST-F+margin%
=
P
P
= 4,846,500,000
PDST-F+margin%
Interest Rate Risk Table
The Companys long-term debt, presented by maturity profile, are as follows:
- 43 -
¥
=
P
P
=
P
= 3,514,000,000
PDST-F+margin%
P
=
$10,000,000
LIBOR+spread
$
$
P
= 1,685,900,000
5.86%-6.81%
=
P
P
= 57,485,000
5.89%6.65%
5-<6 Years
¥
=
P
P
=
P
= 950,000,000
PDST-F+margin%
=
P
$
$
$
P
= 6,650,100,000
5.86%-9.85%
=
P
P
= 1,856,555,000
5.89%10.11%
>6 Years
(P
= 407,413,365)
= 51,846,235,968
P
= 51,438,822,603
P
3,383,485,968
5,964,677,719
497,991,424
9,535,618,361
4,874,170,541
2,438,112,216
1,021,242,099
10,896,961,563
1,194,812,700
8,589,930,594
P
= 3,041,819,418
Carrying Value
*SGVMG200157*

(15,322,281)
(2,008,576)
(64,381,639)
(25,829,459)
(24,887,784)
(5,007,901)
3,383,485,968
5,980,000,000
500,000,000
9,600,000,000
4,900,000,000
2,463,000,000
1,026,250,000
(186,538,437)
(5,187,300)
1,200,000,000
11,083,500,000
(60,069,406)
(P
= 18,180,582)
8,650,000,000
P
= 3,060,000,000
Total
Unamortized
Debt Issuance
Costs
Floating Rate
Interest rate
bilateral loans
Interest rate
Interest rate
corporate notes
Interest rate
five-year floating rate
notes
Interest rate
Interest rate
Other bank loans
Interest rate
Interest rate
Fixed Rate
corporate notes
Interest rate
fixed rate notes
Interest rate
Other bank loans
Interest rate
=
P
=
P3,010,000,000
PDST-F+margin%
=
P50,300,000
PDST-F+margin%
=
P50,000,000
PDST-F+margin%
=
P
=
P10,000,000
PHIREF+margin%
¥77,476,000
6.20%6.65%
=
P50,300,000
PDST-F+margin%
=
P50,000,000
PDST-F+margin%
=
P46,875,000
PDST-F+margin%
=
P10,000,000
PDST-F+margin%
¥88,738,000
6.20%6.65%
$
¥375,168,446
6.20%6.65%
=
P50,000,000
PDST-F+margin%
=
P248,800,000
PDST-F+margin%
$
$
$25,000,000
LIBOR+spread
$20,000,000
LIBOR+spread
$
$
=
P990,000
9.60%
=
P
$
=
P990,000
9.60%
=
P
=
P990,000
9.60%
=
P
=
P3,697,800,000
5.79%8.40%
3-<4 Years
$
=
P25,550,000
5.79%8.40%
2-<3 Years
=
P25,550,000
5.79%8.40%
1-<2 Years
¥60,900,000
6.20%6.65%
=
P2,960,000,000
PDST-F+margin%
=
P
=
P50,000,000
PDST-F+margin%
=
P4,800,000,000
PDST-F+margin%
$50,000,000
LIBOR+spread
$
$
=
P1,194,060,000
9.60%
=
P
=
P1,097,300,000
5.79%6.65%
4-<5 Years
2011
- 44 -
¥
=
P500,000,000
PDST-F+margin%
=
P
=
P4,800,000,000
PDST-F+margin%
=
P
$
$
$145,000,000
LIBOR+spread
=
P1,200,000,000
9.75%
=
P
=
P8,660,000
5.89%6.65%
5-<6 Years
¥
=
P
=
P
=
P
=
P
$
$
$
=
P800,000,000
9.85%
=
P
=
P1,914,040,000
5.89%10.11%
>6 Years
(P
= 457,844,346)
=
P41,350,453,075
=
P40,892,608,729
4,176,648,075
5,968,097,420
544,291,291
4,962,413,247
5,115,548,745
3,030,778,585
1,084,929,299
6,101,532,979
1,193,672,684
1,985,674,872
=
P6,729,021,532
Carrying Value
*SGVMC215040*

