SM PRIME HOLDINGS, INC. · BS P Bangk o Sentral ng Pilipinas, the Philippine Central Bank Business Day means a day, other than Saturday, Sunday and public holidays, on which facilities

SM PRIME HOLDINGS, INC. (A corporation duly organized and existing under Philippine laws)

Shelf Registration in the Philippines of Debt Securities Program in the aggregate principal amount

of P100,000,000,000

to be offered within a period of three (3) years at an Offer Price of 100% of Face Value

to be listed and traded through The Philippine Dealing and Exchange Corp.

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED THESE

SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE.

ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE AND SHOULD

BE REPORTED IMMEDIATELY TO THE SECURITIES AND EXCHANGE COMMISSION.

Prospectus dated [4 December 2019]

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SM PRIME HOLDINGS, INC. 10th Floor, Mall of Asia Arena Annex Building, Coral Way corner J. W. Diokno Boulevard, Mall of Asia Complex, Brgy. 76, Zone 10, CBP-1A, Pasay City, Metro Manila, Philippines

Telephone No.: +63-2-8831-10-00 Website: www.smprime.com This Prospectus relates to the shelf registration and each offer and sale in the Philippines within the Shelf Period as defined below (each an “Offer”) of Debt Securities with an aggregate principal amount of up to P100,000,000,000.00 by SM Prime Holdings, Inc. (the “Issuer” or “SM Prime” or the “Company”). The Debt Securities shall be issued in tranches within a period of three (3) years from the effective date of the Registration Statement of the Debt Securities, subject to applicable regulations (the “Shelf Period”). The offer and sale of the Debt Securities, including the terms and conditions for each tranche shall be at the sole discretion of the Company. The specific terms of the Debt Securities for each tranche will be determined by the Company considering the prevailing market conditions and shall be provided in a supplement to be circulated at the time of the offer of the relevant tranche (the “Offer Supplement”). For each tranche of the Debt Securities, the Company shall distribute an Offer Supplement along with this Prospectus. The relevant Offer Supplement will contain the final terms for an offer of the Debt Securities and must be read in conjunction with this Prospectus and other Securities Agreements. Full information on the Issuer and such offer of the Debt Securities is only available through this Prospectus, the relevant Offer Supplement, and the other Securities Agreements. All information contained in this Prospectus are deemed incorporated by reference in an Offer Supplement. The use of proceeds for each Offer will be set out in the relevant Offer Supplement. Upon issuance, the Debt Securities shall constitute the direct, unconditional, unsubordinated, and unsecured obligations of SM Prime and shall at all times rank pari passu and rateably without any preference or priority amongst themselves and at least pari passu with all other present and future unsubordinated and unsecured obligations of SM Prime, other than obligations preferred by law. The Debt Securities shall effectively be subordinated in right of payment to all of SM Prime’s secured debts, if any, to the extent of the value of the assets securing such debt and all of its debt that is evidenced by a public instrument under Article 2244(14) of the Civil Code of the Philippines. On [4 December 2019], SM Prime filed a Registration Statement with the Philippine Securities and Exchange Commission (“SEC”), in connection with the offer and sale to the public of debt securities with an aggregate principal amount of up to P100,000,000,000 constituting the Debt Securities. The SEC is expected to issue an order rendering the Registration Statement effective covering the Debt Securities. The Company is allowed under Philippine laws to declare dividends, subject to certain requirements. The Company’s Board of Directors is authorized to declare dividends only from its unrestricted retained earnings, except with respect to P2,985 million representing the cost of shares held in treasury and P86,460 million representing accumulated equity in net earnings of subsidiaries, associates and joint ventures as at 30 September 2019. Dividends may be payable in cash, shares or property, or a combination of the three, as the Board of Directors shall determine. The declaration of stock dividends is subject to the approval of shareholders holding at least two-thirds of the Company’s outstanding capital stock. The Company’s Board of Directors may not declare dividends which will impair its capital. SM Prime confirms that this Prospectus contains all material information relating to the Company, its affiliates and the Debt Securities which are in the context of the issue and offering of the Debt Securities (including all material information required by the applicable laws of the Republic of the Philippines). There are no other facts the omission of which would make any statement in this Prospectus misleading in any material respect. SM Prime confirms that it has made all reasonable inquiries in respect of the information, data and analysis provided to it by its advisors and consultants or which is otherwise publicly available for inclusion into this Prospectus. SM Prime, however, has not independently verified any such publicly available information, data or analysis. The price of securities can and does fluctuate, and any individual security may experience upward or downward movements, and may even become valueless. There is an inherent risk that losses may be incurred rather than profit made as a result of buying and selling securities. An investment in the Debt Securities described in this Prospectus involves a certain degree of risk. A prospective purchaser of the Debt Securities should carefully consider several risk factors inherent to the Company as set out in “Risk Factors” found on page [25] of this Prospectus, in addition to the other information contained in this Prospectus, in deciding whether to invest in the Debt Securities. This Prospectus contains certain “forward-looking statements”. These forward-looking statements can generally be

iii

identified by use of statements that include words or phrases such as SM Prime or its management “believes”, “expects”, “anticipates”, “intends”, “plans”, “projects”, “foresees”, and other words or phrases of similar import. Similarly, statements that describe SM Prime’s objectives, plans, and goals are also forward-looking statements. All forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those contemplated by the relevant forward-looking statements. Nothing in this Prospectus is or should be relied upon as a promise or representation as to the future. The forward-looking statements included herein are made only as of the date of this Prospectus, and SM Prime undertakes no obligation to update such forward-looking statements publicly to reflect subsequent events or circumstances. Neither the delivery of this Prospectus nor any sale made pursuant to each Offer shall, under any circumstance, create any implication that the information contained or referred to in this Prospectus is accurate as of any time subsequent to the date hereof. The Underwriters for each Offer do not make any representation or warranty, express or implied, as to the accuracy or completeness of the information contained in this Prospectus. The contents of this Prospectus are not to be considered as definitive legal, business or tax advice. Each prospective purchaser of the Debt Securities receiving a copy of this Prospectus acknowledges that he has not relied on the Underwriters in his investigation of the accuracy of such information or in his investment decision. Prospective purchasers should consult their own counsel, accountants or other advisors as to legal, tax, business, financial and related aspects of the purchase of the Debt Securities, among others. Investing in the Debt Securities involves certain risks. For a discussion of certain factors to be considered in respect of an investment in the Debt Securities, see the section entitled “Risk Factors” found on page 25 of this Prospectus. No dealer, salesman or other person has been authorized by SM Prime and the Underwriters to give any information or to make any representation concerning the Debt Securities other than as contained herein or the relevant Offer Supplement, and, if given or made, any such other information or representation should not be relied upon as having been authorized by SM Prime or the Underwriters.

SM Prime is organized under the laws of the Philippines. Its principal office address is at the 10th floor, Mall of Asia Arena Annex Building, Coral Way corner J. W. Diokno Boulevard, Mall of Asia Complex, CBP-1A, Pasay City 1300, Philippines, with telephone number +632 8831 1000 and fax number +632 8833 8991.

A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED

WITH THE SECURITIES AND EXCHANGE COMMISSION, BUT HAS NOT YET BEEN

DECLARED EFFECTIVE. NO OFFER TO BUY THE SECURITIES CAN BE ACCEPTED

AND NO PART OF THE PURCHASE PRICE CAN BE RECEIVED UNTIL THE

REGISTRATION STATEMENT HAS BECOME EFFECTIVE THEREBY, AND ANY SUCH

OFFER MAY BE WITHDRAWN OR REVOKED, WITHOUT OBLIGATION OR

COMMITMENT OF ANY KIND, AT ANY TIME PRIOR TO THE NOTICE OF ITS

ACCEPTANCE. AN INDICATION OF INTEREST IN RESPONSE HERETO INVOLVES NO

OBLIGATION OR COMMITMENT OF ANY KIND. THIS PROSPECTUS SHALL NOT

CONSTITUTE AN OFFER TO SELL OR BE CONSIDERED A SOLICITATION OF AN

OFFER TO BUY.

SM Prime Holdings, Inc. By: JEFFREY C. LIM President

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SUBSCRIBED AND SWORN to before me this __________ day of ___________________ 2020, affiant exhibiting to me his Philippine Passport no. __________________________ issued on ______________ at ___________________. Doc. No. _______ Book No. _______ Page No. _______ Series of 2020.

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TABLE OF CONTENTS

DEFINITION OF TERMS ........................................................................................ 1

SUMMARY ............................................................................................................. 7

SUMMARY FINANCIAL INFORMATION............................................................... 15

OVERVIEW OF THE DEBT SECURITIES PROGRAM ............................................. 19

SUMMARY OF THE OFFER ................................................................................... 20

RISK FACTORS .................................................................................................... 21

USE OF PROCEEDS .............................................................................................. 41

DETERMINATION OF THE OFFER PRICE ............................................................ 42

PLAN OF DISTRIBUTION .................................................................................... 43

DESCRIPTION OF THE DEBT SECURITIES .......................................................... 44

INDEPENDENT AUDITORS AND COUNSEL ......................................................... 45

CAPITALIZATION AND INDEBTEDNESS ............................................................. 46

DESCRIPTION OF THE ISSUER ........................................................................... 47

REGULATORY .................................................................................................... 100

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS ............................................................................... 113

DESCRIPTION OF PROPERTIES ........................................................................ 129

BOARD OF DIRECTORS AND MANAGEMENT OF THE ISSUER ........................ 133

MARKET PRICE OF AND DIVIDENDS ON THE ISSUER’S COMMON EQUITY AND

RELATED STOCKHOLDER MATTERS ................................................................. 143

DESCRIPTION OF DEBT .................................................................................... 147

TAXATION ......................................................................................................... 148

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DEFINITION OF TERMS In this Prospectus, unless the context otherwise requires, the following terms shall have the meanings set out below.

AFS Available-for-sale assets

ASEAN The Association of Southeast Asian Nations

BDG SM Prime’s Business Development Group

BDO Insurance BDO Insurance Brokers, Inc.

BDO BDO Unibank, Inc.

BIR the Bureau of Internal Revenue of the Philippines

Board or Board of Directors The board of directors of SM Prime

B. P. 220 Batas Pambansa Blg. 220

BSP Bangko Sentral ng Pilipinas, the Philippine Central Bank

Business Day means a day, other than Saturday, Sunday and public holidays, on which facilities of the Philippine banking system are open and available for clearing and banks are generally open for the transaction of business in the cities of Pasay and Makati

By-laws the By-laws of SM Prime

Company or Issuer or SM Prime SM Prime Holdings, Inc.

DAR The Philippine Department of Agrarian Reform

Debt Securities Include any evidence of indebtedness such as bonds, notes, debentures, commercial papers, treasury bills, treasury bonds, and other similar instruments as may be determined by the SEC.

Debt Securities Program The Company’s debt securities program registered with the Securities and Exchange Commission with an aggregate amount of P100,000,000,000.00

DENR The Philippine Department of Environment and Natural Resources

DOT The Philippine Department of Tourism

DOTC The Philippine Department of Transportation and Communications

Directors Members of the Board of Directors of SM Prime

EBITDA Earnings before interest expense, income taxes, depreciation and amortization

Financial Statements SM Prime’s audited consolidated financial statements and related notes as at 31 December 2017 and 2018, for each of the years ended 31 December 2016, 2017, and 2018, and unaudited interim condensed consolidated financial statements and related notes as at 31 September 2019 and for the nine-month periods

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ended 30 September 2018 and 2019

GFA gross floor area

Government the Government of the Philippines

GSIS Government Service Insurance System

HLURB Housing and Land Use Regulatory Board

HPI Highlands Prime, Inc.

LGU Local government unit

Maceda Law Republic Act No. 6552

Malls

SM City North EDSA, SM City Sta. Mesa, SM Megamall, SM City Cebu, SM Southmall, SM City Bacoor, SM City Fairview, SM City Iloilo, SM City Manila, SM City Pampanga, SM City Sucat, SM City Davao, SM City Cagayan de Oro, SM City Bicutan, SM City Lucena, SM City Baguio, SM City Marilao, SM City Dasmariñas, SM City Batangas, SM City San Lazaro, SM Center Valenzuela, SM Center Molino, SM City Sta. Rosa, SM City Clark, SM Mall of Asia, SM Center Pasig, SM City Lipa, SM City Bacolod, SM City Taytay, SM Center Muntinlupa, SM City Marikina, SM City Rosales, SM City Baliwag, SM City Naga, SM Center Las Piñas, SM City Rosario, SM City Tarlac, SM City San Pablo, SM City Calamba, SM City Novaliches, SM City Masinag, SM City Olongapo, SM City Consolacion, SM City San Fernando, SM City General Santos, SM Lanang Premier, SM Aura Premier, SM City BF Parañaque, SM City Cauayan, SM Center Angono, SM Megacenter Cabanatuan, SM City San Mateo, SM City Cabanatuan, SM Center Sangandaan, SM Cherry Shaw, SM Seaside City Cebu, SM City San Jose Del Monte, SM City Trece Martires, SM Cherry Congressional, SM City East Ortigas, SM CDO Downtown Premier, S Maison, SM Cherry Antipolo, SM Puerto Princesa, SM Center Tuguegarao Downtown, SM Center Pulilan, SM Center Lemery, SM Center Imus, SM Urdaneta Central, SM City Telabastagan, SM City Legazpi, SM Center Ormoc, SM Olongapo Central

Management Companies Prime Commercial Property Management Corporation and Subsidiaries which composed of companies that manage and operate the Malls, including the provision of manpower, maintenance and engineering, security and promotional activities; and are wholly owned subsidiary of SM Prime

Master Certificate of

Indebtedness

the certificate to be issued by the Issuer to the Trustee evidencing and covering such amount corresponding to the Debt Securities

Material Subsidiary SM Development Corporation, SM China Companies, and any Subsidiary of the Issuer:

(a) whose gross revenues or (in the case of a Subsidiary which itself has subsidiaries) consolidated gross revenues, as shown by its latest audited income statement are at least 10% of the consolidated gross revenues as shown by the latest published audited consolidated income statement of the Issuer and its Subsidiaries; or

(b) whose net income or (in the case of a Subsidiary which itself has subsidiaries) consolidated net income before taxation and extraordinary items, as shown by its latest

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audited income statement is at least 15% of the consolidated net income before taxation and extraordinary items, as shown by the latest published audited consolidated income statement of the Issuer and its Subsidiaries; or

(c) whose gross assets or (in the case of a Subsidiary which itself has subsidiaries) gross consolidated assets, as shown by its latest audited balance sheet are at least 10% of the amount which equals the amount included in the consolidated gross assets of the Issuer and its Subsidiaries as shown by the latest published audited consolidated balance sheet of the Issuer and its Subsidiaries;

provided that, in relation to paragraphs (a), (b) or (c) above,

(i) in the case of a corporation or other business entity becoming a Subsidiary after the end of the financial period to which the latest consolidated audited accounts of the Issuer relate, the reference to the then latest consolidated audited accounts of the Issuer for the purposes of the calculation above shall, until consolidated audited accounts of the Issuer for the financial period in which the relevant corporation or other business entity becomes a Subsidiary are published, be deemed to be a reference to the then latest consolidated audited accounts of the Issuer adjusted to consolidate the latest audited accounts (consolidated in the case of a Subsidiary which itself has Subsidiaries) of such Subsidiary in such accounts;

(ii) if at any relevant time in relation to the Issuer or any Subsidiary which itself has Subsidiaries no consolidated accounts are prepared and audited, revenues, net income or gross assets of the Issuer and/or any such Subsidiary shall be determined on the basis of pro forma consolidated accounts prepared for this purpose by the Issuer and reviewed by the auditors for the purposes of preparing a certificate thereon to the Trustee;

(iii) if at any relevant time in relation to any Subsidiary, no accounts are audited, its revenues, net income or gross assets (consolidated, if appropriate) shall be determined on the basis of pro forma accounts (consolidated, if appropriate) of the relevant Subsidiary prepared for this purpose by the Issuer and reviewed by the auditors for the purposes of preparing a certificate thereon to the Trustee; and

(iv) if the accounts of any Subsidiary (not being a Subsidiary referred to in proviso (i) above) are not consolidated with those of the Issuer, then the determination of whether or not such Subsidiary is a Material Subsidiary shall be based on a pro forma consolidation of its accounts (consolidated, if appropriate) with the consolidated accounts (determined on the basis of the foregoing) of the Issuer; or

(d) to which is transferred the whole or substantially the whole

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of the assets of a Subsidiary which immediately prior to such transfer was a Material Subsidiary, provided that the Material Subsidiary which so transfers its assets shall forthwith upon such transfer cease to be a Material Subsidiary and the Subsidiary to which the assets are so transferred shall cease to become a Material Subsidiary as at the date on which the first published audited accounts (consolidated, if appropriate) of the Issuer prepared as of a date later than such transfer are issued unless such Subsidiary would continue to be a Material Subsidiary on the basis of such accounts by virtue of the provisions of (a), (b) or (c) above.

Metro Manila the metropolitan area comprising the cities of Caloocan, Las Piñas, Makati, Malabon, Mandaluyong, Manila, Marikina, Muntinlupa, Navotas, Parañaque, Pasay, Pasig, Quezon, San Juan, Taguig and Valenzuela and the municipality of Pateros, which together comprise the “National Capital Region” and are commonly referred to as “Metropolitan Manila”

Mezza Mezza Residences

MOA Mall of Asia

Offer the offer of the Debt Securities to the public by the Issuer under the terms and conditions as contained herein and in the relevant Offer Supplement

PAS Philippine Accounting Standards

PCD PCD Nominee Corporation

P.D. 957 Presidential Decree No. 957, as amended, also known as the Subdivision and Condominium Buyers’ Protective Decree

PDEx Philippine Dealing & Exchange Corp.

Person any individual, firm, corporation, partnership, association, joint venture, tribunal, limited liability company, trust, government or political subdivision or agency or instrumentality thereof, or any other entity or organization

Pesos or P the lawful currency of the Philippines

PEZA The Philippine Economic Zone Authority

PFRS Philippine Financial Reporting Standards which includes statements named PFRS and Philippine Accounting Standards (PAS) issued by the Financial Reporting Standards Council and Philippine Interpretations from International Financial Reporting Interpretations Committee (IFRIC)

Philippines the Republic of the Philippines

PRC People’s Republic of China

PSE The Philippine Stock Exchange, Inc.

Public Debt means any present or future indebtedness in the form of, or represented by bonds, notes, debentures, loan stock or other securities that are at the time, or are of the type customarily

5

quoted, listed or ordinarily dealt in on any stock exchange, over the counter or other securities market

R.A. 4726 Republic Act No. 4726, as amended, also known as the Condominium Act

RTC Regional Trial Court

SEC the Securities and Exchange Commission of the Philippines

SEC Permit the Permit to Sell Securities issued by the SEC in connection with each Offer

Shares common shares of the Issuer, which have a par value of =P1 per share

SM China Companies

SM Shopping Center (Chengdu) Co. Ltd. ("SM Chengdu"), Xiamen SM City Co. Ltd. (“SM Xiamen”), SM International Square Jinjiang City Fujian (“SM Jinjiang”), SM Shopping Center (Suzhou) Co. Ltd. (“SM Suzhou”), SM Shopping Center (Chongqing) Co. Ltd. ("SM Chongqing"), SM Shopping Center (Zibo) Company Ltd (“SM Zibo”) and SM Shopping Center (Tianjin) Co. Ltd. ("SM Tianjin")

The SM Stores

the retail department stores operated by the Group under the “SM” name which presently include SM Makati, SM Cubao, SM North EDSA, SM Sta. Mesa, SM Megamall, SM Cebu, SM Southmall, SM Bacoor, SM Fairview, SM Iloilo, SM Manila, SM Pampanga, SM Davao, SM Cagayan de Oro, SM Bicutan, SM Lucena, SM Baguio, SM Marilao, SM Dasmariñas, SM Batangas, SM Delgado, SM San Lazaro, SM Valenzuela, SM Molino, SM Sucat, SM Sta. Rosa, SM Clark, SM Mall of Asia, SM Lipa, SM Bacolod, SM Taytay, SM Marikina, SM Baliwag, SM Naga, SM Rosales, SM Rosario, SM Tarlac, SM San Pablo, SM Calamba, SM Novaliches, SM Masinag, SM Olongapo, SM Consolacion, SM Lanang, SM General Santos City, SM San Fernando, SM Aura, SM BF Parañaque, SM Cauayan, SM Megacenter Cabanatuan, SM San Mateo, SM Cabanatuan, SM Seaside Cebu, SM San Jose Del Monte, SM Trece Martires, SM East Ortigas, SM CDO Downtown Premier, SM Puerto Princesa, SM City Telebastagan, SM City Urdaneta Central, SM City Legazpi, SM Olongapo Central

SMDC SM Development Corporation

SM Group The group of companies owned by SMIC

SM Hotels SM Hotels and Conventions Corp. (formerly SM Hotels and Entertainment Corp.)

SMIC SM Investments Corporation, the parent company of SM Prime

SM Land SM Land, Inc. (formerly Shoemart, Inc.) which was merged with SM Prime in October 2013

SM Malls in China SM Xiamen and Xiamen/Lifestyle Center, SM City Jinjiang, SM City Chengdu, SM City Zibo, SM City Chongqing, SM City Suzhou and SM City Tianjin

sq. m. square meter

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SRC Republic Act No. 8799, The Securities Regulation Code of the Philippines

Subsidiary at any particular time, any company or other business entity which is then directly or indirectly controlled, or more than 50%, of whose issued equity share capital (or equivalent) is then beneficially owned, by the Issuer and/or one or more of its Subsidiaries. For a company to be “controlled” by another means that the other (whether directly or indirectly and whether by the ownership of share capital, the possession of voting power, contract or otherwise) has the power to appoint and/or remove all or the majority of the members of the board of directors or other governing body of that company or otherwise controls or has a power to control the affairs and policies of that company and control shall be construed accordingly

Sy Family Mr. Henry Sy, Sr., his wife, Mrs. Felicidad T. Sy, and their children Teresita T. Sy, Elizabeth T. Sy, Henry T. Sy, Jr., Hans T. Sy, Herbert T. Sy and Harley T. Sy

Tax Code the amended Philippine National Internal Revenue Code of 1997 and its implementing rules and regulations

TFG SM Prime’s Treasury Finance Group

Trustee shall refer to the trustee that may be engaged by SM Prime for an Offer.

Underwriters shall refer to the underwriters that may be engaged by the Issuer for the offer of a particular Debt Securities issue

VAT Value-added tax

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SUMMARY

The summary below is only intended to provide a limited overview of information described in more detail elsewhere in this Prospectus. As it is a summary, it does not contain all of the information that may be important to investors and terms defined elsewhere in this Prospectus shall have the same meanings when used in this summary. Prospective investors should therefore read this Prospectus in its entirety. OVERVIEW SM Prime Holdings, Inc. was incorporated in the Philippines and registered with the SEC on 6 January 1994. It is a leading integrated Philippine real estate company with business units focused on mall, residential, commercial, and hotels and convention centers. As at 30 September 2019, SM Prime’s consolidated total assets stood at P656.8 billion, consolidated total liabilities were at P365.0 billion, with net debt-to-equity ratio (being the ratio of aggregate consolidated interest-bearing indebtedness net of cash and cash equivalent over equity) of 40%. The Company has four business segments, namely, malls, residential, commercial and hotel and convention centers. The table below sets out each business unit’s contribution to SM Prime’s consolidated revenue for the years ended 31 December 2016, 2017, and 2018 and the nine months ended 30 September 2018 and 2019.

For the years ended 31 December

Audited

For the nine months ended 30 September

Unaudited1

(in P million) 2016 2017 2018 2018 2019

Malls 48,600 53,196 59,277 43,258 46,426

Residential 25,419 30,039 36,519 25,265 31,925

Commercial 2,737 3,060 3,578 2,582 3,300

Hotels and Convention Centers 3,218 4,797 4,868 3,586 3,530

Eliminations (158) (171) (162) (130) (148)

Combined Total 79,816 90,921 104,080 74,561 85,033

1 The interim consolidated balance sheet as at 30 September 2019 and the related interim consolidated

statements of income, comprehensive income, changes in equity and cash flows for nine-month periods ended September 30, 2019 and 2018 have been reviewed by the Independent Auditors of the Issuer.

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The charts below display the composition of SM Prime’s combined revenue by segment and geographical region as of and for the nine months ended 30 September 2019.

SM Prime is listed on the PSE and as at 30 September 2019 was 49.70% directly owned by SMIC. SM Prime had a market capitalization of P1,074.3 billion as of 30 September 2019. RISKS OF INVESTING Before making an investment decision, investors should carefully consider the risks associated with an investment in the Debt Securities. These risks include:

Risks Relating to the Company

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

· SM Prime may face challenges of title to land

· SM Prime’s rights and title to reclaimed land may be challenged

· SM Prime will continue to compete with other mall operators and commercial and residential

developers

· SM Prime is exposed to risks associated with the operation of its malls and commercial businesses

· SM Prime faces numerous risks including reputational risk and operational risks relating to its residential and commercial businesses

· SM Prime is exposed to general risks associated with the ownership and management of real estate

· SM Prime’s reputation may be affected by the operations of some of its affiliates

· SM Prime is effectively controlled by the Sy family and their interests may differ significantly from the interests of other shareholders

· SM Prime may enter into and expects to enter into material agreements and other arrangements with the Sy family and its affiliated companies and persons

· SM Prime’s leasing operations depend on key tenants, which are affiliates of the SM Group

· SM Prime depends on retaining the services of its senior management team and its ability to

attract and retain talented personnel

94%

6%

Philippines China

54%

38%

4%

4%

Malls Residential Commercial Hotels and Convention Centers

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· Malls and other commercial properties owned by SM Prime may be subject to an increase in

operating and other expenses

· SM Prime faces risks relating to the management of its land bank

· SM Prime operates in a highly regulated environment and it is affected by the development and application of regulations in the Philippines

· Zoning restrictions and local opposition may delay or preclude construction

· Infringement of intellectual property rights could have a material adverse effect on SM Prime’s business

· Land and/or real property may be subject to compulsory acquisition · Fluctuations in interest rates, changes in Government borrowing patterns and Government

regulations could have a material adverse effect on SM Prime’s and its customers’ ability to obtain financing

· SM Prime faces risks inherent in joint venture structures and/or funds

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

· SM Prime may suffer material losses in excess of insurance proceeds

· SM Prime faces property development risk

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

· The loss of certain tax exemptions and incentives for residential home sales may increase the price of SM Prime’s residential units and may lead to a reduction in sales

· A domestic asset price bubble could adversely affect the Company’s business

Risks Relating to the Philippines

· Substantially all of the Company’s operations and assets are based in the Philippines; a

slowdown in economic growth in the Philippines could materially adversely affect its businesses

· Any political instability in the future may have a negative effect on SM Prime’s financial results

· 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

· Volatility in the value of the Peso against the U.S. dollar and other currencies could adversely affect SM Prime’s businesses

· Tensions with China and other neighboring countries may adversely affect the Philippine economy and business environment

· Corporate governance and disclosure standards in the Philippines may differ from those in more developed countries

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Risks Relating to the Debt Securities

· The priority of debt evidenced by a public instrument

· An active trading market for the Debt Securities may not develop

· The Issuer may be unable to redeem the Debt Securities

Please refer to the section entitled “Risk Factors” found on page [23] of this Prospectus which, while not intended to be an exhaustive enumeration of all risks, must be considered in connection with a purchase of the Debt Securities.

