EX-2 3 a2215522zex-2.htm EX-2

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Exhibit 2

VOLUNTARY EXCHANGE OFFERS TO ACQUIRE ALL ISSUED AND
OUTSTANDING SHARES OF

SM DEVELOPMENT CORPORATION and HIGHLANDS PRIME, INC.


GRAPHIC

 
GRAPHIC

MADE BY
SM LAND, INC.

GRAPHIC

CONSIDERATION:
SECONDARY SHARES IN SM PRIME HOLDINGS, INC.

GRAPHIC

FOR EACH SHARE IN
SM DEVELOPMENT CORPORATION: 0.472 CONSIDERATION SHARES
and
HIGHLANDS PRIME, INC.: 0.135 CONSIDERATION SHARES

OFFER PERIOD:
FROM AND INCLUDING JUNE 4, 2013 TO AND
INCLUDING JULY 9, 2013 AT 12:00 NOON (Manila Time)

This exchange offer document (the "Offer Document") has been prepared by SM Land, Inc. ("SM Land" or the "Offeror") in connection with its voluntary offers to exchange shares of SM Development Corporation ("SMDC") (the "SMDC Exchange Offer") and shares of Highlands Prime, Inc. ("HPI") (the "HPI Exchange Offer" and, together with the SMDC Exchange Offer, the "Exchange Offers") for shares of SM Prime Holdings, Inc. ("SM Prime") as consideration for the SMDC shares and the HPI shares (the "Consideration Shares").

Accepting the Exchange Offers and receiving SM Prime shares involves certain risks. See the section "Risk Factors" in this Offer Document.

May 31, 2013


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The Exchange Offers are made for the securities of non-U.S. companies. The Exchange Offers are subject to the disclosure requirements of the Philippines, which are different from those of the United States. Financial statements included in the document have been prepared in accordance with Philippine Financial Reporting Standards ("PFRS") and, accordingly, may not be comparable to the financial statements of U.S. companies. The Consideration Shares have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the "Securities Act").

It may be difficult for you to enforce your rights and any claim you may have arising under U.S. securities laws, since the Offeror and SM Prime are Philippine incorporated companies, and most of their officers and directors are residents of the Philippines. You may not be able to sue the Offeror, SM Prime or any of their respective officers or directors in a foreign court for violations of the U.S. securities laws. It may be difficult to compel the Offeror, SM Prime and their respective affiliates to subject themselves to a U.S. court's judgment.

You should be aware that the Offeror or SM Prime may purchase securities in SMDC or HPI otherwise than under the Exchange Offers, such as in open market or privately negotiated purchases.

The Consideration Shares have not been registered in, and will not be registered with any securities regulatory authority of any state or other jurisdiction of the United States. Unless so registered, the Consideration Shares may only be offered in transactions that are exempt from, or not subject to, registration under the securities laws of any jurisdiction of the United States. Accordingly, no offer to sell or solicitation of an offer to buy the Consideration Shares in the Exchange Offers may be made in the following U.S. jurisdictions except to persons in such jurisdictions who represent to the Offeror that they qualify as exempt institutional investors in such U.S. jurisdictions:

Alabama, Alaska, Arizona, Arkansas, Colorado, Connecticut, Delaware, District of Columbia, Florida, Guam, Illinois, Kentucky, Louisiana, Maryland, Massachusetts, Minnesota, Montana, Nebraska, New Jersey, New York, North Carolina, North Dakota, Oklahoma, Oregon, Puerto Rico, Tennessee, Texas, Utah, Virginia, Washington, West Virginia and Wyoming.

See "Restrictions, Cautionary Notice Regarding Forward-looking Statements and Disclaimers" for more information concerning eligible investors in those jurisdictions.

For the definitions of terms used throughout this Offer Document, including the preceding pages, see "Definitions and Glossary of Terms".

The Offeror has furnished the information in this Offer Document. This Offer Document has been prepared to comply with the requirements regarding voluntary offers set out in the Philippine Securities Regulation Code (the "Philippine SRC"). The Offer Document has not been reviewed or approved by the Philippine Securities and Exchange Commission (the "PSEC").

Outside the Republic of the Philippines, no action has been taken or will be taken in any jurisdiction by the Offeror that would permit the possession or distribution of any documents relating to the Exchange Offers, or any amendment or supplement thereto, including but not limited to this Offer Document, in any country or jurisdiction where specific action for that purpose is required. Accordingly, this Offer Document may not be used for the purpose of an offer of, or solicitation for, any securities in any jurisdiction or circumstances in which such offer or solicitation would be unlawful or unauthorized. The Exchange Offers are not being made in Australia, Canada or Japan, and will not be permitted to be accepted in or from these jurisdictions.

All procedural inquiries relating to this Offer Document shall be directed to BDO Securities Corporation (the "Offer Agent"). No other person has been authorized to give any information about, or make any representation on behalf of, the Offeror in connection with the Exchange Offers, and, if given or made, such other information or representation must not be relied upon as having been authorized by the Offeror.

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The Offer Agent accepts no responsibility for this Offer Document and makes no representation as to its accuracy or completeness. The Offer Agent expresses no opinion as to whether the terms of the Exchange Offers are fair or as to the merits of the Exchange Offers. The Offer Agent does not make any recommendation as to whether holder of shares of SMDC or HPI (the "Target Shareholders") should accept the Exchange Offers, and no one has been authorised by the Offer Agent to make any such recommendation. Each Target Shareholder is solely responsible for making its own independent appraisal of all matters it deems appropriate in relation to the Exchange Offers. Target Shareholders must make their own decision as to whether to participate in the Exchange Offers. Accordingly, each Target Shareholder acknowledges that it has not relied upon the Offer Agent or any of its respective directors, officers, employees or affiliates in connection with its decision as to whether to participate in the Exchange Offers. Each Target Shareholder acknowledges that it must make its own analysis and investigations regarding the Exchange Offers, with particular reference to its own investment objectives and experience, and any other factors which may be relevant to it. If a Target Shareholder is in any doubt about any aspect of the Exchange Offers and/or the action it should take, including in respect of any tax consequences, it should consult its professional advisers.

The information contained herein is as of the date hereof and subject to change, completion or amendment without notice. There may have been changes affecting the Offeror, SM Prime, SMDC, HPI or their respective subsidiaries subsequent to the date of this Offer Document. Any new material information and any material inaccuracy that might have an effect on the assessment of the shares of SMDC or HPI, par value ₱1.00 per share and par value ₱1.00 per share, respectively (together, the "Target Shares") arising after the date of this Offer Document and before the expiry of the Offer Period, will be published and announced by the Offeror as a supplement to this Offer Document in accordance with the Philippine SRC. Neither the publication nor the distribution of this Offer Document or the completion of the Exchange Offers shall under any circumstances create any implication that there has been no change in the affairs of the Offeror, SM Prime, SMDC or HPI since the date hereof or that the information set forth in this Offer Document is correct as of any time since its date.

This Offer Document and the accompanying materials related to the Exchange Offers have not been approved or reviewed by any federal or state securities commission or regulatory authority of any jurisdiction, nor has any such commission or authority passed on the accuracy or adequacy of this Offer Document. Any representation to the contrary is unlawful and may be a criminal offense.

This Offer Document does not constitute an offer to sell or the solicitation of an offer to buy any securities in any jurisdiction to any person to whom it is unlawful to make the offer or solicitation in such jurisdiction. The distribution of this Offer Document and the offer or sale of the securities may be restricted by law in certain jurisdictions. The Offeror does not and will not represent that this Offer Document may be lawfully distributed, or that the Consideration Shares may be lawfully offered, in compliance with any applicable registration or other requirements in any such jurisdiction, or pursuant to an exemption available thereunder, or assume any responsibility for facilitating any such distribution or offering. In particular, no action has been or will be taken by the Offeror which would permit a public offering of the Consideration Shares or distribution of this Offer Document in any jurisdiction where action for that purpose is required. Accordingly, the Consideration Shares may not be offered or sold, directly or indirectly, and neither this Offer Document nor any advertisement or other offering material may be distributed or published in any jurisdiction, except under circumstances that will result in compliance with any applicable laws and regulations. Persons into whose possession this Offer Document or any Consideration Shares come must inform themselves about, and observe, any such restrictions. In particular, there are restrictions on the distribution of this Offer Document and the offer or sale of the Consideration Shares in the United States, United Kingdom, France, Grand Duchy of Luxembourg and the European Economic Area (see "Restrictions, Cautionary Notice Regarding Forward-Looking Statements and Disclaimers").

Unless otherwise indicated, the source of information included in this Offer Document is the Offeror, SMDC, HPI or SM Prime, as the case may be. The contents of this Offer Document are not to be

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construed as legal, business or tax advice. Each reader of this Offer Document should consult its own legal, business or tax advisor as to legal, business or tax advice. If you are in any doubt about the contents of this Offer Document, you should consult your stockbroker, bank manager, lawyer, accountant or other professional advisor.

Presentation of Financial Information

This Offer Document contains the following financial information:

    The audited consolidated financial statements of SM Prime and its subsidiaries as at December 31, 2012 and 2011 and for the years ended December 31, 2012, 2011 and 2010, prepared in accordance with PFRS issued by the Financial Reporting Standards Council (the "FRSC") of the Philippines.

    The audited consolidated financial statements of SM Land and its subsidiaries as at December 31, 2012 and 2011 and for the years ended December 31, 2012, 2011 and 2010, prepared in accordance with PFRS issued by the FRSC of the Philippines.

    The unaudited pro forma condensed consolidated financial information of SM Prime and its subsidiaries as at December 31, 2012, and for the years ended December 31, 2012, 2011 and 2010 prepared in accordance with Section 8, Part II of the Securities Regulation Code 68, As Amended in 2011 (SRC Rule 68) issued by the Philippine Securities and Exchange Commission (SEC) (the "Pro Forma Financial Information").

SyCip Gorres Velayo & Co. ("SGV & Co.") has audited and rendered an unqualified audit report in respect of the audited consolidated financial statements of SM Prime and its subsidiaries and SM Land and its subsidiaries included herein. The audit reports of SGV & Co. are included elsewhere in this Offer Document.

SGV & Co. has reviewed in accordance with the Philippine Standard on Assurance Engagements 3000, Assurance Engagements Other than Audits or Reviews of Historical Financial Information and Philippine SEC 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 rendered a report on the Pro Forma Financial Information included elsewhere in this Offer Document.

For more information concerning the basis of preparation of the Pro Forma Financial Information, see "Pro Forma Financial Information" in this Offer Document.

Presentation of Property Values

This Offer Document contains executive summary valuation reports (the "Valuation Reports") of CB Richard Ellis Philippines, Inc., an independent appraiser ("CBRE"). The Valuation Reports set forth estimated values of buildings and land belonging to SM Prime and several of its affiliates, as of February 28, 2013, which are expected to become assets of SM Prime assuming the completion of the Reorganization described elsewhere in this Offer Document. Accordingly, not all of the assets included in the Valuation Reports are currently owned by SM Prime and not all of the assets included in the Valuation Reports will be owned by SM Prime immediately following the closing of the Exchange Offers.

The valuations of the properties in the Valuation Reports and a discussion of methodologies and other assumptions used in such valuations are contained in each Valuation Report. Prospective participants in the Exchange Offers are urged to read carefully the entire Valuation Reports for more information concerning the limitations, assumptions, risks and uncertainties of the valuations therein. See also "Risk Factors—The appraisals with respect to the real estate described in the Valuation Reports may not reflect their actual market values".

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SUMMARY

This summary should be read as an introduction to the Offer Document and any decision to accept the Exchange Offers should be based on consideration of the Offer Document as a whole by the investor, including the documents incorporated by reference and the risks of accepting the Exchange Offers set out in the section "Risk Factors". This summary is not complete and does not contain all the information that should be considered in connection with any decision to accept the Exchange Offers or otherwise relating to the Consideration Shares.

The Reorganization

The objective of the reorganization (the "Reorganization") of certain of the companies owned by SM Investments Corporation ("SMIC") (the "SM Group") is to consolidate all of the SM Group's real estate interests under one single listed entity, which will be New SM Prime (as defined below). SM Prime believes this will help to create an integrated real estate platform that will further enhance the value of the SM Group's real estate businesses and increase organizational efficiencies. The following is an explanation of certain transactions that have happened, or are expected to happen, in order to complete the Reorganization.

Exchange Offers

The Offeror is offering shares of SM Prime that it owns to the shareholders of SMDC and HPI by way of this Offer Document. SMDC and HPI will each initiate a voluntary delisting process with the Philippine Stock Exchange ("PSE") during the Offer Period. See "The Exchange Offers".

Merger of SM Prime and SM Land

The respective boards of directors of SM Prime and SM Land will conduct board meetings in order to approve the merger of SM Prime and SM Land through a share-for-share swap whereby the shareholders of SM Land will receive new SM Prime shares in exchange for their shareholdings in SM Land. SM Prime will be the surviving entity. The plan of merger for this transaction will include amendments to the amended articles of incorporation of SM Prime in order to, among others, (i) change its primary purpose to a mixed-use real property developer and (ii) increase its authorized capital stock from ₱20,000,000,000 to ₱40,000,000,000. As a result of the proposed merger, SMDC and HPI are expected to become directly owned subsidiaries of SM Prime. In addition to its shareholdings in SMDC and HPI, SM Prime will also hold SM Land's real estate assets and companies as described in the section "Business".

Acquisition of Unlisted Real Estate Companies and Assets from SM Investments Corporation and the Sy Family

Following a successful completion of the merger, SM Prime plans to issue shares of SM Prime to SMIC, Mountain Bliss Resort and Development Corporation and the Sy family, in exchange for shares in certain unlisted real estate companies and to SMIC directly in exchange for certain real estate assets.

Following the Reorganization

As a result of the Reorganization, SM Prime and SM Land are expected to become a single corporation, with SM Prime as the surviving entity, holding SMDC, HPI and the unlisted real estate companies and assets from SMIC and the Sy family discussed above ("New SM Prime").

 

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Rationale for the Reorganization

The rationale behind the Reorganization is to create a leading Philippine real estate company that:

    has an integrated real estate platform to further enhance the value of New SM Prime's real estate businesses;

    simplifies the corporate structure of the SM Group's real estate holdings and increases the organizational efficiencies of New SM Prime;

    is a pre-eminent real estate company in the Philippines and Southeast Asia, and among the largest in the Philippines in terms of asset size, market capitalization and land bank;

    has an enhanced ability to capitalize on the strong economic fundamentals of the Philippines' property, consumer and tourism sectors; and

    has a stronger balance sheet that can provide enhanced capital raising flexibility.

For more information, see "Description of the Reorganization".

The Offeror

SM Land is a privately-held company incorporated in the Philippines and is 63.87% directly owned by SMIC and 36.13% directly owned by members of the Sy family. SM Land operates in two segments, namely residential and commercial. SM Land's residential arm is composed of its publicly-listed subsidiary SMDC (one of the Target Companies), while its commercial developments are managed separately by the Commercial Properties Group.

The Target Companies

SMDC is a publicly listed company incorporated in the Philippines, and is 65.18% directly owned by SM Land, 7.19% directly and 13.68% indirectly owned by the Sy family and 13.95% publicly owned. Its primary operations are the development and sale of residential properties.

HPI is a publicly listed company incorporated in the Philippines, and is 20.20% directly owned by SMIC, 15.04% directly owned by SMDC, 35.82% directly owned by Belle Corporation, 17.70% owned by Sysmart, 1.20% owned by members of the Sy family and 10.09% publicly owned. Its primary operations are the development and sale of high-end condominiums and other properties.

SM Prime

SM Prime is a publicly listed company incorporated in the Philippines, and is 40.96% directly owned by SM Land, 21.65% directly owned by SMIC, 6.57% directly owned by PCD Nominee Corp. (Foreign), 0.32% directly and indirectly owned by the Sy family and 30.50% publicly owned. SM Prime was incorporated on January 6, 1994 to develop, operate and maintain the business of modern commercial shopping malls and all related businesses, such as the operation and maintenance of shopping spaces for rent, amusement centers and cinema theaters within the compound of the shopping malls. As of the date of this Offer Document, SM Prime owns 47 malls (as listed below) covering a total gross floor area of 5.9 million sq. m. located across the Philippine archipelago, attracting an average of approximately 4 million visitors daily.

The Exchange Offers

The Offeror offers to acquire all of the shares in SMDC and HPI not owned by persons in or from jurisdictions where making the Exchange Offers is unlawful, in exchange for a consideration consisting of:

    0.472 Consideration Shares for every share of SMDC, and

 

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    0.135 Consideration Shares for every share of HPI,

in each case on the terms set out in this Offer Document.

If all the SMDC shareholders accept the SMDC Exchange Offer, up to 1,523,642,508 Consideration Shares will be provided to the SMDC shareholders.

If all the HPI shareholders accept the HPI Exchange Offer, up to 303,243,024 Consideration Shares will be provided to the HPI shareholders.

Below is a summary of the key terms of the Exchange Offers:

Consideration   0.472 Consideration Shares for every share of SMDC, and

 

 

0.135 Consideration Shares for every share of HPI.

Offer Period

 

The SMDC and HPI shareholders may accept the Exchange Offers in the period from and including June 4, 2013 to July 9, 2013 at 12:00 noon (Manila Time). The Offeror may extend the Offer Period upon approval by the PSEC. For more information see "The Exchange Offers—Offer Period".

Acceptance of the Exchange Offers

 

Acceptance of the Exchange Offers is made by completing and signing an application form relating to each of the Exchange Offers (each an "Application Form"). The Application Form must be delivered to the Offer Agent, and becomes binding upon receipt. For more information see "The Exchange Offers—Acceptance of the Exchange Offers".

Conditions to the Exchange Offers

 

Each of the Exchange Offers is made subject to conditions relating to the following:

 

regulatory approval;

 

no material adverse effect;

 

conduct of business;

 

no intervention;

 

no breach.


 

 

Each of the conditions may be waived wholly or in part by the Offeror at its sole discretion.

 

 

For more information, see "The Exchange Offers—Application Procedure".

Settlement

 

Settlement of the Exchange Offers will be made as soon as possible after the expiry of the Offer Period and no later than July 19, 2013, unless the Offeror extends the Offer Period upon approval by the PSEC.

Trading of the Consideration Shares

 

The Consideration Shares currently trade on the PSE under the symbol "SMPH".

 

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Expenses   The estimated expenses related to the Exchange Offers are ₱640 million. See "The Exchange Offers—Expenses" for a detailed discussion of the expenses related to the Exchange Offers.

Intention of the Shareholders

 

The following HPI shareholders have expressed their intention to participate in the Exchange Offer for the shares of HPI: Belle Corporation, SMIC, Sysmart Corp., SMDC and the Sy family.

 

 

The following SMDC shareholders have expressed their intention to participate in the Exchange Offer for the shares of SMDC: Syntrix Holdings, Inc, the Sy family, Sysmart Corp., Sybase Equity Investments Corp. and SMIC.

Delisting of the SMDC and HPI Shares

 

During the Offer Period, each of SMDC and HPI will initiate a voluntary delisting process with the PSE, assuming 90% of their respective shares have been acquired by the Offeror in the Exchange Offers. Holders of shares in SMDC and HPI who do not accept the Exchange Offers in accordance with the terms set out in this Offer Document therefore risk holding unlisted shares. See "Risk Factors—Holders of shares in SMDC or HPI who choose not to participate in the Exchange Offers may eventually become shareholders of private companies with securities not listed or traded on any exchange and exposed to higher tax liability on any transfer of such shares after the Exchange Offers."

Current shareholdings of the Offeror in the Target Companies

 

As of the date of this Offer Document, the Offeror holds 6,043,148,078 shares of SMDC and no shares of HPI.

See "Risk Factors" for a discussion of the various risks considered particularly relevant to New SM Prime, the Reorganization, the Philippines and the Exchange Offers. If any of these risks or uncertainties actually occurs, the business, operating results and financial condition of New SM Prime could be materially and adversely affected. The risks presented in this Offer Document are not exhaustive, and other risks not discussed herein may also adversely affect New SM Prime. Prospective investors should consider carefully the information contained in this Offer Document and make an independent evaluation before making a decision on whether to participate in the Exchange Offers.

Additional Information

Share capital and share matters

Under SM Prime's articles of incorporation (the "Articles of Incorporation"), SM Prime's authorized capital stock consists of 20,000,000,000 shares, with a par value of ₱1.00 per share ("Shares"). As of the date of this Offer Document, SM Prime had 17,373,677,760 Shares outstanding.

Upon completion of the Exchange Offers, SM Prime will continue to have 17,373,677,760 Shares outstanding, assuming that all SMDC and HPI shareholders accept the Exchange Offers set forth herein.

All of the Shares are in registered form. The registrar and transfer agent for the Shares is BDO Unibank, Inc.—Trust and Investment Group. See "Share Capital and Shareholder Matters" for a further description of SM Prime's share capital.

As of the date of this Offer Document, the Offeror owns 7,116,954,491 Shares of SM Prime, representing 40.96% of its outstanding share capital.

 

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RISK FACTORS

Prospective participants in the Exchange Offers should consider, among other things, the risk factors set out in this Offer Document before deciding whether to participate in the Exchange Offers.

The Exchange Offers involve risks. By participating in the Exchange Offers, shareholders of SMDC and HPI will receive existing shares of SM Prime in exchange, and should therefore consider the risks of an investment in SM Prime, among other factors. Moreover, pursuant to the Reorganization, SM Prime will merge with SM Land and otherwise acquire additional companies and assets, as described in more detail in the section "Description of the Reorganization". Accordingly, the risks described below relate to both SM Prime and the businesses and assets that will comprise New SM Prime.

As a result of the Reorganization, the business, financial condition and results of operations for New SM Prime will differ significantly from those of SM Prime as of the date of this Offer Document. Prospective participants in the Exchange Offers are therefore cautioned to read carefully the information in the sections "The Exchange Offers", "Description of the Reorganization", "Pro Forma Financial Information", "Business" and elsewhere in this Offer Document for more details concerning the combined businesses and assets that will comprise New SM Prime.

The risks described below are not the only ones relating to SM Prime, New SM Prime or the Exchange Offers. Additional risks not presently known to the Offeror or that the Offeror currently deems immaterial may also impair the business operations of SM Prime and New SM Prime and adversely affect the price of the Consideration Shares. If any of the following risks actually occur, SM Prime's and New SM Prime's businesses, financial positions and operating results could be materially and adversely affected.

Shareholders in SMDC and HPI considering whether to accept the Exchange Offers should consult their own expert advisors as to the suitability of participating in the Exchange Offers and an investment in the Consideration Shares.

Participation in the Exchange Offers and an investment in the Consideration Shares is suitable only for investors who understand the risk factors associated with this type of investment and who can afford a loss of all or part of their investment. Such information is presented as of the date hereof and is subject to change, completion or amendment without notice.

RISKS RELATING TO SM PRIME AND NEW SM PRIME

The Philippine property market is cyclical and can be affected by domestic and global economic conditions.

SM Prime derives its revenues principally from rents paid by tenants in its malls, and New SM Prime will derive a substantial portion of its revenue from rents and sales relating to its portfolio of malls, residential and commercial property developments and other leisure and mixed-use properties, substantially all of which are located in the Philippines. According1y, SM Prime is, and New SM Prime will continue to be, heavily dependent on conditions in the Philippine property market. In the past, the Philippine property market has been cyclical and property values have been affected by the supply of and demand for comparable properties, the rate of economic growth in the Philippines and political and social developments. Demand for new residential projects in the Philippines, in particular, has also fluctuated in the past as a result of prevailing economic conditions in both the Philippines and in other countries, such as the United States (including overall growth levels and interest rates), the strength of overseas markets (as a substantial portion of demand comes from Overseas Filipino Workers ("OFWs") and expatriate Filipinos), the political and security situation in the Philippines and other related factors.

In particular, the global financial crisis in 2008 and 2009 resulted in a generally negative effect on real estate property prices globally, including in the Philippines, and continued uncertainty and volatility in global economic conditions may result in further adverse impacts to SM Prime and New SM Prime. Since the second half of 2008, the global financial markets have experienced, and may continue to experience,

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significant dislocations, which originated from the liquidity disruptions in the United States and the European Union credit and sub-prime residential mortgage markets. These disruptions and other events, such as rising government deficits and debt levels, the sovereign credit ratings downgrades and ensuing public deficit and debt reduction measures of the United States and certain member states of the European Union, the risk of a partial collapse of the Eurozone and slower rates of growth in the Chinese economy have had and continue to have a significant adverse effect on the global financial markets. These adverse effects can result in, among others, lower demand and values for real estate in the Philippines, increased difficulties on the part of tenants in meeting their lease and other financial obligations, and greater difficulties for SM Prime and New SM Prime in obtaining financing where necessary to fund the acquisition and development of their real estate projects.

General cyclical trends in the Philippines and international property markets, as well as significant uncertainties and volatilities in the domestic, regional and global economic conditions affecting those property markets, are expected to continue, and accordingly SM Prime's and New SM Prime's results of operations may fluctuate from period to period in accordance with those fluctuations. There can be no assurance that such variances will not have a material adverse effect on the business, financial condition and results of operations of SM Prime and New SM Prime.

SM Prime and New SM Prime may continue to face challenges of title to land.

While the Philippines has adopted a system of land registration which is intended to conclusively confirm land ownership, and which is binding on all persons (including the Government), it is not uncommon for third parties to claim ownership of land that has already been registered and over which a title has been issued. There have also been cases where third parties have produced false or forged title certificates over land. In particular, Quezon City, Metro Manila and the province of Cavite, have been known to experience problems with syndicates of squatters and forged or false title holders. Although the companies comprising New SM Prime generally conduct extensive title searches before they acquire any parcel of land, from time to time they have defended themselves against third parties who claim to be the rightful owners of land which has been either titled in the name of the persons selling the land to those companies or which has already been titled in those companies' names. In the event a greater number of similar third-party claims are brought against New SM Prime in the future or any such claims involve land that is material to New SM Prime's malls, residential developments and other real estate assets, New SM Prime's management may be required to devote significant time and incur significant costs in defending against such claims. If any such claims are successful, New SM Prime may have to either incur additional costs to settle such third-party claims or surrender title to land that may be material in the context of New SM Prime's operations. In addition, title claims made by third parties against New SM Prime may have an adverse effect on its reputation.

Furthermore, transfer of title in the Philippines in connection with real estate sales involves a series of registrations and filings, which can require several months to complete. As a result, the companies comprising New SM Prime may in some instances occupy, operate or develop properties where those companies have not yet completed all formalities in respect of perfecting title. There can be no assurance that third parties will not in the future challenge New SM Prime's rights to properties in similar circumstances where title has not yet been perfected.

SM Prime and New SM Prime will continue to compete with other commercial and residential developers.

SM Prime competes, and New SM Prime will continue to compete, with other developers and operators of shopping malls and other commercial properties and residential properties for tenants, sales customers and land acquisition opportunities, among others.

SM Prime's and New SM Prime's malls will compete with other similar malls. Increased competition could adversely affect income from, and the market value of, the malls. The income from, and market values of,

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the malls will be largely dependent on the ability of the malls to compete against other retail malls in their area in attracting and retaining customers. In addition, retailers at the malls face increasing competition from speciality stores, general merchandise stores, discount stores, warehouse outlets and street markets. Important factors that affect the ability of retail malls to attract or retain customers include the quality of the malls' existing tenants and the attractiveness of the building and the surrounding area to customers. Attracting and retaining tenants and customers often involves refitting, repairing or making improvements to mechanical and electrical systems and outward appearance. If competing malls of a similar type are built in the areas where the malls are located or similar malls in the vicinity of the malls are substantially updated and refurbished, the value and net income of the malls could be reduced.

Additionally, New SM Prime's income from, and market values of, its residential development projects will be largely dependent on these projects' popularity when compared to similar types of projects in their areas, as well as on the ability of New SM Prime to correctly gauge the market for its projects. Important factors that could affect New SM Prime's ability to effectively compete include a project's relative location versus that of its competitors, particularly proximity to transportation facilities and commercial centers, as well as the quality of the housing and related facilities offered by New SM Prime and the overall attractiveness of the project.

New SM Prime's commercial investment property business will continue to compete with a number of commercial developers. Competition from other developers of neighboring commercial centers and office spaces may adversely affect New SM Prime's ability to successfully operate its investment properties or attract and retain tenants, and continued development by these and other market participants could result in saturation of the market for office and retail space. In addition, New SM Prime's major competitors may have greater experience, financial resources and more expertise in developing residential and commercial properties and commercial leasing operations.

New SM Prime's future growth and development will also depend, in part, on its ability to acquire or enter into agreements to develop additional tracts of land suitable for the types of mall, residential and commercial real estate projects that the companies forming New SM Prime have developed over the years. As New SM Prime and its competitors attempt to locate sites for development, New SM Prime may experience difficulty locating parcels of land of suitable size in locations and at prices acceptable to New SM Prime, particularly parcels of land located in areas surrounding Metro Manila and in other urban areas throughout the Philippines. In the event New SM Prime is unable to acquire suitable land at acceptable prices, or at all, its growth prospects could be limited and its business and results of operations could be adversely affected.

As a result of the foregoing, historical operating results of the malls may not be indicative of future operating results and historical market values of the malls may not be indicative of future market values. A failure by SM Prime and New SM Prime to compete effectively against other developers and operators of malls and other commercial properties and residential properties could result in a loss of market share in the relevant sectors and corresponding decreases in revenues from rentals and property sales, which would in turn negatively impact SM Prime's and New SM Prime's businesses, financial condition and results of operations.

SM Prime and New SM Prime will continue to be exposed to risks associated with the operation of its mall and commercial leasing businesses.

The operations of SM Prime and New SM Prime's malls and commercial leasing businesses will continue to be subject to risks relating to the ownership of properties for lease and the management of mall and commercial tenants. The performance of SM Prime and New SM Prime's malls and commercial properties could be affected by a number of factors, including:

    the national and international economic climate;

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    trends in the Philippine commercial and retail industry;

    ability to attract leading names in the retail market to New SM Prime's mall and commercial developments;

    efficiency in collection, property management and tenant relations;

    non-renewal of expiring tenancies;

    amount of disposable income and consumer preference;

    competition for tenants;

    changes in market rental rates;

    the need to periodically renovate, repair and re-let space and the costs thereof;

    the quality and strategy of the management services provided; and

    New SM Prime's ability to provide adequate security, maintenance and insurance.

In particular, New SM Prime's commercial development projects will comprise seven office buildings catering primarily to tenants operating in the Business Process Outsourcing ("BPO") industry. Adverse trends in the Philippines BPO industry and competitive environment would result in the inability of existing BPO tenants to honor their lease commitments, as well as lower demand among potential BPO clients for vacant space.

If New SM Prime is unable to lease its mall and commercial properties in a timely manner or collect rent at profitable rates or at all, this could materially and adversely affect New SM Prime's business, financial condition and results of operations.

SM Prime and New SM Prime will be exposed to general risks associated with the ownership and management of real estate.

Real estate investments are generally illiquid, limiting the ability of an owner or a developer to convert property assets into cash on short notice with the result that property assets may be required to be sold at a discount in order to ensure a quick sale. Such illiquidity will also limit the ability of SM Prime and New SM Prime to manage its portfolio in response to changes in economic, real estate market or other conditions.

Property investment is also subject to risks incidental to the ownership and management of residential and commercial properties including, among other things: competition for tenants; oversupply of, or reduced demand for, retail, office and residential space; changes in market rents; inability to renew leases at favorable rates or at all; inability to collect rents due to insolvency of tenants, or otherwise as a result of their inability or refusal to comply with lease commitments as a result of adverse business conditions or other factors; inability to dispose of major investment properties for the values at which they are recorded; increased operating costs; the need to renovate, repair and re-let space periodically and to pay the associated costs; wars, terrorist attacks, riots, civil commotions and natural disasters; and other events beyond SM Prime's and New SM Prime's control.

SM Prime's and New SM Prime's activities may also be impacted by changes in laws and governmental regulations in relation to real estate, including those governing usage, zoning, taxes and government charges. Such revisions may lead to an increase in management expenses or unforeseen capital expenditure to ensure compliance. Rights related to the relevant properties may also be restricted by legislative actions, such as revisions to the laws relating to building standards or town planning laws, or the enactment of new laws relating to government appropriation, condemnation and redevelopment. Any of these events could materially and adversely affect SM Prime's and New SM Prime's businesses, financial condition and results of operations.

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Property development in the Philippines is capital intensive, and the necessary funding may not be available.

The real estate industry in the Philippines is capital intensive, and market players are required to incur significant capital expenditures to complete existing projects and commence construction on new developments. Although historically the companies forming New SM Prime have funded a significant portion of their capital expenditure requirements internally from real estate revenues, they have periodically utilized external sources of financing. There can be no assurance that, to complete current and future malls and other commercial and residential projects or satisfy other liquidity and capital resources requirements, SM Prime or New SM Prime will be able to continue funding their capital expenditure requirements internally, or that they will be able to externally obtain sufficient funds at acceptable rates to fund their capital expenditure budgets, or at all. Failure to obtain the requisite funds could delay or prevent completion of projects and materially and adversely affect SM Prime's and New SM Prime's businesses, financial condition and results of operations.

SM Prime's and New SM Prime's reputation may be affected by the operations of some of its affiliates.

Actions taken that adversely impact the reputation of a given entity in the SM Group may also have an adverse impact on the SM Group as a whole. Several of the SM Group companies cross-sell products and coordinate marketing campaigns that associate them with other affiliated entities. If the reputation or corporate image of any of the companies in the SM Group were to suffer, the business, financial condition and results of operations of other SM Group companies could be materially and adversely affected.

In addition, there are numerous other SM Group companies which conduct business across varied industries, such as food and other retail merchandising and banking. Certain of these SM Group companies are also leaders in their respective markets. If any of such SM Group companies encounters difficulties (financial or otherwise), negative publicity or other issues, New SM Prime's business reputation and financial condition may also be adversely affected.

New SM Prime will continue to be effectively controlled by the Sy family and their interests may differ significantly from the interests of other shareholders.

As of March 31, 2013, the Sy family exercised voting power over approximately 70% of the issued share capital of SM Prime. Upon completion of the Exchange Offers and the Reorganization, the Sy family is expected to hold voting power over approximately 79% of the issued share capital of New SM Prime. As a result, the Sy family effectively controls SM Prime and will continue to control New SM Prime, including in relation to major policy decisions such as its overall strategic and investment decisions, dividend plans, capital raisings and other financings, mergers and disposals, amendments to its Articles of Incorporation and By-laws and other significant corporate actions.

Conflicts of interest may also arise between the Sy family, on the one hand, and SM Prime and New SM Prime on the other, in a number of other areas, including:

    major business combinations involving SM Prime and New SM Prime;

    plans to develop the businesses of SM Prime and New SM Prime; and

    business opportunities that may be attractive to the Sy family and New SM Prime.

If the interests of the Sy family conflict with the interests of other shareholders of SM Prime or New SM Prime, there can be no assurance that the Sy family would not cause SM Prime or New SM Prime to take action which might differ from the interests of other shareholders.

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SM Prime has entered into and New SM Prime expects to continue to enter into material agreements and other arrangements with the Sy family and its affiliated companies and persons.

SM Prime has entered into and New SM Prime expects to continue to enter into a number of material agreements and other arrangements with companies controlled by members of the Sy family and affiliated companies and persons. Transactions with related parties pose the risk of SM Prime and New SM Prime entering into transactions on terms less favorable than could be obtained in arm's-length transactions with unrelated parties. In particular, Sy family-controlled companies operating in the retail and banking sectors will continue to account for a significant portion of the total rental revenue from SM Prime and New SM Prime's malls and other commercial properties. Moreover, the Sy family could cause New SM Prime to enter into transactions with New SM Prime's affiliates on terms less favorable than could be obtained in arm's-length transactions with unrelated parties. Any such transactions could materially adversely affect New SM Prime's business, financial condition and results of operations. For more information concerning related party transactions, see Note 15 to the Pro Forma Financial Information.

SM Prime and New SM Prime's leasing operations depend on key tenants, which are affiliates of the SM Group.

SM Prime derives a substantial portion of its rental income from affiliated tenants controlled by the Sy family. There can be no assurance that the full or partial termination of leases by some or all of those tenants would not adversely affect SM Prime's or New SM Prime's total rental revenues, nor can there be any assurance that SM Prime or New SM Prime would be able to locate similar, suitable replacement tenants. Furthermore, there can be no assurance that such affiliated tenants will not relocate to another space of renegotiate leases on terms more favourable to them. A partial or total loss of these tenants could have a material adverse effect on SM Prime's and New SM Prime's businesses, financial condition and results of operations.

SM Prime's and New SM Prime's malls will continue to depend primarily on retail tenants.

SM Prime's and New SM Prime's growth is largely dependent on their ability to continue to construct profitable malls in new locations in the Philippines. The substantial majority of the aggregate net leasable area in these malls is and will continue to be dedicated to retail use, exposing SM Prime and New SM Prime to risks relating to economic conditions in the Philippines such as trends in consumer spending, exchange rates and spending patterns of OFWs and their dependents, and the supply of, or demand from, tenants for retail space and other competing commercial malls. Declines in consumer spending and other factors that may result in lower demand for retail space could have a material adverse effect on SM Prime's and New SM Prime's ability to successfully operate and develop existing and future malls.

SM Prime and New SM Prime will continue to depend on retaining the services of its senior management team, and its ability to attract and retain talented personnel.

SM Prime's senior management team, whose details are set out in "Board of Directors and Senior Management," is critical to its success and the loss of the services of any key member of the team could materially impair the execution of the Reorganization and have an adverse effect on New SM Prime's strategy and operations.

Following the Reorganization, New SM Prime will also depend on its senior management team, some of whom may not have been part of the senior management team for SM Prime. New SM Prime will rely on this management team for the successful integration of its operations and execution of its business strategy. In the event one or more members of the teams terminates his or her relationship with New SM Prime, New SM Prime may not be able to replace them within a reasonable period of time or with a person of

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equivalent expertise and experience, which could materially and adversely affect New SM Prime's business, financial condition and results of operations.

Malls and other commercial properties owned by SM Prime and New SM Prime may be subject to an increase in operating and other expenses.

SM Prime's and New SM Prime's financial condition and results of operations could be adversely affected if operating and other expenses relating to malls and other commercial properties increase without a corresponding increase in revenues or tenant reimbursements (where applicable) of operating and other expenses. Factors which could increase operating and other expenses include:

    increases in utility expenses;

    increases in payroll expenses;

    increases in property taxes and other statutory charges;

    increases in the rate of inflation;

    changes in the rate and expense of depreciation and amortisation;

    changes in statutory laws, regulations or Government policy which increase the cost of compliance with such laws, regulations or policies;

    increases in management fees or sub-contracted service costs, such as maintenance and security;

    increases in insurance premiums; and

    defects affecting the malls which need to be rectified, leading to unforeseen capital expenditure.

Increased expenses resulting from the foregoing or other factors, to the extent not compensated by corresponding increases in revenues, could have a material adverse effect on SM Prime's and New SM Prime's businesses, financial condition and results of operations.

SM Prime and New SM Prime will face risks relating to the management of their land bank.

SM Prime and New SM Prime will need to continue to acquire land for replacement and expansion of land inventory within their current markets. However, it may not be possible to acquire land in suitable locations and on commercially reasonable terms. These challenges are exacerbated by the highly competitive real estate industry in Metro Manila and its surrounding areas, where the companies that will comprise New SM Prime compete for land acquisition with other real estate companies, some of which may have more resources. There can be no assurance of reaching agreement in respect of the lease or purchase of any specific property or properties. In the event that SM Prime or New SM Prime is unable to acquire suitable land, their growth prospects could be limited.

The risks inherent in purchasing and developing land increase as consumer demand for residential real estate decreases. The market value of land, subdivision lots and housing inventories can fluctuate significantly as a result of changing market conditions. There can be no assurance that measures employed to manage land inventory risks will be successful. In the event of significant changes in economic, political or market conditions, SM Prime and New SM Prime may have to sell subdivision lots and housing and condominium units at significantly lower margins or at a loss. Changes in economic or market conditions may also require SM Prime and New SM Prime to defer the commencement of housing and land development projects, which would require continuing to carry the cost of acquired but undeveloped land on-balance sheet, as well as reducing the amount of property available for sale. Any of the foregoing events would have a material adverse effect on SM Prime's and New SM Prime's business, financial condition and results of operations.