(21,902,580)
(2,583,709)
(37,586,753)
(33,851,255)
(38,021,415)
(11,070,701)
(255,267,021)
(6,327,316)
(11,355,128)
(P
= 39,878,468)
4,176,648,075
5,990,000,000
546,875,000
5,000,000,000
5,149,400,000
3,068,800,000
1,096,000,000
6,356,800,000
1,200,000,000
1,997,030,000
=
P6,768,900,000
Total
Unamortized
Debt Issuance
Costs
- 45 -
Interest Rate Risk Sensitivity Analysis
The following table demonstrates the sensitivity to a reasonably possible change in interest rates,
with all other variables held constant, of the Companys income before income tax. The impact on
the Companys stockholders equity, due to changes in fair value of AFS investments, is
immaterial.
2012
2011
Increase (Decrease) in Basis Points
100
50
(100)
(50)
100
50
(100)
(50)
Effect on Income
Before Income Tax
(P
=67,360,623)
(33,680,312)
67,360,623
33,680,312
(P
=47,083,030)
(23,541,515)
47,083,030
23,541,515
Fixed rate debts, although subject to fair value interest rate risk, are not included in the sensitivity
analysis as these are carried at amortized costs. The assumed movement in basis points for
interest rate sensitivity analysis is based on the currently observable market environment, showing
a significantly higher volatility as in prior years.
Foreign Currency Risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument
will fluctuate because of changes in foreign exchange rates. To manage its foreign currency risk,
stabilize cash flows and improve investment and cash flow planning, the Company enters into
foreign currency swap contracts, cross-currency swaps, foreign currency call options, nondeliverable forwards and foreign currency range options aimed at reducing and/or managing the
adverse impact of changes in foreign exchange rates on financial performance and cash flows
(see Note 23).
The Companys foreign currency-denominated monetary assets and liabilities amounted to
=
P14,581 million (US$355 million) and P
=14,909 million (US$363 million), respectively, as at
December 31, 2012, and =
P10,350 million (US$236 million) and P
=10,808 million
(US$246 million), respectively, as at December 31, 2011.
In translating the foreign currency-denominated monetary assets and liabilities to peso amounts,
the exchange rates used were =
P41.05 to US$1.00 and =
P43.84 to US$1.00, the Philippine peso to
U.S. dollar exchange rate as at December 31, 2012 and 2011, respectively.
The following table demonstrates the sensitivity to a reasonably possible change in P
=/US$
exchange rate, with all other variables held constant, of the Companys income before income tax
(due to changes in the fair value of monetary assets and liabilities, including the impact of
derivative instruments). There is no impact on the Companys stockholders equity.
2012
P
P
=1.50
1.00
(1.50)
(1.00)
Effect on Income
before Income Tax
P
=2,987,744
1,991,830
(2,987,744)
(1,991,830)
*SGVMC215040*
- 46 -
2011
Effect on Income
before Income Tax
=3,910,844
P
2,607,229
(3,910,844)
(2,607,229)
P
=1.50
P
1.00
(1.50)
(1.00)
Credit Risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument
or customer contract, leading to a financial loss. It is the Companys policy that all prospective
tenants are subject to screening procedures. In addition, receivable balances are monitored on an
ongoing basis with the result that the Companys exposure to bad debts is not significant. Given
the Companys diverse base of tenants, it is not exposed to large concentrations of credit risk.
With respect to credit risk arising from the other financial assets of the Company, which comprise
of cash and cash equivalents, short-term investments, investments held for trading, AFS
investments and certain derivative instruments, the Companys exposure to credit risk arises from
the default of the counterparty, with a maximum exposure equal to the carrying amount of these
instruments. The fair values of these financial instruments are disclosed in Note 23.
Since the Company trades only with recognized third parties, there is no requirement for collateral.
Credit Quality of Financial Assets
The credit quality of financial assets is determined by the Company using high quality and
standard quality as internal credit ratings.
High Quality. Pertains to financial assets with counterparties who are not expected by the
Company to default in settling its obligations, thus credit risk exposure is minimal. This normally
includes large prime financial institutions, companies and government agencies.
Standard Quality. Other financial assets not belonging to high quality financial assets are
included in this category.
As at December 31, the credit quality of the Companys financial assets is as follows:
2012
High
Standard
Quality
Quality
Receivables from:
Rent
Accrued interest
Derivative assets
AFS Investments
Corporate notes
Past Due
but not
Impaired
Total
P
=9,663,575,278
821,000,000
P
=

P
=

P
=9,663,575,278
821,000,000

47,123,072

4,067,710,900

1,688,335,509
76,912,399

4,144,623,299
47,123,072
1,688,335,509
759,300,343
109,978,821

759,300,343
109,978,821
1,000,000,000
P
=12,400,977,514

P
=5,756,046,409

P
=76,912,399
1,000,000,000
P
=18,233,936,322
P 43 million.
*SGVMC215040*
- 47 2011
High
Standard
Quality
Quality
Receivables from:
Rent
Accrued interest
Derivative assets
AFS Investments
Corporate notes
Past Due
but not
Impaired
Total
=
P8,252,825,018
876,800,000
=
P

=
P

=
P8,252,825,018
876,800,000

45,556,109

3,692,944,170

872,521,181
97,012,266

3,789,956,436
45,556,109
872,521,181
812,953,412
115,618,680

812,953,412
115,618,680
1,000,000,000
=
P11,103,753,219

=
P4,565,465,351

=
P97,012,266
1,000,000,000
=
P15,766,230,836
P 37 million.
Liquidity Risk
The Company seeks to manage its liquidity profile to be able to finance its capital expenditures
and service its maturing debts. The Companys objective is to maintain a balance between
continuity of funding and flexibility through evaluation of projected and actual cash flow
information. Liquidity risk arises from the possibility that the Company may encounter
difficulties in raising funds to meet commitments from financial instruments or that a market for
derivatives may not exist in some circumstance.
The Companys financial assets, which have maturity of less than 12 months and used to meet its
short-term liquidity needs, are cash and cash equivalents, short-term investments and investments
held for trading amounting to =
P9,707 million, =
P821 million and P
=759 million, respectively, as at
December 31, 2012, and =
P8,290 million, =
P877 million and =
December 31, 2011. Also included in the Companys financial assets used to meet its short-term
liquidity needs are current AFS investments amounting to =
P1,000 million as at December 31, 2012
and 2011.
The table below summarizes the maturity profile of the Companys financial liabilities based on
contractual undiscounted payments:
2012
Loans payable
liabilities*
portion)
swaps
Tenants deposits
Less than
12 Months
P
=800,000,000
2 to 5 Years
P
=
More than
5 Years
P
=
Total
P
=800,000,000
11,082,067,528

11,082,067,528
3,565,265,400
46,540,835,301
11,485,043,650
61,591,144,351
17,428,372

P
=15,464,761,300
51,987,472
8,386,248,204
1,214,756,670
1,389,211,697
P
=57,583,039,344
14,046,843

P
=11,499,090,493
83,462,687
8,386,248,204
1,214,756,670
1,389,211,697
P
=84,546,891,137
* Excluding nonfinancial liabilities included in Accounts payable and other current liabilities and Other noncurrent liabilities
P 316 million and =
*SGVMC215040*
- 48 2011
liabilities*
portion)
swaps
Tenants deposits
Less than
12 Months
2 to 5 Years
More than
5 Years
Total
=
P9,946,358,667
=
P
=
P
=
P9,946,358,667
2,619,975,153
43,266,421,430
3,277,656,190
49,164,052,773
415,077,453

