SM Land Tender Offer for SMDC Shares

DEVELOPMENT
CORPORATION
I~l
May 31, 2013 THE PHILIPPINE STOCK EXCHANGE Philippine Stock Exchange Plaza Ayala Triangle, Ayala Avenue, Makati City Attention: MR. HANS B. SICAT President of Receipt of Tender Offer Report from SM Land, Inc.
Re:
Disclosure
Gentlemen:
We hereby disclose the Tender Offer Report received from SM Land, Inc. ("SM Land") for the intended acquisition by SM Land of up to one hundred percent (100%) of the outstanding shares of common stock of SM Development Corporation. Thank you. Very truly yours,
cc:
Ms. Marsha M. Resurreccion Head - Issuer Regulation Division
SM Development Corporation lO/F OneE-Com Center Harbor Drive Mall of Asia Complex, Pasay City 1300 Philippines Tel. No. +632857-0100 Fax No. +632857-0207
www.smdevelopment.com
A Subsidiary 01
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1t~~ INVESTMENTS
CORPORATION
SECURITIES AND EXCHANGE COMMISSION SEC FORM 19-1 TENDER OFFER REPORT Check the appropriate box: Initial Filing Amendment Amendment No. ......................................................... Items Amended by the Filing ..................................... 1. Exact Name of Subject Company as Specified in its Charter: SM DEVELOPMENT CORPORATION (a). 15th Floor Two E-Com Center, Harbor Drive MOA Complex, CBP-1A, 1300 Pasay City, Philippines Address of Principal Offices Postal Code (b) SEC Identification Number: 56909 (c) (SEC Use Only) Industry Classification Code
(d) BIR Tax Identification Number: 320-000-601-470 2. SM LAND, INC. Name of Bidder (a) One E-com Center, Harbor Drive, Mall of Asia Complex, CBP-1A, Pasay City Address of Bidder 3. Shares of Common Stock Title or Class of Securities Subject to Tender Offer
Item 1. Subject Company and Class of Security Subject to the Tender Offer
SMDC Tender Offer Report
(a) The subject company is SM Development Corporation (SMDC), a corporation organized and existing under the laws of the Republic of the Philippines and with securities listed and traded on the Philippine Stock Exchange (PSE), with principal address at the 15th Floor Two E-Com Center, Harbor Drive MOA Complex, CBP-1A, 1300 Pasay City, Philippines. (b) As of the date of this Tender Offer Report, SMDC has 9,271,204,239 outstanding shares of common stock (the Shares). Subject to the Terms of the Tender Offer, incorporated herein as Annex A and made an integral part of this Tender Offer Report, the Bidder intends to acquire up to one hundred percent (100%) of the Shares. The Bidder, presently owns 6,043,148,078 or 65.18% of the Shares. Consequently, the subject of this Tender Offer is 3,228,056,161 Shares representing 34.82% of the Shares to be acquired by the Bidder in exchange for SM Prime Holdings, Inc. (SM Prime)shares of common stock at an exchange ratio of .472 share of common stock of SM Prime (the Consideration Share) for every Share. Manabat Sanagustin & Co. (MS& Co.), the local member firm of KPMG International in the Philippines, was engaged by SM Investments Corporation (SMIC) to act as the independent financial advisor (IFA) to the Audit and Risk Management Committee of SMIC in relation to SM Land Inc.s (SM Land or the Bidder) valuation of its acquisition of a 100% equity stake in SMDC. SMIC owns 64% of the outstanding shares of stock of SM Land. SM Land will swap its shares in SM Prime in exchange for the acquisition of the Shares. SMIC determined a share swap ratio of .472 SM Prime share for every Share. It was MS&Co.s role as the IFA to assess the fairness of the swap ratio by conducting its own valuation of the two companies, determining a fair range of values for each and then estimating the corresponding swap ratio. The valuation of SM Prime and SMDC, as a going concern, is as of March 31, 2013 (Valuation date). MS& Co. opined on May 30, 2013 that the share-for-share swap ratios between SM Prime and SMDC is fair from a financial point of view. MS & Co. made use of, among others, (i) information provided by SM Prime and SMDC; and (ii) information from third-party sources including Capital IQ, the Philippine Stock Exchange, Bloomberg, Factiva, Bureau of Treasury, Damodaran Online, and Bloomberg. The valuation methodologies used by MS & Co. in establishing the fair range of values included, among others, the Cost Approach, Enterprise valueto-EBITDA multiple, Income approach, Market Approach, SMPHs market closing price as of the Valuation Date, and both SMDCs and SM Primes 60-day weighted average closing price. MS & Co.s fairness opinion does not contain and has no intention of forming an opinion as to the strategic, operational, or commercial merits of the transactions. The reports were based on the information prepared and submitted by SM Prime and SMDC.
Capitalized terms used in this Tender Offer Report and not otherwise defined herein shall have the same meaning ascribed to it in the attached Terms of the Tender Offer.
(c) The principal market for the Shares is the Philippine Stock Exchange (the PSE). The high and low prices of the Shares on the PSE for each quarterly period during the past two years are as follows: Year 2013 2012 2011 First Quarter High Low 9.52 5.91 6.88 6.16 7.81 5.91 Second Quarter High Low 6.73 8.40 6.00 6.83 Third Quarter High Low 6.50 8.95 5.98 6.50 Fourth Quarter High Low 6.37 8.04 5.72 6.65
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Item 2. Identity and Background of the Bidder The party making this tender offer is SM Land, Inc. (SM Land or the Bidder).
SM Land is a corporation organized and existing under Philippine laws with principal place of business at One E-com Center, Harbor Drive, Mall of Asia Complex, CBP-1A, Pasay City. SM Land is engaged in investing in shares of stock of other companies, as well as leasing and subleasing certain property and equipment. SM Investment Corporation (SMIC), a corporation organized and existing under the laws of the Republic of the Philippines and with securities listed and traded on the PSE, owns 64% of outstanding capital stock of the Bidder. Below is a list of the Bidders directors and executive officers: Name Henry Sy, Sr. Felicidad T. Sy Teresita T. Sy Henry T. Sy, Jr. Hans T. Sy Elizabeth T. Sy Herbert T. Sy Harley T. Sy Grace F. Roque Gema O. Cheng Corazon I. Morando Arthur A. Sy Position Chairman of the Board Director Director Vice Chairman/President Director Director Director Treasurer Assistant Treasurer Chief Financial Officer Corporate Secretary Assistant Corporate Secretary
During the last five (5) years, the Bidder has not been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction, domestic or foreign, which resulted to an order, judgment or decree permanently or temporarily enjoining, barring, suspending or otherwise limiting involvement in any type of business, securities, commodities or banking. During the last five (5) years, no executive officer nor director of SM Land, nor any person controlling SM Land, nor any executive officer or director of any corporation ultimately in control of SM Land, has not been convicted in any criminal proceeding or was a party to any civil proceedings of a judicial or administrative body of competent jurisdiction, domestic or foreign. Item 3. Purpose of the Tender Offer and Plans or Proposals of the Bidder This Tender Offer is carried out as part of a reorganization to consolidate the real estate holdings and interest of the companies that are controlled by the SM Group (the Reorganizaton). The Reorganization is undertaken to: Create an integrated real estate platform to further enhance the value of the SM Groups real estate businesses
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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 Primes 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 Primes 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 complexs 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 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.
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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.
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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: 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; The following stockholders of SMDC and Highlands Prime have undertaken to tender their respective SMDC and Highlands Prime shares of stock in exchange for SMPH shares: Number of SMDC Shares 663,350,828 481,495,721 110,943,856 11,683,813 667,055,940 6,043,148,078 7,977,678,236 Number of Highlands Prime Shares 804,557,877 453,675,866 396,495,101 337,911,101 27,040,000 2,019,679,945 Percentage of Ownership 7.155% 5.193% 1.197% 0.126% 7.190% 65.182% 86.048% Percentage of Ownership 35.818% 20.197% 17.651% 15.043% 1.205% 89.914%
SMDC Stockholder Syntrix Holdings, Inc, Sysmart Corp. Sybase Equity Investments Corp. SM Investments Corp. Sy Family Current Shareholding of SM Land TOTAL Highlands Prime Stockholder Belle Corporation SM Investments Corp. Sysmart Corp. SMDC Sy Family TOTAL
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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.
The Board of Directors and stockholders of SM Prime will conduct their respective meetings in order to approve the following: 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 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 20,000,000,000 to 40,000,000,000 shares of common stock; ; 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 latters shares in the following companies with their corresponding shareholding interest (the "Share for Share Swap"): NAME OF COMPANY TO STOCKHOL NO. OF SHARES HELD PERCENTAGE OF OWNERSHIP BE ACQUIRED DER 1 Prime Metroestate, Inc. (formerly Pilipinas Makro Inc.) 2 Rappel Holdings, Inc. SMIC 271,297 10.00%
SMIC
1,356,500 (ownership of Rappel Holdings, Inc.in Prime Metroestate, Inc. 1,085,196 (ownership of Panther (BVI) Ltd., a 100% subsidiary of Prime Central Limited, in Prime Metroestate, Inc.) 139,999 175,001 10,999,995 3,999,995
50.00% indirect ownership in Prime Metroestate, Inc. (100% ownership of Rappel Holdings, Inc.) 40.00% indirect ownership in Prime Metroestate, Inc. (100% ownership of Prime Central, Limited)
Prime Central Limited
SMIC
Tagaytay Resort Development Corporation Tagaytay Resort Development Corporation
SMIC Sy Family SMIC SMIC
33.33% 41.67% 100.00% 100.00%
5 SM Hotels and Conventions Corporation 6 SM Arena Corporation Complex
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NAME OF COMPANY TO STOCKHOL NO. OF SHARES HELD PERCENTAGE OF OWNERSHIP BE ACQUIRED DER 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"): Classificat Properties/Developments ion Taal Vista Hotel Land and Building Radisson Cebu Hotel Building Pico Sands Hotel Building SMX Convention Center Building MoA Arena Building MoA Arena Annex Building Corporate Office Building Casino and Waste Water Building Treatment Plant Tagaytay Land EDSA West Land Park Inn Davao Building GFA (sq. m.)/ No. of Rooms* 47,707 261* 396* 154* 51,097 67,536 95,273 46,883 19,394 132,992 2,910 204* Asset Type Hospitality Hospitality Hospitality Hospitality Hospitality Commercial Commercial Commercial Land Hospitality Hospitality
Location Tagaytay Cebu Batangas Pasay Pasay Pasay Pasay Tagaytay Tagaytay North Edsa, QC Davao
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 SM Land SM Investments Corp. PCD Nominee CorporationFilipino Sysmart Corporation Sy Family Total Number of SM Prime Shares 7,116,954,491 3,761,791,190 Non 1,141,121,514 36,483,131 18, 685, 337 12,073,002,553 Percentage of Ownership 40.964% 21.652% 6.568% .210% .108% 69.501%
The Merger, including the Plan of Merger, the Share for Share Swap and the Property for Share Swap are then expected to be approved by the stockholders of SM Prime during its special stockholders meeting. On May 30, 2013, the Board of Directors and stockholders of SM Land will conducted their respective meetings and approved 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 PSEC and
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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 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 Metroestate, 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 SMX Convention Center MoA Arena MoA Arena Annex Corporate Office Casino and Waste Water Treatment Plant Tagaytay EDSA West Park Inn Davao 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:
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Note: New SM Prime will also have a non-binding Right of First Refusal to purchase major additional land and real estate properties from SMIC
1
Assuming full acceptance rate of the tender offers; 2 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 4. Interest in Securities of the Issuer The subject of this Tender Offer is 3,228,056,161 Shares representing 34.82% of the Shares at a consideration of .472 SM Prime Share per Share held by various individual and corporate shareholders and stock brokerages. The beneficial interest as of March 31, 2013 in the Shares of the Bidder and by each associate and affiliates of the Bidder are as follows:
Name
Syntrix Holdings, Inc, Sysmart Corp. Sybase Equity Investments Corp. SM Investments Corp. Sy Family
Relationship with Bidder
Number of Shares
663,350,828 481,495,721 110,943,856 11,683,813 667,055,940
Percentage
7.155% 5.193% 1.197% .126% 7.190%
Parent Company Stockholders
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Current Shareholding of SM Land TOTAL
6,043,148,078 7,977,678,236
65.182% 86.048%
There is no transaction in the Shares which is the subject of the Tender Offer that was effected during the past sixty (60) days by the Bidder or any of its associates and affiliates. Item 5. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer There are no contracts, arrangements, understandings or relationships among the entities named in Item 2 and between such entities and any person with respect to any of the Shares, including but not limited to transfer or voting of any of the securities, finder's fees, joint ventures, loan or option arrangements, puts or calls, guarantees of profits, division of profits or loss, or the giving or withholding of proxies, naming the person with whom such contracts, arrangements, understandings or relationships have been entered into. No securities of SMDC are pledged or otherwise subject to a contingency the occurrence of which would give another person voting power or investment power over such securities. Item 6. Materials to be Filed as Exhibits The following tender offer materials will be published or sent or made available to security holders by the Bidder: (a) This Tender Offer Report (SEC Form 19-1); (b) Notice to Stockholders of SMDC regarding Tender Offer (Exhibit A); (c) Exchange Offer Memorandum (Exhibit B) in compact disc form shall be sent to the stockholders, hard copies will be available upon request; (d) Application to Tender Shares of SMDC (Exhibit C) With the following inclusions: Terms of the Tender Offer (Annex A) Form of Irrevocable Power of Attorney for Individual Stockholders (Annex B) Form of Board Resolution for Corporate Stockholders (Annex C) Form of Partnership Resolution for Partnership Stockholders (Annex D) Form of Affidavit of Loss (Annex E) (e) Instructions To Participating Brokers (Exhibit D) (f) Affidavit of Publication of the Intent to Tender to Shareholders of SMDC; (g) Affidavit of publication in the newspaper of general circulation in the Philippines on the date of commencement of the tender offer and for two (2) consecutive thereafter; (h) Certification that the SMPH Consideration Shares owned by the Bidder are sufficient to satisfy full acceptance of the tender offer (Exhibit E); and (i) Summary of the Fairness Opinion report (Exhibit F).
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EXHIBIT A
TO ALL STOCKHOLDERS OF SM DEVELOPMENT CORPORATION: Please be advised that SM Land, Inc. has filed a Tender Offer Report in SEC Form 19-1 with the Securities and Exchange Commission (the Commission) and the Philippines Stock Exchange (the PSE) pursuant to Section 19 of the Securities Regulation Code in connection with its intention to acquire 100% of the outstanding common shares (the Shares) of SM Development Corporation (SMDC). The terms of the tender offer are as follows:
Party Making the Tender Offer SM Land, Inc. (SM Land or the Bidder) Subject Company SM Development Corporation (SMDC) Subject Shares The Bidder intends to acquire one hundred percent (100%) of the outstanding shares of common stock of SMDC (the Shares). The subject of this Tender Offer is 3,228,056,161 Shares representing 34.82% of the Shares (the Tender Offer Shares) Tender Offer Consideration The Tender Offer Shares shall be acquired by the Bidder in exchange for SM Prime Holdings, Inc. (SM Prime)shares of common stock at an exchange ratio of .472 share of common stock of SM Prime (the Consideration Share) for every Share. Any resulting fractional share, shall be paid in cash by Bidder at the Crossing Price of the Consideration Shares. Crossing Price The Crossing Price was determined by computing the 1-month volume weighted average price ("VWAP") of the Shares and the Consideration Shares ending March 31, 2013, respectively. The Crossing Prices are P 8.303 per share for the Shares, and P 18.660 per share for the SM Prime shares or the Consideration Shares. Eligible Shareholders Any registered owner of any number of Tender Offer Shares as of any date during the Tender Offer Period, as hereinafter defined, is entitled to transfer its/his/her Tender Offer Shares to the Bidder subject to and in accordance with these Terms of the Tender Offer. Tender Offer Period The Tender Offer Period shall commence on June 4,2013 at 9:30 a.m. and end on July 9, 2013 at 12:00 noon, unless extended by the Bidder upon approval by the Securities and Exchange Commission (SEC or the Commission). The following is the schedule of the tender offer for the Shares: June 4, 2013 (9:30 am) July 9, 2013 (12:00 noon) July 16, 2013 July 16, 2013 July 19, 2013 Commencement of the Tender Offer Period End of Tender Offer Period Acceptance of Shares Tendered and Report on Results Cross Date (Sale of Shares on the Philippine Stock Exchange [the PSE]) Settlement Date
Application to Tender Shares Stockholders who wish to offer all or a portion of their Shares (the Tendering Shareholder) for sale to the Bidder may do so by securing an Application to Tender Shares form (the Application) from the Tender
Offer Agent and submitting a duly accomplished Application together with the following documentary requirements to the Tender Offer Agent: For certificated Shares, original SMDC stock certificates duly endorsed; to be verified by the Tender Offer Agent with Professional Stock Transfer, Inc., the stock transfer agent of SMDC, as valid and authentic certificates, additionally: For Individuals: (i) For shareholders acting through an attorney-in-fact, a duly notarized Irrevocable Power of Attorney (in substantially the form attached as Annex B to the Application, which is Exhibit C to the SEC Form 19-1 filed by the Bidder with the SEC). For married individuals who are Philippine citizens, their respective spouses must sign the space provided in the Irrevocable Power of Attorney to indicate marital consent to the sale of the Shares. (ii) Photocopies of two (2) valid identification cards showing the Applicants signature and photograph, i.e., drivers license, tax identification card, Social Security System/Government Services Insurance System card, or passport. (iii) Duly accomplished signature card containing the specimen signature of the Applicant. For Corporations: (i) Notarized Board Resolution (in substantially the form of the Secretarys Certificate attached as Annex C to the Application, which is Exhibit C to the SEC Form 19-1 filed by the Bidder with the SEC) authorizing the sale of the Shares, designating signatories for the purpose and indicating the specimen signatures of those signatories. (ii) Copy of the SEC Registration or equivalent constitutive document certified as true copy of the original by the Corporate Secretary or equivalent person having official custody of company records. (iii) Copy of latest Articles of Incorporation and By-Laws of the Applicant or equivalent constitutive document certified as true copy of the original by the Corporate Secretary or equivalent person having official custody of company records. (iv) Duly accomplished signature card containing the specimen signature of the Applicants designated authorized signatories and verified by the Applicants Corporate Secretary or equivalent person having official custody of company records. (v) Copy of latest General Information Sheet (GIS) filed with SEC and certified as true copy of the original by the Corporate Secretary or equivalent person having official custody of company records. For Partnership: (i) Copy of SEC Registration or equivalent constitutive document certified as true copy of the original by the Partnership Secretary or equivalent person having official custody of the partnership records. (ii) Copy of the latest Articles of Partnership of the Applicant or equivalent constitutive document certified as true copy of the original by the Partnership Secretary or equivalent person having official custody of the partnership records. (iii) Notarized Partnership Resolution (in substantially the form of the Partners Certificate attached as Annex D to the Application, which is Exhibit C to the SEC Form 19-1 filed by the Bidder with the SEC) authorizing the sale of the Shares, designating signatories for the purpose and indicating the specimen signature of the signatories. (iv) Duly accomplished signature card containing the specimen signature of the Applicants designated authorized signatories and verified by the Applicants Partnership Secretary or equivalent person having official custody of the partnership records. For Tendering Shareholders whose stock certificate/s covering the Share/s is/are lost, such shareholder(s) should submit to the Tender Offer Agent the following: (i) one (1) original copy of a duly notarized affidavit of loss (in substantially the form of Annex E to the Application which is Exhibit C to the SEC Form 19-1 filed by the Bidder with the SEC); (ii) copy of the affidavit of loss as published in a newspaper of general circulation; (iii) affidavit of publication (of affidavit of loss); and (iv) bond in the amount of twice the closing price per share of the SMDC shares as of the date of execution of the affidavit of loss, multiplied by the number of shares covered by each lost stock certificate.
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SMDC Publication
To ensure that the Tender Offer Agent receives the Shares in scripless form within the Tender Offer Period, the Tendering Shareholders should submit the required documents: (i)For certificated Shares, to the Tender Offer Agent, at least 5 trading days before the end of the Tender Offer Period, or on or before July 2, 2013, to allow for lodgement of the shares with the Philippine Central Depository Nominee Corporation (PCD) before the end of the Tender Offer Period; or (ii) For shares lodged with their PCD Participant, to their stockbroker or custodian (the PCD Participant), at least 3 trading days before the end of the Tender Offer Period or, on or before July 4, 2013, to allow for the electronic transfer of the Shares to the Tender Offer Agent before the end of the Tender Offer Period; or
SMDC Publication
(iii) For lost stock certificate/s, to the Tender Offer Agent, on or before June 25, 2013, to allow for the issuance of new stock certificate and the lodgement thereof with the PCD before the end of the Tender Offer Period. In addition to the documentary requirements above, Tendering Shareholders whose Shares are lodged with the PCD should instruct their brokers to electronically transfer their Shares to the Tender Offer Agent. Payment of Consideration The Consideration Shares shall be transferred on Settlement Date. On Settlement Date, the Tender Offer Agent shall electronically transfer the Consideration Shares to the Tendering Shareholders through the designated PCD Participant nominated by each of the Tendering Shareholder in their respective Application. Checks representing the cash payment for fractional shares shall be available for pick-up at the office of BDO Unibank, Inc. Trust and Investments Group at the 15th Floor, South Tower, BDO Corporate Center, 7899 Makati Avenue, Makati City, five (5) business days after the Settlement Date of the Tender Offer Period or on July 26, 2013. Checks which remain unclaimed after 30 calendar days from July 2, 2013 shall be mailed to the Tendering Shareholder at his/her/its own risk. Acceptance of Shares All Shares validly tendered by Tendering Shareholders of SMDC under this Tender Offer shall be accepted for payment by the Bidder. The Shares shall be deemed accepted by the Bidder on July 16, 2013 (the Closing Date) subject to the condition that the Bidder shall have obtained all corporate, contractual and regulatory approvals, consents and authorizations for the purchase by the Bidder of the Shares. Withdrawal of Securities and Manner of Payment The Shares tendered may be withdrawn by the stockholder of record at any time during the tender offer period by submitting a written request for the tendered Shares to the Tender Offer Agent and surrendering the receiving copy of the Application signed by the Tender Offer Agent. The last day to withdraw tendered Shares shall be on July 9, 2013, at 12:00 noon. Shares shall be returned in the same form it was received, to the PCD Participant (if previously lodged with the PDC Participant) or to the tendering stockholder (if previously certificated), within ten (10) trading days from the end of the Tender Offer Period. The cost of returning the Shares shall be borne by the shareholder making the withdrawal. Taxes and Other Expenses For this Tender Offer, the expenses enumerated below in relation to the conveyance of the Tender Offer Shares to the Bidder, except for lodgement expenses in relation to certificated shares tendered by a Tendering Shareholder and any applicable value-added tax on such lodgement expenses, and expenses as enumerated below in relation to the conveyance of the Consideration Shares in scripless form from the Bidder to the Tendering Shareholder, shall be for the Bidders account. The following customary selling charges typically payable by Tendering Shareholders for the transfer of the Tender Offer Shares to the Bidder shall be borne by the Bidder, and shall be based on the Crossing Price of the Tender Offer Shares:
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SMDC Publication
Selling brokers commission of up to 0.25% of the value of the transaction, plus applicable 12% valueadded tax on such commission. Any selling brokers commission in excess of the aforesaid amount shall be payable by the Tendering Shareholder; Stock transaction tax of 0.50% of the value of the transaction; Securities Clearing Corporation of the Philippines (SCCP) fee of 0.01% of the value of the transaction; Securities Investors Protection Fund (SIPF) fee of 0.001% of the value of the transaction; Securities and Exchange Commission (SEC) fee of 0.005% of the value of the transaction; and Philippine Stock Exchange transaction fee of 0.005% of the value of the transaction, plus applicable 12% value-added tax on such fee. The following customary buying charges typically payable by the Tendering Shareholders for the transfer of the Consideration Shares from the Bidder to the Tendering Shareholders shall be borne by the Bidder, and shall be based on the Crossing Price of the Consideration Shares: Buying brokers commission of up to 0.25% of the value of the transaction, plus applicable 12% valueadded tax on such commission. Any buying brokers commission in excess of the aforesaid amount shall be payable by the Tendering Shareholder; Securities Clearing Corporation of the Philippines (SCCP) fee of 0.01% of the value of the transaction Securities Investors Protection Fund (SIPF) fee of 0.001% of the value of the transaction Securities and Exchange Commission (SEC) fee of 0.005% of the value of the transaction Philippine Stock Exchange transaction fee of 0.005% of the value of the transaction, plus applicable 12% value-added tax on such fee For the avoidance of doubt, the value of the transaction shall be computed by multiplying the number of Tender Offer Shares or Consideration Shares, as the case may be, by the Crossing Price. Representation and Warranties of the Tendering Shareholder By accepting the Tender Offer, each Tendering Shareholder represents and warrants to the Bidder that: (i) (ii) (iii) (iv) (v) All information contained in the Application and its attachments are true and correct and the signatures thereon are genuine, properly authorized and obtained without use of fraud, coercion or any other vice of consent; The tendered Shares have been validly issued, fully paid and the non-assessable ; The Tendering Shareholder is the registered and absolute legal and beneficial owner of, and has good and marketable title, to the tendered Shares; The Tendering Shareholder has obtained all the required approvals and authorizations to enable it/him/her to transfer the Shares to the Bidder, and there is no objection, adverse claim, dispute or notice concerning its/his/her right to tender and transfer the Shares; On the Cross Date, the Bidder will obtain full and valid title to the tendered Shares, free and clear from any warrants, interests, options, liens, claims and encumbrances and will be able to freely and fully exercise all rights and privileges arising from ownership of such tendered Shares, including but not limited to the right to vote and receive dividends; and For corporate shareholders, the transfer of the Shares to the Bidder shall not constitute a breach of the constitutive documents of the Tendering Shareholder or of any agreement or arrangement, law, order or regulations or other issuances applicable to the Tender Offer Shares or the Tendering Shareholder.
(vi)
Representation and Warranties of the Bidder The Bidder hereby represents and warrants that the settlement of the Consideration Shares shall be made when it falls due. Material Change If any material change occurs in the information previously disclosed to the stockholders of SMDC, the Bidders shall promptly disclose such change in a manner reasonably calculated to inform the stockholders of such change.
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Tender Offer Report Further information regarding the Tender Offer is included in the Tender Offer Report (SEC Form 19-1), copies of which are available at the office of the Tender Offer Agent. Copies of the Tender Offer Report have also been filed with SMDC, the PSE and the Securities and Exchange Commission.
SMDC Publication
All questions relating to this Tender Offer for the Shares of SM Development Corporation may be directed to the following: BDO Securities Corporation Name Janet Amora Jasper Jimenez Karen Lim Daniel Locsin Telephone number +63 (2) 840-7000 local 6386 +63 (2) 878-4070 +63 (2) 840-7682 +63 (2) 840-7000 local 6952
Advisory Pursuant to the minimum public ownership rule of the PSE, in consonance with BIR regulations, once public ownership of SMDC is reduced to less than 10% (which will occur if SM Land acquires more than 90% of the issued and outstanding shares of SMDC), any transfer of SMDC shares subsequent to the settlement of the Tender Offer will no longer be subject to the stock transaction tax at the rate of 0.5% of the gross selling price or gross value in cash of the shares but shall be subject to the following taxes on the transfer of shares not traded in the local stock exchange: (i) capital gains tax at the rate of 5% where the net gain realized is in an amount not exceeding P100,000.00 and at the rate of 10% on any amount in excess of P100,000.00, and (ii) documentary stamp tax at the rate of P 0.75 on each P200.00 of the par value of the shares of stock sold or transferred. Furthermore, the Subject Company is expected to file a Petition to Delist its securities with the Philippine Stock Exchange in conjunction with the conduct of this Tender Offer. Shareholders of SMDC who will not tender its/his shares to the Bidder may end up owning unlisted shares of SMDC.
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Exhibit C
This application must be prepared in triplicate and completed in all parts: 1. Bidders Copy 2. Tender Offer Agents Copy 3. Applicants Copy DO NOT PROCEED UNLESS YOU HAVE DECIDED TO TENDER YOUR SHARES TO THE BIDDER
APPLICATION TO TENDER SHARES IN SM DEVELOPMENT CORPORATION, INC. TO SM LAND, INC.
This APPLICATION TO TENDER SHARES IN SM DEVELOPMENT CORPORATION (SMDC) TO SM LAND, INC. (the Application) is made on the terms and conditions as set out in the Terms of the Tender Offer attached as Annex A to this Application which forms an integral part hereof. The Tender Offer shall commence at 9:30 a.m. on June 4, 2013 and end at 12:00 p.m. of July 9, 2013 (the Tender Offer Period). This Application, together with the duly endorsed SMDC stock certificates (as applicable) and the other required attachments specified below, must be received by BDO Securities Corporation (the Tender Offer Agent) as follows: (i) not later than 12:00 p.m. of July 9, 2013 for tendering scrip shareholders based in the Visayas and Mindanao who will submit thru BDO Cebu Ayala Business Park Branch and BDO Davao CM Recto Branch at the respective addresses indicated at the back hereof, (ii) not later than 12:00 p.m. of July 2, 2013 for tendering scrip shareholders who will submit directly to BDO Securities Corporation at the address indicated at the back hereof, and (iii) not later than 12:00 p.m. of July 4 for tendering scripless shareholders. SM Land, Inc. (SM Land or the Bidder) has prepared SEC Form 19-1, which was filed with the Securities and Exchange Commission (SEC) and the Philippine Stock Exchange (PSE) on June 3, 2013, for the purpose of describing the Tender Offer in detail and complying with the Securities Regulation Code and its implementing rules. Before making any decision, each shareholder is advised to read the Terms of the Tender Offer and the SEC Form 19-1. Inquiries and requests for assistance and copies of the SEC Form 19-1 may be directed to the Tender Offer Agent, whose address and telephone numbers appear in the attached Terms of the Tender Offer. The Bidder has reserved the right to accept or reject this Application. This Application after being submitted may be withdrawn in writing. The notice of withdrawal, to be effective, must be received by the Tender Offer Agent before 12:00 p.m. of June 28, 2013.
APPLICATION TO TENDER
The undersigned registered shareholder of SM DEVELOPMENT CORPORATION (SMDC) or the undersigned Participating Broker holding SMDC shares on behalf of the beneficial owner of such shares and acting in accordance with and within the instructions of said beneficial owner, as the case may be (in either case, the Applicant), hereby applies to exchange ________________ SMDC common shares (the Shares) for the corresponding consideration stated below. If covered by stock certificates, please fill in (and attach separate sheet if needed): SMDC Stock Certificate No.(s) No. of Shares Represented by Each Certificate No. of Shares Tendered
TOTAL The Bidder shall purchase the Shares from the Applicant in exchange for shares of SM Prime Holdings, Inc. (the SMPH Shares or the Consideration Shares) at the ratio of .472 SMPH Shares for every one (1) Share tendered by the Applicant (the Exchange Ratio). The Consideration Shares shall be issued in scripless form, with BDO UNIBANK, INC. Trust and Investments Group (Stock Transfer Agent) maintaining the scripless Registry of Shareholders as the Registrar of the SMPH Shares, and lodged with the Philippine Depository & Trust Corporation (the PDTC) as Depository Agent through PSE Trading Participants nominated by the Applicants. The Applicant should indicate below the name of the PSE Trading Participant under whose name the Consideration Shares shall be registered. The customary selling charges for the Shares and the customary buying charges for the Consideration Shares, including any selling brokers commissions at the rates indicated in the Terms of the Tender Offer and the taxes thereon, shall be for the Bidders account. Name of Nominated PSE Trading Participant: ________________________________________________________ TO BE COMPLETED BY PSE TRADING PARTICIPANT We confirm that we are a PSE Trading Participant and that the Applicant(s) named in this Application is our bona fide client. _________________________________________ Authorized Signatory(ies) PDTC Code / PDTC Sub-Account Code: ________________ Upon issuance of the Consideration Shares, the Applicant may request the Stock Transfer Agent to issue stock certificates evidencing their holdings of the Consideration Shares. Any expense to be incurred in relation to such issuance shall be for the account of the requesting Applicant.
REPRESENTATIONS AND WARRANTIES