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SM Prime and New SM Prime may suffer material losses in excess of insurance proceeds.

SM Prime's portfolio of malls, and residential properties and other real estate assets that will be acquired by New SM Prime, could suffer physical damage caused by fire or other causes, resulting in losses (including loss of rent) which may not be fully compensated for by insurance. In addition, certain types of risks and insurance cover (such as war risk and acts of terrorism) may be uninsurable or the cost of insurance may be prohibitive when compared to the risk. Should an uninsured loss or a loss in excess of insured limits occur, SM Prime and New SM Prime could lose capital invested in the affected property as well as any anticipated future revenue from such property, and may also remain liable for any debt or other financial obligation related to such property. No assurance can be given that material losses in excess of insurance proceeds will not occur in the future.

Continued compliance with, and any changes in, safety and environmental laws and regulations may adversely affect SM Prime's and New SM Prime's business, financial condition and results of operations.

In general, developers of real estate projects are required to submit project descriptions to regional offices of the Philippine Department of Environment and Natural Resources ("DENR"). For environmentally sensitive projects or at the discretion of the regional office of the DENR, a detailed Environmental Impact Assessment ("EIA") may be required and the developer will be required to obtain an Environmental Compliance Certificate ("ECC") to certify that the project will not have an unacceptable environmental impact. There can be no assurance that current or future environmental laws and regulations applicable to SM Prime and New SM Prime will not increase the costs of conducting business above currently projected levels or require future capital expenditures.

Environmental reports with respect to any of the properties that are currently owned by SM Prime or will be owned by New SM Prime may not reveal (i) all environmental liabilities; (ii) whether previous owners or operators of the properties had created any material environmental condition not known to SM Prime or New SM Prime; or (iii) whether a material environmental condition exists in any one or more of such properties. Under the 1aws of the Philippines, owners and operators of real estate may be liable for the costs of removal or remediation of certain hazardous substances or other regulated materials on or in their property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of such substances or materials. The cost of investigation, remediation or removal of these substances may be substantial.

If a violation of an ECC occurs or if environmental hazards on land where SM Prime's or New SM Prime's projects are located cause damage or injury to buyers or any third party, SM Prime or New SM Prime may be required to pay a fine, to incur costs in order to cure the violation and to compensate its buyers and any affected third parties. It is uncertain whether environmental legislation or regulations will be amended or enacted in the future, how existing or future laws or regulations will be enforced, administered or interpreted, or the amount of future expenditures that may be required to comply with these environmental laws or regulations or to respond to environmental claims. The introduction or inconsistent application of, or changes in, laws and regulations applicable to SM Prime or New SM Prime could materially and adversely affect their businesses, financial condition and results of operations.

Zoning restrictions and local opposition may delay or preclude construction.

In order to develop a property on a particular site, the zoning of such site must permit the development of the intended type of residential, office and/or retail activities. In instances where the existing zoning is not suitable or in which the zoning has yet to be determined, SM Prime and New SM Prime will be required to apply for the required zoning classifications. This procedure may be protracted, particularly where the bureaucracy is cumbersome and inefficient, and there can be no assurance that the process of obtaining proper zoning will be completed with sufficient speed to enable the office, retail and/or residential developments to be completed ahead of any competitor development, or at all. Opposition by local

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residents to zoning and/or building permit applications may also cause considerable delays. In addition, arbitrary changes to applicable zoning by the relevant authorities may jeopardize projects that have already commenced. Therefore, a failure by SM Prime or New SM Prime to receive zoning approvals, or delays in the procedures for the receipt of such zoning approvals, could result in increased costs, which could have a material effect on SM Prime's and New SM Prime's businesses, financial condition and results of operations.

Natural or other catastrophes, including severe weather conditions and disease epidemics, may materially disrupt SM Prime's or New SM Prime's operations, affect their ability to complete projects and result in losses not covered by their insurance policies.

The Philippines has experienced a number of major natural catastrophes over the years, including typhoons, droughts, volcanic eruptions, earthquakes and outbreaks of contagious diseases. There can be no assurance that the occurrence of such natural catastrophes will not materially disrupt SM Prime's or New SM Prime's operations. These factors, which are not within SM Prime's or New SM Prime's control, could potentially have significant effects on SM Prime's malls and the commercial and real estate development projects that will comprise New SM Prime, many of which are large, complex estates with infrastructure, such as buildings, roads and perimeter walls, that are susceptible to damage. Damage to these structures or delays in delivery or completion of property resulting from such natural catastrophes could also give rise to claims against SM Prime and New SM Prime from third parties or from customers, for example, for physical injuries or loss of property. Further, an outbreak of contagious disease could adversely affect retail operations at SM Prime's malls. As a result, the occurrence of natural or other catastrophes or severe weather conditions may adversely affect SM Prime's and New SM Prime's businesses, financial condition and results of operations.

Further, notwithstanding the insurance carried by SM Prime and New SM Prime, there are losses for which insurance may not be obtainable at a reasonable cost or at all. Should an uninsured loss or a loss in excess of insured limits occur, SM Prime and New SM Prime could lose all or a portion of the capital invested in a property, as well as the anticipated future turnover from such property, while remaining liable for any project construction costs or other financial obligations related to the property. Any material uninsured loss could materially and adversely affect SM Prime's and New SM Prime's businesses, financial condition and results of operations.

Infringement of intellectual property rights would have a material adverse effect on SM Prime's and New SM Prime's business.

Upon commencement of development of new projects, SM Prime and the companies that will comprise New SM Prime generally file applications for the registration of intellectual property rights with respect to the names of certain of their real estate products, as well as for trademarks.

There can be no assurance that such applications will be approved or that the actions those companies have taken will be adequate to prevent third parties from using those corporate brands and logos, or from naming brands or developments using the same brands that SM Prime and New SM Prime will use. In addition, there can be no assurance that third parties will not assert rights in, or ownership of, the trademarks and other intellectual property rights of SM Prime and New SM Prime. SM Land believes that the reputation and track record established under intellectual property rights such as the "SM Land" name (which, together with other SM trademarks and logos, is owned by SMIC and in respect of which no royalties are currently paid to SMIC) is a key to future growth, and accordingly, New SM Prime's business, financial condition and results of operations may be materially and adversely affected by the infringing use of the "SM Land" and related brand names by third parties, or if in any way SM Prime or New SM Prime were restricted from using such marks.

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SM Prime does and New SM Prime will rely on third-party services and independent contractors.

Several of the companies that will comprise New SM Prime currently rely and will continue to rely on services from third parties, including property management companies, among others, to maintain and inspect properties and manage tenant relationships. There can be no assurance of successfully obtaining such services at reasonable costs or that such third parties will adequately perform their obligations. A failure by such third parties to adequately provide these services could adversely impact SM Prime's and New SM Prime's businesses, financial condition and results of operations.

In addition, SM Prime relies, and New SM Prime will rely, on independent contractors, including designers, architects and other specialists, to provide various services, including land clearing and infrastructure development, various construction projects and building and property fitting-out works. There can be no assurance of identifying or engaging an independent contractor for any particular project or finding a contractor that is willing to undertake a particular project within SM Prime's or New SM Prime's budget, which could result in cost increases or project delays. Further, although SM Prime does and New SM Prime's personnel will continue to actively supervise the work of such independent contractors, there can be no assurance that the services rendered by any of its independent contractors will always match the appropriate quality standards. Contractors may also experience financial or other difficulties, and shortages or increases in the price of construction materials may occur, any of which could delay the completion or increase the cost of certain residential development projects, and SM Prime or New SM Prime may incur additional costs as a result thereof. Any of these factors could materially and adversely affect their businesses, financial condition and results of operations.

SM Prime and New SM Prime will face risks inherent in joint venture structures and/or funds.

SM Prime currently has, and New SM Prime will have, interests in joint venture entities and/or funds in connection with its property development and investment plans, including integrated developments. Disagreements may occur between SM Prime and New SM Prime, on the one hand, and their joint venture partners and/or third-party fund investors, as the case may be, regarding the business and operations of the joint ventures and/or funds which may not be resolved amicably. In addition, joint venture partners and/or third-party fund investors may (i) have economic or business interests or goals that are inconsistent with those of SM Prime or New SM Prime; (ii) take actions contrary to SM Prime's or New SM Prime's instructions, requests, policies or objectives; (iii) be unable or unwilling to fulfill their obligations; (iv) have financial difficulties; or (v) have disputes as to the scope of their responsibilities and obligations.

Additionally, in light of the current economic climate, joint venture partners or third-party fund investors (i) may not be able to fulfill their respective contractual obligations (for example they may default in making payments during future capital calls or capital raising exercises); or (ii) may experience a decline in their creditworthiness. The occurrence of any of these events may materially and adversely affect the performance of joint ventures and/or funds, which in turn may materially and adversely affect the SM Prime's and New SM Prime's performance.

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Land and/or real property may be subject to compulsory acquisition.

Under Philippine law, the Government has the power to acquire any land in the Philippines for any public purpose, if the acquisition is for public benefit or utility or in the public interest or for any residential, commercial or industrial purposes. Accordingly, if the market value of any land that may be compulsorily acquired from SM Prime or New SM Prime is greater than the compensation paid in respect of the acquired land, then SM Prime's and New SM Prime's businesses, financial condition and results of operations could be adversely affected.

In addition, real property and/or land owned by SM Prime or New SM Prime and located outside of the Philippines may be compulsorily acquired by the respective governments of the countries in which they are located for public use or for public interest. The owner of such real property that has been compulsorily acquired may be compensated in accordance with the laws of the respective jurisdictions. In the event that any of SM Prime's or New SM Prime's land and/or real property located outside of the Philippines is compulsorily acquired, the compensation paid in respect of the acquired land and/or real property could be less than its market value which could also adversely affect SM Prime's and New SM Prime's business, financial conditions and results of operations.

SM Prime and New SM Prime may not accurately forecast market prices and property values.

SM Prime's and New SM Prime's profitability will depend in part on its ability to forecast market prices, property-related costs and property values. In connection with the acquisition of land for its development business, SM Prime and New SM Prime will base its purchase price in part on estimates of the anticipated returns on its investment. Any failure to forecast accurately such values and prices could result in lower profits and have a material adverse effect on SM Prime's and New SM Prime's business, financial condition and results of operations.

RISKS RELATING TO NEW SM PRIME'S PROPERTY DEVELOPMENT BUSINESS

The risks discussed below relate principally to the business and operations of SM Land and SMDC, comprising the development and sale of residential properties and the development and leasing of office and commercial properties. Assuming the successful completion of the Exchange Offers and the Reorganization, these businesses and their respective assets and operations will be merged into SM Prime. See "The Exchange Offers" and "Description of the Reorganization" for more information concerning the business combinations that will result in the formation of New SM Prime.

New SM Prime will face numerous risks including reputational risk and operational risks relating to its residential, commercial and office property development business.

New SM Prime's operations will include the development and sale of residential properties and the development and lease of office and commercial properties. The property development business involves significant risks distinct from those involved in the ownership and operation of established properties, including the risk that New SM Prime may invest significant time and money in a project that may not attract sufficient levels of demand in terms of anticipated sales at the expected take-up rate and which may not yield target returns as anticipated. In addition, obtaining required approvals and permits from various Philippine regulatory agencies may take substantially more time and resources than anticipated or construction of projects may not be completed on schedule or within budget.

In addition, the time and the costs involved in completing the development and construction of projects can be adversely affected by many factors, including shortages of materials, equipment and labor, adverse weather conditions, Peso depreciation, natural disasters, labor disputes with contractors and subcontractors, accidents, changes in laws or in Government priorities and other unforeseen problems or circumstances. Any of these factors could result in project delays and cost overruns, which could negatively affect New SM Prime's margins.

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New SM Prime's reputation could also be adversely affected if projects are not completed on time or if projects do not meet customers' requirements. If any of New SM Prime's projects experiences construction or infrastructure failures, design flaws, significant project delays, quality control issues or otherwise, this could negatively affect its brand image and its ability to pre-sell its residential development projects. This would reduce cash flow and impair its ability to meet funding requirements.

Project delays, cost overruns and construction issues could also result in sales and resulting profits from a particular development not being recognized in the year in which it was originally expected to be recognized, which could adversely affect New SM Prime's results of operations. Further, the failure by New SM Prime to complete construction of a project to its planned specifications or schedule will result in cost overruns and possible abandonment of projects by contractors, as well as lower returns. Moreover, orders of the Philippine Department of Agrarian Reform ("DAR") allowing conversion of agricultural land for development may require a project to begin by a prescribed deadline. If New SM Prime fails to complete construction of a project by the stated deadline, the land may not be used for New SM Prime's intended purpose.

Fluctuations in interest rates, changes in Government borrowing patterns and Government regulations could have a material adverse effect on New SM Prime's and its customers' ability to obtain financing.

Interest rates, and factors that affect interest rates, such as the Government's fiscal policy, could have a material adverse effect on New SM Prime and the demand for its products. For example:

    In connection with New SM Prime's property development business, higher interest rates make it more expensive to borrow funds to finance ongoing projects or to obtain financing for new projects.

    Insofar as New SM Prime's core residential development business is concerned, because a substantial portion of customers will be expected to procure financing to fund their property purchases, higher interest rates make financing, and therefore purchases of real estate, more expensive, which could adversely affect the demand for New SM Prime's residential projects.

    If the Government significantly increases its borrowing levels in the domestic currency market, this could increase the interest rates charged by banks and other financial institutions and also effectively reduce the amount of bank financing available to both prospective property purchasers and real estate developers, including New SM Prime.

    New SM Prime's access to capital and its cost of financing are also affected by restrictions, such as single borrower limits, imposed by the Bangko Sentral ng Pilipinas ("BSP") on bank lending. If New SM Prime were to reach the single borrower limit with respect to any bank, it may have difficulty obtaining financing with reasonable rates of interest from other banks.

The occurrence of any of the foregoing events, or any combination of them, or of any similar events, could materially and adversely affect New SM Prime's business, financial condition and results of operations.

New SM Prime will continue to operate in a highly regulated environment and it is affected by the development and application of regulations in the Philippines.

The Philippines' property development industry is highly regulated. The development of condominium projects, subdivision and other residential projects as well as the development of commercial projects are subject to a wide range of government regulations, which, while varying from one locality to another, typically include zoning considerations as well as the requirement to procure a variety of environmental and construction-related permits. In addition, projects that are to be located on agricultural land must get clearance from the DAR so that the land can be reclassified as non-agricultural land and, in certain cases, tenants occupying agricultural land may have to be relocated at New SM Prime's expense. Presidential Decree No. 957, as amended, ("P.D. 957"), Republic Act No. 4726, as amended, ("R.A. 4726"), Republic Act No. 6552 (the "Maceda Law") and Batas Pambansa Blg. 220 ("B.P. 220") are the principal statutes

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which regulate the development and sale of real property as part of a condominium project or subdivision. P.D. 957, R.A. 4726 and B.P. 220 cover subdivision projects for residential, commercial, industrial and recreational purposes and condominium projects for residential or commercial purposes. The Maceda Law deals with the sale of property on installment. The Housing and Land Use Regulatory Board ("HLURB") is the administrative agency of the Government which enforces these statutes. Regulations applicable to New SM Prime's operations include among others, the following standards:

    the suitability of the site;

    road access;

    necessary community facilities;

    open spaces and common areas;

    water supply;

    sewage disposal systems;

    electricity supply; and

    unit/lot sizes.

Since 2008, HLURB has required all property developers in the Philippines to partake in the development of socialized housing projects. Under Section 18 of the Republic Act No. 7279, developers of subdivision projects are required to develop an area for socialized housing equivalent to at least 20% of the total subdivision area or total subdivision project cost, at the option of the developer, within the same city or municipality, whenever feasible, and in accordance with the standards set by HLURB and other existing laws. Property developers are not allowed to buy credits from property firms already involved in socialized housing development but need to comply with the new rule by participating in any of the following: a) development of settlement; b) slum upgrading or renewal of areas for priority development either through zone improvement programs or slum improvement and resettlement programs; c) joint venture projects with either the local government units ("LGUs") or any of the housing agencies; or d) participation in the community mortgage program. If New SM Prime is unable to prepare itself organizationally and operationally for this new requirement, it may be subject to fines or other sanctions which would adversely impact its business and results of operations.

All condominium and subdivision development plans are also required to be filed with and approved by the LGU with jurisdiction over the area where the project is located. Approval of development plans is conditioned on, among other things, completion of the acquisition of the project site and the developer's financial, technical and administrative capabilities. Alterations of approved plans that affect significant areas of the project, such as infrastructure and public facilities, also require prior approval of the relevant government unit. There can be no assurance that New SM Prime will be able to obtain governmental approvals for its projects or that, when given, such approvals will not be revoked.

In addition, developers, owners of or dealers in real estate projects are required to obtain licenses to sell before making sales or other dispositions of condominium units, subdivision lots and housing units.

Project permits and any license to sell may be suspended, cancelled or revoked by HLURB based on its own findings or upon complaint from an interested party and there can be no assurance that New SM Prime will in all circumstances receive the requisite approvals, permits or licenses or that such permits, approvals or licenses will not be cancelled or suspended. Any of the foregoing circumstances or events could affect New SM Prime's ability to complete projects on time, within budget or at all, and could materially and adversely affect New SM Prime's business, financial condition and results of operations.

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Construction defects and other building-related claims may be asserted against New SM Prime, and New SM Prime may be subject to liability for such claims.

Philippine law provides that property developers, such as New SM Prime, warrant the structural integrity of houses that were designed or built by them for a period of 15 years from the date of completion of the condominium project or house. New SM Prime may also be held responsible for hidden (i.e. latent or non-observable) defects in a house sold by it when such hidden defects render the house unfit for the use for which it was intended or when its fitness for such use is diminished to the extent that the buyer would not have acquired it or would have paid a lower price had the buyer been aware of the hidden defect.

This warranty may be enforced within six months from the delivery of the residential unit to the buyer. In addition, Republic Act No. 6541, as amended, or the National Building Code of the Philippines (the "Building Code"), which governs, among others, the design and construction of buildings, sets certain requirements and standards that must be complied with by New SM Prime. New SM Prime or its officials may be held liable for administrative fines or criminal penalties in the case of any violation of the Building Code.

There can be no assurance that New SM Prime will not be held liable for damages, the cost of repairs, and/or the expense of litigation surrounding possible claims or that claims will not arise out of uninsurable events, such as landslides or earthquakes, or circumstances not covered by New SM Prime's insurance. If these damages are not covered by warranty and indemnification clauses in New SM Prime's agreements with contractors, the resulting liabilities could have an adverse effect on New SM Prime's business, financial condition and results of operations.

A portion of the demand for New SM Prime's properties is expected to come from OFWs, expatriate Filipinos and former Filipino residents who have returned to the Philippines ("Balikbayans"), which will expose New SM Prime to risks relating to the performance of the economies of the countries where these potential customers are based.

A portion of New SM Prime's sales of residential development projects will be to OFWs, expatriate Filipinos and Balikbayans. A number of factors could lead to, among other effects, reduced remittances from OFWs, a reduction in the number of OFWs or a reduction in the purchasing power of expatriate Filipinos and Balikbayans. These include:

    a downturn in the economic performance of the countries and regions where a significant number of these potential customers are located, such as the United States, Italy, the United Kingdom, Hong Kong, Japan, Korea, Taiwan and the Middle East;

    a change in Government regulations that currently exempt the income of OFWs from taxation in the Philippines;

    the imposition of restrictions by the Government on the deployment of OFWs to particular countries or regions, such as the Middle East; and

    restrictions imposed by other countries on the entry or the continued employment of foreign workers.

Any of these events could adversely affect demand for New SM Prime's residential projects from OFWs, expatriate Filipinos and Balikbayans, which could materially and adversely affect New SM Prime's business, financial condition and results of operations.

New SM Prime will be exposed to risks associated with in-house financing activities, including the risk of customer default, and it may not be able to sustain its in-house financing program.

In 2010, 2011 and 2012, 3.1%, 3.8% and 1.5%, respectively, of SMDC's customers availed themselves of in-house financing. SMDC's default rate for in-house financing over the three years ending 2012 was 15%.

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In cases where New SM Prime will continue to provide in-house financing, it will charge customers interest rates that are substantially higher than comparable rates for bank financing. As a result, and particularly during periods when interest rates are relatively high, New SM Prime will face the risk that a greater number of customers who utilize New SM Prime's in-house financing facilities will default on their payment obligations, which will require New SM Prime to incur expenses, such as those relating to sales cancellations, foreclosures and eviction of occupants. There can be no assurance that New SM Prime can immediately resell any property once a sale has been cancelled. Therefore, the inability of its customers who obtain in-house financing from New SM Prime to meet their payment obligations could affect New SM Prime's business, financial condition and results of operations.

New SM Prime will continue to face certain risks related to the cancellation of sales involving its residential projects.

New SM Prime's operations involving the development and sale of residential real estate could be adversely affected in the event a material number of condominium units, subdivision lots or house and lot sales are cancelled. New SM Prime's transactions will continue to be subject to the Maceda Law, which applies to all transactions or contracts involving the sale or financing of real estate through installment payments, including residential condominium units (but excluding industrial and commercial lots). Under the Maceda Law, buyers who have paid at least two years of installments are granted a grace period of one month for every year of paid installments to cure any payment default. A buyer is given such a right only once every five years during the life of the contract and its extensions, if any. If the contract is cancelled, the buyer is entitled to receive a refund of at least 50% of the total payments made by the buyer. Buyers who have paid less than two years of installments and who default on installment payments are given a 60 day grace period to pay all unpaid installments before the sale can be cancelled, but without the right of refund.

While historically there has not been a material number of cancellations to which the Maceda Law has applied, there can be no assurance that New SM Prime will not experience a material number of cancellations in the future, particularly during slowdowns or downturns in the Philippine economy, periods when interest rates are high or similar situations or if New SM Prime fails to meet the construction schedules of launched projects. In the event New SM Prime does experience a material number of cancellations, it may not have enough funds on hand to pay the necessary cash refunds to buyers or it may have to incur indebtedness in order to pay such cash refunds. In addition, particularly during an economic slowdown or downturn, there can be no assurance that New SM Prime would be able to resell the same property or resell it at an acceptable price. Any of the foregoing events would have a material adverse effect on New SM Prime's business, financial condition and results of operations.

From time to time New SM Prime will commence construction of a condominium project or house even before the full amount of the required down payment is made, and thus, before the sale is recorded as revenue. New SM Prime will therefore risk having expended cash to begin construction of the condominium project or the house before being assured that the sale will eventually be booked as revenue, particularly if the buyer is unable to complete the required down payment and New SM Prime is unable to find another purchaser for such property.

There can be no assurance that New SM Prime will not suffer from substantial sales cancellations and that such cancellations will not materially and adversely affect New SM Prime's business, financial condition and results of operations.

The loss of certain tax exemptions and incentives for residential home sales will increase New SM Prime's tax liability and decrease any profits it might have in the future.

SM Land benefits from provisions under Philippine law and regulations which exempt sales of residential lots with a gross selling price of ₱1,919,500 and below and sales of residential houses and lots with a gross

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selling price of ₱3,199,200 and below from the value-added tax ("VAT") of 12.0%. However, if two or more adjacent lots, or house and lots, are sold and disposed in favor of one buyer from the same seller for the purpose of utilizing such as one residential area, the sale shall be exempt from VAT only if the aggregate value of the properties do not exceed the threshold prices for exemption. Adjacent lots or house and lots shall be presumed as a sale of one residential area although covered by separate titles and/or tax declarations and by separate deeds of conveyance. Following the Reorganization, in the event these sales become subject to the VAT, the purchase prices for New SM Prime's subdivision lots and housing and condominium units will increase and this could adversely affect its sales. Because taxes such as the VAT are expected to have indirect effects on New SM Prime's results of operations by affecting general levels of spending in the Philippines and the prices of subdivision lots and houses, any adverse change in the Government's VAT-exemption policy could have an adverse effect on New SM Prime's results of operations.

Adoption of new accounting rules on revenue on construction of real estate may result in a restatement of SM Land's financial results for prior fiscal years which could be materially different from the audited consolidated financial statements of SM Land included in this Offer Document.

Under PFRS, real estate companies such as SM Land assess whether it is probable that the economic benefits will flow back to themselves when the contract price is collectible. Collectability of the contract price is demonstrated by the buyer's commitment to pay, which is supported by the buyer's initial and continuous investments that motivates the buyer to honor its obligation. Collectability is also assessed by considering factors such as collections and credit standing of the buyer. Revenue from sales of completed real estate projects is accounted for using the full accrual method. In accordance with Philippine Interpretations Committee Q&A No. 2006-01, the percentage-of-completion method is used to recognize income from sales of projects where the company has material obligations under the sales contract to complete the project after the property is sold, the equitable interest has been transferred to the buyer, construction is beyond the preliminary stage (i.e.,engineering, design work, construction contracts execution, site clearance and preparation, excavation and the building foundation are finished), and the costs incurred or to be incurred can be measured reliably. Under this method, revenue is recognized as the related obligations are fulfilled, measured principally on the basis of the estimated completion of a physical proportion of the contract work. The PSEC and the Financial Reporting Standards Council have deferred the effectivity of the International Financial Reporting Interpretations Committee's ("IFRIC") Interpretation No. 15 until the final revenue standard is issued by the International Accounting Standards Board and an evaluation of the requirements of the final revenue standard against the practices of the Philippine real estate industry is completed. The adoption of this interpretation will result in a change in the revenue and cost recognition from percentage of completion method to completed contract method.

Once SM Land begins to account for revenues from its real estate sales under IFRIC 15, amounts recorded for certain items in its financial statements, such as gross and net income, as well as receivables and customers' deposits, may be materially different from SM Land's consolidated financial statements included elsewhere in this Offer Document, and potentially provide a different view of SM Land's financial condition and results of operations.

The adoption of IFRIC 15 will also result in restatements to certain of SM Land's historical financial statements. As a result, there may be significant differences between the financial statements included in this Offer Document and any restated financial statements that will be prepared by SM Land once IFRIC 15 becomes effective. There can be no assurance that SM Land's current and historical results of operations will not be materially and adversely changed upon the adoption of IFRIC 15.

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RISKS RELATING TO THE PHILIPPINES

A large majority of SM Prime's and New SM Prime's business activities and assets will continue to be based in the Philippines, which will expose SM Prime and New SM Prime to risks associated with the country, including the performance of the Philippine economy.

Historically, the companies forming New SM Prime derived a large majority of their revenues and operating profits from the Philippines and, as such, were highly dependent on the state of the Philippine economy. Demand for retail, commercial and residential real estate are all directly related to the strength of the Philippine economy (including its overall growth and income levels), the overall levels of business activity in the Philippines, as well as the amount of remittances received from OFWs and overseas Filipinos.

Factors that may adversely affect the Philippine economy include:

    decreases in business, industrial, manufacturing or financial activities in the Philippines, the Southeast Asian region or globally;

    scarcity of credit or other financing, resulting in lower demand for products and services provided by companies in the Philippines, the Southeast Asian region or globally;

    exchange rate fluctuations;

    inflation or increases in interest rates;

    levels of employment, consumer confidence and income;

    changes in the Government or of the Government's fiscal and regulatory policies;

    re-emergence of SARS, avian influenza (commonly known as bird flu), including the H1N1 and H7N9 strains of the disease, or the emergence of another similar disease in the Philippines or in other countries in Southeast Asia;

    natural disasters, including but not limited to tsunamis, typhoons, earthquakes, fires, floods and similar events;

    political instability, terrorism or military conflict in the Philippines, other countries in the region or globally; and

    other social, political or economic developments in or affecting the Philippines.

There can be no assurance that the Philippines will achieve strong economic fundamentals in the future. Changes in the conditions of the Philippine economy could materially and adversely affect SM Prime's and New SM Prime's business, financial condition and results of operations.

SM Prime's and New SM Prime's businesses may be disrupted by terrorist acts, crime, natural disasters and outbreaks of infectious diseases or fears of such occurrences in Metro Manila or other parts of the Philippines.

Widely publicized criminal acts that have resulted in numerous deaths and injuries have taken place in Metro Manila. On August 23, 2010, a dismissed police officer demanding reinstatement held Hong Kong tourists hostage aboard a tour bus and eight tourists were killed when Philippine police attempted to rescue them. The incident was widely publicized in regional and international media and popular Internet sites for several days. The incident prompted the Hong Kong government to issue a strong warning against travel to the Philippines.

On January 25, 2011, an improvised bomb made with a mortar shell exploded inside a bus on a major road in the Makati City financial district, killing five persons and injuring 13. Other disruptive incidents have occurred in Metro Manila in previous years, including widespread demonstrations that compelled a

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president to resign, widespread strikes by labor federations, attempted coup d'états and military rebellions, and kidnappings and murders.

Other regions of the Philippines, particularly the southern part of the country, have been subject to a number of terrorist attacks since 2000. In recent years, the Philippine army has been in conflict with the Abu Sayyaf organization, which has ties to the al-Qaeda terrorist network, and has been identified as being responsible for certain kidnapping incidents and other terrorist activities. Moreover, isolated bombings have taken place in the Philippines in recent years, mainly in cities in the southern part of the country.

Metro Manila and other regions of the Philippines have also experienced severe natural disasters and its authorities may not be prepared or equipped to respond to such disasters. On September 26, 2009, Typhoon Ondoy resulted in 341.3 millimeters of rainfall in six hours, causing massive flooding that submerged several areas of Metro Manila and adjacent provinces. The typhoon caused 464 deaths and approximately ₱86 billion in property damage. On August 6, 2012, a monsoon hit Metro Manila and other nearby provinces which also caused severe flooding and landslides. Other calamities that affected Metro Manila in previous years have included unusually strong earthquakes and outbreaks of infectious diseases such as H1N1 influenza (commonly known as swine flu).

In December 2011, Typhoon Sendong caused massive flooding in the southern Philippine city of Cagayan de Oro, claiming thousands of lives and displacing tens of thousands of residents. Recently, on December 3, 2012, Typhoon Bopha struck the southern island of Mindanao as a category 5 typhoon, triggering widespread flash flooding and landslides throughout the region. Typhoon Bopha killed over 1,000 people and caused an estimated ₱42 billion in property damage.

It is not possible to predict the extent to which SM Prime or New SM Prime's various businesses in general will be affected by any of the above occurrences or fears that such occurrences will take place, and there can be no assurance that any disruption to its businesses will not be protracted, that property will not be damaged and that any such damage will be completely covered by insurance or at all. Any of these occurrences may disrupt the operations of SM Prime's and New SM Prime's businesses and could materially and adversely affect their business, financial condition and results of operations. Further, any of the above occurrences may also destabilize the Philippine economy and business environment, which could also materially and adversely affect SM Prime's and New SM Prime's, financial position and results of operations.

The Philippine economy and business environment may be disrupted by political or social instability.

The Philippines has from time to time experienced severe political and social instability, including acts of political violence. The May 2010 elections brought in the administration of President Benigno S. Aquino III. Despite high popularity ratings, strong congressional and military support and a persistent anti-corruption campaign, there is no assurance that potential stability in the country will be maintained.

Most recently, on May 31, 2012, the Philippine Senate impeached Renato Corona, then Chief Justice of the Supreme Court of the Philippines. The impeachment trial, which lasted several months, tried Corona on accusations of improperly issuing decisions that favored former President Arroyo, as well as failure to disclose certain properties, in violation of rules applicable to all public employees and officials.

Leadership change and shifting political alliances could alter national and local political dynamics and result in changes of policies and priorities. In addition, organized armed threats from communist insurgents and Muslim separatists persist in certain parts of the country.

There is no guarantee that future events will not cause political instability in the Philippines. Such instability may disrupt the country and its economy, discourage travel to the Philippines and could materially and adversely affect SM Prime's and New SM Prime's business, financial position and results of operations.

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Tensions with China may adversely affect the Philippine economy and business environment.

In 2011, tensions rose in relation to long-standing territorial disputes involving the Philippines, other Southeast Asian nations (including Vietnam, Malaysia and Brunei) and China over certain islands in the West Philippine Sea, also known as the South China Sea. The increased tensions were brought about by allegations of more aggressive measures being taken by certain nations to assert their claims in these disputes.

On April 8, 2012, during one of its regular maritime patrols, a Philippine Navy surveillance aircraft identified eight Chinese fishing vessels anchored inside and around Bajo de Masinloc (Scarborough Shoal), an area in the Municipality of Masinloc, Province of Zambales that the Philippines regards as an integral part of its territory. On April 10, 2012, an inspection team reported that large amounts of illegally collected corals, clams and sharks were found in the compartments of the fishing vessels. The arrival of Chinese maritime surveillance vessels resulted in a standoff. Should the territorial dispute in the West Philippine Sea escalate or continue, the Philippines' interests in fishing, trade and offshore drilling, the volume of trade between the Philippines and China, and the supply of steel available to the Philippines may be adversely affected, which in turn may affect, among other things, infrastructure development and general economic and business conditions in the Philippines, any of which could adversely affect SM Prime's and New SM Prime's businesses, financial condition and results of operations.

Corporate governance and disclosure standards in the Philippines may be less stringent than those in other countries.

There may be less publicly available information about Philippine public companies than is regularly made available by public companies in certain other countries. PSEC and PSE requirements with respect to corporate governance standards may also be less stringent than those applicable in certain other jurisdictions. For example, the Philippine SRC requires publicly listed companies to have at least two independent directors or such number of independent directors as is equal to 20.0% of its board of directors, whichever is lower, but in no case less than two. SM Prime currently has three independent directors and New SM Prime is expected to have three independent directors.

Many other countries require significantly more independent directors. Further, rules against self-dealing and those protecting minority shareholders may be less stringent or developed in the Philippines. Such potentially lower standards in certain areas of disclosure and corporate governance may materially and adversely affect an investment in SM Prime, particularly that of a minority shareholder.

Investors may face difficulties enforcing judgments against SM Prime or New SM Prime.

It may be difficult for investors to enforce judgments against SM Prime or New SM Prime that are obtained outside of the Philippines. In addition, all of the directors and substantially all of the officers of SM Prime are and will continue to be residents of the Philippines, and all or a substantial portion of the assets of such persons are located in the Philippines. As a result, it may be difficult for investors to effect service of process upon such persons, or to enforce against them judgments obtained in courts or arbitral tribunals outside the Philippines predicated upon the laws of jurisdictions other than the Philippines.

The Philippines is party to the United Nations Convention on the Enforcement and Recognition of Arbitral Awards, though it is not party to any international treaty relating to the recognition or enforcement of foreign judgments. Nevertheless, the Philippine Rules of Civil Procedure provide that a judgment or final order of a foreign court is, through the institution of an independent action, enforceable in the Philippines as a general matter, unless there is evidence that: (i) the foreign court rendering judgment did not have jurisdiction; (ii) the judgment is contrary to the laws, public policy, customs or public order of the Philippines; (iii) the party against whom enforcement is sought did not receive notice; or (iv) the rendering of the judgment entailed collusion, fraud, or a clear mistake of law or fact.

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RISKS RELATING TO THE REORGANIZATION

The Reorganization is still subject to corporate and regulatory approvals.

At the time of this Offer Document, certain shareholders' approvals for the Reorganization have not yet been secured. Board approvals have been obtained and undertakings from certain majority shareholders of the relevant companies that the Reorganization will be approved are already in place. In addition, the Reorganization will be subject to the approval of the PSEC. If the necessary shareholder or corporate approvals are not secured, the Reorganization will not be consummated, and the anticipated benefits of the Reorganization will not be realized. This could have a material adverse effect on SM Prime's and New SM Prime's business, financial condition and results of operations and the value of the Consideration Shares received by investors participating in the Exchange Offers.

The Reorganization may not result in the expected synergies.

While the Reorganization is expected to result in significant synergies and efficiencies through the integration of operations and economies of scale within the coming years, there can be no assurance that such contemplated synergies and efficiencies will be fully realized by New SM Prime and that the integration will be implemented with minimal disruption of operations. There can be no assurance that the Reorganization will have the desired effects contemplated in this Offer Document, which could have an adverse effect on SM Prime's and New SM Prime's business, financial position and results of operations.

SM Prime and SM Land may be subject to tax liabilities in relation to the Reorganization.

In relation to the Reorganization, SM Prime, SM Land and SMIC will file certain applications with the Bureau of Internal Revenue ("BIR") for rulings confirming the tax free nature of the planned merger under Philippine law and regulations. Previously, the BIR allowed the delegation of the authority to rule on this type of application to BIR's Assistant Commissioner. However, the new BIR administration that took over in 2010 has adopted a policy that this type of application must be signed off by the BIR Commissioner. This new policy has resulted in the delayed issuance of BIR rulings. While SM Prime and SM Land believe that the merger of SM Prime and SM Land is fully compliant with the requirements for tax-free status under the law and existing regulations, there can be no assurance that the requested tax rulings will be issued by the BIR in the near future, or at all. In the event that no such tax ruling is issued, the transfer of assets of SM Land (comprising, among others, real property and shares of stock) to SM Prime as a result of the Reorganization could be subject to the payment of applicable taxes. Thus, there can be no assurance that the BIR will not issue tax assessments on SM Prime and SM Land in connection with the Reorganization. Although SM Prime and SM Land believe that SM Prime and SM Land are adequately prepared to pay any potential tax assessments, any tax assessments in the aggregate could amount to substantial amounts, and could have an adverse effect on New SM Prime's business reputation, cash balance and cash flow.

RISKS RELATING TO THE EXCHANGE OFFERS

The Exchange Offers may be terminated.

No assurance can be given that the Exchange Offers will be completed. Completion of the Exchange Offers is at the sole discretion of the Offeror and is also conditional upon the satisfaction or waiver of the conditions of the Exchange Offers set forth herein. Subject as provided herein, the Offeror may, in its sole discretion, amend, terminate or withdraw the Exchange Offers at any time prior to the expiration date of the Exchange Offers and may, in its sole discretion, waive any conditions to the Exchange Offers after this date.

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Holders of SMDC and/or HPI shares may be disqualified from participation in the Exchange Offers or face penalties for failure to comply with the distribution restrictions on the Consideration Shares.

Holders of shares in SMDC and/or HPI are referred to the distribution restrictions set out in this Offer Document and the related acknowledgements, representations, warranties and undertakings set out herein which, in each case, holders will be deemed to make on tendering their shares, as applicable. Non-compliance with these could result in, among other things, the unwinding of trades and/or serious penalties.

Holders of SMDC and/or HPI shares should consult their own advisers regarding the desirability of participating in the Exchange Offers.

Holders of shares in SMDC and/or HPI should consult their own tax, accounting, financial and legal advisers regarding the suitability to themselves of the tax or accounting consequences of participating or declining to participate in the Exchange Offers and an investment in the Consideration Shares. None of SM Prime or SM Land, or any director, officer, employee, agent or affiliate of SM Prime or SM Land is acting for any holder or will be responsible to any holder for providing any protections which would be afforded to its clients or for providing advice in relation to the Exchange Offers, and accordingly none of SM Prime or SM Land or any director, officer, employee, agent or affiliate of SM Prime or SM Land makes any recommendation as to whether holders of SMDC and/or HPI shares should offer to exchange their shares or refrain from taking any action in the Exchange Offers, and none of them has authorized any person to make any such recommendation.

Holders of shares in SMDC or HPI who choose not to participate in the Exchange Offers may eventually become shareholders of private companies with securities not listed or traded on any exchange and exposed to higher tax liability on any transfer of such shares after the Exchange Offers.