=
P12,981,411,273
58,758,533
7,467,302,387
1,551,018,812
1,322,411,095
=
P53,665,912,257

=
P3,277,656,190
473,835,986
7,467,302,387
1,551,018,812
1,322,411,095
=
P69,924,979,720
P 204 million and =
Capital Management
Capital includes equity attributable to equity holders of the parent.
The primary objective of the Companys capital management is to ensure that it maintains a strong
credit rating and healthy capital ratios in order to support its business and maximize shareholder
value.
The Company manages its capital structure and makes adjustments to it, in the light of changes in
economic conditions. To maintain or adjust the capital structure, the Company may adjust the
dividend payment to shareholders, payoff existing debts, return capital to shareholders or issue
new shares.
The Company monitors capital using gearing ratio, which is interest-bearing debt divided by total
capital plus interest-bearing debt and net interest-bearing debt divided by total capital plus net
interest-bearing debt. Interest-bearing debt includes all short-term and long-term debt while net
interest-bearing debt includes all short-term and long-term debt net of cash and cash equivalents,
short-term investments, investments held for trading and AFS investments.
As at December 31, the Companys gearing ratios are as follows:
Interest-bearing Debt to Total Capital plus Interest-bearing Debt
Loans payable
Total interest-bearing debt (a)
Total equity attributable to equity holders of
the parent
Total interest-bearing debt and equity attributable
Gearing ratio (a/b)
2012
P
=800,000,000
1,791,703,848
49,647,118,755
52,238,822,603
2011
=
P
799,086,409
40,093,522,320
40,892,608,729
69,944,410,317
63,773,661,498
P104,666,270,227
P
=122,183,232,920 =
43%
39%
*SGVMC215040*
- 49 -
Net Interest-bearing Debt to Total Capital plus Net Interest-bearing Debt
2011
2012
Loans payable
=
P
P
=800,000,000
799,086,409
1,791,703,848
40,093,522,320
49,647,118,755
Less cash and cash equivalents, short-term
investments, investments held for trading
and AFS investments
(12,287,157,704) (10,979,969,451)
Total net interest-bearing debt (a)
29,912,639,278
39,951,664,899
63,773,661,498
69,944,410,317
Total net interest-bearing debt and equity attributable
P93,686,300,776
P
=109,896,075,216 =
Gearing ratio (a/b)
32%
36%
23. Financial Instruments
The table below presents a comparison of the carrying amounts and fair values of the Companys
financial instruments by category and by class as at December 31:
2011
2012
Financial Assets
Loans and receivables:
Receivables from:
Rent
Accrued interest
Derivative assets
Other financial liabilities:
Loans payable
liabilities*
Long-term debt (including
current portion)
Tenants deposits
Fair Value
Carrying
Amount
Fair Value
P
=9,706,857,361
821,000,000
P
=9,706,857,361
821,000,000
=
P8,290,216,039
876,800,000
=
P8,290,216,039
876,800,000
4,144,623,299
47,123,072
1,688,335,509
16,407,939,241
4,144,623,299
47,123,072
1,688,335,509
16,407,939,241
3,789,956,436
45,556,109
872,521,181
13,875,049,765
3,789,956,436
45,556,109
872,521,181
13,875,049,765
759,300,343
109,978,821
869,279,164
759,300,343
109,978,821
869,279,164
812,953,412
115,618,680
928,572,092
812,953,412
115,618,680
928,572,092
1,000,000,000
P
=18,277,218,405
1,000,000,000
P
=18,277,218,405
1,000,000,000
=
P15,803,621,857
1,000,000,000
=
P15,803,621,857
P
=244,330,399
P
=244,330,399
=
P237,979,926
=
P237,979,926
800,000,000
800,000,000

11,082,067,528
11,082,067,528
9,946,358,667
9,946,358,667
51,438,822,603
8,386,248,204
1,214,756,670
1,389,211,697
74,311,106,702
P
=74,555,437,101
53,227,448,393
7,976,094,815
1,155,345,530
1,321,268,336
75,562,224,602
P
=75,806,555,001
40,892,608,729
7,467,302,387
1,551,018,812
1,322,411,095
61,179,699,690
=
P61,417,679,616
42,561,503,623
7,285,378,046
1,520,654,214
1,296,521,995
62,610,416,545
=
P62,848,396,471
Carrying
Amount
P 316 million and =
P447 million, respectively, as at December 31, 2012, and =
P204 million and =
P474 million,
*SGVMC215040*
- 50 -
The following methods and assumptions were used to estimate the fair value of each class of
financial instrument for which it is practicable to estimate such value:
Cash and Cash Equivalents and Short-term Investments. The carrying amounts approximate fair
values due to the short-term nature of the instruments.
Receivables. The net carrying value approximates the fair value due to the short-term maturities
of the receivables.
Investments Held for Trading. The fair values are based on quoted market prices of the
instruments at balance sheet date.
AFS Investments. The fair value of investments that are actively traded in organized financial
markets is determined by reference to quoted market bid prices at the close of business at balance
sheet date. For investments where there is no active market, the fair value is based on the present
value of future cash flows discounted at prevailing interest rates. Discount rate used was 4.74%
and 6.21% as at December 31, 2012 and 2011, respectively.
Derivative Instruments. The fair values are based on quotes obtained from counterparties.
Loans Payable, Accounts Payable and Other Current Liabilities. The carrying values
approximate the fair values due to the short-term maturities of these liabilities.
Long-term Debt. Fair value is based on the following:
Debt Type
Fixed Rate Loans
Estimated fair value is based on the discounted value of future
cash flows using the applicable rates for similar types of loans.
Discount rates used range from 1.52% to 5.35% as at December 31,
2012, and 2.67% to 6.36% as at December 31, 2011.
Variable Rate Loans
For variable rate loans that re-price every 3 months, the face value
approximates the fair value because of the recent and regular repricing based on current market rates. For variable rate loans that
re-price every 6 months, the fair value is determined by discounting
the principal amount plus the next interest payment using the
prevailing market rate from the period up to the next re-pricing
date. Discount rates used range from 1.73% to 5.91% as at
December 31, 2012, and 1.98% to 6.32% as at December 31, 2011.
Tenants Deposits, Liability for Purchased Land and Other Noncurrent Liabilities. The estimated
fair values are based on the discounted value of future cash flows using the applicable rates for
similar types of loans. Discount rates used range from 1.99% to 4.06% as at December 31, 2012,
and 2.97% to 3.67% as at December 31, 2011.
Fair Value Hierarchy
The Company uses the following hierarchy for determining and disclosing the fair value of
financial instruments by valuation technique:
Level 1: Quoted prices in active markets for identical assets or liabilities;
Level 2: Those involving inputs other than quoted prices included in Level 1 that are observable
for the asset or liability, either directly (as prices) or indirectly (derived from prices); and,
*SGVMC215040*
- 51 -
Level 3: Those with inputs for the asset or liability that are not based on observable market data
(unobservable inputs).
The following table shows the Companys financial instruments carried at fair value as at
December 31 based on Levels 1 and 2:
2012
Level 1
Financial Assets
Derivative assets
P
=759,300,343