COMPETITIVE STRENGTHS OF THE COMPANY Integrated real estate platform with strong track record across segments

SM Prime benefits from a strong track record in the Philippine real estate industry, including being the number one shopping mall developer and operator in the Philippines based on both gross floor area (“GFA”) and number of malls, a leading residential developer in the Philippines in terms of condominium units sold, and operating growing office, hotel and leisure segments. SM Prime possesses end-to-end capabilities across the integrated real estate value chain, encompassing land banking, master planning, construction, retailing and operations. SM Prime is able to leverage on the diverse skill sets of each of its business units while optimizing value through more efficient planning and control over its developments. SM Prime believes it can maximize the existing plots of its retail developments that may be underutilized or unutilized by adding residential, commercial and hospitality developments, thereby providing customers with an attractive “live, work, play” lifestyle. SM Prime is one of the largest integrated real estate developer in Southeast Asia by market capitalization as of 30 September 2019, and the largest listed real estate developer on the PSE by market capitalization and net income as of 30 September 2019. SM Prime believes it is the largest shopping mall developer in the Philippines in terms of gross leasable area. SM Prime believes that it is well positioned to take advantage of greater demand for residential homes resulting from the growth of the Philippine economy and increasing demand from expatriate Filipinos, among other factors. Leading retail malls business

As of 30 September 2019, SM Prime was the largest mall operator in the Philippines, with 73 malls across 55 cities in the Philippines and an additional 7 malls in the PRC. SM Prime’s track record of operating malls dates back to 1985 when the first SM Mall was opened. Drawing on its relationship with key tenants, SM Prime believes it is able to establish an appropriate mix of tenants in its malls and hence attract retail foot traffic. SM Prime enjoys long-standing relationships with anchor tenants such as The SM Stores, SM Supermarkets, SM Hypermarkets, Jollibee and National Bookstore in the Philippines and Walmart and Vanguard in the PRC. In addition, SM Prime has long-term relationships with an extensive base of international and domestic tenants and has access to a wide leasing network, with approximately 18,716 tenants in the Philippines and 1,960 tenants in the PRC across multiple segments as of 30 September 2019. These tenants include well-known Philippine brands such as Jollibee and National Bookstore as well as international brands such as Uniqlo, Forever 21, H&M, Starbucks, KFC, McDonalds. SM Prime’s diverse network of tenants allows it to pursue a dynamic leasing and marketing strategy. For example, international brands such as Uniqlo, Forever 21 and H&M have chosen SM Malls as the locations to open their flagship stores in the Philippines. SM Prime’s diverse network of tenants generally also allows it to achieve high occupancy levels in a short period time following the opening of new malls. Significant demand backlog gives SM Prime the flexibility to optimize its tenant mix, ensuring steady foot traffic and consistent same store sales growth at its malls.

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SM Prime believes that in its 34 years of operating history, the SM Malls have established strong brand equity. SM Supermalls was recognized with Reader’s Digest Most Trusted in the Philippines Brand Award in 2019 for seven consecutive years. SM Prime’s retail malls provide an anchor for its lifestyle city projects, generating steady foot traffic and enhancing the value of its mixed-use developments. Access to a prime large-scale land bank

SM Prime aims to have a significant growth pipeline as underscored by its large and diversified land bank consisting of retail, commercial, and residential land in prime locations across the Philippines. As of 30 September 2019, SM Prime possessed a land bank of [17,481,304] sq. m. including around the MOA complex, South Road Properties in Cebu, Clark in Pampanga, North EDSA and SMDC properties in Metro Manila, among others, which SM Prime believes is among the largest land banks in the country. SM Prime believes that its well-established presence and reputation in the Philippines, as well as its expansion into China, enable it to gain access to additional quality land bank. SM Prime also has a track record of implementing a proactive land banking strategy, for example, the master plan for the 600-hectare reclamation project in Pasay and Parañaque is already in process. 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. Strong balance sheet and access to capital

SM Prime believes that it has access to capital from a wide variety of sources and thus is not dependent on any one source for its funding needs. As a PSE-listed company, SM Prime has access to the Philippines and international capital markets for potential issuance of equity, debt or other securities. SM Prime is also able to secure debt financing at what it believes to be competitive rates, including revolving bank loans and medium-term notes. SM Prime believes that its strong balance sheet boosted by a large asset and equity base ensures that it is able to move quickly to acquire real estate assets and additional land bank. As of 30 September 2019, SM Prime had consolidated total assets of P656.8 billion and a total equity attributable to equity holders of the Parent of ₱290.1 billion. As of 30 September 2019, SM Prime’s consolidated net debt to equity ratio was 40%, providing sufficient debt headroom flexibility for current and future capital expenditure and expansion plans. SM Prime believes that its stable real estate portfolio contributes to its liquidity and strong mix of recurring income from its mall and office operations. In the nine months ended 30 September 2019, [58%] of SM Prime’s consolidated revenue was derived from mall and commercial. SM Prime believes that its long-term leases help to create a steady stream of cash flow. Experienced management team with strong corporate governance practices

SM Prime’s senior management team comprises Mr. Henry T. Sy, Jr. as Chairman of the Board, and Mr. Jeffrey Lim and Mr. Hans T. Sy as President and Chairman of the Executive Committee, respectively. Each of these individuals has been with SM Prime or its component businesses for at least 20 years. SM Prime adheres to strong corporate governance practices, with three out of the eight members of its Board of Directors being independent directors. SM Prime has been recognized by the ASEAN Corporate Governance as Top 3 in ASEAN Corporate Governance in the Philippines, PLCs Category for 2018. SM Prime has been recognized by the Asset Corporate Awards as a Platinum Awardee for Excellence in Governance, Corporate Social Responsibility and Investor Relations for 2016-2017. BUSINESS STRATEGIES

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Continue to expand SM Prime’s land bank and develop integrated lifestyle cities

SM Prime has integrated all land banking functions into a centralized department retaining the highly successful culture that allowed the Company to reach its strong current land bank position. Going forward, the key focus of SM Prime will be on acquiring land bank that is suitable for mid-to-large scale mixed-use master planned projects in fast growing areas of the Philippines. SM Prime also plans to continue acquiring a strategic land bank near its existing developments, select schools, mass transit stations and other areas which are expected to be significant beneficiaries of infrastructure development in the future. A successful land banking strategy creates the foundation for the next phase in the development of lifestyle city projects, being the master planning for an integrated township design. These lifestyle cities are anchored by SM Prime’s retail malls, supported by commercial, residential, hotel and convention center developments, creating a synergistic value enhancement across product classes and offering a complete selection of products to customers. For example, SM Prime aims to replicate the successful model of its MOA complex, a 60 hectare master-planned bayside development in Pasay City. The MOA complex had a total estimated land value of ₱85.3 billion according to CBRE as of December 31, 2015. SM Prime believes that the success of the MOA complex is a result of the substantial synergies from each real estate offering in the integrated development. For example, the MOA Arena has been a preferred venue for events due to its proximity to the MOA, which in turn increased foot traffic at the MOA. Sea Residences, Shell Residences and Shore 1 to 3 Residences have been SM Prime’s top selling residential development projects in part due to its proximity to the MOA, while again providing additional foot traffic to the MOA. SM Prime was also awarded by the cities of Pasay and Parañaque to reclaim land adjacent to the MOA complex totaling around 600 hectares. SM Prime has a large and diverse land bank suitable for projects that are modeled after the MOA complex and creating lifestyle cities across the Philippines. For example, SM Prime is building a 30 hectare mixed use development project in Cebu City, the SM Seaside City. The mall in SM Seaside City is the city’s largest mall, with a GFA of approximately 430,000 sq. m. It consists of a four-storey 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 and hotels. Leverage retail malls to anchor lifestyle city developments

SM Prime expects mall operations to continue to be its primary focus going forward and is targeted to account for a majority of SM Prime’s net income for the foreseeable future. Expansion is expected to take place in major cities outside of Metro Manila, especially in areas where disposable income is expected to increase significantly and retail space is currently limited. Certain major cities have a per capita income and rent per sq. m. that are comparable to those within Metro Manila, driven by a shift in business processing outsourcing (“BPO”) demand to regional provinces. Over time, retail malls built in these cities could be converted into mixed use developments by adding office, residential and hospitality components as the cities continue to grow. SM Prime also plans to expand within Metro Manila on a selective basis, developing supercenters (malls consisting of less than 100,000 sq. m.) that are situated between mega malls in Metro Manila. SM Prime believes that the current demand backlog for leases in several of its developments provides an opportunity for further mall expansion. SM Prime plans to develop five to seven malls in the Philippines each year for the near term, and also to opportunistically expand its presence in second and third tier cities in China by building one mall per year for the near term, in each case subject to market conditions. SM Prime is targeting to increase its overall mall GFA by 5-7% per year to approximately 8.5 million sq. m. in the Philippines and approximately 1.3 million sq. m. in China by 2019. 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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Optimize existing properties by adding complementary developments SM Prime will pursue a multi-pronged long-term strategy that is aimed to allow it to optimize the value of existing properties, developments and current land bank through an integrated real estate platform while retaining flexibility to efficiently allocate capital among its various business units. SM Prime will embark on more large scale mixed used developments throughout the Philippines in an effort to replicate the success of the MOA complex. 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 of vacant land. For example, SM Prime developed Radisson Blu Cebu, Park Inn by Radisson Davao, Park Inn by Radisson Clark, Park Inn Radisson Iloilo, Park Inn by Radisson North EDSA and Conrad Manila within existing mall developments such as SM City Cebu, SM City Davao, SM City Clark, SM City Iloilo, SM City North EDSA and SM Mall of Asia. SM Prime believes that SM Megamall, SM City North EDSA, and SM Seaside City still have significant under-utilized plot ratios that are suitable for commercial, hospitality and residential developments. Continue aggressive rollout of BPO office development Taking advantage of the robust BPO sector outlook as well as increasing flight to quality from older BPO developments, SM Prime’s strategic focus includes expanding its office portfolio with IT and BPO buildings. 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. Focus on a “one product-one market” strategy for the residential business SM Prime intends to capitalize on the increasing urbanization and economic development of the Philippines to develop vertical residential projects in key areas across Metro Manila specifically the cities of Makati, Mandaluyong, Manila, Parañaque, Pasay, Pasig, Quezon City, and Taguig, as well as Tagaytay City and Cebu that target the Philippine mass middle market. By leveraging the already strong SM brand and its leadership in the residential condominium segment, 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. 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. As of 30 September 2019, SM Prime has 23 completed residential projects and 25 ongoing residential projects. SM Prime plans to accelerate residential project launches in areas near existing SM Prime developments. As of 30 September 2019, SM Prime has already launched 14,500 units to the market. For full year 2019, SM Prime is targeting to launch between 15,000 to 20,000 residential units that includes high-rise buildings, mid-rise buildings and single detached house and lot projects. These projects will be located in Metro Manila and other key cities in the provinces. Maintain a strong balance sheet, prudent risk and capital management and good

governance

By maintaining a strong balance sheet, SM Prime believes it will be better able to withstand economic and financial cycles, while allowing the Company to achieve expansion quickly, as well as give it the flexibility to embark on acquisitions if and when opportunities arise. 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 50:50. SM Prime also plans to maintain a relatively long and well spread out debt maturity profile and continue to diversify its sources of funding. 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. Capital expenditure for 2020 is approximately ₱80.0 billion, with 36% for mall, 44% for residential, 13% for commercial and 7% for hotels and convention centers. Capital expenditure for 2021 is

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approximately ₱80.0 billion, with 34% for mall, 47% for residential, 12% for commercial and 7% for hotels and convention centers. SM Prime plans to fund its capital expenditure plan through recurring income flows and external financing. SM Prime intends to apply global corporate governance standards and risk management best practices, as well as embark on integrated sustainability and corporate social responsibility initiatives.

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SUMMARY FINANCIAL INFORMATION

The following tables set forth the summary consolidated financials of the Issuer as at and for the periods

indicated. The selected audited financial information presented below as at 31 December 2016, 2017, and

2018 and for the years ended 31 December 2016, 2017 and 2018, and the selected unaudited financial

information as at 30 September 2019 and for the first nine months ended 30 September 2019 and 2018

have been derived from the Issuer’s consolidated financial statements. The information set out below

should be read in conjunction with, and is qualified in its entirety by reference to, the relevant consolidated

financial statements of the Issuer, including the notes thereto, included elsewhere in this Prospectus.

CONSOLIDATED BALANCE SHEETS

As at 31 December

As at 30 September2

(in P thousands) 2016

Audited

2017

Audited

2018

Audited

2019

Unaudited

ASSETS

Current Assets

Cash and cash equivalents 25,2000,982 44,371,534 38,766,467 41,970,265

Financial assets at fair value through other comprehensive income

918,702 731,076 - -

Receivables and contract assets 32,833,330 33,990,678 35,229,450 42,471,300

Condominium and residential units for sale

7,787,549 8,733,299 8,088,139 7,894,790

Land and development 24,646,487 22,518,138 29,486,964 32,237,402

Equity instruments at fair value through other comprehensive income

664,606 641,300 639,316 670,928

Derivative assets - - 432,898 -

Prepaid expenses and other current assets

11,898,900 14,590,015 15,147,029 18,576,684

Total Current Asset 103,950,556 125,576,040 127,790,263 143,821,369

Noncurrent Assets

Equity instruments at fair value through other comprehensive income – net of current portion

20,548,119 30,464,845 22,892,937 19,821,497

Property and equipment – net 1,619,601 1,493,427 1,419,111 1,366,473

Investment properties – net 251,499,064 273,084,146 293,574,616 330,116,188

Land and development – net of current portion

19,472,641 36,148,036 49,844,246 50,415,449

Derivative assets – net of current portion

5,102,735 3,546,694 420,035 1,468,286

Deferred tax assets - net 1,137,729 1,114,291 1,083,670 1,048,061

Investments in associates and joint ventures

22,833,079 24,566,239 26,199,380 26,842,763

Other noncurrent assets 39,396,608 42,423,880 80,910,060 81,890,541

Total Noncurrent Assets 361,609,576 412,841,558 476,344,055 512,969,258

Total Assets 465,560,132 538,417,598 604,134,318 656,790,627

As at 31 December As at 30


statements of income, comprehensive income, changes in equity and cash flows for nine-month periods ended 30 September 2019 and 2018 have been reviewed by the Independent Auditors of the Issuer.

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September3


Audited

2017

Audited

2018

Audited

2019

Unaudited

Loans payable 840,000 744,400 39,400 480,000

Accounts payable and other current liabilities

40,324,504 51,084,082 61,767,086 75,915,158

Current portion of long-term debt 7,154,151 25,344,035 25,089,624 28,417,673

Income tax payable 1,102,621 1,035,215 1,383,742 1,363,543

Total Current Liabilities 49,421,276 78,207,732 88,279,852 106,176,374

Noncurrent Liabilities

Long-term debt – net of current portion

156,383,534 167,509,484 197,682,262 206,067,861

Tenants’ and customers’ deposits – net of current portion

14,812,280 16,376,024 18,676,022 20,625,865

Liability for purchased land – net of current portion

1,211,658 2,170,998 6,044,220 4,285,574

Deferred tax liabilities – net 2,552,812 2,877,971 3,527,501 4,865,325

Derivative liabilities - 777,408 335,008 563,017

Other noncurrent liabilities 5,815,028 7,624,067 10,511,491 22,450,293

Total Noncurrent Liabilities 180,775,312 197,335,952 236,776,504 258,857,935

Total Liabilities 230,196,588 275,543,684 325,056,356 365,034,309

Equity Attributable to Equity Holders of the Parent

Capital stock 33,166,300 33,166,300 33,166,300 33,166,300

Additional paid-in capital – net 39,545,625 39,662,168 39,953,218 38,007,668

Cumulative translation adjustment 1,400,373 2,110,745 1,955,999 1,272,553

Net fair value changes of equity instruments at fair value through other comprehensive income

17,502,410 25,489,705 19,084,597 17,251,754

Net fair value changes on cash flow hedges

811,625 (311,429) (842,098) (1,544,494)

Remeasurement gain (loss) on defined benefit obligation

39,687 (199,126) (348,480) (348,480)

Retained earnings:

Appropriated 42,200,000 42,200,000 42,200,000 42,200,000

Unappropriated 100,170,486 120,125,945 143,118,153 163,092,635

Treasury stock (3,355,474) (3,287,087) (2,984,695) (2,984,695)

Total Equity Attributable to Equity Holders of the Parent

231,481,032 258,957,221 275,302,994 290,113,241

Non-controlling Interests 3,882,512 3,916,693 3,774,968 1,643,077

Total Equity 235,363,544 262,873,914 279,077,962 291,756,318

Total Liabilities and Equity 465,560,132 538,417,598 604,134,318 656,790,627


statements of income, comprehensive income, changes in equity and cash flows for nine-month periods ended 30 September2019 and 2018 have been reviewed by the Independent Auditors of the Issuer.

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CONSOLIDATED STATEMENTS OF INCOME

For the years ended 31 December For the nine months ended

30 September4


Audited

2017

Audited

2018

Audited

2018

Unaudited

2019

Unaudited

Revenue

Rent 45,693,269 51,406,294 57,162,796 41,719,270 44,910,701

Sales:

Real estate 24,999,811 29,434,050 35,872,552 24,838,114 31,354,327

Cinema and event ticket 4,666,686 4,767,364 5,218,434 3,924,337 4,140,305

Others 4,456,465 5,314,142 5,826,783 4,078,369 4,627,784

79,816,231 90,921,850 104,080,565 74,560,090 85,033,117

Costs and Expenses 44,551,175 50,293,058 55,753,334 39,650,634 44,032,584

Income from

Operations 35,265,056 40,628,792 48,327,231 34,909,456 41,000,533

Other Income (Charges)

Interest expense (4,409614) (5,474,422) (7,540,045) (4,961,202) (5,687,780)

Interest and dividend income

1,114,931 1,214,347 1,828,776 1,357,819 1,465,620

Others – net (981,696) (420,856) (649,787) (651,537) (802,559)

(4,276,379) (4,680,931) (6,361,056) (4,254,920) (5,024,719)

Income Before Income

Tax

30,988,677 35,947,861 41,966,175 30,654,536 35,975,814

Provision for (Benefit from) Income Tax

Current 6,335,370 7,531,782 8,534,428 6,657,263 6,450,437

Deferred 285,683 291,616 520,618 34,019 1,408,819

6,621,053 7,823,398 9,055,046 6,691,282 7,859,256

Net Income 24,367,624 28,124,463 32,911,129 23,963,254 28,116,558

Attributable to:

Equity holders of the Parent

23,805,713 27,573,866 32,172,886 23,439,290 27,595,045

Non-controlling interests 561,911 550,597 738,243 523,964 521,513

24,367,624 28,124,463 32,911,129 23,963,254 28,116,558

Basic/Diluted earnings per share

P0.826 P0.956 P1.115 P0.812 P0.956



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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the years ended 31 December For the nine months ended

30 September5


Audited

2017

Audited

2018

Audited

2018

Unaudited

2019

Unaudited

Net Income 24,367,624 28,124,463 32,911,129 23,963,254 28,116,558

Other Comprehensive Income (Loss)

Other comprehensive income (loss) that will not be reclassified to profit or loss in subsequent periods:

Unrealized gain (loss) due to changes in fair value of financial assets at fair value through other comprehensive income

880,863 7,987,295 (5,287,209) (5,821,028) 1,046,339

Remeasurement gain (loss) on defined benefit obligation

82,202 (244,103) (152,405) - -

963,065 7,743,192 (5,439,614) (5,821,028) 1,046,339

Other comprehensive income (loss) that may be reclassified to profit or loss in subsequent periods:

Net fair value changes on cash flow hedges

382,826 (1,123,054) (530,669) 27,522 (702,396)

Cumulative translation adjustment

394,395 710,372 (154,746) 196,260 (683,446)

1,740,286 7,330,510 (6,125,029) 223,782 (1,385,842)

Total Comprehensive

Income

26,107,910 35,454,973 26,786,100 18,366,008 27,777,055

Attributable to:

Equity holders of the Parent

25,542,289 34,906,622 26,050,908 17,842,044 27,255,542

Non-controlling interests 565,621 548,351 735,192 523,964 521,513

26,107,910 35,454,973 26,786,100 18,366,008 27,777,055



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OVERVIEW OF THE DEBT SECURITIES PROGRAM The detailed terms and conditions of a particular tranche of the Debt Securities shall be set out in the relevant Offer Supplement to be issued at the relevant time. Any discussion of SM Prime’s Debt Securities Program contained herein does not purport to be a complete listing of all the rights, obligations, or privileges of the Debt Securities. Some rights, obligations, or privileges may be further limited or restricted by other documents. Prospective investors are enjoined to carefully review the Articles of Incorporation, By-Laws and resolutions of the Board of Directors of the Company, the information contained in this Prospectus, the relevant Offer Supplement and other agreements relevant to the offer of a particular tranche of the Debt Securities and to perform their own independent investigation and analysis of the Issuer and the Debt Securities. Prospective investors must make their own appraisal of the Company and the offer, and must make their own independent verification of the information contained herein and the other aforementioned documents and any other investigation they may deem appropriate for the purpose of determining whether to participate in the offer of the Debt Securities. They must not rely solely on any statement or on the significance, adequacy or accuracy of any information contained herein. The information and data contained herein are not a substitute for the prospective investor’s independent evaluation and analysis. Prospective investors are likewise encouraged to consult their legal counsels and accountants in order to be better advised of the circumstances surrounding the Debt Securities being offered. SM Prime is offering debt securities under its Debt Securities Program in the aggregate principal amount of up to One Hundred Billion Pesos (P100,000,000,000.00) to be issued in tranche within a period of three (3) years from the effective date of the Registration Statement. The following sections outline the description of the Debt Securities Program.

Issuer SM Prime Holdings, Inc. Issue Debt Securities constituting the direct, unconditional, unsecured and

unsubordinated obligations of SM Prime Holdings, Inc.

Use of Proceeds The intended use of proceeds for each tranche of the Debt Securities

being offered shall be set in the relevant Offer Supplement under “Use of Proceeds”

Facility PHP100,000,000,000

Availability The Debt Securities Program shall be continuously available until the

expiration of the Shelf Period and the Permit to Sell Securities to be issued by the SEC

Governing Law Philippine Law

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SUMMARY OF THE OFFER

A discussion containing the “Summary of the Offer” shall be set out in the relevant Offer Supplement. However, any such summary should be read as an introduction to, and is qualified in its entirety by reference to, the more detailed information appearing elsewhere in this Prospectus and such Offer Supplement, including, but not limited to, the discussion on the “Description of the Offer” and “Plan of Distribution”, and agreements executed in connection with a particular offer as a whole. Such overview may not contain all of the information that prospective investors should consider before deciding to invest in the Debt Securities. Accordingly, any decision by a prospective investor to invest in the Debt Securities should be based on a consideration of this Prospectus, such Offer Supplement and agreements executed in connection with a particular offer as a whole.

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RISK FACTORS

Investment in the Debt Securities involves a number of risks. The price of securities can and does fluctuate, and any individual security may experience upward or downward movements, and may even become valueless. There is an inherent risk that losses may be incurred rather than profit made as a result of buying and selling securities. Past performance is not a guide to future performance. There may be a big difference between the buying price and the selling price of these securities. An investor deals in a range of investments, each of which may carry a different level of risk. Prior to making any investment decision, prospective investors should carefully consider all of the information in this Prospectus, including the risks and uncertainties described below. The business, financial condition or results of operations of SM Prime could be materially adversely affected by any of these risks. Additional considerations and uncertainties not presently known to the Issuer or which the Issuer currently deems immaterial, may also have an adverse effect on an investment in the Debt Securities. This risk disclosure does not purport to disclose all the risks and other significant aspects of investing in these securities. An investor should undertake his or her own research and study on the trading of securities before commencing any trading activity. He/she may request information on the securities and issuer thereof from the SEC which are available to the public. An investor should seek professional advice if he or she is uncertain of, or has not understood any aspect of the securities to invest in or the nature of risks involved in trading of securities especially those high risk securities. This section entitled “Risks Factors” does not purport to disclose all of the risks and other significant aspects of investing in these securities. The risks enumerated hereunder are considered to be each of equal importance. The means by which the Company plans to address the risks discussed herein are presented in the sections of this Prospectus entitled “Description of the Issuer – Competitive Strengths,” “Description of the Issuer – Business Strategies,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” RISKS RELATING TO THE COMPANY The Philippine property market is cyclical and can be affected by domestic and global

economic conditions.