During the Offer Period, SMDC and HPI will each initiate a voluntary delisting process with the PSE in accordance with the PSE Rules on Delisting, assuming that at least 90% of the issued and outstanding shares of SMDC and HPI are acquired by the Offeror. Pursuant to the minimum public ownership rule of the PSE, in consonance with BIR regulations, once public ownership of SMDC and HPI is reduced to less than 10% (which will occur if the Offeror acquires more than 90% of the issued and outstanding shares of each of SMDC and HPI), any transfer of SMDC and HPI shares subsequent to the settlement of the Exchange Offers 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 (₱100,000.00 and at the rate of 10% on any amount in excess of ₱100,000.00, and (ii) documentary stamp tax at the rate of ₱0.75 on each ₱200.00 of the par value of the shares of stock sold or transferred. Additionally, once the petitions to delist the shares of SMDC and/or HPI are approved by the PSE, shareholders who do not participate in the Exchange Offers will become holders of unlisted shares and will no longer receive regular reports from the relevant company.

RISKS RELATING TO THE CONSIDERATION SHARES

The relative volatility and illiquidity of the Philippine securities market may substantially limit investors' ability to sell the Consideration Shares at a suitable price or at a time they desire.

The Philippine securities markets are substantially smaller, less liquid, and more volatile relative to major securities markets in the United States and other jurisdictions, and are not as highly regulated as some of these other markets. There can be no assurance that any active trading market for the Consideration Shares will develop or sustain after the Exchange Offers, or that the value for which the Consideration Shares were exchanged will correspond to the price at which the Consideration Shares will trade in the

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Philippine public market subsequent to the Exchange Offers. There can be no assurance that investors may sell Consideration Shares at prices or at times deemed appropriate.

Factors that could affect the price of the Consideration Shares include the following:

    fluctuations in SM Prime's and New SM Prime's results of operations and cash flows;

    additions or departures of key personnel;

    changes in financial estimates or recommendations by research analysts;

    changes in the amount of indebtedness SM Prime and New SM Prime will have outstanding;

    changes in general conditions in the Philippines and international economy, financial markets or the real estate industry, including changes in regulatory requirements and changes in political conditions in the Philippines;

    significant contracts, acquisitions, dispositions, financings, joint marketing relationships, joint ventures or capital commitments by SM Prime and New SM Prime or its competitors;

    asset impairments or other charges;

    developments related to significant claims or proceedings against SM Prime and New SM Prime;

    New SM Prime's dividend policy; and

    future issues or sales of New SM Prime's equity or equity-linked securities.

In recent years, stock markets, including the PSE, have experienced extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to the operating performance of such companies. These broad market fluctuations may adversely affect the market prices of the Consideration Shares.

The Consideration Shares are subject to Philippine foreign ownership limitations.

The Philippine Constitution and related statutes restrict land ownership to Philippine Nationals. The term "Philippine National," as defined under Republic Act No. 7042, as amended, means: (i) a citizen of the Philippines; (ii) a domestic partnership or association wholly-owned by citizens of the Philippines; or (iii) a corporation organized under the laws of the Philippines of which at least 60% of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines, or by a corporation organized abroad and registered to do business in the Philippines under the Corporation Code of the Philippines (the "Corporation Code") of which 100% of the capital stock outstanding and entitled to vote is wholly-owned by Filipinos or a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine National and at least 60% of the fund will accrue to the benefit of Philippine Nationals, provided, that where a corporation and its non-Filipino shareholders own stock in a PSEC registered enterprise, at least 60% of the capital stock outstanding and entitled to vote of each corporation must be owned and held by citizens of the Philippines, in order for such corporation to be considered a Philippine National. As of the date of this Offer Document, SM Prime owns land directly and indirectly through its subsidiaries and associates.

Considering the foregoing, as long as New SM Prime owns land, foreign ownership of New SM Prime is limited to a maximum of 40% of issued and outstanding capital stock. New SM Prime cannot allow the issuance or the transfer of shares to persons other than Philippine Nationals if such issuance or transfer would result in New SM Prime ceasing to be a Philippine National for the purpose of complying with the restrictions on foreign land ownership discussed above. These restrictions may adversely affect the liquidity and market price of the Consideration Shares to the extent international investors are not permitted to purchase Consideration Shares in normal secondary transactions.

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The transfer of Consideration Shares is restricted which may adversely affect their liquidity and the price at which they may be sold.

The Consideration Shares have not been registered under, and neither SM Prime nor the Offeror is under any obligation to register, the Consideration Shares under the Securities Act or the securities laws of any other jurisdiction and, unless so registered, may not be offered or sold except pursuant to an exemption from, or a transaction not subject to, the registration requirements of the Securities Act and any other applicable laws. Neither the Offeror nor SM Prime has any intention of registering the Consideration Shares under the Securities Act.

Overseas shareholders may find it more difficult than Philippine shareholders to exercise their voting rights at SM Prime's shareholders' meetings.

There are no provisions under Philippine law or under SM Prime's by-laws that will limit the exercise by foreign holders of their voting rights of the Common Shares. However, there are practical, geographic and logistical limitations on foreign holders' ability to receive notice of regular or special meetings of SM Prime's shareholders on a timely basis. All shareholders of record may attend SM Prime's shareholder meetings in person or by proxy. The Philippine SRC's implementing rules require SM Prime to send all shareholders of record notice of the annual meeting at least two weeks before the meeting unless (and this also applies to special meetings) SM Prime has already distributed an information statement and proxy form (in case of proxy solicitation) relating to a shareholders' meeting at least 15 business days before the shareholders' meeting. There can be no assurance that foreign shareholders will receive such notices in a timely manner or at all.

Shareholders may be subject to limitations on minority shareholders' rights.

The obligation under Philippine law of majority shareholders and directors with respect to minority shareholders may be more limited than those that are available in certain other countries, such as the United States. Consequently, minority shareholders may not be able to protect their interests under current Philippine law to the same extent as in certain other countries. The Corporation Code provides for minimum minority shareholders protection in certain instances wherein a vote by the shareholders representing at least two-thirds of SM Prime's outstanding capital stock is required.

The Corporation Code also grants shareholders an appraisal right allowing a dissenting shareholder to require the corporation to purchase his shares in certain instances. Derivative actions, while permitted under the Corporation Code and governed by the Interim Rules of Procedure Governing Intra-Corporate Controversies (A.M. No. 01-2-04-SC), are rarely brought on behalf of Philippine companies.

Accordingly, there can be no assurance that legal rights or remedies of minority shareholders will be the same, or as extensive, as those available in other jurisdictions or sufficient to protect the interests of minority shareholders.

Overseas shareholders may be subject to restrictions or repatriation of Pesos received with respect to the Consideration Shares.

Under BSP regulations, as a general rule, Philippine residents may freely dispose of their foreign exchange receipts and foreign exchange may be freely sold and purchased outside the Philippine banking system. There are restrictions on the sale and purchase of foreign exchange within the Philippine banking system. In particular, a foreign investment must be registered with the BSP if foreign exchange is needed to service the repatriation of capital and the remittance of dividends, profits and earnings which accrue thereon is sourced from the Philippine banking system. See "Philippine Foreign Exchange and Foreign Ownership Controls."

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The Government has, in the past, instituted restrictions on the conversion of Pesos into foreign currency and the use of foreign exchange received by Philippine residents to pay foreign currency-denominated obligations. The Monetary Board of the BSP, with the approval of the President of the Philippines, has statutory authority during a foreign exchange crisis or in times of national emergency to temporarily suspend or restrict sales of foreign exchange, to require licensing of foreign exchange transactions or to require delivery of foreign exchange to BSP or its designee banks. Any restrictions imposed in the future pursuant to such statutory authority could adversely affect the ability of New SM Prime to source foreign currency to comply with its foreign currency-denominated obligations and adversely affect the ability of investors to repatriate foreign currency upon sale of Consideration Shares or dividends or distributions relating to them.

New SM Prime's dividend policy may be materially different from SM Prime's past and current dividend policy.

Following the conclusion of the Reorganization, New SM Prime intends to evaluate its dividend policy based on the considerations applicable to New SM Prime's financial condition, results of operations, investment plans, funding requirements and other factors. As a result, the dividend policy of New SM Prime may differ materially from past and present dividend policies of SM Prime, which are not to be considered as relevant indicators of future dividend policy following the Reorganization.

Future changes in the value of the Philippine Peso against the U.S. dollar or other currencies will affect the foreign currency equivalent of the value of the Consideration Shares and any dividends.

The price of the Consideration Shares is denominated in Philippine Pesos. Fluctuations in the exchange rate between the Peso and the U.S. dollar or other currencies will affect the foreign currency equivalent of the Peso price of the Consideration Shares on the PSE. Such fluctuations will also affect the amount in foreign currency received upon conversion of cash dividends or other distributions paid in Pesos by SM Prime or New SM Prime, as well as the book value of foreign currency assets, and income and expenses and cashflows in SM Prime or New SM Prime's financial statements.

The sale or possible sale of a substantial number of the SM Prime shares in private or public sales following the Exchange Offers could adversely affect the price of the Consideration Shares and SM Prime's ability to raise capital and shareholders may experience dilution in their shareholdings.

Any future issue or sale of shares in SM Prime, the disposal of shares by any of its major shareholders or the perception that such issuances, sales or disposals may occur may have a downward pressure on the price of SM Prime's shares, and there can be no assurance that such issuances, sales or disposals will not take place. To the extent further new SM Prime shares are issued, there may be dilution to present holders of shares in SM Prime. Any of these factors may also affect SM Prime's ability to undertake equity fundraising in the future.

U.S. holders of Consideration Shares may suffer adverse tax consequences if SM Prime or New SM Prime is characterized as a Passive Foreign Investment Company.

Generally, if for any taxable year 75% or more of SM Prime's gross income is passive income, or at least 50% of SM Prime's assets are held for the production of, or produce, passive income, SM Prime would be characterized as a passive foreign investment company ("PFIC") for U.S. federal income tax purposes. If SM Prime is characterized as a PFIC, U.S. holders of the Consideration Shares may suffer adverse tax consequences, including having gains realized on the sale of the Consideration Shares treated as ordinary income, rather than capital gain, the loss of the preferential rate applicable to dividends received on the Consideration Shares by individuals who are U.S. holders, and having interest charges apply to distributions by SM Prime.

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RISKS RELATED TO THE PRESENTATION OF FINANCIAL AND OTHER INFORMATION IN THIS OFFER DOCUMENT

The appraisals with respect to the real estate described in the Valuation Reports may not reflect their actual market values.

CBRE, an independent real estate appraiser, has valued certain real estate properties, land and projects that are owned by SM Prime or are expected to be owned by New SM Prime. Details of the valuation methodologies and the assumptions used by CBRE are described in the Valuation Reports.

A number of factors could result in the values ascribed to the properties, land and projects by CBRE to not reflect their actual market values. The valuations are effective as of February 28, 2013, and there can be no assurance that these figures accurately reflect market values as at any other date. In addition, the values ascribed by CBRE should not be taken as an indication of the amounts that could be obtained by SM Prime or New SM Prime upon disposal of such properties, whether in the context of the sale of individual properties or the various portfolios as a whole. The Valuation Reports also do not consider the effect of multiple properties being developed concurrently or released to the market together.

In addition, the use of different valuation methodologies and assumptions would likely produce different valuation results. For example, in valuing condominium and subdivision projects, CBRE based its valuations on the total market value of saleable units as of the valuation date, deducting estimated costs to complete projects under construction and the cost of sale, and further assuming that all such projects would be completed as planned. Valuations of vast tracts or large parcels comprising several lots that are presently utilized or intended to be utilized for a common type of property development were valued using assumptions concerning the highest and best use of such land. Uncertainties in these assumptions could result in materially different market values compared to the valuations prepared by CBRE.

Moreover, there are severe difficulties in applying the sales comparison approach and the income approach, among other methodologies used by CBRE. A lack of transparency and a relatively low volume of recorded deals makes it difficult to assess market values. These factors make it difficult to correctly assess market values derived from discount rates. Deal information may not be reported accurately or may be manipulated for other reasons benefitting the parties to the deal.

Prospective participants in the Exchange Offers are urged to read the Valuation Reports in their entirety. For the reasons stated above and in the Valuation Reports, there can be no assurance that real estate appraisals included in this Offer Document reflect the properties' actual market values or that such values will not decline over time.

The presentation of financial information, including the Pro forma Financial Information, in this Offer Document may be of limited use to investors and may not be indicative of New SM Prime's results of operations or financial condition.

This Offer Document includes the audited consolidated financial statements of SM Prime 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 audited consolidated financial statements have been prepared in accordance with PFRS and not in accordance with U.S. generally accepted accounting principles. While the presentation of the separate historical financial statements for these entities may provide a reference to investors in relation to certain of the companies that will comprise New SM Prime, there is no assurance that such presentation will accurately depict New SM Prime's financial results or be indicative of future results of operations or financial position, and should not be relied upon as being so indicative.

In addition, this Offer Document includes unaudited pro forma condensed consolidated financial information of SM Prime and its subsidiaries as at December 31, 2012, and for the three years ended December 31, 2012, 2011 and 2010, because the Offeror believes that such information is important to an understanding of the results of operations and financial position of New SM Prime and its subsidiaries as if

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the Reorganization had occurred as at January 1 of each of the periods presented, or December 31, 2012, as the case may be. The pro forma condensed consolidated financial information has been prepared in accordance with Section 8, Part II of the Securities Regulation Code 68, As Amended in 2011 (SRC Rule 68) and not in accordance with the requirements of Article 11 of the Regulation S-X under the Exchange Act. The pro forma results of operations and financial position of New SM Prime included herein are necessarily based on certain assumptions, and such information is not necessarily indicative of the operating results or financial position that would have been achieved had these transactions been completed prior to such periods, nor is it indicative of future results of operations or financial position, and should not be relied upon as being so indicative.

Certain information contained herein is derived from third-party publications.

Certain information in this Offer Document relating to the Philippines, the industries in which New SM Prime's business will compete and the markets in which New SM Prime will develop its projects, including statistics relating to market size, is derived from various Government and private publications. This Offer Document also contains industry information based on publicly available third-party sources.

Industry publications generally state that the information they contain has been obtained from sources believed to be reliable but that the accuracy and completeness of that information is not guaranteed. Similarly, industry forecasts and market research, including those contained or extracted herein, have not been independently verified by the Offeror or SM Prime and may not be accurate, complete, up-to-date or consistent with other information compiled within or outside the Philippines.

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RESTRICTIONS, CAUTIONARY NOTICE REGARDING FORWARD-LOOKING
STATEMENTS AND DISCLAIMERS

Restrictions

This section is intended as a general guide only. SMDC and HPI shareholders are advised to consult their own legal counsel prior to accepting the Exchange Offers or making any offer, resale, pledge or other transfer of the Consideration Shares obtained under the Exchange Offers.

The distribution of this Offer Document, any additional documentation regarding the Exchange Offers and the making of the Exchange Offers may be restricted by law in certain jurisdictions and neither this document nor any such additional documentation, nor the Exchange Offers discussed herein or therein, constitutes an offer to sell or the solicitation of an offer to buy securities in any jurisdiction in which such an offer or solicitation would be unlawful. The Exchange Offers are not being made in or into Australia, Canada and Japan, and will not be permitted to be accepted in or from these jurisdictions.

United States

The Exchange Offers are subject to a Tier I exemption pursuant to Rule 14d-1(c) of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the issuance of the Consideration Shares in connection therewith will be exempt from registration under the Securities Act, pursuant to Rule 802 thereof. If the Exchange Offers are completed, for purposes of U.S. securities law, SMDC shares and HPI shares that are not "restricted securities" (within the meaning of Rule 144(a)(3) under the Securities Act) will be exchanged for Consideration Shares that are not restricted securities; however, SMDC shares and HPI shares that are restricted securities will be exchanged for Consideration Shares that are restricted securities. Generally, if you acquired your shares of SMDC or HPI in open market transactions you will receive Consideration Shares that are not restricted securities. If, however, you are an affiliate of SMDC or HPI, you should consult your legal advisor to determine whether your shares are subject to restrictions on transfer within the United States. An affiliate is defined as a person who directly or indirectly controls, is controlled by or is under common control with an issuer. The United States Securities and Exchange Commission views a person's status as an officer, director or 10% shareholder as facts that must be considered when determining whether such person is an affiliate. The Consideration Shares cannot be resold in the United States without registration or an exemption therefrom under the Securities Act.

The Exchange Offers are for shares of Philippine companies with shares listed for trading on the PSE, and matters of a legal nature related to the Exchange Offers and company law issues as well as securities law issues are subject to Philippine law.

The provisions of Philippine law differ considerably from the corresponding United States legal provisions. Only a limited set of United States legal provisions apply to the Exchange Offers and this Offer Document. The applicable procedural and disclosure requirements of Philippine law are different from those of the U.S. securities laws in certain material respects. The timing of payments, withdrawal rights, settlement procedures, and other timing and procedural matters of the Exchange Offers are consistent with Philippine practice, which differs from U.S. domestic tender offer procedures.

Pursuant to an exemption provided from Rule 14e-5 under the Exchange Act, the Offeror may acquire, or make arrangements to acquire, SMDC shares or HPI shares, other than pursuant to the Exchange Offers, on or off the PSE or otherwise outside the United States during the period in which the Exchange Offers remain open for acceptance, so long as those acquisitions or arrangements comply with applicable Philippine law and practice and the provisions of such exemption. Any such acquisition or arrangement will be disclosed by the Offeror to SMDC and HPI shareholders in accordance with Philippine rules and regulations, which may differ from those in the United States.

The Consideration Shares have not been registered in, and will not be registered with any securities regulatory authority of any state or other jurisdiction of the United States. Unless so registered, the

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Consideration Shares may only be offered in transactions that are exempt from, or not subject to, registration under the securities laws of any jurisdiction of the United States. Accordingly, no offer to sell or solicitation of an offer to buy the Consideration Shares in the Exchange Offers may be made in the following U.S. jurisdictions except to persons in such jurisdictions who represent to the Offeror that they qualify as exempt institutional investors in such U.S. jurisdictions:

Alabama, Alaska, Arizona, Arkansas, Colorado, Connecticut, Delaware, Florida, Guam, Illinois, Kentucky, Louisiana, Maryland, Massachusetts, Montana, Nebraska, New Jersey, New York, North Carolina, North Dakota, Oklahoma, Oregon, Puerto Rico, Tennessee, Texas, Utah, Virginia, Washington, West Virginia and Wyoming.

The Exchange Offers may not be made in, and beneficial owners of Target Shares in the above listed jurisdictions may not participate in the Exchange Offers unless they are able to certify that such investor qualifies as an exempt institutional investor in such relevant jurisdiction.

Listed below are the institutions or persons to whom securities may be offered and sold without registration, qualification or similar action being taken under the laws of such jurisdictions with respect to offers and sales of securities.


Alabama

 

To a bank, savings institution, credit union, trust company, insurance company, investment company as defined in the U.S. Investment Company Act of 1940, as amended (the "Investment Company Act") pension or profit-sharing trust, or to a dealer, whether the purchaser is acting for itself or in some fiduciary capacity.

Alaska

 

To banks, savings institutions, trust companies, insurance companies, investment companies as defined in the Investment Company Act, pension or profit-sharing trusts, or to broker-dealers, whether the purchasers are acting for themselves or in some fiduciary capacity.

Arizona

 

To a bank, savings institution, trust company, insurance company, investment company as defined in the Investment Company Act, pension or profit sharing trust or other financial institution or institutional buyer or a dealer whether the purchaser is acting for itself or in a fiduciary capacity.

Arkansas

 

To a bank, savings institution, trust company, insurance company, investment company as defined in the Investment Company Act, pension or profit-sharing trust, or other financial institution or institutional buyer, or to a broker-dealer, whether the purchaser is acting for itself or in some fiduciary capacity.

Colorado

 

To a depository institution; insurance company; separate account of an insurance company; investment company registered under, or business development company as defined in, the Investment Company Act; private business development company as defined in the federal Investment Advisers Act of 1940 (the "Investment Advisers Act"); an employee pension, profit-sharing, or benefit plan having total assets in excess of $5,000,000 or whose investment decisions are made by a named fiduciary, as defined in the Employee Retirement Income Security Act of 1974 ("ERISA"), that is either a broker-dealer registered under the Exchange Act, an investment adviser registered or exempt from registration under the Investment Advisers Act, a depository institution, or an insurance company; an entity, other than an individual, a substantial part of whose business activities consists of

 

 

 

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    investing, purchasing, selling, or trading in securities of more than one issuer and not of its own issue and that has total assets in excess of $5,000,000 as of the end of its latest fiscal year; small business investment company licensed by the federal small business administration under the federal Small Business Investment Act of 1958; to any other institutional buyer or to a broker-dealer; whether the purchaser is acting for itself or in a fiduciary capacity.

Connecticut

 

To banks and trust companies, national banking associations, savings banks, savings and loan associations, federal savings and loan associations, credit unions, federal credit unions, trust companies, insurance companies, investment companies as defined in the Investment Company Act, pension or profit-sharing trusts, or other financial institutions or institutional buyers, or to broker-dealers, whether acting for themselves or in some fiduciary capacity.

Delaware

 

To banks, savings institutions, trust companies, insurance companies, investment companies as defined in the Investment Company Act, pension or profit-sharing trusts, or other financial institutions or institutional buyers, which includes: (i) an accredited investor, as that term is defined in Rule 501(a)(1)-(4), (7) and (8) of Regulation D under the Securities Act, excluding, however, any self-directed employee benefit plan with investment decisions made solely by persons that are accredited investors as defined in Rule 501(a)(5) and (6) of Regulation D; (ii) any Qualified Institutional Buyer as defined in Rule 144A of the Securities Act ("Rule 144A"); and (iii) a corporation, partnership, trust, estate, or other entity (excluding individuals) having a net worth of not less than $5,000,000 or a wholly-owned subsidiary of such entity, as long as the entity was not formed for the purpose of acquiring the securities offered, or to broker-dealers, whether acting for themselves or in some fiduciary capacity, except if the institutional buyer is in fact acting only as agent for another purchaser that is not one of the above institutions.

District of Columbia

 

To a depository institution; insurance company; investment company registered under the Investment Company Act; business development company as defined in the Investment Company Act; an employee pension, profit-sharing, or benefit plan having total assets in excess of $5,000,000 or whose investment decisions are made by a named fiduciary, as defined in the ERISA, that is either a broker-dealer registered under the Exchange Act, an Investment Adviser registered or exempt from registration under the federal Investment Advisers Act, a depository institution or an insurance company; a Qualified Institutional Buyer as defined in Rule 144A; a broker-dealer; an accredited investor as defined in Rule 501(a); a limited liability company with net assets of at least $500,000; and any other financial institution or institutional buyer; whether acting for itself or others in a fiduciary capacity.

Florida

 

To a bank or trust company, savings institution, insurance company, dealer, investment company as defined by the Investment Company Act, or pension or profit-sharing trust or a Qualified Institutional Buyer as defined in Rule 144A, as such rule existed on November 1, 1992,

 

 

 

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    whether any such entity is acting in its individual or fiduciary capacity; provided that the offer or sale of securities is not for the direct or indirect promotion of any scheme or enterprise with the intent of violating or evading any provision of the Florida Securities Act.

Guam

 

To any bank, savings institution, trust company, insurance company, investment company as defined in the Investment Company Act, pension or profit-sharing trust, or other financial institution or institutional buyer, or to any broker-dealer, whether the purchaser is acting for itself or in some fiduciary capacity.

Illinois

 

To any corporation, bank, savings bank, savings institution, savings and loan association, trust company, insurance company, building and loan association, or dealer; to a pension fund or pension trust, employees' profit-sharing trust, other financial institution (including any manager of investment accounts on behalf of other than natural persons, who, with affiliates, exercises sole investment discretion with respect to such accounts and provided such accounts exceed ten in number and have a fair market value of not less than $10,000,000 at the end of the calendar month preceding the month during which the securities offered are sold) or institutional investor (including investment companies, universities and other organizations whose primary purpose is to invest its own assets or those held in trust by it for others, trust accounts and individual or group retirement accounts in which a bank, trust company, insurance company or savings and loan institution acts in a fiduciary capacity, and foundations and endowment funds exempt from taxation under the Internal Revenue Code, a principal business function of which is to invest funds to produce income in order to carry out the purpose of the foundation or fund), or any government or political subdivision or instrumentality thereof, whether the purchaser is acting for itself or in some fiduciary capacity; to any partnership or other association engaged as a substantial part of its business or operations in purchasing or holding securities; to any trust in respect of which a bank or trust company is trustee or co-trustee; to any entity in which at least 90% of the equity thereof is owned by the directors, executive officers or general partners of such entity or by the above institutions or by individual "accredited investors" as defined in Regulation D, Rule 501(a) (5) or (6) under the Securities Act, as amended; or to any employee benefit plan within the meaning of Title I of the ERISA (i) having total assets in excess of $5,000,000, or (ii) whose investment decisions are made by a plan fiduciary, as defined in the ERISA, that is either a bank, savings and loan association, insurance company, registered investment adviser or investment adviser registered under the Investment Advisers Act, or (iii) in the case of a self-directed plan, whose investment decisions are made solely by the above persons or institutions; to any plan with total assets in excess of $5,000,000 established and maintained by, and for the benefit of the employees of, any state or political subdivision or agency or instrumentality thereof; an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, or to any Massachusetts or similar business trust or any partnership if such organization, trust or partnership has total assets in excess of $5,000,000.

 

 

 

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Kentucky   To a bank, savings institution, trust company, insurance company, investment company as defined in the Investment Company Act, pension or profit-sharing trust, or other financial institution or institutional buyer (which includes but is not limited to Qualified Institutional Buyers as defined in Rule 144A, or to a broker-dealer, whether the purchaser is acting for itself or in some fiduciary capacity.

Louisiana

 

To any bank, savings institution, trust company, insurance company, investment company as defined in the Investment Company Act, real estate investment trust, small business investment corporation, pension or profit-sharing plan or trust, other financial institution, or any dealer, whether the purchaser is acting for itself or in some fiduciary capacity.

Maryland

 

To banks, savings and loan associations, trust companies, insurance companies, investment companies as defined in the Investment Company Act, employee benefit plans with assets of not less than $1,000,000, governmental agencies or instrumentalities, investment advisers with assets under management of not less than $1,000,000, or broker-dealers, whether acting for themselves or as trustees or as fiduciaries with investment control, or other institutional investors, which include but are not limited to (a) accredited investors as defined in Rule 501(a)(1)-(3), (7) and (8) of Regulation D under the Securities Act and (b) Qualified Institutional Buyers as defined in Rule 144A.

Massachusetts

 

To banks, savings institutions, trust companies, insurance companies, investment companies as defined in the Investment Company Act, pension or profit-sharing trusts, which includes: (a) any entity with total assets in excess of $5 million and which is: (i) an employee benefit plan within the meaning of the ERISA, as amended or (ii) a self-directed employee benefit plan within the meaning of ERISA, with investment decisions made by a person that is an accredited investor as defined in s. 501(a) of Regulation D (17 CPR 230.501(a)), or (b) any employee benefit plan within the meaning of ERISA with investment decisions made by a plan fiduciary, as defined in Section 2(21) of ERISA, which is either a bank, savings and loan association, insurance company or registered investment adviser, or (c) an employee benefit plan established and maintained by a state or its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, or other financial institutions or institutional buyers, which includes but is not limited to: (a) a Small Business Investment Company licensed by the United States Small Business Administration under the Small Business Investment Act of 1958; (b) a private business development company as defined in Section 202(a)(22) of the Investment Advisers Act, as amended; (c) a Business Development Company as defined in Section 2(a)(48) of the Investment Company Act; (d) an entity with total assets in excess of $5,000,000 and which is either: (i) a company (whether a corporation, a Massachusetts or similar business trust or a partnership) not formed for the specific purpose of acquiring the securities offered, a substantial part of whose business activities consists of investing, purchasing, selling or trading in securities issued by others and whose investment decisions made by persons who are reasonably believed by the seller to have such knowledge and experience in

 

 

 

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    financial and business matters as to be capable of evaluating the merits and risks of investments or (ii) an organization described in Section 501(c)(3) of the Internal Revenue Code; and (e) a Qualified Institutional Buyer as defined in 17 CFR 230.144A(a), or to broker-dealers, whether acting for themselves or in some fiduciary capacity.

Minnesota

 

To a depository institution; an international banking institution; an insurance company; a separate account of an insurance company; an investment company as defined in the Investment Company Act; a broker-dealer registered under the Exchange Act; an employee pension, profit-sharing, or benefit plan if the plan has total assets in excess of $10,000,000 or its investment decisions are made by a named fiduciary, as defined in the ERISA, that is a broker-dealer registered under the Exchange Act, an investment adviser registered or exempt from registration under the Investment Advisers Act or registered under the Minnesota Securities Act, a depository institution, or an insurance company or, if the plan is established and maintained by a state, a political subdivision of a state, or an agency or instrumentality of a state, or of a political subdivision of a state, the plan has total assets in excess of $10,000,000 or its investment decisions are made by one of the above fiduciaries or a duly designated public official; a trust, if it has total assets in excess of $10,000,000, its trustee is a depository institution, and its participants are exclusively plans of the types identified above, regardless of the size of their assets, except a trust that includes as participants self-directed individual retirement accounts or similar self-directed plans; an organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts trust or similar business trust, limited liability company, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $10,000,000; a small business investment company licensed by the Small Business Administration under Section 301(c) of the Small Business Investment Act of 1958 with total assets in excess of $10,000,000; a private business development company as defined in Section 202 (a)(22) of the Investment Advisers Act with total assets in excess of $10,000,000; a Qualified Institutional Buyer as defined in Rule 144A; a "major U.S. institutional investor" as defined in Rule 15a-6(b)(4)(i) adopted under the Exchange Act; any other person, other than an individual, of institutional character with total assets in excess of $10,000,000 not organized for the specific purpose of evading the Minnesota Securities Act; whether acting for itself or for others in a fiduciary capacity; a federal covered investment adviser acting for its own account; or an accredited investor as defined in Regulation D, Rule 501(a) under the Securities Act.

Montana

 

To a bank, savings institution, trust company, insurance company, investment company as defined in the Investment Company Act, pension or profit-sharing trust, or other financial institution or institutional buyer (which includes but is not limited to Qualified Institutional Buyers as defined in Rule 144A), or to a broker-dealer, whether the purchaser is acting for itself or in some fiduciary capacity.

 

 

 

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Nebraska   To a bank, savings institution, trust company, insurance company, investment company as defined in the Investment Company Act, pension or profit-sharing trust, or other financial institution or institutional buyer, to an individual accredited investor, or to a broker-dealer, whether the purchaser is acting for itself or in some fiduciary capacity. The term "individual accredited investor" means (a) any director, executive officer or general partner of the issuer of the securities being offered or sold, or any director, executive officer or general partner of a general partner of that issuer, (b) any manager of a limited liability company that is the issuer of the securities being offered or sold, (c) any natural person whose individual net worth, or joint net worth with that person's spouse, at the time of his or her purchase, exceeds one million dollars ($1,000,000), or (d) any natural person who had an individual income in excess of two hundred thousand dollars ($200,000) in each of the two most recent years or joint income with that person's spouse in excess of three hundred thousand dollars ($300,000) in each of those years and has a reasonable expectation of reaching the same income level in the current year.

New Jersey

 

To banks, savings institutions, trust companies, insurance companies, investment companies as defined in the Investment Company Act, pension or profit-sharing trusts, or other financial institutions or institutional buyers, including Qualified Institutional Buyers as defined in Rule 144A, or to broker-dealers, whether acting for themselves or in a fiduciary capacity.

New York

 

To any institutional investor defined as an "accredited investor" by Regulation D, Rule 501(a)(1)-(3), any savings and loan association, any broker-dealer or any corporation having total assets in excess of $5,000,000.

North Carolina

 

To any entity which has a net worth in excess of $1,000,000 as determined by generally accepted accounting principles, any bank, savings institution, trust company, insurance company, investment company as defined in the Investment Company Act, pension or profit-sharing trust, or other financial institution or institutional buyer, or to any dealer, whether the purchaser is acting for itself or in some fiduciary capacity. The term entity includes a corporation, joint-stock company, limited liability company, business trust, limited partnership or other partnership in which the interests of the partners are evidenced by a security, trust in which the interests of the beneficiaries are evidenced by a security, any other unincorporated organization in which two or more persons have a joint or common economic interest evidenced by a security, and governmental or political subdivision of a government.

North Dakota

 

To a depository institution; an international banking institution; an insurance company; a separate account of an insurance company; an investment company as defined in the Investment Company Act; a broker-dealer registered under the Exchange Act; an employee pension, profit-sharing, or benefit plan if the plan has total assets in excess of $10,000,000 or its investment decisions are made by a named fiduciary, as defined in the ERISA, that is a broker-dealer registered

 

 

 

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    under the Exchange Act, an investment adviser registered or exempt from registration under the Investment Advisers Act or registered under the North Dakota Securities Act of 1951, a depository institution, or an insurance company or, if the plan is established and maintained by a state, a political subdivision of a state, or an agency or instrumentality of a state, or of a political subdivision of a state, the plan has total assets in excess of $10,000,000 or its investment decisions are made by one of the above fiduciaries or a duly designated public official; a trust, if it has total assets in excess of $10,000,000, its trustee is a depository institution, and its participants are exclusively plans of the types identified above, regardless of the size of their assets, except a trust that includes as participants self-directed individual retirement accounts or similar self-directed plans; an organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, limited liability company, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $10,000,000; a small business investment company licensed by the Small Business Administration under Section 301(c) of the Small Business Investment Act of 1958 with total assets in excess of $10,000,000; a private business development company as defined in Section 202(a)(22) of the Investment Advisers Act with total assets in excess of $10,000,000; a Qualified Institutional Buyer as defined in Rule 144A; a "major U.S. institutional investor" as defined in Rule 15a-6(b)(4)(i) adopted under the Exchange Act; any other person, other than an individual, of institutional character with total assets in excess of $10,000,000 not organized for the specific purpose of evading the North Dakota Securities Act of 1951; whether acting for itself or for others in a fiduciary capacity; or a federal covered investment adviser acting for its own account.

Oklahoma

 

To a depository institution; an international banking institution; an insurance company; a separate account of an insurance company; an investment company as defined in the Investment Company Act; a broker-dealer registered under the Exchange Act; an employee pension, profit-sharing, or benefit plan if the plan has total assets in excess of ten million dollars or its investment decisions are made by a named fiduciary, as defined in the ERISA, that is a broker-dealer registered under the Exchange Act, an investment adviser registered or exempt from registration under the Investment Advisers Act or registered under the Oklahoma Uniform Securities Act of 2004, a depository institution, or an insurance company or, if the plan is established and maintained by a state, a political subdivision of a state, or an agency or instrumentality of a state, or of a political subdivision of a state, the plan has total assets in excess of ten million dollars or its investment decisions are made by one of the above fiduciaries or a duly designated public official; a trust, if it has total assets in excess of ten million dollars, its trustee is a depository institution, and its participants are exclusively plans of the types identified above, regardless of the size of their assets, except a trust that includes as participants self-directed individual retirement accounts or similar self-directed plans; an

 

 

 

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    organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts trust or similar business trust, limited liability company, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of ten million dollars; a small business investment company licensed by the Small Business Administration under Section 301(c) of the Small Business Investment Act of 1958 with total assets in excess of $10,000,000; a private business development company as defined in Section 202(a)(22) of the Investment Advisers Act with total assets in excess of ten million dollars; a Qualified Institutional Buyer as defined in Rule 144A; a "major U.S. institutional investor" as defined in Rule 15a-6(b)(4)(i) adopted under the Exchange Act; any other person, other than an individual, of institutional character with total assets in excess of ten million dollars not organized for the specific purpose of evading the Oklahoma Uniform Securities Act of 2004; whether acting for itself or for others in a fiduciary capacity; or a federal covered investment adviser acting for its own account.

Oregon

 

To a bank, savings institution, trust company, insurance company, investment company, pension or profit-sharing trust, or other financial institution or institutional buyer (which includes but is not limited to Qualified Institutional Buyers as defined in Rule 144A), or to a broker-dealer, mortgage broker or mortgage banker, whether the purchaser is acting for itself or in a fiduciary capacity when the purchaser has discretionary authority to make investment decisions.

Puerto Rico

 

To any bank, savings institution, trust company, insurance company, investment company as defined in the Investment Companies Act of Puerto Rico, pension or profit-sharing trust, or other financial institution or institutional buyer (which includes but is not limited to Qualified Institutional Buyers as defined in Rule 144A), or to any broker-dealer, whether the purchaser is acting for itself or in some fiduciary capacity.

Tennessee

 

To banks, trust companies, insurance companies, investment companies registered under the Investment Company Act, as amended, holding companies which control any of the foregoing, trusts or funds over which any of the foregoing has or shares investment discretion, a pension or profit-sharing plan, an institutional buyer (as the Commissioner may further define by rule), or any other person engaged as a substantial part of its business in investing in securities, in each case having a net worth in excess of $1,000,000, or to broker-dealers.

Texas

 

To any bank, trust company, building and loan association, insurance company, surety or guaranty company, savings institution, credit union, savings and loan association, federal savings bank, investment company as defined in the Investment Company Act, small business investment company as defined in the Small Business Investment Act of 1958, as amended, an "accredited investor" (as that term is defined in Rule 501(a)(1)-(4), (7) and (8) under the Securities Act, as made effective in SEC Release Number 33-6389, as amended in Release Numbers 33-6437, 33-6663, 33-6758, and 33-6825), excluding, however,

 

 

 

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    any self-directed employee benefit plan with investment decisions made solely by persons that are "accredited investors" as defined in Rule 501(a)(5)-(6), any Qualified Institutional Buyer as defined in Rule 144A, any corporation, partnership, trust, estate, or other entity (excluding individuals) having net worth of not less than $5 million or a wholly-owned subsidiary of such entity (as long as the entity was not formed for the purpose of acquiring the securities offered), or any registered dealer actually engaged in buying and selling securities, provided the purchaser is purchasing for its own account or as trustee of a trust not specifically formed to purchase the securities and is not acting as agent for another person which is not one of the above institutions.

Utah

 

To depository institutions; trust companies; insurance companies; investment companies as defined in the Investment Company Act; pension or profit-sharing trusts; other financial institutions or institutional investors (which includes but is not limited to Qualified Institutional Buyers as defined in Rule 144A); or to broker-dealers; whether acting for themselves or in some fiduciary capacity.

Virginia

 

To any corporation, investment company or pension or profit-sharing trust or to a broker-dealer.

Washington

 

To a bank, savings institution, trust company, insurance company, investment company as defined in the Investment Company Act, pension or profit-sharing trust, or other financial institution or institutional buyer, which includes: (a) a corporation, business trust, or partnership, or a wholly-owned subsidiary of such an entity, which has been operating for at least 12 months and which has a net worth on a consolidated basis of at least $10,000,000 as determined by the entity's most recent audited financial statements, such statements to be dated within 16 months of the transaction in the securities offered; (b) any entity which has been granted exempt status under Section 501(c)(3) of the Internal Revenue Code of 1986 and which has a total endowment or trust funds of $5,000,000 or more according to its most recent audited financial statements, such statements to be dated within 16 months of the transaction in the securities offered; (c) any wholly-owned subsidiary of a bank, savings institution, insurance company, or investment company as defined in the Investment Company Act; or (d) any Qualified Institutional Buyer as defined in Rule 144A; excluding, however, in each of the above cases, a natural person, individual retirement account, Keogh account, or other self-directed pension plan; or to a broker-dealer, whether the purchaser is acting for itself or in some fiduciary capacity.

West Virginia

 

To banks, savings institutions, trust companies, insurance companies, investment companies as defined in the Investment Company Act, pension or profit-sharing trusts, or other financial institutions or institutional buyers, which includes a corporation, business trust, partnership, limited liability company, limited liability partnership or wholly-owned subsidiary of any of the aforementioned entities or an entity which has been granted exempt status under Section 501(c)(3) of the Internal Revenue Code, as amended, which has been operating on a

 

 

 

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    continuing basis for at least twelve months and which has a net worth of at least $5,000,000, a substantial part of whose business activities consists of investing, purchasing, selling or trading in securities issued by others and whose investment decisions are made by persons who are reasonably believed by the seller to have such knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of investment; a small business investment company licensed by the United States Small Business Administration under the Small Business Investment Act of 1958, as amended; a private business development company as defined by the Investment Advisors Act, as amended; a business development company as defined in the Investment Company Act, as amended; a wholly-owned subsidiary of a bank, savings institution, insurance company, or investment company; or a Qualified Institutional Buyer as defined in Rule 144A; or to broker-dealers, whether acting for themselves or in some fiduciary capacity.