759,300,343
P
=
109,978,821
109,978,821
1,000,000,000
P
=759,300,343 P
=1,109,978,821
P
=
2011
Level 1
Level 2
=
P812,953,412

812,953,412
Level 2
=
P
115,618,680
115,618,680
1,000,000,000
=
P812,953,412 =
P1,115,618,680
=
P
P
=244,330,399
=
P237,979,926
During the years ended December 31, 2012 and 2011, there were no transfers between Level 1 and
Level 2 fair value measurements. There are no financial instruments classified under Level 3.
To address the Companys exposure to market risk for changes in interest rates arising primarily
from its long-term floating rate debt obligations and to manage its foreign currency risk, the
Company entered into various derivative transactions such as interest rate swaps, cross-currency
swaps, foreign currency call options, non-deliverable forwards and foreign currency range options.
The table below shows information on the Companys interest rate swaps presented by maturity
profile.
2012
<1 Year
>1-<2 Years
>2-<5 Years
Floating-Fixed
Pay-fixed rate
$145,000,000
$145,000,000
$145,000,000
2.91%3.28%
2.91%3.28%
2.91%3.28%
Pay-fixed rate
$30,000,000
$30,000,000
$30,000,000
3.53%
3.53%
3.53%
Pay-fixed rate
$20,000,000
$20,000,000
6 months LIBOR+margin% 6 months LIBOR+margin%
3.18%
3.18%
$
Pay-fixed rate
$25,000,000
4.10%
$
$
Fixed-Floating
Receive-fixed rate
Pay-floating rate
P
= 970,000,000
5.44%
3MPDST-F
P
= 960,000,000
5.44%
3MPDST-F
P
= 950,000,000
5.44%
3MPDST-F
Receive-fixed rate
Pay-floating rate
P
= 970,000,000
7.36%
3MPDST-F+margin%
P
= 960,000,000
7.36%
3MPDST-F+margin%
P
= 950,000,000
7.36%
3MPDST-F+margin%
*SGVMC215040*
- 52 2011
<1 Year
>1-<2 Years
>2-<5 Years
Floating-Fixed
Pay-fixed rate
$145,000,000
2.91%3.28%
$145,000,000
2.91%3.28%
$145,000,000
2.91%3.28%
Pay-fixed rate
$30,000,000
3.53%
$30,000,000
3.53%
$30,000,000
3.53%
Pay-fixed rate
$20,000,000
3.18%
$20,000,000
3.18%
$20,000,000
3.18%
Pay-fixed rate
$25,000,000
4.10%
$25,000,000
4.10%
$
Pay-fixed rate
$20,000,000
3.41%
$20,000,000
3.41%
$
Fixed-Floating
Receive-fixed rate
Pay-floating rate
=
P980,000,000
5.44%
3MPDST-F
=
P970,000,000
5.44%
3MPDST-F
=
P960,000,000
5.44%
3MPDST-F
Receive-fixed rate
Pay-floating rate
=
P980,000,000
7.36%
3MPDST-F+margin%
=
P970,000,000
7.36%
3MPDST-F+margin%
=
P960,000,000
7.36%
3MPDST-F+margin%
Interest Rate Swaps. In 2011, the Parent Company entered into floating to fixed US$ interest rate
swap agreements with aggregate notional amount of US$145 million. Under the agreements, the
Parent Company effectively converts the floating rate U.S. dollar-denominated term loan into
fixed rate loan with semi-annual payment intervals up to March 21, 2015 (see Note 16). As at
December 31, 2012 and 2011, the floating to fixed interest rate swaps have aggregate negative fair
value of =
P158 million and P
=142 million, respectively.
The Parent Company also entered into US$ interest rate swap agreement with notional amount of
US$20 million in 2011. Under the agreement, the Parent Company effectively converts the
floating rate U.S. dollar-denominated five-year bilateral unsecured loan into fixed rate loan with
semi-annual payment intervals up to November 30, 2014 (see Note 16). As at December 31, 2012
and 2011, the floating to fixed interest rate swaps has negative fair value of =
P17 million and
=
In 2010, the Parent Company entered into the following interest rate swap agreements:
§
A US$ interest rate swap agreement with nominal amount of US$30 million. Under the
five-year bilateral unsecured loan into fixed rate loan with semi-annual payment intervals up
to November 30, 2015 (see Note 16). As at December 31, 2012 and 2011, the floating to fixed
interest rate swap has a negative fair value of =
P48 million and positive fair value of
=
§
Two Philippine peso interest rate swap agreements with notional amount of =
P1,000 million
each, with amortization of =
P10 million every anniversary. The combined net cash flows of the
two swaps effectively converts the Philippine peso-denominated five-year inverse floating rate
notes into floating rate notes with quarterly payment intervals up to June 2015 (see Note 16).
As at December 31, 2012 and 2011, these swaps have positive fair values of =
P110 million and
=
*SGVMC215040*
- 53 -
§
three-year club loan into fixed rate loan with semi-annual payment intervals up to October 28,
2012 (see Note 16). On May 9, 2011 and July 28, 2011, the interest rate swap agreement was
preterminated as a result of the prepayment of the underlying loan. Fair value changes from
the preterminated swap recognized in the consolidated statements of income amounted to
=
§
three-year bilateral unsecured loan into fixed rate loan with semi-annual payment intervals up
to January 14, 2013 (see Note 16). As at December 31, 2011, the floating to fixed interest rate
swap has a negative fair value of =
P3 million. In January 2012, the interest rate swap
agreement was preterminated as a result of the prepayment of the underlying loan. Fair value
changes from the preterminated swap recognized in the consolidated statements of income
amounted to =
In 2009, the Parent Company entered into US$ interest rate swap agreements with an aggregate
notional amount of US$145 million. Under these agreements, the Parent Company effectively
converts the floating rate US$30 million two-year bilateral loan, US$90 million three-year term
loan and US$25 million five-year bilateral loan into fixed rate loans with semi-annual payment