SM Prime derives 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. Accordingly, SM Prime is 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. Since the second half of 2008, the global financial markets have experienced, and may continue to experience, 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. 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

22

SM Prime. 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 in obtaining financing where necessary to fund the acquisition and development of their real estate projects. SM Prime’s growth is largely dependent on its ability to construct profitable malls in new locations in the Philippines. The substantial majority of the aggregate net leasable area in these malls is dedicated to retail use, exposing 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 ability to successfully operate and develop existing and future malls. In addition, demand for new residential projects in the Philippines has 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. 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 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. SM Prime may 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 SM Prime generally conducts extensive title searches before it acquires any parcel of land, from time to time it has defended itself 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 SM Prime in the future or any such claims involve land that is material to SM Prime’s malls, residential developments and other real estate assets, 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, 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 SM Prime’s operations. In addition, title claims made by third parties against 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, SM Prime may in some instances occupy, operate or develop properties for which it has not yet completed all formalities in respect of perfecting title. There can be no assurance that third parties will not in the future challenge SM Prime’s rights to properties in similar circumstances where title has not yet been perfected. SM Prime’s rights and title to reclaimed land may be challenged

In 2002, the Supreme Court of the Philippines promulgated a decision in the case of Francisco I. Chavez vs. Public Estates Authority and Amari Coastal Bay Development Corporation (G.R. No. 133250) and ruled that Government-reclaimed lands form part of the public domain and consequently, cannot be

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acquired by private corporations without violating the Philippine Constitution. SM Prime (formerly SM Land/Shoemart) owns 60 hectares of reclaimed land along the coast of Manila Bay at the MOA complex, the acquisition of which was upheld in 1995 by the Court of Appeals, whose decision has long become final and has been executed. Title to a great majority of lots comprising the reclaimed land has since been registered under the name of SM Prime (formerly SM Land/Shoemart). SM Prime believes Shoemart acquired its reclaimed land in good faith and for value. The MOA complex is a 60 hectare master-planned bayside development in Pasay City with a total estimated land value of ₱85.3 billion according to CBRE as of December 31, 2015. The MOA complex is estimated to comprise 6% of the total assets of SM Prime and 7% of its total land value. The MOA complex houses the SM Mall of Asia, the Mall of Asia Arena, the MOA Arena Annex Building (that houses additional parking spaces and office levels), and the SMX Convention Center Manila, among other commercial, business and entertainment establishments. The MOA complex is also the site of the E-Com Centers, a series of modern and iconic office buildings mostly targeting technology based industries, BPO and shipping companies. The various business segments located within the MOA complex contributed an aggregate estimated P5,831 million or 7% of the revenues of SM Prime in 2016, P7,534 million or 8% of the revenues of SM Prime in 2017 and P8,188 million or 8% of the revenues of SM Prime in 2018 and approximately P2,565 million or 7%, P3,358 million or 8% and P3,688 million or 8%, in operating income, for the same period. The MOA Complex also houses some of SM Prime’s residential developments such as the Sea Residences, Shell Residences and Shore 1 to 3 Residences. SM Prime’s mixed use development project in Cebu City, the SM Seaside City, also stands on reclaimed land of approximately 30 hectares with an acquisition cost of approximately P3,000 million. SM Prime acquired the property in good faith and for value and expects title to the property to be transferred in its name in due course. The mall in SM Seaside City is the city’s largest mall, with a GFA of approximately 430,000 sq. m. It consists of a four-storey complex featuring a Cineplex, IMAX Theater, bowling center and ice skating rink. There is, however, no assurance that the title to the land where the MOA Complex and the SM Seaside City is located will not be challenged and have an adverse impact on SM Prime’s right and title to the reclaimed lands. Any such challenge, whether successful or not, may adversely affect its business, financial condition and results of operations. SM Prime, however, believes that any adverse effect of such challenge to its business will not materially impact SM Prime’s ability to conduct its business or significantly affect its ability to operate given that the MOA complex comprises less than 10% of its total assets. In the event that it becomes subject of such challenge or lawsuit, SM Prime will defend its rights against such claims.

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

SM Prime competes 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 malls compete with other similar malls. Increased competition could adversely affect income from, and the market values of, the malls. The income from, and market values of, the malls are largely dependent on the ability of the malls to compete against other retail malls in their area in attracting and retaining tenants. In addition, tenants at the malls face increasing competition from specialty stores, general merchandise stores, discount stores, warehouse outlets and street markets, which may affect the ability or willingness of such tenants to continue renewing their leases. Important factors that affect the ability of retail malls to attract or retain tenants include the popularity of the malls with retail customers, which is a function of the quality of the malls’ existing tenants and the attractiveness of the building and the surrounding area. 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.

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SM Prime’s income from, and market values of, its residential development projects is largely dependent on these projects’ popularity when compared to similar projects in their areas, as well as on the ability of SM Prime to gauge correctly the market for its projects. Important factors that could affect SM Prime’s ability to compete effectively 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 SM Prime and the overall attractiveness of the project. SM Prime’s commercial investment property business competes with a number of commercial developers. Competition from other developers of neighboring commercial centers and office spaces may adversely affect SM Prime’s ability to operate successfully 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 space. In addition, SM Prime’s major competitors may have greater experience, financial resources and more expertise in developing commercial properties and commercial leasing operations. 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 SM Prime has developed over the years. SM Prime may experience difficulty locating parcels of land of suitable size in locations and at prices acceptable to SM Prime, particularly parcels of land located in areas surrounding Metro Manila and in other urban areas throughout the Philippines. In the event 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 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 businesses, financial condition and results of operations. SM Prime is exposed to risks associated with the operation of its mall and commercial

businesses.

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

• the national and international economic climate; • trends in the Philippine commercial and retail industry; • ability to attract leading names in the retail market to SM Prime’s mall and commercial

developments; • ability to anticipate the future technological and infrastructure needs of BPO tenants and

effectively design properties to meet those needs; • 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 • SM Prime’s ability to provide adequate security, maintenance and insurance.

In particular, SM Prime’s commercial development projects comprise twelve office buildings catering primarily to tenants operating in the BPO industry. Adverse trends in the Philippines’ BPO industry and

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competitive environment could 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 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 SM Prime’s business, financial condition and results of operations. SM Prime faces numerous risks including reputational risk and operational risks relating to its residential and commercial businesses.

SM Prime’s operations 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 SM Prime may invest significant time and money in a project that may not attract sufficient levels of demand in terms of anticipated sales or rentals 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 and construction of projects may not be completed on schedule or within budget. 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 SM Prime’s margins. 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 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 SM Prime’s results of operations. Further, the failure by SM Prime to complete construction of a project to its planned specifications or schedule may 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 (the “DAR”) allowing conversion of agricultural land for development may require a project to complete construction by a prescribed deadline. If SM Prime fails to complete construction of a project by the stated deadline, the DAR may revoke its order allowing the use of agricultural land for SM Prime’s intended purpose. SM Prime is 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 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

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and to pay the associated costs; wars, terrorist attacks, riots, civil commotions and natural disasters; and other events beyond SM Prime’s control. 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. For example, several of SM Prime’s properties are registered as a Philippine Economic Zone (“PEZ”), which entitles them to certain benefits for the tenants that are located there, including tax advantages. If such properties were to lose their favorable PEZ status, these benefits may be lost. Any of these events could materially and adversely affect SM Prime’s businesses, financial condition and results of operations. 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, including SM Prime, 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, SM Prime’s business reputation and financial condition may also be adversely affected. SM Prime is effectively controlled by the Sy family and their interests may differ significantly from the interests of other shareholders.

The Sy family currently holds voting power over 21.90% of the outstanding share capital of SM Prime. In addition, members of the Sy family currently hold three seats on the Board of Directors. As a result, the Sy family effectively controls 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, election of members of its Board of Directors, appointment of its senior managers and other significant corporate actions. The Sy family owns a variety of commercial interests aside from the controlling interest in SM Prime. Conflicts of interest may therefore arise between the Sy family, on the one hand, and SM Prime, on the other, in a number of areas, including:

· major business combinations involving SM Prime; · plans to develop the businesses of SM Prime; and · business opportunities that may be attractive to both the Sy family’s other interests and to SM

Prime. There can be no assurance that the Sy family will not cause SM Prime to take actions which might differ from the interests of other shareholders of SM Prime. SM Prime may enter into and expects to enter into material agreements and other arrangements with the Sy family and its affiliated companies and persons.

SM Prime may enter into and expects 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 entering into transactions on terms

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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 account for a significant portion of the total rental revenue from SM Prime’s malls and other commercial properties. Moreover, the Sy family could cause SM Prime to enter into transactions with 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 SM Prime’s business, financial condition and results of operations. For more information concerning related party transactions, see “Related Party Transactions”, [Note 21] to the audited consolidated financial statements and [Note 18] to the unaudited interim condensed consolidated financial statements included elsewhere in this Prospectus. 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. SM Prime also relies on anchor tenants, most of whom are affiliates of the SM Group, to maintain sufficient foot traffic at its malls and other retail properties. There can be no assurance that, despite their longstanding and symbiotic relationship with SM Prime, certain anchor tenants would not terminate their lease, which could adversely affect SM Prime’s total rental revenue, nor can there be any assurance that 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 or renegotiate leases on terms more favorable to them. A partial or total loss of these tenants could have a material adverse effect on SM Prime’s businesses, financial condition and results of operations. SM Prime depends 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 Management of the Issuer” found on page [147] of this Prospectus, is critical to its success, and the loss of the services of any key member of the team could have an adverse effect on SM Prime’s strategy and operations. SM Prime depends on its senior management team for the successful integration of its operations and execution of its business strategy. In the event one or more members of the team terminates his or her relationship with SM Prime, SM Prime may not be able to replace them within a reasonable period of time or with a person of equivalent expertise and experience, which could materially and adversely affect SM Prime’s business, financial condition and results of operations. Malls and other commercial properties owned by SM Prime may be subject to an increase in operating and other expenses. 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 amortization; · changes in statutory laws, regulations or Government policies that 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

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corresponding increases in revenues, could have a material adverse effect on SM Prime’s businesses, financial condition and results of operations. SM Prime faces risks relating to the management of its land bank.

SM Prime will need to acquire land for replacement and expansion of land inventory within its 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 SM Prime competes with other real estate companies, some of which may have more resources than SM Prime, for land acquisition and the right to participate in land reclamation projects. 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 is unable to acquire suitable land, its 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 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 to defer the commencement of housing and land development projects, which would require carrying 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 business, financial condition and results of operations. SM Prime operates 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, subdivision and other residential projects, commercial projects and land reclamation projects is 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 a developer’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 which regulate the development and sale of real property as part of a condominium or subdivision project. P.D. 957, R.A. 4726 and B.P. 220 cover subdivision projects for residential, commercial, industrial or recreational purposes and condominium projects for residential or commercial purposes. The Maceda Law governs 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 SM Prime’s operations include among others:

• 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

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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, rather, they are required to comply with the rule by participating in: 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 local government units (“LGUs”) or any of the housing agencies; or d) participation in the community mortgage program. If SM Prime does not comply with this 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 LGU. There can be no assurance that 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 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 SM Prime’s ability to complete projects on time, within budget or at all, and could materially and adversely affect SM Prime’s business, financial condition and results of operations.

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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 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 residential, office and/or retail developments to be completed ahead of any competitor development, or at all. Opposition by local residents to zoning and/or building permit applications may also cause considerable delays. SM Prime’s plans to build on reclaimed land in the future may also face public opposition. In addition, arbitrary changes to applicable zoning by the relevant authorities may jeopardize projects that have already commenced. Therefore, a failure by SM Prime to receive zoning approvals, or delays in the receipt of such zoning approvals, could result in increased costs, which could have a material adverse effect on SM Prime’s businesses, financial condition and results of operations. Infringement of intellectual property rights could have a material adverse effect on SM

Prime’s business. Upon commencement of development of new projects, SM Prime generally files applications for the registration of intellectual property rights with respect to the names of certain of its real estate products, as well as for trademarks. There can be no assurance that such applications will be approved or that the actions SM Prime has taken will be adequate to prevent third parties from using its corporate brands and logos, or from naming brands or developments using the same brands that 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. SM Prime believes that the reputation and track record established under its intellectual property rights such as the “SM” name (which, together with other SM trademarks and logos, is owned by SMIC and its affiliated companies) is a key to future growth, and accordingly, SM Prime’s business, financial condition and results of operations may be materially and adversely affected by the infringing use of the “SM” and related brand names by third parties, or if in any way SM Prime is restricted from using such marks. 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 if such acquisition is for public benefit or utility or any other public interest. Accordingly, in the event that land is compulsorily acquired from SM Prime, 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 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, which compensation may be less than its market value. Any instance of land being compulsorily acquired from SM Prime may materially and adversely affect SM Prime’s business, financial conditions and results of operations.

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Fluctuations in interest rates, changes in Government borrowing patterns and Government regulations could have a material adverse effect on 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 SM Prime and the demand for its products. For example: 1. In connection with SM Prime’s property development business generally, higher interest rates make

it more expensive to borrow funds to finance ongoing projects or to obtain financing for new projects.

2. In connection with SM Prime’s core residential development business, a substantial portion of SM

Prime’s customers procure financing to fund their property purchases, thus higher interest rates make financing, and therefore purchases of real estate, more expensive, which could adversely affect the demand for SM Prime’s residential projects.

3. 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 SM Prime.

4. SM Prime’s access to capital and its cost of financing are also affected by restrictions, such as single

borrower limits, imposed by the BSP on bank lending. If SM Prime were to reach the single borrower limit with respect to any of its primary lenders, it may have difficulty obtaining financing with reasonable rates of interest from other banks. SM Prime is approaching the single borrower limit with certain of the banks from which it obtains financing, and as a result, SM Prime expects to make more use of alternative sources of financing in the future, which may have a higher cost of funding or be on terms less favorable than its existing financing arrangements.

The occurrence of any of the foregoing events, or any combination of them, or of any similar events, could materially and adversely affect SM Prime’s business, financial condition and results of operations. SM Prime faces risks inherent in joint venture structures and/or funds.

SM Prime has 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, 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; (ii) take actions contrary to 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 SM Prime’s performance. Construction defects and other building-related claims may be asserted against SM Prime,

and SM Prime may be subject to liability for such claims. Philippine law provides that property developers, such as SM Prime, warrant the structural integrity of residential developments that were designed or built by them for a period of 15 years from the date of completion of the development. SM Prime may also be held responsible for hidden (i.e. latent or non-

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observable) defects in a residential property sold by it when such hidden defects render the property 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 property 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 other things, the design and construction of buildings, sets certain requirements and standards with which SM Prime must comply. 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 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 SM Prime’s insurance. If these damages are not covered by warranty and indemnification clauses in SM Prime’s agreements with contractors, the resulting liabilities could have an adverse effect on SM Prime’s business, financial condition and results of operations. SM Prime may suffer material losses in excess of insurance proceeds.

SM Prime’s portfolio of malls, residential properties and other real estate assets could suffer physical damage caused by fire, flooding, typhoons, earthquakes or other causes, or third-party liability claims, any of which could result in losses (including loss of rent) which may not be fully compensated for by insurance. SM Prime may also be exposed to liability for damages or injuries from accidents occurring on its properties. 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 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. SM Prime faces property development risk.

The property development business involves significant risks distinct from those involved in the ownership and operation of established properties, including the risks that Government approvals may take more time and resources to obtain than expected; that construction may not be completed on schedule or budget; and that the properties may not achieve anticipated sales, rents or occupancy levels. In addition, development projects typically require substantial capital expenditure during construction and it may take years before property projects generate cash flows. There is the risk that financing for development may not be available under favorable terms, or that construction may not be completed on schedule or within budget. The time and the costs involved in completing construction can be adversely affected by many factors, including shortages of materials, equipment and labor; adverse weather conditions; natural disasters; labor disputes with contractors and subcontractors; accidents; changes in Government priorities; and unforeseen problems or circumstances. The occurrence of any of these factors could give rise to delays in the completion of a project and result in cost overruns. This may also result in the profit on development for a particular property not being recognized in the year in which it was originally anticipated to be recognized, which could adversely affect the Company’s profits recognized for that year. Further, the failure by the Company or any of its subsidiaries to complete construction of a project to its planned specifications or schedule may result in liabilities, reduced project efficiency and lower returns. No assurance can be given that such events will not occur in a manner that would adversely affect the results of operations or financial condition of the Company. Furthermore, properties presently in the name of SM Prime or those acquired in the future may be subject to various lawsuits and/or claims, which, if resolved against the Company, will result in the loss or reduction in size of the particular property subject of the lawsuit.

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To mitigate these risks, the Company ensures that its project developments are carefully planned. The Company relies on the services of reputable, high quality, independent contractors for their projects and maintains good business relationships with these contractors. The Company adheres to the strategy of developing each project in phases to minimize exposure to such risks. Further, each company keeps within a conservative level of leverage. Although the current liquidity and depth of the Philippine credit market renders funding risk as unlikely, the companies have unutilized credit lines as buffer for unanticipated requirements. The companies also ensure that all required governmental approvals are obtained and kept updated on any developments in regulations concerning the real estate industry.

SM Prime will continue to face certain risks related to the cancellation of sales involving

its residential projects. SM Prime’s operations involving the development and sale of residential real estate could be adversely affected in the event that a material number of condominium unit, subdivision lot or house and lot sales are cancelled. SM Prime’s transactions are subject to the Maceda Law, which applies to all transactions or contracts involving the sale or financing of real estate through installment payments paid to the developer, 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 SM Prime has not experienced a material number of cancellations to which the Maceda Law has applied, there can be no assurance that 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 SM Prime fails to meet the construction schedules of launched projects. In the event 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 SM Prime would be able to resell the same property at an acceptable price or at all. Any of the foregoing events would have a material adverse effect on SM Prime’s business, financial condition and results of operations. From time to time 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. 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 SM Prime is unable to find another purchaser for such property. There can be no assurance that SM Prime will not suffer from substantial sales cancellations and that such cancellations will not materially and adversely affect SM Prime’s business, financial condition and results of operations.

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The loss of certain tax exemptions and incentives for residential home sales may increase the price of SM Prime’s residential units and may lead to a reduction in sales.

SM Prime’s customers benefits from provisions under Philippine law and regulations which exempt sales of residential lots with a gross selling price of ₱1,500,000 and below and sales of residential houses and lots with a gross selling price of ₱2,500,000 and below from the value-added tax (“VAT”) of 12.0%. Beginning January 1, 2021, the VAT exemption shall only apply to sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business, sale of real property utilized for socialized housing as defined by Republic Act No. 7279, sale of house and lot and other residential dwellings with selling price of not more than ₱2,000,000, and subject to readjustment every three (3) years thereafter. However, if two or more adjacent lots, or houses and lots, are sold to one buyer from the same seller for the purpose of utilizing them as one residential area, the sale shall be exempt from VAT only if the aggregate value of the properties does not exceed the threshold prices for exemption. Adjacent lots or houses and lots sold to the same person shall be presumed to be a sale of one residential area although covered by separate titles and/or tax declarations and by separate deeds of conveyance. In the event that sales become subject to VAT, due to a change in Government policy or otherwise, the purchase prices for 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 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 SM Prime’s results of operations. A domestic asset price bubble could adversely affect the Company’s business. One of the risks inherent in any real estate property market is the possibility of an asset price bubble. This occurs when there is a gross imbalance between the supply and demand in the property market, causing an unusual increase in asset prices, followed by a drastic drop in prices when the bubble bursts. In the Philippines, the growth of the real estate sector is mainly driven by low interest rates, robust remittances from Overseas Filipino Workers, and the fast growing Business Process Outsourcing sector which is vulnerable to global economic changes. The Company believes that the Philippine property sector is adequately protected against a domestic asset price bubble burst. The country has a very young demographic profile benefitting from rising disposable income. It likewise has one of the fastest growing emerging economies, registering Gross Domestic Product growth rates of 6.9% in 2016, 6.7% in 2017 and 6.2% in 2018 and the growth in the property sector is largely supported by infrastructure investments from both the public and private sectors and strong macroeconomic fundamentals. There can be no assurance however, that the Philippines will achieve strong economic fundamentals in the future. Changes in the conditions of the Philippine economy could materially and adversely affect the Company's business, financial condition and results of operations.

RISKS RELATING TO THE PHILIPPINES Substantially all of the Company’s operations and assets are based in the Philippines; a

slowdown in economic growth in the Philippines could materially adversely affect its

businesses. Historically, the Company has derived a large majority of its revenue and operating profits from the Philippines and, as such, is 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

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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 the Group’s business, financial condition and results of operations. Any political instability in the future may have a negative effect on SM Prime’s financial

results. The Philippines has from time to time experienced political, social and economic instability. On 9 May 2016, the Philippines held its sixteenth national elections for president, vice president, members of the Senate and local government officials. On June 30, 2016, Rodrigo Roa Duterte was sworn in as the 16th president of the Republic of the Philippines, succeeding Benigno Aquino III. There can be no assurance that President Duterte will continue to implement the economic, development and regulatory policies of President Aquino, including those policies that have a direct effect on the Group’s assets and operations. On 11 May 2018, the Supreme Court of the Philippines rendered a decision to grant the Petition for Quo Warrato and found Maria Lourdes P.A. Sereno, then the Chief Justice of the Supreme Court of the Philippines, disqualified from and adjudged guilty of unlawfully holding and exercising the office of the Chief Justice. On 19 June 2018, the Supreme Court issued a resolution denying the motion for reconsideration filed by Maria Lourdes P.A. Sereno with finality. In June 2018, former President Benigno Aquino III was indicted for usurpation of legislative powers concerning the Disbursement Acceleration Program during his term. Moreover, several individuals who were high -ranking officers under the administration of President Aquino have also been indicted for graft and corruption charges and drug trafficking among other offenses. In addition, since the commencement of the current administration, more than 1,000 alleged drug dealers and users have been killed in police operations, and more than 1,300 drug dealers and drug users have been killed by supposed vigilantes. A new version of the Bangsamoro Basic Law (“BBL”) was crafted under the Duterte administration, which was finally signed into law by President Rodrigo Duterte on July 26, 2018. The Bangsamoro Organic Law (“BOL”) abolished the Autonomous Region in Muslim Mindanao, and created the Bangsamoro Autonomous Region in Muslim Mindanao (“BARMM”). The BARMM will be parliamentary-democratic in form, and will be headed by a chief minister, who will preside over an 80-member parliament. The BOL, however, still has to be cleared by a plebiscite and overcome possible legal challenges. The Duterte administration has been pushing for a shift to a federal form of government. For this purpose, the President created a consultative committee to review the 1987 Constitution and draft a federal constitution.

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In May 2019, the Philippine legislative and local elections were held. Majority of the senatorial candidates endorsed by the administration won the 2019 elections. The senators elected in the 2019 elections will join the senators elected in the 2016 elections. There are allegations of fraud and voter disenfranchisement in the conduct of the 2019 elections. No assurance can be given that the future political environment in the Philippines will be stable or that current or future Governments will adopt economic policies conducive to sustaining economic growth. Political instability in the Philippines could negatively affect the general economic conditions in the Philippines which could have a material impact on the financial results of the Group. In addition, such adverse factors may affect the Philippine tourism industry, which is the focus of one element of the Group’s growth strategy. Historically, the Group has remained apolitical and cooperates with the country’s duly constituted government. The Group supports and contributes to nation-building. 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. The Philippines has been subject to a number of terrorist attacks in the past several years. The Philippine army has been in conflict with the Abu Sayyaf organization which has been responsible for kidnapping and terrorist activities in the Philippines, and is alleged to have ties to the Al-Qaeda terrorist network. There have also been sporadic bombings and prominent kidnappings and slayings of foreigners in the Philippines, including the hijacking of a tourist bus carrying Hong Kong tourists that resulted in the deaths of several passengers. There can be no assurance that the Philippines will not be subject to further acts of terrorism and violence in the future. Terrorist attacks have, in the past, had a material adverse effect on investment and confidence in, and the performance of, the Philippine economy and, in turn, the Company’s business. The Company’s current insurance policies do not cover terrorist attacks. Any terrorist attack or violent acts arising from, and leading to, instability and unrest, could cause interruption to parts of the Company’s businesses and materially and adversely affect the Company’s financial condition, results of operations and prospects. The Philippines has experienced a number of major natural catastrophes over the years, including typhoons, droughts, floods, volcanic eruptions and earthquakes that may materially disrupt and adversely affect the Company’s business operations. A number of climate experts believe that climate change is affecting the intensity and severity of these natural calamities. The potential future effects of global climate change may include longer periods of drought in some regions and an increase in the number, duration and intensity of tropical storms in the country. Authorities may not be prepared or equipped to respond to such disasters. On 26 September 2009, Typhoon Ketsana (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 6 August 2012, a monsoon hit Metro Manila and other nearby provinces which also caused severe flooding and landslides. Other regions of the Philippines have also experienced severe natural disasters. In December 2011, Typhoon Washi (Sendong) caused massive flooding in the southern Philippine city of Cagayan de Oro, claiming thousands of lives and displacing tens of thousands of residents. On 3 December 2012, Typhoon Bopha struck the southern island of Mindanao as a category five 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. In October 2013, an earthquake occurred in Central Visayas, Philippines. The magnitude of the earthquake was recorded at Mw 7.2 at the epicenter which was located six kilometers southwest of Sagbayan town, at a depth of 12 kilometers. The seismic event affected the whole Central Visayas region, particularly Bohol and Cebu. According to recent official reports by the National Disaster Risk

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Reduction and Management Council, 198 people were reported dead, 11 were missing, and 651 were injured as a result of the earthquake, making it the deadliest earthquake in the Philippines in 23 years. In all, more than 53,000 structures were damaged or destroyed, including commercial buildings, malls, public edifices, hotels and churches. SM Prime’s Radisson Blu Cebu sustained cosmetic damages on tiles and walls, however, the structural integrity of the building has been certified by three structural engineering companies. As a result, total business lost was estimated at approximately P60 million and forecasted year end occupancy of 74% had dropped to 66%. In addition, the Central Philippines experienced a severe typhoon, Typhoon Haiyan (Yolanda), in November 2013 which caused extensive damage to infrastructure and properties, claimed 6,268 lives and displaced thousands of residents. The Philippines may also be subject to outbreaks of contagious diseases, such as Avian flu, Ebola, and MERS-CoV. In April 2015, the Government, through the Department of Health (“DOH”), issued a Bureau of Quarantine alert bulletin after a Filipino citizen tested positive for MERS-CoV before his departure from the United Arab Emirates and arrival to Manila. The said individual has tested negative in follow-up findings of the DOH Research Institute for Tropical Medicine. As of July 31, 2015, South Korea had reported a total number of 186 cases of MERS-CoV, while there were reports of two cases in Hong Kong and one case in Thailand. To date, while reported cases of MERS-CoV have decreased substantially worldwide in 2016 and 2017 and while there have been no indications of the presence of such diseases in the Philippines, the DOH continues to monitor disembarking passengers suspected to be carriers of MERS-CoV, Ebola or Avian flu. In August 2017, an outbreak of bird flu from a poultry farm in Central Luzon was confirmed, and the avian influenza strain was later found to be transmissible to humans. In response to the outbreak, restrictions on the transport and sale of birds and poultry outside a seven-kilometer radius surrounding the affected site were imposed. The Philippines has since been cleared of any human infection of the avian influenza virus. It is not possible to predict the extent to which the Company’s various businesses will be affected by any future occurrences of natural calamities or outbreak of contagious diseases such as those described above 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 such occurrences may disrupt the operations of the Company’s businesses and could materially and adversely affect their business, financial condition and results of operations. Further, any such occurrences may also destabilize the Philippine economy and business environment, which could also materially and adversely affect the Company’s financial position and results of operations. Volatility in the value of the Peso against the U.S. dollar and other currencies could

adversely affect SM Prime’s businesses.