Wyoming

 

To banks, savings institutions, trust companies, insurance companies, investment companies as defined in the Investment Company Act, pension or profit-sharing trusts, or other financial institutions or institutional buyers (which includes but is not limited to Qualified Institutional Buyers as defined in Rule 144A), or to broker-dealers, whether acting for themselves or in some fiduciary capacity.

United Kingdom

The communication of this Offer Document by the Offeror and any other documents or materials relating to the Exchange Offers is not being made, and such documents and/or materials have not been approved, by an authorized person for the purposes of section 21 of the Financial Services and Markets Act 2000 (the "FSMA"). Accordingly, such documents and/or materials are not being distributed to, and must not be passed on to, the general public in the United Kingdom. The communication of such documents and/or materials is exempt from the restriction on financial promotions under section 21 of the FSMA on the basis that it is only directed at and may be communicated to (1) persons who have professional experience in matters relating to investments, being investment professionals as defined in Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "FPO"); (2) persons who fall within Article 49 of the FPO ("high net worth companies, unincorporated associations etc."); or (3) any other persons to whom these documents and/or materials may lawfully be communicated. Any investment or investment activity to which this Offer Document relates is available only to such persons or will be engaged only with such persons and other persons should not rely on it.

Belgium

The Exchange Offers are not being made to the public in Belgium, and this Offer Document has not been approved by the Financial Services and Markets Authority. Accordingly, this Offer Document and any other materials relating to the Exchange Offers are not being distributed in Belgium, except (i) to "qualified investors" within the meaning of Article 6, paragraph 3 of the Belgian Law of 1 April 2007 on public takeover bids (Loi relative aux offres publiques d'acquisition / Wet op de openbare overnamebiedingen) and Article 10 of the Belgian law of 16 June 2006 on the public offering of securities and the admission of securities to trading on a regulated market (Loi relative aux offres publiques d'instruments de placement et aux admissions d'instruments de placement à la négociation sur des marchés réglementés / Wet op de openbare aanbieding van beleggingsinstrumenten en de toelating van beleggingsinstrumenten tot de verhandeling op een

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gereglementeerde markt), and (ii) in other circumstances not requiring the publication of a prospectus pursuant to the foregoing laws.

France

The Exchange Offers are not being made, directly or indirectly, to the public in the Republic of France. This Offer Document and any other offering material relating to the Exchange Offers may not be distributed to the public in the Republic of France and only qualified investors (investisseurs qualifiés) with the exception of individuals, all as defined in and in accordance with Articles L.411-1, L.411-2 and D.411-1 of the French Code monétaire et financier, are eligible to participate in the Exchange Offers. Neither this Offer Document, nor any other such offering material has been submitted for clearance to the Autorité des marchés financiers.

The Grand Duchy of Luxembourg

The Exchange Offers are not being made, directly or indirectly, to the public in Luxembourg, and neither this Offer Document nor any offering circular, prospectus, form of application, advertisement, communication or other material may be distributed, or otherwise made available in, or from or published in, Luxembourg, except in circumstances which do not constitute an offer of securities to the public pursuant to the provisions of the Luxembourg act dated July 10, 2005 relating to prospectuses for securities, as amended.

Hong Kong

The contents of this Offer Document have not been reviewed by any regulatory authority in Hong Kong. You are advised to exercise caution in relation to the Exchange Offers. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice.

This Offer Document has not been approved by the Securities and Futures Commission in Hong Kong and, accordingly, (i) the Consideration Shares may not be offered or sold in Hong Kong by means of this Offer Document or any other document other than to "professional investors" as defined in the Securities and Futures Ordinance of Hong Kong (Cap. 571) and any rules made thereunder, or in other circumstances which do not result in the document being a "prospectus" as defined in the Companies Ordinance of Hong Kong (Cap. 32) or which do not constitute an offer to the public within the meaning of the Companies Ordinance, and (ii) no person shall issue or possess for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the Consideration Shares which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to the Consideration Shares which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors (as set out above).

European Economic Area

The Exchange Offers are not being made, and the Consideration Shares have not been and will not be offered, sold or publicly promoted or advertised by it in, any Member State of the European Economic Area ("EEA") which has implemented the Prospectus Directive (each, a Relevant Member State) other than in compliance with the Prospectus Directive or any other laws applicable in the EEA governing the issue, offering and sale of securities.

No action has been taken, or will be taken, in any Relevant Member State to permit an offer to the public of any of the Consideration Shares in that Relevant Member State. Accordingly, the Consideration Shares are not being (and will not be) offered and will not be allocated to any person in the EEA other than:

    (a)
    to qualified investors as defined in the Prospectus Directive; or

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    (b)
    in any other circumstances falling within Article 3(2) of the Prospectus Directive,

provided that no such offer of Consideration Shares shall result in a requirement for the publication by the Offeror of a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive.

For the purposes of this provision, the expression an "offer to the public" in relation to any Consideration Shares in any Relevant Member State means the communication to persons in any form and by any means, presenting sufficient information on the terms of the offer and the securities to be offered, so as to enable an investor to decide to purchase or subscribe to these securities, as the same may be varied in that member state by any measure implementing the Prospectus Directive in that member state and the expression "Prospectus Directive" means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measures in the Relevant Member State and the expression "2010 PD Amending Directive" means Directive 2010/73/EU.

General Restriction

This Offer Document does not constitute an offer to sell or the solicitation of an offer to buy any securities in any jurisdiction to any person to whom it is unlawful to make the offer or solicitation in such jurisdiction. This Offer Document has not been approved by any regulatory authority. The distribution of this Offer Document and the offer or sale of the securities may be restricted by law in certain jurisdictions. The Offeror does not and will not represent that this Offer Document may be lawfully distributed, or that the Consideration Shares may be lawfully offered, in compliance with any applicable registration or other requirements in any such jurisdiction, or pursuant to an exemption available thereunder, or assume any responsibility for facilitating any such distribution or offering. In particular, no action has been or will be taken by the Offeror which would permit a public offering of the Consideration Shares or distribution of this Offer Document in any jurisdiction where action for that purpose is required. Accordingly, the Consideration Shares may not be offered or sold, directly or indirectly, and neither this Offer Document nor any advertisement or other offering material may be distributed or published in any jurisdiction, except under circumstances that will result in compliance with any applicable laws and regulations. Persons into whose possession this Offer Document or any Consideration Shares come must inform themselves about, and observe, any such restrictions.

Cautionary Note Regarding Forward-Looking Statements

This Offer Document includes "forward-looking" statements, including, without limitation, projections and expectations regarding New SM Prime's future financial position, business strategy, plans and objectives. When used in this document, the words "anticipate", "believe", "estimate", "expect", "seek to", "may", "plan" and similar expressions, as they relate to New SM Prime, its subsidiaries or its management, the markets in which it operates or the Reorganization, are intended to identify forward-looking statements. No forward-looking statements contained herein should be relied upon as predictions of future events. No assurance can be given that the expectations expressed in these forward-looking statements will prove to be correct. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of New SM Prime and its subsidiaries, or, as the case may be, the industry, to materially differ from any future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding New SM Prime's present and future business strategies and the environment and markets in which New SM Prime and its subsidiaries will operate. Factors that could cause New SM Prime's actual results, performance or achievements to materially differ from those in the forward-looking statements include, but are not limited to:

    the competitive nature of the markets in which SM Prime operates;

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    global and regional economic conditions;

    government regulations;

    changes in political events; and

    force majeure events.

Some important factors that could cause actual results to differ materially from those in the forward-looking statements are, in certain instances, included with such forward-looking statements in the section titled "Risk Factors" of this Offer Document.

These forward-looking statements reflect only the Offeror's and SM Prime's views and assessment, and are based on information available to the Offeror and SM Prime, as of the date of this Offer Document. Except to the extent required by law, the Offeror and SM Prime expressly disclaims any obligation or undertaking to release any updates or revisions of the forward-looking statements contained herein to reflect any change in the Offeror's and SM Prime's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

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THE EXCHANGE OFFERS

Offeror   SM Land, Inc.

Target Shares

 

3,228,056,161 SMDC shares representing 34.82% of the total shares outstanding of SMDC and 2,246,244,622 HPI shares representing 100% of the total shares outstanding of HPI (together the "Target Shares"). The Offeror intends to acquire 100% of the outstanding Target Shares.

Consideration

 

Secondary shares of SM Prime (the "Consideration Shares"), to be exchanged at a ratio of 0.472 Consideration Shares for every share of SMDC and 0.135 Consideration Shares for every share of HPI. Any fractional amount of shares will be paid in cash at the Crossing Price.

Offer Period

 

The Exchange Offers shall commence on June 4, 2013 at 9:30 a.m. and end on July 9, 2013 at 12:00 noon (the interim being the "Offer Period"), unless extended by the Offeror upon approval by the Philippine Securities and Exchange Commission (the "PSEC"). The following is the expected schedule of the Exchange Offers:

 

  June 4, 2013 (9:30 a.m.)   Commencement of the Offer Period
  July 9, 2013 (12:00 noon)   End of the Offer Period
  July 16, 2013   Acceptance of Target Shares tendered and report on results (the "Closing Date")
  July 16, 2013   Cross Date (sale of Shares on the PSE)
  July 19, 2013   Settlement Date

 

    The Target Shares being tendered for sale to the Offeror must be received by the Offer Agent in scripless form not later than 12:00 noon on July 9, 2013. Target Shares received after the end of the Offer Period shall be refused participation in the Exchange Offers. The Offer Agent will act as custodian for such Target Shares until such time that the transfer of the Target Shares to the Offeror is completed or the Target Shares are withdrawn in accordance with the terms of the Exchange Offers.

Eligible Shareholders

 

Any registered owner of any number of Target Shares as of any date during the Offer Period (an "Eligible Shareholder"), is entitled to transfer its Target Shares to the Offeror subject to and in accordance with the terms of the Exchange Offers.

Acceptance of the Exchange Offers

 

Acceptance of the Exchange Offers is made by a tendering shareholder ("Tendering Shareholder") completing and signing the application form relating to the relevant Exchange Offer (the "Application Form"). The Application Form must be delivered to the Offer Agent, and becomes binding upon receipt. The Offer Agent shall issue a receipt to the Tendering Shareholder in respect of the tendered shares by providing the Tendering Shareholder a copy of their completed Application Form. For more information see "—Application Procedure".

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    All Target Shares validly tendered by an Eligible Shareholder under the Exchange Offers shall be accepted for exchange by the Offeror. The Target Shares shall be deemed accepted by the Offeror on the Closing Date subject to the condition that the Offeror shall have obtained all corporate, contractual and regulatory approvals, consents and authorizations for the exchange by the Offeror of the Consideration Shares for the Target Shares.

Settlement

 

Settlement of the Exchange Offers will be made as soon as possible after the expiry of the Offer Period and no later than July 19, 2013, unless the Offeror extends the Offer Period upon approval by the PSEC.

 

 

On the settlement date, the Offer Agent shall electronically transfer the Consideration Shares to the Tending Shareholders through their designated Philippine Central Depository Participant ("PCD Participant"), as provided in the Tendering Shareholders' instructions on the Application Form.

 

 

Checks representing the cash payment for fractional shares shall be available for pick-up at: (i) for Tendering Shareholders of HPI, the office of Professional Stock Transfer, Inc., the stock transfer agent of HPI, at Unit 1003 City & Land Mega Plaza, ADB Avenue corner Garnet Road, Ortigas Center, Pasig City; and (ii) for Tendering Shareholders of SMDC, the office of BDO Unibank, Inc. Trust and Investments Group, the stock transfer agent of SMDC, at 15th Floor, South Tower, BDO Corporate Center, 7899 Makati Avenue, Makati City, both within five business days after the Settlement Date or on July 26, 2013. Checks which remain unclaimed after 30 calendar days from July 26, 2013 shall be mailed to the Tendering Shareholders at their own risk.

Withdrawal of Acceptance

 

The Target Shares tendered may be withdrawn by the shareholder of record at any time during the Offer Period by submitting a written request to withdraw such tendered Target Shares to the Offer Agent and surrendering the received copy of the Application Form signed by the Offer Agent. The last day to withdraw tendered Target Shares shall be on July 9, 2013, at 12:00 noon.

 

 

Target Shares shall be returned in the same form they were received, to the PCD Participant (if previously lodged with the PCD Participant) or to the shareholder which tendered the Target Shares (if previously certificated), within 10 Trading Days after the end of the Offer Period. The cost of returning the Target Shares shall be borne by the shareholder making the withdrawal.

Trading of the Consideration Shares

 

The Consideration Shares currently trade on the PSE under the symbol "SMPH".

Expenses

 

The estimated expenses related to the Exchange Offers are ₱640 million.

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    Expenses in relation to the conveyance of the Target Shares to be borne by the Offeror are described below. Expenses to be borne by the Tendering Shareholders include lodgment expenses in relation to certificated shares tendered by a Tendering Shareholder and any applicable value-added tax on such lodgment expenses, and all expenses in relation to the conveyance of the Consideration Shares in scripless form from the Offeror to the Tendering Shareholder.

 

 

The following customary selling charges typically payable by Tendering Shareholders for the transfer of the Target Shares to the Offeror shall be borne by the Offeror, and shall be based on the Crossing Price (as defined below) of the Target Shares:

 

selling broker's commission of up to 0.25% of the value of the transaction, plus applicable 12% value-added tax on such commission. Any selling broker's commission in excess of the aforesaid amount shall be payable by the Tendering Shareholders;

 

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;

 

PSEC fee of 0.005% of the value of the transaction; and

 

PSE 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 Tendering Shareholders for the transfer of the Consideration Shares from the Offeror to the Tendering Shareholders shall be borne by the Offeror, and shall be based on the Crossing Price of the Consideration Shares:

 

buying broker's commission of up to 0.25% of the value of the transaction, plus applicable 12% value-added tax on such commission. Any buying broker's commission in excess of the aforesaid amount shall be payable by the Tendering Shareholders;

 

SCCP fee of 0.01% of the value of the transaction;

 

SIPF fee of 0.001% of the value of the transaction;

 

PSEC fee of 0.005% of the value of the transaction; and

 

PSE transaction fee of 0.005% of the value of the transaction, plus applicable 12% value-added tax on such fee.


Crossing Price

 

The 1-month volume weighted average price ("VWAP") of the Target Shares or the Consideration Shares ending March 31, 2013, as the case may be. The Crossing Prices are ₱8.303 per share for SMDC shares, ₱2.195 per share for HPI shares, and ₱18.660 per share for SM Prime Shares.

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Intention of the Shareholders   The following HPI shareholders have expressed their intention to participate in the Exchange Offer for the shares of HPI: Belle Corporation, SMIC, Sysmart Corp., SMDC and the Sy family.

 

The following SMDC shareholders have expressed their intention to participate in the Exchange Offer for the shares of SMDC: Syntrix Holdings, Inc, the Sy family, Sysmart Corp., Sybase Equity Investments Corp. and SMIC.


Delisting of the SMDC and HPI Shares

 

Shortly after the commencement of the Exchange Offers, SMDC and HPI will initiate a voluntary delisting process with the PSE. Holders of shares in SMDC and HPI who do not accept the Exchange Offers in accordance with the terms set out in this Offer Document therefore risk being left with unlisted shares.

Tax Consequences of Delisting

 

Pursuant to the minimum public ownership rule of the PSE, in consonance with BIR regulations, once public ownership of HPI or SMDC is reduced to less than 10% (which will occur if the Offeror acquires more than 90% of the issued and outstanding shares of HPI or SMDC), any transfer of HPI or SMDC shares subsequent to the settlement of the Exchange Offers 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 ₱100,000.00 and at the rate of 10% on any amount in excess of ₱100,000.00, and (ii) documentary stamp tax at the rate of ₱0.75 on each ₱200.00 of the par value of the shares sold or transferred.

Application Procedure

A Tendering Shareholder who wishes to offer all or a portion of its Target Shares for sale to the Offeror must secure an Application Form, which will be sent to every shareholder of record of the Target Shares and may also be obtained from the Offer Agent. The Tendering Shareholder must submit a duly completed Application Form together with the following documentary requirements to the Offer Agent:

    (i)
    For certificated Target Shares, the original stock certificates of SMDC and/or HPI duly endorsed.

    (ii)
    For corporate and juridical shareholders:

    (a)
    a notarized Board Resolution (in the form of the Secretary's Certificate attached as Schedule "C" to the Application) authorizing the tender of the Target Shares subject of the Application Form, designating signatories for the purpose and indicating the specimen signatures of these signatories;

    (b)
    copy of the PSEC Registration or equivalent constitutive document of the Tendering Shareholder certified as a true copy of the original by the PSEC or Corporate Secretary or equivalent person having official custody of company records;

    (c)
    copy of the latest articles of incorporation and by-laws or equivalent constitutive document of the Tendering Shareholder certified as true copy of the original by the PSEC or Corporate Secretary or equivalent person having official custody of company records; and

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      (d)
      Photocopies of two valid identification cards i.e. driver's license, tax identification card, SSS/GSIS card or passport of the authorized signatories containing the authorized signatories' signature and photograph, resolutions adopted by the shareholder's board of directors or its governing body authorizing the shareholder to tender its Target Shares pursuant to the Exchange Offers, designating signatories for the purpose and indicating the specimen signatures of those signatories.

    (iii)
    For individual shareholders:

    (a)
    photocopies of two valid identification cards, i.e. driver's license, tax identification card, SSS/GSIS card or passport showing the Tendering Shareholder's specimen signature and photograph;

    (b)
    duly accomplished signature card containing the specimen signature of the Tendering Shareholder and verified by the Offer Agent or the stock transfer agent;

    (c)
    for a Tendering Shareholder acting through an attorney-in-fact, a duly notarized Special Power of Attorney, in the form attached as Schedule "B" to the Application Form. (Note: Endorsement of stock certificate/s must be done by the Tendering Shareholder himself/herself). For a married individual, his/her spouse must sign in the space provided in the Special Power of Attorney to indicate marital consent to the sale of the shares; and

    (d)
    For a Tendering Shareholder acting through an attorney-in-fact, photocopies of two valid identification cards of the attorney-in-fact, i.e. driver's license, tax identification card, SSS/GSIS card or passport showing the attorney-in-fact's specimen signature and photograph.

To ensure that the Offer Agent receives the Target Shares in scripless form within the Offer Period, the Tendering Shareholders should submit the required documents:

    (i)
    For certificated shares, to the Offer Agent, at least five Trading Days before the end of the Offer Period, or on or before July 2, 2013, to allow for lodgment of the shares with PCD before the end of the Offer Period;

    (ii)
    For shares lodged with their PCD Participant, to their PCD Participant, at least three Trading Days before the end of the Offer Period or, on or before July 4, 2013, to allow for the electronic transfer of the shares to the Offer Agent before the end of the Offer Period; or

    (iii)
    For lost stock certificates, to the Offer Agent, on or before June 25, 2013, to allow for the issuance of new stock certificates and the lodgment thereof with the PCD before the end of the 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 Offer Agent.

Representation and Warranties

The Offeror hereby represents and warrants to each Eligible Shareholder that the delivery of the Consideration Shares shall be made when due.

By accepting the Exchange Offers, each Tendering Shareholder represents and warrants to the Offeror that:

    (i)
    All information contained in the Application Form 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;

    (ii)
    The tendered Target Shares have been validly issued, fully paid and non-assessable;

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    (iii)
    The Tendering Shareholder is the registered and absolute legal and beneficial owner of, and has good and marketable title, to the tendered Target Shares;

    (iv)
    The Tendering Shareholder has obtained all the required approvals and authorizations to enable it/him/her to transfer the shares to the Offeror, and there is no objection, adverse claim, dispute or notice concerning its/his/her right to tender and transfer the Target Shares;

    (v)
    On the Cross Date, the Offeror will obtain full and valid title to the tendered Target 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 Target Shares, including but not limited to the right to vote and receive dividends;

    (vi)
    For corporate shareholders, the transfer of the Target Shares to the Offeror 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 Target Shares or the Tendering Shareholder; and

    (v)
    The Tendering Shareholder is able to participate in the Exchange Offers under the relevant laws of their home jurisdiction. In particular, if the Tendering Shareholder is:

    1.
    a resident of the United Kingdom, it/he/she is: (i) (A) a legal entity which is a qualified investor as defined under the Prospectus Directive 2003/71/EC as amended and (B) either: (1) is a person who has professional experience in matters relating to investments, being an investment professional as defined in Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "FPO"); (2) a person who falls within Article 49 of the FPO ("high net worth companies, unincorporated associations etc."); or (3) any other person to whom these documents and/or materials may lawfully be communicated.

    2.
    a resident of France, it is a qualified investor (investisseur qualifié) (not an individual) in accordance with Articles L.411-1, L.411-2 and D.411-1 of the French Code monétaire et financier, and is otherwise eligible to participate in the Exchange Offers;

    3.
    a resident anywhere in the European Economic Area, in addition to any applicable restrictions above, it/he/she is a qualified investor as defined in the Prospectus Directive or is participating in the Exchange Offers in other circumstances falling within Article 3(2) of the Prospectus Directive;

    4.
    a resident of Hong Kong, it is a "professional investor" as defined in the Securities and Futures Ordinance of Hong Kong (Cap. 571) and any rules made thereunder, and it is participating in the Exchange Offers for investment purposes only and not with a view to re-sale of the Consideration Shares;

    5.
    a resident of any other jurisdiction in the world, it/he/she is informed of the restrictions applicable in that jurisdiction and is lawfully participating in the Exchange Offers in compliance with all applicable laws and regulations.

    6.
    a resident in one of the following U.S. jurisdictions (the "U.S. Restricted Jurisdictions"), it is an "exempt institutional investor" as that term may be defined by the particular U.S. Restricted Jurisdiction as described in "Restrictions, Cautionary Notice Regarding Forward-looking Statements and Disclaimers—United States":

        Alabama, Alaska, Arizona, Arkansas, Colorado, Connecticut, Delaware, District of Columbia, Florida, Guam, Illinois, Kentucky, Louisiana, Maryland, Massachusetts, Minnesota, Montana, Nebraska, New Jersey, New York, North Carolina, North Dakota,

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        Oklahoma, Oregon, Puerto Rico, Tennessee, Texas, Utah, Virginia, Washington, West Virginia and Wyoming.

Independent Financial Advisor Valuation of SM Prime and SMDC

Manabat Sanagustin & Co. ("MS& Co."), the local member firm of KPMG International in the Philippines, was engaged by SMIC to act as the independent financial advisor ("IFA") to the Audit and Risk Management Committee of SMIC in relation to the SMIC Exchange Offer. SMIC determined a share swap ratio of 0.472 SM Prime shares for every SMDC share. It was MS & Co.'s role as the IFA to assess the fairness of the share 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.'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 SMPH and SMDC.

MS & Co. opined on May 30, 2013 that the 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 PSE, 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 value-to-EBITDA multiple, Income Approach, Market Approach, SMDC's and SM Prime's market closing price as of the Valuation Date, and both SMDC's and SMPH's 60-day weighted average closing price.

Independent Financial Advisor Valuation of SM Prime and HPI

MS & Co. was engaged by SMIC to act as the IFA to the Audit and Risk Management Committee of SMIC in relation to SM Land's valuation of its acquisition of a 100% equity stake in HPI. SM Land will swap its shares in SM Prime in exchange for the acquisition of the HPI shares. SMIC determined a share swap ratio of 0.135 SM Prime shares for every HPI 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 HPI, as a going concern, is as of the Valuation Date. 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 HPI.

MS & Co. opined on May 30, 2013 that the share swap ratios between SM Prime and HPI is fair from a financial point of view.

MS & Co. made use of, among others, (i) information provided by SM Prime and HPI; and (ii) information from third-party sources including Capital IQ, the PSE, 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 value-to-EBITDA multiple, Income Approach, Market Approach, SM Prime's market closing price as of the Valuation Date, and both HPI's and SM Prime's 60-day weighted average closing price.

Material Change

If any material change occurs in the information previously disclosed to the shareholders of SMDC or HPI, as the case may be, the Offeror shall promptly disclose such material change in a manner reasonably calculated to inform the shareholders of such change.

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Tender Offer Report

Further information regarding the Exchange Offers is included in the Tender Offer Report (PSEC Form 19-1), copies of which are available at the office of the Offer Agent. Copies of the Tender Offer Report have also been filed with SMDC, HPI, the PSE and the PSEC.

All questions relating to the Exchange Offers may be directed to the following representatives of the Offer Agent:

Name
 
Telephone number
Janet Amora   +63 (2) 840-7000 local 6386
Jasper Jimenez   +63 (2) 878-4070
Karen Lim   +63 (2) 840-7682
Daniel Locsin   +63 (2) 840-7000 local 6952

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EXCHANGE RATES

The Philippine Dealing System ("PDS"), a computer network supervised by the BSP, through which the members of the Bankers Association of the Philippines effect spot and forward currency exchange transactions, was introduced in 1992. The PDS was adopted by the BSP as a means to monitor foreign exchange rates. The PDS Rate is the closing spot rate for the purchase of U.S. dollars with Pesos, which is quoted on the PDS and published in the BSP's Reference Exchange Rate Bulletin and major Philippine financial press on the following business day. On May 29, 2013, the PDS Rate was ₱41.851 = U.S.$1.00.

The following table sets forth certain information concerning the PDS Rate between the Peso and the U.S. dollar for the periods and dates indicated, expressed in Pesos per U.S.$1.00:

 
  Peso/U.S. dollar exchange rate  
Year
  Period end   Average(1)   High(2)   Low(3)  

2008

    47.485     44.475     49.984     40.360  

2009

    46.356     47.637     49.056     45.947  

2010

    43.885     45.248     46.983     42.516  

2011

    43.928     43.313     44.585     41.955  

2012

    41.192     42.249     44.246     40.862  

2013

                         

January

    40.653     40.730     41.078     40.569  

February

    40.736     40.672     40.736     40.610  

March

    40.938     40.713     40.938     40.588  

April

    41.161     40.142     41.377     40.811  

May (through May 29)

    41.851     41.189     41.851     40.774  

Notes:

(1)
Simple average of daily closing exchange rates for the period.

(2)
Highest closing exchange rate for the period.

(3)
Lowest closing exchange rate for the period.

Source: Reference Exchange Rate Bulletin, Treasury Department of the BSP.

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CAPITALIZATION

As of December 31, 2012, SM Prime's authorized capital stock was 20,000,000,000 shares with a par value of ₱1.00 per Share. As of December 31, 2012, SM Prime's issued and outstanding share capital consisted of 17,373,677,760 Shares.

The following table sets forth the SM Prime's long-term debt, equity and capitalization as of December 31, 2012 as well as a pro forma presentation to take into account the Reorganization. The table should be read in conjunction with SM Prime's consolidated financial statements and pro forma financial statements, including the notes thereto, included in this Offer Document beginning on page F-1. Other than as described below, there has been no material change in SM Prime's capitalization since December 31, 2012.

Actual Capitalization as of December 31, 2012

Loans payable

    ₱800,000,000  

Current portion of long-term debt

    1,791,703,848  

Long-term debt—net of current portion

    49,647,118,755  
       

Total Debt

    52,238,822,603  

Total equity (attributable to equity holders of the parent)

    69,944,410,317  
       

Non-controlling interests

    955,335,700  
       

Total Capitalization

    ₱123,138,568,620  
       

Pro Forma Capitalization as of December 31, 2012

Loans payable

    ₱8,930,000,000  

Current portion of long-term debt

    3,856,766,848  

Long-term debt—net of current portion

    67,749,382,676  
       

Total Debt

    80,536,149,524  

Total equity (attributable to equity holders of the parent)

    148,586,554,359  
       

Non-controlling interests

    3,099,976,999  
       

Total Capitalization

    ₱232,222,680,882  
       

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DIVIDENDS AND DIVIDEND POLICY

Under the Philippine law, a corporation may generally declare dividends if it has unrestricted retained earnings. Unrestricted retained earnings represent the undistributed earnings of the corporation which have not been allocated for any managerial, contractual or legal purposes and which are free for distribution to the shareholders as dividends. If declared by the corporation's board of directors, a corporation may pay dividends in cash, by the distribution of property or by the issuance of shares. Stock dividends can be issued with the approval of shareholders representing at least two-thirds of the issued and outstanding stock voting at a shareholders' meeting duly called for the purpose. See "Share Capital—Shareholders' Meetings—Dividends".

Following the conclusion of the Reorganization, SM Prime intends to evaluate its dividend policy based on the considerations applicable to New SM Prime. SM Prime does not believe that its dividend history is a relevant indicator of its future dividend policy following the Reorganization.

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DESCRIPTION OF THE REORGANIZATION

Pursuant to the Reorganization, certain companies and assets of the SM Group's property division will be consolidated into a single surviving entity, namely New SM Prime. The following sections describe the process of the Reorganization, including the particular companies and assets to be acquired by New SM Prime.

Structure Before the Reorganization

The following chart displays the corporate structure and shareholdings of the SM Group's property division as of May 28, 2013 and prior to the Reorganization.

GRAPHIC


(1)
Includes 35.81% stake in Highlands Prime Inc. held by Belle Corp;

(2)
Companies—Prime Metroestate 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, among others;

(3)
Includes SMIC's indirect shareholding in Prime Metroestate Inc. and Costa Del Hamilo Inc. via Rappel Holdings and Mountain Bliss Resorts and Development, respectively.

Listed companies:

    SM Prime, a publicly listed domestic company, is 40.96% directly owned by SM Land, 21.65% directly owned by SMIC, 6.57% directly owned by PCD Nominee Corp. (Foreign), 0.32% directly and indirectly owned by the Sy family and 30.50% publicly owned;

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    SMDC, a publicly listed domestic company, is 65.18% directly owned by SM Land, 7.19% directly and 13.68% indirectly owned by the Sy family, and 13.95% publicly owned;

    HPI, a publicly listed domestic company, is 20.20% directly owned by SMIC, 15.04% directly owned by SMDC, 35.82% directly owned by Belle Corporation, 17.70% owned by Sysmart, 1.20% owned by members of the Sy family and 10.09% publicly owned;

Unlisted companies:

    SM Land, a private domestic company, is 63.87% directly owned by SMIC and 36.13% directly owned by members of the Sy family;

    Prime Metroestate, Inc. (formerly Pilipinas Makro Inc.), is 10.00% directly owned by SMIC, 50.00% directly owned by Rappel Holdings, Inc. and 40.00% directly owned by Prime Central, Inc.;

    Tagaytay Resort and Development Corporation, is 33.33% directly owned by SMIC, 25% directly owned by SMDC and 41.67% directly owned by members of the Sy family;

    Mountain Bliss Resort & Development Corp., SM Hotels and Conventions Corporation, and SM Arena Complex Corporation are all 100% directly owned by SMIC; and

    Costa Del Hamilo Inc. is 100% directly owned by Mountain Bliss Resort & Development Corp.

The objective of the Reorganization is to consolidate all of the SM Group real estate interests under one single listed entity, which will be New SM Prime. SM Prime believes this will help to create an integrated real estate platform that will further enhance the value of the SM Group's real estate businesses and increase organizational efficiencies. The following is an explanation of certain transactions that have happened or are expected to happen in order to complete the Reorganization.

Process of the Reorganization

The key steps in the Reorganization are as follows:

    On June 4, 2013, upon prior approval by its board of directors and shareholders, SM Land, as shareholder of SM Prime, will launch a tender offer to acquire up to 100% of the outstanding capital stock of SMDC and HPI by exchanging all or part of its SM Prime shares with the Tendering Shareholders of SMDC and HPI, in exchange for the shares of SMDC and HPI. The Exchange Offers are expected to be settled on July 19, 2013, unless SM Land extends the exchange offer period upon approval by the PSEC.

    The following shareholders of SMDC and HPI have expressed their intention to tender their respective SMDC and HPI shares in exchange for the Consideration Shares:

 
SMDC Shareholder
  Number of
SMDC Shares
  Percentage of
Ownership
 
 

Syntrix Holdings, Inc,

    663,350,828     7.155 %
 

Sy family

    667,055,940     7.190 %
 

Sysmart Corp. 

    481,495,721     5.193 %
 

Sybase Equity Investments Corp. 

    110,943,856     1.197 %
 

SMIC

    11,683,813     0.126 %
 

Current Shareholding of SM Land

    6,043,148,078     65.182 %
             
 

TOTAL

    7,977,678,236     86.048 %
             

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HPI Shareholder
  Number of
HPI Shares
  Percentage of
Ownership
 
 

Belle Corporation

    804,557,877     35.818 %
 

SMIC

    453,675,866     20.197 %
 

Sysmart Corp. 

    396,495,101     17.651 %
 

SMDC

    337,911,101     15.043 %
 

Sy family

    27,040,000     1.205 %
             
 

TOTAL

    2,019,679,945     89.914 %
             
    Upon commencement of the Exchange Offers, SMDC and HPI will each initiate a voluntary delisting process with the PSE in accordance with the PSE Rules on Delisting. Holders of shares in SMDC and HPI who do not accept the Exchange Offers in accordance with the terms set out in this Offer Document therefore risk being left with unlisted shares.

The board of directors and shareholders of SM Prime will conduct their respective meetings in order to approve the following:

    1.
    The merger of SM Land and SM Prime pursuant to Title IX (Merger and Consolidation) of the Corporation Code and Section 40(C)(2) of the National Internal Revenue Code, as amended, with New SM Prime as the surviving entity (the "Merger");

    2.
    The Plan of Merger, which will include amendments to the amended articles of incorporation of SM Prime as the surviving entity of the Merger, in order to, among others,: (a) change its primary purpose to include the business of SM Land; and (b) increase its authorized capital stock from ₱20,000,000,000 to ₱40,000,000,000;

    3.
    The issuance of SM Prime shares to SMIC, Mountain Bliss Resort & Development Corp. ("Mountain Bliss") and the Sy family, in exchange for the latter's shares in the companies as listed below (the "Share for Share Swap"): and

 
Name of
Company to be Acquired
  Shareholder   No. of
Shares Held
  Percentage of
Ownership
 

Prime Metroestate Inc. (formerly Pilipinas Makro Inc.)

  SMIC   271,297   10.00%
 

Rappel Holdings, Inc. 

  SMIC   1,356,500 (ownership of
Rappel Holdings, Inc.
in Prime Metroestate Inc.)
  50.00% indirect
ownership in
Prime Metroestate Inc.
(100% ownership of
Rappel Holdings, Inc.)
 

Prime Central, Inc. 

  SMIC   1,085,196 (ownership of
Panther (BVI) Ltd., a
100% subsidiary of Prime
Central, Inc., in Prime
Metroestate, Inc.)
  40.00% indirect
ownership in Prime
Metroestate, Inc.
(100% ownership of
Prime Central, Inc.)
 

Tagaytay Resort Development Corporation

  SMIC   139,999   33.33%
 

Tagaytay Resort Development Corporation

  Sy family   175,001   41.67%
 

SM Hotels and Conventions Corporation

  SMIC   10,999,995   100.00%
 

SM Arena Complex Corporation

  SMIC   3,999,995   100.00%
 

Costa Del Hamilo Inc. 

  Mountain Bliss   4,157,495   100.00%

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    4.
    The issuance of an additional and equivalent amount of SM Prime shares to SMIC in exchange for the real estate properties listed below ("Property for Share Swap"):

 
Properties/Developments
  Classification/   Location   GFA (sq. m.)/
No. of Rooms*
  Asset Type
 

Taal Vista Hotel

  Land and Building   Tagaytay   47,707
261*
  Hospitality
 

Radisson Cebu Hotel (see note below)

  Building   Cebu   396*   Hospitality
 

Pico Sands Hotel (see note below)

  Building   Batangas   154*   Hospitality
 

SMX Convention Center (see note below)

  Building   Pasay   51,097   Hospitality
 

MoA Arena (see note below)

  Building   Pasay   67,536   Hospitality
 

MoA Arena Annex

  Building   Pasay   95,273   Commercial
 

Corporate Office

  Building   Pasay   46,883   Commercial
 

Casino and Waste Water Treatment Plant

  Building   Tagaytay   19,384   Commercial
 

Tagaytay

  Land   Tagaytay   132,992   Land
 

EDSA West

  Land   North Edsa, QC   2,910   Land
 

Park Inn Davao

  Building   Davao   204*   Hospitality

A vote of the shareholders owning at least two thirds of the outstanding capital stock of SM Prime is required for the above transactions to be approved. The following shareholders of SM Prime have undertaken to vote favorably on the above matters to be taken up during the special shareholders' meeting to be conducted by SM Prime:

SM Prime Shareholder
  Number of
SM Prime Shares
  Percentage of
Ownership
 

SM Land

    7,116,954,491     40.964 %

SMIC

    3,761,791,190     21.652 %

PCD Nominee Corp. (Foreign)

    1,141,121,514     6.568 %

Sysmart Corporation

    36,483,131     .210 %

Sy family

    19,357,439     .111 %
           

Total

    12,075,707,765     69.506 %
           

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 shareholders of SM Prime during its special shareholders' meeting.

On May 30, 2013, the board of directors and shareholders of SM Land conducted their respective meetings in order to approve the Merger.

Subsequent to the approval by the SM Prime shareholders, the application for approval of the Merger, Share for Share Swap and Property for Share Swap is expected to be filed with the PSEC and the application for listing of the SM Prime shares issued pursuant to the Merger, Share for Share Swap and Property for Share Swap shall be subsequently filed with the PSE.

Effects of the Reorganization

SM Prime and SM Land shall become a single corporation, with New 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, New SM Prime, shall thereafter possess all the rights, privileges, immunities

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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.

Following the Reorganization and assuming full acceptance of the Exchange Offers by all holders of the Target Shares, New SM Prime will effectively own the following direct and indirect interests in certain companies of the SM Group, in addition to the real assets set out in the discussion above.

Company
  Ownership  

SMDC

    100%  

HPI

    100%  

Prime Metroestate, Inc. 

    100%  

SM Hotels and Conventions Corporation

    100%  

SM Arena Complex Corporation

    100%  

Costa Del Hamilo, Inc. 

    100%  

Tagaytay Resort and Development Corporation

    100%  

Following the Reorganization and assuming full acceptance of the Exchange Offers by all holders of the Target Shares, the corporate structure and shareholdings of the SM Group's real estate division will be as follows:

GRAPHIC


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

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(1)
Assuming full acceptance rate of the tender offers;

(2)
Companies—Prime Metroestate 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, among others;

(3)
Includes SM Land's companies and other assets

New SM Prime will be led by a senior management team comprising Mr. Henry Sy, Sr., as Chairman Emeritus and Mr. Henry T. Sy, Jr., as Chairman of the Board. Mr. Hans T. Sy and Mr. Jeffrey Lim will continue their existing roles as President and Chief Finance Officer, respectively, of New SM Prime.

RATIONALE FOR THE REORGANIZATION

Create an integrated real estate platform to further enhance the value of the SM Group's real estate businesses

New SM Prime will build on the strong track record of its component businesses, including being the number one shopping mall developer and operator in the Philippines based on GFA, a leading residential developer in the Philippines in terms of condominium units sold, and operating growing office, hotel and leisure segments. New SM Prime is expected to be one of the largest real estate companies listed in Southeast Asia and on the PSE in terms of market capitalization. New SM Prime's increased free float adjusted market capitalization should translate into greater trading liquidity and increased weighting in regional indices. New SM Prime is expected to have a significant growth pipeline as underscored by its large and diversified land bank consisting of a pro-forma area of approximately 920 hectares of retail, commercial, and residential land in prime locations across the Philippines, which SM Prime believes will be among the largest in the country. In addition, SMIC has granted a non-binding right of first refusal to SM Prime to purchase additional land from SMIC to support further development initiatives.

New SM Prime is expected to have a strong mix of recurring income from its mall and office operations, and profit from development activities from its residential operations. On a pro forma basis, taking into account the effects of the Exchange Offers and the Reorganization (as discussed in more detail in "Pro Forma Financial Information"), 73.6% of New SM Prime's net income for 2012 was derived from recurring sources. SM Prime believes it will have the opportunity to accelerate its growth by participating in higher growth and higher-return development opportunities in the residential, commercial, hospitality and tourism sectors due to its integrated real estate platform.