The Applicant hereby represents and warrants to the Bidder as follows: (i) it/he/she is the sole, absolute, legal and beneficial owner of the Shares and has good, valid and marketable title to the Shares, free from any liens, encumbrances, and restrictions of any kind and nature, (ii) it/he/she can and has full authority and capacity to transfer good, valid and clean title to such Shares, and is not aware of any objection, adverse claim, dispute or notice concerning its/his/her right to tender the Shares; (iii) the Bidder will obtain full and valid title to such Shares, free and clear from any warrants, interests, options, liens, claims, objections, disputes, and encumbrances and will be able to freely and fully exercise all rights and privileges arising from ownership of such Shares, including but not limited to the right to vote and receive dividends; (iv) the Shares are fully paid and non-assessable and there are no further amounts payable by it/him/her to SMDC or to any other entity in respect of these securities; (v) for corporate shareholders, the transfer of the Shares to the Bidder shall not constitute a breach of the constitutive documents of the Applicant or of any agreement or arrangement, law, order or regulations or other issuances applicable to the Shares or Applicant; and (vi) all information contained herein and in the documents submitted herewith are true and correct and the signatures thereon are genuine, properly authorized and obtained without the use of fraud or coercion or any other device of consent. The Applicant, in executing this Application, confirms that it/he/she: (i) has read and understood and unconditionally accepted the Terms of the Tender Offer and Instructions to Participating Brokers attached to this Application (as applicable); (ii) warrant/s having read and understood and relied solely upon the provisions of SEC Form 19-1 and the terms and conditions stated herein, and unconditionally accept/s said terms and conditions; (iii) hereby makes the representations and warranties set forth in the Exchange Offer Memorandum (Exhibit B to SEC Form 191) under the caption The Exchange OffersRepresentations and Warranties; and (iv) understand/s that no person has been authorized to give information or to make any representation with respect to the Tender Offer other that those specified and made in the SEC Form 19-1. Applicants / Participating Brokers Full Name in Print Applicants Mailing Address (Building, Street Address, District and City) Applicants Country of Residence
Applicants / Participating Brokers Signature
Tel. No. (s)
Tax Identification Number
Nationality
ACKNOWLEDGMENT
This Application (with all the required attachments indicated herein) is received subject to the terms and conditions set forth in this Application and to the Terms of the Tender Offer. On behalf of SM Land, Inc.: BDO Securities Corporation _________________________________________________________ ____________________ ________________
REQUIRED ATTACHMENTS TO THIS APPLICATION Original SMDC stock certificates duly endorsed; to be verified by the Tender Offer Agent with Professional Stock Transfer, Inc.., the stock transfer agent of SMDC , as valid and authentic certificates. For those whose stock certificate/s covering the Share/s is/are lost, such shareholder(s) should submit to the Tender Offer Agent the following: (i) one (1) original of a duly notarized affidavit of loss; (ii) copy of the affidavit of loss as published in a newspaper of general circulation (in substantially the form of Annex E to the Application which is Exhibit C to the SEC Form 19-1 filed by the Bidder with the SEC); (iii) affidavit of publication (of affidavit of loss); and (iv) bond in the amount of twice the closing price per share of the SMDC shares as of the date of execution of the affidavit of loss, multiplied by the number of shares covered by each lost stock certificate. (b) For Individuals: (i) For shareholders acting through an attorney-in-fact, a duly notarized Irrevocable Power of Attorney (in substantially the form attached as Annex B to the Application, which is Exhibit C to the SEC Form 19-1 filed by the Bidder with the SEC). For married individuals who are Philippine citizens, their respective spouses must sign the space provided in the Irrevocable Power of Attorney to indicate marital consent to the sale of the Shares. (ii) Photocopies of two (2) valid identification cards showing the Applicants signature and photograph, i.e., drivers license, tax identification card, Social Security System/Government Service Insurance System card, or passport. (iii) Duly accomplished signature cards containing the specimen signature of the Applicant. (c) For Corporations: (i) Notarized Board Resolution (in substantially the form of the Secretarys Certificate attached as Annex C to the Application, which is Exhibit C to the SEC Form 19-1 filed by the Bidder with the SEC) authorizing the sale of the Shares, designating signatories for the purpose and indicating the specimen signatures of those signatories. (ii) Copy of the SEC Registration or equivalent constitutive document certified as true copy of the original by the Corporate Secretary or equivalent person having official custody of company records. (iii) Copy of latest Articles of Incorporation and By-Laws of the Applicant or equivalent constitutive document certified as true copy of the original by the Corporate Secretary or equivalent person having official custody of company records. (iv) Duly accomplished signature cards containing the specimen signature of the Applicants designated authorized signatories and verified by the Applicants Corporate Secretary or equivalent person having official custody of company records . (v) Copy of latest General Information Sheet (GIS) filed with SEC and certified as true copy of the original by the Corporate Secretary or equivalent person having official custody of company records. (d) For Partnership: (i) Copy of SEC Registration or equivalent constitutive document certified as true copy of the original by the Partnership Secretary or equivalent person having official custody of the partnership records. (ii) Copy of the latest Articles of Partnership of the Applicant or equivalent constitutive document certified as true copy of the original by the Partnership Secretary or equivalent person having official custody of the partnership records. (iii) Notarized Partnership Resolution (in substantially the form of the Partners Certificate attached as Annex D to the Application, which is Exhibit C to the SEC Form 19-1 filed by the Bidder with the SEC) authorizing the sale of the Shares, designating signatories for the purpose and indicating the specimen signature of the signatories. (iv) Duly accomplished signature cards containing the specimen signature of the Applicants designated authorized signatories and verified by the Applicants Partnership Secretary or equivalent person having official custody of the partnership records . IMPORTANT INFORMATION The Tender Offer shall commence at 9:30 A.M. on June 4, 2013 and end on 12:00 noon of July 9, 2013 (the Tender Offer Period). This Application, together with the duly endorsed SMDC stock certificates and the other required attachments specified above, must be received by BDO Securities Corporation (the Tender Offer Agent) not later than 12:00 noon on July 9, 2013 at the 20th Floor, South Tower, BDO Corporate Center, 7899 Makati Avenue, Makati City; (Contact Persons: Ms. Janet D. Amora, Tel. +63 (2) 840-7000 local 6386, Mr. Jasper M. Jimenez, Tel. +63 (2) 878-4070, and Mr. Daniel C. Locsin, Tel. +63 (2) 840-7000 local 6952). Applications received after the end of the Tender Offer Period shall be rejected, unless the Tender Offer Period is extended by the Bidder upon approval by the SEC. Applications that are not properly completed, or lack any of the required attachments will also be rejected. If the Tender Offer Agent is unable to verify the signature on the Application or the endorsement of the SMDC stock certificates, the Tender Offer Agent will also reject the Application. (a) For Tendering Shareholders based in the Visayas and Mindanao, the Shares may be tendered by submitting on or before July 9, 2013, all foregoing requirements at the Cebu and Davao branch offices of BDO Unibank, Inc., the parent company of the Tender Offer Agent: (a) Cebu Ayala Business Park Branch: Cebu Towers, Mindanao corner Bohol Avenues, Cebu Business Park, Cebu City, Telephone No. (632)(32) 238-8153 to 56) (Contact Person: Branch Marketing Officer) and (b) Davao CM Recto Branch: 343 Claro M. Recto Street, Davao City, Telephone No. (63)(82) 2240821, 221-0671 and 226-3703 (Contact Person: Branch Marketing Officers or Ms. Lorelei Zambales and Ms. Sheila Acain)]. The Shares covered by stock certificates (Scrip Shares) being tendered for sale to the Bidder must be received by the Tender Offer Agent by the surrender of the documents specified above, including the corresponding stock certificates duly endorsed, not later than 12:00 noon of July 2, 2013. Tendering Shareholders whose Shares are lodged with the Philippine Depository and Trust Corporation (Scripless Shares) should instruct their brokers to electronically transfer their Shares to the Tender Offer Agent prior to 10:00 a.m. of July 4, 2013. For those tendering shareholders who lost their stock certificates (Lost Certificate), they must submit one (1) original copy of a duly notarized affidavit of loss; copy of the affidavit of loss published in a newspaper of general circulation; affidavit of publication; and bond on or before June 25, 2013 to the Tender Offer Agent. Shares tendered may be withdrawn by the shareholder of record at any time during the Tender Offer Period, but only up to 12:00 noon on July 9, 2013, by submitting a written request for the tendered shares to the Tender Offer Agent with a copy of the Applicants Copy of the Application issued by the Tender Offer Agent. For inquiries on the Tender Offer, please contact any of the following personnel of BDO Securities Corporation: Ms. Janet Amora, Tel. no. +63 (2) 840-7000 local 6386 Mr. Jasper Jimenez, Tel. no. +63 (2) 878-4070 Ms. Karen Lim, Tel. no. +63 (2) 840-7682 Mr. Daniel Locsin, Tel. no. +63 (2) 840-7000 local 6952 For inquiries about the number of shares of a shareholder in SMDC , please contact BDO UNIBANK, INC. TRUST AND INVESTMENTS GROUP at the 15th Floor, South Tower, BDO Corporate Center, 7899 Makati Avenue, Makati City, Telephone No. +63 (2) 878-4052 up to 54. COPIES OF THE SEC FORM 19-1 MAY BE OBTAINED FROM THE TENDER OFFER AGENT AT THEIR OFFICE ADDRESS ABOVE. Authorized Signature/s Date (PLEASE SEE BACK PAGE FOR DETAILED INSTRUCTIONS) Time
Annex A
Terms of the Tender Offer for Common Shares of SM Development Corporation