During the last decade, the Philippine economy has from time to time experienced volatility in the value of the Peso and limited availability of foreign exchange. In July 1997, the BSP announced that it would allow market forces to determine the value of the Peso. Since 30 June 1997, the Peso experienced periods of significant depreciation and declined from approximately P29.00 = U.S.$1.00 in July 1997 to a low of P49.90 = U.S.$1.00 for the month ended (period average) December 2000. In recent years, the Peso has generally depreciated and the exchange rate (period average) was P47.47 in 2016, P50.40 in 2017 and P52.68 in 2018. Reduced risk appetite for emerging market assets could also result in a decline in value of the Peso as investors move their portfolios out of emerging markets. Intervention in the currency markets as well as changes in demand for the Peso could result in volatility in the value of the Peso against the U.S. dollar and other currencies.

The revenues of the Company are predominantly denominated in Pesos, while certain expenses, including fixed debt obligations, are denominated in currencies other than Pesos. Certain of the Company’s borrowings are denominated in US dollars and China renminbi and accordingly, the Company is exposed to fluctuations in the Peso to US dollar and other foreign currency exchange rates. A depreciation of the Peso against the US dollar and other foreign currencies will increase the amount of Peso revenue required to service foreign currency denominated debt obligations.

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There can be no assurance that the Peso will not depreciate further against other currencies and that such depreciation will not have an adverse effect on the Philippine economy and on the Company’s businesses. In addition, changes in currency exchange rates may result in significantly higher domestic interest rates, liquidity shortages and capital or exchange controls. This could result in a reduction of economic activity, economic recession, sovereign or corporate loan defaults, lower deposits and increased cost of funds. The foregoing consequences, if they occur, would have a material adverse effect on the Company’s financial condition, liquidity and results of operations. As a policy, the Company does not engage in foreign currency speculation. Furthermore, the Company minimizes foreign exchange exposure and fully hedges its foreign currency liabilities. Tensions with China and other neighboring countries may adversely affect the Philippine

economy and business environment. The Philippines, Vietnam and several Southeast Asian nations have been engaged in a series of longstanding territorial disputes with China and other Southeast Asian countries over certain territories in the West Philippine Sea, also known as the South China Sea. The Philippines’ efforts at bilateral talks with China failed, and thus the dispute remains unresolved. Actions taken by both sides have threatened to disrupt trade and other ties between the two countries, including a temporary ban by China on Philippine banana imports and a temporary suspension of tours to the Philippines by Chinese travel agencies. In January 2013, the Philippines initiated arbitral proceedings before a tribunal under the United Nations Convention on the Law of the Sea (“UNCLOS”), in which China refused to participate. On June 20, 2015, the Government, through the Department of Foreign Affairs, issued a statement reiterating its serious concern that China’s reclamation and construction activities in a disputed part of the West Philippine Sea grossly violate the 2002 ASEAN-China Declaration on the Conduct of Parties in the South China Sea (“DOC”) and may serve to escalate the disputes and undermine efforts to promote peace, security, and stability. In the same statement, the Philippines called on China anew to heed calls from the region and the international community to exercise self-restraint in the conduct of activities pursuant to Paragraph 5 of the DOC. On May 17, 2016, outgoing President Aquino issued Memorandum Circular No. 94 s. 2016 creating a National Task Force for the West Philippine Sea, to secure the country’s sovereignty and national territory and to preserve marine wealth in its waters and the exclusive economic zone, thereby reserving use and enjoyment of the West Philippine Sea exclusively for Filipino citizens. In July 2016, the UNCLOS tribunal rendered a decision stating that the Philippines has exclusive sovereign rights over the West Philippine Sea (in the South China Sea) and that China’s “nine-dash line” claim is invalid. Despite the decision, the Chinese Government has maintained its position that the Tribunal has no jurisdiction over the dispute, and thus, the decision is not binding on the Chinese Government. Recently, the Chinese Government successfully registered names for five undersea features found in the Philippine Rise (formerly Benham Rise) with the International Hydrographic Organization. This is despite the decision that the United Nations Commission on the Limits of the Continental Shelf had already granted the Philippines full territorial claim to the Philippine Rise in April 2012. While the Philippine Government downplays the Chinese names, the Philippines' central mapping agency is seeking the assistance of the Department of Foreign Affairs for the nullification of the Chinese names for underwater features from the International Hydrographic Organization-Intergovernmental Oceanographic Commission General Bathymetric Chart of the Oceans (“IHOIOC GEBCO”) Sub-Committee on Undersea Feature Names (“SCUFN”). There had been other occurrences of territorial disputes with Malaysia and Taiwan. In March 2013, several hundred armed Filipino Muslims illegally entered Malaysia in a bid to enforce an alleged historical claim on the territory. Clashes between the Filipino Muslim individuals and the Malaysian armed forces resulted in casualties on both sides. Taiwan imposed economic sanctions on the Philippines as a result of an incident in May 2013, whereby a Taiwanese fisherman was unintentionally killed by a Philippine coast guard ship that opened fire on his vessel in a disputed exclusive economic zone between Taiwan

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and the Philippines. The sanctions were eventually lifted after a formal apology was issued by the Philippine government. 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 business, financial condition and results of operations. Corporate governance and disclosure standards in the Philippines may differ from those in more developed countries. While a principal objective of the Philippine securities laws, SEC regulations and PSE disclosure rules is to promote full and fair disclosure of material corporate information, there may be less publicly available information about Philippine public companies, such as the Issuer, than is regularly made available by public companies in the United States and other countries. The Philippines securities market is generally subject to less strict regulatory oversight than securities markets in more developed countries. Improper trading activities could affect the value of securities and concerns about inadequate investor protection may limit participation by foreign investors in the Philippine securities market. Furthermore, although the Issuer complies with the requirements of the SEC and PSE with respect to corporate governance standards, these standards may differ from those applicable in other jurisdictions. For example, the Philippine Securities Regulation Code requires the Issuer to have at least two independent directors or such number of independent directors as is equal to 20% of the Board, whichever is the lower number. The Issuer currently has three independent directors. Many other jurisdictions require significantly more independent directors. The Group has received numerous awards for good corporate governance from international publications. RISKS RELATING TO THE DEBT SECURITIES The priority of debt evidenced by a public instrument. Under Philippine law, in the event of liquidation of a company, unsecured debt of the company (including guarantees of debt) which is evidenced by a public instrument as provided in Article 2244 of the Civil Code of the Philippines will rank ahead of unsecured debt of the company which is not so evidenced. Under Philippine law, a debt becomes evidenced by a public instrument when it has been acknowledged before a notary or any person authorized to administer oaths in the Philippines. Although the position is not clear under Philippine law, it is possible that a jurat (which is a statement of the circumstances in which an affidavit was made) may be sufficient to constitute a debt evidenced by a public instrument. So far as the Issuer is aware, none of its debt is evidenced by a public instrument and the Issuer will undertake in the Terms and Conditions of the Debt Securities to use its best endeavors not to incur such debt. Any such debt evidenced by a public instrument may, by mandatory provision of law, rank ahead of the Debt Securities in the event of the liquidation of the Issuer. As a policy, SM Prime’s borrowings are clean and are not collateralized by its assets, except for debts that are required by law to be secured. An active trading market for the Debt Securities may not develop. The Debt Securities are a new issue of securities for which there is currently no trading market. Even if the Debt Securities are listed on the PDEx, trading in securities such as the Debt Securities may be subject to extreme volatility at times, in response to fluctuating interest rates, developments in local and international capital markets and the overall market for debt securities among other factors. Although certain offers are intended to be listed on PDEx as soon as reasonably practicable, no assurance can be given that an active trading market for the debt securities will develop and, if such a market were to develop the Joint Issue Managers are under no obligations to maintain such a market.

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The liquidity and the market prices for the Debt Securities can be expected to vary with changes in market and economic conditions, the financial position and prospects of the Company and other factors that generally influence the market prices of securities. The Company has no control over this risk as active trading of the Debt Securities is highly dependent on the bondholders. The Group actively cooperates in efforts aimed at improving the capital markets in the Philippines. The Issuer may be unable to redeem the Debt Securities. At maturity, the Issuer will be required to redeem all of the Debt Securities. If such an event were to occur, the Issuer may not have sufficient cash in hand and may not be able to arrange financing to redeem the Debt Securities in time, or on acceptable terms, or at all. The ability to redeem the Debt Securities in such event may also be limited by the terms of other debt instruments. Failure to repay, repurchase or redeem tendered Debt Securities by the Issuer would constitute an event of default under the Debt Securities, which may also constitute a default under the terms of other indebtedness of the Issuer. The Issuer has a very strong business franchise in the Philippines. It has a strong recurring cash flow and maintains a low debt-equity ratio and a high level of liquidity in its balance sheet. The Issuer believes that it has sufficient resources which will allow it to service the principal and interest of the Debt Securities.

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USE OF PROCEEDS The intended use of proceeds for each offer of the Debt Securities being offered shall be set in the relevant Offer Supplement under Use of Proceeds.

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DETERMINATION OF THE OFFER PRICE The determination for each offer of the Debt Securities being offered shall be set in the relevant Offer Supplement under “Determination of Offer Price”.

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PLAN OF DISTRIBUTION The detailed plan of distribution and underwriting arrangement for each offer of Debt Securities shall be set out in the relevant Offer Supplement.

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DESCRIPTION OF THE DEBT SECURITIES The detailed terms and conditions of each Offer shall be set out in the relevant Offer Supplement. Any such discussion does not purport to be a complete listing of all the rights, obligations, or privileges of the Debt Securities. Some rights, obligations, or privileges may be further limited or restricted by other documents. Prospective investors are enjoined to carefully review the Articles of Incorporation, By-Laws and resolutions of the Board of Directors and Shareholders of SM Prime, the information contained in this Prospectus, the Trust Indenture Agreement, Issue Management and Underwriting Agreement, and other agreements relevant to the Offer.

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INDEPENDENT AUDITORS AND COUNSEL All legal opinion/matters in connection with the issuance of the Debt Securities which are subject of an Offer shall be passed upon by Angara Abello Concepcion Regala & Cruz (“ACCRA”), for the Joint Issue Managers and Joint Lead Underwriters, and SM Prime’s Legal Affairs Division for the Company. ACCRA has no direct and indirect interest in SM Prime. ACCRA may, from time to time, be engaged by SM Prime to advise in its transactions and perform legal services on the same basis that ACCRA provides such services to its other clients. INDEPENDENT AUDITORS

The audited consolidated financial statements of SM Prime as at 31 December 2017 and 2018 and for the years ended 31 December 2016, 2017 and 2018 have been audited by SyCip Gorres Velayo and Co. (“SGV & Co.”), independent auditors, in accordance with Philippine Standards on Auditing as set forth in their report thereon appearing elsewhere in this Prospectus. The unaudited interim condensed consolidated financial statements as at 30 September 2019 and for the nine-month periods ended 30 September 2018 and 2019 have been reviewed by SGV & Co. in accordance with Philippine Standard on Review Engagements 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. The Company’s Audit Committee of the Board reviews and approves the scope of audit work of the independent auditors and the amount of audit fees for a given year. The financial statements will then be presented for approval by the stockholders in the annual meeting. As regards to services rendered by the external auditor other than the audit of financial statements, the scope of and amount for the same are subject to review and approval by the Audit Committee. SM Prime’s audit fees for each of the last two fiscal years for professional services rendered by the external auditor was P11 million and P10 million for 2018 and 2017, respectively. Except for the members of SM Prime’s Legal Affairs Division, there is no arrangement that experts shall receive a direct or indirect interest in SM Prime or was a promoter, underwriter, voting trustee, director, officer, or employee of SM Prime. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

SM Prime has not had any changes in or disagreements with its independent accountants/ auditors on any matter relating to financial or accounting disclosures.

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CAPITALIZATION AND INDEBTEDNESS The unaudited consolidated short-term and long-term debt and capitalization of the Issuer as of the relevant period shall be set out in the relevant Offer Supplement.

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DESCRIPTION OF THE ISSUER OVERVIEW SM Prime Holdings, Inc. was incorporated in the Philippines and registered with the SEC on 6 January 1994. It is a leading integrated Philippine real estate company with business units focused on malls, residential, commercial, and hotels and convention centers. As at 30 September 2019, SM Prime’s consolidated total assets stood at P656.8 billion, consolidated total liabilities were at P365.0 billion, with net debt-to-equity ratio (being the ratio of aggregate consolidated indebtedness net of cash and cash equivalent) of 40%. The Company has four business segments, namely, malls, residential, commercial and hotel and convention centers. The table below sets out each business unit’s contribution to SM Prime’s consolidated revenue for the years ended 31 December 2016, 2017 and 2018 and the nine months ended 30 September 2018 and 2019.

For the years ended 31 December

Audited

For the nine months ended 30 September

Unaudited6

(in P million) 2016 2017 2018 2018 2019

Malls 48,600 53,196 59,277 43,258 46,426

Residential 25,419 30,039 36,519 25,265 31,925

Commercial 2,737 3,060 3,578 2,582 3,300

Hotels and Convention Centers 3,218 4,797 4,868 3,586 3,530

Eliminations (158) (171) (162) (130) (148)

Combined Total 79,816 90,921 104,080 74,561 85,033

The contribution of each of SM Prime’s subsidiaries to the Company’s total consolidated revenues for the years ended 31 December 2016, 2017, and 2018 is set out below.

2016 2017 2018

Name of Subsidiary Revenue % to Total

Revenue % to Total

Revenue % to Total

(Amounts in P thousands)

SM Prime Holdings Inc. - Malls 35,465,630 44% 38,651,537 43% 42,800,804 41%

SM Prime Holdings Inc. - Commercial 2,399,015 3% 2,646,300 3% 3,078,735 3%

SM Prime Holdings Inc. – Residential 661,740 1% 1,041,402 1% 1,722,757 2%

SM Prime Holdings Inc. - Hotels 2,877,428 4% 4,369,093 5% 4,369,476 4%

Prime Metroestate, Inc. and Subsidiary 141,561 0% 154,861 0% 245,776 0%

SM Development Corporation and Subsidiaries – Malls

476,554 1% 545,594 1% 675,088 1%

SM Development Corporation and Subsidiaries – Residential

23,397,120 29% 26,395,123 29% 32,301,872 31%

Costa del Hamilo, Inc. and Subsidiary 541,398 1% 453,604 0% 595,936 1%

SM Hotels and Conventions Corp. and Subsidiaries

17,312 0% 17,525 0% 4,024 0%

6 The interim consolidated balance sheet as at 30 September 2019 and the related interim consolidated statements

of income, comprehensive income, changes in equity and cash flows for nine-month periods ended 30 September 2019 and 2018 have been reviewed by the Independent Auditors of the Issuer.

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2016 2017 2018

Name of Subsidiary Revenue % to Total

Revenue % to Total

Revenue % to Total

SM Land (China) Limited and Subsidiaries – Malls

331,217 0% 516,192 1% 736,153 1%

SM Land (China) Limited and Subsidiaries – Residential

- 0% 725,660 1% 281,714 0%

Affluent Capital Enterprises Limited and Subsidiaries –Malls

3,035,944 4% 3,489,057 4% 4,149,651 4%

Affluent Capital Enterprises Limited and Subsidiaries –Residential

- 0% 572,108 1% 739,113 1%

Mega Make Enterprises Limited and Subsidiaries

717,509 1% 761,341 1% 922,041 1%

SM Arena Complex Corporation 536,264 1% 602,755 1% 602,467 1%

First Asia Realty Development Corporation - Malls

3,676,548 5% 3,829,548 4% 4,034,370 4%

First Asia Realty Development Corporation – Commercial

150,858 0% 156,793 0% 164,647 0%

First Asia Realty Development Corporation - Hotels

85,487 0% 105,856 0% 114,823 0%

Premier Central, Inc - Malls. 937,136 1% 1,028,884 1% 1,148,583 1%

Premier Central, Inc. – Commercial 184,400 0% 254,034 0% 330,926 0%

Premier Central, Inc. – Hotels 157,056 0% 206,415 0% 214,916 0%

Premier Southern Corp. 1,152,221 1% 1,236,466 1% 1,328,035 1%

Consolidated Prime Dev. Corp. 972,745 1% 1,018,245 1% 1,089,947 1%

First Leisure Ventures Group Inc. 221,862 0% 255,311 0% 284,957 0%

MOA Esplanade Port, Inc. 2,665 0% 3,372 0% 3,772 0%

Southernpoint Properties Corp. – Malls 511,923 1% 577,365 1% 654,435 1%

Southernpoint Properties Corp. – Hotels

80,411 0% 98,119 0% 165,078 0%

CHAS Realty and Development Corporation

167,130 0% 173,267 0% 192,133 0%

Magenta Legacy, Inc. 16,306 0% 14,446 0% 17,977 0%

Highlands Prime Inc 818,672 1% 851,324 1% 877,920 1%

Mindpro Incorporated 0 0% 70,858 0% 49,554 0%

Prime Commercial Property Management Company and Subsidiaries

239,883 0% 269,916 0% 345,316 0%

Eliminations (157,764) 0% (170,521) 0% (162,431) 0%

Total 79,816,231 100% 90,921,850 100% 104,080,565 100%

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The contribution of each of SM Prime’s subsidiaries to the Company’s total consolidated net income attributable to equity holders of the Parent for the years ended 31 December 2016, 2017, and 2018 is set out below.

2016 2017 2018

Name of Subsidiary Net Income % to Total

Net Income % to Total

Net Income % to Total

(Amounts in P thousands)

SM Prime Holdings Inc. - Malls 12,503,080 53% 15,103,183 55% 16,852,523 52%

SM Prime Holdings Inc. - Commercial 1,404,178 6% 1,634,687 6% 1,898,206 6%

SM Prime Holdings Inc. – Residential 213,066 1% 337,505 1% 500,437 2%

SM Prime Holdings Inc. - Hotels 389,801 2% 846,906 3% 821,219 3%

Prime Metroestate, Inc. and Subsidiary

71,489 0% 67,661 0% 85,448 0%

SM Development Corporation and subsidiaries – Malls

216,071 1% 275,656 1% 313,796 1%

SM Development Corporation and subsidiaries – Residential

5,393,181 23% 6,316,421 23% 8,285,522 26%

Costa del Hamilo, Inc. and Subsidiary 42,098 0% 22,645 0% 78,699 0%


(33,666) 0% (75,438) 0% (68,938) 0%

SM Land (China) Limited and Subsidiaries – Malls

(2,008,770) -8% (1,989,625) -7% (2,510,019) -8%

SM Land (China) Limited and Subsidiaries – Residential

- 0% - 0% 27,035 0%

Affluent Capital Enterprises Limited and Subsidiaries - Malls

1,522,488 6% 1,913,178 7% 2,328,758 7%

Affluent Capital Enterprises Limited and Subsidiaries – Residential

0 0% 195,899 1% 115,740 0%


489,691 2% 609,198 2% 775,550 2%

Simply Prestige Limited and Subsidiaries

(183,718) -1% (145,725) -1% (102,629) 0%

SM Arena Complex Corporation 179,072 1% 91,800 0% 191,903 1%

First Asia Realty Development Corp. – Malls

1,794,604 8% 1,831,249 7% 1,504,792 5%

First Asia Realty Development Corp. – Commercial

153,446 1% 168,305 1% 185,378 1%

First Asia Realty Development Corp. – Hotels

47,882 0% 63,563 0% 66,507 0%

Premier Central, Inc. – Malls 202,424 1% 246,172 1% 340,514 1%

Premier Central, Inc. – Commercial 190,293 1% 226,729 1% 273,715 1%

Premier Central, Inc. – Hotels 26,007 0% 40,098 0% 43,463 0%

Premier Southern Corp. 607,758 3% 688,916 3% 765,333 2%

Consolidated Prime Dev. Corp. 554,454 2% 592,088 2% 632,810 2%

First Leisure Ventures Group Inc. 86,464 0% 117,209 0% 84,172 0%

MOA Esplanade Port, Inc. 1,059 0% (383) 0% (311) 0%

San Lazaro Holdings Corporation 2,053 0% 1,541 0% 1,718 0%

Southernpoint Properties Corp. - Malls 181,212 1% 239,957 1% 287,346 1%

Southernpoint Properties Corp. – Hotels

5,174 0% 15,799 0% 37,566 0%

CHAS Realty and Development Corporation

37,422 0% 36,439 0% 53,698 0%

Magenta Legacy, Inc. 5,667 0% 5,644 0% 8,394 0%

Associated Development Corporation (22,550) 0% (26,225) 0% (24,818) 0%

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Highlands Prime Inc 149,709 1% 181,255 1% 197,125 1%

Tagaytay Resorts and Development Corporation

(875) 0% (1,252) 0% (2,550) 0%

Rushmore Holdings Inc - 0% - 0% (2,440) 0%

Cherry Realty Development Corporation

- 0% - 0% (332) 0%

AD Canicosa Holdings, Inc. - 0% - 0% (2,646) 0%

A Canicosa Holdings, Inc. - 0% - 0% (1,186) 0%

Mindpro Incorporated - 0% - 0% (292) 0%

Prime Commercial Property Management Company and Subsidiaries

117,499 0% (1,774,713) -6% (1,713,031) -5%

Eliminations (532,050) -2% (282,476) -1% (155,289) -1%

Total 23,805,713 100% 27,573,866 100% 32,172,886 100%

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The Company’s operations in China account for a portion of the SM Prime’s consolidated revenues and net income. The contribution of the Company’s China operations to its consolidated revenues and net income for each of the last three years is set out below.

Year

Contribution to

Revenues

Contribution

to Net

Income

2016 5% -1%

2017 7% 2%

2018 7% 2%

SM Prime is listed on the PSE and as at 30 September 2019 was 49.70% directly-owned by SMIC. SM Prime had a market capitalization of P1,074.3 billion as of 30 September 2019.

Subsidiaries of the Company

The subsidiaries of the Company by business segment are set out below: MALLS

Name of company Place of

incorporation

Year of

incorporation

Percentage

ownership

First Asia Realty Development Corporation Philippines 1987 74.2

Premier Central, Inc. Philippines 1998 100.0

Consolidated Prime Dev. Corp. Philippines 1998 100.0

Premier Southern Corp. Philippines 1998 100.0

San Lazaro Holdings Corporation Philippines 2001 100.0

First Leisure Ventures Group, Inc. Philippines 2007 50.0

Southernpoint Properties Corp. Philippines 2008 100.0

CHAS Realty and Development Corporation and Subsidiaries

Philippines 1997 100.0


British Virgin Islands 2007 100.0

Affluent Capital Enterprises Limited and subsidiaries

British Virgin Islands 2006 100.0

SM Land (China) Limited and Subsidiaries Hong Kong 2006 100.0

Simply Prestige Limited and Subsidiaries British Virgin Islands 2013 100.0

Springfield Global Enterprises Limited British Virgin Islands 2007 100.0

Rushmore Holdings, Inc. Philippines 1994 100.0

Prime Commercial Property Management Corporation and Subsidiaries


Magenta Legacy, Inc. Philippines 2006 100.0

Associated Development Corporation Philippines 1950 100.0

Prime Metroestate, Inc. and Subsidiary Philippines 1995 100.0

SM Arena Complex Corporation Philippines 2012 100.0

Mindpro Incorporated Philippines 1970 70.0

A. Canicosa Holdings, Inc. Philippines 2008 100.0

AD Canicosa Properties, Inc. Philippines 2008 100.0

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Cherry Realty Development Corporation Philippines 1977 100.0

RESIDENTIAL


incorporation Year of

incorporation Percentage

ownership

SM Development Corporation and Subsidiaries Philippines 1974 100.0

Costa del Hamilo, Inc. and Subsidiary Philippines 2006 100.0

Highlands Prime, Inc. Philippines 2001 100.0

COMMERCIAL




ownership

Tagaytay Resorts and Development Corporation Philippines 1988 100.0

MOA Esplanade Port, Inc. Philippines 2014 100.0

HOTELS AND CONVENTION CENTERS




ownership



COMPETITIVE STRENGTHS Integrated real estate platform with strong track record across segments

SM Prime benefits from a strong track record in the Philippine real estate industry, including being the number one shopping mall developer and operator in the Philippines based on both GFA and number of malls, a leading residential developer in the Philippines in terms of condominium units sold, and operating growing office, hotel and leisure segments. SM Prime possesses end-to-end capabilities across the integrated real estate value chain, encompassing land banking, master planning, construction, retailing and operations. SM Prime is able to leverage on the diverse skill sets of each of its business units while optimizing value through more efficient planning and control over its developments. SM Prime believes it can maximize the existing plots of its retail developments that may be underutilized or unutilized by adding residential, commercial and hospitality developments, thereby providing customers with an attractive “live, work, play” lifestyle. SM Prime is one of the largest integrated real estate developers in Southeast Asia by market capitalization as of 30 September 2019, and the largest listed real estate developer on the PSE by market capitalization, total assets and net income as of 30 September 2019. SM Prime believes it is the largest shopping mall developer in the Philippines in terms of gross leasable area. SM Prime believes that it is well positioned to take advantage of greater demand for residential homes resulting from the growth of the Philippine economy and increasing demand from expatriate Filipinos, among other factors. Leading retail malls business

As of 30 September 2019, SM Prime was the largest mall operator in the Philippines, with 73 malls across [55] cities in the Philippines and an additional 7 malls in the PRC. SM Prime’s track record of

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operating malls dates back to 1985 when the first SM Mall was opened. Drawing on its relationship with key tenants, SM Prime believes it is able to establish an appropriate mix of tenants in its malls and hence attract retail foot traffic. SM Prime enjoys long-standing relationships with anchor tenants such as The SM Stores, SM Supermarkets, SM Hypermarkets, Jollibee and National Bookstore in the Philippines and Walmart and Vanguard in the PRC. In addition, SM Prime has long-term relationships with an extensive base of international and domestic tenants and has access to a wide leasing network, with approximately 18,716 tenants in the Philippines and 1,960 tenants in the PRC across multiple segments as of 30 September 2019. These tenants include well-known Philippine brands such as Jollibee and National Bookstore as well as international brands such as Uniqlo, Forever 21, H&M, Starbucks, KFC, McDonalds. SM Prime’s diverse network of tenants allows it to pursue a dynamic leasing and marketing strategy. For example, international brands such as Uniqlo, Forever 21 and H&M have chosen SM Malls as the locations to open their flagship stores in the Philippines. SM Prime’s diverse network of tenants generally also allows it to achieve high occupancy levels in a short period time following the opening of new malls. Significant demand backlog gives SM Prime the flexibility to optimize its tenant mix, ensuring steady foot traffic and consistent same store sales growth at its malls. SM Prime believes that in its 34 years of operating history, the SM Malls have established strong brand equity. SM Prime’s retail malls provide an anchor for its lifestyle city projects, generating steady foot traffic and enhancing the value of its mixed-use developments. Access to a prime large-scale land bank