New SM Prime intends to leverage on the diverse skill sets of each of its component companies to extract optimal value across the real estate value chain. SM Prime believes it can maximize existing plots of its retail developments that may be underutilized or unutilized by adding residential, commercial and hospitality developments. SM Prime also believes it will have greater flexibility to undertake more large scale integrated mixed use developments such as the 60-hectare Mall of Asia ("MOA") complex, which are typically built on a larger scale, have more efficient use of land and, in general, are expected by SM Prime to achieve higher overall rates of return and profit margins. New SM Prime intends to replicate the MOA complex's successful development strategy in other parts of the Philippines. New SM Prime has begun this process with the development of a new mixed used development, the 30-hectare South Road property in Cebu, known as SM Seaside City.

Simplify corporate structure and increase organizational efficiencies

New SM Prime expects to benefit from an increase in organizational efficiencies and to extract synergies among the component companies. New SM Prime also expects to have access to a larger pool of managerial talent with a strong track record and experience across several real estate classes working together under one entity to focus on maximizing the potential synergies of the new company. New SM Prime expects to take a more coordinated approach and better utilize its resources. For example, future

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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.

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

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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.

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 ₱148.1 billion as of December 31, 2012 to ₱284.1 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 ₱20.7 billion for the year ended December 31, 2012 to ₱27.5 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.

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STRATEGIES OF NEW SM PRIME

Pursue a multi-pronged long term growth strategy

New SM Prime will pursue a multi-pronged long-term strategy that will allow it to optimize the value of existing properties, developments and current land bank through an integrated real estate platform while retaining flexibility to allocate capital among the different segments efficiently. SM Prime will embark on more large scale mixed used developments throughout the Philippines by capitalizing on and replicating the success of the MOA complex. New SM Prime will have a large and diverse land bank suitable for projects that are able to replicate the success of the MOA complex. For example, SM Prime is planning to build a 30 hectare mixed use development project in Cebu City, the SM Seaside City, which SM Prime believes could change the urban landscape of Cebu. The mall in SM Seaside City is expected to be that city's largest mall, with a gross floor area of 400,000 sq. m. It will consist of a four-story complex featuring a cineplex, IMAX theater, bowling center and ice skating rink. Other potential developments in SM Seaside City complex may include high-rise residential condominiums, office buildings, convention center and hotels. Development of the property started in 2011 with a 7-10 year development timeframe. SM Prime is targeting to increase their mall GFA to approximately 7.2 million sq. m. in the Philippines and approximately 1.5 million sq. m. in China by 2015.

By building on the success of its existing projects, New SM Prime intends to further enhance the value of its projects by adding complementary retail, residential, office and leisure developments. For example, the MOA Arena has been a preferred venue for events do to its proximity to the MOA while it has also helped to increase foot traffic at the MOA. SEA Residences has been one of SMDC's fastest selling residential development projects in part due to its proximity to the MOA, while at the same time providing additional foot traffic to the mall. New SM Prime intends to further expand these complimentary projects by adding retail, office, residential and leisure developments to its existing property projects, including those projects with underutilized plots or vacant land. For example, SM Prime has recently leased unused land near SM City Cebu and SM City Davao to SM Hotel for the development of Radisson Blu Cebu and Park Inn Davao, respectively. SM Prime believes that SM Megamall, SM North EDSA, and SM SRP still have significant under-utilized plot ratio that is suitable for commercial, hospitality and residential developments.

New SM Prime intends to leverage on the enlarged retail team's network and expertise to maximize rental income from prime retail spaces in the enlarged group's residential, commercial and hospitality projects. New SM Prime's Shopping Mall business unit will assume the management of Prism Plaza, Two E-Com, Cyberzone, Save More and other prime retail spaces within New SM Prime's commercial and residential properties, as well as future developments such as Three E-com and Cyber West, with the goal of leveraging off the management team's expansive network of potential tenants and expertise to help lease out prime spaces.

Continue to focus on generating high quality recurring income with mall operations being the major focus going forward

New SM Prime expects mall operations to continue to be its primary focus going forward and is targeted to account for a majority of New SM Prime's net income. Expansion is expected to take place in major cities outside of Metro Manila, especially in areas where disposable income is increasing significantly and retail space is currently limited. New SM Prime also plans to develop supercenters (malls consisting of less than 100,000 sq. m.) that are situated between mega malls in Metro Manila. New SM Prime intends to increase its presence in China as well. SM Prime expects to build three to four malls per year, or increase its GFA by 8-10% per year, for the foreseeable future. SM Prime is targeting to increase their mall GFA to approximately 7.2 million sq. m. in the Philippines and approximately 1.5 million sq. m. in China by 2015. SM Prime believes it will be able to do this given its direct access to a larger land bank that should allow it to accelerate its mall development throughout the country.

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New SM Prime intends to work closely with its affiliate, SM Retail, to make SM Prime the primary provider of SM Retail's real estate needs going forward. SM Prime understands that SM Retail intends to open two SM Department stores, two SM Supermarkets, 16 SaveMore stores and seven SM Hypermarkets in 2013.

Support the existing growth strategy of newly acquired businesses with a greater emphasis on collaboration and joint developments

New SM Prime intends to capitalize on the increasing urbanization and economic development of the Philippines to develop vertical residential projects in key urban centers such as Makati City, Pasay City, Quezon City, Batangas and Davao that target the base of the Philippine mass middle market. By leveraging the already strong SM brand and the group's leadership in the residential condominium segment, New SM Prime believes it can aggressively roll-out new projects in the strategically placed land bank throughout Metro Manila and the rest of the country. New SM Prime will focus its residential development on the low-to-middle income segments, which is underpinned by resilient housing demand driven by a housing supply backlog, growing household creation and increasing urbanization. Currently, it has 15 ongoing projects and four completed projects that it is still selling, and it also plans to launch a total of four new projects and the expansion of three existing projects in 2013.

Taking advantage of the robust BPO sector outlook, New SM Prime's strategic focus includes expanding its office portfolio with IT and BPO buildings. For example, New SM Prime expects to complete Cyberwest in 2013 and Three E-Com in 2014. New SM Prime plans to open one to two office buildings per year, both inside and outside the MOA complex, for the next several years. New SM Prime plans to leverage the new company's enlarged and geographically diverse land bank to expand its office space presence in second and third tier Philippine cities in Cebu, Davao, Pampanga and Iloilo, areas where BPO companies are currently expanding their operations due to favorable labor market conditions.

In order to take advantage of the expected increase in tourist arrivals, New SM Prime expects to continue rolling out hotels near existing SM Prime developments in major tourist destinations throughout the Philippines. For example, SM Hotels & Convention recently opened Radisson Blu near SM Cebu and Park Inn Davao near SM Davao. In the near future, SM Prime intends to open a Conrad Hilton Hotel near the MOA complex and additional Park Inn hotels in Clark and North EDSA. The target is to launch one hotel per year. The close proximity to SM malls helps increase the occupancy in these hotels while at the same time allowing the hotels to help drive tourist traffic to the SM malls. This symbiotic relationship between the malls and the tourism facilities is a key consideration for SM Prime as it looks to expand its hotel portfolio.

New SM Prime plans to accelerate the development of its integrated resorts projects in both Tagaytay Highlands and Hamilo Coast. This will be accomplished by introducing more mid-rise developments within Tagaytay Highlands to maximize the use of the existing land bank as well as to attract customers in the upper-middle income segment of the market. A combination of mid-rise and horizontal developments in Hamilo Coast is expected to be built in order to target a wider segment of the market. Recent infrastructure projects, including a ferry from the MOA complex, are expected to significantly reduce travelling time to Hamilo Coast and thereby attract more buyers.

Continue to expand and develop New SM Prime's land bank through a coordinated land banking strategy

New SM Prime intends to integrate all land banking functions into a centralized department while retaining the highly successful culture that allowed the company to reach its strong current land bank position. Going forward, the key focus will be on acquiring land bank that is suitable for mid-to-large scale mixed-use master planned projects in fast growing areas in the Philippines. New SM Prime plans to continue acquiring strategic land bank near its existing developments, select schools, mass transit stations

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and other areas which are expected to be significant beneficiaries of infrastructure development in the future. New SM Prime also plans to take an opportunistic land banking approach in tier 2 and 3 cities in China as part of its overall strategy of growing its China business. The additional land expected to be available to New SM Prime from SMIC should also serve as a strong source of land for future developments.

Strengthen its balance sheet and produce sustainable income through prudent risk management, efficient allocation of capital and good corporate governance practices

By maintaining a strong balance sheet, SM Prime believes it will be able to withstand economic and financial cycles, while allowing the company to achieve significant expansion quickly, as well as give it the flexibility to embark on major acquisitions if and when opportunities arise. New SM Prime intends to maintain prudent debt levels and a sufficient equity buffer with a target net debt-to-equity ratio of no more than 0.5x. New SM Prime also plans to maintain a relatively long and well spread out debt maturity profile and continue to diversify its sources of funding. New SM Prime will take a disciplined approach to the allocation of capital across its projects with strict application of hurdle rates and benchmarks for each investment.

The New SM Prime intends to pursue a capital expenditure program for 2013 totalling approximately ₱60.4 billion, with 58% for shopping mall development, 33% for residential, 4% for commercial and 4% for hospitality, tourism and other segments. New SM Prime plans to fund its capital expenditure plan through recurring income flows and external financing. New SM Prime will apply global corporate governance standards and risk management best practices, as well as embark on integrated sustainability and corporate social responsibility initiatives. New SM Prime may also take advantage of opportunities to raise additional capital in the near future in order to fund its future growth strategy.

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BUSINESS

The information in this section relates to SM Prime and other entities and assets that will be merged with and contributed to New SM Prime pursuant to the Exchange Offers and the Reorganization. In particular, the information below relates to the following entities, and their consolidated subsidiaries, as they existed on December 31, 2012:

    SM Prime;

    SM Land;

    HPI;

    Costa de Hamilo;

    SM Hotels and Convention Corporation;

    SM Arena Complex Corporation

    Tagaytay Resort Development Corporation;

    Prime Metroestate, Inc.; and

    other real estate assets which will be acquired by New SM Prime pursuant to the Reorganization.

For more information concerning the details and expected timetable of the Reorganization, see "Description of the Reorganization."

SM PRIME HOLDINGS, INC.

Overview

SM Prime was incorporated on January 6, 1994 to develop, operate and maintain the business of modern commercial shopping malls and all related businesses, such as the operation and maintenance of shopping spaces for rent, amusement centers and cinema theaters within the compound of the shopping malls. As of the date of this Offer Document, SM Prime owns 47 malls (as listed below) covering a total gross floor area of 5.9 million sq. m. located across the Philippine archipelago, attracting an average of approximately 4 million visitors daily. SM Prime is the leading owner and operator of shopping malls in the Philippines. SM Prime plans to continue to expand its existing malls and develop three to four malls in the Philippines each year for the near term, subject to market conditions.

SM Prime has also begun to expand its shopping mall operations outside of the Philippines. SM Prime owns five malls located in the cities of Xiamen, Jinjiang, Chengdu, Suzhou and Chongqing in the southern and western parts of China with a total gross floor area of 0.8 million sq. m. SM Prime is targeting the acquisition of additional properties in China in the future as it gears up for expansion.

The principal sources of revenue for SM Prime comprise rental income payable by tenants (including its retail subsidiaries) within the malls, ticket sales derived from the operations of cinemas, and fees payable for the use of SM Prime's parking facilities, bowling, ice skating and other leisure facilities. Approximately 50% of SM Prime's gross leasable space is currently leased by members of the SM Group or companies which are affiliated with the Sy family. Such tenants contributed approximately 27% (₱8.4 billion) of SM Prime's non-consolidated total revenues of ₱30.7 billion for the year ended December 31, 2012.

SM Prime is listed on the PSE and as at December 31, 2012 was 21.65% directly owned by SMIC and 27.40% indirectly owned by SMIC through its 40.96% ownership of SM Land, with an additional 0.11% owned by the Sy family. SM Prime had a market capitalization of ₱286.67 billion as at December 31, 2012.

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As at December 31, 2012, SM Prime's total consolidated assets stood at ₱148.13 billion, total consolidated liabilities were at ₱77.23 billion, with net debt-to-equity ratio (being the ratio of aggregate consolidated indebtedness over equity) of 36%.

The following table sets out the consolidated revenues and net income for SM Prime for the years ended December 31, 2010, 2011 and 2012:

 
  For the year ended
December 31,
 
 
  2010   2011   2012  
 
  (audited)
 
 
  (in millions of Pesos)
 

Revenue

    23,716     26,897     30,726  

Net income

    7,856     9,056     10,530  

The following table sets out the selected consolidated financial information for SM Prime as at December 31, 2011 and 2012.

 
  As at December 31,  
 
  2011   2012  
 
  (audited)
 
 
  (in millions of Pesos)
 

Cash and cash equivalents

    8,290     9,707  

Investments held for trading

    813     759  

Available-for-sale investments

    1,000     1,000  

Investment properties

    107,836     124,087  

Total assets

    128,324     148,130  

Accounts payable and other current liabilities

    10,150     11,399  

Long term debt

    40,893     51,439  

Tenants' deposits

    7,467     8,386  

Total liabilities

    63,978     77,230  

SM Prime's performance for the year ended December 31, 2012 was derived largely from its mall operations, including the opening of new supermalls such as SM City Olongapo, SM City Consolacion, SM City San Fernando, SM City General Santos, and SM Lanang Premier.

The Malls

SM Prime has in the past concentrated on the development of its malls in the Metro Manila area, where it currently operates seventeen malls in addition to four plots of land of which three are owned and one is leased and plans to develop in the future. As the Metro Manila area becomes increasingly well served by shopping malls, SM Prime's strategy is to expand its activities in the provinces, where it currently operates 30 malls, with an additional twelve plots of land available for development, all of which are owned. SM Prime plans to continue to expand existing malls and develop approximately three to four malls each year in the Philippines for the next few years, subject to market conditions.

SM Prime has also begun to expand its shopping mall operations outside of the Philippines. SM Prime owns five malls located in the cities of Xiamen, Jinjiang, Chengdu, Suzhou and Chongqing in the southern and western parts of China with a total gross floor area of 0.8 million sq. m. See "—SM Malls in China."

SM Prime retains ownership of all of the sites on which the SM Prime malls are built, with the exception of SM City Bacoor, SM City Manila, SM City Baguio, SM Center Valenzuela, SM Center Molino, SM City Clark, SM Mall of Asia, SM Center Pasig, SM City Taytay, SM Center Muntinlupa, SM City Naga, SM City Tarlac, SM City San Pablo, SM City Calamba, SM City Olongapo, SM City Consolacion and SM City General Santos, which are held under long-term leases. SM Megamall is owned by First Asia Realty

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Development Corporation, a 74.2% owned subsidiary of SM Prime, with the remaining interest being held by an unconnected third party. In addition, the lands where the SM Mall of Asia and SM City Baguio are built are owned by SM Land and SMIC, respectively. The land where SM City San Lazaro is located is owned by San Lazaro Holdings Corporation, a wholly-owned subsidiary.

The following table sets forth certain information regarding SM Prime's malls as at December 31, 2012:

Name and Year Opened
  Gross Area(1)   Tenant Leasable
Area(2)
  Occupancy Rate   Leisure Area(3)  
 
  (sq. m.)
  (sq. m.)
  (%)
  (sq. m.)
 

SM City North EDSA (1985)

    482,959     199,254     100     18,288  

SM City Sta. Mesa (1990)

    133,327     67,207     92     8,250  

SM Megamall (1991)

    405,435     169,650     99     11,614  

SM City Cebu (1993)

    274,236     123,150     98     17,099  

SM Southmall (1995)

    205,120     95,797     93     18,573  

SM City Fairview (1997)

    188,681     122,809     98     15,811  

SM City Bacoor (1997)

    120,202     85,909     87     7,715  

SM City Iloilo (1999)

    105,953     71,965     100     9,757  

SM City Manila (2000)

    167,812     71,332     97     11,791  

SM City Pampanga (2000)

    132,484     83,129     94     4,404  

SM City Davao (2001)

    127,942     60,786     91     4,115  

SM City Sucat (2001)

    98,106     54,705     93     3,000  

SM City Bicutan (2002)

    113,671     48,926     99     2,474  

SM City Cagayan de Oro (2002)

    87,940     38,909     97     3,083  

SM City Lucena (2003)

    78,655     50,662     95     3,552  

SM City Marilao (2003)

    93,910     55,801     98     3,137  

SM City Baguio (2003)

    107,950     46,533     98     3,741  

SM City Dasmariñas (2004)

    130,771     63,380     96     3,247  

SM City Batangas (2004)

    80,350     53,250     98     3,177  

SM City San Lazaro (2005)

    178,516     75,526     97     6,601  

SM Center Valenzuela (2005)

    70,681     29,148     97     3,950  

SM Center Molino (2005)

    52,061     25,952     96     3,635  

SM City Sta. Rosa (2006)

    86,463     54,191     99     3,313  

SM City Clark (2006)

    101,840     65,825     99     5,355  

SM Mall of Asia (2006)

    406,961     151,620     99     21,872  

SM Center Pasig (2006)

    29,602     14,086     95      

SM City Lipa (2006)

    77,301     53,308     100     3,381  

SM City Bacolod (2007)

    71,752     44,840     100     3,207  

SM City Taytay (2007)

    98,928     43,051     99     2,404  

SM Center Muntinlupa (2007)

    54,292     26,331     95     2,641  

SM City Marikina (2008)

    178,485     57,359     99     6,041  

SM City Rosales (2008)

    63,330     43,721     98     3,468  

SM City Baliwag (2008)

    61,262     40,586     100     2,526  

SM City Naga (2009)

    74,275     31,956     100     3,194  

SM Center Las Piñas (2009)

    40,267     16,026     91     40  

SM City Rosario (2009)

    59,326     39,093     88     3,165  

SM City Tarlac (2010)

    101,629     39,836     98     3,506  

SM City San Pablo (2010)

    59,643     33,622     100     2,971  

SM City Calamba (2010)

    67,384     41,219     99     2,998  

SM City Novaliches (2010)

    60,560     41,284     97     3,169  

SM City Masinag (2011)

    90,261     48,569     79     2,624  

SM City Olongapo (2012)

    47,426     23,521     100     2,530  

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Name and Year Opened
  Gross Area(1)   Tenant Leasable
Area(2)
  Occupancy Rate   Leisure Area(3)  
 
  (sq. m.)
  (sq. m.)
  (%)
  (sq. m.)
 

SM City Consolacion (2012)

    106,857     57,842     92     2,189  

SM City San Fernando (2012)

    42,625     17,876     97     2,178  

SM City General Santos (2012)

    139,721     67,072     85     3,397  

SM Lanang Premier (2012)

    144,002     83,449     91     6,860  

SM Aura Premier (2013)(4)

    234,892     60,453     81     3,232  

Notes:

(1)
"Gross Area" means the gross floor area of a mall, including common areas and car parks.

(2)
"Tenant Leasable Area" means the total area in a mall available for leasing by tenants, excluding the Leisure Area and car parks.

(3)
"Leisure Area" means the aggregate area in a mall which is occupied by cinema complexes, ice skating rinks, bowling centers and indoor theme parks.

(4)
SM Aura Premier was launched on May 17, 2013 and the data applicable to this mall is as of such date.

The following is a brief discussion of each of SM Prime's current malls.

Metro Manila Malls

SM City North EDSA

SM City North EDSA, the very first and currently the Philippines' largest shopping mall by GFA, has a gross floor area of 482,959 sq. m. featuring 12 cinemas including a 3D IMAX theater with a total seating capacity of 9,842, 24-computerized synthetic lane bowling center, food court, amusement centers and multi-level car park which provides a total capacity of 3,511 cars, located on a 16.1 hectare site in Diliman, Quezon City. Following the opening of The Block and renovation of The Annex, The Sky Garden was unveiled in May 2009. It is a 400-meter elevated walkway shaded by a long sketch of white canopy made to stroll from one building to another, with a park-like ambiance and green architecture. This elevated curvilinear park includes the roof garden, water features, food and retail outlets and sky dome, a 1,000-seat amphitheater for shows and special events. The anchor tenants for SM City North EDSA are SM Department Store, SM Hypermarket and SM Supermarket. The occupancy rate for SM City North EDSA for the years ended December 31, 2010, 2011 and 2012 was 97%, 99% and 100%, respectively.

SM Mall of Asia

MOA is located on a 19.5 hectare property overlooking Manila Bay. The MOA complex consists of four buildings linked by elevated walkways—Main Mall, the North Parking Building, the South Parking Building, and the Entertainment Center Building. The mall measures 406,961 sq. m. Both parking buildings have 4,969 spaces available for private vehicles. The Entertainment Building houses the country's first IMAX theater, a special Director's Club screening room for exclusive film showings, seven state-of-the art cinemas, 32-lane state of the art bowling facility, an olympic-sized ice skating rink, a Science Discovery Center and Planetarium and fine dining restaurants and bars. The anchor tenants for MOA are SM Department Store and SM Hypermarket. The occupancy rate for SM Mall of Asia for the years ended December 31, 2010, 2011 and 2012 was 99%, 99% and 99%, respectively.

SM Megamall

SM Megamall is located on a 10.5 hectare property in the Ortigas business district of Metro Manila. It stands along the main EDSA thoroughfare and is near the Metro Rail Transit. The two main buildings,

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Mega A and Mega B, with the addition of Mega Atrium in 2008 and Building C which is mainly a parking building in 2011, have a combined gross floor area of 346,789 sq. m. and feature 12 cinemas with a seating capacity of 8,080, a food court, a trade hall, event center and parking for 2,792 vehicles. The anchor tenants for SM Megamall are SM Department Store and SM Supermarket. The occupancy rate for SM Megamall for the years ended December 31, 2010, 2011 and 2012 was 98%, 99% and 99%, respectively.

SM City Southmall

SM City Southmall is a four-level complex with a gross floor area of 205,120 sq. m. featuring nine cinemas with a seating capacity of 7,120, including a 3D IMAX theater, a food court, ice skating rink, amusement centers and a car park for 2,692 cars. SM City Southmall is located on a 20.0 hectare site in Las Piñas City and was the first SM supermall in the southern region of Metro Manila. The anchor tenants for SM City Southmall are SM Department Store and SM Supermarket. The occupancy rate for SM City Southmall for the years ended December 31, 2010, 2011 and 2012 was 92%, 92% and 93%, respectively.

SM City Fairview

SM City Fairview is a two-building, four-level complex with a gross floor area of 188,681 sq. m. located on a 20.2 hectare site in Quezon City, Metro Manila. The mall features 12 cinemas with a seating capacity of 6,515, 20-lane bowling center, food court and amusement areas. In early 2009, the mall launched its annex, adding 28,600 sq. m. of gross floor area to the main mall. The anchor tenants for SM City Fairview are SM Department Store, SM Hypermarket and SM Supermarket. The occupancy rate for SM City Fairview for the years ended December 31, 2010, 2011 and 2012 was 97%, 98% and 98%, respectively.

SM City San Lazaro

SM City San Lazaro is located at the center of a densely populated residential area with bustling commercial activities in Sta. Cruz, Manila. The four-story mall has a gross floor area of 178,516 sq. m. The mall features a food court, amusement center, six cinemas with a seating capacity of 3,274, and parking for more than 1,000 vehicles. The anchor tenants for SM City San Lazaro are SM Department Store and SM Supermarket. The occupancy rate for SM City San Lazaro for the years ended December 31, 2010, 2011 and 2012 was 95%, 96% and 97%, respectively.

SM City Marikina

SM City Marikina on Marcos Highway, Brgy. Calumpang, Marikina City has a gross floor area of 178,485 sq. m. Marikina is a key city for the SM Group as its shoemakers became vital partners during its growth years in the sixties as a shoe store in Carriedo, Manila. It features a food court, eight cinemas with a 3,121 seating capacity. The anchor tenants for SM City Marikina are SM Department Store and SM Supermarket. The occupancy rate for SM City Marikina for the years ended December 31, 2010, 2011 and 2012 was 97%, 97% and 99%, respectively.

SM City Manila

SM City Manila is a five-level mall with a gross floor area of 167,812 sq. m. The mall is located in downtown Manila next to the Manila City Hall. It has 12 cinemas with a seating capacity of 7,554, a food court and a car park available for 920 cars. It has become a major destination for shoppers, given its strategic location and easy accessibility by the Light Railway Transit and other public transportation. The anchor tenants for SM City Manila are SM Department Store and SM Supermarket. The occupancy rate for SM City Manila for the years ended December 31, 2010, 2011 and 2012 was 94%, 93% and 97%, respectively.

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SM City Sta. Mesa

SM City Sta. Mesa is a seven-level complex with a gross floor area of 133,327 sq. m. featuring 10 cinemas with a seating capacity of 7,451, a food court, an amusement center, a car park on six levels and outdoor parking with a total capacity of 1,176 cars located in Quezon City, Metro Manila. The anchor tenants for SM City Sta. Mesa are SM Department Store and SM Supermarket. The occupancy rate for SM City Sta. Mesa for the years ended December 31, 2010, 2011 and 2012 was 97%, 98% and 92%, respectively.

SM City Bicutan

SM City Bicutan is a two-building mall located along Doña Soledad Ave. corner West Service Road, Bicutan, Parañaque City. This supermall has a gross floor area of 113,671 sq. m. It features a food court and four cinemas with a total seating capacity of 1,955. SM City Bicutan serves nearly half a million residents within a 3 kilometer radius. The anchor tenants for SM City Bicutan are SM Department Store and SM Supermarket. The occupancy rate for SM City Bicutan for the years ended December 31, 2010, 2011 and 2012 was 99%, 100% and 99%, respectively.

SM City Sucat

SM City Sucat is a two-building mall located on a 10.1 hectare site along Dr. A. Santos Ave. (Sucat Road), Brgy. San Dionisio, Parañaque City. The mall has a gross floor area of 98,106 sq. m. and features four cinemas with total seating capacity of 1,955, a food court and car park with 1,475 slots. The anchor tenants for SM City Sucat are SM Department Store and SM Supermarket. The occupancy rate for SM City Sucat for the years ended December 31, 2010, 2011 and 2012 was 94%, 94% and 93%, respectively.

SM Center Valenzuela

SM Center Valenzuela has a total gross floor area of 70,681 sq. m., situated in Brgy. Karuhatan, Valenzuela City. SM Center Valenzuela caters to the bustling industrial areas that surround the property. The mall features four cinemas with a 2,172 seating capacity, a food court and parking for 621 cars. It also features the Fashion Avenue, a multi-shop style center that houses a wide array of apparel, shoes and accessory picks. The anchor tenant for SM Center Valenzuela is SM Supermarket. The occupancy rate for SM Center Valenzuela was 97% for each of the years ended December 31, 2010, 2011 and 2012.

SM City Novaliches

SM City Novaliches, which has a gross floor area of 60,560 sq. m., is located along Quirino Highway in Brgy. San Bartolome, Novaliches, Quezon City. Novaliches, being the largest district in the city, is growing with residential subdivisions and industrial companies. The amenities of the mall include a food court, four cinemas with 1,610 seats and parking slots for almost 900 vehicles. The occupancy rate for SM City Novaliches for the years ended December 31, 2010, 2011 and 2012 was 87%, 88% and 97%, respectively.

SM Center Muntinlupa

SM Center Muntinlupa is situated in Brgy. Putatan, Muntinlupa City. The two-level mall has a gross floor area of 54,292 sq. m. and caters to the residents of Muntinlupa City and the growing municipality of San Pedro, Laguna. The mall features a food court, four cinemas with 1,582 seating capacity and an entertainment plaza for shows and events located at the center of the mall. Its anchor tenant is the SM Hypermarket. The anchor tenants for SM Center Muntinlupa are SM Department Store and SM Supermarket. The occupancy rate for SM Center Muntinlupa for the years ended December 31, 2010, 2011 and 2012 was 93%, 94% and 95%, respectively.

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SM Center Las Piñas

SM Center Las Piñas is located along the Alabang—Zapote Road in Brgy. Talon, Pamplona, Las Piñas City and has a gross floor area of 40,267 sq. m. SM Center Las Piñas serves customers in the western section of the city and the nearby provinces of Laguna and Cavite. The anchor tenants for SM Center Las Piñas are SM Department Store and SM Supermarket. The occupancy rate for SM Center Las Piñas for the years ended December 31, 2010, 2011 and 2012 was 92%, 94% and 91%, respectively.

SM Center Pasig

SM Center Pasig is located in Frontera Verde, Pasig City serving residents of the neighboring upscale subdivisions and customers who regularly pass through the C5 route. Its gross floor area is 29,602 sq. m. which includes a basement parking for almost 300 vehicles. SM Center Pasig has SM Hypermarket as its main anchor tenant. The occupancy rate for SM Center Pasig for the years ended December 31, 2010, 2011 and 2012 was 86%, 91% and 95%, respectively.

SM Aura Premier

SM Aura Premier, opened in March 2013, is a civic center located in Taguig. The mall has a gross floor area of 234,892 sq. m. The mall is part of an integrated development including office towers, a chapel, a convention center and a mini-coliseum, supported by a retail podium with an upscale look and feel. The mall also has four cinemas and an IMAX Theater. SM Aura Premier has SM Department Store and SM Supermarket as its anchor tenants.

Provincial Malls

SM City Cebu

SM City Cebu is a multi-level complex with a gross floor area of 274,236 sq. m. featuring eight cinemas, including a 3D IMAX theater, with a total seating capacity of 7,259, a food court, a fully computerized 28-lane bowling center, a trade hall and a car park with a 1,733 car capacity located on a 13.8 hectare site in Cebu Port Center, Barrio Mabolo, Cebu City. The anchor tenants for SM City Cebu are SM Department Store and SM Supermarket. The occupancy rate for SM City Cebu for the years ended December 31, 2010, 2011 and 2012 was 98%, 98% and 98%, respectively.

SM Lanang Premier

SM Lanang Premier is a four-level mall with a gross floor area of 144,002 sq. m. The mall is located at J.P. Laurel Avenue, Brgy. Lanang, Davao City. It is the largest and first premier mall development project in Mindanao. It houses the SMX Davao Convention Center. SM Lanang Premier's amenities include five cinemas and an IMAX theater, with a combined seating capacity of 2,670, a bowling center, a Science Discovery Center, and parking slots for 786 vehicles. It also features a Skygarden with water fountains, art installations, and landscaping. The anchor tenants for SM Lanang Premier are SM Department Store and SM Supermarket. The occupancy rate for SM Lanang Premier for the year ended December 31, 2012 was 91%.

SM City Pampanga

SM City Pampanga is a 132,484 square meter shopping mall with three annexes, straddling the municipalities of San Fernando and Mexico in Pampanga. It features six state-of-the-art cinemas, a food court and amusement centers. The mall is strategically located at the Olongapo-Gapan Road and serves the city's residents as well as those in the provinces of Bulacan, Tarlac, Bataan, Zambales and Nueva Ecija. The anchor tenants for SM City Pampanga are SM Department Store and SM Supermarket. The

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occupancy rate for SM City Pampanga for the years ended December 31, 2010, 2011 and 2012 was 96%, 98% and 94%, respectively.

SM City Dasmariñas

SM City Dasmariñas sits on a 12.4 hectare property situated along Governor's Drive approximately 100 meters from the Aguinaldo Highway junction in Dasmariñas, Cavite. The mall has a gross floor area of 130,771 sq. m. The mall features a food court and four cinemas with a seating capacity of 2,074. In late 2011, the mall launched its annex, adding 36,486 sq. m. of gross floor area to the main mall. The anchor tenants for SM City Dasmariñas are SM Department Store and SM Supermarket. The occupancy rate for SM City Dasmariñas for the years ended December 31, 2010, 2011 and 2012 was 98%, 99% and 96%, respectively.

SM City Davao

SM City Davao is located on a 13.2 hectare property along Quimpo Boulevard corner Tulip and Eco Drives, Brgy. Matina, Davao City. The supermall has a gross floor area of 127,942 sq. m. It has six cinemas which can accommodate 2,406 movie patrons. The supermall is within walking distance from some of the largest schools in Mindanao such as Ateneo de Davao, University of Mindanao, Philippine Women's College and the Agro-Industrial Foundation College. The anchor tenants for SM City Davao are SM Department Store and SM Supermarket. The occupancy rate for SM City Davao for the years ended December 31, 2010, 2011 and 2012 was 100%, 99% and 91%, respectively.

SM City Bacoor

SM City Bacoor is a five level complex with a gross floor area of 120,202 sq. m. located in General Emilio Aguinaldo Highway corner Tirona Highway, Brgy. Habay, Bacoor City, Cavite. The shopping complex features eight cinemas with a 4,381 seating capacity, and food court and amusement areas. It is the very first SM supermall in the entire Luzon region (outside Metro Manila) and the very first in the Cavite province. The anchor tenants of SM City Bacoor are SM Department Store and SM Supermarket. The occupancy rate for SM City Bacoor for the years ended December 31, 2010, 2011 and 2012 was 97%, 97% and 87%, respectively.

SM City Baguio

SM City Baguio is situated along Session Road in Baguio City. Baguio City is a promising site for SM Prime to develop its presence in the northern part of Luzon. Known for its cool climate, beautiful scenery and historic culture, the city offers multifold opportunities for entrepreneurs, retailers and service-oriented establishments. SM City Baguio has a gross floor area of 107,950 sq. m. It has four cinemas with seating capacity of 2,095. The anchor tenants for SM City Baguio are SM Department Store and SM Supermarket. The occupancy rate for SM City Baguio for the years ended December 31, 2010, 2011 and 2012 was 99%, 99% and 98%, respectively.

SM City Consolacion

SM City Consolacion is located along the Cebu North Road, Barangay Lamac, Consolacion, Cebu. It has a gross floor area of 106,857 sq. m. The mall's amenities include a food court that comfortably seats up to 668 diners, four cinemas with a combined seating capacity of 1,475, and parking slots for almost 900 vehicles. The anchor tenants for SM City Consolacion are SM Department Store and SM Supermarket. The occupancy rate for SM City Consolacion for the year ended December 31, 2012 was 92%.

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SM City Iloilo

SM City Iloilo is a 105,953 sq. m. supermall constructed on a 17.5 hectare property at the juncture of the Northwest and the Northeast of the Iloilo-Jaro West Diversion Road in Manduriao, Iloilo City. A quick drive from the airport as it is from the center of the city, it serves the city's residents, as well as those of the rest of Panay Island and the neighboring islands in the Visayas. SM City Iloilo has eight cinemas with a seating capacity of 4,923. The anchor tenants for SM City Iloilo are SM Department Store and SM Supermarket. The occupancy rate for SM City Iloilo for the years ended December 31, 2010, 2011 and 2012 was 98%, 100% and 100%, respectively.

SM City Clark

The 101,840-sq. m. of gross floor area, the two-level SM City Clark along M.A. Roxas Avenue is approximately 80 kilometers north of Manila and 60-kilometers east of Subic Bay Freeport, right at the doorstep of the Clark Special Economic Zone in Pampanga. The mall has six cinemas with a seating capacity of 2,760. With its unique design resembling a coliseum, this mall offers tourists and shoppers a host of retail, dining, and entertainment establishments. The anchor tenants for SM City Clark are SM Department Store and SM Hypermarket. The occupancy rate for SM City Clark for the years ended December 31, 2010, 2011 and 2012 was 99%, 100% and 99%, respectively.

SM City Tarlac

SM City Tarlac is located along MacArthur Highway, San Roque, Tarlac City. It is the very first SM supermall in the province of Tarlac. The four-level mall has a gross floor area of 101,629 sq. m. The mall features a food court, four cinemas with 1,872 seating capacity, and parking for over 800 vehicles. The anchor tenants from SM City Tarlac are SM Department Store and SM Supermarket. The occupancy rate for SM City Tarlac for the years ended December 31, 2010, 2011 and 2012 was 97%, 98% and 98%, respectively.

SM City Taytay

SM City Taytay is a two-building mall located in Brgy. Dolores, Taytay, Rizal. The mall has a gross floor area of 98,928 sq. m. and features a food court, three cinemas with 1,180 seating capacity and a carpark for 983 cars. SM City Taytay is an ideal place and stopover for travelers specially those coming from Laguna via the Marikina-Infanta Road. The anchor tenants for SM City Taytay are SM Department Store and SM Hypermarket. The occupancy rate for SM City Taytay for the years ended December 31, 2010, 2011 and 2012 was 99%, 99% and 99%, respectively.

SM City General Santos

SM City General Santos is a three-level mall located at San Miguel St., cor. Santiago Blvd., Lagao District, General Santos City. It has a gross floor area of 95,764 sq. m. The mall's amenities include a food court, four cinemas with a combined seating capacity of 1,428, and parking slots for more than 800 vehicles. The anchor tenants for SM City General Santos are SM Department Store and SM Supermarket. The occupancy rate for SM City General Santos for the year ended December 31, 2012 was 85%.

SM City Marilao

SM City Marilao is the first SM supermall in the Bulacan province with a land area of 20.3 hectare and gross floor area of 93,910 sq. m. It is located in MacArthur Highway, Brgy. Ibayo, Marilao, Bulacan. The four-level mall features a food court, event center and four cinemas with seating capacity of 1,188. The anchor tenant for SM City Marilao is SM Department Store. The occupancy rate for SM City Marilao for the years ended December 31, 2010, 2011 and 2012 was 98%, 98% and 98%, respectively.

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SM City Masinag

SM City Masinag is a three-floor mall located along Brgy. Mayamot, Marcos Highway, Antipolo City. It has a gross floor area of 90,261 sq. m. SM City Masinag's amenities include a food court, four cinemas with a combined seating capacity of 1,144, and parking slots for more than 500 vehicles. The anchor tenants for SM City Masinag are SM Department Store and SM Supermarket. The occupancy rate for SM City Masinag for the years ended December 31, 2011 and 2012 was 78% and 79%, respectively.

SM City Cagayan De Oro

SM City Cagayan De Oro sits along Mastersons Avenue corner Gran Via St., Cagayan de Oro City, Misamis Oriental. The mall has a gross floor area of 87,940 sq. m. It features four cinemas with a total seating capacity of 1,582. The anchor tenants for SM City Cagayan De Oro are SM Department Store and SM Supermarket. The occupancy rate for SM City Cagayan De Oro for the years ended December 31, 2010, 2011 and 2012 was 98%, 98% and 97%, respectively.

SM City Sta. Rosa

SM City Sta. Rosa is the first SM supermall in the Laguna province with 86,463 sq. m. of gross floor area. Located on a 17.1 hectare site in Barrio Tagapo, Sta. Rosa, the two-level mall is a 10-minute drive from the Mamplasan exit. SM City Sta. Rosa offers one-stop shopping convenience as it includes a variety of retail establishments, four cinemas and a food court. The anchor tenants for SM City Sta. Rosa are SM Department Store and SM Supermarket. The occupancy rate for SM City Sta. Rosa for the years ended December 31, 2010, 2011 and 2012 was 99%, 99% and 99%, respectively.

SM City Batangas

SM City Batangas is situated along the National Highway, Brgy. Pallocan West, Batangas City. The mall is approximately 3.7 kilometers from the Batangas International Port. SM City Batangas has a gross floor area of 80,350 sq. m. It has four cinemas with a seating capacity of 1,820. The anchor tenants for SM City Batangas are SM Department Store and SM Supermarket. The occupancy rate for SM City Batangas for the years ended December 31, 2010, 2011 and 2012 was 99%, 99% and 98%, respectively.

SM City Lucena

SM City Lucena is located along Maharlika Highway corner Dalahican Road, Brgy. Ibabang Dupay, Lucena City, Quezon. It is the first SM supermall in the province of Quezon. This four-level supermall has a gross floor area of 78,655 sq. m. It features four cinemas with a total seating capacity of 2,276. The anchor tenants for SM City Lucena are SM Department Store and SM Supermarket. The occupancy rate for SM City Lucena for the years ended December 31, 2010, 2011 and 2012 was 94%, 93% and 95%, respectively.