U
Party Making the Tender Offer Subject Company Subject Shares
SM Land, Inc. (SM Land or the Bidder) SM Development Corporation (SMDC) The Bidder intends to acquire one hundred percent (100%) of the outstanding shares of common stock of SMDC (the Shares). The subject of this Tender Offer is 3,228,056,161 Shares representing 34.82% of the Shares (the Tender Offer Shares) The Tender Offer Shares shall be acquired by the Bidder in exchange for SM Prime Holdings, Inc. (SM Prime)shares of common stock at an exchange ratio of .472 share of common stock of SM Prime (the Consideration Share) for every Share. Any resulting fractional share, shall be paid in cash by the Bidder at the Crossing Price of the Consideration Shares. The Crossing Price was determined by computing the 1-month volume weighted average price ("VWAP") of the Shares and the Consideration Shares ending March 31, 2013, respectively. The Crossing Prices are P 8.303 per share for the Shares, and P 18.660 per share for the SM Prime shares or the Consideration Shares. Any registered owner of any number of Tender Offer Shares as of any date during the Tender Offer Period, as hereinafter defined, is entitled to transfer its/his/her Tender Offer Shares to the Bidder subject to and in accordance with these Terms of the Tender Offer. The Tender Offer Period shall commence on June 4, 2013 at 9:30 a.m. and end on July 9, 2013 at 12:00 noon, unless extended by the Bidder upon approval by the Securities and Exchange Commission (SEC or the Commission). The following is the schedule of the tender offer for the Shares: June 4,2013 (9:30 am) July 9, 2013 (12:00 noon) July 16, 2013 July 16, 2013 July 19, 2013 Commencement of the Tender Offer Period End of Tender Offer Period
Tender Offer Consideration
Crossing Price
Eligible Shareholders Tender Offer Period
- Acceptance of Shares Tendered and Report on Results - Cross Date (Sale of Shares on the Philippine Stock Exchange [the PSE]) - Settlement Date
Application to Tender Shares
Stockholders who wish to offer all or a portion of their Shares (the Tendering Shareholder) for sale to the Bidder may do so by securing an Application to Tender Shares form (the Application) from the Tender Offer Agent and submitting a duly accomplished Application together with the following documentary requirements to the Tender Offer Agent: For certificated Shares, original SMDC stock certificates duly endorsed; to be verified by the Tender Offer Agent with BDO Unibank, Inc. Trust and Investments Group, the stock transfer agent of SMDC, as valid and authentic certificates, additionally:
SMDC Terms of the Tender Offer
For Individuals: (i) For shareholders acting through an attorney-in-fact, a duly notarized Irrevocable Power of Attorney (in substantially the form attached as Annex B to the Application, which is Exhibit C to the SEC Form 19-1 filed by the Bidder with the SEC). For married individuals who are Philippine citizens, their respective spouses must sign the space provided in the Irrevocable Power of Attorney to indicate marital consent to the sale of the Shares. (ii) Photocopies of two (2) valid identification cards showing the Applicants signature and photograph, i.e., drivers license, tax identification card, Social Security System/Government Services Insurance System card, or passport. (iii) Duly accomplished signature card containing the specimen signature of the Applicant. For Corporations: (i) Notarized Board Resolution (in substantially the form of the Secretarys Certificate attached as Annex C to the Application, which is Exhibit C to the SEC Form 19-1 filed by the Bidder with the SEC) authorizing the sale of the Shares, designating signatories for the purpose and indicating the specimen signatures of those signatories. (ii) Copy of the SEC Registration or equivalent constitutive document certified as true copy of the original by the Corporate Secretary or equivalent person having official custody of company records. (iii) Copy of latest Articles of Incorporation and By-Laws of the Applicant or equivalent constitutive document certified as true copy of the original by the Corporate Secretary or equivalent person having official custody of company records. (iv) Duly accomplished signature card containing the specimen signature of the Applicants designated authorized signatories and verified by the Applicants Corporate Secretary or equivalent person having official custody of company records. (v) Copy of latest General Information Sheet (GIS) filed with SEC and certified as true copy of the original by the Corporate Secretary or equivalent person having official custody of company records. For Partnership: (i) Copy of SEC Registration or equivalent constitutive document certified as true copy of the original by the Partnership Secretary or equivalent person having official custody of the partnership records. (ii) Copy of the latest Articles of Partnership of the Applicant or equivalent constitutive document certified as true copy of the original by the Partnership Secretary or equivalent person having official custody of the partnership records. (iii) Notarized Partnership Resolution (in substantially the form of the Partners Certificate attached as Annex D to the Application, which is Exhibit C to the SEC Form 19-1 filed by the Bidder with the SEC) authorizing the sale of the Shares, designating signatories for the purpose and indicating the specimen signature of the signatories. (iv) Duly accomplished signature card containing the specimen signature of the Applicants designated authorized signatories and verified by the Applicants Partnership Secretary or equivalent person having official custody of the partnership records. For Tendering Shareholders whose stock certificate/s covering the Share/s is/are lost, such shareholder(s) should submit to the Tender Offer Agent the following: (i) one (1) original copy of a duly notarized affidavit of loss (in substantially the form of Annex E to the Application which is Exhibit C to the SEC Form 19-1 filed by the Bidder with the SEC); (ii) copy of the affidavit of loss as published in a newspaper of general circulation; (iii) affidavit of publication (of affidavit of loss); and (iv) bond in the amount of twice the closing price per share of the SMDC shares as of the
date of execution of the affidavit of loss, multiplied by the number of shares covered by each lost stock certificate. To ensure that the Tender Offer Agent receives the Shares in scripless form within the Tender Offer Period, the Tendering Shareholders should submit the required documents: (i)For certificated Shares, to the Tender Offer Agent, at least 5 trading days before the end of the Tender Offer Period, or on or before July 2, 2013, to allow for lodgement of the shares with the Philippine Central Depository Nominee Corporation (PCD) before the end of the Tender Offer Period; or (ii) For shares lodged with their PCD Participant, to their stockbroker or custodian (the PCD Participant), at least 3 trading days before the end of the Tender Offer Period or, on or before July 4, 2013, to allow for the electronic transfer of the Shares to the Tender Offer Agent before the end of the Tender Offer Period; or (iii) For lost stock certificate/s, to the Tender Offer Agent, on or before June 25, 2013, to allow for the issuance of new stock certificate and the lodgement thereof with the PCD before the end of the Tender Offer Period. In addition to the documentary requirements above, Tendering Shareholders whose Shares are lodged with the PCD should instruct their brokers to electronically transfer their Shares to the Tender Offer Agent. The Consideration Shares shall be transferred on Settlement Date. On Settlement Date, the Tender Offer Agent shall electronically transfer the Consideration Shares to the Tendering Shareholders through the designated PCD Participant nominated by each of the Tendering Shareholder in their respective Application. Checks representing the cash payment for fractional shares shall be available for pickup at the office of BDO Unibank, Inc. Trust and Investments Group at the 15th Floor, South Tower, BDO Corporate Center, 7899 Makati Avenue, Makati City, five (5) business days after the Settlement Date of the Tender Offer Period or on July 26, 2013. Checks which remain unclaimed after 30 calendar days from July 26, 2013 shall be mailed to the Tendering Shareholder at his/her/its own risk. All Shares validly tendered by Tendering Shareholders of SMDC under this Tender Offer shall be accepted for payment by the Bidder. The Shares shall be deemed accepted by the Bidder on July 16, 2013 (the Closing Date) subject to the condition that the Bidder shall have obtained all corporate, contractual and regulatory approvals, consents and authorizations for the purchase by the Bidder of the Shares. The Shares tendered may be withdrawn by the stockholder of record at any time during the tender offer period by submitting a written request for the tendered Shares to the Tender Offer Agent and surrendering the receiving copy of the Application signed by the Tender Offer Agent. The last day to withdraw tendered Shares shall be on July 9, 2013, at 12:00 noon. Shares shall be returned in the same form it was received, to the PCD Participant (if previously lodged with the PDC Participant) or to the tendering stockholder (if previously certificated), within ten (10) trading days from the end of the Tender Offer Period. The cost of returning the Shares shall be borne by the shareholder making the withdrawal. Taxes and Other Expenses For this Tender Offer, the expenses enumerated below in relation to the conveyance of the Tender Offer Shares to the Bidder, except for lodgement expenses in relation to certificated shares tendered by a Tendering Shareholder and any applicable value-added tax on such lodgement expenses, and expenses as enumerated below in relation to the conveyance of the Consideration Shares in scripless form from the Bidder to the Tendering Shareholder, shall be for the Bidders account.
Payment of Consideration
Acceptance of Shares
Withdrawal of Securities and Manner of Payment
The following customary selling charges typically payable by Tendering Shareholders for the transfer of the Tender Offer Shares to the Bidder shall be borne by the Bidder, and shall be based on the Crossing Price of the Tender Offer Shares: Selling brokers commission of up to 0.25% of the value of the transaction, plus applicable 12% value-added tax on such commission. Any selling brokers commission in excess of the aforesaid amount shall be payable by the Tendering Shareholder; Stock transaction tax of 0.50% of the value of the transaction; Securities Clearing Corporation of the Philippines (SCCP) fee of 0.01% of the value of the transaction; Securities Investors Protection Fund (SIPF) fee of 0.001% of the value of the transaction; Securities and Exchange Commission (SEC) fee of 0.005% of the value of the transaction; and Philippine Stock Exchange transaction fee of 0.005% of the value of the transaction, plus applicable 12% value-added tax on such fee. The following customary buying charges typically payable by the Tendering Shareholders for the transfer of the Consideration Shares from the Bidder to the Tendering Shareholders shall be borne by the Bidder, and shall be based on the Crossing Price of the Consideration Shares: Buying brokers commission of up to 0.25% of the value of the transaction, plus applicable 12% value-added tax on such commission. Any buying brokers commission in excess of the aforesaid amount shall be payable by the Tendering Shareholder; Securities Clearing Corporation of the Philippines (SCCP) fee of 0.01% of the value of the transaction Securities Investors Protection Fund (SIPF) fee of 0.001% of the value of the transaction Securities and Exchange Commission (SEC) fee of 0.005% of the value of the transaction Philippine Stock Exchange transaction fee of 0.005% of the value of the transaction, plus applicable 12% value-added tax on such fee For the avoidance of doubt, the value of the transaction shall be computed by multiplying the number of Tender Offer Shares or Consideration Shares, as the case may be, by the Crossing Price. By accepting the Tender Offer, each Tendering Shareholder represents and warrants to the Bidder that: (i) All information contained in the Application and its attachments are true and correct and the signatures thereon are genuine, properly authorized and obtained without use of fraud, coercion or any other vice of consent; The tendered Shares have been validly issued, fully paid and the nonassessable ; The Tendering Shareholder is the registered and absolute legal and beneficial owner of, and has good and marketable title, to the tendered Shares; The Tendering Shareholder has obtained all the required approvals and authorizations to enable it/him/her to transfer the Shares to the Bidder, and there is no objection, adverse claim, dispute or notice concerning its/his/her right to tender and transfer the Shares; On the Cross Date, the Bidder will obtain full and valid title to the tendered Shares, free and clear from any warrants, interests, options, liens,
Representation and Warranties of the Tendering Shareholder
(ii) (iii) (iv)
(v)
(vi)
claims and encumbrances and will be able to freely and fully exercise all rights and privileges arising from ownership of such tendered Shares, including but not limited to the right to vote and receive dividends; and For corporate shareholders, the transfer of the Shares to the Bidder shall not constitute a breach of the constitutive documents of the Tendering Shareholder or of any agreement or arrangement, law, order or regulations or other issuances applicable to the Tender Offer Shares or the Tendering Shareholder.
Representation and Warranties of the Bidder Material Change Tender Offer Report
The Bidder hereby represents and warrants that the settlement of the Consideration Shares shall be made when it falls due. If any material change occurs in the information previously disclosed to the stockholders of SMDC, the Bidders shall promptly disclose such change in a manner reasonably calculated to inform the stockholders of such change. Further information regarding the Tender Offer is included in the Tender Offer Report (SEC Form 19-1), copies of which are available at the office of the Tender Offer Agent. Copies of the Tender Offer Report have also been filed with SMDC, the PSE and the Securities and Exchange Commission. All questions relating to this Tender Offer for the Shares of SM Development Corporation may be directed to the following: BDO Securities Corporation Name Janet Amora Jasper Jimenez Karen Lim Daniel Locsin Telephone number +63 (2) 840-7000 local 6386 +63 (2) 878-4070 +63 (2) 840-7682 +63 (2) 840-7000 local 6952
Advisory
Pursuant to the minimum public ownership rule of the PSE, in consonance with BIR regulations, once public ownership of SMDC is reduced to less than 10% (which will occur if SM Land acquires more than 90% of the issued and outstanding shares of SMDC), any transfer of SMDC shares subsequent to the settlement of the Tender Offer will no longer be subject to the stock transaction tax at the rate of 0.5% of the gross selling price or gross value in cash of the shares but shall be subject to the following taxes on the transfer of shares not traded in the local stock exchange: (i) capital gains tax at the rate of 5% where the net gain realized is in an amount not exceeding P100,000.00 and at the rate of 10% on any amount in excess of P100,000.00, and (ii) documentary stamp tax at the rate of P 0.75 on each P200.00 of the par value of the shares of stock sold or transferred. Furthermore, the Subject Company is expected to file a Petition to Delist its securities with the Philippine Stock Exchange in conjunction with the conduct of this Tender Offer. Shareholders of SMDC who will not tender its/his shares to the Bidder may end up owning unlisted shares of SMDC.
Annex B (to Application to Tender Shares) IRREVOCABLE POWER OF ATTORNEY FOR INDIVIDUAL STOCKHOLDERS Relating to a proposed offer to buy shares in SM DEVELOPMENT CORPORATION I/We, ___________________________, with address at ________________________, HEREBY IRREVOCABLY APPOINT/S [Name of Broker] (the BROKER) acting through any of its directors or officers to be my/our attorneyin-fact to act in my/our name and on my/our behalf, to do all acts and things whatsoever requisite, necessary or convenient to be done, as it may in its absolute discretion determine, in connection with the sale or transfer of the [number of shares] common shares, held by me/us in SM Development Corporation (SMDC) (the Shares) in favor of SM Land, Inc. (SM Land) under the Terms of the Tender Offer (Exhibit C, Annex A to the SEC Form 19-1 filed by SM Land with the Securities and Exchange Commission (SEC)), and in particular: (a) to represent and warrant, as I/we hereby represent and warrant, to SM Land that: (i) I am/We are the sole, absolute, legal and beneficial owner of the Shares and has good, valid and marketable title to the Shares, free from any liens, encumbrances, and restrictions of any kind and nature, (ii) I/We can and have full authority to transfer good, valid and clean title to the Shares, and am/are not aware of any objection, adverse claim, dispute or notice concerning my/our right to tender and transfer the Shares; (iii) SM Land will obtain full and valid title to Shares, free and clear from any warrants, interests, options, liens, claims, objections, disputes, and encumbrances and will be able to freely and fully exercise all rights and privileges arising from ownership of Shares, including but not limited to the right to vote and receive dividends; and (iv) the Shares are fully paid and non-assessable and there are no further amounts payable by me/us to SMDC or to any other entity in respect of these securities; and (v) the transfer of the Shares to SM Land shall not constitute a breach of any agreement or arrangement, law, order or regulations or other issuances applicable to the Shares or me/us; (b) to sell the Shares to SM Land through the Philippine Stock Exchange (PSE) in exchange for .472 common shares of SM Prime Holdings, Inc. (the Consideration Shares), which shall be lodged with my/our nominated PSE Trading Participant as specified in my/our Application to Tender Shares in accordance with the Terms of the Tender Offer; (c) to sign, execute, and complete in my behalf any agreement or documents, required in connection with or for the purpose of the sale or transfer of the Shares and to ensure that any transfer of the same is effected in the stock and transfer book of SMDC and in the system of the Philippine Depository and Trust Corporation; (d) to receive and accept any and all Consideration Shares in my behalf pursuant to the sale or transfer of Shares; and (e) to do or cause to be done any and all such acts and things as shall be necessary or desirable to effect the sale or transfer of the Shares to SM Land, including the appointment of substitute/s and/or broker(s) who will effect the sale of the Shares through the PSE. HEREBY CONFIRMING AND RATIFYING everything which the BROKER or any of its duly authorized directors or officers or substitute/s shall do or purport to do under this Power of Attorney and hold the BROKER, its directors, officers, agents, employees, representatives or substitute/s, free from any liability and agree to indemnify the latter from any claims, damages or liabilities which may result, directly or indirectly, from the performance of the transactions pursuant to the terms of this Power of Attorney.
This Power of Attorney is given in consideration of the BROKER effecting the sale of the Shares as soon as possible and in any event not later than the Cross Date as defined in the Terms of the Tender Offer filed by SM Land with the SEC or any extended date approved by the SEC. If the sale is not made by such date, this Power of Attorney shall automatically lapse without need of any act on my/our part. This Power of Attorney shall be governed by and construed in accordance with the laws of the Republic of the Philippines. IN WITNESS WHEREOF this Irrevocable Power of Attorney has been executed on this ________ day of _____________ 2013. ______________________________________ (Signature over Printed Name of Stockholder) With my marital consent: _________________________________________ (Signature over Printed Name of Spouse) ________________________________________ Signature over Printed Name of Witness _______________________________________ Signature over Printed Name of Witness
ACKNOWLEDGMENT REPUBLIC OF THE PHILIPPINES ) ________ CITY )SS. BEFORE ME, a Notary for and in the city named above this __ day of ____ 2013 personally appeared Name Competent evidence of identity Date/Place Issued
who has/have been identified by me through competent evidence of identity, to be the same person/s who executed and signed the foregoing Irrevocable Power of Attorney in my presence, which consists of three (3) pages including the page where this acknowledgment is written, and who acknowledged to me that the same is his/her/their free and voluntary act and deed. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my notarial seal on the date and place first above written. Doc. No. ________; Page No. ________; Book No. ________; Series of 2013.
Annex C (to Application to Tender Shares) FORM OF SECRETARYS CERTIFICATE FOR CORPORATE STOCKHOLDERS I, ___________________________, of legal age, Filipino, and with office address at the ___________________________________, being the duly elected Corporate Secretary of [name of stockholder] (the Corporation), a corporation duly organized and existing under the laws of the Republic of the Philippines, with principal office at ___________________________________, after having been duly sworn in accordance with law, do hereby certify that at the meeting of the Board of Directors of the Corporation duly called and held on _______________, at which meeting a quorum was present and validly existing throughout, the following resolutions were approved: RESOLVED, That the Board of Directors of [name of stockholder] (the Corporation), authorize as it hereby authorizes the Corporation to sell or transfer its [number of shares] common shares in SM Development Corporation (SMDC) in the name of the Corporation (the Shares) in favor of SM Land, Inc. (SM Land) under the Terms of the Tender Offer (Exhibit C, Annex A to the SEC Form 19-1 filed by FC Philippines with the Securities and Exchange Commission (SEC)) attached to the Notice of Tender Offer to stockholders of SMDC. RESOLVED, FURTHER, That the Corporation appoint, as it hereby irrevocably appoints, [Name of Broker] (the BROKER) or any of its duly authorized directors or officers, to be the Corporations attorney-in-fact, to act in its name and on its behalf, and to do all acts and things whatsoever requisite, necessary or convenient to be done, as it may in its absolute discretion determine, in connection with the sale of the Shares, and in particular, the following: (a) to represent and warrant, as the Corporation hereby represents and warrants, to SM Land that (i) it is the sole, absolute, legal and beneficial owner of the Shares and has good, valid and marketable title to the Shares, free from any liens, encumbrances, and restrictions of any kind and nature, (ii) it can and has full authority to transfer good, valid and clean title to the Shares, and is not aware of any objection, adverse claim, dispute or notice concerning its right to tender and transfer the Shares; (iii) SM Land will obtain full and valid title to the Shares, free and clear from any warrants, interests, options, liens, claims, objections, disputes, and encumbrances and will be able to freely and fully exercise all rights and privileges arising from ownership of the Shares, including but not limited to the right to vote and receive dividends; and (iv) the Shares are fully paid and non-assessable and there are no further amounts payable by it to SMDC or to any other entity in respect of these securities; and (v) the transfer of the Shares to SM Land shall not constitute a breach of its constitutive documents or of any agreement or arrangement, law, order or regulations or other issuances applicable to the Shares or to it or its assets or properties; (b) to sell the Shares to SM Land through the Philippine Stock Exchange (PSE) in exchange for .472 common shares of SM Prime Holdings, Inc. (the Consideration Shares), which shall be lodged with the Corporations nominated PSE Trading Participant as specified in the Corporations Application to Tender Shares in accordance with the Terms of the Tender Offer; (c) to sign, execute, and complete on behalf of the Corporation any agreement or document required in connection with or for the purpose of the sale or transfer of the Shares and to ensure that any transfer of the same effected is in the stock and transfer book of SMDC and in the system of the Philippine Depository and Trust Corporation;
(d) to receive and accept any and all Consideration Shares on behalf of the Corporation pursuant to the sale or transfer of Shares; and (e) to do or cause to be done any and all such acts and things as shall be necessary or desirable to effect the transfer of the Shares including the appointment of substitute/s and /or broker(s) who will effect the sale or transfer of the Shares through the PSE. HEREBY CONFIRMING AND RATIFYING everything which the BROKER or any of its duly authorized directors or officers or substitute/s shall do or purport to do under this Power of Attorney and hold the BROKER, its directors, officers, agents, employees, representatives or substitute/s, free from any liability and agree to indemnify the latter from any claims, damages or liabilities which may result, directly of indirectly, from the performance of the transactions pursuant to the terms of this Power of Attorney, which is given in consideration of the BROKER effecting the sale of the Shares as soon as possible and in any event not later than the Cross Date as defined in the Terms of the Tender Offer or any extended date approved by the SEC; provided that, if the sale is not made by such date, this Power of Attorney shall automatically lapse without need of any act on the part of the Corporation; and provided further that this Power of Attorney shall be governed by and construed in accordance with the laws of the Republic of the Philippines. RESOLVED, FINALLY, That the Corporation authorize, as it hereby authorizes, the following persons to sign, endorse and deliver any and all documents necessary to implement the foregoing resolutions, including the stock certificates covering the Shares: Name ____________________________________ ____________________________________ ____________________________________ Specimen Signature ____________________________________ ____________________________________ ___________________________________
IN WITNESS WHEREOF, this Certificate has been signed this _____ day of ____________, 2013 at ______________________. _________________________ [Name of Corporate Secretary] REPUBLIC OF THE PHILIPPINES ) CITY OF ______ )SS. Before me, a notary public in and for the city named above, personally appeared: Name Competent evidence of identity Date/Place Issued
who has been identified by me through competent evidence of identity, to be the same person who executed and signed the foregoing Secretarys Certificate in my presence, and who took an oath before me as to such instrument. Witness my hand and seal this ___ day of _________ 2013. Doc. No. ____; Page No. ___ ; Book No. ____; Series of 2013. NOTE: The person/s who will endorse the stock certificate should be the person/s whose specimen signature/s is/are on file with the stock transfer agent of SMDC.
Annex D (to Application to Tender Shares) IRREVOCABLE POWER OF ATTORNEY FOR PARTNERSHIP STOCKHOLDERS RELATING TO A PROPOSED OFFER TO BUY SHARES IN SM DEVELOPMENT CORPORATION [Name of Partnership] (the Partnership), with address at ________________________, HEREBY IRREVOCABLY APPOINTS [Name of Broker] (the BROKER), acting through any of its directors or officers, to be the attorney-infact of the Partnership, to act in the name of the Partnership and on the Partnerships behalf, to do all acts and things whatsoever requisite, necessary or convenient to be done, as it may in its absolute discretion determine, in connection with the sale or transfer of the [number of shares] common shares, held by the Partnership in SM Development Corporation (SMDC) (the Shares) in favor of SM Land, Inc. (SM Land) under the Terms of the Tender Offer (Exhibit C, Annex A to the SEC Form 19-1 filed by FC Philippines with the Securities and Exchange Commission (SEC)), and in particular: (a) to represent and warrant, as the Partnership hereby represents and warrants, to SM Land that: (i) the Partnership is the sole, absolute, legal and beneficial owner of the Shares and has good, valid and marketable title to the Shares, free from any liens, encumbrances, and restrictions of any kind and nature, (ii) the Partnership can and has full authority to transfer good, valid and clean title to the Shares, and is not aware of any objection, adverse claim, dispute or notice concerning its right to tender and transfer the Shares; (iii) SM Land will obtain full and valid title to Shares, free and clear from any warrants, interests, options, liens, claims, objections, disputes, and encumbrances and will be able to freely and fully exercise all rights and privileges arising from ownership of Shares, including but not limited to the right to vote and receive dividends; and (iv) the Shares are fully paid and non-assessable and there are no further amounts payable by the Partnership to SMDC or to any other entity in respect of these securities; and (v) the transfer of the Shares to SM Land shall not constitute a breach of the constitutive documents of the Partnership or of any agreement or arrangement, law, order or regulations or other issuances applicable to the Shares or the partnership or its assets or properties; to sell the Shares to SM Land through the Philippine Stock Exchange (PSE) in exchange for .472 common shares of SM Prime Holdings, Inc. (the Consideration Shares), which shall be lodged with the Partnerships nominated PSE Trading Participant as specified in the Partnerships Application to Tender Shares in accordance with the Terms of the Tender Offer; to sign, execute, and complete on behalf of the Partnership any agreement or document required in connection with or for the purpose of the sale or transfer of the Shares and to ensure that any transfer of the same effected is in the stock and transfer book of SMDC and in the system of the Philippine Depository and Trust Corporation; to receive and accept any and all Consideration Shares on behalf of the Partnership pursuant to the sale or transfer of Shares; and to do or cause to be done any and all such acts and things as shall be necessary or desirable to effect the transfer of the Shares including the appointment of substitute/s and /or broker(s) who will effect the sale or transfer of the Shares through the PSE.
(b)
(c)
(d) (e)
HEREBY CONFIRMING AND RATIFYING everything which the BROKER or any of its duly authorized directors or officers or substitute/s shall do or purport to do under this Power of Attorney and holding the BROKER, its directors, officers, agents, employees, representatives or substitute/s, free from any liability and agree to indemnify the latter from any claims, damages or liabilities which may result, directly of indirectly, from the performance of the transactions pursuant to the terms of this Power of Attorney, which is given in consideration of the BROKER effecting the sale of the Shares as soon as possible and in any event not later than the Cross Date as defined in the Terms of the Tender Offer or any extended date approved by the SEC; provided that, if the sale is not made by such date, this Power of Attorney shall automatically lapse without need of any act on the part of the Partnership; and provided further that this Power of Attorney shall be governed by and construed in accordance with the laws of the Republic of the Philippines. This Power of Attorney is given in consideration of the BROKER effecting the sale of the Shares as soon as possible and in any event not later than the Cross Date as defined in the Terms of the Tender Offer filed by FC Philippines with the SEC, or any extended date approved by the SEC. If the sale is not made by such date, this Power of Attorney shall automatically lapse without need of any act on the part of the Corporation. IN WITNESS WHEREOF this Irrevocable Power of Attorney has been executed on this ________ day of _____________ 2013. ______________________________________ (Signature over Printed Name of Authorized Signatory/ies of Partnership Stockholder) ________________________________________ Signature over Printed Name of Witness _______________________________________ Signature over Printed Name of Witness
ACKNOWLEDGMENT REPUBLIC OF THE PHILIPPINES) ________ CITY )SS. BEFORE ME, a Notary for and in the city named above this __ day of ____ 2013 personally appeared Name Competent evidence of identity Date/Place Issued
who has/have been identified by me through competent evidence of identity, to be the same person/s who executed and signed the foregoing Irrevocable Power of Attorney in my presence, which consists of three (3) pages including the page where this acknowledgment is written, and who acknowledged to me that the same is his/her/their free and voluntary act and deed. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my notarial seal on the date and place first above written. Doc. No. ________; Page No. ________; Book No. ________; Series of 2013.
Annex E (to Application to Tender Shares) REPUBLIC OF THE PHILIPPINES ) _________________________) S.S. AFFIDAVIT OF LOSS I, _______________________, of legal age, Filipino, married/single, a resident of _______________________, do hereby depose and say that: 1. I am a stockholder of SM DEVELOPMENT CORPORATION (the Company), owning ______ shares registered under the name ________________________________, represented by the following Certificates of Stock: Certificate No. Number of Shares
2. The above-mentioned certificates were discovered missing and have not been found or located despite diligent search; 3. The above-mentioned certificates of stock have not been sold, pledged, mortgaged or in any way encumbered by me, and that they are free from any liens or encumbrances; 4. This affidavit has been executed for the purpose of securing new certificate/s in replacement of the certificated of stock mentioned above and to request the Company to take the necessary steps to prevent the negotiations or transfer of said lost certificate/s. IN WITNESS WHEROF, I have signed these presents in ___________________, Philippines, this _______________. _________________ Affiant SUBSCRIBED AND SWORN TO before me in _________, Philippines, this ______________ 2013, affiant having exhibited to me his/her _____________ Number ___________________________ issued at __________________ on ___________________. Doc. No. _______; Page No. _______; Book No. _______; Series of 2013.
Exhibit D INSTRUCTIONS TO PARTICIPATING BROKERS on the offer of SM Land, Inc. to purchase shares of SM Development Corporation in exchange for shares of SM Prime Holdings, Inc.
In connection with the tender offer by SM Land, Inc. to purchase common shares of SM Development Corporation (the SMDC Shares) in exchange for common shares of SM Prime Holdings, Inc. (the Consideration) at a ratio of .472 Consideration for every SMDC Share, the following are the instructions for Participating Brokers whose clients are accepting the said offer: 1. The Terms of the Tender Offer form part of these instructions. 2. Participating Brokers are required to electronically transfer the SMDC Shares being tendered by their clients to BDO Securities Corporation (the BROKER), PDTC Account No. 279. 3. For each Participating Broker transacting a transfer of the SMDC Shares to the BROKER, the Philippine Depository and Trust Corporations charges for the share transfer and any subsequent withdrawal will be for the []s account. Only those shares electronically transferred to the BROKER as of 12:00 noon on July 4, 2013 are eligible for the Tender Offer. For orderly transfer and accurate tracking, the Participating Broker should deliver in original, a letter to the BROKER (in the form attached as Annex 1) citing the exact number of shares being transferred.
Annex 1 (to Instructions to Participating Brokers) LETTER TO BDO SECURITIES CORPORATION FROM PARTICIPATING BROKERS DELIVERING SHARES OF THEIR CLIENTS [Date] BDO SECURITIES CORPORATION 20th Floor, South Tower BDO Corporate Center 7899 Makati Avenue Makati City, Philippines Attention: Madam: ______(Name of Participating Broker)__ is delivering ___________________________ (______) common shares of SM Development Corporation (SMDC) from our clients who wish to participate in the Tender Offer made by SM Land, Inc. (SM Land) under the Terms of the Tender Offer (Annex A to the SEC Form 19-1 dated May 31, 2013 filed by SM Land, which we have read and understood). Our clients commit to sell the shares and authorize BDO Securities Corporation (the BROKER) to sell these shares to SM Land under the Terms of the Tender Offer. These shares will be held in custodianship by the BROKER until such time that the transfer of these shares to SM Land has been effected by the BROKER. Thank you. Very truly yours, [Participating Brokers Name] ____________________________ Signature over Printed Name of Authorized Signatory/ies Telephone Number: Fax Number: BDO SECURITIES CORPORATION hereby accepts ________ SMDC Shares from _____________________ and shall hold these shares in custody under the Terms of the Tender Offer. Acceptance and Conforme: _______________________________ BDO SECURITIES CORPORATION Signature over Printed Name of Authorized Signatory Date: _____________ _________________________ PCD Account No. MS. JANET D. AMORA
NOTICE TO THE STOCKHOLDERS OF SM DEVELOPMENT CORPORATION