SM Prime aims to have a significant growth pipeline as underscored by its large and diversified land bank consisting of retail, commercial, and residential land in prime locations across the Philippines. As of 30 September 2019, SM Prime possessed a land bank of [17,481,304] sq. m. including around the MOA complex, South Road Properties in Cebu, Clark in Pampanga, North EDSA and SMDC properties in Metro Manila, among others, which SM Prime believes is among the largest land banks in the country. SM Prime believes that its well-established presence and reputation in the Philippines, as well as its expansion into China, enable it to gain access to additional quality land bank. SM Prime also has a track record of implementing a proactive land banking strategy, for example, the master plan for the 600-hectare reclamation project in Pasay and Parañaque is already in process. 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. Strong balance sheet and access to capital

SM Prime believes that it has access to capital from a wide variety of sources and thus is not dependent on any one source for its funding needs. As a PSE-listed company, SM Prime has access to the Philippine and international capital markets for potential issuance of equity, debt or other securities. SM Prime is also able to secure debt financing at what it believes to be competitive rates, including revolving bank loans and medium-term notes. SM Prime believes that its strong balance sheet boosted by a large asset and equity base ensures that it is able to move quickly to acquire real estate assets and additional land bank. As at 30 September 2019, SM Prime had consolidated total assets of ₱656.8 billion and a total equity attributable to equity holders of the Parent of ₱290.1 billion. As at 30 September 2019, SM Prime’s combined net debt to equity ratio was 40%, providing sufficient debt headroom flexibility for current and future capital expenditure and expansion plans. SM Prime believes that its stable real estate portfolio contributes to its liquidity and strong mix of recurring income from its mall and office operations. In the nine months ended 30 September 2019,

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58% of SM Prime’s consolidated revenue was derived from mall and commercial. SM Prime believes that its long-term leases help to create a steady stream of cash flow. Experienced management team with strong corporate governance practices

SM Prime’s senior management team comprises Mr. Henry T. Sy, Jr., as Chairman of the Board, and Mr. Jeffrey Lim and Mr. Hans T. Sy as President and Chairman of the Executive Committee, respectively. Each of these individuals has been with SM Prime or its component businesses for at least 20 years. SM Prime adheres to strong corporate governance practices, with three out of the eight members of its Board of Directors being independent directors. SM Prime has been recognized by the ASEAN Corporate Governance as Top 3 in ASEAN Corporate Governance in the Philippines, PLCs Category for 2018. SM Prime has been recognized by the Asset Corporate Awards as a Platinum Awardee for Excellence in Governance, Corporate Social Responsibility and Investor Relations for 2016-2017. BUSINESS STRATEGIES

Continue to expand SM Prime’s land bank and develop integrated lifestyle cities SM Prime has integrated all land banking functions into a centralized department retaining the highly successful culture that allowed the Company to reach its strong current land bank position. Going forward, the key focus of SM Prime will be on acquiring land bank that is suitable for mid-to-large scale mixed-use master planned projects in fast growing areas of the Philippines. SM Prime also plans to continue acquiring a strategic land bank near its existing developments, select schools, mass transit stations and other areas which are expected to be significant beneficiaries of infrastructure development in the future. For example, SM Prime recently submitted a proposal to reclaim land adjacent to the MOA complex. A successful land banking strategy creates the foundation for the next phase in the development of lifestyle city projects, being the master planning for an integrated township design. These lifestyle cities are anchored by SM Prime’s retail malls, supported by commercial, residential, hotel and convention center developments, creating a synergistic value enhancement across product classes and offering a complete selection of products to customers. For example, SM Prime aims to replicate the successful model of its MOA complex, a 60 hectare master-planned bayside development in Pasay City. The MOA complex had a total estimated land value of ₱85.3 billion according to CBRE as of December 31, 2015. SM Prime believes that the success of the MOA complex is a result of the substantial synergies from each real estate offering in the integrated development. For example, the MOA Arena has been a preferred venue for event due to its proximity to the MOA, which in turn increased foot traffic at the MOA. Sea Residences, Shell Residences and Shore 1 to 3 Residences have been SM Prime’s top selling residential developmentprojects in part due to its proximity to the MOA, while again providing additional foot traffic to the MOA. SM Prime was also awarded by the cities of Pasay and Parañaque to reclaim land adjacent to the MOA complex totaling around 600 hectares. SM Prime has a large and diverse land bank suitable for projects that are modeled after the MOA complex and creating lifestyle cities across the Philippines. For example, SM Prime is building a 30 hectare mixed use development project in Cebu City, the SM Seaside City. The mall in SM Seaside City is the city’s largest mall, with a GFA of approximately 430,000 sq. m. It consists of a four-storey 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, and hotels. Leverage retail malls to anchor lifestyle city developments

SM Prime expects mall operations to continue to be its primary focus going forward and is targeted to account for a majority of SM Prime’s net income for the foreseeable future. Expansion is expected to take place in major cities outside of Metro Manila, especially in areas where disposable income is expected to increase significantly and retail space is currently limited. Certain major cities have a per capita income and rent per sq. m. that are comparable to those within Metro Manila, driven by a shift

55

in BPO demand to regional provinces. Over time, retail malls built in these cities could be converted into mixed use developments by adding office, residential and hospitality components as the cities continue to grow. SM Prime also plans to expand within Metro Manila on a selective basis, developing supercenters (malls consisting of less than 100,000 sq. m.) that are situated between mega malls in Metro Manila. SM Prime believes that the current demand backlog for leases in several of its developments provides an opportunity for further mall expansion. SM Prime plans to develop five to seven malls in the Philippines each year for the near term, and also to opportunistically expand its presence in second and third tier cities in China by building one mall per year for the near term, in each case subject to market conditions. SM Prime is targeting to increase its overall mall GFA by 5-7% per year to approximately 8.5 million sq. m. in the Philippines and approximately 1.3 million sq. m. in China by 2019. 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. Optimize existing properties by adding complementary developments SM Prime will pursue a multi-pronged long-term strategy that is aimed to allow it to optimize the value of existing properties, developments and current land bank through an integrated real estate platform while retaining flexibility to efficiently allocate capital among its various business units. SM Prime will embark on more large scale mixed used developments throughout the Philippines in an effort to replicate the success of the MOA complex. 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 of vacant land. SM Prime developed Radisson Blu Cebu, Park Inn by Radisson Davao, Park Inn by Radisson Clark, Park Inn Radisson Iloilo, Park Inn by Radisson North EDSA and Conrad Manila within existing mall developments such as SM City Cebu, SM City Davao, SM City Clark, SM City Iloilo, SM City North EDSA and SM Mall of Asia. SM Prime believes that SM Megamall, SM City North EDSA, and SM Seaside City still have significant under-utilized plot ratio that are suitable for commercial, hospitality and residential developments. Continue aggressive rollout of BPO office development Taking advantage of the robust BPO sector outlook as well as increasing flight to quality from older BPO developments, SM Prime’s strategic focus includes expanding its office portfolio with IT and BPO buildings. 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. Focus on a “one product-one market” strategy for the residential business SM Prime intends to capitalize on the increasing urbanization and economic development of the Philippines to develop vertical residential projects in key areas across Metro Manila specifically the cities of Makati, Mandaluyong, Manila, Parañaque, Pasay, Pasig, Quezon City, and Taguig, as well as Tagaytay City and Cebu that target the Philippine mass middle market. By leveraging the already strong SM brand and its leadership in the residential condominium segment, 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. 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. As of 30 September 2019, SM Prime has 23 completed residential projects and 25 ongoing residential projects. SM Prime plans to accelerate residential project launches in areas near existing SM Prime developments.

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As of 30 September 2019, SM Prime has already launched 14,500 units to the market. For full year 2019, SM Prime is targeting to launch between 15,000 to 20,000 residential units that includes high-rise buildings, mid-rise buildings and single detached house and lot projects. These projects will be located in Metro Manila and other key cities in the provinces. Maintain a strong balance sheet, prudent risk and capital management and good governance

By maintaining a strong balance sheet, SM Prime believes it will be better able to withstand economic and financial cycles, while allowing the Company to achieve expansion quickly, as well as give it the flexibility to embark on acquisitions if and when opportunities arise. 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 50:50. SM Prime also plans to maintain a relatively long and well spread out debt maturity profile and continue to diversify its sources of funding. 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. Capital expenditure for 2020 is approximately ₱80.0 billion, with 36% for mall, 44% for residential, 13% for commercial and 7% for hotels and convention centers. Capital expenditure for 2021 is approximately ₱80.0 billion, with 34% for mall, 47% for residential, 12% for commercial and 7% for hotels and convention centers. SM Prime plans to fund its capital expenditure plan through recurring income flows and external financing. SM Prime intends to apply global corporate governance standards and risk management best practices, as well as embark on integrated sustainability and corporate social responsibility initiatives. OWNERSHIP AND CORPORATE STRUCTURE The chart below shows the current shareholding of SM Prime and its four business segments.

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MALLS

SM Prime develops, operates and maintains modern commercial shopping malls and is involved in 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 Prospectus, SM Prime owns 73 malls (as listed below) covering a total GFA of approximately 8.5 million sq. m. located across the Philippine archipelago, attracting an average of approximately 4.2 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 new ones, with a target of opening approximately five to seven new malls in the Philippines each year for the near term, subject to market conditions. SM Prime has in the past concentrated on the development of its malls in the Metro Manila area, where it currently operates 23 malls. In addition, SM Prime currently plans to develop in the future seven plots of land in Metro Manila, all of which are owned. 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 50 malls and holds an additional 32 plots of land available for development, all of which are owned. SM Prime has also expanded its shopping mall operations outside of the Philippines. SM Prime owns seven operational malls located in the cities of Xiamen, Jinjiang, Chengdu, Suzhou, Chongqing, Zibo, and Tianjin in the southern and western parts of China with a total GFA of approximately 1.3 million sq. m. SM Prime is targeting the acquisition of additional properties in China in the future as it prepares for opportunistic expansion into second and third tier cities. SM Prime plans to build one mall in China per year for the near term, subject to market conditions. The principal sources of mall 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 55% of SM Prime’s gross leasable space is currently leased by members of the SM Group or companies who are affiliated with the Sy family. Such tenants contributed approximately 34% (₱15.8 billion) of SM Prime’s consolidated mall revenues of ₱46.4 billion for the nine months ended 30 September 2019. 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 Center Valenzuela, SM Center Molino, SM City Clark, 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, SM City General Santos, SM Aura Premier, SM San Mateo, SM City Xiamen, SM City Jinjiang, SM City Chengdu, SM City Suzhou, SM City Chongqing, SM City Zibo and SM City Tianjin which are held under long term leases. SM China malls have 40-70 years land use rights. In addition, the land where SM City Baguio is constructed is owned by SMIC, the land where SM City San Lazaro is constructed is owned by San Lazaro Holdings Corporation, a 100%-owned subsidiary and the land where SM Center Pasig is constructed is owned by OCLP Holdings, Inc., a 39.96% owned associate. Lease renewal options are subject to mutual agreement of the parties. SM Megamall is owned by First Asia Realty Development Corporation, a 74.2% owned subsidiary and SM by the Bay is owned by First Leisure Ventures Group, Inc., a 50% owned subsidiary. The following is a brief discussion of each of SM Prime’s current malls. Metro Manila Malls

SM City North EDSA Year opened – 1985. SM City North EDSA is located on a 16.1-hectare site in the corners of EDSA and North Avenues, Quezon City. The very first and currently the country’s largest shopping mall of SMPH has a GFA of 497,213 sq. m. and features 8 cinemas including a 3D IMAX theater with seating capacity of 6,093, a 24-computerized synthetic lane bowling center, food court, amusement centers and multi-

59

level carpark which provides a total capacity of 4,022 vehicles. The mall also launched The Block and renovation of The Annex and unveiled the Sky Garden. It is a 400-meter elevated walkway shaded by a long sketch of white canopy connecting building to another, with a park-like ambiance and green architecture, and includes the roof garden, water features, food and retail outlets and sky dome that is a 1,000-seat amphitheater for shows and special events. The anchor tenants for SM City North EDSA are The SM Store, SM Hypermarket and SM Supermarket, Ace Builders Center, SM Appliance Center, Our Home, Uniqlo and, Forever 21 and Miniso. SM Megamall Year opened – 1991. SM Megamall is located on a 10.5-hectare property in the Ortigas business district, Mandaluyong City. It stands along the main EDSA thoroughfare and is near the Metro Rail Transit. SM Megamall has two main buildings, Mega A and Mega B, eventually launched the Mega Atrium, Building C and Mega Fashion Hall. It has a total GFA of 474,225 sq. m. and features 14 cinemas including the IMAX theatre and Director’s Club with total seating capacity of 7,253, a fully computerized 14-lane bowling center, an Olympic-sized ice skating rink, a mega fashion hall, event center and carpark for 2,792 vehicles. The anchor tenants for SM Megamall are The SM Store, SM Supermarket, Ace Hardware, Toy Kingdom, Our Home, Uniqlo and, Forever 21 and Crate & Barrel. SM Mall of Asia Year opened – 2006. SM Mall of Asia is located on a 19.5-hectare property overlooking Manila Bay, the biggest structure within the Mall of Asia Complex in Pasay City. The mall 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 houses the country’s first IMAX theatre, a special Director’s Club screening room for exclusive film showings, 7 state-of-the art cinemas with seating capacity of 2,490, 24-lane bowling facility, an Olympic-sized ice skating rink and fine dining restaurants and bars. The mall has a total GFA of 432,891 sq. m. with 3,984 parking slots for vehicles. The anchor tenants for SM Mall of Asia are The SM Store, SM Hypermarket, Forever 21, Uniqlo, Ace Hardware and SM Appliance Center. SM Aura Premier Year opened – 2013. SM Aura Premier is a state of the art civic center at 26th Street corner McKinley Parkway, Global City, Taguig City. As an integrated development, SM Aura Premier incorporates office towers, a chapel, a convention center and mini-coliseum, supported by a retail podium with an upscale look and feel. The mall has a GFA of 198,257 sq. m. and features Sky Garden, food court, two digital cinemas, two Director’s Clubs and an IMAX Theater with a total seating capacity of 927 and carpark with 1,771 slots. The anchor tenants for SM Aura Premier are The SM Store, SM Supermarket, Forever 21 and Uniqlo. SM Southmall Year opened – 1995. SM Southmall, with a GFA of 197,561 sq. m., was the first shopping mall in the southern region of Metro Manila located Alabang-Zapote Road in Las Piñas City. As major renovations completed, SM Southmall became one of the premier malls and it features 8 state-of-the-art cinemas, including an IMAX theatre, with seating capacity of 4,436, an ice skating rink, 14-lane bowling center, food court and a carpark with 3,401 slots. The anchor tenants for SM Southmall are The SM Store, SM Supermarket, SM Appliance Center, Ace Hardware and Toy Kingdom. SM City Fairview Year opened – 1997. SM City Fairview is situated on 20.0 hectare site located in Quirino Highway corner Regalado Avenue, Quezon City. It has main building and two Annexes with a total GFA of 312,749 sq. m. The mall features six cinemas with a seating capacity of 3,113, 12-lane bowling center, food court, amusement areas and parking for 4,348 vehicles. The anchor tenants for SM City Fairview are The SM Store, SM Hypermarket, SM Supermarket, Ace Builders Center and Teleperformance.

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SM City Marikina Year opened – 2008. SM City Marikina in Marcos Highway, Brgy. Calumpang, Marikina City has a GFA of 178,178 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 3,050 seating capacity and carpark for 813 vehicles. The anchor tenants for SM City Marikina are The SM Store, SM Supermarket and Ace Hardware. SM City San Lazaro Year opened – 2005. 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-storey mall has a GFA of 176,159 sq. m. The mall features a food court, amusement center, six cinemas with a seating capacity of 3,085, and carpark slots of 1,256. The anchor tenants for SM City San Lazaro are The SM Store, SM Supermarket, SM Appliance Center and Ace Hardware. SM City Manila Year opened – 2000. SM City Manila is a five-level mall with a GFA of 161,107 sq. m. The mall is located in downtown Manila, corners of Concepcion, Arrocero and Marcelino Streets, next to Manila City Hall. 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 mall has 12 cinemas with a seating capacity of 7,092, a food court and a carpark available for 920 vehicles. The anchor tenants for SM City Manila are The SM Store, SM Supermarket, SM Appliance Center and Ace Hardware. SM City Sta. Mesa Year opened – 1990. SM City Sta. Mesa, located in Ramon Magsaysay Blvd. Corner Araneta Avenue, Quezon City, is a seven level complex with a GFA of 133,894 sq. m. The mall features two cinemas with seating capacity of 1,893, a food court, an amusement center and carpark with a capacity of 1,052 vehicles. The anchor tenants for SM City Sta. Mesa are The SM Store, SM Supermarket, SM Appliance Center and Ace Hardware. SM City BF Parañaque Year opened – 2013. SM City BF Parañaque, with a GFA of 125,582 sq. m., is strategically located at the main gate of Parañaque’s prime residential village. Its design and construction features three skylight domes in its main atrium to reduce the use of electricity by fully maximizing the use of sunlight, while air conditioning is automatically regulated to help ensure efficient energy consumption. The mall is the first mall to have four Director’s Club cinemas equipped with electronic recliner (lazyboy type) seats that can accommodate up to 156 moviegoers and houses two premier cinemas with 186 seats each and parking space for 1,420 vehicles. The anchor tenants for SM City BF Parañaque are The SM Store, SM Supermarket, Ace Hardware and Uniqlo. SM City Bicutan Year opened – 2002. SM City Bicutan is a two-building mall located along Doña Soledad Ave. corner West Service Road, Bicutan, Parañaque City. SM City Bicutan serves numerous residents within a 3-kilometer radius. This mall has a GFA of 114,214 sq. m. It features a food court, four cinemas with seating capacity of 1,268 and carpark for 1,257 vehicles. The anchor tenants for SM City Bicutan are The SM Store, SM Supermarket, Ace Hardware and SM Appliance Center. SM City Sucat Year opened – 2001. 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 GFA of 96,277 sq. m.

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featuring four cinemas with seating capacity of 1,821, a food court and carpark with 1,475 slots. The anchor tenants for SM City Sucat are The SM Store, SM Supermarket and Ace Hardware. SM City East Ortigas Year opened – 2016. SM City East Ortigas joins SM’s roster of malls in the eastern portion of Metro Manila with a GFA of 80,127 sq. m., situated in Ortigas Avenue Extension, Brgy. Sta. Lucia, Pasig City. The two-level mall houses its flagship retail brands and specialty stores, also features eight cinemas, Digital and Director’s club with 1,179 seating capacity and carpark with 658 slots. The anchor tenants for SM City East Ortigas are The SM Store, SM Supermarket, SM Appliance Center and Ace Hardware. SM Center Valenzuela Year opened – 2005. SM Center Valenzuela has a GFA of 70,681 sq. m., situated in Brgy. Karuhatan, Valenzuela City. The mall caters to the bustling industrial areas that surround the property. The mall features four cinemas with a 1,898 seating capacity, a food court and parking for 557 vehicles. It also features the Fashion Avenue, a multi-shop style center that houses a wide array of apparel, shoes and accessory picks. The anchor tenants for The SM Store, SM Center Valenzuela are SM Hypermarket, SM Appliance Center and Ace Hardware. SM City Novaliches Year opened – 2010. SM City Novaliches, having a GFA of 60,044 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 1,484 seats and parking for 1,206 vehicles. The anchor tenants for SM City Novaliches are The SM Store, SM Supermarket, Banco de Oro and Ace Hardware. SM Center Muntinlupa Year opened – 2007. SM Center Muntinlupa is situated in National Road, Brgy. Tunasan, Muntinlupa City. The two-level mall has a GFA of 57,060 sq. m. that caters the residents of Muntinlupa City and the growing municipality of San Pedro, Laguna. The mall features four cinemas with 1,582 seating capacity, an entertainment plaza for shows and events located at the center of the mall and parking slots of 290 vehicles. The anchor tenants for SM Center Muntinlupa are SM Hypermarket, SM Appliance Center and Ace Hardware. SM Center Sangandaan Year opened – 2015. SM Center Sangandaan, strategically located along the busy intersection of Samson Road and M.H Del Pilar Street, Brgy. Sangandaan, Caloocan City, is providing SM Prime access to the northern tip of Metro Manila that is bringing a unique shopping experience closer to the highly dense cities of Malabon, Navotas and Caloocan City. It has a GFA of 43,626 sq. m. with three levels of prime spaces, which includes four digital cinema with seating capacity of 824 and parking slots of 524 vehicles. The anchor tenants for SM Center Sangandaan are SM Supermarket, Ace Hardware and Watsons. S Maison Year opened – 2017. S Maison is an upscale mall located on the first two floors of Conrad Manila, Seaside Boulevard corner Coral Way, Mall of Asia Complex, Pasay City. The mall has a GFA of 42,107 sq. m. and features upscale global retail brands, international restaurants, a three state-of-the-art Director’s Club cinemas with seating capacity of 120 and carpark for 445 vehicles. Major tenants for S Maison are The Dessert Museum, Hard Rock Café, Buffalo Wild Wings, Paradise Dynasty and Texas Roadhouse. SM Center Las Piñas

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Year opened – 2009. SM Center Las Piñas is located along the Alabang-Zapote Road in Brgy. Talon, Pamplona, Las Piñas City. SM Center Las Piñas serves customers in the western section of the city and the nearby provinces of Laguna and Cavite. The mall has a GFA of 39,727 sq. m. with carpark for 415 vehicles. The anchor tenants for SM Center Las Piñas are SM Hypermarket, Banco de Oro and Ace Hardware. SM Center Pasig Year opened – 2006. 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 GFA is 29,602 sq. m. including its basement parking for 282 vehicles. The anchor tenants for SM Center Pasig are SM Hypermarket, Ace Hardware and Watsons. SM Cherry Shaw Boulevard Year opened – 2015. SM Cherry Shaw Boulevard is located in Old Wack-wack Road, Mandaluyong City, reopened and now looking refreshed and a bit more modernized while still keeping the classic Cherry feel. It has a GFA of 35,669 sq. m. with parking for 344 vehicles. The anchor tenants for SM Cherry Shaw Boulevard are SM Supermarket, Banco de Oro and Sports Central Outlet. SM Cherry Congressional Year opened – 2016. SM Cherry Congressional is located in Congressional Avenue Extension, Brgy. Bahay Toro, Quezon City, reopened with wider offerings of fresh-food favorites and new assortments of groceries, both local and imported. It has a GFA of 13,469 sq. m. with parking for 206 vehicles. The anchor tenants for SM Cherry Congressional is SM Supermarket and Watsons. Malls Outside of Metro Manila

Luzon

SM City Dasmariñas Year opened – 2004. 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 GFA of 201,645 sq. m. The mall features a food court, six cinemas with a seating capacity of 2,656 and carpark for 2,555 vehicles. The mall launched its Annex. The anchor tenants for SM City Dasmariñas are The SM Store, SM Supermarket, SM Appliance Center and Ace Hardware. SM City Cabanatuan Year opened – 2015. SM City Cabanatuan is strategically located along Maharlika Highway in Cabanatuan City, which is the largest city in Nueva Ecija. It has a GFA of 145,947 sq. m. featuring a food court, six cinemas with seating capacity of 1,807 and parking slots for 2,077 vehicles. The four-level mall also includes two Gardens namely, the Garden Park, which provides covered shelter; and the Roof Park located at the fourth level. The anchor tenants for SM City Cabanatuan are The SM Store, SM Supermarket, Ace Hardware, SM Appliance Center and Uniqlo. SM City Clark Year opened – 2006. The two-storey SM City Clark is located along M.A. Roxas Avenue and is approximately 80 kilometers north of Manila and 60-kilometers east of Subic Bay Freeport, within close proximity of the Clark Special Economic Zone in Pampanga. The mall has a GFA of 144,484 sq. m., features a food court, seven cinemas with a seating capacity of 2,933, 12-lane bowling center and parking for 3,814 vehicles. With its unique design resembling a coliseum, this mall offers tourists and

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shoppers a variety of retail, dining, and entertainment establishments. The anchor tenants for SM City Clark are The SM Store, SM Hypermarket, Ace Hardware and Forever 21. SM City Lipa Year opened – 2006. SM City Lipa occupies 10.3 hectares of land and is a two-level mall strategically located along Lipa’s Ayala Highway, Lipa City, Batangas. It has 141,283 sq. m. of GFA. Lipa City features natural attractions and is a commercial, educational and industrial destination. The mall features a food court, four cinemas with 2,098 seating capacity and 1,236 carpark slots. The anchor tenants for SM City Lipa are The SM Store, SM Supermarket and Ace Hardware. SM City Pampanga Year opened – 2000. SM City Pampanga is a shopping mall with three Annexes totaled 132,484 sq. m. of GFA, straddling the municipalities of San Fernando and Mexico in Pampanga. The mall is strategically located at the Olongapo Gapan Road to serve the city’s residents as well as those in the provinces of Bulacan, Tarlac, Bataan, Zambales and Nueva Ecija. It features six state-of-the-art cinemas with seating capacity of 2,603, a food court, Sky Ranch and 2,586 parking slots. The anchor tenants for SM City Pampanga are The SM Store, SM Supermarket, Ace Hardware and SM Appliance Center. SM City Bacoor Year opened – 1997. SM City Bacoor is a five level complex with a GFA of 120,202 sq. m. located in General Emilio Aguinaldo Highway corner Tirona Highway, Brgy. Habay, Bacoor City, Cavite. It is the very first SM mall in the entire Luzon region (outside Metro Manila) and the very first in the Cavite province. The mall features eight cinemas with 4,388 seating capacity, a food court, amusement areas and parking for 1,420 vehicles. The anchor tenants of SM City Bacoor are The SM Store, SM Supermarket, Ace Hardware and SM Appliance Center. SM City Baliwag Year opened – 2008. SM City Baliwag is located on an 11.3-hectare property in Brgy. Pagala, Baliwag, Bulacan, approximately 40 kilometers from the EDSA—Balintawak interchange of the North Luzon Expressway. It has a GFA of 116,632 sq. m. and among the facilities included are four cinemas with a seating capacity of 1,117, a food court and parking for 1,518 vehicles. The anchor tenants for SM City Baliwag are The SM Store, SM Hypermarket, Ace Hardware and SM Appliance Center. SM City San Jose Del Monte Year opened – 2016. SM City San Jose Del Monte is strategically located along Quirino Hi-way, Tungkong Mangga, City of San Jose Del Monte, Bulacan, topped with commendable architectural design making it the vibrant urban hub in the north of Metro Manila. It has three floors giving a total GFA of 114,186 sq. m. and its prime spaces are allocated to local and international retail brands and well-loved food outlets, also features four state-of-the-art cinemas with seating capacity of 1,069 and multilevel basement parking with 945 slots. The anchor tenants for SM City San Jose Del Monte are The SM Store, SM Supermarket, Ace Hardware, Watsons and Banco de Oro. SM City Baguio Year opened – 2003. 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 GFA of 107,950 sq. m. It has a food court, Sky Ranch, four cinemas with seating capacity of 1,942 and carpark slots of 765. The anchor tenants for SM City Baguio are The SM Store, SM Supermarket and Ace Hardware.