intervals up to November 2011, May 2012 and November 2013, respectively (see Note 16). The
Parent Company preterminated the US$30 million swap on November 30, 2010 and the
US$90 million swap on May 16, 2011. Fair value changes from the preterminated swaps
recognized in the consolidated statements of income amounted to P
=9 million loss in 2011 and
=
P6 million gain in 2010. As at December 31, 2012 and 2011, the outstanding US$25 million
floating to fixed interest rate swaps have negative fair values of =
P22 million and P
=40 million,
respectively.
Also in 2009, the Parent Company entered into Philippine peso interest rate swap agreement with
notional amount of =
P750 million. Under the agreement, the Parent Company effectively converts
the floating rate Philippine peso-denominated four-year bullet term loan into fixed rate loan with
quarterly payment intervals up to April 2013 (see Note 16). On October 17, 2011, the interest rate
swap was preterminated as a result of the prepayment of the underlying loan. Negative fair value
from the preterminated swap recognized in the consolidated statements of income amounted to
=
In 2008, the Parent Company entered into Philippine peso interest swap agreements with an
aggregate notional amount of P
=1,000 million with repayment of P
=5 million every anniversary.
Under these agreements, the Parent Company effectively swaps the fixed rate Philippine pesodenominated five-year syndicated fixed rate notes into floating rate loans based on PDST-F plus
an agreed margin with quarterly payment intervals up to June 2013 (see Note 16). On
March 14, 2011, the interest rate swap was preterminated as a result of the prepayment of the
underlying loan. Fair value changes from the preterminated swap recognized in the consolidated
statements of income amounted to =
Foreign Currency Options. In 2010, the Parent Company simultaneously entered into two plain
vanilla long call currency options and two plain vanilla short put currency options with notional
amounts of US$5 million each. The Parent Company combines the long call option and the short
put option such that the net effect of the two options will be similar to that of a foreign currency
range option. If the spot rate is above the strike rate of the long call option, the Parent Company,
on a net-settlement basis, will buy US$ and sell =
P at the strike rate of the long call option based on
*SGVMC215040*
- 54 -
the notional amount. On the other hand, if the spot rate is below the lower strike rate of the short
put option, the Parent Company, on a net-settlement basis, will buy US$ and sell =
P at the strike
rate of the short put option based on the notional amount. However, should the spot rate fall
within the range of the two strike rates, there will be no settlement between parties as both options
would be unfavorable. The average strike rates of the long call and short put currency options are
=
P47.41 to US$1.00 and =
P47.36 to US$1.00, respectively. As at December 31, 2010, there are no
outstanding currency options as these matured during the year. Net fair value changes from these
option contracts recognized in the consolidated statements of income amounted to P
=0.8 million
gain in 2010.
Non-deliverable Forwards. In 2012 and 2011, the Parent Company entered into sell =
P and buy
US$ forward contracts. It also entered into sell US$ and buy =
P forward contracts with the same
aggregate notional amount. Net fair value changes from the settled forward contracts recognized
in the consolidated statements of income amounted to P
=67 million gain, P
=480 million gain and
=
P165 million gain in 2012, 2011 and 2010, respectively.
Fair Value Changes on Derivatives
The net movements in fair value of all derivative instruments are as follows:
Net changes in fair value during the year
Less fair value of settled derivatives
2012
(P
=122,361,246)
24,406,448
(36,396,780)
(P
=134,351,578)
2011
P28,319,173
=
236,485,791
(387,166,210)
(P
=122,361,246)
In 2012, the net changes in fair value amounting to P
=24 million comprise of interest paid
amounting to =
P27 million, which is included under Interest expense account in the consolidated
statements of income and net mark-to-market gain on derivatives amounting to P
=51 million, which
is included under Others - net account in the consolidated statements of income.
amounting to =
P22 million, which is included under Interest expense account in the consolidated
P258 million,
which is included under Others - net account in the consolidated statements of income.
The reconciliation of the amounts of derivative assets and liabilities recognized in the consolidated
balance sheets follows:
Derivative assets
2012
P
=109,978,821
(244,330,399)
(P
=134,351,578)
2011
P115,618,680
=
(237,979,926)
(P
=122,361,246)
*SGVMC215040*
- 55 -
24. Basic/Diluted Earnings Per Share Computation
Basic/diluted EPS is computed as follows:
Net income attributable to equity
holders of the parent (a)
Common shares issued at beginning
of year
Stocks dividends (see Note 17)*
Weighted average number of shares
issued in equity placement
(see Note 17)
Common shares issued at end of year
Less treasury stock (see Note 17)
Weighted average number of
common shares outstanding (b)
2012
2011
2010
P
=10,529,954,990
=
P9,055,995,525
=
P7,856,348,789
13,917,800,067
3,474,734,693
13,917,800,067
3,474,734,693
13,348,191,367
3,474,734,693