TO ALL STOCKHOLDERS OF SM DEVELOPMENT CORPORATION:
Please be advised that SM Land, Inc., in compliance with Section 19 of the Securities Regulation Code, intends to conduct a tender offer to acquire up to 100% of the outstanding shares of common stock of SM DEVELOPMENT CORPORATION (SMDC) at a consideration of .472 share of common stock of SM Prime Holdings, Inc. for each share of SMDC. The tender offer is intended to commence on June 4, 2013 and to end on July 9, 2013 unless extended by SM Land, Inc. upon approval by the Securities and Exchange Commission. Subsequent publications shall be made to announce the details of the tender offer. This publication is made pursuant to SRC Rule 19 (5).
Manabat Sanagustin & Co., CPAs The KPMG Center, 9/F 6787 Ayala Avenue Makati City 1226, Metro Manila, Philippines Branches Subic Cebu Bacolod Iloilo
Telephon e Fax Internet E-Mail
+63 (2) 885 7000 +63 (2) 894 1985 www.kpmg.com.ph manila@kpmg.com.ph
May 30, 2013 Audit and Risk Management Committee SM Investments Corporation 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 Share-for-share Swap Between SM Land, Inc. and SM Development Corporation
1 1.1
Introduction Manabat Sanagustin & Co., CPAs (MS&Co. or the Firm) is pleased to su bmit this Valuation and Fairness Opinion Report (the Report) covering the share-for-share swap transaction between SM Land, Inc. (SM Land) and SM Development Corporation (SMDC). The transaction involves SM Lands acquisition of an additional 34.82% equity stake in SMDC. SM Land will use SM Prime Holdings, Inc. (SMPHI) shares for this acquisition. SM Land Management shall be using a share-swap ratio of 0.472 SMPHI shares for every 1 SMDC share. At the end of this transaction, SM Land shall become the 100% owner of SMDC. 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 Firms engagement with SMIC for the valuation of SMPHI and SMDC, as a going concern, as of March 31, 2013 (the agreed Cut-off Date or the Valuation Date or 3M2013). 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 opinion does not include any statement or opinion as to the commercial merits or strategic rationale of the transaction. MS&Co.s work did not include making comments on the commercial feasibility of the transaction nor was MS&Co. 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 fairness opinion does not contain and has no intention of forming an opinion as to the strategic, operational or commercial merits of the transaction. This Report is based
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p i a n r a professional partnership established under Manabat Sanagustin & Co., CPAs, t Philippine law, is a member firm of d the KPMG network of independent member firms e n affiliated with KPMG International, a Swiss cooperative. p e e r n s d h e i
SM Investments Corporation Fairness Opinion Report May 30, 2013
on the information prepared and submitted by both SMDC and SMPHI. These include annual and quarterly reports filed in the Philippine Stock Exchange (PSE), and the projected cash flows of SMDC and SMPHI prepared and submitted by the management team of both companies. 1.5 MS&Co. did not conduct a financial due diligence on the information provided by SMDC and SMPHI. It was assumed that all information furnished were complete, accurate and reflective of the good faith of the management teams of SMDC and SMPHI to describe its historical status and prospects as of the Cut-off Date from operating and financial points of view. In order to assess the fairness of the share-swap ratio, MS&Co. conducted a valuation of both SMDC 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. There are no globally accepted rules or standards on the selection of the most appropriate valuation methodologies for a given valuation engagement. 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. The following activities were performed in this valuation and fairness opinion report: Requested for an initial set of information from SMDC and SMPHI management. Based on the initial set of assumptions and information received from SMDC 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. Conducted research and retrieved relevant information from the PSE, Bureau of Treasury, Bloomberg, Damodaran Online, Factiva and various websites of comparable companies. The opinion, analysis, and resulting observations were based solely on management representations and on publicly available financial information. It is not the independent financial advisors role to either evaluate or confirm how the transaction, to be executed by SM Land and SMDC, will affect the shareholders, other than from a financial point of view. The management of SMPHI and SMDC had executed their respective representation letters stating that the information submitted to MS&Co. were materially accurate and complete, fair in the manner of its portrayal and therefore forms a reliable basis for the valuation.
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1.7 1.7.1
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2 2.1
Executive summary The valuation results of SMDC are presented below.

Valuation results - SMDC Cost approach Market approach EV / EBITDA - w eighted average Closing price as of March 27, 2013 60-day volume w eighted average share price Valuation range
Source: MS&Co. analysis
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
MS&Co. selected four valuation methodologies to estimate the fair range of market values of SMDC. These are the Cost approach, Enterprise value-to-EBITDA multiple (EV/EBITDA), SMDCs market closing price as of the Valuation Date, and SMDCs 60-day volume-weighted average price (VWAP). The Cost approach was deemed 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. 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 SMDCs 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. The Income approach was no longer considered as a relevant method since SMDC relies heavily on the sale of its real property inventories rather than on recurring rental income. Further, the projected cash flows provided by SMDCs management were only limited to a three-year period. Three-year projection in our opinion is not sufficient to capture the full value over the complete cycle from land development to point of turnover of a real estate developer.
2.2
The valuation results of SMPHI are presented below.

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 five methodologies to estimate the fair range of market values for SMPHI. These are the Cost approach, the Income approach, EV/EBITDA multiple, SMPHIs market closing price as of the Valuation Date, and SMPHIs 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 SMPHIs future cash flows may be estimated using historical financial figures. 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 SMPHIs 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.
2.3
Given the above fair ranges of values, the range of exchange ratios for the share-for-share swap transaction is 0.280 to 0.537 shares of SMPHI for every 1 share of SMDC. Based on the management-determined share-swap ratio of 0.472 SMPHI share for every 1 SMDC share, the planned exchange is fair from a financial point of view.
3 3.1
Organization background and structure of SM Land, Inc. 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 investment in shares of stock of SMDC, SMPHI, SMIC, Banco de Oro (BDO), C hinabank (CBC), Ayala Corporation, PLDT, Prime Media Holdings, and other companies. SM Land also derives its 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.
SM Investments Corporation 63.87% Sy Family
36.13%
SM Land, Inc.
Source: SM Land, Inc. 2013 general information sheet
4 4.1
Organization background and structure of SM Development Corporation Corporate information SM Development Corporation (SMDC), a subsidiary of SMIC, is primarily engaged in the development of residential units. The companys residential projects are primarily located within Metro Manila and cater to the middle-income sector. SMDC was first listed with the Philippine Securities and Exchange Commission (SEC) on July 12, 1974 as Ayala Fund, Inc. (AFI) with a PHP15.0 million subscribed capital stock. In 1986, AFI changed its name to SM Fund, Inc. (SMI) when the SM Group of companies took majority ownership. SMI subsequently was renamed to SMDC in May 1996. On April 21, 1997, the company amended its by-laws and increased its authorized capital stock to PHP8.0 billion with PHP1.00 par value per share. Currently, the companys authorized capital stock amounts to PHP12.4 billion with PHP1.00 par value per share. Ownership structure As of March 31, 2013, SMDC is 65.18% owned by SM Land which is also a subsidiary of SMIC. Based on the unaudited financial statements as of March 31, 2013, the company has 9,271,204,239 issued and outstanding common shares. Other major owners of SMDC are PCD Nominee Corporation with 17.26% ownership (82% Filipino, 18% Foreign), Syntrix Holdings, Inc. with 7.07% ownership, Sysmart Corporation with 5.14% ownership and Sybase Equity Investments Corporation with 1.20% ownership. Other than the mentioned top five stockholders, the Company has no known stockholder that owns more than 1% of its common stock.
SMIC
66.89%
PCD Nominee Corporation

17.26%
Syntrix Holdings, Inc.

7.07%
SM Land
65.18%
Sysmart Corporation
5.14%
Sybase Equity Investments Corporation

1.20%
Others
4.15%
SMDC
Source:
List of Top 100 Stockholders as of March 31, 2013
As of March 31, 2013 SMDC had nine (9) wholly-owned subsidiaries, all of which are either engaged in real estate property development or land holding. Four of the subsidiaries were recently acquired in 2012. This is discussed further in section 4.2.1 Projects Based on the 2012 annual report, SMDC had 19 project developments in 8 strategic locations, namely: Makati City, Mandaluyong City, Manila City, Paraaque City, Pasay City, Quezon City, Taguig City and Tagaytay City. Chateau Elysee, is owned by SM Synergy Properties Holdings Corp., a wholly owned subsidiary of SMDC. All projects stated above are registered with the Board of Investments (BOI) as a developer of low-cost housing projects, thus entitling it to a three-year income tax holiday incentive.
4.2 4.2.1
Financial information Financial performance and position MS&Co. conducted an analysis of the historical financial performance of SMDC in order to understand the value drivers of the company. The analysis included historical revenue, cost and margin analysis. Given that SMDC 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.
Consolidated statem ent of financial perform ance PHP'M Revenue from real estate sales Cost of real estate sold Gross profit Operating expenses ("OPEX") Income from operations Other income (charges) Income before tax Provision for income tax Net incom e Net incom e m argin
Note: Source:
2010 9,118 5,041 4,077 1,335 2,742 428 3,171 149 3,022 33.1%
Audited 2011 16,184 9,674 6,509 2,343 4,167 (8) 4,158 (17) 4,175 25.8%
2012 21,578 13,535 8,043 3,627 4,417 574 4,991 86 4,904 22.7%
2010 to 2012 Unaudited 1 3M2013 % of revenue CAGR 5,859 100.0% 53.8% 3,577 59.3% 63.9% 2,282 40.7% 40.5% 852 15.3% 64.8% 1,430 25.4% 26.9% (37) 2.4% 15.7% 1,392 27.9% 25.5% 29 0.6% (24%) 1,363 27.2% 27.4% 23.3% n/a (17.2%)
(1) Average % of total revenues from 2010 to 2012 SMDCs audited financial statements as of December 31, 2011 and 2012; Unaudited financial statement as of March 31 , 2013
Consolidated statem ent of financial position Audited PHP'M Assets Cash and cash equivalents Trade and other receivables Investments held for trading Available-for-sale investments Condominium units for sale Land and development Advances for project development Investment property Property and equipment, net Deferred tax assets Deposits and other assets Total assets Liabilities and equity Liabilities Loans payable Accounts payable and other liabilities Customers deposits Income tax payable Dividends payable Deferred tax liabilities Total liabilities Equity Capital stock Additional paid-in capital Retained earnings Unrealized gain on AFS Total equity Total liabilities and equity
Note: Source:
Unaudited 2012 8,177 26,539 579 4,974 1,857 29,107 3,126 735 458 280 4,366 80,198
2010 8,734 7,920 381 3,933 802 16,680 1,122 747 121 49 3,210 43,700
2011 5,913 16,193 384 4,727 572 19,801 1,122 707 244 126 4,134 53,925
2010 to 2012 1 3M2013 % of total CAGR 5,237 30,729 679 5,762 1,596 32,022 3,712 724 507 405 3,880 85,253 13.7% 27.1% 0.8% 8.0% 1.7% 37.1% 2.8% 1.3% 0.4% 0.2% 6.8% 100.0% (3.2%) 83.1% 23.4% 12.5% 52.1% 32.1% 66.9% (0.8%) 94.4% 138.6% 16.6% 35.5%
9,924 5,467 2,224 36 24 368 18,044 6,412 8,505 8,562 2,176 25,656 43,700
10,944 5,110 2,047 2 26 388 18,517 8,428 13,434 10,904 2,642 35,408 53,925
24,714 13,013 1,730 22 26 555 40,060 9,271 13,434 14,544 2,889 40,138 80,198
23,322 14,907 3,973 34 26 697 42,960 9,271 13,434 15,908 3,681 42,293 85,253
24.6% 12.7% 3.7% 0.0% 0.0% 0.8% 41.9% 0.0% 14.0% 20.4% 19.3% 4.5% 58.1% 100.0%
57.8% 54.3% (11.8%) (20.8%) 4.9% 22.7% 49.0% 0.0% 20.2% 25.7% 30.3% 15.2% 25.1% 35.5%
(1) Average % of total assets from 2010 to 2012 SMDC 2011 and 2012 audited financial statements; Unaudited financial statements as of March 31, 2013, MS&Co. analysis
5 5.1
Valuation of SM Development Corporation Cost Approach 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 Devt. Corp. (TRDC), we 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 Carrying value as of 3M2013 (In PHP'M) 770 4,193 652 2 15 8 54 2 66 5,762 Num ber of shares 337,911,101 735,553,561 189,550,548 7,829,000 3,035,836 40,000,000 19,216,512 88,919 105,000 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
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:
(1) Latest available share price is as of May 8, 2009 (2) Latest available share price is as of May 26, 2008 Available-for-sale schedule as of March 31, 2013 provided by management; PSE; MS&Co. analysis
5.1.1
The table below presents the appraised values of properties we excluded in determining fair market value of SMDCs 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 Classified under deposits account
CBRE appraisal as of February 28, 2013; SMDC management
The adjusted fair market value of SMDCs 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: CBRE appraisal as of February 28, 2013; SMDC management; MS&Co. analysis
89,002 2,871 86,131
5.1.2
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 Adjustment to reflect fair value of properties 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 Investment properties Advances for project development Adjusted NAV Number of shares outstanding NAV per share
Source:
13-Mar-13 85,253 42,960 42,293
6,280 5,762 86,131 1,596 31,666 724 3,667 37,653
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
5.2
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 SMDCs 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.
10
SMDC CoCos Selection Developm ent type Mid-market residential units 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
Entity nam e
Revenue m ix
SMDC Selected CoCos FLI
100% real estate sales 83.2% real estate sales
Affordable, midend and highend residential units VLI Affordable, midend and highend residential units Excluded Affordable, midCoCos end and high(18 com panies) end units
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
Range below SMDC's level: PHP15.3 million to PHP8.80 billion Range above SMDC's level: PHP25.37 billion to 49.0 billion
Range below SMDC's level PHP0.48 billion to PHP35.97 billion Range above SMDC's level: PHP142.72 billion to PHP231.23 billion
Note: Source:
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. 5.2.1 The calculation for SMDCs 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) Number of shares outstanding ('000) Book value per share EBITDA per share EBITDA (In PHP'M) 2 Number of shares outstanding ('000) EBITDA per share
Note: Source:
5,053 March 31, 2013 unaudited FS 9,271,204 March 31, 2013 unaudited FS 0.55 42,293 March 31, 2013 unaudited FS 9,271,204 March 31, 2013 unaudited FS 4.56 5,656 March 31, 2013 unaudited FS 9,271,204 March 31, 2013 unaudited FS 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
11
Market approach - CoCos Range of values per share P/E (x) Earnings per share 0.55 Book value per share 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 Number of shares (in millions) 9,271 Equity value per share (PHP) 6.33
P/B (x) EV/EBITDA (x) 4.56 1.02 4.66 0.61 14.29 8.72
9,271 N/A N/A N/A 43,207 9,271 4.66
9,271 18,086 0 0 62,757 9,271 6.77
5.2.2
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 Closing price as of March 27, 2013 Prior to valuation date 30-day volume w eighted average share price 60-day volume w eighted average share price 90- day volume w eighted average share price
Source: PSE; Bloomberg
Per share 8.47 8.30 8.22 7.85
12
6 6.1
Organization background and structure of SM Prime Holdings Inc. Corporate information 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, McDonalds, 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
SM Investments Corp. 66.9%
21.65%
SM Land, Inc
PCD Nominee Corp. (Foreign and Filipino)
Others
40.96%
34.43%
2.96%
SM Prime Holdings, Inc.
Source:
SMPHI 2012 Annual report
13
6.2 6.2.1
Financial information Financial performance and position MS&Co. conducted an analysis of the historical financial performance of SMPHI in order to understand the value drivers of the company. The analysis includes historical revenue, cost 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. The income statements and balance sheets are presented below.
Consolidated statem ent of financial perform ance Audited 2011 26,897 (12,277) 14,620 (2,400) 12,220 (2,932) 94 (2,838) 9,382 Unaudited 3M2013 7,830 (3,604) 4,226 (445) 3,781 (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% 34.9% 16.3% -49.2% 12.6% 15.8%
PHP'M Total revenues Operating expenses Income from operations Other income (charges)- net Income before income tax Incom e tax Current Deferred Total income tax Net incom e
Source:
2010 23,716 (11,271) 12,445 (1,648) 10,797 (2,450) (207) (2,657) 8,140
2012 30,726 (13,995) 16,731 (2,442) 14,289 (3,313) (53) (3,367) 10,922
SMPHI 2012 Annual report; SMPHI 3M2013 financial statements; MS&Co. analysis
14
Consolidated statem ent of financial position Audited 2010 2011 Unaudited 2010 to 2012 3M2013 % of total CAGR
Ver
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 Accounts payable and other current liabilities 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 Total liabilities and equity
Source: Note:
2012
9,720 877 500 3,980 1,104 1,104 17,285 93,940 738 223 3,946 98,848 116,133
8,290 877 813 4,708 1,000 1,276 16,964 107,836 116 254 3,154 111,360 128,324
9,707 821 759 5,880 1,000 1,440 19,607 124,087 110 190 4,135 128,522 148,130
19,068 816 457 5,763 1,000 1,566 28,671 126,017 138 187 4,656 130,998 159,669
7.1% 0.7% 0.5% 3.7% 0.8% 1.0% 13.8% 82.9% 0.3% 0.2% 2.9% 86.2% 100.0%
-0.1% -3.2% 23.2% 21.5% -4.8% 14.2% 6.5% 14.9% -61.4% -7.6% 2.4% 14.0% 12.9%
6,797 767 404 7,967 38,077 6,466 1,619 1,323 710 1,022 49,216 13,918 8,219 590 4
10,150 799 623 11,572 40,094 7,467 1,551 1,259 238 1,797 52,405 13,918 8,219 873 -
800 11,399 1,792 633 14,623 49,647 8,386 1,215 1,278 244 1,836 62,607 17,393 8,219 544 -
800 11,380 2,611 1,123 15,914 57,015 8,556 1,042 1,266 237 1,879 69,994 17,393 8,219 516 27,000 19,680 (101) 1,055 73,761 159,669
0.2% 7.2% 0.8% 0.4% 8.6% 32.5% 5.7% 1.1% 1.0% 0.3% 1.2% 41.8% 11.5% 6.3% 0.5% 0.0% 9.9% 20.8% -0.1% 0.6% 49.6% 100.0%
n/a 29.5% 52.9% 25.2% 35.5% 14.2% 13.9% -13.4% -1.7% -41.3% 34.0% 12.8% 11.8% 0.0% -3.9% -100.0% 96.4% -23.1% 0.0% 12.2% 9.7% 12.9%
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
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
15
6.2.2
Based on the analysis conducted on the historical financial statements of SMPHI, together with interviews and representations from SMPHI management, assumptions to support the financial projections were derived. Summarized below are the assumptions used to estimate the projection scenarios of SMPHI.
List of assum ptions for financial perform ance Account Philippine operations The historical grow th rate is 7.0% in 2011 and 8.0% in 2012; Revenues are projected to grow at 7.0% A 5.0% grow th assumption is also included w hich represent the terminal grow th rate for mature malls, and 6.0% grow th scenario is included w hich represents a balanced grow th assumption Based on contracts w ith lessee. This is the normal escalation rate on the fixed portion of the lease payments Based on historical data; Also, for the first year of opening, new malls are assumed to open during the last quarter and shall only have a three-month contribution to rent revenues. Cinema ticked sales grew at a CAGR of 12.1% from 2010 to 2012 The projected grow th rate is conservative compared to the historical, and approximates the inflation rate plus a marginal premium Assum ption Rem arks
Grow th rate of rent pertaining to malls existing as of 2011
5-7%
Lease escalation rate of new malls Occupancy rates First year of opening Second year of opening After tw o years of opening
5%
75% 85% 95%
Cinema ticket sales annual grow th rate
5%
Amusement and other revenues annual grow th rate
Operating expenses
Income tax rate China operations Revenues Lease escalation rate Occupancy rate Rental discounts
Amusement and other revenues grew at a CAGR of 18.6% from 2010 to 2012 5% The projected grow th rate is conservative compared to the historical, and approximates the inflation rate plus a marginal premium 45.5% to Approximates the hisorical ratio of local OPEX to revenues of 45.7% 46.5% of total from 2010 to 2012 Approximates the average historical effective income tax rate, 24.3% to w hich is the ratio of taxes to net income before tax of 24.1% from 24.5% 2010 to 2012
3% to 20% 50% to 100% 10% to 50%
Revenue assumptions in China are forecasted differently for each mall. The assumptions include average lease rates, management fee rates, lease escalation rates, management fee escalation, occupancy, and rental discounts
Operating expense
Source: MS&Co analysis
Operating expenses in China are based on assumptions such as Various rates inflation rate, salaries and w age increase, land use right rates, and depending on taxes and licenses. These assumptions are forecasted separately mall per mall.
16
List of assum ptions for financial position Account Philippine operations Receivables 20.8% of revenues Based on the ratio of Accounts receivables to Revenues in 2012; Historically, receivables averaged 21.2% of revenues from 2010 to 2012 Based on planned CAPEX ranging from PHP22.4 billion to PHP38.0 billion per year; Per square meter cost based on historical mall development costs and increased by 5% per year Historically, the accounts payable as a percentage of total OPEX averaged at 107.1% from 2010 to 2012. Based on the planned loan availments, and the amortization of existing and future loans. Based on the grow th of the account from 2011 to 2012 Historically, the 2011 dividends w ere 49.2% of the 2010 net income, w hile the 2012 dividends w ere 43.1% of the 2011 net income Based on the ratio of Accounts receivables to Revenues in 2012 Based on planned CAPEX ranging from USD57 million to USD440.2 million per year; Assum ption Rem arks
Investment properties
Predetermined CAPEX
Accounts payable and other current liabilities Long term loans Tenant's deposit Dividends China operations Receivables Fixed assets Tenant's Deposit 2013 - 2014 2015 - 2016 2017 - 2018
Source: MS&Co analysis
105.0% of the gross OPEX, excluding depreciation Predetermined loan availments Increase by 12.0% per annum 50.0% of the prior years net income 6.45% of revenues Predetermined CAPEX
25% of revenues from third party tenants 21% of revenues from third party tenants 17% of revenues from third party tenants
Historically, tenant's deposits averaged 22.4% of revenues from third party tenants from 2008 to 2010
17
7 7.1
Valuation of SM Prime Holdings, Inc. Cost Approach Under the Cost approach, assets and liabilities with available fair market values are markedto-market. 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. The fair market value was based on the appraisal reports prepared by CBRE using various 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. SMPHIs legal advisors represent that the company is not involved in any significant cases which may give rise to contingent liabilities.
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SM Investments Corporation Fairness Opinion Report May 30,2013
7.1.1
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 3M2013 159,669 85,908 73,761 286,826 (10,559) (865) (52,400) (8,019) (71,843) 13,141 (9,691) 3,450 Adjustment to reflect fair value of China properties Fair value of China malls Carrying value of China malls Fair value of other China properties Carrying value of other China properties 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 Number of shares outstanding NAV per share
Note: Source:
214,983
Fair value of other Philippine properties Carrying value of other Philippine properties
54,642 (15,892) 38,750 19,324 (1,727) 17,597 (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
7.2
Market approach or capitalized earnings 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 firms revenues from shopping center operations or leasing of commercial spaces should be the largest contributor to its total revenues. From the
19
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 Mall operations have the largest revenue contributions 100.0% 47.6% 78.4% 99.2% All CoCos have mall operations as their largest revenue contributor Malls operated should be m ore than 10 51 32 21 101 Eliminated local CoCos have three and five malls/commercial centers. Majority of revenues from grow ing econom ies Philippines, China Philippines Thailand China, Malaysia, India Eliminated CoCo has virtually all of its revenues sourced from Japan
Entity nam e SM Prime Holdings, Inc. Selected com panies Robinsons Land Corporation Central Pattana Public Co. Ltd. CapitaMalls Asia Ltd. Excluded CoCos (3 com panies)
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 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.
20
7.2.1
The calculations for SMPHIs 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 (PHP) Net income (In PHP'M) 1 Number of shares outstanding ('000) Earnings per share Book value per share Adjusted book value (In PHP'M) 2 Number of shares outstanding ('000) Book value per share EBITDA per share EBITDA (In PHP'M) 3 Number of shares outstanding ('000) EBITDA per share
Note:
11,279 March 31, 2013 unaudited FS 17,373,678 March 31, 2013 unaudited FS 0.65 72,706 March 31, 2013 unaudited FS 17,373,678 March 31, 2013 unaudited FS 4.18 20,632 March 31, 2013 unaudited FS 17,373,678 March 31, 2013 unaudited FS 1.19
Source:
(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 SMPHIs shareholders (3) Annualized EBITDA was computed by deducting 1Q12 EBITDA and addition of 1Q13 EBITDA March 31, 2013 unaudited FS; MS&Co. analysis
7.2.2
The calculation for SMPHIs value using the Market approach is shown on the table below.
Market approach - CoCos Weighted average P/E (x) P/B (x) EV/EBITDA (x) 0.65 4.18 1.19 22.66 4.17 17.49 14.71 17.47 20.77
Range of values per share Earnings per share Book value per share EBITDA per share Derived multiple Value per share (PHP) Range of values Range of values per share, before adjustments Number of shares ('000) Range of values, before adjustments Less: Net debt (PHP'M) Minority interest (PHP'M) Equity value (PHP'M) Number of shares ('000) Equity value per share (PHP)
17,373,678 N/A N/A 255,605 17,373,678 14.71
17,373,678 N/A N/A 303,488 17,373,678 17.47
17,373,678 41,358 1,055 318,525 17,373,678 18.33
7.2.3
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.
Market approach - VWAP Closing price as of March 27, 2013 Prior to valuation date 30-day volume-w eighted average share price 60-day volume-w eighted average share price 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
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7.3
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.
7.3.1
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 managements 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 SMPHIs 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 SMPHIs revenues over the projection period. An ave rage 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 SMPHIs projected cash flows for the three scenarios.
22
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)
2014 17,887 5,284 2,492 (170) 1,692 (4,152) 23,033 (27,091) (4,058) 1.75 0.8887 (3,607)
2015 19,498 6,082 3,418 (122) 2,284 (4,573) 26,587 (28,105) (1,517) 2.75 0.8307 (1,260)
2016 21,560 6,778 3,986 (133) 2,217 (5,099) 29,308 (28,829) 480 3.75 0.7765 373
2017 24,270 7,619 4,438 (137) 2,151 (5,682) 32,659 (22,411) 10,248 4.75 0.7259 7,439
2018 27,938 8,113 4,725 (138) 2,564 (6,539) 36,662 (22,988) 13,674 5.75 0.6785 9,278
Total 123,732 37,201 20,684 (1,038) 29 12,618 (29,400) 163,826 (164,200) (374)
(6,030)
2014 17,612 5,284 2,492 (162) 1,621 (4,092) 22,756 (27,091) (4,335) 1.75 0.8887 (3,853)
2015 19,059 6,082 3,418 (101) 2,197 (4,473) 26,182 (28,105) (1,923) 2.75 0.8307 (1,597)
2016 20,924 6,778 3,991 (96) 2,124 (4,953) 28,768 (28,829) (60) 3.75 0.7765 (47)
2017 23,407 7,619 4,458 (85) 2,047 (5,481) 31,965 (22,411) 9,554 4.75 0.7259 6,935
2018 26,837 8,113 4,760 (83) 2,448 (6,280) 35,794 (22,988) 12,806 5.75 0.6785 8,689
Total 120,293 37,201 20,744 (864) 29 12,085 (28,609) 160,880 (164,200) (3,321)
(8,280)
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2014 17,335 5,284 2,497 (153) 1,551 (4,031) 22,483 (27,091) (4,608) 1.75 0.8887 (4,095)
2015 18,617 6,082 3,435 (87) 2,113 (4,372) 25,788 (28,105) (2,317) 2.75 0.8307 (1,925)
2016 20,298 6,778 4,028 (85) 2,036 (4,808) 28,248 (28,829) (581) 3.75 0.7765 (451)
2017 22,593 7,619 4,511 (85) 1,950 (5,290) 31,297 (22,411) 8,887 4.75 0.7259 6,451
2018 25,800 8,113 4,833 (83) 2,341 (6,037) 34,967 (22,988) 11,979 5.75 0.6785 8,128
Total 116,974 37,201 20,928 (831) 29 11,577 (27,844) 158,034 (164,200) (6,166)
(10,455)
7.3.2
Discount rate Determining an appropriate discount rate, which is reflective of both the general and specific risks of a companys 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. SMPHIs after-tax cost of debt, pegged at 3.6%, pertains to the weighted average interest rate of SMPHIs 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.
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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
5.0B MBTC 5.0B RCBC
7.5B MBTC
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 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
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 2,350 204 204 204 204 204 1,224 816 4,488 1,428 5,100 408 1,020 6,120 2,040
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% 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%
0.1% 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% 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%
USD LOAN 25M SMBC
30M HSBC 20M HSBC 270M SCB
50M SMBC MBTC ($150M) ING ($50M) Subsidiaries PHP LOAN 500M BPI RM B LOAN 350M ICBC 150M ICBC 250M ICBC
PDSTF + margin Floating rate based on Central Bank of China Floating rate based on Central Bank of China Floating rate based on Central Bank of China
500
3.7%
0.0%
1,734 400 985
5.8% 5.8% 6.2%
0.2% 0.0% 0.1%
Short-term PHP LOAN BPI Fixed BPI Fixed Total interest-bearing liabilities
Source:
500 300 61,027
6.2% 6.2%
0.1% 0.0% 3.6%
SMPHI loan breakdown as of March 31, 2013; BSP loan interest rates during March 25, 2013
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SMPHIs 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 companys 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 + *(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
26
After performing the procedure as stated above, below is the computed WACC for SMPHI.
Weighted average cost of capital Debt-equity proportion Cost of debt Interest rate Less: Tax rate Cost of debt Cost of equity Risk free rate (Rf) Total risk premium (Rp) Beta () Cost of equity (Rf + *Rp) Total / WACC
Source: Bureau of Treasury, Aswath Damodaran website, MS&Co. analysis
WACC com putation 3.6% 0.0% 3.6% 4.0% 4.9% 1.30 10.4% 7.0%
50.0%
50.0% 100.0%
7.3.3
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
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.
27
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
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
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Appendix 1 Overview of comparable cmpanies 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") 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
Com pany Filinvest Land, Inc. Vista Land & Lifescapes, Inc.
Country Philippines Philippines
Note: Revenues as of March 31, 2013 were computed as follows: December 2012 revenue 1Q2012 revenue + 1Q2013 revenue Source: FLI and VLLs 2012 annual report, 1Q2012 financial statements, 1Q 2013 financial statements, MS&Co. analysis
30
SMPHI Robinsons Land Corporation 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) wholly-owned subsidiaries and ownership in two (2) joint ventures Central Pattana Public Co. Ltd. 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. CapitaMalls Asia Ltd. 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.
Overview of Com parable Com panies ("CoCos") Com pany Robinsons Land Corporation Central Pattana Public Co. Ltd. CapitaMalls Asia Ltd. Country Philippines Thailand Hong Kong No. of shopping centers 32 21 101 In PHP as of March 31, 2013 Multiple Assets Revenue EV/EBITDA P/B 73,311,264,392 7,048,316,090 14.52 2.14 101,051,654,897 331,665,626,400 29,312,499,499 12,688,466,471 20.92 14.93 7.63 1.21 P/E 23.55 30.03 14.26
Source: Factiva, Philippine Stock Exchange, Businessweek
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SM Prime Holdings, Inc. and Subsidiaries