SM City Lipa

SM City Lipa is a two-level mall strategically located along Lipa's Ayala Highway. It occupies 10.3 hectares of land, with 77,301 sq. m. of gross floor area. Lipa City features natural attractions and is a commercial, educational and industrial destination. The mall features a food court and four cinemas with 2,393 seating capacity. The anchor tenants for SM City Lipa are SM Department Store and SM Supermarket. The occupancy rate for SM City Lipa was 100% for each of the years ended December 31, 2010, 2011 and 2012.

SM City Naga

SM City Naga is located in Central Business District II of Brgy. Triangulo, Naga City. It is the first SM supermall in the Bicol region and has a gross floor area of 74,275 sq. m. The mall offers a food court

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and four cinemas with a combined seating capacity of 1,346. The anchor tenants for SM City Naga are SM Department Store and SM Supermarket. The occupancy rate for SM City Naga was 100% for each of the years ended December 31, 2010, 2011 and 2012.

SM City Bacolod

SM City Bacolod is a two-building mall located along Rizal Street, Reclamation Area, Bacolod City in Negros Occidental. It has a total land area of 16.1 hectare and has a gross floor area of 71,752 sq. m. The mall features a food court, amusement centers and four cinemas with 2,001 seating capacity. The anchor tenants for SM City Bacolod are SM Department Store and SM Supermarket. The occupancy rate for SM City Bacolod was 100% for each of the years ended December 31, 2010, 2011 and 2012.

SM City Calamba

SM City Calamba is located at National Road, Brgy. Real, Calamba City, approximately 70 meters from the intersection of Maharlika Highway and Manila South Road. The mall has a gross floor area of 67,384 sq. m. and features a food court and four cinemas with a combined seating capacity of 1,268. The anchor tenants for SM City Calamba are SM Department Store and SM Supermarket. The occupancy rate for SM City Calamba for the years ended December 31, 2010, 2011 and 2012 was 92%, 97% and 99%, respectively.

SM City Rosales

SM City Rosales in Brgy. Carmen, Pangasinan stands on a 12.2 hectare lot and has a gross floor area of 63,330 sq. m. It is the first SM supermall in the province of Pangasinan. The amenities of the mall include a food court and four cinemas with capacity of 1,704 seats. The mall contains a public transport terminal and also serves as a bus stop of various inter-provincial bus lines. The anchor tenants for SM City Rosales are SM Department Store and SM Hypermarket. The occupancy rate for SM City Rosales for the years ended December 31, 2010, 2011 and 2012 was 98%, 99% and 98%, respectively.

SM City Baliwag

SM City Baliwag is located in Brgy. Pagala, Baliwag, Bulacan, approximately 40 kilometers from the EDSA—Balintawak interchange of the North Luzon Expressway. It has a gross floor area of 61,262 sq. m. Among the facilities included are four cinemas with a combined seating capacity of 1,232, a food court and parking for almost 900 vehicles. The anchor tenants for SM City Baliwag are SM Department Store and SM Hypermarket. The occupancy rate for SM City Baliwag was 100% in each of the years ended December 31, 2010, 2011 and 2012.

SM City San Pablo

SM City San Pablo has a gross floor area of 59,643 sq. m. It is located along Maharlika Highway in Brgy. San Rafael, San Pablo City in the province of Laguna. The mall features a business center, a food court and four cinemas with seating capacity of 1,302. It also has an atrium for various events. The anchor tenants for SM City San Pablo are SM Department Store and SM Supermarket. The occupancy rate for SM City San Pablo for the years ended December 31, 2010, 2011 and 2012 was 98%, 100% and 100%, respectively.

SM City Rosario

SM City Rosario is located in Brgy. Tejero in Rosario. Rosario is the site of the Cavite Economic Zone. The mall serves customers in the north and northwestern parts of Cavite and neighboring provinces as well. It has a gross floor area of 59,326 sq. m. and features a food court and four cinemas with a capacity of 1,552 seats. The anchor tenants for SM Rosario are SM Department Store and SM Supermarket. The

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occupancy rate for SM City Rosario for the years ended December 31, 2010, 2011 and 2012 was 88%, 89% and 88%, respectively.

SM Center Molino

SM Center Molino is located at the southern end of Molino Road, Bacoor, Cavite and has a gross floor area of 52,061 sq. m. SM Center Molino is the first to have the Service Lane, which comprised of different shops that offer a wide array of services situated perfectly outside the mall across the covered parking. The mall features four cinemas with 1,881 seating capacity and parking for 800 vehicles. The mall's anchor tenant is the SM Hypermarket. The occupancy rate for SM Center Molino for the years ended December 31, 2010, 2011 and 2012 was 100%, 99% and 96%, respectively.

SM City Olongapo

SM City Olongapo, the very first supermall in the province of Zambales, has a gross floor area of 47,426 sq. m. Strategically located in Magsaysay Drive Corner Gordon Avenue in the city's Central Business District, the mall serves customers in Zambales, Bataan, and other nearby provinces. SM City Olongapo's major amenities consist of an al fresco dining area, which offers a view of Olongapo's mountain landscape, three state-of-the-art digital cinemas, with a combined seating capacity of 758, and parking slots for over 300 vehicles. The anchor tenants for SM City Olongapo are SM Department Store and SM Supermarket. The occupancy rate for SM City Olongapo for the year ended December 31, 2012 was 100%.

SM City San Fernando

SM City San Fernando is a seven-story mall located at the Downtown Heritage District, Barangay Sto. Rosario, San Fernando, Pampanga. It has a gross floor area of 42,625 sq. m. and features a unique facade, a distinctive exterior design which complies with the architectural theme of a heritage area. The mall's amenities include three cinemas, with a combined seating capacity of 1,068 and parking slots for over 300 vehicles. The anchor tenants for SM City San Fernando are SM Department Store and SM Supermarket. The occupancy rate for SM City San Fernando for the year ended December 31, 2012 was 97%.

Malls Under Development

The following table sets forth SM Prime's current planned new mall developments through 2013:

Name of proposed mall
  Location   Proposed date for
completion
  Estimated gross
floor area
 
 
   
   
  (sq. m.)
 

SM City BF Paranaque

  Paranaque   2H2013     114,000  

SM Megamall Bldg. D

  Mandaluyong   2H2013     101,000  

Joint Venture with WalterMart

SM Prime recently entered into a joint venture with WalterMart, a leading operator of community malls, a segment SM Prime has not previously catered to. The WalterMart deal is a 51%-49% joint venture in favor of SM Prime. The deal allows SM Prime to accelerate its expansion by assuming operations of WalterMart's 18 existing community malls. SM Prime will retain the WalterMart brand for the existing community malls that are located in Metro Manila, North Luzon and South Luzon. Going forward, this will serve as an additional business segment for SM Prime that is complimentary to its malls in the Philippines and China.

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Land bank

The following table sets forth SM Prime's existing land bank owned or available on long-term lease for development of new malls as at December 31, 2012:

Location
  Acquisition   Gross Area  
 
   
  (sq. m.)
 

Owned

           

Cebu SRP

  June 2012     304,100  

Pangasinan (Urdaneta)

  May 30, 2012     174,833  

Pangasinan (Dagupan)

  April 2005     148,757  

Cabanatuan (Concepcion)

  June 2011     110,242  

Cavite (Trece Martires)

  October 2011     49,498  

Laguna (Sta. Rosa)

  June 2012     32,174  

Palawan (Puerto Princesa)

  December 2011     43,870  

Quezon City / Caloocan

  April 2010     30,073  

Cagayan de Oro

  April 2012     28,773  

Agusan del Norte (Butuan)

  December 2011     37,233  

Leyte (Tacloban City)

  August 2012     21,372  

Tuguegarao City

  October 2010     16,181  

Rizal (Angono)

  April 2012     12,573  

Caloocan (Sangandaan)

  October 2011     10,563  

Leased

           

Commonwealth

  November 2008     20,230  
           

Total

        1,040,472  
           

Principal Tenants

SM Prime enjoys a competitive advantage due to its long-standing retail experience in establishing an appropriate mix of tenants including its associated anchor tenants. SM Prime controls the tenant mix of each of its malls, which has contributed to the profitability of the malls. The principal anchor tenants in the malls include SM Department Stores, SM Supermarkets and SM Hypermarkets. Other significant tenants include National Bookstore, KFC, Jollibee, McDonalds, Chowking, Pizza Hut, Goldilocks, Mang Inasal and Max's Restaurant.

As at December 31, 2012, the SM Department Stores occupied in aggregate a gross area of approximately 823,805 sq. m. within the malls, or 29% of total leasable area. SVI and SSMI operate the SM Supermarkets and SM Hypermarkets in all of the malls and occupied in aggregate a gross area of approximately 424,019 sq. m. as at December 31, 2012, or 15% of total leasable area.

In addition to the anchor tenants associated with SM Prime, other retail operations controlled by or in which the Sy family has a significant interest, such as Ace Hardware, SM Appliance Center, Surplus Shop, Home World, Our Home, Toy Kingdom, Kultura and Watsons, are also tenants in most of the malls. During the years ended December 31, 2010, 2011 and 2012, approximately 33%, 32% and 33%, respectively, of the aggregate rental revenue received by SM Prime in respect of the malls was from members of the SM Group and companies affiliated to the Sy family. Out of the total increase in rental revenue of 14% for the year ended December 31, 2012, same store sales contributed 8% while new malls and expansion of existing malls contributed 6%.

SM Prime believes that all the leases entered into between SM Prime and the SM Group or companies affiliated to the Sy family have been entered into on an arm's length basis and on commercial terms.

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The SM Mall of Asia also hosts some premier tenants, which specialize in higher-end merchandise, such as Mango, Zara, Marks & Spencer, Topshop and Muji.

The table below shows the rental income contribution for the top 10 tenants for both SM Group and Sy family affiliated tenants as well as non-affiliated tenants for the year ended December 31, 2010, 2011 and 2012.

 
  For the year ended December  
Tenant
  2010   2011   2012  
 
  Rental Income
Contribution (%)

  Rental Income
Contribution (%)

  Rental Income
Contribution (%)

 

SM Group and Sy family Affiliated Tenants

                   

SM Department Store

    10.05 %   9.89 %   10.10 %

SM Supermarket

    6.35 %   6.80 %   7.70 %

SM Hypermarket

    6.40 %   6.07 %   6.06 %

Ace Hardware

    2.20 %   2.70 %   2.24 %

SM Appliance Center

    1.67 %   1.97 %   1.90 %

Banco De Oro

    0.72 %   1.49 %   1.11 %

Watsons

    0.65 %   1.20 %   1.07 %

Our Home

    0.79 %   0.83 %   0.77 %

Toy Kingdom

    0.67 %   0.78 %   0.71 %

Surplus Shop

    0.45 %   0.53 %   0.47 %

Non-Affiliated Tenants

                   

Jollibee

    1.74 %   1.81 %   1.62 %

National Bookstore

    1.51 %   1.62 %   1.39 %

Kentucky Fried Chicken

    0.92 %   1.27 %   0.90 %

Chowking

    0.62 %   0.89 %   0.84 %

Pizza Hut

    0.75 %   0.89 %   0.79 %

McDonald's

    0.75 %   1.02 %   0.75 %

Max's Restaurant

    0.54 %   0.67 %   0.57 %

Teleperformance Call Center

    0.45 %   N/A     0.56 %

Goldilocks

    0.59 %   0.72 %   N/A  

Bench

    N/A     0.72 %   N/A  

Teletech

    0.50 %   N/A     N/A  

Greenwich

    N/A     0.64 %   0.55 %

Mang Inasal

    N/A     N/A     0.55 %

Leasing Policies

The leasing policy of SM Prime in relation to each of the malls is to screen applicants carefully and to secure an appropriate mix of tenants, both in terms of the nature of their businesses and their size. An average of less than 3% of tenants per mall did not renew their leases upon expiry or had their leases terminated early in each of the three years ended December 31, 2010, 2011 and 2012. The high demand for tenancies within the malls means that SM Prime generally has a waiting list sufficient to cover any vacancies that may arise in the malls.

It is the policy of SM Prime that all leases, whether with members of the SM Group, companies affiliated with the Sy family or unrelated third parties, should be entered into on commercial terms and SM Prime considers that the current rentals payable by tenants of the malls that are operational at present reflect prevailing market rents.

SM Prime's tenancies are generally granted for a term of one year, with the exception of some of the larger tenants operating nationally which are granted initial lease terms of two to five years, renewable on an

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annual basis thereafter. Sixty days' notice is required of SM Prime's tenants for termination of their leases and a six-month deposit is paid at the commencement of the lease. Upon expiry of a lease, the rental rates are adjusted to reflect the prevailing market rent. SM Prime charges rent as either a fixed rent per sq. m. or a variable rate which is a minimum per sq. m. or a base charge plus a percentage of a tenant's sales, whichever is higher.

Management of the Malls

Management and operation of the malls, including the provision of manpower, maintenance and engineering and security, leasing, marketing and other promotional activities, are assumed by management companies owned or controlled, directly or indirectly, by members of the Sy family (the "Management Companies"). In addition, one Management Company negotiates and handles major tenant issues for the malls, while reporting to and under the direction of SM Prime. Each of the Management Companies performs specific functions in relation to each of the malls. All operating expenses relating to the malls are charged directly to SM Prime by the Management Companies. As consideration for the services provided by the Management Companies under each of the management contracts, the Management Companies are entitled to receive an annual fee which is equivalent to a percentage of the annual operating income of each mall before income tax, financial charges and interest expense. The aggregate amount of such management fees for the year ended December 31, 2012 was ₱861 million, amounting to 3% of total revenue.

Entertainment and Leisure

The entertainment and leisure facilities within the malls, including cinemas, bowling centers and ice skating rinks, are owned by SM Prime and SM Prime pays management fees to its affiliates, Shopping Center Management Corporation, West Avenue Theaters Corporation and Family Entertainment Center, Inc. for managing the operations of the malls.

Development of New Malls

SM Prime's business development group (the "BDG") is responsible for identifying viable sites for the construction of new malls. The BDG determines the viability of a potential plot of land for a new mall site based on the demographics of the area, including the size of the population, its income levels, local government and the local infrastructure, particularly accessibility by public transport. Once a suitable site is selected, based on the factors described above, the BDG then determines the size of the mall to be constructed by SM Prime, which typically may range from a gross area of 30,000 to 150,000 sq. m. The construction and development of each mall is overseen by a third party project management company appointed by SM Prime. The average time for the construction of each mall ranges from 12 to 24 months, depending on the size of the mall. SM Prime believes it benefits from its significant development experience and focus on immediately developable sites in its mall construction activities. SM Prime has generally financed land purchases and the construction of its malls from internal funds and borrowings.

Financing

Financing is handled by the Treasury Finance Group ("TFG"), which has the primary responsibility of ensuring that SM Prime has adequate funds on a daily basis for its capital and operational expenditures including land banking, construction, capital acquisitions, interest and debt servicing.

Sources of funding currently include internally generated funds, borrowings through syndicated loans, notes issuances (private placements) and bilateral loans. At the beginning of each year, TFG coordinates with its Corporate Finance Group to determine the amount of funding requirements based on the annual projected receipts and disbursements.

TFG is also actively engaged in investment placements, foreign exchange trading and derivative transactions to hedge SM Prime's loan portfolio for foreign exchange and interest rate risk exposure.

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Competition

SM Prime's malls compete with other shopping malls in the geographic areas in which they operate. The other major shopping mall operators in the Philippines are Robinsons and Ayala Land. SM Prime believes that it is well placed to face increased competition in the shopping mall industry given the competitive advantages it has, including, among others, the location of its existing malls, SM Prime's existing land bank and the land bank of New SM Prime, its balance sheet strength, a proven successful tenant mix and selection criteria, and the presence of the SM Department Stores, SM Supermarkets, SM Hypermarkets and Retail Affiliates of the SM Group within each of the malls. SM Prime's experience and understanding of the retail industry has also been a contributing factor to its competitive advantage in the industry.

Subsidiaries

SM Prime has five wholly-owned Philippine subsidiaries, namely, Premier Central, Inc., Premier Southern Corp., Consolidated Prime Dev. Corp., San Lazaro Holdings Corporation, and Southernpoint Properties Corp. SM Prime holds its interests in SM City Batangas and SM City Lipa, SM City Dasmariñas, SM City Clark and SM City Lanang through Premier Southern Corp., Consolidated Prime Dev. Corp., Premier Central, Inc. and Southernpoint Properties Corp., respectively. First Asia Realty Development Corporation is a 74.2% owned subsidiary of SM Prime, through which SM Prime holds its interest in SM Megamall. First Leisure Ventures Group, Inc. is a 50.0% owned subsidiary of SM Prime, through which SM Prime holds its interest in SM by the Bay. All malls not otherwise mentioned in this paragraph are owned directly by SM Prime.

SM Prime Malls in China

SM Prime acquired three SM China malls (SM Xiamen, SM Chengdu and SM Jinjiang) from the Sy family in 2007. The acquisition was intended to allow SM Prime to gain a foothold in China's high-growth prospects and use it as a platform for long-term growth outside the Philippines. SM Prime has since opened two additional malls in China, with two more malls under development.

Similar to SM Prime's approach in the Philippines, construction of the SM Prime malls in China is outsourced to third party contractors. The SM Prime malls in China also pay management fees to an affiliate, Shopping Center Management Corporation, for managing the operations of the malls.

The SM Prime malls in China have a similar look and layout to the malls in the Philippines. Among the anchor tenants of the five malls are Wal-Mart, Vanguard and SM Department Store, Cybermart and Wanda Cinema. Junior anchor tenants include Watsons, McDonald's, KFC, Giordano, Pizza Hut and a number of China-based outlets and stores.

The following table sets forth certain information regarding the SM Prime malls in China as at December 31, 2012:

Name and Year Opened
  Gross Area   Tenant Leasable Area   Occupancy Rate   Leisure Area  
 
  (sq. m.)
  (sq. m.)
  (%)
  (sq. m.)
 

SM Xiamen (2001)*

    238,125     128,625     98     4,585  

SM Fupu (Jinjiang) (2005)

    167,830     122,621     95     3,414  

SM City Chengdu (2006)

    166,665     91,649     85     5,087  

SM City Suzhou (2010)

    72,552     52,914     95      

SM City Chongqing (2012)

    149,429     56,956     80     5,634  

*
Includes SM Xiamen (Lifestyle Center), which opened in October 2009.

Below is a discussion of each of SM Prime's malls in China.

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SM City Xiamen

SM City Xiamen in Xiamen City, Fujian Province is situated on a 10.4 hectare lot and has a gross floor area of 238,125 sq. m. plus an open carpark for 2,188 cars. The mall has as its anchor tenant Wal-Mart, SM Laiya Department Store, Wanda Cinema plus several junior anchors. In October 2009, the Lifestyle Center opened its door to the public adding 109,922 sq. m. to the gross floor area. The occupancy rate for SM City Xiamen for the years ended December 31, 2010, 2011 and 2012 was 96%, 88% and 98%, respectively.

SM City Jinjiang

SM City Jinjiang in Jinjiang City, Fujian Province is situated on an 11.5 hectare lot and has a gross floor area of 167,830 sq. m. plus an open carpark for 1,700 cars. The mall has as its anchor tenant Wal-Mart, SM Laiya Department Store and Wanda Cinema plus several junior anchors. The occupancy rate for SM City Jinjiang for the years ended December 31, 2010, 2011 and 2012 was 90%, 92% and 95%, respectively.

SM City Chengdu

SM City Chengdu in Chengdu City, Sichuan Province is situated on a 4.7 hectare lot and has a gross floor area of 166,665 sq. m. plus an open carpark for 810 cars. The mall has as its anchor tenant Wal-Mart, SM Laiya Department Store and Wanda Cinema plus several junior anchors. The occupancy rate for SM City Chengdu for the years ended December 31, 2010, 2011 and 2012 was 90%, 92% and 95%, respectively.

SM City Suzhou

SM City Suzhou in Wuzhong District, Jiangsu Province is situated on a 4.1 hectare lot and has a gross floor area of 72,552 sq. m. plus an open carpark for 300 cars. The mall has as its anchor tenant Vanguard Hypermarket, SM Department Store, and Wanda Cinema plus several junior anchors. The occupancy rate for the years ended December 31, 2011 and 2012 was 88% and 89%, respectively.

SM City Chongqing

SM City Chongqing, located in the Yubei District, Southwest China, has a gross floor area of 149,080 sq. m. The mall's major anchors are Vanguard Supermarket, SM Department Store and Wanda Cinema plus several junior anchors. SM City Chongqing is a one building structure with five levels. The occupancy rate for SM City Chongqing for the year ended December 31, 2012 was 79%.

Malls Under Development in China

The following table sets forth certain information regarding planned development projects of other malls in China:

Location/Name
  Expected Opening Time   Gross Floor Area  
 
   
  (sq. m.)
 

Zibo

    2014     154,000  

Tianjin

    2015     540,000  

The following table sets forth certain information regarding the contribution of the SM malls in China to the SM Prime's total revenues and net income for the period stated:

 
  For the year ended December 31,  
 
  2010   2011   2012  
 
  (audited)
(in millions of Pesos, except percentage of SM Prime's total)

 

Revenue

    1,412     6 %   2,046     8 %   2,537     8 %

Net income

    428     5 %   889     10 %   1,103     10 %

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SM Prime believes that the five malls will provide an existing platform for it to expand in the China market. It intends to continue to develop the SM malls in China through synergies with its existing mall operations and other management expertise. Although SM Prime is still developing its expansion plans in China, subject to the availability of suitable locations, SM Prime may initially build one new mall each year over the next five years in China and will likely position its expansion in emerging cities in China.

SM LAND, INC.

SM Land, Inc. has two segments, namely residential and commercial. SM Land's residential arm is composed of its publicly-listed subsidiary SMDC, while its commercial developments are handled separately by the Commercial Properties Group.

Residential Development

SMDC is incorporated in the Philippines and wholly owns SM Synergy Properties Holdings, Corp., SM Residences Corp, Landfactors Incorporated, Vancouver Lands, Inc., Twenty Two Forty One Properties, Inc., Guadix Land Corporation, Lascona Land Company, Inc., Metro South Davao Property Corporation and SMDC HK Limited. SMDC is listed on the PSE and as at December 31, 2012 was 43.60% indirectly owned by SMIC through its 65.18% ownership of SM Land (formerly Shoemart) with an additional 7.19% owned by the Sy family. SMDC had a market capitalization of ₱54.61 billion as at December 31, 2012.

SMDC's primary business function is property development and it also holds certain equity investments. SMDC's asset portfolio as at December 31, 2012 consisted of approximately 93% in real estate assets and 7% in equity investments. The bulk of SMDC's income is derived from property development. SMDC's revenue for the year ended December 31, 2010, 2011 and 2012 was derived largely from the sale of condominium units which generated gross profits from real estate of ₱4,077 million, ₱6,509 million and ₱8,043 million, respectively. In addition to its real estate operation, SMDC booked mark-to-market gains from securities held for trading amounting to ₱349 million, ₱101 million and ₱195 million for the years ended December 31, 2010, 2011 and 2012, respectively. Income from interest and dividends was ₱341 million, ₱452 million and ₱388 million for the years ended December 31, 2010, 2011 and 2012, respectively. SMDC continues to finance its property projects through internally generated funds and external borrowings, such as through fixed-rate corporate notes, term loans and CTS financing.

As at December 31, 2012, SMDC's total consolidated assets stood at ₱80,198 million, total consolidated liabilities were at ₱40,060 million, with debt-to-equity ratio (being the ratio of aggregate consolidated indebtedness over equity) of 99.8%.

The following table sets out the consolidated revenues and net income for SMDC for the years ended December 31, 2010, 2011 and 2012:

 
  For the year ended
December 31,
 
 
  2010   2011   2012  
 
  (audited)
 
 
  (in millions of Pesos)
 

Revenue

    9,118     16,184     21,578  

Net income

    3,022     4,175     4,904  

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The following table sets out the selected consolidated financial information for SMDC as at December 31, 2011 and 2012.

 
  As at December 31,  
 
  2011   2012  
 
  (audited)
 
 
  (in millions of Pesos)
 

Cash and cash equivalents

    5,913     8,177  

Investments held for trading

    384     579  

Available-for-sale investments

    4,727     4,974  

Land and development

    19,801     29,107  

Condominium units for sale

    572     1,857  

Total assets

    53,925     80,198  

As of the date of this Offer Document, SMDC has four completed projects and fifteen ongoing residential property development projects as discussed below:

Completed Residential Projects

The following projects have completed their construction but units are still being sold by SMDC:

Chateau Elysee

Chateau Elysee is a six-cluster, six-story residential condominium project in a 4.7 hectare lot in Parañaque City, Metro Manila. This project offers one-bedroom and two-bedroom units. Cluster one, comprising 384 units, was launched in the third quarter of 2003 and completed in December 2004. Construction of cluster two with 384 units was completed in May 2006. Construction of cluster three with 400 units was completed in May 2007. Construction of cluster six with 504 units was completed in December 2008. Construction of cluster five, with 560 units was completed in November 2009. Construction of Cluster four with 588 units started in February 2010 and was completed in June 2011.

Mezza Residences

SMDC's first high-rise project is the Mezza Residences ("Mezza"), which is a ₱3.6 billion mixed-use development project with 38-story four-tower condominiums and commercial retail area located across SM City Sta. Mesa, Manila. Each tower has 400 to 800 residential units comprised of one-, two-, three- and four-bedroom configurations, with floor areas ranging from 21 to 67 sq. m. Mezza consists of 2,332 saleable residential units, each priced between ₱1.7 million to just under P6.7 million, and 18 commercial units for lease with SaveMore store as the anchor tenant. As at December 31, 2012, construction of Mezza towers one to four was 100% complete and SMDC had sold 96% of the units in Mezza.

Princeton Residences

Princeton Residences is a ₱1.8 billion 38-story high rise condominium project located along Aurora Blvd., Quezon City which completed in March 2013. Princeton Residences comprises 1,096 units of which 69% were sold as at December 31, 2012.

Berkeley Residences

Berkeley Residences is a ₱1.7 billion 35-story high-rise condominium project situated just across Miriam College in Quezon City. Berkeley Residences comprises 1,276 units which completed in June 2011, of which 98% were sold as at December 31, 2012.

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Ongoing Residential Projects

The following projects are still under construction and are being sold by SMDC:

Grass Residences

Grass Residences was launched in March 2008, a ₱8.7 billion three-tower 40-story high-rise condominium project located behind SM City North EDSA, Manila. Tower 1 of Grass Residences is comprised of 1,988 units, which were completed in December 2011 and of which 95% were sold as at December 31, 2012. Tower 2 is comprised of 2,022 units, of which 97% were sold as at December 31, 2012 and is expected to be completed in 4th quarter of 2014. Tower 3 is comprised of 1,987 units, of which 98% were sold as of December 31, 2012. Construction of Tower 3 of Grass Residences commenced in February 2010 and is expected to be completed in the 3rd quarter of 2013.

Sea Residences

Sea Residences is a ₱4.2 billion 15-story residential and commercial condominium project comprising of six buildings with 2,899 residential units and 21 commercial units, located at Mall of Asia Complex Pasay City. Phase One of Sea Residences comprises of 1,159 units of which 98% were sold as at December 31, 2012. Phase Two comprises 920 units of which 92% were sold as at December 31, 2012; construction for Phase Two started in December 2009 and was completed in November 2012. Phase Three of Sea Residences comprises 820 units of which 95% were sold as at December 31, 2012 and construction started in March 2010 and was completed in December 2012.

Field Residences

Field Residences is a ₱5.4 billion residential condominium project comprised of ten buildings located behind SM Sucat, Parañaque. Buildings 1, 2, 3, 7 and 8 of Field Residences are comprised of 1,974 units of which 89% were sold as at December 31, 2012. Construction of buildings 1, 2, 8 and 3 were completed in April 2010, April 2011, December 2011 and December 2012, respectively. Building 7 is expected to be completed in September 2013. Construction of the other buildings of Field Residences had not yet started as at December 31, 2012.

Sun Residences

Sun Residences is a ₱5.3 billion project comprising two 40-story towers located along España Blvd., Quezon City near Welcome Rotonda. Sun Residences Tower 1 comprises 2,057 units of which 86% were sold as at December 31, 2012. Tower 2 comprises 1,982 units of which 68% were sold as at December 31, 2012. Construction of Tower 1 started in April 2010 and is expected to be completed in September 2013; Tower 2 is expected to be completed in December 2013.

Jazz Residences

Jazz Residences is a ₱9.5 billion mixed use development project comprising four 41-story towers located at N. Garcia corner Jupiter, Makati City. Towers A, B, C and D of the project with 5,367 units were 72% sold as at December 31, 2012. Construction of Tower A started in April 2010 and is expected to be completed in September 2013 while construction of Tower C started in October 2010 and is expected to be completed in December 2013. Tower D is expected to be completed in September 2014. Construction of Tower B started in July 2011 and expected to be completed by October 2014.

Light Residences

Light Residences is a ₱7.9 billion mixed use development project with three 40-story towers located along EDSA, Mandaluyong City. It has a total of 4,227 units and is 91% sold as of December 31, 2012.

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Construction of Phase 1 which consists of the podium and Tower 1 started in March 2010 and is expected to be completed in December 2013. Construction of Phase 2 (Tower 3) started in March 2012 is expected to be completed in December 2013. Construction of Phase 3 (Tower 2) commenced in March 2010 and is expected to be completed on 4th quarter of 2014.

Wind Residences

Wind Residences is a ₱15.2 billion residential condominium development with ten 20-story towers located along Emilio Aguinaldo Highway, Tagaytay City. Towers 1 to 4 have a total of 2,874 units and are 86% sold as at December 31, 2012. Construction of Tower 2 started in September 2010 and is expected to be completed in July 2013. Towers 1 and 3 are expected to be completed in June 2013 and December 2013, respectively. Construction of Tower 4 and the other six towers had not started as at December 31, 2012.

M Place @ South Triangle

M Place @ South Triangle is a ₱3.7 billion, four 25-story tower condominium in South Triangle, Quezon City. Tower A started construction on January 2011 and is expected to be completed in the 4th quarter of 2013. Tower A comprises of 827 units of which 86% were sold as at December 31, 2012. Tower B started construction in July 2011 and is expected to be completed in the 4th quarter of 2014. Tower B comprises 912 units of which 81% were sold as at December 31, 2012. Tower C comprises of 778 units of which 76% were sold as at December 31, 2012; construction of Tower C began in January 2012 and is expected to be completed in the 4th quarter of 2014. Tower D comprises of 920 units of which 27% were sold as at December 31, 2012. Construction of Tower D commenced in December 2011 and is expected to be completed in the 4th quarter of 2014.

Blue Residences

Blue Residences is a ₱2.4 billion, 40-story residential condominium situated across Ateneo De Manila University in Quezon City. Construction of Blue Residences started on October 2010. It comprises of 1,591 units of which 76% were sold as at December 31, 2012 and is expected to be completed in December 2013.

Mezza II Residences

Mezza II Residences is a 38-story residential condominium with an estimated cost of ₱2.1 billion and is located just beside the first Mezza Residences in Quezon City. Construction of Mezza II started on December 2010. It comprises of 1,324 units of which 53% were sold as at December 31, 2012 and is expected to be completed in September 2014.

Rose Residences

Rose Residences is a 22-story residential condominium with an estimated cost of ₱1.3 billion located in Pasig City. Construction of Rose Residences had not yet started as of December 31, 2012. It comprises of 1,172 units of which 41% were sold as at December 31, 2012 and is expected to be completed in the 1st quarter of 2015.

Green Residences

Green Residences is a ₱4.2 billion, 50-story residential condominium situated on Taft Avenue, Manila near De La Salle University. Construction of Green Residences started in August 2011 and is expected to be completed in 3rd quarter of 2015. Green Residences comprises 3,378 units, of which 80% were sold as at December 31, 2012.

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Shell Residences

Shell Residences is a ₱6.0 billion 16-story residential and commercial condominium project and is located at the Mall of Asia Complex in Pasay City. It is comprised of four buildings with 3,093 residential units, of which 86% were sold as at December 31, 2012. Construction of Shell Residences commenced in May 2012 and is expected to be completed by the 4th quarter of 2015.

Breeze Residences

Breeze Residences is a ₱3.5 billion 38-story residential and commercial condominium project and is located along Roxas Boulevard in Pasay City. Breeze Residences comprises 2,134 units, of which 10% were sold as at December 31, 2012. Construction of Breeze Residences will commence in June 2013 and is expected to be completed by 4th quarter of 2015.

Grace Residences

Grace Residences is a ₱4.6 billion residential condominium development with four towers located along Levi Mariano Avenue in Taguig City. Towers 1 to 2 have a total of 1,349 units and are 29% sold as at December 31, 2012. Construction of Towers 1 to 2 and the other two towers had not started as at December 31, 2012.

In 2013, SMDC is expected to launch four new projects and three expansion projects.

Land Bank

Since its incorporation, SMDC has invested in properties that SMDC believes are prime location across the Philippines for existing and future property development projects. It is important to SMDC to have access to a steady supply of land for future projects.

Potential land acquisitions are evaluated against a number of criteria, including the attractiveness of the acquisition price relative to the market and the suitability or the technical feasibility of the planned development. SMDC identifies land acquisitions through active search and referrals.

As of December 31, 2012, SMDC owned or controlled 156 hectares of raw land for the development of its various projects. SMDC's management believes this land bank is sufficient to sustain the next several years of development and sales.

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The table below sets forth the locations of SMDC's raw land inventory as of December 31, 2012.

Location
  Area  
 
  (sq. m.)
 

Metro Manila

       

Quezon City

    228,886.50  

Makati City

    100,311.00  

Pasay City

    94,046.00  

Parañaque City

    86,866.00  

Taguig City

    2,489.00  

Cainta Rizal

    54,687.00  

Las Piñas City

    46,900.00  

Mandaluyong

    39,599.00  

Valenzuela City

    19,452.34  

Manila

    19,211.00  
       

Metro Manila Total

    692,438.84  

Outside Metro Manila

       

Batangas City

    804,711.00  

Davao City

    62,300.00  

Outside Metro Manila Total

    867,011.00  
       

Grand Total

    1,559,449.84  
       

SMDC continually seeks to increase its raw land inventory in various parts of the Philippines for future development through direct acquisitions.

Commercial Development

SM Land Commercial Property Group ("CPG") primarily handles the development and leasing of office buildings in prime Metro Manila, as well as the operations and management of such buildings and other land holdings.

Its flagship project is the MOA complex in Pasay City, a 60-hectare master planned bayside development with the renowned SM Mall of Asia as its anchor tenant and main attraction, among other commercial, business, and entertainment establishments within the estate. Most recently, a major attraction in the complex is the landmark 16,000-indoor seating SM Mall of Asia Arena, as well as its adjacent annex building that houses additional parking spaces as well as office levels. The MOA complex is also the site of SM Land's signature business complex, the E-com Centers, a series of four modern and iconic office buildings mostly targeting technology-based industries and BPO companies. Other similar office building developments catering to the BPO industry include the SM Cyber Buildings, a mix of build-to-suit and ready-to-use office spaces in Makati City, Quezon City, and soon in other emerging locations. Another vital role of CPG is the leasing and management of properties and buildings housing selected branches of SM Retail operations, such as its department stores and supermarkets, including the warehouses that support these various retail formats.

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The following table sets forth certain information regarding the SM Land's commercial developments as at December 31, 2012:

Name and Year Opened
  Gross
Area
  Tenant Leasable Area   Occupancy Rate  
 
  (sq. m.)
  (sq. m.)
  (%)
 

Two E-com Center

    107,862     70,178     88 %

SM Makati Cyber One

    18,790     13,693     100 %

SM Makati Cyber Two

    16,725     10,588     98 %

As of the date of this Offer Document, SM Land has the following commercial property development:

Two E-com Center

Two E-com Center is 15-story office and commercial building housing BPOs and technology-intensive businesses, as well as location-based firms such as shipping and logistics. This iconic structure located in the MOA complex in Pasay City offers approximately 70,000 sq. m. of office and commercial space, and premium views of Manila Bay and the Makati skyline. It is designed by Miami-based Arquitectonica, with FS Lim & Associates as local architect of record. The building's occupancy rate was 88% as of December 31, 2012. Current tenants of the building include SMDC, EXL Service, Sky Logistics/Kitchen, World Energy Corporation, OOCL Philippines, XO Minerals/Shenzhou Mining Group Corporation, Microsourcing, Stream International Global Services Philippines Inc., ACS of the Philippines, Ben Line Agencies/Simba Logistics, Klaveness, SITC, IGT, Asia Pilot Capital Holdings, Ocwen Business Solutions, Altisource Business Solutions, Teletech Global, Belle Corporation, CMA CGM, Altron Logistics Inc./Enzo Express Logistics Inc./DSF Consolidated Freight Services Inc., Nuovo Moda Concepts, Anscor Swire Ship Management Corporation and Esco Global.

SM Makati Cyber One

SM Makati Cyber One is a four-story office building with gross floor area of 18,800 sq. m. The development rises along Zodiac Street corner Gil Puyat Avenue and landmark in the area as the building will be visible along major routes such as EDSA, Gil Puyat and the Kalayaan overpass. The building's occupancy rate was 100% as of December 31, 2012. Current tenants of the building include Perimeter Internet Working Corporation, Bayantrade Inc. & ABM Computech Enterprises, K Force Global Solutions Inc. and Startek International.

SM Makati Cyber Two

SM Makati Cyber Two is a four-story office building with gross floor area of 16,900 sq. m. The development is along corners of Sen. Gil J. Puyat Avenue (Buendia)/Jupiter/Zodiac Streets, Makati City. The building's occupancy rate was 98% as of December 31, 2012. Major tenant of the building is VXI Global Holdings B.V. (Philippines). SM Land owns the land SM Makati Cyber Two is built upon.

Future Commercial Developments

Three E-Com Center

Three E-com Center, which broke ground in the first quarter of 2012, is targeted for completion by the 4th quarter of 2014. Similar to its predecessor Two E-com Center, Three E-com Center will feature architectural designs of Miami-based firm Arquitectonica, with FS Lim & Associates as the local architect of record. The 15-level office building will cover a GFA of over 125,000 sq. m. and an estimated GLA of 79,000 sq. m. Floor plates are at an average of 6,800 sq. m., one of the most expansive in the local office leasing market. Similar to Two E-com Center as well, Three E-com Center will also feature a mixed-use component on its fourth level podium.

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Four E-Com Center

Four E-com Center is a 15-story office building with a three level parking podium and the ground level designed to cater the commercial and retails tenants. Similar to its predecessors, Two E-com Center and Three E-com Center, Four E-com Center will feature architectural designs of Miami-based firm Arquitectonica. The gross floor area is approximately 100, 000 sq. m. The project is targeted to break ground by 2014.

SM Cyber Series

A new standalone office building development in the SM Cyber series, this future development is a 15-level office building development ideal for a major BPO locator, to rise on a highly visible and prime 2,910 sq. m. property at the corner of EDSA and West Avenue. Dubbed SM Cyber West Avenue, the building will cover a GFA of more than 42,000 sq. m., with approximately 22,700 sq. m. of GLA for office space. The remaining leasable area in the ground and second levels will feature a SaveMore supermarket and other support retail and commercial establishments. Additionally, it will be linked via bridgeways to the SM North EDSA mall as well as nearby MRT stations. The project is targeted for completion by the 4th quarter of 2013.

Department Stores and Supermarkets

SM Land also owns several department store and supermarket buildings with a total GFA of 291,000 sq. m. The major tenant of these buildings is the SM Retail Group. The following table sets forth certain information regarding the SM Land's department store and supermarket buildings as at December 31, 2012:

Department Store
  Location   Gross Floor Area (sq. m.)   Occupancy  

SM Cubao

  Quezon City     103,035     98 %

SM Makati

  Makati City     109,667     100 %

SM Iloilo

  Iloilo City     34,382     99 %

 

Supermarkets
(Hypermarket and
Savemore)
  Location   Gross Floor Area (sq. m.)   Occupancy  

Caloocan

  Quezon City     12,011     100 %

Del Monte

  Quezon City     1,854     100 %

Novaliches

  Quezon City     5,123     96 %

Tandang Sora

  Quezon City     1,358     100 %

Kamias

  Quezon City     2,071     100 %

P. Tuazon

  Quezon City     2,082     100 %

Adriatico

  Manila City     14,769     100 %

Pedro Gil

  Manila City     1,379     100 %

Jaro Iloilo

  Iloilo City     3,759     100 %

Except for the department stores and the Adriatico and Jaro Supermarkets, SM Land owns the lot on which the retail establishments listed in the table above are situated.