17,392,534,760
18,857,000
17,392,534,760
18,857,000
118,668,479
16,941,594,539
18,857,000
17,373,677,760
17,373,677,760
16,922,737,539
P
=0.606
=
P0.521
=
P0.464
Earnings per share (a/b)
* Retroactively adjusted for stock dividends declared.
25. Events after the Reporting Date
On January 7, 2013, the Company has entered into a joint venture with Waltermart Mall Group of
Companies (Waltermart). Waltermart is engaged in the business of shopping mall operations.
Waltermart currently operates 17 shopping centers across Metro Manila, North and South Luzon.
As at February 18, 2013, the final terms and conditions of the joint venture are still subject to due
diligence and discussion.
*SGVMC215040*
SyCip Gorres Velayo & Co.
6760 Ayala Avenue
1226 Makati City
Philippines
Phone: (632) 891 0307
Fax:
(632) 819 0872
www.sgv.com.ph
BOA/PRC Reg. No. 0001,
December 28, 2012, valid until December 31, 2015
SEC Accreditation No. 0012-FR-3 (Group A),
November 15, 2012, valid until November 16, 2015
INDEPENDENT AUDITORS REPORT
ON SUPPLEMENTARY SCHEDULES
The Stockholders and the Board of Directors
Mall of Asia Arena Annex Building
Coral Way cor. J.W. Diokno Blvd.
Mall of Asia Complex, Brgy. 76, Zone 10
CBP-1A, Pasay City 1300
We have audited in accordance with Philippine Standards on Auditing, the consolidated financial
statements of SM Prime Holdings, Inc. and Subsidiaries as at December 31, 2012 and 2011 and for
each of the three years in the period ended December 31, 2012, included in this Form 17-A, and have
issued our report thereon dated February 18, 2013. Our audits were made for the purpose of forming
an opinion on the basic financial statements taken as a whole. The schedules listed in the Index to the
Consolidated Financial Statements and Supplementary Schedules are the responsibility of the
Companys management. These schedules are presented for purposes of complying with Securities
Regulation Code Rule 68, As Amended (2011) and are not part of the basic financial statements.
These schedules have been subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, fairly state, in all material respects, the information required
to be set forth therein in relation to the basic financial statements taken as a whole.
SYCIP GORRES VELAYO & CO.
Belinda T. Beng Hui
Partner
CPA Certificate No. 88823
SEC Accreditation No. 0943-A (Group A),
March 18, 2010, valid until March 17, 2013
Tax Identification No. 153-978-243
BIR Accreditation No. 08-001998-78-2012,
June 19, 2012, valid until June 18, 2015
PTR No. 3669663, January 2, 2013, Makati City
February 18, 2013
*SGVMG200157*
A member firm of Ernst & Young Global Limited
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTARY SCHEDULES
DECEMBER 31, 2012
Annex 68 - E
A. Financial Assets
B. Amounts Receivable from Directors, Officers, Employees, Related
Parties and Principal Stockholders (Other than Related Parties)
C. Amounts Receivable from Related Parties which are Eliminated during
the Consolidation of Financial Statements
Attached
Not applicable
Attached
D. Intangible Assets and Other Assets
Not applicable
E. Long-term Debt
Not applicable
F. Indebtedness to Related Parties (Long-term Loans from Related
Companies)
Not applicable
G. Guarantees of Securities of Other Issuers
Not applicable
H. Capital stock
Attached
Additional Components
i) Reconciliation of Retained Earnings Available for Dividend Declaration
Attached
ii) List of Philippine Financial Reporting Standards effective as at
December 31, 2012
Attached
iii) Map of Relationships of the Companies within the Group
Attached
iv) Financial Ratios - Key Performance Indicators
Attached
Schedule A. Financial Assets
Name of Issuing Entity and
Association of Each Issue
Temporary investments:
Banco de Oro (BDO)
China Construction Bank
Industrial Commercial Bank of China
Bank of China
China Industrial Bank
BDO
Others
Short-term investments - BDO
Investments held for trading:
SM Investments Corporation Bond
Retail Treasury Bond
Bureau of Treasury RTB
Energy Development Corp.
Ayala Corporation
Travellers International Hotel
Derivative assets
Available-for-sale Investments
BDO Tier 2
Number of Shares
or Principal
Amount of Bonds
and Notes
=4,731,006,237
P
Rmb302,526,350
241,980,000
11,800,000
1,500,000
$100,000
=687,949,149
P
$20,000,000
=
P300,000,000
150,000,000
50,000,000
10,000,000
5,000,000
$5,000,000
=
P109,978,821
=
P1,000,000,000
Amount Shown
in the Balance
Sheet
Income
Received
and Accrued
=4,731,006,237
P
1,993,194,857
1,594,285,230
77,744,300
9,882,750
4,105,000
687,949,149
821,000,000
9,919,167,523
=295,446,777
P
299,957,143
160,407,000
54,656,250
10,746,090
4,680,110
228,853,750
109,978,821
869,279,164
43,068,197
1,000,000,000
=
P11,788,446,687
67,700,000
=
P406,214,974
Common
Title of Issue
Schedule H. Capital Stock
20,000,000,000
Number of
Shares
Authorized
Name and Designation of Debtor
SM China Companies
First Leisure Ventures Group Inc.
Southernpoint Properties Corp.
17,373,677,760
Number of Shares
Issued and
Outstanding as
Shown Under
Related Balance
Sheet Caption
Amounts
Collected
(P
=2,923,051)
(30,000,524)
(42,902,996)