Pro Forma Condensed Consolidated Financial Information As at December 31, 2012 and Years Ended December 31, 2012, 2011 and 2010
SyCip Gorres Velayo & Co.
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-2 (Group A), November 15, 2012, valid until November 16, 2015
REPORT ON REVIEW OF PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The Stockholders and the Board of Directors SM Prime Holdings, Inc. 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 reviewed the pro forma adjustments reflecting the transactions described in Note 3 and the application of those adjustments to the historical amounts in the accompanying pro forma consolidated balance sheet of SM Prime Holdings, Inc. and subsidiaries (the Group) as at December 31, 2012, the pro forma consolidated statements of income and pro forma consolidated statements of comprehensive income for the years ended December 31, 2012, 2011 and 2010, the pro forma consolidated statement of changes in stockholders equity and pro forma consolidated statement of cash flows for the year ended December 31, 2012. The historical financial information is derived from the historical consolidated financial statements of SM Prime Holdings, Inc. and SM Land, Inc. as at December 31, 2012 and 2011 and for each of the three years in the period ended December 31, 2012, which were audited by us. Such pro forma adjustments are based on the Groups assumptions as described in Notes 3 and 4 to the pro forma condensed consolidated financial information. The Groups management is responsible for the pro forma condensed consolidated financial information. Our review was conducted in accordance with the Philippine Standard on Assurance Engagements 3000, Assurance Engagements Other than Audits or Reviews of Historical Financial Information (PSAE 3000) and Philippine Securities and Exchange Commission Memorandum Circular No. 2, Series of 2008, Guidelines on Reporting and Attestation of Pro Forma Financial Information Securities Regulation Code Rule 68, as amended, and, accordingly, included such procedures as we considered necessary under the circumstances. A review is substantially less in scope than an examination, the objective of which is the expression of an opinion on managements assumptions, the pro forma adjustments and the application of those adjustments to historical financial information. Accordingly, we do not express an audit opinion. The objective of this pro forma condensed consolidated financial information is to show what the significant effects on the historical financial information might have been had the transactions occurred at an earlier date. However, the pro forma condensed consolidated financial information is not necessarily indicative of the results of operations or related effects on the consolidated balance sheet that would have been attained had the transactions mentioned in Note 3, actually occurred at an earlier date.
A member firm of Ernst & Young Global Limited
*SGVFS002402*
-2Based on our review, nothing has come to our attention that causes us to believe that the managements assumptions do not provide a reasonable basis for presenting the significant effects directly attributable to the transactions described in Note 3, that the related pro forma adjustments do not give appropriate effect to those assumptions, or that the pro forma column does not reflect the proper application of those adjustments to the historical financial statements in the pro forma consolidated balance sheet as at December 31, 2012, the pro forma consolidated statements of income and pro forma consolidated statements of comprehensive income for the three years ended December 31, 2012, 2011 and 2010, the pro forma consolidated statement of changes in equity and pro forma consolidated statement of cash flows for the year ended December 31, 2012. SYCIP GORRES VELAYO & CO.
Belinda T. Beng Hui Partner CPA Certificate No. 88823 SEC Accreditation No. 0923-AR-1 (Group A), March 25, 2013, valid until March 24, 2016 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 May 31, 2013
*SGVFS002402*
SM PRIME HOLDINGS, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2012
SM Prime Holdings, Inc. Consolidated (Audited) ASSETS Current Assets Cash and cash equivalents (Note 6) Investments held for trading Short-term investments Receivables (Note 7) Condominium and residential units for sale Land and development Available-for-sale investments (Note 8) Prepaid expenses and other current assets (Note 9) Total Current Assets Noncurrent Assets Available-for-sale investments (Note 8) Investments in shares of stocks Property and equipment - net Investment properties - net (Note 10) Land and development - net of current portion Derivative assets Deferred tax assets Other noncurrent assets (Note 11) Total Noncurrent Assets =9,706,857,361 P 759,300,343 821,000,000 5,880,081,880 1,000,000,000 1,440,189,139 19,607,428,723 124,087,439,798 109,978,821 190,463,028 4,134,582,818 128,522,464,465
Pro Forma Adjustments (Unaudited) (I) Tender Offer and Merger (A) Tender Offer Merged SM Prime SM Land, Inc. (i) SM Development (ii) Highlands (B) Merger Holdings, Inc. Consolidated Corporation Prime, Inc. Adjustments and SM Land, (Note 4.I.a.1.1) (Note 4.I.a.1.2) (Note 4.I.a.2) (Audited) Inc.
(II) Acquisition (III) Acquisition of Unlisted of Real Estate Companies Assets (Note 4.II.a) (Note 4.III.a)
(IV) Other Pro Forma Adjustments (Note 4.IV.a)
Pro Forma Balances (Unaudited)
=8,812,619,404 P 579,476,898 9,877,619,232 1,857,043,842 11,524,958,286 9,835,282,798 42,487,000,460 24,037,301,653 24,245,562,834 664,149,736 11,302,717,321 17,581,886,713 285,539,815 17,294,226,321 95,411,384,393
(P =496,118,415) (496,118,415) (768,007,158) (768,007,158) (P =1,264,125,573)
(P =71,827,182) 795,336,688 379,839,621 141,483,733 1,244,832,860 (668,531,091) (142,709,392) 19,392,186 44,511,009 2,621,158,635 3,313,580 1,877,134,927 =3,121,967,787 P
(P =928,692,367) (22,249,780) (950,942,147) (23,334,846,284) 1,772,157 (23,333,074,127)
=17,022,838,801 P 1,338,777,241 821,000,000 16,530,788,020 2,236,883,463 11,524,958,286 1,000,000,000 11,416,955,670 61,892,201,481 23,368,770,562 683,541,922 135,434,668,128 20,203,045,348 109,978,821 476,002,843 21,433,894,876 201,709,902,500
=2,609,042,555 P 1,682,338,067 1,542,217,841 538,603,015 6,372,201,478 (65,642,800) 917,321,470 2,463,777,434 374,072,974 189,515,603 3,879,044,681 =10,251,246,159 P
(P =2,354,524,978) 1,960,369,560 (394,155,418) 9,504,400,092 1,103,092,290 10,607,492,382 =10,213,336,964 P
P = (5,000,975) (5,000,975)
=17,277,356,378 P 1,338,777,241 821,000,000 18,208,125,112 3,779,101,304 11,524,958,286 1,000,000,000 13,915,928,245 67,865,246,566 23,303,127,762 1,600,863,392 147,402,845,654 20,577,118,322 109,978,821 1,579,095,133 21,623,410,479 216,196,439,563
=148,129,893,188 P P =137,898,384,853
(P =24,284,016,274) P =263,602,103,981
(P =5,000,975) = P284,061,686,129
*SGVFS002402*
-2Pro Forma Adjustments (Unaudited) (I) Tender Offer and Merger (A) Tender Offer Merged SM Prime SM Land, Inc. (i) SM Development (ii) Highlands (B) Merger Holdings, Inc. Consolidated Corporation Prime, Inc. Adjustments and SM Land, (Note 4.I.a.1.1) (Note 4.I.a.1.2) (Note 4.I.a.2) (Audited) Inc.
SM Prime Holdings, Inc. Consolidated (Audited) LIABILITIES AND STOCKHOLDERS EQUITY Current Liabilities Bank loans Accounts payable and other current liabilities (Note 12) Current portion of long-term debt (Note 13) Income tax payable Total Current Liabilities Noncurrent Liabilities Long-term debt - net of current portion (Note 13) Deferred tax liabilities Derivative liabilities Tenants deposits and other noncurrent liabilities Total Noncurrent Liabilities Equity Attributable to Equity Holders of the Parent Capital stock (Notes 2, 3 and 4) Additional paid-in capital - net (Notes 2, 3 and 4) Equity adjustment from business combination (Notes 2, 3 and 4) Cumulative translation adjustment Unrealized mark-to-market gain (loss) on available-for-sale investments Retained earnings (Notes 2, 3 and 4): Appropriated Unappropriated Shares held by subsidiary (Notes 2, 3 and 4) Treasury stock (Notes 2, 3 and 4) Total Equity Attributable to Equity Holders of the Parent Non-controlling Interests Total Stockholders Equity =800,000,000 P 11,398,520,838 1,791,703,848 632,900,873 14,623,125,559 49,647,118,755 1,278,194,418 244,330,399 11,437,378,040 62,607,021,612
(II) Acquisition (III) Acquisition of Unlisted of Real Estate Companies Assets (Note 4.II.a) (Note 4.III.a)
(IV) Other Pro Forma Adjustments (Note 4.IV.a)
=6,500,000,000 P 19,287,513,680 2,065,063,000 22,386,695 27,874,963,375 17,983,463,921 641,560,240 3,535,886,670 22,160,910,831
= P (50,854,963) (50,854,963)
=800,000,000 P 402,901,817 (11,385,687) 1,191,516,130 80,894,622 80,894,622
= P (22,249,780) (22,249,780)
=8,100,000,000 P 31,066,686,555 3,856,766,848 593,046,918 43,616,500,321 67,630,582,676 2,000,649,280 244,330,399 14,973,264,710 84,848,827,065
=830,000,000 P 2,777,521,415 638,646 3,608,160,061 118,800,000 26,941,916 160,926,383 306,668,299
= P
= P (5,000,975) (5,000,975)
=8,930,000,000 P 33,839,206,995 3,856,766,848 593,685,564 47,219,659,407 67,749,382,676 2,027,591,196 244,330,399 15,134,191,093 85,155,495,364
17,392,534,760 8,219,067,298 544,146,167 27,000,000,000 16,890,136,797 (101,474,705) 69,944,410,317 955,335,700 70,899,746,017
1,950,098,500 1,685,652,441 234,645,455 18,726,232,395 15,200,000,000 36,060,144,697 73,856,773,488 14,005,737,159 87,862,510,647
10,785,555,361 10,785,555,361 (11,998,825,971) (1,213,270,610) (P =1,264,125,573)
1,391,512,188 (1,893,027) 322,207,763 1,711,826,924 137,730,111 1,849,557,035 =3,121,967,787 P
12,440,825,357 309,880,709 (12,177,067,549) (234,645,455) (20,676,968,437) (672,443,091) (3,251,348,028) (24,261,766,494) (24,261,766,494)
31,783,458,617 10,214,600,448 544,146,167 18,724,339,368 42,200,000,000 32,595,520,820 (672,443,091) (3,352,822,733) 132,036,799,596 3,099,976,999 135,136,776,595
707,957,409 3,893,610,004 1,734,850,386 6,336,417,799 6,336,417,799 =10,251,246,159 P
837,764,769 8,662,446,499 713,125,696 10,213,336,964 10,213,336,964 =10,213,336,964 P
33,329,180,795 22,770,656,951 544,146,167 18,724,339,368 42,200,000,000 35,043,496,902 (672,443,091) (3,352,822,733) 148,586,554,359 3,099,976,999 151,686,531,358
=148,129,893,188 P P =137,898,384,853 See accompanying Notes to Pro Forma Condensed Consolidated Financial Information.
(P =24,284,016,274) P =263,602,103,981
(P =5,000,975) = P284,061,686,129
*SGVFS002402*
SM PRIME HOLDINGS, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2012
Pro Forma Adjustments (Unaudited) (I) Tender Offer and Merger (A) Tender Offer Merged SM Prime SM Land, Inc. (i) SM Development (ii) Highlands (B) Merger Holdings, Inc. Consolidated Corporation Prime, Inc. Adjustments and SM Land, (Note 4.I.b) (Note 4.I.b) (Note 4.I.b) (Audited) Inc. =1,986,223,029 P 21,578,437,826 149,473,763 23,714,134,618 18,220,829,997 5,493,304,621 (797,978,722) 606,744,435 5,231,588,124 5,040,353,837 10,533,658,458 309,133,313 56,382,481 365,515,794 =10,168,142,664 P = P = P =3,117,255 P 521,486,405 524,603,660 460,817,202 63,786,458 (45,704,139) 14,248,929 13,763,050 (17,692,160) 46,094,298 6,059,050 7,857,715 13,916,765 =32,177,533 P (P =246,111,042) (246,111,042) (246,111,042) (4,313,491,449) (4,313,491,449) (4,313,491,449) (P =4,313,491,449) =27,645,310,926 P 22,099,924,231 3,477,261,663 1,496,439,773 54,718,936,593 32,430,686,443 22,288,250,150 (3,039,240,622) 1,027,208,338 278,749,342 (1,733,282,942) 20,554,967,208 3,628,414,167 117,578,026 3,745,992,193 =16,808,975,015 P
SM Prime Holdings, Inc. Consolidated (Audited) REVENUE (Note 5) Rent Sales: Real estate Cinema ticket Others COSTS AND EXPENSES (Note 14) INCOME FROM OPERATIONS OTHER INCOME (CHARGES) - Net Interest expense Interest and dividend income Others - net =25,902,081,684 P 3,477,261,663 1,346,966,010 30,726,309,357 13,995,150,286 16,731,159,071 (2,195,557,761) 406,214,974 (653,110,383) (2,442,453,170) 14,288,705,901 3,313,221,804 53,337,830 3,366,559,634 =10,922,146,267 P
(II) Acquisition (III) Acquisition of Unlisted of Real Estate Companies Assets (Note 4.II.b) (Note 4.III.b) =457,552,765 P 1,381,187,328 426,270,085 2,265,010,178 2,067,389,763 197,620,415 (17,927,362) 84,443,425 10,849,647 77,365,710 274,986,125 56,991,826 11,409,902 68,401,728 =206,584,397 P =510,010,852 P 510,010,852 556,591,248 (46,580,396) (1,294,083) 59,985 7,839,813 6,605,715 (39,974,681) (P =39,974,681)
(IV) Other Pro Forma Adjustments (Note 4.IV.a) (P =95,118,126) (95,118,126) (95,118,126) = P
Pro Forma Balances (Unaudited) =28,517,756,417 P 23,481,111,559 3,477,261,663 1,922,709,858 57,398,839,497 34,959,549,328 22,439,290,169 (3,058,462,067) 1,111,711,748 297,438,802 (1,649,311,517) 20,789,978,652 3,685,405,993 128,987,928 3,814,393,921 =16,975,584,731 P
INCOME (LOSS) BEFORE INCOME TAX PROVISION FOR INCOME TAX Current Deferred
NET INCOME Attributable to Equity holders of the parent Non-controlling interests
=10,529,954,990 P 392,191,277 =10,922,146,267 P =0.606 P
P8,460,517,050 = 1,707,625,614 =10,168,142,664 P
P1,462,403,726 = (1,462,403,726) = P
=30,568,656 P 1,608,877 =32,177,533 P
(P =4,313,491,449) (P =4,313,491,449)
=16,169,952,973 P 639,022,042 =16,808,975,015 P
=206,584,397 P =206,584,397 P
(P =39,974,681) (P =39,974,681)
P = = P
=16,336,562,689 P 639,022,042 =16,975,584,731 P =0.589 P
Basic/Diluted Earnings Per Share (Note 16)
See accompanying Notes to Pro Forma Condensed Consolidated Financial Information.
*SGVFS002402*
Pro Forma Adjustments (Unaudited) (I) Tender Offer and Merger (A) Tender Offer Merged SM Prime SM Land, Inc. (i) SM Development (ii) Highlands (B) Merger Holdings, Inc. Consolidated Corporation Prime, Inc. Adjustments and SM Land, (Note 4.I.b) (Note 4.I.b) (Note 4.I.b) (Audited) Inc. =1,535,274,676 P 16,183,740,954 138,043,071 17,857,058,701 13,194,664,569 4,662,394,132 (847,940,148) 768,872,479 3,926,734,159 3,847,666,490 8,510,060,622 = P =4,047,701 P 330,523,425 334,571,126 340,093,028 (5,521,902) (87,977,159) 26,072,631 11,592,888 (50,311,640) (55,833,542) (P =219,637,558) (219,637,558) (219,637,558) (3,704,672,159) (3,704,672,159) (3,704,672,159) =24,079,086,975 P 16,514,264,379 3,051,716,588 1,224,379,378 44,869,447,320 25,592,616,485 19,276,830,835 (2,884,174,629) 1,156,172,440 (578,882,989) (2,306,885,178) 16,969,945,657
SM Prime Holdings, Inc. Consolidated (Audited) REVENUE (Note 5) Rent Sales: Real estate Cinema ticket Merchandise Others COSTS AND EXPENSES (Note 14) INCOME FROM OPERATIONS OTHER INCOME (CHARGES) - Net Interest expense Interest and dividend income Others - net =22,759,402,156 P 3,051,716,588 1,086,336,307 26,897,455,051 12,277,496,446 14,619,958,605 (1,948,257,322) 361,227,330 (812,537,877) (2,399,567,869) 12,220,390,736
(II) Acquisition (III) Acquisition of Unlisted of Real Estate Companies Assets (Note 4.II.b) (Note 4.III.b) =438,590,112 P 1,504,791,222 2,798,729,544 144,480,122 4,886,591,000 4,766,869,088 119,721,912 (46,614,482) 74,549,182 2,478,516 30,413,216 150,135,128 =490,629,596 P 490,629,596 373,771,324 116,858,272 102,286 33,297,087 33,399,373 150,257,645
(IV) Other Pro Forma Adjustments (Note 4.IV.a) (P =844,905) (844,905) (844,905)
Pro Forma Balances (Unaudited) =25,007,461,778 P 18,019,055,601 3,051,716,588 2,798,729,544 1,368,859,500 50,245,823,011 30,732,411,992 19,513,411,019 (2,930,789,111) 1,230,823,908 (543,107,386) (2,243,072,589) 17,270,338,430
INCOME BEFORE INCOME TAX PROVISION FOR (BENEFIT FROM) INCOME TAX Current Deferred
2,932,357,842 (94,188,973) 2,838,168,869 =9,382,221,867 P
77,001,466 32,929,279 109,930,745 =8,400,129,877 P
= P
4,948,757 (25,739,825) (20,791,068) (P =35,042,474)
(P =3,704,672,159)
3,014,308,065 (86,999,519) 2,927,308,546 =14,042,637,111 P
74,566,143 16,160,535 90,726,678 =59,408,450 P
=150,257,645 P
= P
3,088,874,208 (70,838,984) 3,018,035,224 =14,252,303,206 P
NET INCOME Attributable to Equity holders of the parent Non-controlling interests
=9,055,995,525 P 326,226,342 =9,382,221,867 P =0.521 P
P6,946,371,855 = 1,453,758,022 =8,400,129,877 P
P1,244,994,612 = (1,244,994,612) = P
(P =33,290,350) (1,752,124) (P =35,042,474)
(P =3,704,672,159) (P =3,704,672,159)
=13,509,399,483 P 533,237,628 =14,042,637,111 P
=59,408,450 P =59,408,450 P
=150,257,645 P =150,257,645 P
P = = P
=13,719,065,578 P 533,237,628 =14,252,303,206 P =0.495 P
*SGVFS002402*
Pro Forma Adjustments (Unaudited) (I) Tender Offer and Merger (A) Tender Offer Merged SM Prime SM Land, Inc. (i) SM Development (ii) Highlands (B) Merger Holdings, Inc, Consolidated Corporation Prime, Inc. Adjustments and SM Land, (Note 4.I.b) (Note 4.I.b) (Note 4.I.b) (Audited) Inc. =1,295,967,137 P 9,118,069,504 117,301,286 10,531,337,927 7,594,612,311 2,936,725,616 (592,563,873) 580,200,030 6,519,252,775 6,506,888,932 9,443,614,548 = P =2,759,954 P 427,372,820 430,132,774 389,734,454 40,398,320 (71,520,856) 24,272,981 13,971,787 (33,276,088) 7,122,232 (P =270,487,728) (270,487,728) (270,487,728) (3,218,275,032) (3,218,275,032) (3,218,275,032) =21,021,188,288 P 9,545,442,324 2,764,775,099 1,075,508,913 34,406,914,624 18,985,240,452 15,421,674,172 (2,410,300,483) 855,575,313 3,162,361,246 1,607,636,076 17,029,310,248
SM Prime Holdings, Inc. Consolidated (Audited) REVENUE (Note 5) Rent Sales: Real estate Merchandise Cinema ticket Others COSTS AND EXPENSES (Note 14) INCOME FROM OPERATIONS OTHER INCOME (CHARGES) - Net Interest expense Interest and dividend income Others - net INCOME BEFORE INCOME TAX PROVISION FOR (BENEFIT FROM) INCOME TAX Current Deferred NET INCOME Attributable to Equity holders of the parent Non-controlling interests =19,992,948,925 P 2,764,775,099 958,207,627 23,715,931,651 11,271,381,415 12,444,550,236 (1,746,215,754) 251,102,302 (152,588,284) (1,647,701,736) 10,796,848,500
(II) Acquisition (III) Acquisition of Unlisted of Real Estate Companies Assets (Note 4.II.b) (Note 4.III.b) =342,821,459 P 1,670,866,740 6,196,059,183 198,560,889 8,408,308,271 7,879,112,044 529,196,227 (112,441,137) 42,841,986 13,505,661 (56,093,490) 473,102,737 =342,371,291 P 342,371,291 255,823,755 86,547,536 148,443 327,525,645 327,674,088 414,221,624
(IV) Other Pro Forma Adjustments (Note 4.IV.a) (P =863,917) (863,917) (863,917)
Pro Forma Balances (Unaudited) =21,705,517,121 P 11,216,309,064 6,196,059,183 2,764,775,099 1,274,069,802 43,156,730,269 27,119,312,334 16,037,417,935 (2,522,741,620) 898,565,742 3,503,392,552 1,879,216,674 17,916,634,609
2,449,966,767 206,748,328 2,656,715,095 =8,140,133,405 P
187,736,184 (48,980,432) 138,755,752 =9,304,858,796 P
= P
4,249,685 (5,347,255) (1,097,570) =8,219,802 P
(P =3,218,275,032)
2,641,952,636 152,420,641 2,794,373,277 =14,234,936,971 P
28,954,685 113,064,030 142,018,715 =331,084,022 P
=414,221,624 P
= P
2,670,907,321 265,484,671 2,936,391,992 =14,980,242,617 P
=7,856,348,789 P 283,784,616 =8,140,133,405 P =0.464 P
P8,252,746,637 = 1,052,112,159 =9,304,858,796 P
P901,007,283 = (901,007,283) = P
=7,808,812 P 410,990 =8,219,802 P
(P =3,218,275,032) (P =3,218,275,032)
=13,799,636,489 P 435,300,482 =14,234,936,971 P
=331,084,022 P =331,084,022 P
=414,221,624 P =414,221,624 P
P = = P
=14,544,942,135 P 435,300,482 =14,980,242,617 P =0.533 P
*SGVFS002402*
SM PRIME HOLDINGS, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
SM Prime Holdings, Inc. Consolidated (Audited) NET INCOME OTHER COMPREHENSIVE INCOME (LOSS) - Net Unrealized mark-to-market gain (loss) on available-for-sale investments Cumulative translation adjustment =10,922,146,267 P
Pro Forma Adjustments (Unaudited) (I) Tender Offer and Merger (A) Tender Offer Merged SM Prime SM Land, Inc. (i) SM Development (ii) Highlands (B) Merger Holdings, Inc, Consolidated Corporation Prime, Inc. Adjustments and SM Land, (Note 4.I.c) (Note 4.I.c) (Note 4.I.c) (Audited) Inc. =10,168,142,664 P = P =32,177,533 P (P =4,313,491,449) =16,808,975,015 P
(II) Acquisition (III) Acquisition of Unlisted of Real Estate Companies Assets (Note 4.II.b) (Note 4.III.b) =206,584,397 P (P =39,974,681)
(IV) Other Pro Forma Adjustments = P
Pro Forma Balances (Unaudited) =16,975,584,731 P
(328,512,695) (328,512,695) =10,593,633,572 P
6,688,832,021 (134,571,962) 6,554,260,059 =16,722,402,723 P
= P
(1,428,440) (1,428,440) =30,749,093 P
134,571,962 134,571,962 (P =4,178,919,487)
6,687,403,581 (328,512,695) 6,358,890,886 =23,167,865,901 P
=206,584,397 P
(P =39,974,681)
= P
6,687,403,581 (328,512,695) 6,358,890,886 =23,334,475,617 P
TOTAL COMPREHENSIVE INCOME Attributable to Equity holders of the parent Non-controlling interests
=10,201,442,295 P 392,191,277 =10,593,633,572 P
=14,928,709,946 P 1,793,692,777 =16,722,402,723 P
P1,536,111,342 = (1,536,111,342) = P
=29,140,216 P 1,608,877 =30,749,093 P
(P =4,178,919,487) (P =4,178,919,487)
=22,516,484,312 P 651,381,589 =23,167,865,901 P
=206,584,397 P =206,584,397 P
(P =39,974,681) (P =39,974,681)
P = = P
=22,683,094,028 P 651,381,589 =23,334,475,617 P
*SGVFS002402*
SM Prime Holdings, Inc. Consolidated (Audited) NET INCOME OTHER COMPREHENSIVE INCOME (LOSS) - Net Cumulative translation adjustment Unrealized mark-to-market gain (loss) on available-for-sale investments Share in fair value changes in available-for-sale investments of associate =9,382,221,867 P
Pro Forma Adjustments (Unaudited) (I) Tender Offer and Merger (A) Tender Offer Merged SM Prime SM Land, Inc. (i) SM Development (ii) Highlands (B) Merger Holdings, Inc. Consolidated Corporation Prime, Inc. Adjustments and SM Land, (Note 4.I.c) (Note 4.I.c) (Note 4.I.c) (Audited) Inc. =8,400,129,877 P = P (P =35,042,474) (P =3,704,672,159) =14,042,637,111 P
(II) Acquisition (III) Acquisition of Unlisted of Real Estate Companies Assets (Note 4.II.b) (Note 4.III.b) =59,408,450 P =150,257,645 P
282,958,497 (3,745,323) 279,213,174 =9,661,435,041 P
115,754,084 196,784,597 (1,578,151) 310,960,530 =8,711,090,407 P
= P
(564,220) (564,220) (P =35,606,694)
(115,754,084) 1,578,151 (114,175,933) (P =3,818,848,092)
282,958,497 192,475,054 475,433,551 =14,518,070,662 P
=59,408,450 P
=150,257,645 P
= P
282,958,497 192,475,054 475,433,551 =14,727,736,757 P
=9,335,208,699 P 326,226,342 =9,661,435,041 P
P7,095,303,689 = 1,615,786,718 =8,711,090,407 P
P1,383,755,424 = (1,383,755,424) = P
(P =33,854,570) (1,752,124) (P =35,606,694)
(P =3,818,848,092) (P =3,818,848,092)
=13,961,565,150 P 556,505,512 =14,518,070,662 P
=59,408,450 P =59,408,450 P
=150,257,645 P =150,257,645 P
P = = P
=14,171,231,245 P 556,505,512 =14,727,736,757 P
*SGVFS002402*
SM Prime Holdings, Inc. Consolidated (Audited) NET INCOME OTHER COMPREHENSIVE INCOME (LOSS) - Net Unrealized mark-to-market gain on availablefor-sale investments Cumulative translation adjustment Share in fair value changes in available-for-sale investments of associate =8,140,133,405 P
Pro Forma Adjustments (Unaudited) (I) Tender Offer and Merger (A) Tender Offer Merged SM Prime SM Land, Inc. (i) SM Development (ii) Highlands (B) Merger Holdings, Inc. Consolidated Corporation Prime, Inc. Adjustments and SM Land, (Note 4.I.c) (Note 4.I.c) (Note 4.I.c) (Audited) Inc. =9,304,858,796 P = P =8,219,802 P (P =3,218,275,032) =14,234,936,971 P
(II) Acquisition (III) Acquisition of Unlisted of Real Estate Companies Assets (Note 4.II.b) (Note 4.III.b) =331,084,022 P =414,221,624 P
1,230,084 (91,770,374) (90,540,290) =8,049,593,115 P
7,395,331,028 (37,592,820) 503,892 7,358,242,100 =16,663,100,896 P
= P
969,313 969,313 =9,189,115 P
1,477,488,931 37,592,820 (503,892) 1,514,577,859 (P =1,703,697,173)
8,875,019,356 (91,770,374) 8,783,248,982 =23,018,185,953 P
=331,084,022 P
=414,221,624 P
= P
8,875,019,356 (91,770,374) 8,783,248,982 =23,763,491,599 P
=7,765,808,499 P 283,784,616 =8,049,593,115 P
=15,072,631,548 P 1,590,469,348 =16,663,100,896 P
P1,362,056,156 = (1,362,056,156) = P
=8,778,125 P 410,990 =9,189,115 P
(P =1,703,697,173) (P =1,703,697,173)
=22,505,577,155 P 512,608,798 =23,018,185,953 P
=331,084,022 P =331,084,022 P
=414,221,624 P =414,221,624 P
P = = P
=23,250,882,801 P 512,608,798 =23,763,491,599 P
*SGVFS002402*
SM PRIME HOLDINGS, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
At January 1, 2012 Issuance of shares (Notes 4 and 16) Effect of business combination (Notes 2, 3 and 4) As restated Pro forma net income Pro forma other comprehensive income (loss) Pro forma total comprehensive income Appropriation Reversal of appropriation Cash and stock dividends (Note 4) At December 31, 2012
Capital Stock =13,917,800,067 P 15,936,646,035
Additional Paid-in Capital - Net =8,219,067,298 P
Equity Attributable to Equity Holders of the Parent Unrealized Mark-toCumulative market Gain on Translation Available-forRetained Earnings Adjustment sale Investments Appropriated Unappropriated =872,658,862 P = P P =7,000,000,000 = P33,865,609,976 12,049,295,334 16,200,000,000 11,986,752,406 872,658,862 12,049,295,334 23,200,000,000 45,852,362,382 16,336,562,689 (328,512,695) 6,675,044,034 (328,512,695) 6,675,044,034 16,336,562,689 20,000,000,000 (20,000,000,000) (1,000,000,000) 1,000,000,000 (8,145,428,169) =544,146,167 = P P18,724,339,368 = P42,200,000,000 = P35,043,496,902
Shares Held by Subsidiary Treasury Stock = P (P =101,474,705)
Total =63,773,661,498 P 15,936,646,035
Non-controlling Interests =573,144,423 P
Total P64,346,805,921 = 15,936,646,035
14,551,589,653 29,854,446,102 22,770,656,951 3,474,734,693 P22,770,656,951 =33,329,180,795 = P
(672,443,091) (3,251,348,028) 50,863,846,274 (672,443,091) (3,352,822,733) 130,574,153,807 16,336,562,689 6,346,531,339 22,683,094,028 (4,670,693,476) (P =672,443,091) (P =3,352,822,733) = P148,586,554,359
1,948,663,690 52,812,509,964 2,521,808,113 133,095,961,920 639,022,042 16,975,584,731 12,359,547 6,358,890,886 651,381,589 23,334,475,617 (73,212,703) (4,743,906,179) =3,099,976,999 P P =151,686,531,358
*SGVFS002402*
SM PRIME HOLDINGS, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS
SM Prime Holdings, Inc. Consolidated (Audited) CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax and non-controlling interests Adjustments for: Interest expense Interest income and dividend income Depreciation and amortization Equity in net earnings of associates Loss (gain) on: Sale of available-for-sale investments Fair value changes on derivatives - net Fair value changes on investments held for trading Sale/retirement of investment properties and property and equipment Unrealized foreign exchange loss (gain) Operating income before working capital changes Decrease (increase) in: Receivables Condominium and residential units for sale Land and development Prepaid expenses and other current assets (Forward)