SM Land also owns several warehouses with a total gross floor area of 37,000 sq. m. and total lot area of 65,000 sq. m. that are strategically located in various areas that support the retail operations.

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SM Land owns a parcel of land located in Paranaque City with a lot area of 50,584 sq. m. The property is leased to SMIC where the Asinan warehouses currently stand.

SM Land also owns several properties for future leasing or project development including the following:

Laon Laan Property

The property is located at Laon Laan corner Blumentritt Streets, Sampaloc District, City of Manila. The building gross floor area is 1,372 sq. m, with a lot area of 1,211 sq. m.

Caloocan Lot

Caloocan lot is located at the corners of McArthur Highway/Samson Road/Gen. P. Valenzuela Street, Barangay 78, Zone 7, District 1, Caloocan City with a lot area of 1,400 sq. m.

San Miguel Distric Lot

San Miguel District Lot is locted at Carlos Palanca, San Miguel District, City of Manila with a lot area of 1,033 sq. m.

Jaro Lot

Jaro Lot is located at 98 E. Libertad, Jaro, Iloilo City and has a lot area of 2,561 sq. m.

SM Land owns Jetty Terminal located in MOA Complex. SM Land is currently developing a breakwater project to further improve the Jetty Terminal service.

SM Land has also ventured into certain lifestyle-oriented mixed-use developments. Sky Ranch will be an entertainment venue in Tagaytay. The nearly four-hectare property is adjacent to the Taal Vista Hotel, and will be developed to complement the hotel's strong presence as a well-known destination in the area. To maximize the site's premium views and distinctive natural environment, a social events venue will be developed that will be enhanced by casual, family-style dining establishments, as well as a mini-amusement theme park for kids and other recreational facilities such as horseback riding. Development started in September 2012 and is expected to be completed by August 2013. The development had a soft launch in March 2013 and is currently partially operational and full operation is targeted by the fourth quarter of 2013.

Security Holdings

SM Land also holds listed shares of various Philippine companies, both directly and through SMDC.

The tables set forth below show the company and the number of shares that SM Land holds as of December 31, 2012.

Securities held directly by SM Land

 
  Number of Shares  

BDO

    75,254,191  

Ayala Corp. 

    19,539,050  

China Banking Corp. 

    56,326,020  

SMIC

    389,612  

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Securities held through SMDC

 
  Number of Shares  

Belle

    735,553,560  

Highlands Prime

    337,911,101  

Development

SM Land's business development group is responsible for identifying viable sites for the construction of new residential condominium and commercial office buildings. The group determines the viability of a potential area based on the demographics of each particular area, including the size of the population, its income levels, local government and the local infrastructure, particularly the accessibility of public transport. Once a suitable site is selected, based on the factors described above, the group determines the type of development to be constructed. The construction and development of each residential condominium and commercial office building is overseen by SM Land's Project Engineering Management Group and a third party project management company appointed by SM Land. The average time for construction 12 to 48 months, depending on the size of the project. SM Land believes it benefits from its significant development experience and focus on immediately developable sites in its construction activities. SM Land has generally financed land purchases and the construction of its projects from internal funds and borrowings.

Financing

Financing for SM Land is handled by the Treasury Finance Group ("SM Land TFG"), which has the primary responsibility of ensuring that SM Land has adequate funds on a daily basis for its capital and operational expenditures including land banking, construction, capital acquisitions, interest and debt servicing.

Sources of funding currently include internally generated funds, borrowings through equity financing, notes issuances (private placements) and bilateral loans. At the beginning of each year, SM Land TFG coordinates with the SM Land Corporate Finance Group to determine the amount of funding requirements based on the annual projected receipts and disbursements.

SM Land TFG is also actively engaged in investment placements and foreign exchange trading to hedge SM Land's loan portfolio for liquidity, foreign exchange and interest rate risk exposures.

HIGHLANDS PRIME, INC.

HPI is a publicly listed high-end property development company which is 20.20% directly owned by SMIC, 15.04% directly owned by SMDC, 35.82% directly owned by Belle Corporation, 17.70% owned by Sysmart, 1.20% owned by members of the Sy family and 10.09% publicly owned as at the date of this Offer Document.

HPI has properties located primarily in the vicinity of the Tagaytay Highlands and Tagaytay Midlands golf clubs in Calamba in Laguna, Tagaytay City and Batangas. In 2002, HPI began the development of The Woodridge, a high-end multi-family condominium complex with an environmentally-sensitive "highlands rustic" design, located in Tagaytay Highlands. The Woodridge was completed and fully sold in 2006. In 2004, HPI began construction of another condominium project, The Horizon at Tagaytay Midlands, a 220-unit condominium development located beside the north fairways of the Tagaytay Midlands golf course. In 2007, HPI launched Woodridge Place 1, a 65-unit, 7-building condominium complex near The Woodridge, and The Hillside, a lots-only subdivision. In 2008, Woodlands Point, a subdivision of 60 log houses, was launched. In 2009, HPI launched Pueblo Real, a subdivision overlooking the Tagaytay Midlands golf course.

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Residential Developments

HPI's projects as of December 31, 2012 consist of the following:

The Woodridge Place Phase I at Tagaytay Highlands

The construction of the seven buildings of The Woodridge Place was completed and turned over to unit owners in December 2010. HPI generated approximately ₱1.0 billion in revenue from the sale of the 71 units. All of the units from the first phase have been sold.

The Hillside at Tagaytay Highlands

Site development began in the fourth quarter of 2007 and was completed in December 2009. HPI expects to generate approximately ₱808.5 million in revenue from the sale of 156 lots when completed and fully sold. Approximately 93% of the units from lots had been sold as at December 31, 2012.

The Woodlands Point at Tagaytay Highlands

HPI has completed site development and construction of the 24 log cabins, 21 of which have already been sold as at December 31, 2012.

Pueblo Real at Tagaytay Midlands

The development is adjacent to The Horizon, situated on a 6 hectare property and has 85 lots with an average lot size of 400 sq. m. Approximately 74% of the lots had been sold as at December 31, 2012.

Woodridge Place Phase 2

This is a condominium project at Tagaytay Highlands that was introduced to the market in May 2010. This project consists of two mid-rise buildings with 128 condominium residential units with areas ranging from 85 to 212 sq. m. per unit. Approximately 50% of the units had been sold as at December 31, 2012.

Sierra Lago

This is a subdivision development located at Tagaytay Midlands that was launched in November 2010. This development has 185 lots of with sizes of approximately 200 to 300 sq. m. Approximately 68% of the lots have been sold as at December 31, 2012.

Aspen Hills

Launched in the summer of 2012, this 27 hectare leisure lot development offers lots sizes from 80 to 320 sq. m. The surrounding village is expected to include the Meadows Community Clubhouse, the Little Ranch playground, the Sunshine Picnic Grove and Spinner's Trail. Approximately 8% of the lots have been sold as at December 31, 2012.

Land Bank

HPI owns 555 hectares of land located around the vicinity of Tagaytay Highland International Golf Club in Tagaytay City, Cavite and Tagaytay Midlands Golf Club in Batangas. 95% of the total landholdings were contributed by Belle Corporation in 2002 while 5% were directly acquired by HPI in 2008.

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The table below set forth the location and area (in sq. m.) of HPI's land bank as of December 31, 2012:

Properties
  Area  

Tanauan City Property

    383,006  

Talisay Property—Site I

    1,330,034  

Talisay Property—Site II

    1,158,924  

Talisay Property—Site III

    136,823  

Talisay Property—Site IV

    211,061  

Talisay Property—Site V

    6,510  

Talisay Property—Site VI-VII

    100,237  

Talisay Property—Site VIII

    18,241  

Talisay Property—Site IX-X

    132,707  

Tagaytay Midlands

    820,009  

Bgy Iruhin, Tagaytay City-Site I

    547,534  

Bgy Iruhin, Tagaytay City-Site II

    303,319  

Tagaytay Midlands

    10,178  

Bgy Iruhin

    317,586  

Tagaytay Midlands

    78,821  
       

TOTAL

    5,554,990  
       

COSTA DE HAMILO

Along with HPI, Costa de Hamilo has been one of the primary corporate entities for the SM Group's leisure development activities. Costa de Hamilo is the developer of Pico de Loro Cove, the first residential community within Hamilo Coast, a master planned coastal resort rownship development in Nasugbu Batangas.

Pico de Loro is located in a 40-hectare valley within Hamilo Coast situated near mountains and a protected cove. Hamilo Coast features 13 coastal coves, a 31-kilometer coastline, and 5,900 hectares of land. The completed projects include the four-condominium cluster project, Jacana, Myna, Miranda and Carola, as well as club shares of Pico de Loro Beach and Country Club. As of December 31, 2012, the remaining Miranda and Carola clusters were 84% and 58% sold, respectively. The Pico Sands Hotel is also located on the Pico de Loro property. Pico de Loro is the first residential community at the Hamilo Coast property in Nasugbu Batangas.

Several facilities have been added at the beach of Pico de Loro Cove to enhance the experience of the residents, club members and guests. For improved accessibility from Metro Manila, a seasonal ferry service from the MOA is available and the completion of the Nasugbu-Ternate road is expected to be completed in 2013. With the opening of the Nasugbu-Ternate road, the travel distance from Metro Manila to Hamilo Coast will be shortened from 130 kilometers to approximately 78 kilometers.

In line with the objective of addressing the emerging local middle-income and upper-income markets and the goal of tapping the regional market, there are plans to widen the product offering of Costa de Hamilo by introducing residential lots.

Costa de Hamilo's completed projects include the four-condominium cluster project, Jacana, Myna, Miranda and Carola, as well as club shares of Pico de Loro Beach and Country Club. A description of each of the condominium clusters is below:

Jacana

Jacana is a ₱800 million residential and commercial condominium project located at Pico De Loro Cove, Nasugbu, Batangas. It is comprised of two buildings, building A with six floors and building B with seven

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floors. Of the total 492 residential units, 93% were sold as of December 31, 2012. Construction of Jacana commenced in August 2007 and was completed in December 2009.

Myna

Myna is a ₱800 million residential and commercial condominium project located at Pico De Loro Cove, Nasugbu, Batangas. It is comprised of two buildings, building A with six floors and building B with seven floors. Of the total 492 residential units, 94% were sold as of December 31, 2012. Construction of Myna commenced in May 2008 and was completed in July 2010.

Carola

Carola is a ₱800 million residential and commercial condominium project located at Pico De Loro Cove, Nasugbu, Batangas. It is comprised of two buildings, building A with six floors and building B with seven floors. Of the total 496 residential units, 56% were sold as of December 31, 2012. Construction of Carola commenced in August 2009 and was completed in Aug 2012.

Miranda

Miranda is a ₱800 million residential and commercial condominium project located at Pico De Loro Cove, Nasugbu, Batangas. It is comprised of two buildings, building A with six floors and building B with seven floors. Of the total of 496 residential units, 83% were sold as of December 31, 2012. Construction of Miranda commenced in August 2009 and was completed in October 2011.

Pico de Loro Beach and Country Club

Pico de Loro Beach and Country Club is a ₱1.1 billion leisure facility located at Pico de Loro Cove. Costa de Hamilo, as developer, executed a deed of conveyance of the titles to the lots and buildings, and in return owns 4,000 shares, of which 27% were sold as of December 31, 2012. The beach club was completed and opened in 2009, while the country club was completed in June 2010.

Land Bank

Of the 40-hectare property bounded by Pico de Loro Cove, 21.4 hectares remain undeveloped for future residential and recreational development opportunities.

Costa de Hamilo intends to purchase additional land bank for development within the Hamilo Coast area in the near to medium term.

SM HOTELS AND CONVENTIONS CORP.

SM Hotels and Conventions Corporation ("SM Hotels"), formerly SM Hotels Corp., was incorporated in March 2008 with the primary purpose of developing and managing the various hotel and convention properties of the SM Group.

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Hotels

The following table sets forth certain information regarding properties operated by SM Hotels as at December 31, 2012:

Name and Year Opened
  Number of Rooms   Average Daily Rate   Occupancy Rate   Total Revenue  
 
   
  (₱)
  (%)
  (₱)
 

Taal Vista Hotel (2003)

    261     3,672     44%     340,702  

Radisson Blu Hotel Cebu (2010)

    396     3,581     60%     532,115  

Pico Sands Hotel (2011)

    154     4,143     25%     84,366  

Park Inn by Radisson (2013)

    204     N/A     N/A     N/A  

Taal Vista Hotel

Taal Vista is a 261 room hotel located in Tagaytay. The hotel is a short walk from the PAGCOR Casino. The hotel features a spa, outdoor pool, gym, restaurant and function rooms.

In 2009, Taal Vista Hotel's newly constructed east wing with 133 guest rooms (making it a total of 261 rooms) and a 1,000-seater ballroom became fully operational. In the same year, SMX, located at the MOA complex with a state of the art convention and exhibition facilities, commenced operation. It hosts major international and local conventions and exhibitions. It is a three-story structure with a gross floor area of 46,647 sq. m. made up of two large exhibit floors which can be divided into multiple exhibition and function halls.

Radisson Blu Hotel Cebu

In the last quarter of 2010, SM Hotels launched the 400-room Radisson Blu Hotel in Cebu, the first hotel managed by Carlson International in the Asia-Pacific region to be classified under its "Blu" upscale hotel brand category. The property has been classified as a deluxe hotel category by the Department of Tourism and its facilities include an in-house spa, fitness center, business center, 800-sq. m. swimming pool, club lounge, two ballrooms and a number of smaller meeting rooms. The hotel is strategically located beside SM City Cebu and is adjacent to the international port area.

Pico Sands Hotel

The Pico Sands Hotel opened in July 2011. This hotel is a 154 room resort-type hotel in Hamilo Coast in Nasugbu, Batangas. The hotel has an outdoor pool, fitness center, spa, bar, restaurant and meeting and banquet facilities.

Park Inn by Radisson

In March 2013, the Park Inn by Radisson Davao opened an eight story, 204-room hotel located in Lanang, Davao City behind SM Lanang. The hotel has an outdoor swimming pool, gym, fitness center, meeting rooms and a 24-hour dining restaurant bar and grill. The Park Inn brand is one of the hotel brands under Carlson and is the largest mid-market brand for hotels under development in Europe.

Conrad Hilton

SM Hotels intends to open a Conrad Hilton near the MOA complex in 2016. This hotel is expected to be an eight-story hotel with 350 guest rooms. The hotel is expected to feature a swimming pool, business center, fitness club, spa, 24-hour dining restaurant, ballroom and other function and meeting spaces.

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Convention Centers and Arenas

SMX Convention Center Manila

SMX Convention Center Manila, inaugurated in November 2007, is a three-story structure with a gross floor area of 46,647 sq. m. with basement parking that can accommodate up to 400 cars and a leasable area of 21,000 sq. m. The building is made up of two large exhibit floors which can be divided into multiple exhibition and function halls. Meeting and break-out rooms are provided in support of trade and function requirements. The SM Hotels intends for SMX Convention Center to serve as a venue for major conferences, trade exhibitions and shows and similar activities in Metro Manila.

SMX Convention Center Davao

SMX Convention Center Davao, the sister facility of SMX Convention Center Manila, is located on the third level of SM City Lanang Mall, or Lanang Premier Mall, which was inaugurated September 28, 2012. The facility has a total floor area of 7,835 sq. m., with 5,240 sq. m. of function space, divisible into three rooms, and a 1,292 sq. m. pre-function lobby with a concierge counter. This mixed-use complex is integrated with a 204-room hotel and is located 2.4 kilometres from Davao International Airport.

In addition, the SM Hotels is assessing the feasibility of establishing additional conference centers, in conjunction with the mid-market hotels, by using existing land bank situated around SM Prime's existing malls.

SMX Convention Center Taguig

SMX Convention Center Taguig is the third property under the SMX brand. Located inside the SM Aura Premier Mall, it has three function rooms and eight meeting rooms. The 6,358 sq. m. building is the first LEED-certified convention facility in the Philippines.

SM Arena

The SM Arena is a five-story, first-class multipurpose venue for sporting events, concerts, entertainment shows, and other similar events. The arena has a seating capacity of approximately 16,000. It occupies approximately two hectares of land and has a gross floor area of approximately 68,000 sq. m. It is adjacent to the upcoming South Parking Building of the MOA and is right in front of the SMX Convention Center Manila. The SM Arena is connected to a large platform parking plaza and park that will be built in between the SMX Convention Center Manila and the arena itself. Provisions for two future office blocks are also included in the arena's master plan.

Megatrade Hall

Megatrade Hall, located inside SM Megamall, offers 3,878 sq. m. of flexible hall space for various types of events. This space can also be divided into three different halls, depending on the type of event and client requirements. An additional 336 sq. m. conference center is also available for meetings, conferences, and seminars.

Cebu Trade Hall

Cebu Trade Hall, located inside SM City Cebu, offers 1,810 sq. m. of hall space that is also divisible into three halls. An additional 255 sq. m. conference center, that can be divisible into three meeting rooms, is also available for smaller functions.

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OTHER SM INVESTMENTS CORPORATION ASSETS TO BE INCLUDED IN THE REORGANIZATION

Mall of Asia Arena Annex (Carpark)

MOA Arena Annex is an 11-story building with total gross floor area of 95,273 sq. m. It is designed to serve the parking needs of MOA Arena with 1,469 parking slots from ground to 7th floor. While the 8th to 11th floor with approximately 30,000 sq. m. are leased out as office space. The current tenants are SM Affiliates occupying 16,000 sq. m. The remaining vacant spaces are scheduled to be occupied by two BPO companies by 2nd half of 2013. The occupancy rate for the MOA Arena Annex for the year ended December 31, 2012 was 51%.

Casino Building

Casino Building is located along Gen. Emilio Aguinaldo Highway, within Barangays Mahabang Kahoy and Kaybagay, Tagaytay City with total gross floor area of 19,394 sq. m. Its main tenant is Philippine Amusement and Gaming Corp. for a 25-year lease term ending on 2033. The occupancy rate for Casino Building for each of the three years ended December 31, 2010, 2011 and 2012 was 100%.

Tagaytay Lot

Tagaytay lot is located at along Gen. Emilio Aguinaldo Highway, within Barangays Mahabang Kahoy and Kaybagay, Tagaytay City with total land area of 132,992 sq. m. Of which, 45,264 square meters was developed by SM Land as "The Sky Ranch". The rest of the area is vacant. The occupancy rate for Tagaytay Lot for each of the three years ended December 31, 2010, 2011 and 2012 was 0%.

Edsa West Lot

Edsa West lot is located at the corners of E. delos Santos / West Avenues / Bulacan Street, Brgy. Bungad, Diliman Quezon City with total land area of 2,910 sq. m. The lot is currently being developed by SM Land to build SM Cyberwest, a 15-story office building designed for BPO, Savemore and retail / food shops. The occupancy rate for Edsa West Lot for each of the three years ended December 31, 2010, 2011 and 2012 was 0%.

Corporate Office Buildings A to F

Corporate Office buildings are composed of Buildings A to F with a total gross floor area of 46,883 sq. m. Buildings A to E are leased to SM Affiliates while Building F is leased to Teletech Customer Care Management Corp. The occupancy rate for Corporate Office buildings A to F for the years ended December 31, 2010, 2011 and 2012 was 100%, 100% and 85%, respectively.

Tagaytay Resort and Development Corporation

Tagaytay lot is owned by Tagaytay Resort Development Corporation and is located at along Gen. Emilio Aguinaldo Highway, within Barangays Mahabang Kahoy and Kaybagay, Tagaytay City with total land area of 182,857 sq. m. As at December 31, 2012, 9,444 sq. m. of the total area is occupied by a casino building owned by SMIC. The remainder of the property is currently vacant.

Prime Metroestate Inc. Properties

Cainta Lot

Cainta lot is located at Imelda Avenue, Cainta Rizal and Int. Imelda Avenue, Rosario, Pasig City with a total land area of 41,000 sq. m. The property is leased by SM Food Retail Group.

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Imus Lot

Imus lot is located at Anabu I-B Imus, Cavite with a total land area of 37,000 sq. m. and is leased to SM Food Retail Group.

Novaliches Lot

Novaliches lot is located at Quirino Hiway, Talipapa, Balintawak Quezon City with a total land area of 30,000 sq. m. and is leased to SM Food Retail Group.

Sucat Lot

Sucat lot is located at East Service Road Sucat, Muntinlupa City with a total land area of 40,000 sq. m. and is leased to SM Food Retail Group.

Tondo Lot

Tondo lot is located at Manila Harbour Center, Tondo, Manila City with a total land area of 26,000 sq. m. and is leased to SM Food Retail Group.

Cebu Lot

Cebu lot is located at II-A; II-B & Lot 1; Along H. Cortes ext., Subangdaku, Mandaue City with a total land area of 36,000 sq. m. and is leased to SM Food Retail Group.

Davao Lot

Davao lot is located at Km.7 McArthur Highway, Bangkal, Davao City with a total land area of 34,000 sq. m. and is leased to SM Food Retail Group.

Land Bank

Prime Metroestate, Inc. has invested in various properties located in prime location across the Philippines. As of December 31, 2012, Prime Metroestate, Inc. owned 98,000 sq. m of land slated for future development.

The table below sets forth the locations of Prime Metroestate, Inc.'s land inventory as of December 31, 2012:

Location
  Area (sq. m)  

Caruncho St, Malinao, Pasig City

    2,777  

Brgy Villasis/Poblacion, Santiago City, Isabela

    4,383  

Palacio Real, Brgy Makiling, Calamba City

    40,000  

Rosario, Batangas

    7,189  

Barangay Bucandala, Imus, Cavite

    34,283  

Molo, Iloilo

    9,297  
       

Total

    97,929  
       

INSURANCE, ENVIRONMENT, HEALTH AND SAFETY

Each of the companies described in this Business section has their insurance arrangements effected through BDO Insurance Brokers, Inc.. SM Prime believes that each of these companies and their respective subsidiaries are adequately insured, both in terms of the insured risks and the amount which is covered. The commercial all risks insurance policies are underwritten by Prudential Guarantee Assurance

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Company which is supported by a panel of reinsurers whose minimum rating from Standard & Poor's Rating Services, a division of The McGraw-Hill Companies, is "A."

The companies' policy covers any potential loss of property. Loss of revenue under the business interruption coverage resulting from fire, water damage and acts of God including earthquake, typhoon and flood is provided. Retail affiliates operating inside SM Prime's malls have their own business interruption insurance cover.

Moreover, in order to protect from losses during the construction period, the companies require their contractors to provide all-risk insurance that covers property damage and bodily injury. Losses from possible default of contractors are also covered through performance and guarantee bonds.

In addition, the comprehensive general liability insurance coverage extends to third-party liability, including loss of life and its corresponding litigation expenses. The companies are also insured against terrorism.

The companies maintain professional indemnity insurance for their respective directors and executive officers. They also maintain other insurance policies including workmen's compensation and personal accident and group hospitalization and surgical insurance for their employees. The companies likewise maintain key personnel insurance for their respective directors and executive officers.

The companies are each, and, so far as each company is aware, each of their principal subsidiaries are, in material compliance with all applicable environmental, health and safety regulations.

LEGAL PROCEEDINGS

Each of the companies discussed in this Business section may be subject to various legal proceedings and claims that arise in the ordinary course of business. As of the date of this Offer Document, none of the companies discussed in this Business section is engaged in or subject to any litigation or arbitration proceedings nor, to the knowledge of the Directors, is any litigation or claim threatened against any such companies which is material in the context of the Exchange Offers or which, if determined adversely against such companies, would have a material adverse effect on their respective results of operations or financial position.

EMPLOYEES

The following table sets out the full-time employees for each of the companies discussed in this Business section as at December 31, 2012:

 
  SM Prime   SM Land   Costa de
Hamilo
  SMDC   HPI  

Officers

    14     16     9     35     7  

Managers

    29     31     21     114     23  

Supervisors and Rank and File

    77     82     52     400     30  
                       

Total

    120     129     82     549     60  
                       

None of the employees of the companies in the chart above are subject to collective bargaining agreements and were not represented by any labor union as at December 31, 2012. The management of these companies have generally not encountered any significant difficulties with their employees and each believe that their relations with their employees are generally good. No major strikes or collective actions were staged by employees in the history of any of these companies.

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BOARD OF DIRECTORS AND SENIOR MANAGEMENT

The table below sets forth certain information with respect to each of the directors ("Directors") of the board (the "Board") and executive officers of SM Prime as of the date of this Offer Document. The board of directors of New SM Prime is expected to be composed of the same members as shown below.

Office
 
Name
  Citizenship   Age  
Chairman   Henry Sy, Sr.   Filipino     88  
Vice Chairman and Independent Director   Jose L. Cuisia, Jr.   Filipino     69  
Independent Director   Gregorio U. Kilayko   Filipino     58  
Independent Director   Joselito H. Sibayan   Filipino     54  
Director and President   Hans T. Sy   Filipino     57  
Director   Henry T. Sy, Jr.   Filipino     59  
Director   Herbert T. Sy   Filipino     56  
Director   Jorge T. Mendiola   Filipino     53  
Adviser to the Board of Directors   Teresita T. Sy   Filipino     62  
Adviser to the Board of Directors   Elizabeth T. Sy   Filipino     60  
Executive Vice President and Chief Finance Officer   Jeffrey C. Lim   Filipino     51  
Senior Vice President—Legal and Corporate Affairs/ Compliance Officer/ Assistant Corporate Secretary   Corazon I. Morando   Filipino     71  
Vice President—Market Research and Planning   Ronald G. Tumao   Filipino     54  
Vice President—Internal Audit Head   Christopher S. Bautista   Filipino     53  
Vice President—Information Technology   Kelsey Hartigan Y. Go   Filipino     47  
Vice President—Finance (China Projects)   Diana R. Dionisio   Filipino     40  
Vice President—Finance   Teresa Cecilia H. Reyes   Filipino     38  
Vice President—Legal   Edgar Ryan C. San Juan   Filipino     37  
Corporate Secretary/ Assistant Compliance Officer   Emmanuel C. Paras   Filipino     63  

Board of Directors

Henry Sy, Sr.    has served as Chairman of the Board of Directors of SM Prime since 1994. He is the founder of the SM Group and is currently Chairman of SM Land, SMIC, HPI and SM Development Corp. He is likewise Chairman Emeritus of BDO Unibank, Inc. and Honorary Chairman of China Banking Corporation. He opened the first ShoeMart store in 1958 and has been at the forefront of SM Group's diversification into the commercial centers, retail merchandising, financial services, and real estate development and tourism businesses.

Jose L. Cuisia, Jr.    has served as Vice Chairman of the Board of Directors of SM Prime since 1994. In 2011, he took his official diplomatic post as Ambassador Extraordinary and Plenipotentiary to the United States of America. He was the former President and Chief Executive Officer of the Philippine American Life and General Insurance Company and is currently the Vice-Chairman of Philamlife since August 2009. Previously, he served as Governor of the BSP from 1990 to 1993 and Administrator of the Social Security System from 1986 to 1990. In May 2011, he was awarded the "Joseph Wharton Award for Lifetime Achievement" by the Wharton School of the University of Pennsylvania for an outstanding career in the banking and social security system of the Philippines.

Gregorio U. Kilayko is the former Chairman of ABN Amro's banking operations in the Philippines. He was the founding head of ING Baring's stockbrokerage and investment banking business in the Philippines and a Philippine Stock Exchange Governor in 1996 and 2000. He was a director of the demutualized Philippine Stock Exchange in 2003. He was elected as an independent Director in 2008.

Joselito H. Sibayan has spent the past 25 years of his career in investment banking. From 1987 to 1994, and after taking his MBA from University of California in Los Angeles, he was in Head of International Fixed

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Income Sales at Deutsche Bank in New York and later moved to Natwest Markets to set up its International Fixed Income and Derivatives Sales/Trading operation. He then moved to London in 1995 to run Natwest Markets' International Fixed Income Sales Team. He is currently the President and CEO of Mabuhay Capital Corporation ("MC2"), an independent financial advisory firm. Prior to forming MC2 in 2005, he was Vice Chairman, Investment Banking—Philippines and Country Manager for Credit Suisse First Boston ("CSFB"). He helped establish CSFB's Manila representative office in 1998, and later oversaw the transition of the office to branch status. He was elected as an independent Director in 2011.

Hans T. Sy, President, has served as a Director since 1994 and as President of SM Prime since 2004. He holds many key positions in the SM Group, among which are adviser to the board of directors of SMIC. He is director and chairman of China Banking Corporation, director of HPI and SM Land. He also holds board positions in several companies within the SM Group. He is a mechanical engineering graduate of De La Salle University.

Henry T. Sy, Jr.    has served as a Director since 1994. He is responsible for the real estate acquisitions and development activities of the SM Group which include the identification, evaluation and negotiation for potential sites as well as the input of design ideas. At present, he is also vice chairman/ president of SM Land, vice chairman of SMIC and SMDC, president of HPI, director in BDO Unibank, Inc. and chairman of Pico de Loro Beach and Country Club Inc. and president of The National Grid Corporation of the Philippines. He graduated with a management degree from De La Salle University.

Herbert T. Sy has served as a Director since 1994. He is an adviser to the board of directors of SMIC and is currently the vice chairman of Supervalue Inc., Super Shopping Market Inc. and Sanford Marketing Corporation and director of SM Land and China Banking Corporation. He holds a bachelor's degree in management from De La Salle University. He also holds board positions in several companies within the SM Group.

Jorge T. Mendiola was elected as a Director in December 2012. He is currently the president of SM Department Store. He started his career with the SM Department Stores as a special assistant to the senior branch manager in 1989 and rose to become the president in 2011. He is also the vice chairman for Advocacy of the Philippine Retailers Association. He received his masters in business management from the Asian Institute of Management and has an A.B. Economics degree from Ateneo de Manila University.

Teresita T. Sy has served as an adviser to the Board since May 2008. She was a Director from 1994 up to April 2008. She has worked with the SM Group for over 20 years and has varied experiences in retail merchandising, mall development and banking businesses. A graduate of Assumption College, she was actively involved in ShoeMart's development. At present, she is chairman of BDO Unibank, Inc., vice chairman of SMIC and a director of SM Land. She also holds board positions in several companies within the SM Group.

Elizabeth T. Sy was elected as an adviser to the Board in April 2012. She was a senior vice president for marketing from 1994 up to April 2012. She is a director of SMDC and SM Land, co-chairman of Pico de Loro Beach and Country Club Inc. and an adviser to the board of directors of SMIC. She is also actively involved in the SM Group's other tourism and leisure business endeavors, overseeing operations as well as other marketing and real estate activities.

Members of the Board are given a standard per diem of ₱10,000 per Board meeting, except for the chairman and vice chairman, who are given ₱20,000 per Board meeting.

Senior Management

Jeffrey C. Lim is the executive vice president and the chief finance officer of SM Prime. He is a director of Pico de Loro Beach and Country Club Inc. and a member of the management board of the Asia Pacific Real Estate Association. He is a certified public accountant and holds a bachelor of science degree in

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accounting from the University of the East. Prior to joining SM Prime, he worked for a multi-national company and SGV & Co.

Corazon I. Morando is the senior vice president for legal and corporate affairs, compliance officer and assistant corporate secretary of SM Prime and SMIC, and compliance officer of SMDC. She is also corporate secretary of HPI and China Banking Corporation. She holds a bachelor of law degree from the University of the Philippines and completed her graduate studies under the MBA-Senior Executive Program in the Ateneo de Manila University. She was formerly the director of the corporate and legal department of the Securities and Exchange Commission in the Philippines.

Ronald G. Tumao is the vice president for market research and planning. He graduated from De La Salle University with a degree in BSC—Management of Financial Institutions. He later received his master of business administration from the Ateneo Graduate School. He has over 10 years of experience in banking and finance and more than 10 years of experience in brand management and consumer marketing. He is in charge of property acquisition for SM Prime. He joined SM Prime in 2001.

Christopher S. Bautista is the vice president for internal audit (chief audit executive). He was formerly the chief finance officer of a large palm oil manufacturer based in Jakarta, Indonesia and was a partner for several years of an audit and management consulting firm based also in Jakarta. He started his professional career as staff auditor of SGV & Co. He joined SM Prime in 1998.

Kelsey Hartigan Y. Go is the vice-president for information technology. He holds a bachelor's degree in electronics and communications engineering and a masters of science degree in computer science, both from the De La Salle University, Manila. He was previously a professor of a university in the Philippines and was concurrently the director of the Information Systems Center of the same university. He joined SM Prime in 1997.

Diana R. Dionisio is the vice president for finance (China projects). She holds a bachelor's degree in accountancy from the University of Santo Tomas. Prior to joining SM Prime, she was the accounting manager of a real property company. She started her professional career as staff auditor of SGV & Co. She joined SM Prime in 1999.

Teresa Cecilia H. Reyes is the vice president for finance of SM Prime. Prior to her joining SM Prime in June 2004 as a senior manager in the finance group, she was an associate director in the business audit and advisory group of SGV & Co. She graduated from De La Salle University with a bachelor of science in accountancy and a bachelor of arts in economics and placed 16th in the 1997 Certified Public Accountants board examinations.

Edgar Ryan C. San Juan is the vice president for legal of SM Prime. Prior to joining SM Prime in 2008, he was a senior associate attorney at Puno and Puno Law Offices. He was also part of the Siguion Reyna Montecillo and Ongsiako Law Firm and the Bengson Law Firm. He holds a juris doctor degree from the Ateneo de Manila University School of Law and a bachelor of arts in humanities degree with a specialization in political economy from the University of Asia and the Pacific.

Emmanuel C. Paras is the corporate secretary and assistant compliance officer of SM Prime and other companies in the SM Group. He has a bachelor of Law degree from the Ateneo de Manila University and is a partner of the SyCip Salazar Hernandez and Gatmaitan Law Offices.

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SHARE CAPITAL AND SHAREHOLDER MATTERS

General

As at the date of this Offer Document, the authorized capital stock of SM Prime is ₱20 billion comprising 20 billion shares of common stock with a par value of ₱1 per common share, of which 17,373,677,760 common shares are issued and outstanding.

Share Capital

A Philippine corporation may issue common or preferred shares, or such other classes of shares, with such rights, privileges or restrictions as may be provided for in the articles of incorporation and the by-laws of the corporation. The Corporation Code provides that voting rights cannot be exercised with respect to shares declared delinquent, treasury shares, or where the shareholder has elected to exercise his right of appraisal referred to below.

The shares of a corporation may either be with or without a par value. All of the SM Prime shares currently issued or authorized to be issued have a par value of ₱1 per share.

Subject to approval by the PSEC, a corporation may increase or decrease its authorized share capital, provided that the change is approved by a majority of the board of directors and by shareholders representing at least two-thirds of the issued and outstanding capital stock of the corporation voting at a shareholders' meeting duly called for the purpose.

A corporation is empowered to acquire its own shares, provided that the corporation has unrestricted retained earnings or surplus profits sufficient to pay for the shares to be acquired and the acquisition is for a legitimate corporate purpose. The circumstances in which a corporation may exercise such power include, but are not limited to, the elimination of fractional shares arising out of stock dividends, the purchase of shares of dissenting shareholders exercising their appraisal right as referred to below and the collection or compromise of an indebtedness arising out of an unpaid subscription. When a corporation repurchases its own shares, the shares become treasury shares, which may be resold at a reasonable price fixed by the board of directors.

The Board is authorized to issue shares from treasury from time to time to any person, corporation or association, whether or not a shareholder, including the officers or employees of SM Prime for such consideration in money as the Board may determine, without the obligation of a prior offer to the shareholders of SM Prime, and no pre-emptive right applies to such shares issued from SM Prime's treasury stock.

Rights Relating to SM Prime Shares

    Voting Rights

SM Prime currently has only one class of shares; all SM Prime shares are common shares. Each share of SM Prime's stock is equal in all respects to every other share of its stock. All SM Prime shares have full voting and dividend rights. The rights of SM Prime's shareholders include the right to notice of shareholders' meetings, the right of inspection of its corporate books and other shareholders' rights contained in the Corporation Code. Notice of shareholders' meetings is provided by mail or by hand.

    Pre-emptive Rights

The Corporation Code confers pre-emptive rights on shareholders of a Philippine corporation which entitle them to subscribe for all issues or other dispositions of equity-related securities by the corporation in proportion to their respective shareholdings, regardless of whether the equity-related securities proposed to be issued or otherwise disposed of are identical to the shares held. A Philippine corporation may provide for the denial of these pre-emptive rights in its articles of incorporation.

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SM Prime's Articles of Incorporation currently deny pre-emptive rights to its shareholders. However, shareholders representing at least two-thirds of SM Prime's issued and outstanding capital stock voting at a shareholders' meeting duly called for the purpose may amend the Articles of Incorporation to grant pre-emptive rights to subscribe to a particular issue or other disposition of shares from its capital. However, pre-emptive rights do not extend to shares to be issued in compliance with laws requiring stock offerings or minimum stock ownership by the public, or to shares to be issued in good faith with the approval of the shareholders representing two-thirds of the outstanding capital stock in exchange for property needed for corporate purposes, or in payment of a previously contracted debt.

    Derivative Suits

Philippine law recognizes the right of a shareholder to institute, under certain circumstances, proceedings on behalf of the corporation in a derivative action in circumstances where the corporation itself is unable or unwilling to institute the necessary proceedings to redress wrongs committed against the corporation or to vindicate corporate rights, as, for example, where the directors themselves are the malefactors.

    Appraisal Rights

The Corporation Code grants a shareholder a right of appraisal in certain circumstances where he has dissented and voted against a proposed corporate action including:

    (1)
    an amendment of the articles of incorporation which has the effect of adversely affecting the rights attached to his shares or of authorising preferences in any respect superior to those of outstanding shares of any class or of extending or shortening the term of corporate existence;

    (2)
    the sale, lease, exchange, transfer, mortgage, pledge or other disposal of all or substantially all the assets of the corporation;

    (3)
    the investment of corporate funds in another corporation or business or for any purpose other than the primary purpose for which the corporation was organized; and

    (4)
    a merger or consolidation.

In these circumstances, the dissenting shareholder may require the corporation to purchase his shares at a fair value, which, in default of agreement, is determined by three disinterested persons, one of whom shall be named by the shareholder, one by the corporation and the third by the two thus chosen. Any question about whether a dissenting shareholder is entitled to this right of appraisal will, in the event of a dispute, be determined by the PSEC. The dissenting shareholder will be paid if the corporate action in question is implemented and the corporation has unrestricted retained earnings sufficient to support the purchase of the shares of the dissenting shareholder.

Unless otherwise provided by law or the Articles of Incorporation, SM Prime's corporate powers are exercised, its business is conducted and its property is controlled by the Board. SM Prime has seven Directors who are elected during each annual meeting of the shareholders for a term of one year. For the purpose of electing Directors, each shareholder is entitled to a number of votes equal to the product of the number of shares owned by him and the number of Directors to be elected. The Corporation Code entitles each shareholder to exercise his voting rights cumulatively in favor of one candidate or to distribute his votes among the candidates of his choice. The election of Directors is usually conducted during the annual meeting of SM Prime's shareholders, provided that shareholders representing at least a majority of the issued and outstanding capital stock are present, either in person or by proxy. Under Philippine law, representation of foreign ownership on the Board is generally limited to the proportion of the foreign shareholding.