(132,639)
(212,521)
(500)
(P
=76,172,231)

Number of Shares
Reserved for
Options, Warrants,
Conversion and
Other Rights
Balance at
Beginning of
Period
Additions
=
P9,899,447,701 =
P3,893,997,072
52,777,256
760,406
34,300,000
68,833,475

148,448,185

11,831,804

7,577,011

2,110,402
=
P9,986,524,957 =
P4,133,558,355
12,056,350,326
Number of Shares
Held by Related
Parties
Amounts
Written Off
=
P

=
P
19,285,873
Directors,
Officers
and Employees
Current
Not Current
=
P =
P13,790,521,722

23,537,138

60,230,479

148,448,185

11,699,165

7,364,490

2,109,902
=
P =
P14,043,911,081
Schedule C. Amounts Receivable from Related Parties which are Eliminated during the Consolidation of Financial Statements
5,298,041,561
Others
Balance at
End of
Period
=
P13,790,521,722
23,537,138
60,230,479
148,448,185
11,699,165
7,364,490
2,109,902
=
P14,043,911,081
SM Prime Holdings, Inc. and Subsidiaries
Mall of Asia Arena Annex Building, Coral Way cor. J.W. Diokno Blvd.
Mall of Asia Complex, Brgy. 76 Zone 10, CBP-1A, Pasay City 1300
Retained Earnings Available for Dividend Declaration
December 31, 2012
Unappropriated retained earnings as at January 1, 2012
Less: Non-actual/unrealized income, net of applicable tax:
Unrealized mark-to-market gain on
investments held for trading
Unrealized marked-to-market gain on derivatives
Less: Treasury stock
=
P28,752,904,582
(P
=10,198,013)
(17,628,179)
(101,474,705)
(129,300,897)
Unappropriated retained earnings as at January 1, 2012,
as adjusted to available for dividend distribution
Net income closed to retained earnings in 2012
Less non-actual/unrealized income, net of applicable tax:
Unrealized foreign exchange gain (net of exchange
difference attributable to cash and cash equivalents)
Net income actually earned in 2012
Less:
Appropriations in 2012
Cash dividends declared in 2012
Stock dividends declared in 2012
28,623,603,685
7,843,471,395
(69,733,781)
7,773,737,614
36,397,341,299
(20,000,000,000)
(4,030,693,476)
(3,474,734,693)
(27,505,428,169)
Retained earnings as at December 31, 2012
available for dividend declaration
P
=8,891,913,130
PHILIPPINE FINANCIAL REPORTING STANDARDS
AND INTERPRETATIONS
Effective as at December 31, 2012
Adopted
Not
Adopted
Not
Applicable
Framework for the Preparation and Presentation of
Financial Statements
Conceptual Framework Phase A: Objectives and qualitative
characteristics
я
PFRSs Practice Statement Management Commentary
я
Philippine Financial Reporting Standards
First-time Adoption of Philippine Financial
Reporting Standards
я
Amendments to PFRS 1 and PAS 27: Cost of
an Investment in a Subsidiary, Jointly
Controlled Entity or Associate
я
я
Amendments to PFRS 1: Additional
Exemptions for First-time Adopters
я
я
Amendment to PFRS 1: Limited Exemption
from Comparative PFRS 7 Disclosures for
First-time Adopters
я
я
Amendments to PFRS 1: Severe
Hyperinflation and Removal of Fixed Date
for First-time Adopters
я
я
Amendments to PFRS 1: Government Loans
я
я
Share-based Payment
я
я
Amendments to PFRS 2: Vesting Conditions
and Cancellations
я
я
Amendments to PFRS 2: Group Cash-settled
Share-based Payment Transactions
я
я
я
PFRS 1
(Revised)
PFRS 2
PFRS 3
(Revised)
PFRS 4
Insurance Contracts
я
я
Amendments to PAS 39 and PFRS 4:
Financial Guarantee Contracts
я
я
PFRS 5
Non-current Assets Held for Sale and
Discontinued Operations
я
я
PFRS 6
Exploration for and Evaluation of Mineral
Resources
я
я
AND INTERPRETATIONS
PFRS 7
Adopted
Not
Adopted
Not
Applicable
Financial Instruments: Disclosures
я
Reclassification of Financial Assets
я
Reclassification of Financial Assets Effective Date and Transition
я
Amendments to PFRS 7: Improving
Disclosures about Financial Instruments
я
Amendments to PFRS 7: Disclosures Transfers of Financial Assets
я
Amendments to PFRS 7: Disclosures
Offsetting Financial Assets and Financial
Liabilities
Not early adopted
Amendments to PFRS 7: Mandatory
Effective Date of PFRS 9 and Transition
Disclosures
Not early adopted
PFRS 8
Operating Segments
PFRS 9
Financial Instruments
Not early adopted
Amendments to PFRS 9: Mandatory
Effective Date of PFRS 9 and Transition
Disclosures
Not early adopted
PFRS 10
Consolidated Financial Statements
Not early adopted
PFRS 11
Joint Arrangements
Not early adopted
PFRS 12
Disclosure of Interests in Other Entities
Not early adopted
PFRS 13
Fair Value Measurement
Not early adopted
я
Philippine Accounting Standards
PAS 1 (Revised) Presentation of Financial Statements
я
Amendment to PAS 1: Capital Disclosures
я
Amendments to PAS 32 and PAS 1: Puttable
Financial Instruments and Obligations
Arising on Liquidation
я
Amendments to PAS 1: Presentation of Items
of Other Comprehensive Income
Not early adopted
PAS 2
Inventories
я
я
PAS 7
Statement of Cash Flows
я
PAS 8
Accounting Policies, Changes in Accounting
Estimates and Errors
я
PAS 10
Events after the Reporting Period
я
AND INTERPRETATIONS
Adopted
Not
Adopted
Not
Applicable
PAS 11
Construction Contracts
я
я
PAS 12
Income Taxes
я
Amendment to PAS 12 - Deferred Tax:
Recovery of Underlying Assets
я
PAS 16
Property, Plant and Equipment
я
я
PAS 17
Leases
я
PAS 18
Revenue
я
PAS 19
Employee Benefits
я
Amendments to PAS 19: Actuarial Gains and
Losses, Group Plans and Disclosures
я
PAS 19
(Amended)
Employee Benefits
PAS 20
Accounting for Government Grants and
Disclosure of Government Assistance
я
я
PAS 21
The Effects of Changes in Foreign Exchange
Rates
я
Amendment: Net Investment in a Foreign
Operation
я
я
я
Not early adopted
PAS 23
(Revised)
Borrowing Costs
PAS 24
(Revised)
Related Party Disclosures
PAS 26
Accounting and Reporting by Retirement
Benefit Plans
я
я
PAS 27
Consolidated and Separate Financial
Statements
я
PAS 27
(Amended)
Separate Financial Statements
PAS 28
Investments in Associates
PAS 28
(Amended)
Investments in Associates and Joint Ventures
PAS 29
Financial Reporting in Hyperinflationary
Economies
я
я
PAS 31
Interests in Joint Ventures
я
я
Not early adopted
я
Not early adopted
AND INTERPRETATIONS
PAS 32
Adopted
Not
Adopted
Not
Applicable
Financial Instruments: Disclosure and
Presentation
я
Amendments to PAS 32 and PAS 1: Puttable
Financial Instruments and Obligations
Arising on Liquidation
я
Amendment to PAS 32: Classification of
Rights Issues
я
Amendments to PAS 32: Offsetting Financial
Assets and Financial Liabilities