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SM City Tarlac Year opened – 2010. SM City Tarlac is located along MacArthur Highway, San Roque, Tarlac City. It is the very first SM mall in the province of Tarlac. The four-level mall has a GFA of 101,369 sq. m. The mall features a food court, four cinemas with 1,868 seating capacity, and parking for 1,122 vehicles. The anchor tenants for SM City Tarlac are The SM Store, SM Supermarket and Ace Hardware. SM City Taytay Year opened – 2007. SM City Taytay is a two-building mall located in Brgy. Dolores, Taytay, Rizal. SM City Taytay is situated as a stopover for travelers, especially those coming from Laguna via the Marikina Infanta Road. The mall has a GFA of 97,467 sq. m. that features a food court, three cinemas with 1,095 seating capacity and a carpark for 985 vehicles. The anchor tenants for SM City Taytay are The SM Store, SM Hypermarket and Ace Hardware. SM City Masinag Year opened – 2011. SM City Masinag is a three-floor mall located along Brgy. Mayamot, Marcos Highway, Antipolo City. It has a GFA of 96,313 sq. m. SM City Masinag houses a food court, four cinemas with seating capacity of 1,148, and parking for 454 vehicles. The anchor tenants for SM City Masinag are The SM Store, SM Supermarket and Ace Hardware. SM City Marilao Year opened – 2003. SM City Marilao is located at MacArthur Highway, Brgy. Ibayo, Marilao, Bulacan. It is the first SM mall in the Bulacan province with a land area of 13.0 hectare and a GFA of 93,910 sq. m. The four-level mall features a food court, event center, four cinemas with seating capacity of 1,172 and parking for 851 vehicles. The anchor tenants for SM City Marilao are The SM Store, SM Supermarket and Ace Hardware. SM City Olongapo Central Year opened – 2019. SM City Olongapo Central is located along Rizal Avenue, Brgy. East Tapinac, Olongapo Cit, Zambales. It is a four-story shopping, dining and entertaiment mall with a GFA of 92,345 sq. m. The mall has modern amenities including a Food Hall, convention center, sports entertainment venue, six digital cinemas with seating capacity of 736, and carpark for 769 vehicles. The anchor tenants for SM City Olongapo Central are The SM Store, SM Supermarket, SM Appliance Center, Ace Hardware, Our Home and Banco de Oro. SM City Legazpi Year opened – 2018. SM City Legazpi is located along Imelda Roces Avenue, Brgy. 37 Bitano, Legazpi City, Albay. SM City Legazpi has three levels of well-curated mix of shopping, dining and entertainment concepts with a GFA of 87,049 sq. m. The mall features green architecture, accentuated by a vast glass-walled Food Hall that overlooks the splendor of Mayon Volcano, six digital cinemas with seating capacity of 654 and 922-slot carpark. The anchor tenants for SM City Legazpi are The SM Store, SM Supermarket, Uniqlo, Our Home, SM Appliance Center and Ace Hardware. SM City Sta. Rosa Year opened – 2006. SM City Sta. Rosa is located on a 14.1-hectare site in Barrio Tagapo, National Road, Sta. Rosa, Laguna. Sta. Rosa is the first SM mall in the Laguna province, a 10-minute drive from the Mamplasan exit. With 86,463 sq. m. of GFA, the two-level mall houses a variety of retail establishments, a food court, four cinemas with seating capacity of 1,803 and parking area for 3,351 vehicles. The anchor tenants for SM City Sta. Rosa are The SM Store, SM Supermarket and Ace Hardware.

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SM City Trece Martires Year opened – 2016. SM City Trece Martires is another premier destination opened to the public after the success of the first four malls in the populated province of Cavite, situated in Governor’s Drive corner Capitol Road, San Agustin (Pob.), Trece Martires City. It has a GFA of 83,783 sq. m., furnished with well-chosen retail outlets, cozy dining outlets, forefront recreation and entertainment facilities including four cinemas with a seating capacity of 948 and carpark for 645 vehicles. The anchor tenants for SM City Trece Martires are The SM Store, SM Supermarket, Ace Hardware and SM Appliance Center. SM City Batangas Year opened – 2004. 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 GFA of 80,350 sq. m. It has four cinemas with seating capacity of 1,609 and parking for 810 vehicles. The anchor tenants for SM City Batangas are The SM Store, SM Supermarket and Ace Hardware. SM City Lucena Year opened – 2003. SM City Lucena is located along Maharlika Highway corner Dalahican Road, Brgy. Ibabang Dupay, Lucena City, Quezon. It is the first SM mall in the province of Quezon. This four-level mall has a GFA of 78,655 sq. m. It features four cinemas with seating capacity of 1,965 and carpark slots of 830. The anchor tenants for SM City Lucena are The SM Store, SM Supermarket and Ace Hardware. SM City San Mateo Year opened – 2015. SM City San Mateo is located in Gen. Luna Avenue, Brgy. Ampid 1, San Mateo, Rizal. It is the fourth SM supermall in Rizal Province and has a GFA of 77,593 sq. m. The mall has its disaster resilient features which include expansion joints for mitigating earthquake damage and rainwater catchment basin for prevention of flood within its perimeter and surrounding community. The mall offers four cinemas with seating capacity of 1,232 and carpark for 537 vehicles. The anchor tenants for SM City San Mateo are The SM Store, SM Supermarket and Ace Hardware. SM City Naga Year opened – 2009. SM City Naga is located in Central Business District II of Brgy. Triangulo, Naga City. It is the first SM mall in the Bicol region and has a GFA of 75,651 sq. m. The mall offers a food court, four cinemas with seating capacity of 1,346 and carpark for 701 vehicles. The anchor tenants for SM City Naga are The SM Store, SM Supermarket and Ace Hardware. SM City Calamba Year opened – 2010. 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 GFA of 73,632 sq. m. and features a food court, four cinemas with seating capacity of 1,268 and parking for 320 vehicles. The anchor tenants for SM City Calamba are The SM Store, SM Supermarket and Ace Hardware. SM City Cauayan Year opened – 2014. SM City Cauayan, the first mall in Region II known as Cagayan Valley, is located along National Highway, District II, Cauayan City, Isabela. The mall serves customers from the country’s second largest province Isabela as well as the nearby provinces of Cagayan, Nueva Vizcaya, and Quirino. SM City Cauayan has a GFA of 70,946 sq. m., features a variety of retail establishments, six cinemas with seating capacity of 1,122 and parking space for 552 vehicles. The anchor tenants for SM City Cauayan are The SM Store, SM Supermarket and SM Appliance Center.

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SM City Rosales Year opened – 2008. SM City Rosales stands on a 12.1-hectare lot located in Brgy. Carmen East, Rosales, Pangasinan with a GFA of 63,330 sq.m. It is the first SM mall in the province of Pangasinan and contains a public transport terminal that serves as a bus stop of various inter provincial bus lines. The amenities of the mall include a food court, four cinemas with seating capacity of 1,544 and parking for 1,748 vehicles. The anchor tenants for SM City Rosales are The SM Store, SM Hypermarket and Ace Hardware. SM City Rosario Year opened – 2009. SM City Rosario is located in Brgy. Tejeros in Rosario, Cavite. 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 GFA of 60,657 sq. m. and features four cinemas with seating capacity of 1,560 seats and parking for 380 vehicles. The anchor tenants for SM Rosario are The SM Store, SM Supermarket and Ace Hardware. SM City San Pablo Year opened – 2010. SM City San Pablo is located along Maharlika Highway in Brgy. San Rafael, San Pablo City, Laguna. The mall has a GFA of 59,776 sq. m. and features a business center, an atrium for various events, four cinemas with seating capacity of 1,302 and parking for 783 vehicles. The anchor tenants for SM City San Pablo are The SM Store, SM Supermarket and Ace Hardware. SM Center Molino Year opened – 2005. SM Center Molino is located at the southern end of Molino Road, Bacoor, Cavite and has a GFA of 59,069 sq. m. SM Center Molino is the first to have the Service Lane, which comprises of different shops that offer a wide array of services situated outside the mall across the covered parking. The mall features four cinemas with 1,708 seating capacity and parking for 1,194 vehicles. The anchor tenants for SM Center Molino are The SM Store, SM Hypermarket, SM Appliance Center and Ace Hardware. SM City Urdaneta Central Year opened – 2018. SM City Urdaneta Central is located at the center of Barangay Nancayasan and Poblacion along MacArthur Highway, Urdaneta City, Pangasinan. SM City Urdaneta Central is a second SM mall in the province of Pangasinan which is the gateway to Northern Luzon and urban shopping. The mall has a GFA of 58,574 sq. m., with two-floors bringing in shopping, dining and entertainment experiences and parking for 706 vehicles. The anchor tenants for SM City Urdaneta Central are The SM Store, SM Supermarket, Our Home, SM Appliance Center and Ace Hardware. SM City Telabastagan Year opened – 2018. SM City Telebastagan is located at MacArthur Highway, Barangay Telebastagan, San Fernando, Pampanga. SM City Telebastagan, fourth SM mall in the highly urbanized Pampanga, offers 55,094 sq. m. of GFA, with two-floors of shopping, multi-cultural dining and entertainment zones adorned by indoor pocket gardens, and also features a food court, six digital cinemas with 654-seating capacity and 1,397 parking slots. The anchor tenants for SM City Telebastagan are The SM Store, SM Supermarket, Uniqlo, Ace Hardware and Miniso. SM City Puerto Prinsesa Year opened – 2017. SM City Puerto Prinsesa, the first premier mall in the largest province in the country, is strategically located at Malver Street corner Lacao Street, Puerto Prinsesa, Palawan. Designed to complement the tropical vibe of the island, the mall is set to be a cost-efficient and energy

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saving building. The three-level mall has a GFA of 53,203 sq. m. that will house favored food and retail shops, three digital cinemas and two Director’s Club cinemas with a combined seating capacity of 591 and parking space for 398 vehicles. The anchor tenants for SM City Puerto Prinsesa are The SM Store, SM Supermarket, Ace Hardware, SM Appliance Center and BDO. SM Megacenter Cabanatuan Year opened – 2015. SM Megacenter Cabanatuan is located in Gen. Tinio and Melencio Streets, Cabanatuan City, Nueva Ecija. The mall is re-branded to SM Megacenter Cabanatuan after acquisition of SM Prime from CHAS Realty and Development Corporation in 2013. It is the first SM supermall in Cabanatuan City and has a GFA of 49,688 sq. m. The mall offers four cinemas with seating capacity of 1,521 and 208 parking slots. The anchor tenants for SM Megacenter Cabanatuan are The SM Store, SM Savemore and Ace Hardware. SM City Olongapo Year opened – 2012. SM City Olongapo, the very first mall in the province of Zambales, has a GFA of 49,096 sq. m. that is 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 seating capacity of 758 and parking for 303 vehicles. The anchor tenants for SM City Olongapo are The SM Store, SM Supermarket and SM Appliance Center. SM City San Fernando Year opened – 2012. SM City San Fernando is a seven-storey mall located at the Downtown Heritage District, Barangay Sto. Rosario, San Fernando, Pampanga. It has a GFA of 43,130 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 seating capacity of 1,058 and parking slots of 321. The anchor tenants for SM City San Fernando are The SM Store, SM Supermarket and Ace Hardware. SM Center Angono Year opened – 2014. SM Center Angono, located along Manila East Road and Quezon Avenue in Barangay San Isidro, Angono, Rizal, is marked as the fiftieth SM Supermall in the Philippines. It serves customers in Angono and Binangonan as well as other towns in the province of Rizal such as Cardona, Teresa, Morong, Baras, Tanay, and Pililla. It has a GFA of 41,481 sq. m. and features four cinemas with seating capacity of 768 and parking slots for 188 vehicles. The anchor tenants for SM Center Angono are SM Savemore, Banco de Oro and Ace Hardware. SM Center Tuguegarao Downtown Year opened – 2017. SM Center Tuguegarao Downtown is strategically located at the corner of Luna and Mabini Streets, Brgy. Ugac Sur, Tuguegarao City. The first SM mall in the urbanized city of Cagayan province offers a number of favored household brands that will give a unique shopping experience to the locals. It has a GFA of 33,301 sq. m. and carpark for 472 vehicles. The anchor tenants for SM Center Tuguegarao Downtown are SM Hypermarket, Ace Hardware, SM Appliance Center, BDO and Miniso. SM Center Imus Year opened – 2018. SM Center Imus is located along N.I.A. Road, Barangay Bukandala, Imus, Cavite. The mall provides 12,824 sq. m. of GFA and has unique features such as the Indoor Plaza, a perfect venue for concert and sporting events; 24/7 tenants such as full-service clinic, pharmacy and wellness spa; and the small-medium enterprises popular local concept where top favorite local brands will be

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made available. The anchor tenants for SM Center Imus are SM Supermarket, SM Appliance Center, Ace Hardware, BDO, Watsons and Miniso. SM Cherry Antipolo Year opened – 2017. SM Cherry Antipolo is located along the bustling Marcos Highway, Brgy. Mayamot, Antipolo City. The three-level mall spans 27,225 sq. m. of GFA and features an enhanced shopping environment for the community, offering expanded services beyond the traditional grocery experience. The mall has a Sky Garden on the second level, with dining areas and walking paths and carpark for 207 vehicles. The anchor tenants for SM Cherry Antipolo are SM Supermarket, Ace Hardware, Watsons and BDO. SM Center Pulilan Year opened – 2017. SM Center Pulilan is the fourth SM Mall opened in the province of Bulacan, situated along Plaridel-Pulilan Diversion Road, Brgy. Sto. Cristo, Pulilan. The mall is a three-floor building with a GFA of 27,157 sq. m. and parking for 797 vehicles. The mall also features well-loved SM brands, food and retail shops. The anchor tenants for SM Center Pulilan are SM Hypermarket, SM Appliance Center, Ace Hardware, Miniso, Watsons and BDO. SM Center Lemery Year opened – 2017. SM Center Lemery is located at Illustre Avenue corner Gomez Street, Brgy. District IV, Lemery, Batangas. The three-level mall has a GFA of 24,877 sq. m. with an exciting mix of offerings including preferred retail and food shops, Wellness zone and Cyberzone that will cater to the distinct and discriminating taste and style of Batanguenos and parking for 382 vehicles. The anchor tenants for SM Center Lemery are SM Hypermarket, SM Appliance Center, Ace Hardware, BDO, Simply Shoes and Miniso. Visayas SM Seaside City Cebu Year opened – 2015. SM Seaside City Cebu, located within the SM Seaside Complex at the South Road Properties (SRP) in Cebu City, is the first of its kind in urban development in the SRP. It has a GFA of 429,971 sq. m. featuring a centerstage theatre, a large screen cinema, two Director's Club cinemas and four regular cinemas with a combined seating capacity of 2,219, 16-lane bowling center, ice skating rink, amusement center, food court and parking slot for 4,525 vehicles. In addition, the mall features a rooftop Sky Park, an iconic 21-meter by 21-meter centerpiece called the "Cube", food and retail shops including local, national and global brands. The anchor tenants for SM Seaside City Cebu are The SM Store, SM Supermarket, Ace Hardware and Uniqlo. SM City Cebu Year opened – 1993. SM City Cebu is located on a 13.8-hectare site in Cebu Port Center, Barrio Mabolo, Cebu City. This mall is a multi-level complex with a GFA of 273,804 sq. m. featuring eight cinemas including a 3D IMAX theatre with seating capacity of 5,812, food court, fully computerized 28-lane bowling center, a trade hall and a carpark with 1,874-vehicle capacity. The anchor tenants for SM City Cebu are The SM Store, SM Supermarket, Ace Hardware and Forever 21. SM City Iloilo Year opened – 1999. SM City Iloilo has a GFA of 150,740 sq. m. and stands on a 17.4-hectare property at the juncture of the Northwest and the Northeast of the Iloilo-Jaro West Diversion Road in Manduriao, Iloilo City. Its location is a quick drive from the airport and 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 5,005 and parking for 1,651 vehicles. The

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anchor tenants for SM City Iloilo are The SM Store, SM Supermarket, Ace Hardware and SM Appliance Center. SM City Bacolod Year opened – 2007. SM City Bacolod has a land area of 17.0 hectare located along Rizal Street, Reclamation Area, Bacolod City in Negros Occidental. It is a two-building mall with GFA of 137,229 sq. m. and features a convention center, food court, amusement center and four cinemas with 2,001 seating capacity and carpark slots of 1,800. The anchor tenants for SM City Bacolod are The SM Store, SM Supermarket and Ace Hardware. SM City Consolacion Year opened – 2012. SM City Consolacion is located along the Cebu North Road, Barangay Lamac, Consolacion, Cebu. The mall has a GFA of 103,558 sq. m. and its amenities include a food court, four cinemas with seating capacity of 1,475, and parking for 707 vehicles. The anchor tenants for SM City Consolacion are The SM Store, SM Supermarket Ace Hardware and SM Appliance Center. SM Center Ormoc Year opened – 2018. SM Center Ormoc is the first SM mall in Eastern Visayas Region, located at Real Street, Brgy. District 14, Ormoc City, Leyte. SM Center Ormoc, with GFA of 32,824 sq. m., has a modern structure with vivid design and covers three floors of mixed recreation, service and entertainment facilities, including alfresco dining area on its second floor, four digital cinemas with seating capacity of 401 and parking for 434 vehicles. The anchor tenants for SM Center Ormoc are SM Hypermarket, Ace Hardware, SM Appliance Center, Miniso and Watsons. Mindanao

SM CDO Downtown Premier Year opened – 2017. SM CDO Downtown Premier is located at the intersection of C.M. Recto and Osmeña Street, Cagayan de Oro City (CDO). The mall will have a water catchment beneath, which will be able to hold 13,650 cubic meters of rainwater to help lessen the flooding in the area. This second SM mall in CDO, facing the gateway of Northern Mindanao, has 169,894 sq. m of GFA with five floors of popular stores and top amenities, which include Cyberzone, Food Hall, Sky Hall, Sky Garden, four digital theatres, one large format cinema and two Director’s Club cinemas with seating capacity of 1,459, a 14-lane bowling center and carpark for 1,502 vehicles. The anchor tenants for SM CDO Downtown Premier are The SM Store, SM Supermarket, SM Appliance Center, Ace Hardware, Uniqlo and Forever 21. SM Lanang Premier Year opened – 2012. SM Lanang Premier sits on a 10-hectare land located at J.P. Laurel Avenue, Brgy. Lanang, Davao City. It is the first premier mall development in Mindanao, with four levels totaled 145,174 sq. m. of GFA. The mall houses a convention center, six cinemas and an IMAX theatre with a combined seating capacity of 2,610, a 16-lane bowling center and parking for 1,660 vehicles. It also features a Sky Garden with water fountains, art installations, and landscaping. The anchor tenants for SM Lanang Premier are The SM Store, SM Supermarket, Ace Hardware and Forever 21. SM City General Santos Year opened – 2012. SM City General Santos is a three level mall located at San Miguel St., cor. Santiago Blvd., Lagao District, General Santos City. The mall has a GFA of 131,818 sq. m. featuring a food court, four cinemas with seating capacity of 1,386, and parking for 1,407 vehicles. The anchor tenants for SM City General Santos are The SM Store, SM Supermarket and Ace Hardware.

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SM City Davao Year opened – 2001. SM City Davao is located on a 13.2-hectare property along Quimpo Boulevard corner Tulip and Eco Drives, Brgy. Matina, Davao City. Its location is 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 mall has a GFA of 126,425 sq. m. It has six cinemas which can accommodate 2,405 movie patrons and parking for 2,201 vehicles. The anchor tenants for SM City Davao are The SM Store, SM Supermarket, Ace Hardware and SM Appliance Center. SM City Cagayan De Oro Year opened – 2002. SM City Cagayan De Oro sits along Mastersons Avenue corner Gran Via St., Cagayan de Oro City, Misamis Oriental. The mall has a GFA of 87,837 sq. m. It features four cinemas with seating capacity of 1,538 and carpark for 989 vehicles. The anchor tenants for SM City Cagayan De Oro are The SM Store, SM Supermarket and Ace Hardware.

China Malls

SM City Tianjin Year opened – 2016. SM City Tianjin in Huanhe North Road, Airport Economic Zone, Tianjin, is situated on a 43.5-hectare lot and has a GFA of 321,641 sq. m. plus a carpark for 8,109 vehicles. A soft opening was held in December 2016 bringing anchor tenants such as The SM Store, Dadi Ifree Cinema, Bravo Yonghui Supermarket, Jiawen Theme Park, Decathlon, Acasia Food Court and Watsons plus several junior anchors. SM City Xiamen Year opened – 2001 (SM City Xiamen) & 2009 (SM Xiamen Lifestyle). SM City Xiamen in Xiamen City, Fujian Province is situated on a 10.4-hectare lot and has a GFA of 238,125 sq. m. plus a carpark for 2,090 vehicles. The anchor tenants for SM City Xiamen are Wal-Mart, The SM Store, Watsons, Wanda Cinema, H&M and Uniqlo plus several junior anchors. SM City Jinjiang Year opened – 2005. SM City Jinjiang in Jinjiang City, Fujian Province is situated on an 11.5-hectare lot and has a GFA of 167,830 sq. m. plus an open carpark for 1,700 vehicles. The anchor tenants for SM City Jinjiang are Wal-Mart, The SM Store, Wanda Cinema and Watsons plus several junior anchors. SM City Chengdu Year opened – 2006. SM City Chengdu in Chengdu City, Sichuan Province is situated on a 4.8-hectare lot and has a GFA of 166,665 sq. m. plus parking space for 810 vehicles. The anchor tenants for SM City Chengdu are Wal-Mart, The SM Store and Wanda Cinema plus several junior anchors. SM City Zibo Year opened – 2015. SM City Zibo in Zibo City, Shandong Province is situated on a 7.2-hectare lot and has a GFA of 152,093 sq. m. plus a carpark for 755 vehicles. The anchor tenants for SM City Zibo are The SM Store, Spar Jiajiayue Supermarket, Suning, Watsons, DaDi Cinema plus several junior anchors. SM City Chongqing Year opened – 2012. SM City Chongqing, located in the Yubei District, Southwest China, is situated on a 4.4-hectare lot and has a GFA of 149,027 sq. m. plus a carpark for 1,510 vehicles. SM City Chongqing is a one building structure with five levels. The anchor tenants for SM City Chongqing are Vanguard Supermarket, The SM Store and Wanda Cinema plus several junior anchors.

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SM City Suzhou Year opened – 2011. SM City Suzhou in Wuzhong District, Jiangsu Province is situated on a 4.1-hectare lot and has a GFA of 72,552 sq. m. plus a carpark for 560 vehicles. The anchor tenants for SM City Suzhou are Vanguard Supermarket and Wanda Cinema plus several junior anchors. The Company believes that the seven malls will provide a 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. The Company intends to continue seeking opportunities for mall developments in second and third tier cities in China, where the mall can serve to anchor the city center. 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 and one expansion project over the next five years in China. The following table sets forth certain information regarding the contribution of the SM malls in China to SM Prime’s total combined revenues and combined net income for the period stated:

For the year ended 31 December

For the nine months ended 30

September

2016 2017 2018 2018 2019

(in millions of pesos, except percentage of SM Prime’s total) Revenue 4,085 5% 4,767 5% 5,808 6% 4,393 6% 4,393 5% Net income (180) -1% 387 1% 488 2% 408 2% 1,159 4%

Sky Ranch

Sky Ranch Tagaytay Sky Ranch Tagaytay, a nearly four-hectare property, is an entertainment venue adjacent to the Taal Vista Hotel, and was 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 is included which is complemented by casual, family style dining establishments, as well as a mini-amusement theme park for kids and other recreational facilities such as horseback riding. Sky Ranch Pampanga Sky Ranch Pampanga is the first amusement park and the newest destination for both local residents and tourists in the North Luzon. The park is embedded in a 10,000 square meter land of SM City Pampanga in the City of San Fernando. It has 27 different rides and attractions, including the Pampanga Eye which is said to be the tallest and biggest Ferris wheel in the Philippines at 65 meters tall and 55 meters in diameter. Sky Ranch Baguio Sky Ranch Baguio is the second amusement park and the newest destination for both local residents and tourists in North Luzon. The park is embedded in a 3,000-square meter land of SM City Baguio. It has 13 different rides and attractions, including the Baguio Eye which is said to be the Ferris wheel with the highest elevation in Asia at 52 meters tall and 45 meters in diameter. Department Stores and Supermarkets

SM Prime also owns several department store and supermarket buildings with a total GFA of approximately 300,000 sq. m. The major tenant of these buildings is the SM Retail Group. The following table sets forth certain information regarding SM Prime’s department store and supermarket buildings as at 30 September 2019:

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Department Store Location Gross Floor Area

(sq. m.) Occupancy

SM Cubao Quezon City 109,253 98% SM Makati Makati City 109,667 100% SM Delgado Iloilo City 26,390 97%

Supermarkets (Hypermarket and

Savemore) Location

Gross Floor Area

(sq. m.) Occupancy

Adriatico Manila City 15,823 100% Caloocan Caloocan City 14,479 100% Novaliches Quezon City 4,161 100% Jaro Iloilo Iloilo City 3,759 100% Del Monte Quezon City 2,755 100% Kamias Quezon City 2,211 100% P. Tuazon Quezon City 2,018 100% Pedro Gil Manila City 1,830 100% Tandang Sora Quezon City 1,327 100%

Except for the department stores and the Adriatico and Jaro Supermarkets, SM Prime also owns the land on which the retail establishments listed in the table above are situated. MOA Arena

The MOA Arena is a five-storey, first class multipurpose venue for sporting events, concerts, entertainment shows, and other similar events. The arena has a seating capacity of approximately 16,000 for sporting events, and a full-house capacity of 20,000. It occupies approximately two hectares of land and has a GFA of approximately 68,000 sq. m. Other Malls Properties

SM Prime acts as a landlord for the following commercial properties leased by SM Food Retail Group:

Lot Location Area (sq. m.)