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SM Prime's by-laws (the "By-laws") currently provide for the following limitations in respect of the election of Directors:

    (5)
    The Board of Directors, by majority vote, shall pass upon the qualifications of nominees to the Board. It may also, in the exercise of its discretion and by majority vote of its members, disqualify a nominated shareholder who, in the Board's judgement represents an interest adverse to or in conflict with those of SM Prime. Without limiting the generality of the foregoing, the Board may take into consideration the fact that the nominated shareholder is:

    (a)
    the owner (either of record or as beneficial owner) of 5% or more of any outstanding class of shares of any corporation (other than one in which the SM Prime owns at least 20% of the capital stock) which is engaged in a business directly competitive to that of SM prime or any of its subsidiaries or its affiliates; or

    (b)
    an officer, manager or controlling person of, or the owner of any member of his immediate family is the owner (either of record or as beneficial owner) of 5% or more of any outstanding class of shares of any corporation (other than one in which the SM Prime owns at least 20% of the capital stock) which is an adverse party in any suit, action or proceeding (of whatever nature, whether civil, criminal, administrative or judicial) by or against SM Prime, which has been actually filed or threatened, imminent or probable, to be filed; or

    (c)
    as determined by the Board, in the exercise of its judgment in good faith, to be the nominee officer, trustee, legal counsel, of any individual set forth in (a) or (b).

In determining whether or not a person has a conflict of interest with SM Prime or is a controlling person, beneficial owner, or the nominee of another, the Board may take into account such factors as business and family relations.

For the proper implementation of the foregoing, the By-laws require that all nominations for election of Directors by the shareholders shall be submitted in writing to the Board or the Corporate Secretary at least 30 business days before the date of the regular meeting.

    (6)
    SM Prime shall conform to the requirement to have at least two independent directors or at least 20% of its board size, whichever is less or such number of independent directors as may be required by law.

Directors may only act collectively; individual Directors have no power as such. A majority of the Directors constitutes a quorum for the transaction of corporate business and every decision of a majority of the quorum duly assembled as a board is valid as a corporate act, except for the election of officers, which shall require the vote of a majority of all the members of the Board. Any vacancy created by the death, resignation, disqualification or any other cause, except by the removal of a Director or the expiration of his term, may be filled by the remaining members of the Board, if still constituting a quorum. Any Director elected in this manner by the Board shall serve only for the unexpired term of the Director whom he replaces. Any such vacancy may also be filled by the shareholders who are entitled to vote at any meeting or adjourned meeting held during such vacancy, provided that the notice of the meeting mentions such vacancy or expected vacancy.

Shareholders' Meetings

    Annual Shareholders' Meetings

The Corporation Code requires all Philippine corporations to hold an annual meeting of shareholders for corporate purposes including election of Directors. Shareholders are entitled to cumulative voting privileges with respect to the election of Directors. SM Prime's By-laws provide for annual meetings on the last Wednesday of April of each year. At the annual meeting or at any special meeting called for the purpose, shareholders may also be asked to approve actions requiring shareholder approval under

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Philippine law, including: the amendment of the articles of incorporation or By-laws; the removal of Directors in certain instances; and the sale, lease, mortgage or other disposition of all or substantially all of the assets of the corporation.

    Quorum

The Corporation Code provides that, except in instances where the assent of shareholders representing two-thirds of the outstanding capital stock is required to approve a corporate act (usually involving fundamental corporate changes) or where the by-laws provide otherwise, a quorum for a meeting of shareholders will exist if shareholders representing a majority of the capital stock are present in person or by proxy.

    Voting

At each shareholders' meeting, each shareholder shall be entitled to vote in person, or by proxy, all shares held by him which have voting power, upon any matter duly raised in such meeting.

SM Prime's By-laws provide that proxies shall be dated, signed and must designate the personals who will act as proxy. Duly accomplished proxies must be submitted to the office of the corporate secretary at least five business days prior to the date of the shareholders' meeting.

    Fixing Record Dates

The Board may, by resolution, direct that the stock and transfer books of SM Prime be closed for a period not exceeding thirty days preceding the date of any meeting of shareholders, or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, as a record date for the determination of the shareholders entitled to notice of and to vote at any such meeting, or entitled to receive payment of any such dividend, or to any such allotment or rights, or to exercise the rights in respect of any change, conversion or exchange of the capital stock, and in each such case only such shareholders as shall be shareholders of record on the date so fixed shall be entitled to notice of or to vote at such meeting or to receive payment of such dividend or to receive such allotment of rights or to exercise such rights, as the case may be notwithstanding any transfer of any stock on the books of the Corporation after such record date as aforesaid.

    Dividends

Under Philippine law, a corporation can only declare dividends to the extent that it has unrestricted retained earnings. Unrestricted retained earnings represent the undistributed earnings of the corporation which have not been allocated for any managerial, contractual or legal purposes and which are free for distribution to the shareholders as dividends. A corporation may pay dividends in cash by the distribution of property or by the issuance of shares. Stock dividends may be paid with the approval of shareholders representing at least two-thirds of the issued and outstanding stock voting at a shareholders' meeting duly called for the purpose.

The Corporation Code generally requires a Philippine corporation with retained earnings in excess of 100% of its paid-in capital to declare and distribute as dividends the amount of such surplus. Notwithstanding this general requirement, a Philippine corporation may retain all or any portion of such surplus in the following cases: (i) when justified by definite expansion plans approved by the board of directors of the corporation; (ii) when the required consent of any financing institution or creditor to such distribution has not been secured; (iii) when retention is necessary under special circumstances, such as when there is a need for special reserves for probable contingencies; or (iv) when the non-distribution of dividends is consistent with the policy or requirement of a government office.

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Transfer of Shares and Share Register

All transfers of SM Prime shares by registered shareholders must be made by delivery of the SM Prime share certificate endorsed by the transferor or an authorized representative thereof, or by a document signed by or on behalf of the transferor and the transferee in a form acceptable to SM Prime's stock transfer agent, and must be registered in the SM Prime's share register. Philippine law does not require transfers of SM Prime's shares to be effected on the PSE, but any off-exchange transfers will subject the transferor to a capital gains tax that may be significantly greater than the stock transfer tax applicable to transfers effected on an exchange. All transfers of SM Prime shares on the PSE must be effected through a licensed stockbroker in the Philippines.

SM Prime's share register is maintained by its stock transfer agent, Stock Transfer Service, Inc.

Issues of SM Prime Shares

Subject to otherwise applicable limitations, SM Prime may issue additional SM Prime shares to any person for consideration deemed fair by the Board, provided that such consideration shall not be less than the par value of the SM Prime shares.

    Share Certificates

Certificates representing the SM Prime shares will be issued in such denomination as shareholders may request, except that certificates will not be issued for fractional Shares. Shareholders wishing to split their certificates may do so upon application to our stock transfer agent. Shares may also be lodged and maintained under the book-entry system of the Philippine Depositary & Trust Corporation ("PDTC").

Mandatory Tender Offers

Under the implementing rules and regulations of the Philippine Securities Regulation Code, it is mandatory for any person or group of persons acting in concert intending to acquire at least (a) 35% of (i) any class of any equity security of a corporation listed on the PSE or (ii) any class of any equity security of a Philippine corporation with assets of at least ₱50 million and having 200 or more shareholders with at least 100 shares each (a "Public Company"), in one or more transaction within a 12-month period or (b) an acquisition of less than 35% but which would result in ownership of over 51% of the total equity securities of a Public Company, to make a tender offer to all the shareholders of the target corporation on the same terms. In the event that the securities tendered pursuant to such an offer exceed that which the acquiring person or group of persons is willing to take up, the securities shall be purchased from each tendering shareholder on a pro rata basis.

Fundamental Matters

The Corporation Code provides that certain significant acts may only be implemented with shareholder approval. The following require the approval of shareholders representing at least two-thirds of the issued and outstanding capital stock of the corporation in a meeting duly called for the purpose:

    (1)
    amendment of the articles of incorporation;

    (2)
    removal of directors;

    (3)
    sale, lease, exchange, mortgage, pledge or other disposition of all or a substantial part of the assets of the corporation;

    (4)
    investment of corporate funds in any other corporation or business or for any purpose other than the primary purpose for which the corporation was organized;

    (5)
    issuance of stock dividends;

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    (6)
    delegation to the board of directors of the power to amend or repeal by-laws or adopt new by-laws;

    (7)
    merger or consolidation;

    (8)
    an increase or decrease in capital stock;

    (9)
    extension or shortening of the corporate term;

    (10)
    creation or increase of bonded indebtedness;

    (11)
    declaration of stock dividends;

    (12)
    dissolution;

    (13)
    ratification of acts of disloyalty by directors;

    (14)
    ratification of contracts with corporations in which a director is also a member of the board, where the interest of the director is nominal in one corporation and substantial in the other; and

    (15)
    entering into a management contract where (a) a majority of directors of the managing corporation constitutes the majority of the board of the managed company or (b) shareholders of both the managing and managed corporations represent the same interest and own or control more than one-third of the outstanding capital stock entitled to vote.

Accounting and Auditing Requirements

Philippine stock corporations are required to file copies of their annual financial statements with the PSEC. Corporations whose shares are listed on the PSE are also required to file current, quarterly and annual reports with the PSEC and the PSE. Shareholders are entitled to request copies of the most recent financial statements of the corporation which include a balance sheet as of the end of the most recent tax year and a profit and loss statement for that year. Shareholders are also entitled to inspect and examine the books and records that the corporation is required by law to maintain.

The board is required to present to shareholders at every annual meeting a financial report of the operations of the corporation for the preceding year. This report is required to include audited financial statements.

Market Information

There are no outstanding options or warrants to purchase or acquire securities convertible into SM Prime shares.

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PRINCIPAL SHAREHOLDERS

The table below sets forth information as at March 31, 2013 with respect to the registered ownership of the outstanding SM Prime shares by (i) each person known to own more than 10% of the outstanding SM Prime shares and (ii) each of the Directors and executive officers of SM Prime:

Shareholders
  Relationship with
SM Prime
  Number of Shares
Owned of Record
  Number of Share
Beneficially Owned
  Percentage of
issued and
outstanding Shares
 

SM Land, Inc. 

  Shareholder     7,116,954,491     7,116,954,491     40.9640%  

SM Investments Corporation. 

  Shareholder     3,761,791,190     3,761,791,190     21.6522%  

PCD Nominee Corp. (Foreign)

  Shareholder     1,141,121,514     1,141,121,514     6.568%  

Sysmart Corporation

  Shareholder     36,483,131     36,483,131     0.2100%  

Henry Sy, Sr. 

  Chairman     14,782,893     14,782,893     0.0851%  

Elizabeth T. Sy

  Adviser to the Board of Directors     2,033,110     2,033,110     0.0117%  

Teresita T. Sy

  Adviser to the Board of Directors     1,352,902     1,352,902     0.0078%  

Jose L. Cuisia, Jr. 

  Vice Chairman and Independent Director     497,661     497,661     0.0029%  

Herbert T. Sy

  Director     485,128     485,128     0.0028%  

Jeffrey C. Lim

  Executive Vice President and Chief Finance Officer     50,000     50,000     0.0003%  

Christopher S. Bautista

  Vice President     37,500     37,500     0.0002%  

Hans T. Sy

  Director and President     15,652     15,652     0.0001%  

Henry Sy, Jr. 

  Director     15,652     15,652     0.0001%  

Gregorio U. Kilayko

  Independent Director     12,500     12,500     0.0001%  

Joselito H. Sibayan

  Independent Director     1,875     1,875     0.0000%  

Jorge T. Mendiola

  Director     1,000     1,000     0.0000%  

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THE PHILIPPINE STOCK MARKET

The information presented in this section has been extracted from publicly available documents which have not been prepared or independently verified by SM Land, SM Prime, or any of their respective subsidiaries, affiliates or advisors in connection with the Exchange Offers.

BRIEF HISTORY

The Philippines initially had two stock exchanges, the Manila Stock Exchange, which was organized in 1927, and the Makati Stock Exchange, which began operations in 1963. Each exchange was self-regulating, governed by its respective board of governors elected annually by its members.

Several steps initiated by the Philippine government have resulted in the unification of the two bourses into the PSE. The PSE was incorporated in 1992 by officers of both the Makati and the Manila Stock Exchanges. In March 1994, the licenses of the two exchanges were revoked. While the PSE maintains two trading floors, one in Makati City and the other in Pasig City, these floors are linked by an automated trading system, which integrates all bid and ask quotations from the bourses. A trading right evidenced by a "Trading Participant Certificate" is conferred on each member broker allowing the use of the PSE's trading facilities.

In June 1998, the PSEC granted the Self-Regulatory Organization status to the PSE, allowing it to impose rules as well as implement penalties on erring trading participants and listed companies. On August 8, 2001, the PSE completed its demutualization, converting from a non-stock member-governed institution into a stock corporation in compliance with the requirements of the Philippine SRC.

The PSE has an authorized capital stock of 97.8 million shares, of which 61.058 million shares are subscribed and fully paid-up. Each of the 184 member-brokers was granted 50,000 common shares of the new PSE at a par value of ₱1.00 per share. In addition, a trading right evidenced by a "Trading Participant Certificate" was immediately conferred on each member broker allowing the use of the PSE's trading facilities. As a result of the demutualization, the composition of the board of directors of the PSE was changed, requiring the inclusion of seven brokers and eight non-brokers, one of whom is the President.

On December 15, 2003, the PSE listed its shares by way of introduction at its own bourse as part of a series of reforms aimed at strengthening the Philippine securities industry.

Classified into financial, industrial, holding firms, property, services, and mining and oil sectors, companies are listed either on the PSE's First Board, Second Board or the Small and Medium Enterprises Board. Each index represents the numerical average of the prices of component stocks. The PSE has an index, referred to as the PHISIX, which as at the date thereof reflects the price movements of selected stocks listed on the PSE, based on traded prices of stocks from the various sectors. The PSE shifted from full market capitalization to free float market capitalization effective April 3, 2006 simultaneous with the migration to the free float index and the renaming of the PHISIX to PSEi. The PSEi is composed of stocks of 30 selected stocks listed on the PSE. On July 26, 2010, the PSE launched its current trading system, PSE Trade.

With the increasing calls for good corporate governance, the PSE has adopted an online daily disclosure system to improve the transparency of listed companies and to protect the investing public. The PSE also launched its Corporate Governance Guidebook in November 2010 as another initiative of the PSE to promote good governance among listed companies. It is composed of 10 guidelines embodying principles of good business practice and based on internationally recognized corporate governance codes and best practices.

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The table below sets out movements in the composite index as of the last business day of each calendar year from 1995 to 2012 and shows the number of listed companies, market capitalization, and value of shares traded for the same period:

Year
  Composite
Index at
Closing
  Number of
Listed
Companies
  Aggregate
Market
Capitalization
  Combined
Value of
Turnover
 
 
   
   
  (in ₱ billions)
  (in ₱ billions)
 

1995

    2,594.2     205     1,545.7     379.0  

1996

    3,170.6     216     2,121.1     668.8  

1997

    1,869.2     221     1,251.3     586.2  

1998

    1,968.8     222     1,373.7     408.7  

1999

    2,142.9     225     1,936.5     781.0  

2000

    1,494.5     229     2,576.5     357.7  

2001

    1,168.1     231     2,141.4     159.6  

2002

    1,018.4     234     2,083.2     159.7  

2003

    1,442.4     236     2,973.8     145.4  

2004

    1,822.8     235     4,766.3     206.6  

2005

    2,096.0     237     5,948.4     383.5  

2006

    2,982.5     239     7,173.2     572.6  

2007

    3,621.6     244     7,977.6     1,338.3  

2008

    1,872.9     246     4,069.2     763.9  

2009

    3,052.7     248     6,029.1     994.2  

2010

    4,201.1     253     8,866.1     1,207.4  

2011

    4,372.0     245     8,697.0     1,422.6  

2012

    5,812.7     254     10,952.7     1,771.7  

Source: PSE

TRADING

The PSE is a double auction market. Buyers and sellers are each represented by stockbrokers. To trade, bid or ask prices are posted on the PSE's electronic trading system. A buy (or sell) order that matches the lowest asked (or highest bid) price is automatically executed. Buy and sell orders received by one broker at the same price are crossed at the PSE at the indicated price. Payment of purchases of listed securities must be made by the buyer on or before the third trading day (the settlement date) after the trade.

Trading on the PSE commences at 9:30 a.m. and pauses for a one-and-a-half hour lunch break at 12:00 p.m. In the afternoon, trading resumes at 1:30 p.m. and ends at 3:30 p.m., with a 10-minute extension during which transactions may be conducted, provided that they are executed at the last traded price and are only for the purpose of completing unfinished orders. Trading days are Monday to Friday, except legal holidays and days when the BSP clearing house is closed.

Minimum trading lots range from 5 to 1,000,000 shares depending on the price range and nature of the security traded. The minimum trading lot for SM Prime's shares is 100 shares. Odd-sized lots are traded by brokers on a board specifically designed for odd-lot trading.

To maintain stability in the stock market, daily price swings are monitored and regulated. Under current PSE regulations, whenever an order will result in a breach of the trading threshold of a security within a trading day, the trading of that security will be frozen. Orders cannot be posted, modified or cancelled for a security that is frozen. In cases where an order has been partially matched, only the portion of the order

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that will result in a breach of the trading threshold will be frozen. Where the order results in a breach of the trading threshold, the following procedures shall apply:

    (i)
    In case the static threshold is breached, the PSE will accept the order, provided the price is within the allowable percentage price difference under the implementing guidelines of the revised trading rules (i.e., 50% of the previous day's reference or closing price, or the last adjusted closing price); otherwise, such order will be rejected. In cases where the order is accepted, the PSE will adjust the static threshold to 60%. All orders breaching the 60% static threshold will be rejected by the PSE.

    (ii)
    In case the dynamic threshold is breached, the PSE will accept the order if the price is within the allowable percentage price difference under the existing regulations (i.e., 20% for Security Cluster A and newly-listed securities; 15% for Security Cluster B; and 10% for Security Cluster C); otherwise, such order will be rejected by the PSE.

NON-RESIDENT TRANSACTIONS

When the purchase or sale of Philippine shares of stock involves a non-resident, whether the transaction is effected in the domestic or foreign market, it will be the responsibility of the securities dealer or broker to register the transaction with the BSP. The local securities dealer or broker shall file with the BSP, within three business days from the transaction date, an application in the prescribed registration form. After compliance with other required undertakings, the BSP shall issue a certificate of registration. Under BSP rules, all registered foreign investments in Philippine securities including profits and dividends, net of taxes and charges, may be repatriated.

SETTLEMENT

The Securities Clearing Corporation of the Philippines ("SCCP") is a wholly-owned subsidiary of the PSE, and was organized primarily as a clearance and settlement agency for SCCP-eligible trades executed through the facilities of the PSE. SCCP received its permanent license to operate on January 17, 2002. The SCCP is responsible for (a) delivery-versus-payment trade settlement; (b) management and administration of the Clearing and Trade Guaranty Fund and (c) risk monitoring and management. SCCP assumes the role of guarantor for transactions by trading participants of the PSE in the PSE and maintains and administers a trade guarantee fund called the Clearing and Trade Guaranty Fund.

SCCP settles PSE trades on a three-day rolling settlement environment, which means that settlement of trades takes place three trading days after transaction date ("T+3"). The deadline for settlement of trades is 12:00 noon of T+3. Securities sold should be in scripless form and lodged under the book-entry system of the PDTC. Each trading participant maintains a cash settlement account with one of the two existing settlement banks of SCCP, which are Banco de Oro Unibank, Inc. and Rizal Commercial Banking Corporation. Payment for securities bought should be in good, cleared funds and should be final and irrevocable. Settlement is presently on a broker level.

SCCP implemented its Central Clearing and Central Settlement ("CCS") system on May 29, 2006. CCCS employs multilateral netting, whereby the system automatically offsets "buy" and "sell" transactions on a per issue and a per flag basis to arrive at a net receipt or a net delivery security position for each clearing member. All cash debits and credits are also netted into a single net cash position for each Clearing Member. Novation of the original PSE trade contracts occurs, and SCCP stands between the original trading parties and becomes the central counterparty to each PSE-eligible trade cleared through it. Under this system, the current securities infrastructure in the Philippines is composed of a depositary and a registry system wherein listed shares are traded and settled as book-entry shares. The difference between the depositary and the registry would be on the recording of ownership of the shares in the issuing corporation's books.

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In the depository set-up, shares are simply immobilized, wherein customers' certificates are cancelled and a new jumbo certificate is issued in the name of PCD Nominee Corporation ("PCD Nominee"), a corporation wholly-owned by the PDTC, whose sole purpose is to act as nominee and legal title holder of all shares of stock lodged in the PDTC. Transfers among/between broker and/or custodian accounts, as the case may be, will only be made within the book-entry system of PDTC. However, as far as the issuing corporation is concerned, the underlying certificates are in the nominee's name. In the registry set-up, settlement and recording of ownership of traded securities will already be directly made in the corresponding issuing company's transfer agents' books or system. Likewise, recording will already be at the beneficiary level (whether it be a client or a registered custodian holding securities for its clients), thereby removing from the broker its current "de facto" custodianship role.

SCRIPLESS TRADING

In 1995, the PDTC (formerly the Philippine Central Depository, Inc.), was organized to establish a central depository in the Philippines and introduce scripless or book-entry trading in the Philippines. On December 16, 1996, the PDTC was granted a provisional license by the PSEC to act as a central securities depository and live operations commenced on January 10, 1997.

All listed securities at the PSE have been converted into book-entry settlement in the PDTC. The depository service of the PDTC provides the infrastructure for lodgment (deposit) and upliftment (withdrawal) of securities, pledge of securities, securities lending and borrowing and corporate actions including shareholders' meetings, dividend declarations and rights offerings. The PDTC also provides depository and settlement services for non-PSE trades of listed equity securities. For transactions on the PSE, the security element of the trade will be settled through the book-entry system, while the cash element will be settled through the current settlement banks, Rizal Commercial Banking Corporation and Banco de Oro Unibank, Inc.

In order to benefit from the book-entry system, securities must be immobilized into the PDTC system through a process called lodgment. Lodgment is the process by which shareholders transfer legal title (but not beneficial title) over their shares of stock in favor of the PCD Nominee. "Immobilization" is the process by which the warrant or share certificates of lodging holders are canceled by the transfer agent and the corresponding transfer of beneficial ownership of the immobilized shares in the account of the PCD Nominee through the PDTC participant will be recorded in the issuing corporation's registry. This trust arrangement between the participants and PDTC through the PCD Nominee is established by and explained in the PDTC Rules and Operating Procedures approved by the PSEC. No consideration is paid for the transfer of legal title to the PCD Nominee. Once lodged, transfers of beneficial title of the securities are accomplished via book-entry settlement.

Under the current PDTC system, only participants (e.g. brokers and custodians) will be recognized by the PDTC as the beneficial owners of the lodged equity securities. Thus, each beneficial owner of shares, through his participant, will be the beneficial owner to the extent of the number of shares held by such participant in the records of the PCD Nominee. All lodgments, trades and uplifts on these shares will have to be coursed through a participant. Ownership and transfers of beneficial interests in the shares will be reflected, with respect to the participant's aggregate holdings, in the PDTC system, and with respect to each beneficial owner's holdings, in the records of the participants. Beneficial owners are thus advised that in order to exercise their rights as beneficial owners of the lodged shares, they must rely on their participant-brokers and/or participant- custodians.

Any beneficial owner of shares who wishes to trade his interests in the shares must course the trade through a participant. The participant can execute PSE trades and non-PSE trades of lodged equity securities through the PDTC system. All matched transactions in the PSE trading system will be fed through the SCCP, and into the PDTC system. Once it is determined on the settlement date (T+3) that there are adequate securities in the securities settlement account of the participant-seller and adequate

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cleared funds in the settlement bank account of the participant-buyer, the PSE trades are automatically settled in the SCCP Central Clearing and Central Settlement system, in accordance with the SCCP and PDTC Rules and Operating Procedures. Once settled, the beneficial ownership of the securities is transferred from the participant-seller to the participant-buyer without the physical transfer of stock certificates covering the traded securities.

On or after the listing of the shares with the PSE, any beneficial owner of the shares may apply with PDTC through his broker or custodian-participant for a withdrawal from the book-entry system and return to the conventional paper-based settlement. If a shareholder wishes to withdraw his stockholdings from the PDTC system, the PDTC has a procedure of upliftment under which PCD Nominee will transfer back to the shareholder the legal title to the shares lodged. The uplifting shareholder shall follow the Rules and Operating Procedures of the PDTC for the upliftment of the shares lodged under the name of the PCD Nominee. The transfer agent shall prepare and send a Registry Confirmation Advice to the PDTC covering the new number of shares lodged under the PCD Nominee. The expenses for upliftment are for the account of the uplifting shareholder.

Upon the issuance of stock certificates for the shares in the name of the person applying for upliftment, such shares shall be deemed to be withdrawn from the PDTC book-entry settlement system, and trading on such shares will follow the normal process for settlement of certificated securities. The expenses for upliftment of the shares into certificated securities will be charged to the person applying for upliftment. Pending completion of the upliftment process, the beneficial interest in the shares covered by the application for upliftment is frozen and no trading and book-entry settlement will be permitted until the relevant stock certificates in the name of the person applying for upliftment shall have been issued by the relevant company's transfer agent.

The difference between the depository and the registry would be on the recording of ownership of the shares in the issuing corporations' books. In the depository set-up, shares are simply immobilized, wherein customers' certificates are canceled and a confirmation advice is issued in the name of PCD Nominee to confirm new balances of the shares lodged with the PDTC. Transfers among/between broker and/or custodian accounts, as the case may be, will only be made within the book-entry system of the PDTC. However, as far as the issuing corporation is concerned, the underlying certificates are in the PCD Nominee's name. In the registry set-up, settlement and recording of ownership of traded securities will already be directly made in the corresponding issuing company's transfer agents' books or system. Likewise, recording will already be at the beneficiary level (whether it be a client or a registered custodian holding securities for its clients), thereby removing from the broker its current "de facto" custodianship role.

AMENDED RULE ON LODGMENT OF SECURITIES

On June 24, 2009, the PSE apprised all listed companies and market participants through Memorandum No. 2009-0320 that commencing on July 1, 2009, as a condition for the listing and trading of the securities of an applicant company, the applicant company shall electronically lodge its registered securities with the PDTC or any other entity duly authorized by the PSEC, without any jumbo or mother certificate in compliance with the requirements of Section 43 of the Philippine SRC. In compliance with the foregoing requirement, actual listing and trading of securities on the scheduled listing date shall take effect only after submission by the applicant company of the documentary requirements stated in Article III Part A of the PSE Revised Listing Rules.

Further, the PSE apprised all listed companies and market participants on May 21, 2010 through Memorandum No. 2010-0246 that the Amended Rule on Lodgement of Securities under Section 16 of Article III, Part A of the Revised Listing Rules of the PSE shall apply to all securities that are lodged with the PDTC or any other entity duly authorized by the PSEC.

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For listing applications, the amended rule on lodgment of securities is applicable to:

    The offer shares/securities of the applicant company in the case of an initial public offering;

    The shares/securities that are lodged with the PDTC, or any other entity duly authorized by the PSEC in the case of a listing by way of introduction;

    New securities to be offered and applied for listing by an existing listed company; and

    Additional listing of securities of an existing listed company.

Pursuant to the said amendment, the PDTC issued an implementing procedure in support thereof to wit:

    For a new company to be listed at the PSE as of July 1, 2009, the usual procedure will be observed but the transfer agent of the company shall no longer issue a certificate to PCD Nominee but shall issue a Registry Confirmation Advice, which shall be the basis for the PDTC to credit the holdings of the depository participants on listing date.

    On the other hand, for an existing listed company, the PDTC shall wait for the advice of the transfer agent that it is ready to accept surrender of PCD Nominee jumbo certificates and upon such advice the PDTC shall surrender all PCD Nominee jumbo certificates to the transfer agent for cancellation. The transfer agent shall issue a Registry Confirmation Advice to PDTC evidencing the total number of shares registered in the name of PCD Nominee in the listed company's registry as of confirmation date.

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PHILIPPINE TAXATION

The following is a discussion of the material Philippine tax consequences for shareholders participating in the Exchange Offers. This general description does not purport to be a comprehensive description of the Philippine tax aspects relating to the Exchange Offers and no information is provided regarding the tax aspects of acquiring, owning, holding or disposing of the Consideration Shares under applicable tax laws of other applicable jurisdictions and the specific Philippine tax consequence in light of particular situations of acquiring, owning, holding and disposing of the Consideration Shares in such other jurisdictions. This discussion is based upon laws, regulations, rulings, and income tax conventions (treaties) in effect at the date of this Offer Document. The tax treatment applicable to a holder of the Consideration Shares may vary depending upon such holder's particular situation, and certain holders may be subject to special rules not discussed below. This summary does not purport to address all tax aspects that may be important to a holder of the Consideration Shares. Prospective investors of the Consideration Shares are urged to consult their own tax advisors as to the particular tax consequences of the ownership and disposition of the Consideration Shares, including the applicability and effect of any local or foreign tax laws.

Taxation Relating to the Exchange Offers

Pursuant to Section 127 (A) of the Philippine National Internal Revenue Code of 1997, a stock transaction tax at the rate of one-half of one percent of the gross selling price or gross value in money of the shares of stock sold, bartered, exchanged or otherwise disposed of shall be levied, assessed and collected on every sale, barter, exchange or other disposition of shares of stock listed and traded through the local stock exchange.

Thus, in the case of the Exchange Offers, the stock transaction tax shall be imposed as follows:

0.5% of the gross selling price or gross value in money of the SMDC and/or HPI shares of stock held by the shareholders accepting the Exchange Offers; and,

0.5% of the gross selling price or gross value in money of the SM Prime shares of stock to be given by the Offeror in exchange therefor.

As defined under Section 2 (i) of Bureau of Internal Revenue (BIR) Revenue Regulations (RR) No. 6-2008, dated April 22, 2008, "Gross value in money" means the fair market value, which, in the case of shares traded thru the stock exchange, shall consist of the actual selling price at which the transaction was executed in the trading system and/or facilities of the local stock exchange

Moreover, RR No. 6-2008 provides that the following sellers or transferors of stock are liable to the payment of the stock transaction tax:

    a)
    Individual taxpayer, whether citizen or alien;

    b)
    Corporate taxpayer, whether domestic or foreign; and,

    c)
    Other taxpayers not falling under (a) and (b) above, such as estate, trust, trust funds and pension funds, among others.

The stock broker who effected the sale has the duty to collect the tax from the seller upon issuance of the confirmation of sale, to issue the corresponding official receipt thereof and remit the same to the BIR.

As earlier discussed, the expenses, including the stock transaction tax, related to the Exchange Offers will be borne by the Offeror.

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PHILIPPINE FOREIGN EXCHANGE AND FOREIGN OWNERSHIP CONTROLS

Registration of Foreign Investments and Exchange Controls

Under current BSP regulations, an investment in Philippine securities (such as the Consideration Shares) must be registered with the BSP if the foreign exchange needed to service the repatriation of capital and/or the remittance of dividends, profits and earnings derived from such shares is to be sourced from the Philippine banking system. If the foreign exchange required to service capital repatriation or dividend remittance will be sourced outside the Philippine banking system, registration is not required. BSP Circular No. 471 (series of 2005) subjects foreign exchange dealers and money changers to RA No. 9160 (the Anti-Money Laundering Act of 2001, as amended) and requires these non-bank sources of foreign exchange to require foreign exchange buyers to submit, among others, the original BSP registration document in connection with their application to purchase foreign exchange exceeding U.S.$5,000 for purposes of capital repatriation and remittance of dividends.

Registration of Philippine securities listed in the PSE may be done directly with the BSP or through a custodian bank duly designated by the foreign investor. A custodian bank may be a universal or commercial bank or an offshore banking unit registered with the BSP to act as such and appointed by the investor to register the investment, hold shares for the investor, and represent the investor in all necessary actions in connection with his investments in the Philippines. Applications for registration must be accompanied by: (i) purchase invoice, subscription agreement and proof of listing on the PSE (either or both); (ii) credit advice or bank certificate showing the amount of foreign currency inwardly remitted and (iii) transfer instructions from the stockbroker or dealer, as the case may be.

The foregoing is subject to the power of BSP, with the approval of the President of the Philippines, to restrict the availability of foreign exchange during an exchange crisis, when an exchange crisis is imminent, or in times of national emergency.

The registration with the BSP of all foreign investments in the Consideration Shares shall be the responsibility of the foreign investor.

Foreign Ownership Controls

The Philippine Constitution and related statutes set forth restrictions on foreign ownership of companies engaged in certain activities, among them the ownership of private land.

In connection with the ownership of private land, Article XII, Section 7 of the Philippine Constitution, in relation to Article XII, Section 2 of the Philippine Constitution and Chapter 4 of Commonwealth Act No. 141, states that no private land shall be transferred or conveyed except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least 60.0% of whose capital is owned by such citizens.

RA 7042, as amended, otherwise known as the Foreign Investments Act of 1991 and the Negative List issued pursuant thereto, reserves to Philippine Nationals all areas of investment in which foreign ownership is limited by mandate of the Constitution and specific laws. Section 3(a) of RA 7042 defines a "Philippine National" as:

    a citizen of the Philippines;

    a domestic partnership or association wholly-owned by citizens of the Philippines;

    a trustee of funds for pension or other employee retirement or separation benefits where the trustee is a Philippine National and at least 60.0% of the fund will accrue to the benefit of the Philippine Nationals;

    a corporation organized under the laws of the Philippines of which at least 60.0% of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines; and

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    Corporation Code of which 100.0% of the capital stock outstanding and entitled to vote is wholly-owned by Filipinos.

However, the Foreign Investments Act of 1991 states that where a corporation (and its non-Filipino shareholders) own stock in a PSEC-registered enterprise, at least 60.0% of the capital stock outstanding and entitled to vote of both the investing corporation and the investee corporation must be owned and held by citizens of the Philippines. Further, at least 60.0% of the members of the board of directors of both the investing corporation and the investee corporation must be Philippine citizens in order for the investee corporation to be considered a Philippine National.

In the case of Gamboa vs. Teves et al (G.R. No. 176579. June 28, 2011), the Supreme Court ruled that the term "capital" in Section 11, Article XII of the 1987 Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in that particular case, only to common shares and not to the total outstanding capital stock (common and non-voting preferred shares).

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INDEPENDENT AUDITORS

The audited consolidated financial statements of SM Prime and its subsidiaries and SM Land and its subsidiaries as of December 31, 2012 and 2011 and for the years ended December 31, 2012, 2011 and 2010 have been audited by SyCip Gorres Velayo & Co.

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DEFINITIONS AND GLOSSARY OF TERMS

The following definitions and glossary apply in this Offer Document unless otherwise dictated by the context, including the foregoing pages of the Offer Document.

Definitions

Application Form   The form of application to be distributed and used by SMDC and HPI shareholders when accepting the Exchange Offers.

BDG

 

SM Prime's Business Development Group

Board or Board of Directors

 

The board of directors of SM Prime

By-laws

 

The bylaws of SM Prime

BIR

 

Bureau of Internal Revenue

BSP

 

Bangko Sentral Ng Pilipinas

CAGR

 

Compound annual growth rate

CCS

 

Central Clearing and Central Settlement

Consideration Shares

 

The new Shares of SM Prime to be issued as consideration for the SMDC and HPI shares as a part of the Exchange Offers

CPG

 

SM Land's Commercial Properties Group

Directors

 

Members of the board of directors of SM Prime

Eligible Shareholder

 

A registered owner of Target Shares as of any date during the Offer Period

Exchange Act

 

The U.S. Securities Exchange Act of 1934, as amended

Exchange Offers

 

The SMDC Exchange Offer and the HPI Exchange Offer

Government

 

The government of the Republic of the Philippines

HPI

 

Highlands Prime, Inc.

HPI Exchange Offer

 

The voluntary offer by the Offeror for the shares in HPI

IFRIC

 

International Financial Reporting Interpretations Committee

New SM Prime

 

SM Prime, after giving effect to the Exchange Offers and the Reorganization

Offer Agent

 

BDO Securities Corporation

Offer Period

 

The period from and including June 4, 2013 to July 9, 2013 at 12:00 noon (Manila Time). The Offeror may extend the Offer Period upon approval by the PSEC

PCD

 

Philippine Central Depository

PDS

 

Philippine Dealing System

Peso or ₱

 

Philippine Pesos, the lawful currency of the Republic of the Philippines

PDTC

 

Philippine Depository & Trust Corporation

PFIC

 

Passive foreign investment company

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PFRS   Philippine Financial Reporting Standards

Philippine SRC

 

Philippine Securities Regulation Code

Pro Forma Financial Information

 

The pro forma condensed consolidated financial information of SM Prime as at December 31, 2012 and for the years ended December 31, 2010, 2011 and 2012

PSE

 

The Philippine Stock Exchange

PSEC

 

Philippine Securities and Exchange Commission

Reorganization

 

The proposed reorganization of certain companies and assets of the SM Group as discussed in "Description of the Reorganization"

SCCP

 

Securities Clearing Corporation of the Philippines

SGV & Co.

 

SyCip Gorres & Velayo & Co.

SMDC Exchange Offer

 

The voluntary offer by the Offeror for the shares in SMDC

SM Hotels

 

SM Hotels and Conventions Corporation

SM Land

 

SM Land, Inc.

SMDC

 

SM Development Corporation

SM Group

 

The group of companies owned by SM Investment Corporation

SMIC

 

SM Investments Corporation

SM Prime

 

SM Prime Holdings, Inc.

Securities Act

 

The U.S. Securities Act of 1933, as amended

Shares

 

The authorized and issued shares of common stock in SM Prime, each with a par value of ₱1.00 per Share

Target Shares

 

3,228,056,161 SMDC shares representing 34.82% of the total shares outstanding of SMDC and, 2,246,244,622 HPI shares representing 100% of the total shares outstanding of HPI.

Trading Day

 

A day that the PSE is open for trading

U.S.$

 

United States Dollars, the lawful currency of the Unites States of America

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Glossary of terms

Terms and expressions used in the real estate industry and technical terms used in this Offer Document are set out below.

BPO   Business process outsourcing

Building Code

 

National Building Code of the Philippines

CPG

 

SM Land's Commercial Property Group

DAR

 

Philippine Department of Agrarian Reform

DENR

 

Philippine Department of Environment and Natural Resources

ECC

 

Environmental Compliance Certificate

EIA

 

Environmental Impact Assessment

GFA

 

Gross floor area

GLA

 

Gross lettable area

HLURB

 

Housing and Land Use Regulatory Board

LGUs

 

Local government units

MOA

 

Mall of Asia

OFW

 

Overseas foreign worker

sq. m.

 

Square meter

TFG

 

SM Prime's Treasury Finance Group

VAT

 

Value added tax

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INDEX TO THE FINANCIAL STATEMENTS

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF SM PRIME HOLDINGS, INC. AND ITS SUBSIDIARIES AS AT DECEMBER 31, 2012 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

Independent Auditors' Review Report

  F-3

Pro Forma Consolidated Balance Sheet

  F-5

Pro Forma Consolidated Statements of Income

  F-7

Pro Forma Consolidated Statements of Comprehensive Income

  F-10

Pro Forma Consolidated Statement of Changes in Stockholders' Equity

  F-13

Pro Forma Consolidated Statement of Cash Flows

  F-14

Notes to Pro Forma Condensed Consolidated Financial Information

  F-17

AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF SM PRIME HOLDINGS, INC. AND ITS SUBSIDIARIES AS AT DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

Independent Auditors' Report

  F-42

Consolidated Balance Sheets

  F-44

Consolidated Statements of Income

  F-45

Consolidated Statements of Comprehensive Income

  F-46

Consolidated Statements of Changes in Stockholders' Equity

  F-47

Consolidated Statements of Cash Flows

  F-48

Notes to Consolidated Financial Statements

  F-49

AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF SM LAND, INC. AND ITS SUBSIDIARIES AS AT DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

Independent Auditors' Report

  F-113

Consolidated Balance Sheets

  F-115

Consolidated Statements of Income

  F-116

Consolidated Statements of Comprehensive Income

  F-117

Consolidated Statements of Changes in Equity

  F-118

Consolidated Statements of Cash Flows

  F-119

Notes to Consolidated Financial Statements

  F-120

F-1


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