Pro Forma Adjustments (Unaudited) (I) Tender Offer and Merger Merged SM Prime SM Land, Inc. (A) Tender Offer Holdings, Inc. Consolidated (i) SM Development (ii) Highlands (B) Merger and SM Land, (Audited) Corporation Prime, Inc. Adjustments Inc.
(II) Acquisition of Unlisted Companies
(III) Acquisition of Real Estate Assets
(IV) Other Pro Forma Adjustments
=14,288,705,901 P 2,195,557,761 (406,214,974) 3,955,641,599 16,277,832 706,500 (100,497,563) 19,950,177,056 (1,196,584,369) (165,253,383)
=10,533,658,458 P 797,978,722 (606,744,435) 401,177,416 (4,313,491,449) (158,257,173) (195,474,558) (7,445,184) 6,451,401,797 (6,520,394,211) 732,840,222 (10,954,118,491) (6,052,007,580)
= P
=46,094,298 P 45,704,139 (14,248,929) 9,880,840 (84,297) 142,252 87,488,303 12,051,694 (158,519,204) 162,782,119
(P =4,313,491,449) 4,313,491,449 22,249,780
=20,554,967,208 P 3,039,240,622 (1,027,208,338) 4,366,699,855 (158,257,173) 16,277,832 (194,768,058) (84,297) (107,800,495) 26,489,067,156 (7,682,677,106) 574,321,018 (10,791,336,372) (6,217,260,963)
=274,986,125 P 17,927,362 (84,443,425) 229,957,718 (706,500) (254,678,915) 306,945 183,349,312 (53,541,051) 43,351,167 (247,106,544) (91,962,316)
(P =39,974,681) 1,294,083 (59,985) 451,180,654 412,440,071
= P 5,000,975
=20,789,978,652 P 3,058,462,067 (1,111,711,748) 5,047,838,227 (158,257,173) 16,277,832 (195,474,558) (254,763,212) (107,493,548) 27,084,856,539 (7,731,217,182) 617,672,185 (11,038,442,916) (6,309,223,279)
*SGVFS002402*
-2Pro Forma Adjustments (Unaudited) (I) Tender Offer and Merger Merged SM Prime SM Land, Inc. (A) Tender Offer Holdings, Inc. Consolidated (i) SM Development (ii) Highlands (B) Merger and SM Land, (Audited) Corporation Prime, Inc. Adjustments Inc. =3,529,241,781 P 2,603,118,743 (10,209,917,739) (288,901,803) (10,498,819,542) = P (P =52,028,848) (1,844,322) 49,929,742 49,929,742 (P =22,249,780) =4,271,065,857 P 3,553,813,896 10,196,993,486 (3,563,044,117) 6,633,949,369
SM Prime Holdings, Inc. Consolidated (Audited) Increase (decrease) in: Accounts payable and other current liabilities Tenants deposits and other noncurrent liabilities Net cash generated from (used for) operations Income tax paid Net cash provided by (used in) operating activities CASH FLOWS FROM INVESTING ACTIVITIES Additions to: Investment properties Available-for-sale investments Property and equipment Investments held for trading Proceeds from sale of: Investment properties Available-for-sale-investments Property and equipment Interest received Dividend received Decrease (increase) in other noncurrent assets Net cash provided by (used in) investing activities (Forward) =816,102,704 P 952,539,475 20,356,981,483 (3,274,142,314) 17,082,839,169
(II) Acquisition of Unlisted Companies =111,695,016 P (18,994,039) (73,208,455) (34,391,730) (107,600,185)
(III) Acquisition of Real Estate Assets = P 412,440,071 412,440,071
(IV) Other Pro Forma Adjustments (P =5,000,975)
Pro Forma Balances (Unaudited) =4,377,759,898 P 3,534,819,857 10,536,225,102 (3,597,435,847) 6,938,789,255
(21,114,932,036) 38,508,319 404,648,011 (1,013,987,073) (21,685,762,779)
(1,094,018,696) (914,338,384) (134,241,400) 282,419,673 241,935,861 1,795,151,140 (8,100,196) 168,807,998
(3,145,946) (1,024,034) 1,019,890 16,068,857 561,663,299 574,582,066
(1,651,133,442) (1,651,133,442)
(22,212,096,678) (914,338,384) (135,265,434) 38,508,319 282,419,673 1,019,890 662,652,729 144,017,698 (460,423,970) (22,593,506,157)
(201,715,069) (425,362,611) 1,119,290,000 78,174,987 5,376,831 575,764,138
(22,413,811,747) (914,338,384) (560,628,045) 38,508,319 1,119,290,000 282,419,673 1,019,890 740,827,716 144,017,698 (455,047,139) (22,017,742,019)
*SGVFS002402*
-3Pro Forma Adjustments (Unaudited) (I) Tender Offer and Merger Merged SM Prime SM Land, Inc. (A) Tender Offer Holdings, Inc. Consolidated (i) SM Development (ii) Highlands (B) Merger and SM Land, (Audited) Corporation Prime, Inc. Adjustments Inc.
SM Prime Holdings, Inc. Consolidated (Audited) CASH FLOWS FROM FINANCING ACTIVITIES Availments of: Long-term debt Bank loans Payments of: Interest Long-term debt Bank loans Dividends Proceeds from issuance of new common shares Decrease in non-controlling interests Net cash provided by (used in) financing activities EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS OTHER PRO FORMA ADJUSTMENTS (Note 4.III.d) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR
(II) Acquisition of Unlisted Companies
(III) Acquisition of Real Estate Assets
(IV) Other Pro Forma Adjustments
=18,266,750,000 P 800,000,000 (2,313,265,132) (6,673,225,943) (4,040,693,476) 6,039,565,449
=18,747,206,398 P (691,314,477) (5,058,750,000) (639,572,942) (146,729,845) 12,210,839,134
P =
=800,000,000 P (66,782,457) (1,391,333,333) (658,115,790)
P = 1,651,133,442 1,651,133,442
=37,813,956,398 P 800,000,000 (3,071,362,066) (13,123,309,276) (3,029,132,976) (146,729,845) 19,243,422,235
= P 140,000,000 21,098,626 (1,200,000) (332,500,000) 400,187,125 227,585,751
P =
P =
=37,813,956,398 P 940,000,000 (3,050,263,440) (13,123,309,276) (1,200,000) (3,361,632,976) 400,187,125 (146,729,845) 19,471,007,986
(20,000,517) 1,416,641,322 8,290,216,039 =9,706,857,361 P
7,445,184 1,888,272,774 6,924,346,630 =8,812,619,404 P
(496,118,415) (P =496,118,415)
(142,252) (33,746,234) (38,080,948) (P =71,827,182)
(928,692,367) (P =928,692,367)
(12,697,585) 3,271,167,862
(306,946) 695,442,758
412,440,071 (412,440,071) (2,354,524,978) (P =2,354,524,978)
= P
(13,004,531) 4,379,050,691 (412,440,071) 13,310,745,758 =17,277,356,378 P
13,751,670,939 =17,022,838,801 P
1,913,599,797 =2,609,042,555 P
*SGVFS002402*
SM PRIME HOLDINGS, INC. AND SUBSIDIARIES NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
1. Corporate Information SM Prime Holdings, Inc. (SMPH) was incorporated in the Philippines and registered with the Securities and Exchange Commission (SEC) on January 6, 1994. SMPH and its subsidiaries (collectively referred to as the SMPH Group) 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 SMPHs shares of stock are publicly traded in the Philippine Stock Exchange (PSE). Before the planned corporate restructuring, SMPH 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 SMPH 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 unaudited pro forma condensed consolidated financial information as at December 31, 2012 and for the years ended December 31, 2012, 2011 and 2010 were authorized for issue by the Board of Directors (BOD) on May 31, 2013.
2. Basis of Preparing Pro Forma Condensed Consolidated Financial Information The unaudited pro forma condensed consolidated financial information have been prepared in accordance with Section 8, Part II of the Securities Regulation Code 68, As Amended in 2011 (SRC Rule 68). The unaudited pro forma condensed consolidated financial information has been prepared solely for inclusion in the exchange offer document prepared by SM Land in connection with its voluntary offer for the tender shares of the other shareholders of SM Development Corporation (SMDC) and Highlands Prime, Inc. (HPI), both publicly-listed entities in the PSE, in exchange of SMPH common shares held by SM Land, and for no other purpose. The unaudited pro forma condensed consolidated financial information should be read in conjunction with the audited consolidated financial statements of SMPH and its subsidiaries and SM Land and its subsidiaries as at December 31, 2012 and 2011 and for the years ended December 31, 2012, 2011 and 2010. The objective of this unaudited pro forma condensed consolidated financial information is to show what the significant effects on the historical financial information might have been had the transactions described in Note 3 occurred at an earlier date. However, the unaudited pro forma condensed consolidated financial information is not necessarily indicative of the results of operations or related effects on the consolidated financial statements that would have been attained, had the transactions described in Note 3 actually occurred at an earlier date. The
*SGVFS002402*
-2unaudited pro forma condensed consolidated financial information is not intended to be considered in isolation from, or as a substitute for, financial position or results of operations prepared in accordance with Philippine Financial Reporting Standards (PFRS). The unaudited pro forma condensed consolidated financial information has not been prepared in accordance with the requirements of Article 11 of the Regulation S-X under the U.S. Exchange Act.
3. Corporate Restructuring The ultimate objective of the corporate restructuring is to consolidate all the SM real estate companies and businesses under one single listed entity, which is the New SMPH, to create a fully integrated real estate platform to further enhance the value of the SM Groups real estate businesses, enhance its ability to capitalize on the strong economic fundamentals of the Philippine property, consumer and tourism sectors and simplify corporate structure and increase organizational efficiencies. This was approved by the BOD of SMPH, SM Land and the other entities involved in the corporate restructuring on May 31, 2013. The following are the significant transactions that are assumed to happen subsequent to December 31, 2012 to effect the corporate restructuring of the SM Property Group and other significant assumptions that were reflected in the pro forma condensed consolidated financial information. a. Tender Offers for SMDC and HPI Both SMDC and HPI are companies primarily engaged in real estate development and listed in the PSE and registered with the Philippine SEC. On June 4, 2013, SM Land will launch a tender offer to the other shareholders of SMDC and HPI in exchange for existing SMPH shares held by SM Land. The terms of the tender offer will be executed at an exchange ratio of 0.472 SMPH share for 1 SMDC share and 0.135 SMPH share for 1 HPI share. The exchange ratios were arrived at based on SMPHs one month volume-weighted average price (VWAP) of P =18.66 per share and a six percent premium to SMDCs one month VWAP of =8.303 per share. For HPI, the exchange ratios were arrived at based on SMPHs one month P VWAP of = P18.66 per share and a fifteen percent premium to HPIs one month VWAP of = P 2.195 per share. Upon conclusion of the tender offer and provided that at least ninety percent (90%) of the issued and outstanding shares of SMDC and HPI are acquired by SM Land, SMDC and HPI will initiate a voluntary delisting process with the PSE in accordance with the PSE Rules on Delisting. Total estimated number of SMPH common shares held by SM Land that will be exchanged to complete the tender offer to shareholders of SMDC and HPI is 1,592,922,961. The actual ownership structure of SMDC and HPI before the corporate restructuring and the assumed ownership interest after the corporate restructuring follows:
*SGVFS002402*
-3SMDC Ownership (%) Name of stockholders Actual After the assumed tender offer 95.00 5.00
SM Land SMIC Other SM affiliates Directors and officers Public HPI
65.18 0.13 13.54 5.80 15.35
Ownership (%) Name of stockholders Actual After the assumed tender offer 95.00 5.00
Belle Corporation SMIC SMDC Other SM affiliates Directors and officers SM Land Public b. Merger of SMPH and SM Land
35.82 20.20 15.04 17.65 1.15 10.14
Following the completion of the tender offer, the BOD and stockholders of SMPH will conduct their respective meetings in order to approve the merger of SMPH and SM Land via a share-for-share swap where the stockholders of SM Land will receive new SMPH shares in exchange for their shareholdings in SM Land. SMPH will be the surviving entity while SM Land will be the absorbed entity. The Plan of Merger also includes the amendment of the articles of incorporation of SMPH as the surviving entity of the Merger, in order to: (a) change its primary purpose to a mixed-use real property developer; and (b) increase its authorized capital stock from 20,000,000,000 shares with a par value of = P1 a share to 40,000,000,000 shares with a par value of = P1 a share. As a result of the planned merger, SMDC and HPI are assumed to become 95% owned direct subsidiaries of the New SMPH. In addition to the shareholdings in SMDC and HPI, the New SMPH is also assumed to hold SM Lands real estate assets which includes among others, Mall of Asia Complex (MOAC), office buildings such as Two E-Com in MOAC, Cyber 1 and Cyber 2 in Makati, and certain real properties leased to SM SaveMore and SM Department Store. The merger ratio of 369 SMPH shares for 1 SM Land share were arrived based on the net appraised values of SMPH and SM Land as at February 28, 2013 as conducted by CB Richard Ellis. The total estimated number of new SMPH common shares to be issued to SM Land shareholders is 14,390,923,857.
*SGVFS002402*
-4c. Acquisition of unlisted real estate companies and assets from SMIC and the Sy Family Following the merger, the New SMPH is assumed to issue the equivalent amount of SMPH shares of stock to SMIC, Mountain Bliss Resort and Development Corp. (Mountain Bliss) and the Sy Family, in exchange for the latters shares in the following companies with their corresponding shareholding interest (the "Share for Share Swap"): Company To Be Acquired Prime Metroestate, Inc. (PMI) Rappel Holdings, Inc. (RHI) Stockholder SMIC SMIC Ownership (%) 10.00 100.00 (50% indirect ownership in PMI) 100.00 (40% indirect ownership in PMI) 33.33 41.67 100.00
Prime Central, Inc. (PCI)
SMIC
Tagaytay Resort and Development Corporation (TRDC) SM Hotels and Conventions Corp. and subsidiaries (SMHCC) SM Arena Complex Corporation (SMACC) Costa del Hamilo, Inc. (Costa)
SMIC Sy Family SMIC
SMIC Mountain Bliss
100.00 100.00
The New SMPH is also assumed to issue an additional and equivalent amount of SMPH shares of stock to SMIC in exchange for the following real estate properties ("Property for Share Swap"): Properties/Development Taal Vista Hotel Radisson Cebu Hotel Pico Sands Hotel SMX Convention Center Mall of Asia Arena Mall of Asia Arena Annex Corporate Office Casino and Waste Water Treatment Plant Tagaytay land EDSA West land Park Inn Davao Classification Land and building Building Building Building Building Building Building Building Land Land Building Location Tagaytay Cebu Batangas Pasay Pasay Pasay Pasay Tagaytay Tagaytay Quezon City Davao
*SGVFS002402*
-5The unlisted real estate companies owned by SMIC and the Sy Family and the real property assets owned by SMIC will be acquired for a consideration based on the appraised values as at February 28, 2013 as conducted by CB Richard Ellis. For purposes of the pro forma financial information, the assumed total acquisition price of the unlisted real estate companies and real property assets amounted to = P28.84 billion equivalent to 1,545,722,178 SMPH common shares issued based on SMPH closing price of = P19.50 per share as at March 31, 2013. The completion of the restructuring shall have the following effects: SMPH and SM Land shall become a single corporation, with SMPH as the surviving corporation designated in the Plan of Merger. The surviving entity the New SMPH shall thereupon and thereafter possess all the rights, privileges, immunities and franchises of each of SMPH and SM Land; and all property, real 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 SMPH and SM Land, shall be transferred to and vested in the New SMPH without further act or deed; In addition, the New SMPH will effectively own the following real estate companies and properties of the SM Group: 95% direct interest in SMDC 95% direct interest in HPI 100% direct and indirect interest in PMI 100% direct interest in RHI 100% direct interest in PCI 100% direct interest in SMHCC 100% direct interest in SMACC 100% direct interest in Costa 100% direct interest in TRDC; and The following real property assets that were previously owned by SMIC: Taal Vista Hotel Radisson Cebu Hotel Pico Sands Hotel SMX Convention Center Mall of Asia Arena Mall of Asia Arena Annex Corporate Office Casino and Waste Water Treatment Plant Tagaytay land EDSA West land Park Inn Davao
*SGVFS002402*
-6-
4. Pro Forma Adjustments and Consolidation The unaudited pro forma condensed consolidated financial information is based on the historical financial information of the SM Property Group as shown in the (i) audited consolidated financial statements of SMPH and its subsidiaries, and (ii) SM Land and its subsidiaries as at December 31, 2012 and 2011 and for the years ended December 31, 2012, 2011 and 2010, and the audited financial statements of HPI and certain real estate companies and real estate properties controlled and owned by SMIC, after considering the significant transactions described in Note 3 which are assumed to happen after December 31, 2012 and after giving effect to certain assumptions and pro forma adjustments described below. The pro forma adjustments are based upon available information and certain assumptions that the SM Property Group believes are reasonable under the circumstances. The pro forma condensed consolidated financial information does not purport to represent what the results of operations and financial position of the New SMPH would have been had the significant transactions discussed above occurred as at January 1 of each of the periods presented, or December 31, 2012, as the case may be, nor does it purport to project the results of operations of the New SMPH for any future period or date. Management of SM Property Group viewed the series of restructuring transactions as described in Note 3 as a single or linked arrangement which was structured to re-organize the SM real estate businesses and to form a single real estate listed entity, which is the New SMPH. The SM real estate businesses involved in the re-organization are under common control of the Sy Family (the Controlling Shareholders). Thus, the restructuring was considered a re-organization or combination of businesses under common control for which pooling of interests method was applied in preparing the pro forma financial information. Under the pooling of interests method:
(i) The assets and liabilities of the combining entities are reflected at their carrying amounts; (ii) No adjustments are made to reflect fair values, or recognize any new assets or liabilities at the
date of the combination. The only adjustments would be to harmonize accounting policies between the combining entities;
(iii) No new goodwill is recognized as a result of the business combination; (iv) Any difference between the consideration transferred and the net assets acquired is reflected
within equity;
(v) The income statement in the year of acquisition reflects the results of the combining entities
for the full year, irrespective of when the combination took place; and
(vi) Comparatives are presented as if the entities had always been combined only for the period
that the entities were under common control. For the purpose of the pro forma consolidated statements of income and comprehensive income, changes in equity and cash flows for the year ended December 31, 2012, the transactions are assumed to have occurred on January 1, 2012. In addition to the pro forma consolidated statements of income and comprehensive income for the year ended December 31, 2012, SMPH also presented comparative pro forma consolidated statements of income and comprehensive income for the years ended December 31, 2011 and 2010 as required by SRC Rule 68 when a company applies pooling of interests method in a business combination for purposes of the pro forma financial information. For the purpose of the pro forma consolidated balance sheet, the
*SGVFS002402*
-7transactions are assumed to have occurred as at December 31, 2012. In accordance with SRC Rule 68, material nonrecurring charges or credits and the related tax effects which result directly from the transaction and which will be included in income within the 12 months succeeding the transaction were not considered in the pro forma statement of income and comprehensive income. I. Tender Offer and Merger For purposes of the preparation of the pro forma condensed consolidated financial information, the following pro forma adjustments have been made for the (a) tender offer by SM Land to the shareholders of SMDC and HPI, and the (b) merger between SMPH (surviving entity) and SM Land (absorbed entity). The merger transaction was accounted for using the pooling of interests method. a. Pro forma adjustments in the pro forma consolidated balance sheet as at December 31, 2012 Pro forma adjustments have been made to bring the entire consolidated balance sheet of SM Land into the pro forma consolidated balance sheet of SMPH as at December 31, 2012. 1. Tender offer by SM Land 1.1 The tender offer by SM Land to the shareholders of SMDC was accounted as acquisition of non-controlling interest in exchange for its investment in SMPH, which is an equity transaction. The following pro forma adjustments have been made: Adjustment to reduce the Non-controlling interest amounting to P =11,999 million representing the carrying amount of the non-controlling interest assumed to be acquired. Adjustment to record the reduction in the Investment in shares of stocks amounting to = P768 million or 1,304,842,088 SMPH shares, which is equivalent to the carrying amount of investment in SMPH to be given up. Adjustment to record a reduction in Cash and cash equivalents amounting to =496 million, which pertains to the transaction cost assumed to be incurred from P the transaction. The amount was presented as a reduction from Equity adjustment from business combination amounting to = P445 million and Income tax payable amounting to = P51 million. The excess of the carrying value of non-controlling interest acquired over the cost of investment in SMPH which amounted to = P11,231 million was accounted for in equity and reflected as part of Equity adjustment from business combination.
*SGVFS002402*
-81.2 The tender offer by SM Land to the shareholders of HPI was accounted for as business combination under common control. Pro forma adjustments were made to bring the entire assets and liabilities of HPI into the pro forma consolidated balance sheet of SM Land (eventually to SMPH) as at December 31, 2012. The following pro forma adjustments have also been made: Adjustment to record the reduction in the Investment in shares of stocks amounting to P =143 million. The total carrying amount of investment in SMPH to be exchanged by SM Land for the 95% interest in HPI amounted to P =170 million or 288,080,873 SMPH shares. However, SMDC (a subsidiary of SM Land) has a 15% investment in HPI. The carrying amount of investment in SMPH assumed to be received by SMDC amounting to = P27 million or 45,617,999 SMPH shares was not adjusted since SMDC was consolidated in SM Lands consolidated financial statements. Adjustment to eliminate the 15% investment of SMDC in HPI classified as available for sale investments amounting to = P672 million. Adjustment to bring the 95% of the retained earnings of HPI to the consolidated pro forma consolidated balance sheet. Retained earnings amounting to P =412 million were recognized consistent with the accounting under the pooling of interest. In addition, Unrealized mark-to-market loss on available-for-sale investments of HPI amounting to = P2 million was also recognized. Adjustment to recognize Non-controlling interest equivalent to 5% interest in HPI as at December 31, 2012 amounting to P =138 million attributable to shareholders assumed not to have participated in the tender offer. The resulting difference from the above pro forma adjustments amounting to =1,391 million was credited to Equity adjustment from business combination. P Transaction costs amounting to = P101 million estimated to be incurred for this transaction were not included in the pro forma consolidated statements of income and pro forma consolidated statements of comprehensive income for the years ended December 31, 2012, 2011 and 2010 as these are considered nonrecurring charges. For purposes of the pro forma consolidated balance sheet, these were charged as a reduction to Cash and cash equivalents amounting to P =101 million, Retained earnings amounting to P =90 million and the difference related to the income tax benefit amounting to P =11 million was presented as a reduction to Income tax payable. 2. Merger between SMPH and SM Land As discussed above, the merger between SMPH and SM Land was accounted for under the pooling of interest method. Adjustments have been made to bring the consolidated balances of SM Land after the effect of the tender offer. The following pro forma adjustments have also been made for the merger of SMPH and SM Land: 2.1 Adjustment to record the issuance of 14,390,923,857 new SMPH common shares with =1.00 par value per share to the shareholders of SM Land in accordance with the P share-for-share exchange transaction to effect the merger of SM Land into SMPH. The shares are assumed to be issued to SMIC and the Sy Family who participated in