Not early adopted
PAS 33
Earnings per Share
я
PAS 34
Interim Financial Reporting
я
PAS 36
Impairment of Assets
я
PAS 37
Provisions, Contingent Liabilities and
Contingent Assets
я
PAS 38
Intangible Assets
я
я
PAS 39
Financial Instruments: Recognition and
Measurement
я
Amendments to PAS 39: Transition and
Initial Recognition of Financial Assets and
я
Amendments to PAS 39: Cash Flow Hedge
Accounting of Forecast Intragroup
Transactions
я
Amendments to PAS 39: The Fair Value
Option
я
Financial Guarantee Contracts
я
я
Effective Date and Transition
я
Amendments to Philippine Interpretation
IFRIC9 and PAS 39: Embedded Derivatives
я
Amendment to PAS 39: Eligible Hedged
Items
я
PAS 40
Investment Property
я
PAS 41
Agriculture
я
я
AND INTERPRETATIONS
Philippine Interpretations
Adopted
Not
Adopted
Not
Applicable
IFRIC 1
Changes in Existing Decommissioning,
Restoration and Similar Liabilities
я
я
IFRIC 2
Members' Share in Co-operative Entities and
Similar Instruments
я
я
IFRIC 4
Determining Whether an Arrangement
Contains a Lease
я
IFRIC 5
Rights to Interests arising from
Decommissioning, Restoration and
Environmental Rehabilitation Funds
я
я
Liabilities arising from Participating in a
Specific Market - Waste Electrical and
Electronic Equipment
я
я
Applying the Restatement Approach under
PAS 29 Financial Reporting in
Hyperinflationary Economies
я
я
IFRIC 8
Scope of PFRS 2
я
я
IFRIC 9
Reassessment of Embedded Derivatives
я
Amendments to Philippine Interpretation
IFRIC9 and PAS 39: Embedded Derivatives
я
IFRIC 10
Interim Financial Reporting and Impairment
я
IFRIC 11
PFRS 2- Group and Treasury Share
Transactions
я
IFRIC 12
Service Concession Arrangements
я
я
IFRIC 13
Customer Loyalty Programmes
я
я
IFRIC 14
The Limit on a Defined Benefit Asset,
Minimum Funding Requirements and their
Interaction
я
я
Amendments to Philippine Interpretations
IFRIC- 14, Prepayments of a Minimum
Funding Requirement
я
я
IFRIC 16
Hedges of a Net Investment in a Foreign
Operation
я
я
IFRIC 17
Distributions of Non-cash Assets to Owners
я
я
IFRIC 18
Transfers of Assets from Customers
я
я
IFRIC 19
Extinguishing Financial Liabilities with
Equity Instruments
я
я
IFRIC 20
Stripping Costs in the Production Phase of a
Surface Mine
IFRIC 6
IFRIC 7
Not early adopted
AND INTERPRETATIONS
Adopted
Not
Adopted
Not
Applicable
SIC-7
Introduction of the Euro
я
я
SIC-10
Government Assistance - No Specific
Relation to Operating Activities
я
я
SIC-12
Consolidation - Special Purpose Entities
я
я
Amendment to SIC - 12: Scope of SIC 12
я
я
SIC-13
Jointly Controlled Entities - Non-Monetary
Contributions by Venturers
я
я
SIC-15
Operating Leases - Incentives
я
SIC-25
Income Taxes - Changes in the Tax Status of
an Entity or its Shareholders
я
я
SIC-27
Evaluating the Substance of Transactions
Involving the Legal Form of a Lease
я
SIC-29
Service Concession Arrangements:
Disclosures.
я
я
SIC-31
Revenue - Barter Transactions Involving
Advertising Services
я
я
SIC-32
Intangible Assets - Web Site Costs
я
я
Subsidiaries of
SMIC Subsidiary
Premier
Southern
Corp.
(100%)
San Lazaro
Holdings
Corporation
(100%)
Intercontinental
Development
Corp.
(97.5%)
ƐƐŽĐŝĂƚĞŽĨ
^D/^ƵďƐŝĚŝĂƌǇ
First Asia Realty
Development
Corporation
(74.2%)
Multi-Realty
Development
Corporation
(90.9%)
Associates
Consolidated
Prime Dev.
Corp. (100%)
SM Hotels and
Conventions Corp.
(100%)
Note: % Refers to Effective Ownership
SMIC
Legend:
Premier
Central, Inc.
(100%)
SM Retail Inc.
(100%)
MAP OF RELATIONSHIPS OF THE COMPANIES WITHIN THE GROUP
As of December 31, 2012
First Leisure
Ventures
Group Inc.
(50%)
SM Prime
Holdings, Inc.
21.65%
SM
Development
Corp. (43.7%)
SM Land Inc.
(66.9%)
- 113 -
Southernpoint
Properties
Corp.
(100%)
40.96%
Affluent Capital
Enterprises
Limited and
Subsidiaries
(100%)
SM Land
(China) Limited
and
Subsidiaries
Springfield
Global
Enterprises
Limited
(100%)
Henfels Investments
Corp. (99.0%)
Primebridge
Holdings, Inc.
(98.2%)
Mountain Bliss
Resort and
Development
Corp. (100%)
Tagaytay Resorts
Development
Corp. (44.3%)
Atlas Consolidated
Mining and
Development
Corporation (29.1%)
Highlands Prime
Inc.
(26.8%)
Sodexo Motivation
Solutions
Philippines, Inc.
(40.0%)
China Banking
Corp.
(20.3%)
Mega Make
Enterprises
Limited and
Subsidiaries
(100%)
BDO Unibank Inc.
(47.0%)
Bellevue
Properties Inc.
(62%)
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SM Commercial
Properties, Inc.
(59%)
Asia Pacific
College
(51.8%)
Rappel Holdings
Inc.
(100%)
FINANCIAL RATIOS - KEY PERFORMANCE INDICATORS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
2012
i.
ii.
Current ratio
1.34
1.47
Debt to equity ratio
interest-bearing liabilities
0.43 : 0.57
0.39 : 0.61
Net debt to equity ratio
Total interest-bearing liabilities less cash and cash equivalents and
interest-bearing liabilities less cash and cash equivalents and
0.36 : 0.64
0.32 : 0.68
3.61
6.72
2.12
2.01
9.42
9.47
Debt to EBITDA
EBITDA
2.53
2.22
Return on equity
Total average equity attributable to equity holders of the parent
0.16
0.15
0.11
0.10
Debt service coverage ratio
Operating cashflows
Total loans payable, current portion of long-term debt and interest
expense (excluding the portion of debt which are fully hedged by
cash and cash equivalents and temporary investments)
iii. Asset to equity ratio
Total assets
iv.
v.
2011
Earnings before interest, income taxes, depreciation and amortization
(EBITDA) to interest expense
EBITDA
Interest expense
Return on investment properties
Total average investment properties (excluding shopping mall complex
under construction)
INDEX TO EXHIBITS
Form 17-A
No.
(3)
Page No.
Plan of Acquisition, Reorganization, Arrangement,
Liquidation, or Succession
*
Instruments Defining the Rights of Security Holders,
Including Indentures
*
(8)
Voting Trust Agreement
*
(9)
Material Contracts
*
(10)
Annual Report to Security Holders, Form 11-Q or
Quarterly Report to Security Holders
*
(13)
Letter re Change in Certifying Accountant
*
(16)
Report Furnished to Security Holders
*
(18)
Subsidiaries of the Registrant
*
(19)
Published Report Regarding Matters Submitted to Vote
of Security Holders
*
(20)
Consent of Experts and Independent Counsel
*
(21)
Power of Attorney
*
(22)
Additional Exhibits Account Update
115
(5)
_______
* These Exhibits are either not applicable to the Company or require no answer.