Imelda Ave., Cainta, Rizal & Int. Imelda Ave., Rosario, Pasig City 41,000 East Service Road, Sucat, Muntinlupa City 40,000 Anabu I-B Imus, Cavite 37,000 II-A;II-B & Lot 1;Along H. Cortes Ext., Subangdaku, Mandaue City 36,000 Km. 7 McArthur Highway, Bangkal, Davao City 34,000 Quirino Highway, Talipapa, Balintawak, Quezon City 30,000 Manila Harbor Center, Tondo, Manila City 26,000 Rosario, Batangas 7,189 Malinao Pasig 2,777

Malls under Construction

For 2020, the Company’s mall business unit is set to open five new malls, located in the cities of Butuan, Zamboanga, Daet, Roxas and Caloocan, as well as the expansions of SM City Baguio and SM Mall of Asia - IKEA. By yearend, the mall business unit will have an estimated 10.2 million square meters of GFA. Land Bank

The following table sets forth SM Prime’s existing land bank owned for development of new malls as at 30 September 2019:

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Location Gross Area (sq. m.) Luzon 1,169,577 Visayas/Mindanao 383,845 Metro Manila 190,864

Total 1,744,286

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 The SM Stores, SM Supermarkets and SM Hypermarkets. Other significant tenants include Jollibee, National Bookstore, KFC, Chowking, Concentrix, Mang Inasal, McDonalds, iQor, Smart and Greenwich. As at 30 September 2019, The SM Stores occupied in aggregate a gross area of 1,081,782 sq. m. within the malls, or 30% of total leasable area. SVI and SSMI operate the SM Supermarkets and SM Hypermarkets occupying in aggregate a gross area of 467,024 sq. m. as at 30 September 2019, or 13% 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, Watsons, Surplus, Our Home, Toy Kingdom, BDO, Kultura, Uniqlo, and Miniso are also tenants in most of the malls. During the years ended 31 December 2016, 2017, and 2018 and the nine months ended 30 September 2019, approximately 35%, 34%, 35% and 34%, respectively, of the aggregate mall rental revenue received by SM Prime in respect of the malls was from members of the Group and companies affiliated with the Sy family. Out of the total increase in mall rental revenue of 8% for nine months ended 30 September2019, same store sales contributed 7% while new malls and expansion of existing malls contributed 1%. SM Prime believes that all the leases entered into between SM Prime and the Group or companies affiliated to the Sy family have been entered into on an arm’s length basis and on commercial terms. 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. 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 31 December 2016, 2017, and 2018. 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 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,

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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 the Management Companies, a wholly owned subsidiary of SM Prime. In addition, the Management Companies negotiate and handle major tenant issues for the malls, while reporting to and under the direction of SM Prime. The Management Companies also adjust the tenant mix according to instructions given by SM Prime, which is based on a variety of factors, including the target market, location of the mall, demographics, size of the retail spaces and market positioning, among others. Each of the Management Companies performs specific functions in relation to each of the malls. The entertainment and leisure facilities within the malls, including cinemas, bowling centers and ice skating rinks, are primarily owned by SM Prime, and the Management Companies managed the operations of the entertainment and leisure facilities within the malls. Certain entertainment facilities, such as amusement rides, are operated by third parties, whereby SM Prime receives a percentage of the amusement fees. 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 Land Corporation (“RLC”) and Ayala Land, Inc. (“ALI”). As of 30 September 2019, RLC owns and operates 52 malls in the Philippines, 9 in Metro Manila and 43 in urban areas outside Metro Manila. RLC’s total assets as at and for the fiscal years ended 30 September 2016, 2017, and 2018 were P120.0 billion, P148.1 billion, and P174.2 billion, respectively. ALI operates 32 malls and retail spaces in the country. ALI’s total assets as at and for the years ended 31 December 2016, 2017, and 2018 were P536.4 billion, P574.0 billion, and P668.8 billion, respectively. 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 land bank, its balance sheet strength, a proven successful tenant mix and selection criteria, and the presence of The SM Stores, SM Supermarkets, SM Hypermarkets and retail affiliates of the Group within the malls. SM Prime believes that its experience and understanding of the retail industry has also been a contributing factor to its competitive advantage in the industry. Subsidiaries

SM Prime has 15 wholly-owned mall related Philippine subsidiaries, namely, Premier Central, Inc., Premier Southern Corp., Consolidated Prime Dev. Corp., San Lazaro Holdings Corporation, Southernpoint Properties Corp., CHAS Realty and Development Corp., Rushmore Holdings, Inc., Prime Commercial Property Management Corporation, Magenta Legacy, Inc. Associated Development Corporation, Prime Metroestate, Inc., SM Arena Complex Corporation, A. Canicosa Holdings, Inc., AD Canicosa Properties, Inc. and Cherry Realty Development Corporation. SM Prime holds its interests in SM City Batangas and SM City Lipa, SM City Dasmariñas, SM City Clark, SM City Lanang, and SM Megacenter Cabanatuan through Premier Southern Corp., Consolidated Prime Dev. Corp., Premier Central, Inc., Southernpoint Properties Corp., and CHAS Realty and Development 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.

RESIDENTIAL (PRIMARY) SM Prime’s revenue from residential operations is derived largely from the sale of condominium units. As of 30 September 2019, residential business unit has forty-eight residential projects in the market,

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thirty-eight of which are in Metro Manila and ten are outside Metro Manila. Completed Residential Projects The following projects have completed their construction but units are still being sold by SM Prime: Chateau Elysee Chateau Elysee is a six-cluster, six-storey 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 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 began in April 2010 and was completed in June 2011. As of 30 September 2019, 98.8% of the project’s 2,820 units in total had been sold. Mezza Residences SM Prime’s first high-rise project is the Mezza Residences (“Mezza”), which is a mixed-use development project with 38-storey four-tower condominiums and commercial retail area located across from SM City Sta. Mesa, Manila. Each tower has 400 to 800 residential units comprised of one-bedroom to four-bedroom configurations, with floor areas ranging from 21 to 67 sq. m. Mezza consists of 2,332 saleable residential units and 18 commercial units for lease with Savemore store as the anchor tenant. As of 30 September 2019, construction of Mezza towers one to four was 100% complete and SMDC had sold 99.4% of the units in Mezza. Berkeley Residences Berkeley Residences is a 35-storey high-rise condominium project situated just across Miriam College in Quezon City. Berkeley Residences comprises 1,276 units which were completed in June 2011, of which 99.9% were sold as of 30 September 2019. Sea Residences Sea Residences is a 15-storey residential and commercial condominium project comprising of six buildings, located at the Mall of Asia (MOA) Complex, Pasay City. Construction for Phase One of Sea Residences started in January 2009 and was completed in March 2012. As of 30 September 2019; 99.6% of the units in Phase One were sold. Construction for Phase Two started in December 2009 and was completed in November 2012. As of December 31, 2018; 98.6% of the units in Phase Two were sold. Phase Three of Sea Residences units were 99.6% sold as of December 31, 2018; construction for Phase Three started in March 2010 and was completed in December 2012. Princeton Residences Princeton Residences is a 38-storey high-rise condominium project located along Aurora Blvd., Quezon City which was completed in March 2013. Princeton Residences comprises 1,096 units of which 98.3% were sold as of 30 September 2019. Sun Residences Sun Residences is a project comprising two 40-storey towers located along España Blvd., Quezon City near Welcome Rotonda. Sun Residences Tower 1 comprises 2,057 units of which 99.3% were sold as of 30 September 2019. Tower 2 comprises 1,982 units of which 99% were sold as of 30 September 2019. Construction of Towers 1 and 2 were completed in November 2013 and June 2014, respectively. Jazz Residences

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Jazz Residences is a mixed use development project comprising four 41-storey towers located at N. Garcia corner Jupiter, Makati City. Towers A, B, C and D of the project consist of 5,367 units of which 98.9% were sold as of 30 September 2019. Construction of Tower A started in April 2010 and was completed in December 2013 while construction of Tower C started in October 2010 and was completed in May 2014. Construction of Tower D started in July 2011 and was completed in June 2015. Construction of Tower B started in July 2011 and was completed in September 2015. Blue Residences Blue Residences is a 40-storey residential condominium situated across from Ateneo De Manila University in Quezon City. Construction of Blue Residences started in October 2010 and was completed in May 2014. It comprises 1,591 units of which 99.2% were sold as of 30 September 2019. Grass Residences – Phase 1 Grass Residences – Phase 1 is a three tower 40-storey high-rise condominium project located behind SM City North EDSA, Manila. Tower 1 comprises 1,988 units of which 98.7% were sold as at 30 September 2019. Construction of Tower 1 started in March 2008 and was completed in October 2011. Tower 2 comprises 2,025 units, of which 96.9% were sold as at 30 September 2019. Construction of Tower 2 started in November 2010 and was completed in May 2014. Tower 3 comprises 1,990 units, of which 99.2% were sold as of 30 September 2019. Construction of Tower 3 started in November 2009 and was completed in December 2013. Light Residences Light Residences is a mixed use development project with three 40-storey towers located along EDSA, Mandaluyong City. It has a total of 4,227 units, of which 96.9% were sold as of 30 September 2019. Construction of Phase 1, which consists of the podium and Tower 1, started in May 2010 and was completed in December 2013. Construction of Phase 2 (Tower 3) started in April 2011 and was completed in December 2013. Construction of Phase 3 (Tower 2) commenced in July 2011 and was completed in January 2015. M Place @ South Triangle M Place @ South Triangle is a four 25-storey tower condominium in South Triangle, Quezon City. Tower A started construction on January 2011 and was completed in December 2013. Tower A comprises 827 units of which 98.8% were sold as of 30 September 2019. Tower B started construction in July 2011 and was completed in December 2013. Tower B comprises 912 units of which 96.7% were sold as of 30 September 2019. Tower C comprises 778 units of which 96% were sold as of 30 September 2019. Construction of Tower C began in January 2012 and was completed in 2015. Tower D comprises of 920 units of which 95.1% were sold as of 30 September 2019. Construction of Tower D commenced in July 2012 and was completed in January 2015. Mezza II Residences Mezza II Residences is a 38-storey residential condominium located just beside the first Mezza Residences in Quezon City. Construction of Mezza II started in November 2011 and was completed in January 2015. It comprises 1,324 units of which 98.4% were sold as of 30 September 2019. Shine Residences Shine Residences is a 22-storey residential condominium located in Pasig City. Construction of Shine Residences commenced in January 2013 and was completed in December 2015. It comprises 892 units, of which 91.3% were sold as of 30 September 2019. Green Residences

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Green Residences is a 50-storey residential condominium situated on Taft Avenue, Manila near De La Salle University. Construction of Green Residences started in August 2011 was completed in December 2015. Green Residences comprises 3,378 units of which 98.6% were sold as of 30 September 2019. Shell Residences Shell Residences is a 16-storey residential and commercial condominium project and is located at the MOA Complex in Pasay City. It comprises four buildings with 3,093 residential units of which 99.3% were sold as of 30 September 2019. Construction of Shell Residences commenced in May 2012 and was completed in December 2015. Field Residences Field Residences is a residential condominium project that ultimately consists of ten buildings located behind SM Sucat, Parañaque. Buildings 1, 2, 3, 7 and 8 of Field Residences were 98.1% sold as of December 31, 2018. Construction of buildings 1, 2, 8, 3 and 7 were completed in April 2010, April 2011, December 2011, December 2012 and September 2013, respectively. Building 4 was 97.5% sold as of September 30, 2019. Construction of building 4 commenced in July 2014 and was completed in March 2017. Wind Residences Wind Residences is a residential condominium development with five 20-storey towers located along Emilio Aguinaldo Highway, Tagaytay City. Towers 1 to 5 have a total of 3,524 units of which 98% were sold as of 30 September 2019. Towers 1-5 are ready for occupancy. Grace Residences Grace Residences is a residential condominium development with four towers located along Levi Mariano Avenue in Taguig City. The project was 92.1% sold as of 30 September 2019. Construction of Tower 1 started in May 2013 and was completed in October 2015. Construction of Tower 2 and 3 commenced in October 2013 and May 2014, respectively, and was completed in September 2016. Construction of Tower 4 started in April 2015 and was completed in July 2018. Trees Residences Phase 1 and Phase 2 Buildings Trees Residences is a residential condominium development with nineteen 7-storey towers located near Quezon City. Buildings 1, 2, 3, 5, 6 and 7 (“Phase 1 Buildings”) were 87.8% sold as of 30 September 2019. Construction of the Phase 1 commenced in January 2014 and was completed in March 2016. Phase 2 buildings (Bldgs. 8, 9, 10, 11, 12 and 15) were 74.1% sold as of 30 September 2019. Construction of Phase 2 commenced in May 2015 and was completed in year 2018. Breeze Residences Breeze Residences is a 38-storey residential and commercial condominium project and is located along Roxas Boulevard in Pasay City. As of 30 September 2019, 99.3% of the units were sold. Construction of Breeze Residences commenced in June 2013 and was completed in September 2017. Shore Residences Shore Residences is a residential condominium development with four towers located at the MOA Complex in Pasay City. Construction of Shore Residences commenced on the second quarter of 2014 and was completed in 2019. As of 30 September 2019, 98.9% of the 5,691 residential units were sold. Ongoing Residential Projects

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Grass Residences – Phase 2 Grass Residences – Phase 2 was launched in March 2013, a two tower 37-storey high-rise condominium project located behind SM City North EDSA, Manila. Tower 4 and Tower 5 are expected to be completed in 2019. Cool Suites @ Wind Residences Cool Suites @ Wind Residences is a residential condominium project that will consist of 6 Towers located along Emilio Aguinaldo Highway, Tagaytay City. Cool Suites @ Wind Residences is a Phase 2 Project at the 15-hectare development of Wind Residences. Building 1 was launched in December 2014 and 97.2% were sold as of 30 September 2019. Construction of Building 1 commenced in January 2015 and was completed in August 2017. Building 2 was launched in August 2016 and 96.8% of the units were sold as of 30 September 2019. Air Residences Air Residences is a residential condominium situated across Ayala Avenue Extension corner Yakal and Malugay Street, Barangay San Antonio, Makati City. Construction of Air Residences commenced on the last quarter of 2015 and is expected to be completed in 2020. Fame Residences Fame Residences is a residential condominium project that will ultimately consist of four towers in a common podium located along EDSA and Mayflower Street, Barangay Highway Hills, Mandaluyong City. Construction of the project commenced in November 2015. Towers 1 and 2 of Fame Residences are expected to be completed in 2019 and 2020, respectively. Shore 2 Residences Shore 2 Residences is a residential condominium development with three towers located just beside Shore Residences in Pasay City. Construction of Shore 2 Residences commenced on the last quarter of 2015 and is expected to be completed in 2020. Shore 3 Residences Shore 3 Residences is a residential condominium development located next to Shore 2 Residences in Pasay City. Construction of Shore 3 Residences commenced on the last quarter of 2016. South Residences Phase 1 South Residences Phase 1 is a residential condominium project that will ultimately consist of four towers located near SM Southmall in Las Piñas City. Construction commenced on the second half of 2015 and is expected to be completed on the second half of 2019. Coast Residences Coast Residences is a residential condominium located at Roxas Boulevard corner of Dapitan St., Pasay City. Construction of Coast Residences commenced on the first quarter of 2016 and is expected to be completed in 2019. Spring Residences Spring Residences is a residential condominium project that will ultimately consist of four towers located at West Service Road, Bicutan, Parañaque City. Construction of the project commenced on the first half of 2016 and is expected to be completed in 2020.

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S Residences S Residences is a residential condominium development with three towers located at the MOA Complex in Pasay City. Construction of S Residences commenced on the second quarter of 2016 and is expected to be completed in 2019. Vine Residences Vine Residences is a residential condominium located at Brgy. San Bartolome, Novaliches, Quezon City. Construction of Vine Residences commenced on the last quarter of 2016 and is expected to be completed in 2021. Cheer Residences Cheer Residences is a residential condominium located at Mac Arthur Highway, Brgy Ibayo, Marilao Bulacan. Construction of Cheer Residences commenced in 2017 and is expected to be completed in 2020. Bloom Residences Bloom Residences is a residential condominium located along Dr. A. Santos, Sucat, Parañaque. Construction of Bloom Residences commenced on the second half of 2017 and is expected to be completed in 2022. Green 2 Green 2 Residences is a residential condominium located at Brgy. Burol Main, Dasmariñas, Cavite. Construction of the project commenced on the second half of 2017 and is expected to be completed in 2021. Hope Residences Hope Residences is a residential condominium with four buildings located near SM City Trece Martires, Cavite. Construction of Hope Residences started on the second half of 2017 and is expected to be completed in 2020. Charm Residences Charm Residences is a residential condominium located at Barangay San Isidro, Cainta, Rizal. Construction of Charm Residences commenced on the second half of 2017. Cheerful Homes Cheerful Homes is SM Prime’s house and lot project located at Mabalacat, Pampanga. Construction started on the first half of 2017 and is expected to be completed in 2020. Red Residences Red Residences is a residential condominium located at Chino Roces Ave. San Lorenzo Village Makati City. Construction of Red Residences started on the second half of 2018 and is expected to be completed in 2023. Leaf Residences Leaf Residences is a residential condominium located at Susana Heights, Muntinlupa City. Construction of Leaf Residences started in 2018 and is expected to be completed in 2021.

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Park Residences Park Residences is a residential condominium located at Brgy. Tagapo, Sta. Rosa, Laguna. Construction of Park Residences started in 2018 and is expected to be completed in 2023. Hill Residences Hill Residences is a residential condominium located at Novaliches, Quezon City. Construction of Hill Residences started in 2018 and is expected to be completed in 2022. Lane Residences Lane Residences is a residential condominium located at Lanang, Davao City. Construction of Lane Residences started in 2018 and is expected to be completed in 2023. Lush Residences Lush Residences is a residential condominium located at Bagtikan St. San Antonio Village, Makati City. Construction of Lush Residences started in 2018 and is expected to be completed in 2021. Sail Residences Sail Residences is a residential condominium located at MOA Complex Pasay, City. Construction of Sail Residences started in 2019 and is expected to be completed in 2023. Glam Residences Glam Residences is a residential condominium located at EDSA and Samar Ave., Brgy South Triangle, Quezon City. Construction of Glam Residences started in 2019 and is expected to be completed in 2023. Style Residences

Style Residences is a residential condominium located at Benigno Aquino Avenue, Mandurriao, Iloilo City. Construction of Style Residences started in 2019 and is expected to be completed in 2023. Socialized Residential Projects Heneral Uno Heneral Uno is the first horizontal socialized housing project launched in 2012. The project is situated in 25 hectares property in General Trias, Cavite. Heneral Dos Launched in 2013 is the second socialized housing project named “Heneral Dos”. It is situated in 20 hectares property in General Trias and Trece Martirez, Cavite. Brisas De Tanza Brisas De Tanza was launched in 2015 located in Tanza, Cavite. Project gross area is 6.5 hectares with predominantly socialized housing offerings. Primera Subdivision Primera Subdivision is a pioneering socialized housing development in Sto. Tomas, Batangas. It was launched in 2015 with an area of 11 hectares.

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Paseo Heneral Dos Paseo Heneral Dos is situated in General Trias, Cavite. It was launched in the first quarter of 2016. Primerarosa Primerarosa is the second socialized housing project in Sto. Tomas, Batangas. It was launched in the second quarter of 2016. Reginarosa Reginarosa is the third housing project in Sto. Tomas, Batangas. It was launched in the fourth quarter of 2017 largely composed of socialized housing offerings. Bela Rosa Belarosa is the fourth housing project in Sto. Tomas, Batangas. It was launched in the first quarter of 2018 largely composed of socialized housing offerings. Amorrosa Amorrosa is the fifth housing project in Sto. Tomas, Batangas. It was launched in the fourth quarter of 2018 largely composed of socialized housing offerings.

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RESIDENTIAL (LEISURE) SM Prime owns leisure and resort developments including properties located in the Tagaytay Highlands and Tagaytay Midlands golf clubs in Laguna, Tagaytay City and Batangas. In addition, SM Prime is the developer of Pico de Loro Cove, the first residential community within Hamilo Coast, a master planned coastal resort township development in Nasugbu, Batangas encompassing 13 coves and 31 kilometers of coastline.

Residential Developments in Tagaytay

The Horizon at Tagaytay Midlands This is a medium-density residential condominium development located inside The Tagaytay Midlands mountain resort community. The development overlooks the Tagaytay Midlands golf course, Taal Lake and Volcano in the west, Mt. Makiling in the south east and the mountain range of Batangas in the south. This has 6 buildings with 108 units of approximately 139 to 152 sq. m. each. The project was launched in 2005 and was fully sold as at 30 September 2019. Pueblo Real at Tagaytay Midlands The development is adjacent to The Horizon, situated on a six hectare property and has 86 lots with an average lot size of 420 sq. m. The project is 98.84% sold as of 30 September 2019. 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 176 condominium residential units with areas ranging from 41 to 241 sq. m. per unit. The project is 99.43% sold as of 30 September 2019. Sierra Lago This is a lot subdivision development located at Tagaytay Midlands that was launched in November 2010. This development has 185 lots with sizes of approximately 250 to 435 sq. m. The project is 99.46% sold as of 30 September 2019. Aspenhills This is a leisure lot development located at Tagaytay Highlands that was launched in summer of 2012. This development is situated on 27 hectare property which offers lot sizes from 300 to 800 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 99.51% of the lots had been sold as of 30 September 2019. The Hillside at Tagaytay Highlands The Hillside at Tagaytay Highlands is the first lots only subdivision in the Tagaytay Highlands complex which is located near the Sports Center, the Country Club and other recreational facilities. This property boasts of cool year-round climate, gentle rolling terrain, lush greenery and views of the mountainside and Laguna De Bay. On this development, lot cuts range from 400 to 641 square meters. Three model units have been constructed to date. The project is fully sold as of 30 September 2019. Vireya Phase 1 A tropical-inspired residential subdivision with a total land area of 16.9 hectares located at the Midlands

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enclave. This is the third lot development at The Midlands and has lot cuts ranging from 250-562 square meter area. The project was launched in July 2016. As at September 30, 2019, 95.28% of the lots had been sold. Vireya Phase 2 Vireya Phase 2 is an expansion of the Vireya Phase 1 development with lots ranging from 255-486 sq. m. area. This area features additional amenities that will further enhance the entire subdivision: Treehouse, garden patio and playground. The project was launched in April 2017. As at September 30, 2019, 98.78% of the lots had been sold. Vireya Phase 3 Vireya Phase 3 is the latest expansion of Vireya Project – a tropical-themed community situated in the Midlands. The 3.6 has. property offers 92 lots with sizes ranging from 250 to 612 sq. m. Vireya Phase 3 will utilize and share the current amenities of Vireya Phase 1 & 2. As at 30 September 2019, 81.52% of the lots had been sold. The Woodlands Point at Tagaytay Highlands The Woodlands Point at Tagaytay Highlands is a single detached log cabin condominium community located near Fairway 15 of the Tagaytay Highlands Golf Course. The community is designed to accommodate 60 pads for single detached log cabins carrying the homey atmosphere of North American cedar log cabin living enhanced by Western red cedar accents and elegant detailing of glass and stone. Currently, 25 log cabins have been completed and sold. The Woodridge Place Phase I at Tagaytay Highlands Located in Tagaytay Highlands adjacent to The Woodridge. The Woodridge Place Phase 1 is a condominium development with the views of The Woodlands, Tagaytay Highlands Golf Course, Canlubang, Laguna De Bay and surrounding mountains. Its architectural theme is inspired by the mountain resorts of the Colorado Region. This development consists of seven mid-rise buildings, all residential units of which are sold. Horizon Terraces - Garden Suites 1 and Garden Villas 2 Horizon Terraces shall complete the undeveloped area which sits on a 3-hectare property within the 6-hectare land comprising the Horizon project at the Midlands. This will offer a mix of condominium and townhouse residential units both offering condo titles. Garden Suites 1 and Garden Villas Cluster 2 were launched in August 2017. Suites 1 offers 1BR and 2BR units with area ranging from 43 to 68 sq. m; and Villas Cluster 2 offers 3BR units with areas 135 and 153 sq. m. Construction of Suites 1 and Villas Cluster 2 commenced in 2018. Approximately 81.82% of the condo units in Suites 1 and 42.86% of Villas 2 Cluster 2 have been sold as at 30 September 2019. Horizon Terraces – Garden Suites 2 As part of Horizon Terraces development, Garden Suites 2 was launched in November 2018 with 40 units of 1BR & 2BR units with areas ranging from 44 to 102 sq. m. Construction shall commence in 4Q-2019 based on projections. As at 30 September 2019, 52.50% of the units had been sold. Horizon Terraces – Garden Suites 3 The latest of the Horizon Terraces development launched in July 2019, Garden Suites 3 is comprised of 45 units of 1BR & 2BR units with areas ranging from 35 to 103 sq. m. Construction shall commence in 1Q-2020 based on projections. As at 30 September 2019, 53.33% of the units had been sold.

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The Pines at Aspenhills Launched in September 2019, The Pines at Aspenhills is the latest residential subdivision in Tagaytay Highlands situated across the existing Aspenhills subdivision. The total land area of the property is approximately 8.3 hectares with developable area of 1.2 hectares. The village is inspired by the colorful happy summers of Aspen, Colorado (following the existing Aspenhills theme). Living a modern ranch style and mountain log home in an exclusive area with a total of 25 lots makes it distinct from the rest of the exclusive communities in Highlands.

Residential Developments in Pico de Loro Jacana Jacana is a residential 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. Construction of Jacana commenced in August 2007 and was completed in February 2010. As of 30 September 2019, 99.6% of the project’s units have been sold. Myna Myna is a residential condominium project located at Pico De Loro Cove, Nasugbu, Batangas. It comprises two buildings, building A with six floors and building B with seven floors. Construction of Myna commenced in May 2008 and was completed in July 2010. As of 30 September 2019, 99.6% of the project’s units have been sold. Carola Carola is a residential condominium project located at Pico De Loro Cove, Nasugbu, Batangas. It comprises two buildings, building A with six floors and building B with seven floors. Construction of Carola commenced in August 2009 and was completed in August 2012. As of 30 September 2019, 99.6% of the project’s units have been sold. Miranda Miranda is a residential condominium project located at Pico De Loro Cove, Nasugbu, Batangas. It comprises two buildings, building A with six floors and building B with seven floors. Construction of Miranda commenced in August 2009 and was completed in June 2012. As of 30 September 2019, 99.6% of the project’s units have been sold. Freia Freia is a residential condominium project located at Pico De Loro Cove, Nasugbu, Batangas. It comprises three buildings, building A with thirteen floors, building B with eleven floors and building C with nine floors. Freia was launched last July 2017 and construction is on-going. As at 30 September 2019, 45.30% of the units were sold. Pico de Loro Beach and Country Club Pico de Loro Beach and Country Club is a leisure facility located at Pico de Loro Cove. Costa del Hamilo, as developer, executed a deed of conveyance of the titles to the lots and buildings, and in return owns 4,000 shares. The beach club was completed and opened in 2009, while the country club was completed in June 2010.