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-9the swap. Capital stock amounting to = P14,391 million was recognized from this share issuance. 2.2 Recognition of Treasury stock representing SM Lands remaining investment in SMPH totaling 5,524,031,530 shares or = P3,251 million. In addition, 45,617,999 SMPH common shares held by SMDC amounting to = P672 million was recognized as Shares held by subsidiary. The related Investment in shares of stock amounting to = P23,335 million was eliminated. 2.3 Elimination of the Capital stock, Additional paid-in capital and Equity adjustment from business combination amounting to = P1,950 million, = P1,685 million and P =12,177 million, respectively, upon merger. 2.4 Elimination of SM Lands accumulated equity in net earnings of SMPH and cumulative translation adjustment of SMPH recognized by SM Land totaling =20,083 million and elimination of certain intercompany accounts balances. P 2.5 The resulting difference from the above pro forma adjustments amounting to =382 million was reflected in Additional paid-in capital. P 2.6 Transaction costs amounting to P =929 million were not included in the pro forma consolidated statements of income and pro forma consolidated statements of comprehensive income for the years ended December 31, 2012, 2011 and 2010 as these are considered nonrecurring charges. For purposes of the pro forma consolidated balance sheet, these were charged as a reduction to Cash and cash equivalents amounting to = P929 million and Retained earnings amounting to = P857 million as at December 31, 2012. The difference of = P72 million was recognized in Additional paid-in capital. b. Pro forma adjustments in the pro forma consolidated statements of income for the years ended December 31, 2012, 2011 and 2010 1. Pro forma adjustments were made to bring the entire consolidated statements of income of SM Land and HPI into the pro forma consolidated statements of income of SMPH for the years ended December 31, 2012, 2011 and 2010. The following pro forma adjustments have also been made: 1.1 Adjustment to attribute the assumed share of Non-controlling interest in net income of SMDC to Equity attributable to equity holders of the parent as a result of the tender offer amounting to = P1,462 million, P =1,245 million and P =901 million for the years ended December 31, 2012, 2011 and 2010, respectively. 1.2 Recognition of the share of Non-controlling interest in the net income of HPI amounting to = P1.6 million, P =1.7 million and P =0.4 million for the years ended December 31, 2012, 2011 and 2010, respectively. 1.3 Elimination of SM Lands equity in net earnings on SMPH amounting to =4,313 million, P P =3,705 million and P =3,218 million for the years ended December 31, 2012, 2011 and 2010, respectively. 1.4 Elimination of certain intercompany transactions (rental income against rent expense) between SMPH and SM Land.
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- 10 1.5 The transaction costs discussed above were not included in the pro forma consolidated statements of income for the years ended December 31, 2012, 2011 and 2010 as these are considered nonrecurring charges. c. Pro forma adjustments in the pro forma consolidated statements of comprehensive income for the years ended December 31, 2012, 2011 and 2010 1. Pro forma adjustments were made to bring the entire consolidated statements of comprehensive income of SM Land and HPI into the pro forma consolidated statements of comprehensive income of SMPH for the years ended December 31, 2012, 2011 and 2010. 2. Transaction costs discussed above were not included in the pro forma consolidated statements of income for the years ended December 31, 2012, 2011 and 2010 as these are considered nonrecurring charges. d. Pro forma adjustments in the pro forma consolidated statement of changes in stockholders equity for the year ended December 31, 2012. The following pro forma adjustments have been made to the pro forma statement of changes in stockholders equity as at December 31, 2012: 1. Adjustment to record the assumed issuance of 14,390,923,857 new SMPH common shares with P =1.00 par value per share to the shareholders of SM Land in accordance with the share-for-share exchange transaction to effect the merger amounting to = P14,391 million. 2. The net effect of the pro forma adjustments to equity as discussed in the Pro forma adjustments in the pro forma consolidated balance sheet as at December 31, 2012 were adjusted to the equity balances as at January 1, 2012. These pro forma adjustments are as follows: Addition to retained earnings amounting to P =25,905 million which is attributable to the retained earnings of SM Land and HPI as at January 1, 2012 and after the effect of the adjustments on the tender offer and the merger. Addition to Unrealized mark-to-market gain amounting to P =12,049 million, which is attributable to SM Land and HPI as at January 1, 2012. Addition to Treasury stock amounting to = P3,251 million. Addition to Shares held by subsidiary amounting to = P672 million. Addition to Non-controlling interest amounting to P =1,949 million which is attributable to the non-controlling interest of SM Land as at January 1, 2012 and after the effect of adjustments on the tender offer and the merger. Addition to Additional paid-in capital amounting to = P1,996 million as a result of the net effect pro forma adjustments on the tender offer and the merger.
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- 11 e. Pro forma adjustments in the pro forma consolidated statement of cash flows for the year ended December 31, 2012
1.
The entire statements of cash flows of SM Land and its subsidiaries and HPI were added in the pro forma consolidated statements of cash flows of SMPH and its subsidiaries for the year ended December 31, 2012.
2. The following pro forma adjustments have also been made: Adjustment on the Cash and cash equivalents at end of the year amounting to =1,526 million attributable to the transaction cost to be incurred from the issuance of P shares of SMPH for the merger amounting to = P929 million, tender offer of SMDC amounting to = P496 million and tender offer of HPI amounting to = P101 million. Elimination of the impact of the intercompany transactions between SMPH and SM Land on the cash flow namely: (a) equity in net earnings of SM Land from SMPH amounting to = P4,313 million; (b) dividend received by SM Land from SMPH amounting to = P1,651 million; and (c) receivables of SMPH from SM Land amounting to = P22 million.
II. Acquisition of unlisted real estate companies The acquisition of unlisted real estate companies was considered as business combination under common control and was accounted for using the pooling of interests method. Thus, the assets and liabilities of these unlisted companies were combined with the New SMPH using their carrying values. a. Pro forma adjustments in the pro forma consolidated balance sheet as at December 31, 2012 1. Pro forma adjustments were made to bring the assets and liabilities and retained earnings of the unlisted real estate companies into the pro forma consolidated balance sheet of SMPH as at December 31, 2012. 2. Adjustment to record the assumed issuance of 707,957,409 new SMPH common shares with = P1.00 par value per share to SMIC in exchange for the net assets and retained earnings of unlisted real estate companies with carrying values of P =6,430 million and = P1,759 million, respectively. Capital stock amounting to = P708 million was recognized from this share issuance. 3. Adjustment to eliminate SMDCs Available-for-sale investments in TRDC amounting to = P66 million. 4. The resulting difference from the above transaction amounting to = P3,954 million was credited to Additional paid-in capital account.
5. Transaction costs amounting to P =28 million were not included in the pro forma
consolidated statements of income and pro forma consolidated statements of comprehensive income for the years ended December 31, 2012, 2011 and 2010 as these are considered nonrecurring charges. For purposes of the pro forma consolidated balance sheet, these were charged as a reduction to Cash and cash equivalents amounting to
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- 12 = P28 million and Retained earnings amounting to = P25 million as at December 31, 2012. The difference amounting to = P3 million was recognized in Additional paid-in capital. b. Pro forma adjustments in the pro forma consolidated statements of income and comprehensive income for the years ended December 31, 2012, 2011 and 2010 Pro forma adjustments were made to bring the entire statements of income and statements of comprehensive income of the unlisted real estate companies into the pro forma consolidated statements of income and comprehensive income of SMPH for the years ended December 31, 2012, 2011 and 2010. c. Pro forma adjustments in the pro forma consolidated statement of changes in stockholders equity for the year ended December 31, 2012 The following pro forma adjustments have been made to the pro forma statement of changes in stockholders equity as at December 31, 2012: 1. Adjustment to record the issuance of 707,957,409 new SMPH common shares with =1.00 par value per share to the shareholders of unlisted real estate companies in P accordance with the share-for-share exchange transaction amounting to = P708 million. 2. The net effect of the pro forma adjustments to equity as discussed in the Pro forma adjustments in the pro forma consolidated balance sheet as at December 31, 2012 were adjusted to the equity balances as at January 1, 2012. These pro-forma adjustments are as follows: Addition to retained earnings amounting to P =1,528 million which is attributable to the retained earnings of the unlisted companies as at January 1, 2012. Addition to Additional paid-in capital amounting to = P3,893 million as a result of the net effect pro forma adjustments on the acquisition.
d. Pro forma adjustments in the pro forma consolidated statement of cash flows for the year ended December 31, 2012 The entire statements of cash flows of the unlisted real estate companies were added in the pro forma consolidated statement of cash flows of SMPH for the year ended December 31, 2012. III. Acquisition of real estate assets The acquisition of real estate assets was considered acquisition of a business and was accounted for using the pooling of interests method. Thus, the real estate assets were combined with the merged SMPH using their carrying values. a. Pro forma adjustments in the pro forma consolidated balance sheet as at December 31, 2012 1. Adjustment to record the assumed issuance of 837,764,769 new SMPH common shares with P =1.00 par value per share to SMIC as payment for the acquisition of the real estate assets with carrying value of P =9,504 million. Capital stock recognized from this issuance amounted to = P838 million. The excess of the carrying value of the real estate
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- 13 assets over the total par value of new SMPH shares issued amounting to = P8,666 million is recognized as Additional paid-in capital. 2. Reduction to Cash and cash equivalents amounting to = P1,960 million representing payment of input value-added tax on acquired real estate assets. The input value-added tax was also recognized as part of Prepaid expenses and other current assets. 3. Recognition of Deferred tax assets amounting to P =1,103 million as at December 31, 2012 which pertain to the deductible temporary difference between the tax base and accounting base of the real estate assets acquired. Benefit from deferred tax assets was not recognized in the pro forma consolidated statements of income and comprehensive income for the years ended December 31, 2012, 2011 and 2010 as this was considered as a nonrecurring charge. This was charged to Retained earnings as at December 31, 2012. 4. Transaction costs amounting to P =394 million were not included in the pro forma consolidated statements of income and pro forma consolidated statements of comprehensive income for the years ended December 31, 2012, 2011 and 2010 as these are considered nonrecurring charges. For purposes of the pro forma consolidated balance sheet, these were charged as a reduction to Cash and cash equivalents amounting to = P394 million and Retained earnings amounting to = P390 million as at December 31, 2012. The difference amounting to P =4 million was recognized in Additional paid-in capital. b. Pro forma adjustments in the pro forma consolidated statements of income and comprehensive income for the years ended December 31, 2012, 2011 and 2010 Pro forma adjustments were made to bring the income and expenses directly earned and incurred, respectively, by the real estate assets acquired into the pro forma consolidated statements of income and comprehensive income of SMPH for the years ended December 31, 2012, 2011 and 2010. c. Pro forma adjustments in the pro forma consolidated statement of changes in stockholders equity for the year ended December 31, 2012 The following pro forma adjustments have been made to the pro forma statement of changes in stockholders equity as at December 31, 2012: 1. Adjustment to record the assumed issuance of 837,764,769 new SMPH common shares with P =1.00 par value per share to SMIC in accordance with the share-for-share exchange transaction amounting to = P838 million. 2. Addition to retained earnings amounting to P =754 million. 3. Addition to Additional paid-in capital amounting to = P8,662 million as a result of the net effect pro forma adjustments on the acquisition. 4. Adjustment to eliminate the net loss generated by the real estate assets amounting to =40 million for the year ended December 31, 2012 since this was not included in the P acquisition of real estate assets.
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- 14 d. Pro forma adjustments in the pro forma consolidated statement of cash flows for the year ended December 31, 2012 1. Pro forma adjustments were made to include the cash flows related to the real estate assets with a total net cash inflow amounting to = P412 million to the pro forma consolidated statement of cash flows of SMPH for the year ended December 31, 2012. 2. Pro forma adjustments were made to eliminate the net increase in cash and cash equivalents related to the real estate assets amounting to = P412 million to the Cash and cash equivalents at the end of the year since these were not included in the acquisition. IV. Other pro forma adjustments a. Pro forma adjustments in the pro forma consolidated balance sheet as at December 31, 2012 and pro forma statements of income, changes in stockholders equity and cash flows for the years ended December 31, 2012, 2011 and 2010 Elimination of intercompany transactions, accounts and balances as at December 31, 2012 and for the years ended December 31, 2012, 2011 and 2010. 5. Segment Information For management purposes, operating segment will be organized into business units based on their products and services. Management has identified three reportable operating segments as follows: shopping mall and commercial property development, real estate development and tourism and hotels and convention centers. The shopping mall and commercial property development segment develops, conducts, operates and maintains the business of modern commercial shopping centers including office buildings, retail facilities 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 and commercial complex. The real estate development and tourism segment is involved in the development and transformation of major residential, commercial and industrial and tourism districts through sustained capital investments in buildings and infrastructure. The hotels and convention centers segment engages in and carries on the business of hotels and convention centers and performance venues and operates and maintains any and all services and facilities incidental thereto. Management will monitor 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. Segment revenue includes transfers between business segments. Such transfers will be eliminated in the consolidation. Transfer prices between segments will be set on an arms length basis similar to transactions with related parties. Such transfers are eliminated in consolidation.
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- 15 The following presents the pro forma segment information of SMPH as at December 31, 2012 and for the years ended December 31, 2012, 2011 and 2010. Business Segment Data
December 31, 2012 (Unaudited) Shopping Mall and Commercial Property Development Revenue: External customers Inter-segment Segment results: Income before income tax Provision for income tax Net income Net income attributable to: Equity holders of the parent Non-controlling interests Segment assets Segment liabilities Net cash flows provided by (used in): Operating activities Investing activities Financing activities Other information: Capital expenditures Depreciation and amortization Real Estate Development and Tourism Hotels and Commercial Convention Residential and Industrial Centers (In Thousands) =22,746,451 P 2,028 =22,748,479 P =5,091,329 P 108,230 =4,983,099 P =4,983,099 P =87,745,541 P =44,390,448 P =675,550 P 115,263 =790,813 P =337,503 P 68,183 =269,320 P =269,320 P =3,649,037 P =39,462 P =1,711,022 P 121,385 =1,832,407 P (P =94,111) 17,172 (P =111,283) (P =111,283) =11,198,592 P =708,900 P Pro forma Consolidated Balances
Eliminations
=32,265,816 P 324,718 =32,590,534 P =17,381,080 P 3,620,809 =13,760,271 P =13,368,080 P 392,191 =227,534,901 P =87,604,556 P
= P (563,394) (P =563,394) (P =1,925,822) (P =1,925,822) (P =2,172,653) 246,831
=57,398,839 P =57,398,839 P =20,789,979 P 3,814,394 =16,975,585 P =16,336,563 P 639,022
(P =46,066,385) P =284,061,686 (P =368,212) P =132,375,155
P16,661,499 = (20,648,052) 5,242,435
(P =9,945,369) 617,670 11,329,282
=461,089 P 276,425
P404,624 = (407,993) 400,000
(P =643,054) (1,855,792) 2,499,291
=6,938,789 P (22,017,742) 19,471,008
=22,155,018 P 4,201,181
=11,162,718 P 150,074
=272,853 P 191,089
=422,294 P 505,494
= P
=34,012,883 P 5,047,838
December 31, 2011 (Unaudited) Shopping Mall and Commercial Property Development Revenue: External customers Inter-segment Segment results: Income before income tax Provision for income tax Net income Net income attributable to: Equity holders of the parent Non-controlling interests Other information: Capital expenditures Depreciation and amortization Real Estate Development and Tourism Hotels and Commercial Convention Residential and Industrial Centers (In Thousands) =17,503,607 P 845 =17,504,452 P =4,231,293 P (13,364) =4,244,657 P =4,244,657 P =3,373,616 P 130,481 =458,920 P 5,422 =464,342 P =245,957 P 25,811 =220,146 P =220,146 P =1,171,720 P 140,916 =1,135,409 P 57,906 =1,193,315 P (P =155,941) 16,304 (P =172,245) (P =172,245) =77,194 P 323,242 Pro forma Consolidated Balances
Eliminations
=31,147,887 P 236,743 =31,384,630 P =14,963,968 P 2,989,284 =11,974,684 P =11,648,458 P 326,226 =17,057,717 P 4,147,011
= P (300,916) (P =300,916) (P =2,014,939) (P =2,014,939) (P =2,221,951) 207,012 = P
=50,245,823 P =50,245,823 P =17,270,338 P 3,018,035 =14,252,303 P =13,719,065 P 533,238 =21,680,247 P 4,741,650
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- 16 December 31, 2010 (Unaudited) Shopping Mall and Commercial Property Development Revenue: External customers Inter-segment Segment results: Income before income tax Provision for income tax Net income Net income attributable to: Equity holders of the parent Non-controlling interests Other information: Capital expenditures Depreciation and amortization Real Estate Development and Tourism Hotels and Commercial Convention Residential and Industrial Centers (In Thousands) =10,976,523 P =10,976,523 P =3,321,967 P 156,603 =3,165,364 P =3,165,364 P =9,412,218 P 102,951 =343,002 P 5,163 =348,165 P =192,308 P 24,508 =167,800 P =167,800 P =781,134 P 142,655 =678,317 P 41,594 =719,911 P =182,886 P 2,996 =179,890 P =179,890 P =68,787 P 158,463 Pro forma Consolidated Balances
Eliminations
=31,158,888 P 270,558 =31,429,446 P =15,992,367 P 2,752,285 =13,240,082 P =12,956,297 P 283,785 =11,771,953 P 3,899,690
= P (317,315) (P =317,315) (P =1,772,893) (P =1,772,893) (P =1,924,408) 151,515 = P
=43,156,730 P =43,156,730 P =17,916,635 P 2,936,392 =14,980,243 P =14,544,943 P 435,300 =22,034,092 P 4,303,759
6. Cash and Cash Equivalents Cash on hand and in banks Temporary investments Unaudited P1,076,383,687 = 16,200,972,691 =17,277,356,378 P
7. Receivables Unaudited Trade: Real estate buyers Third-party tenants Related party tenants Others Due from related parties Others =8,694,885,240 P 2,743,904,272 2,017,254,453 112,924,486 2,365,056,347 2,274,100,314 =18,208,125,112 P
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8. Available-for-sale Investments Unaudited Shares of stock: Listed Unlisted Bonds and corporate notes Club shares Less current portion =23,299,065,762 P 3,912,000 1,000,000,000 150,000 24,303,127,762 1,000,000,000 =23,303,127,762 P
9. Prepaid Expenses and Other Current Assets Advances to contractors Input taxes Prepaid expenses Supplies and inventories Others Unaudited =5,316,799,103 P 3,509,084,374 1,399,806,536 203,359,409 3,486,878,823 =13,915,928,245 P
10. Investment Properties Unaudited Cost Land and improvements and land use rights Buildings and improvements Building equipment, furniture and others Construction in progress Accumulated Depreciation and Amortization Land and improvements and land use rights Buildings and improvements Building equipment, furniture and others P34,804,862,999 = 107,819,476,964 21,266,674,797 16,810,260,572 180,701,275,332 821,375,916 22,031,300,718 10,445,753,044 33,298,429,678 =147,402,845,654 P
11. Other Noncurrent Assets Receivables from real estate buyers Bonds and deposits Others Unaudited =14,401,512,495 P 4,756,190,908 2,465,707,076 =21,623,410,479 P
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12. Accounts Payable and Other Current Liabilities Trade Due to related parties Liability for purchased land Accrued operating expenses Output taxes Accrued interest Accrued rent Others Unaudited =15,036,944,382 P 9,079,360,777 6,325,641,163 1,852,227,513 754,074,143 525,252,116 161,957,569 103,749,332 =33,839,206,995 P
13. Long-term Debt Unaudited Parent Company U.S. dollar-denominated loans: Five-year term loans Two-year, three-year and five-year bilateral loans Other bank loans Philippine peso-denominated loans: Five-year and ten-year fixed and floating rate notes Five-year, seven-year and ten-year fixed and floating rate notes Five-year, seven-year and ten-year corporate notes Five-year and ten-year corporate notes Five-year floating rate notes Five-year, seven-year and ten-year fixed rate notes Other bank loans Subsidiaries China yuan renminbi-denominated loans: Three-year loan Five-year loan Philippine peso-denominated loans: Three-year and five-year fixed rate notes Five-year bilateral loans Other bank loans Less current portion =10,896,961,563 P 1,021,242,099 2,438,112,216 7,442,919,136 4,966,460,223 6,823,838,758 1,092,151,201 4,920,827,931 795,341,665 8,994,240,419 1,111,112,318 2,272,373,650 18,213,776,921 497,991,424 118,800,000 71,606,149,524 3,856,766,848 =67,749,382,676 P
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14. Costs and Expenses Unaudited 2011 2010 2012 P12,700,048,639 P =11,337,499,745 P =14,144,962,245 = 6,476,436,916 5,633,010,425 8,049,556,703 4,741,650,180 4,303,758,771 5,047,838,227 2,089,547,969 1,829,798,899 2,362,800,421 1,650,121,988 1,494,236,340 1,877,919,353 1,057,887,373 929,156,299 1,141,775,950 918,704,879 734,075,068 900,213,549 253,098,013 264,722,835 319,680,881 844,916,035 593,053,952 1,114,801,999 =30,732,411,992 = P27,119,312,334 P =34,959,549,328 P
Cost of real estate sold Administrative Depreciation and amortization Business taxes and licenses Film rentals Rent Management fees Insurance Others
15. 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. The significant related party transactions entered into by the SMPH and the amounts included in the pro forma consolidated financial information with respect to such transactions follows: The following are the SMPHs significant related party transactions:
Related Party Relationship Nature/Financial Statement Accounts Volume of Transactions/ Outstanding Balance (Unaudited/ In Thousands) =113,641 P 4,405 (229,695) (2,500) (131,829) (16,944) 18,493 8,000 199,474 53,774 299,957 14,694 593,749 7,294 (7,043,826) (72,636) (263,120)
SMIC
Parent
Rent income Service income Rent expense Utilities Other operating expenses Interest expense Interest income Dividend income Gain on sale of properties Others - net Investment held for trading Rent receivables Due from related parties Accrued interest receivable Due to related parties Accrued rent payable Others
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- 20 Volume of Transactions/ Outstanding Balance =9,088,933 P (7,226) (14,700) (128,508) 709,031 63,000 (115,181) 16,595,932 579,477 821,000 1,000,000 2,006,239 28,286 641 2,104,059 914,300 (2,505,000) (312) (8,800) (4,984) (860,535) (99,895) 193,757 (25,551) (695,065) 6,543 1,119,290 11,538 146,444 1,421,491 386,992 3,574,790 (92,007) (33,184)
Related Party SM Retail and Banking Group
Relationship Affiliates
Nature/Financial Statement Accounts Rent income Purchases Other operating expenses Interest expense Interest income Dividend income Others - net Cash and cash equivalents Investments held for trading Short-term investments Available-for-sale investments Rent receivables Accrued interest receivable Due from related parties Receivable financing Acquisition of shares Bank loans Trade Accrued expenses Accrued interest payable
SM Management Group Others
Affiliates
Management fees Accrued management fee Rent income Management fees Other operating expenses Interest income Gain on sale of properties Dividend income Rent receivables Other receivables Due from related parties Available-for-sale investments Due to related parties Others
Transactions with related parties are made at terms equivalent to those that prevail in arms length transactions. Outstanding balances at year-end are unsecured, noninterest-bearing and settlement occurs in cash. There have been no guarantees/collaterals provided or received for any related party receivables or payables. SMPH 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.
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- 21 -
16. Basic/Diluted Earnings Per Share Computation Pro forma basic/diluted EPS of the Company is computed as follows:
2012 Pro forma net income attributable to equity holders of the parent (a) Common shares issued at beginning of year Pro forma issuance of shares* Stocks dividends* Weighted average number of shares issued in equity placement Common shares issued at end of year Less: Pro forma treasury stock Pro forma shares held by subsidiary* Weighted average number of common shares outstanding (b) Earnings per share (a/b)
*Retroactively adjusted.
Unaudited 2011 =13,719,065,578 P 13,917,800,067 15,936,646,035 3,474,734,693 33,329,180,795 5,542,888,530 45,617,999 27,740,674,266 =0.495 P
2010 =14,544,942,135 P 13,348,191,367 15,936,646,035 3,474,734,693 118,668,479 32,878,240,574 5,542,888,530 45,617,999 27,289,734,045 =0.533 P
=16,336,562,689 P 13,917,800,067 15,936,646,035 3,474,734,693 33,329,180,795 5,542,888,530 45,617,999 27,740,674,266 =0.589 P
Historical basic/diluted EPS of the Company is computed as follows:

2012 Net income attributable to equity holders of the parent (a) Common shares issued at beginning of year Stocks dividends* Weighted average number of shares issued in equity placement Common shares issued at end of year Less treasury stock Weighted average number of common shares outstanding (b) Earnings per share (a/b)
*Retroactively adjusted.
Audited 2011 =9,055,995,525 P 13,917,800,067 3,474,734,693 17,392,534,760 18,857,000 17,373,677,760 =0.521 P
2010 =7,856,348,789 P 13,348,191,367 3,474,734,693 118,668,479 16,941,594,539 18,857,000 16,922,737,539 =0.464 P
=10,529,954,990 P 13,917,800,067 3,474,734,693 17,392,534,760 18,857,000 17,373,677,760 =0.606 P
*SGVFS002402*

SM Land Tender Offer for SMDC Shares

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SM Land Tender Offer for SMDC Shares

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DEVELOPMENT

Ms. Marsha M. Resurreccion Head - Issuer Regulation Division

SMDC Tender Offer Report

SMDC Tender Offer Report

SMDC Tender Offer Report

SMDC Tender Offer Report

SMDC Tender Offer Report

SMDC Tender Offer Report

Prime Central Limited

Tagaytay Resort Development Corporation Tagaytay Resort Development Corporation

SMIC Sy Family SMIC SMIC

33.33% 41.67% 100.00% 100.00%

5 SM Hotels and Conventions Corporation 6 SM Arena Corporation Complex

SMDC Tender Offer Report

SMDC Tender Offer Report

SMDC Tender Offer Report

Relationship with Bidder

Parent Company Stockholders

SMDC Tender Offer Report

Current Shareholding of SM Land TOTAL

APPLICATION TO TENDER SHARES IN SM DEVELOPMENT CORPORATION, INC. TO SM LAND, INC.

REPRESENTATIONS AND WARRANTIES

Applicants / Participating Brokers Signature

Tel. No. (s)

Tax Identification Number

Terms of the Tender Offer for Common Shares of SM Development Corporation

Party Making the Tender Offer Subject Company Subject Shares

Tender Offer Consideration

Eligible Shareholders Tender Offer Period

Application to Tender Shares

SMDC Terms of the Tender Offer

SMDC Terms of the Tender Offer

Withdrawal of Securities and Manner of Payment

SMDC Terms of the Tender Offer

Representation and Warranties of the Tendering Shareholder

(ii) (iii) (iv)

SMDC Terms of the Tender Offer

NOTICE TO THE STOCKHOLDERS OF SM DEVELOPMENT CORPORATION

Telephon e Fax Internet E-Mail

SM Investments Corporation Fairness Opinion Report May 30, 2013

SM Investments Corporation Fairness Opinion Report May 30, 2013

Executive summary The valuation results of SMDC are presented below.

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

SM Investments Corporation Fairness Opinion Report May 30, 2013

The valuation results of SMPHI are presented below.

Per share (PhP) 19.39 24.22 22.38 20.62

Total (PHP'M) 336,888 420,820 388,790 358,231

SM Investments Corporation Fairness Opinion Report May 30, 2013

SM Investments Corporation Fairness Opinion Report May 30, 2013

PCD Nominee Corporation

Syntrix Holdings, Inc.

Sybase Equity Investments Corporation

List of Top 100 Stockholders as of March 31, 2013

SM Investments Corporation Fairness Opinion Report May 30, 2013

SM Investments Corporation Fairness Opinion Report May 30, 2013

SM Investments Corporation Fairness Opinion Report May 30, 2013

Appraised values (In PHP'M) 1,602 1,269 2,871

Details Classified under deposits account Classified under deposits account

CBRE appraisal as of February 28, 2013; SMDC management

SM Investments Corporation Fairness Opinion Report May 30, 2013

89,002 2,871 86,131

13-Mar-13 85,253 42,960 42,293