Land Bank for Residential (Primary) Development For 2019, SM Prime’s residential unit will launch 15,000 to 20,000 units that includes high-rise, mid-rise and single detached housing. These projects will be located in Metro Manila and other key cities in the

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provinces. This is a combination of new projects and expansion of existing projects. The Company continues to invest in properties that it believes are in prime locations across the Philippines for existing and future property development projects. It is important to the Company 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. The Company identifies land acquisitions through active search and referrals. The table below sets forth the locations of SM Prime’s residential (primary) undeveloped land inventory as of 30 September 2019:

Location Area

(sq. m.)

Metro Manila 928,096 Outside Metro Manila 8,887,902

Total 9,815,998

The Company believes this land bank is sufficient to sustain development and sales. Moreover, the Company’s residential business unit continually seeks to increase its land bank in various parts of the Philippines for future residential development through direct acquisitions. Land Bank for Residential (Leisure) Development

SM Prime owns 521 hectares of land located around the vicinity of Tagaytay Highlands International Golf Club in Tagaytay City, Cavite and Tagaytay Midlands Golf Club in Batangas. The table below sets forth the location and area of SM Prime’s land bank as of 30 September 2019:

Location Area (sq. m.)

Batangas 3,941,412 Laguna 940,728 Tagaytay 327,764

Total 5,209,904

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COMMERCIAL SM Prime’s commercial business unit is engaged in the development and leasing of office buildings in prime locations in Metro Manila, as well as the operations and management of such buildings and other property holdings. Completed Commercial Properties

Mall of Asia (MOA) Complex SM Prime’s 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 development and main attraction, among other commercial, business, and entertainment establishments within the Complex. 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, MOA Arena Annex Building, that houses additional parking spaces and office levels. The MOA complex is also the site of SM Prime’s signature business complex, the E-Com Centers, a series of modern and iconic office buildings mostly targeting technology based industries, BPO and shipping companies. Three E-Com Center Year opened – 2018. Three E-com Center is a 15-storey office building with a three level parking podium and the ground level designed to cater the commercial and retail tenants. Similar to Two E-com Center and Five E-com Center, Three E-com Center features architectural designs of Miami based firm Arquitectonica. The GFA is 129,857 sq. m. SM Prime again pioneers development in the bay area by being the first to offer a Gold LEED certified office building with Three E-Com Center. Five E-Com Center Year opened – 2015. Similar to its predecessor Two E-com Center, Five E-com Center features architectural designs of Miami based firm Arquitectonica, with FS Lim & Associates as the local architect of record. The 15-level office building covers a GFA of 145,638 sq. m. Five E-com Center also features a mixed-use component on its fourth level podium. Two E-Com Center Year opened – 2012. Two E-com Center is a 15-storey 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 a GFA of 106,682 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. Commercial spaces are located at both the ground floor and the fourth floor podium level called the Prism Plaza. SM Clark BPO Tech Hub Year opened – 2016. SM Clark BPO Tech Hub is a 6-storey tech hub with GFA of 72,973 sq. m., located inside the SM City Clark mall complex. It primarily caters office spaces for BPO firms and also offers the first and second level for retail stores. SM Aura Office Tower Year opened – 2014. SM Aura Office Tower is strategically connected to SM Aura Premier with its structure as “dumbbell” arrangement determined by the narrow site, with the main entry at the north corner, and the office tower located at the southern end. The 30-storey office tower has a GFA of 52,837 sq. m. As part of the Bonifacio Civic Center, government agencies such as Social Security System, Philippine Health Insurance, Bureau of Immigration and LRA-Registry of Deeds of Taguig City and Pateros have occupied office spaces.

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SM South Tower Year opened – 2018. SM South Tower is a BPO and Carpark building located within the SM Southmall complex. The two BPO Towers, with four levels each, rest on a podium with four levels of carpark. The ground floor caters to the retail tenants and the two BPO Towers with GFA of 27,007 sq. m. dedicated for BPO offices. SM The Core Tower 1 Year opened – 2017. SM The Core Tower 1 is situated on top of a podium with five-level carpark building, of which some spaces on ground floor occupied by retail stores. SM The Core Tower 1 has four floors with GFA of 13,833 sq. m. and offers its leasable area for the BPO offices. This BPO and Carpark building, collectively named as “The Core,” is located inside the SM City Sta. Rosa complex. SM Taytay BPO Tower Year opened – 2015. SM Taytay BPO Tower, a four-level building, is located just 100-meter away from SM City Taytay Mall. SM Taytay BPO Tower has a GFA of 11,520 sq. m., its ground floor allots for retail stores and other floors offers for BPO offices. SM Cyber West Year opened – 2014. A new standalone office building development in the SM Cyber series, SM Cyber West is a 15-level office building development located on a highly visible and prime 2,900 sq. m. owned property at the corner of EDSA and West Avenue. The building covers a GFA of more or less 41,150 sq. m. Additionally, it is linked via bridgeways to the SM City North EDSA mall as well as nearby Metro Rail Transit station. Makati Cyber One Year opened – 2008. SM Makati Cyber One is a 4-storey office building located along Gil Puyat Avenue with GFA of 23,491 sq. m. Makati Cyber Two Year opened – 2008. SM Makati Cyber Two is a 4-storey office building with GFA of 17,264 sq. m. The development is along corners of Sen. Gil J. Puyat Avenue (Buendia)/Jupiter/Zodiac Streets, Makati City. SM Prime also owns the land where SM Makati Cyber Two is built upon. Anza Commercial Building Year opened – 2014. The building is a 2-storey commercial center located on Makati Avenue corner Anza St., Makati City with a GFA of 2,177 sq. m. Future Commercial Developments

Four E-Com Center Four E-Com Center in MOA Complex which broke ground last January 2016 is designed to address the demand for office buildings in the country. It will have a GFA of approximately 192,454 sq. m. A 16-storey building, Four E-Com has a full basement, four podium parking, and eleven office levels. Retail spaces are offered at the fifth floor podium and ground levels. The building’s design concept will portray crystal formations, with three adjacent towers springing from a common podium. The building will have the distinct rhombic shape as well as flat and inclined surfaces layered over grids to resemble crystals. Like the other E-Com buildings, it will also feature a landscaped deck at the fifth floor podium.

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SM Seaside Complex SM Seaside Complex is a 30-hectare property located at the South Road Properties in Cebu City. With SM Seaside City Cebu as the anchor development, it is slated to transform the city’s landscape as SM Prime plans to build residences, offices, an arena, a five-star hotel, and convention centers. It is also the site of Chapel of San Pedro Calungsod, Seaside Tower and Cebu Ocean Park. Warehouses SM Prime also owns several warehouses with a total GFA of approximately 38,005 sq. m. that are strategically located in various areas that support the retail operations. Jetty Terminal Also in MOA Complex is the jetty terminal that was built in compliance to the sea-based mass transit of the MOA Complex master plan. MOA Arena Annex Building MOA Arena Annex Building is an 11-storey with total GFA of 95,273 sq. m. It is designed to serve the parking needs of MOA Arena from ground to 7th floor. The 8th to 11th floor, are leased out as office space.

Corporate Office Buildings B to F Corporate Offices are composed of Buildings B to F with a total GFA of 38,083 sq. m. All buildings are low-rise developments and are fully leased by the SM Affiliates as of December 31, 2018. Tagaytay Lot Tagaytay lot is located along Gen. Emilio Aguinaldo Highway, within Barangays Mahabang Kahoy and Kaybagay, Tagaytay City with total land area of 117,992 sq. m., of which, 45,264 sq. m. was developed by SM Prime as “The Sky Ranch” and the rest of the area is vacant. Landbank for Commercial Development

The table below sets forth the locations of land inventory as of 30 September 2019:

Location Area (sq. m.)

Luzon 320,209 Metro Manila 46,009 Visayas 344,898

Total 711,116

Competition

SM Prime’s top competitors for commercial properties are Ayala Land, Inc. (“ALI”) and Megaworld Corporation (“MEG”). ALI is involved in the development and lease or sale of office buildings, sale of industrial lots and lease of factory buildings, and fee-based management and operations of office buildings. Megaworld is involved in the development of mixed-use communities comprising high-end residential condominiums and commercial properties located in convenient urban locations in Metro Manila, and has launched approximately 768 residential buildings, office buildings and hotel projects. Megaworld’s total assets as at and for the years ended 31 December 2018 and 2017 were P322.3 billion and P284.3 billion, respectively. SM Prime believes its commercial business unit competes primarily on the location of the properties (proximity to schools, malls and public transportation) and aggressive pricing.

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HOTELS AND CONVENTION CENTERS

As of 30 September 2019, the hotels and convention centers business unit is composed of eight hotels with 1,961 saleable rooms and four convention centers and three trade halls with around 37,500 sq. m. of leasable space. Hotels Completed Hotel Projects

Taal Vista Hotel Taal Vista Lodge, located in Tagaytay City, was acquired by the SM Group in July 1988. The Hotel re-opened in 2003 under the new name Taal Vista Hotel with the renovated Mountain Wing (128 rooms), Lobby Lounge, and Restaurant. The Lake Wing was constructed in 2008 with 133 rooms and a 1,000-seater ballroom. In 2009, the hotel became fully operational with total inventory of 261 rooms. The Ridge rooms and Mountain Wing were recently renovated in 2018. Radisson Blu Cebu SM Prime inaugurated the 400-room Radisson Blu Hotel in November 2010, strategically located beside SM City Cebu adjacent to the International Port Area. Radisson Blu is the first hotel managed by the Carlson Rezidor Hotel Group in the Asia Pacific Region to be classified under its “Blu” upscale hotel brand category. The property has been classified under the deluxe hotel category by the Department of Tourism. 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 currently renovating all its 400 room inventory. Pico Sands Hotel Formally opened in August 2011, Pico Sands Hotel is a 154-room tropical contemporary hotel located within Pico de Loro Cove, the maiden residential community of Hamilo Coast, the premier seaside development of the SM Group in Nasugbu, Batangas. The spacious rooms are equipped with modern facilities and captivating views of lush mountains and tranquil lagoon. The Hotel has scheduled its renovation in two phases in 2020 and 2021. Park Inn by Radisson Davao Park Inn by Radisson Davao is strategically located across the SM Lanang Premier Mall and SMX Conventions Center. The 204-room hotel was formally opened in March 2013. Guests are greeted with contemporary interiors and smart design elements complementing the hotel’s service philosophy – Adding Color to Life. Facilities include: Restaurant, Bar and Grill (RBG), 4 meeting rooms, fitness center, swimming pool and bar. Park Inn Davao is the first “next generation” mid-scale Park Inn by Radisson brand to be established in the Asia Pacific region. Park Inn by Radisson Clark The 155-room Park Inn by Radisson Clark is located in Mabalacat, Pampanga, about 40 miles (60km) northwest of Metro Manila. It is conveniently located beside SM City Clark and Clark Freeport Zone. Clark Freeport Zone is a redevelopment of the former Clark Air Base, a former United States Air Force base in the Philippines. Park Inn by Radisson Clark is the leading 3-star hotel in its market with facilities that include an all-day dining restaurant with 64-seat capacity, a meeting room for 80 pax and a fitness center. An extension building with 100 rooms is currently being constructed and expected to be operational by Q1 2020.

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Conrad Manila In March 2013, SM Prime signed with Hilton Worldwide an agreement to manage the first “Conrad” brand in the Philippines. The 348-room Conrad Manila that is located within the MOA complex with stunning views of the famed Manila Bay opened to public in June 2016. The eight-storey hotel incorporate two levels of retail and entertainment facilities on the ground floor. It also has other hotel facilities as well as a 1,446 sq. m. ballroom and other function and meeting spaces. Park Inn by Radisson Iloilo Park Inn by Radisson Iloilo, the third Park Inn by Radisson hotel in the country, recently opened last April 29, 2019. The 200-room hotel is located next to SM City Iloilo in Madurriao, a 20-minute drive from Iloilo International Airport and is strategically located near the city’s main commercial district, tourist attractions, museums, and historical landmarks. Its function room measuring around 291 sqm can be divided into three separate rooms or left open to accommodate up to 360 guests which makes it an ideal venue for small to mid-sized events. An al fresco facility by the poolside caters to relaxing early evening functions. Park Inn by Radisson North EDSA The 239-room hotel is connected to the SM City North EDSA shopping complex, one of the Philippines’ largest commercial centers. The location is within walking distance of a metro rail station (MRT) and only 22 kilometers from Manila Ninoy Aquino International Airport. The 935-sqm meeting ballroom can accommodate up to 660 guests. The fourth Park Inn hotel in SMHCC’s portfolio just opened last September 1, 2019.

Ongoing Hotel Project Park Inn by Radisson Bacolod Following the successful launch in Davao, Clark, Iloilo City and Quezon City, Bacolod will be the next destination for another Park Inn by Radisson hotel. The 151-room Park Inn by Radisson Bacolod will be the fifth Park Inn in SMHCC’s portfolio. Facilities include an all-day dining restaurant as well as a lobby bar where family, friends and colleagues can unwind. For recreation, the hotel has a gym as well as a swimming pool for both adults and children. The hotel will be connected to the SM City Bacolod lifestyle mall, providing guests with instant access to extensive retail, F&B and entertainment facilities. It will also adjoin the vast SMX Convention Center, making it ideal for business travelers and MICE delegates. The target for completion is Q3 2020. Convention Centers and Tradehalls

By 2020, the Company will have five SMX convention centers and two trade halls. SMX convention centers are located in the MOA Complex, SM Lanang Premier, SM Aura Premier, SM City Bacolod and in Clark. Trade halls are located in SM Megamall and SM Seaside Cebu. The structure of a convention center is made up of large exhibit floors which can be divided into multiple exhibition and function halls. With its state of the art convention and exhibition facilities, it continues to host major international and local conventions and exhibitions. Competition The primary competitors of SM Prime’s existing hotels are the Marriott for Radisson Blu Cebu; the Anvaya for Pico Sands Hotel in Batangas; the Seda Hotels for Park Inn Davao, Park Inn North EDSA, and Park Inn Iloilo; Quest Hotel and Conference Center Clark for Park Inn Clark; Anya, Summit Ridge Tagaytay, and Escala Tagaytay for Taal Vista Hotel. Conrad Manila competes with other luxury properties such as: Shangri-La Makati, Shangri-La Fort, Solaire, City of Dreams, Grand Hyatt BGC and the Sofitel Manila. SM Prime’s primary competitors for its convention centers and trade halls in Metro Manila are the PICC Convention Center, World Trade Center and the Marriott hotel in Resorts World and the Trade

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Halls in Ayala Malls in the provinces. DEVELOPMENT

The business development group (“BDG”) of all the business units (mall, residential, commercial and hotels and convention centers) coordinate on the land banking process, particularly on the use of the land. Each business unit still retains a separate engineering and project management group, as the structures and the requirements for each business unit in relation to construction and design side may be different. However, purchasing and selection of pool of contractors and suppliers may be consolidated to leverage on the size and scale of the mixed-use developments. The BDG of the mall business unit 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. For malls, 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. For residential and commercial properties, once a suitable site is selected, based on the factors described above, the groups determine the type of development to be constructed. The construction and development of each residential condominium and commercial office building is overseen by SM Prime’s Project Engineering Management Group and a third party project management company appointed by SM Prime. The average time for construction is 36 to 48 months, depending on the size of the project. SM Prime believes it benefits from its significant development experience and focus on immediately developable sites in its construction activities. SM Prime has generally financed land purchases and the construction of its developments from internal funds and borrowings.

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The amounts spent by the Company on development activities over the last three years and the percentage of these development costs to total revenues of the Company are set out below.

Year

Development Cost (in million P)

Percentage to Revenue

Land and development 2016 13,881 17.4% 2017 29,921 32.9% 2018 37,764 36.3% Investment properties 2016 29,433 36.9% 2017 28,216 31.0% 2018 30,147 29.0%

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. Going forward, TFG will play a more active role with respect to fundraising as it will also service the needs of the other business units. Sources of funding currently include internally generated funds, borrowings through syndicated loans, notes issuances (private placements), bilateral loans, and bond issuances. 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. SECURITY HOLDINGS

SM Prime also holds 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 Prime holds as of 30 September 2019.

INSURANCE, ENVIRONMENT, HEALTH AND SAFETY SM Prime has its insurance arrangement effected through BDO Insurance Brokers, Inc. (“BDO Insurance”) SM Prime believes that it is adequately insured, both in terms of the insured risks and the

No. of shares held Market value (in P thousand)

Securities held directly by SM Prime BDO Unibank 90,024,395 12,873,488 Ayala Corporation 7,690,430 6,802,185 SMIC 146,104 141,867 Prime Media Holding 500,000 675

Securities held through SMDC Shang Properties 189,550,548 619,830 Export and Industry Bank 7,829,000 2,036 Picop Resources 40,000,000 8,200 Republic Glass 14,230,000 40,556 Benguet A 266,757 307

Total 20,489,144

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amount which is covered. The commercial all risks insurance policies are underwritten by Prudential Guarantee Assurance 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.” SM Prime’s policies cover 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. SM Prime’s principal insurance counterparties are BDO Insurance and Prudential Guarantee and Assurance, Inc. In addition, the comprehensive general liability insurance coverage extends to third-party liability, including loss of life and its corresponding litigation expenses. SM Prime is also insured against terrorism. SM Prime maintains professional indemnity insurance for its directors and executive officers. SM Prime also maintains other insurance policies including workmen’s compensation and personal accident and group hospitalization and surgical insurance for its employees. SM Prime likewise maintains key personnel insurance for its directors and executive officers. SM Prime and its subsidiaries are subject to various environmental, health and safety regulations in the course of their operations, including but not limited to the Environmental Impact Statement Law, the Toxic Substances and Nuclear Waste Act of 1990, the Philippine Clean Air Act, the Ecological Solid Waste Management Act of 2000 and the Philippine Clean Water Act. As of the date of this Prospectus, SM Prime is, and each of its principal subsidiaries are, in material compliance with all currently applicable national and local environmental, health and safety laws and regulations. LEGAL PROCEEDINGS

SM Prime and its subsidiaries may be subject to various legal proceedings and claims that arise in the ordinary course of business. Legal proceedings that are considered to be material by the Company and its subsidiaries are those involving amounts equivalent to at least 5% of the Company’s and its subsidiaries’ earnings before income tax. As of the date of this Prospectus, SM Prime is a party to the following legal cases: SM Prime Holdings, Inc. vs. Maranon, Jr. et al. SP Civil Case No. 11-13803 This is a civil case filed by the Company in connection with its acquisition of the Capitol Property in Bacolod. The Company filed a Petition for Certiorari with Application for Temporary Restraining Order and Preliminary Injunction. It maintains that it legally won the second bidding for the Capitol Property. However, since SM Prime was being required to waive its right to question the proceedings during the second bidding before it can participate in a third round of bidding, it was constrained to file this case. The Regional Trial Court of Bacolod denied the Petition. SM Prime filed a Motion for Reconsideration but the same was also denied by the RTC. SM Prime filed a Notice of Appeal and recently received a Notice from the RTC that the records have been transmitted to the Court of Appeals for proper disposition. The appeal with the Court of Appeals is docketed as CA-G.R. CEB-SP No. 08549. It was raffled to the Special 20th Division of the Court of Appeals – Cebu City Station. After submission of the respective memoranda, the Court of Appeals declared the case submitted for decision in its Resolution dated April

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29, 2015. In its Decision dated 28 August 2015, the Court of Appeals denied the Company’s Appeal. The Court of Appeals also denied the Company’s Motion for Reconsideration in its Resolution dated Apirl 6, 2016. Thus, the Company filed a Petition for Review under Rule 45 under the Rules of Court docketed as G.R. No. 224236/ Respondents filed their Comment dated October 24, 2016. The Company filed its Reply on August 14, 2017. The Petition remains pending with the Supreme Court. SM Prime Holdings, Inc. vs. Maranon, Jr. et al. Civil Case No. 14-14323 The Company filed a civil case with the Regional Trial Court of Bacolod for the Declaration of Nullity of the Deed of Conditional Sale and Contract of Lease between the Province of Bacolod and Ayala Land, Inc. over the Capitol Property. The RTC has ordered Defendants to file their Answer. SM Prime has received a Joint Answer with Counterclaim of Defendants Province and Sangguniang Panlalawigan, but is still awaiting that of Ayala Land, Inc. SM Prime shall file its Reply to the Answers by the Defendants. Defendant Province of Negros Occidental filed a Motion for Conduct of Hearing on Affirmative Defenses. In an Order dated June 11, 2015, said motion is pending resolution. Other than the JDR which was set on August 14, 2015, no setting has been made pending the resolution of the Province’s motion. In its Resolution dated March 3, 2017, the RTC Bacolod Branch 48 dismissed the complaint on the ground of forum-shopping. The RTC Bacolod Branch 48 also denied the Company’s Motion for Reconsideration in its Resolutin dated July 26, 2017. The Company filed a Petition for Review under Rule 45 with the Rules of Court on pure questions of law assailing the dismissal of the Nullity of Contract Case. The said Petition was docketed as GR No. 233448. Public Respondents filed their Comment dated March 26, 2018 while Respondent Ayala Land filed its Comment dated April 18, 2016. The Company filed its Consolidated Reply on October 8, 2018. This Petition remains pending with the Supreme Court. SM Prime Holdings, Inc. vs. Light Rail Transit Authority and Department of Transportation and Communications Case No. R-PSY-14-16681 The Company filed a case with the Regional Trial Court of Pasay for Specific Performance with Damages, asking the Department of Transportation and Communications (“DOTC”) and the Light Rail Transit Authority (“LRTA”) to honor the terms of the Memorandum of Agreement dated 29 September 2009, regarding the construction of the Common Station across SM City North EDSA. The Company’s prayer for a Temporary Restraining Order was denied. SM Prime received LRTA’s Answers but is still awaiting DOTC’s Answer. SM Prime filed an Amended Complaint which removed the application for temporary restraining order and preliminary injunction. The parties have exchanged drafts of their respective proposed compromise agreement. These drafts are subject of further negotiations. In the meantime, the parties filed a Joint Manifestation and Motion to Suspend Proceedings considering the negotiation of the parties to settle the case amicably. In 2017, the DOTC filed a Manifestation informing the court that the parties reached an agreement, particularly on the location of the Common Station. The parties signed a Memorandum of Agreement on January 18, 2017. In 2019, the Court ordered the parties to submit their Manifestation as to the status of the ongoing negotitation to settle the case. All parties submitted their respective Manifestations. In the Manifestation dated June 18, 2019, DOTC stated that the latest updated on the negotiation sent by the DOTr include:

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1) the award and signing of the Design and Buildin Contract for Area A of the Common station to BF Corporation and surveying Company Consortium (“BF”) on December 17, 2018 and February 13, 2018, respectively; 2) coordination meeting between DOTr and the Company on the Rail Sector Projects and the interface between Area C and SM North EDSA Mall last February 28, 2019; and 3) another coordination meeting amoung DOTr, SM. And SMC-MRT7 on March 1, 2019. Acquisition of property from Gotesco Investments, Inc. On February 10, 2014, the Company purchased a property covered by Transfer Certificate of Title No. 326321 (the “Property”) from Gotesco Investments, Inc. (“GII”). The Deed of Absolute Sale was executed on behalf of GII by its duly authorized representative, Mr. Jose C. Go. Mr. Go’s authority to execute the Deed of Absolute Sale on behalf of GII was confirmed and validated by corporate filings made by GII with the SEC, including its 2013 General Information Sheet, and GII’s duly notarized corporate secretary’s certifications of the resolution of GII’s Board of Directors appointing Mr. Go as authorized signatory for this transaction. Upon execution of the Deed of Aboslute Sale over the Property, and pursuant to its obligations thereto, GII turned over the Onwer’s Duplicate of title to the Property, the original Tax Declaration, and a duly notarized Secretary’s Certificate executed by its Corporate Secretary. GiII also issued an Official Receipt for the Company’s payment of the purchase price of the Property. The payment of the purchase price was made by the Company directly to GII, and not to any individuals connected with GII. The purchase of the Property was made in good faith, on the basis of negotiations between SM Prime and GII. On March 19, 2019, the Register of Deeds of Caloocan cancelled the TCT No. 326321 and issued TCT No. 001-2019001491 registered undwer the name of the Company. The following encumbrances were cancelled from TCT No. 326321 and were not carried over in TCT No. 001-2019001491:

1. Memorandum 2. Cancelled by Entry No. 2014000544 dated 27 January 2014:

a. Mortgage – Entry No. 238507/T-54327Amendment to the Real Estate Mortgage – Entry No. 9317/T-54327

3. Cancelled by Entry No. 2013006572: a. Notice of Lis Pendens – Entry No. 3978/T-326321 b. Notice of Lis Pendens – Entry No. 505/TCT No. 326321 c. Notice of Lis Pendens – Entry No. 8916/T-No. 326321

4. Cancelled by Entry No. 6147/T-326321 dated 29 August 2000 a. Notice of Lien – Entry No. 2180/T-326321

5. Cancelled by Entry No. 2019002047 dated 11 March 2019 a. Notice of Levy – PE No. 6881/326321 b. Certificate of Forfeiture of Delinquent Property – Entry No. 8118/326321

6. Lease Agreement a. Agreement – Entry No. 1236389/T-54327

7. Adverse Claim a. Adverse Claim – Entry No. 995 / T-326321 b. Notice of Adverse Claim – Entry No. 2014001545

8. Consulta raised by the Register of Deeds – Consulta No. 001-2014-000005 Some encumbrances were not cancelled because there is a need to file a Petition to Cancel the Adverse Claims with the appropriate court. For the cancellation of annotation of the Lease Agreement, a document showing the expiration of the Lease Agreement must be submitted to the Register of Deeds of Caloocan. Lastly, the Consulta cannot be cancelled because it is still pending with the Land Registration Authority.

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In addition, the Company and its subsidiaries, its Board of Directors and Key Officers are, from time to time, also subject to various civil, criminal and administrative lawsuits and other legal actions arising in the ordinary course of its business. Typical cases include adverse claims over title to land, claims for recovery of money and damages and claims for cancellations of sales agreements and refund of deposits. In the opinion of the Company's management, as of the date of this Prospectus, none of the lawsuits or legal actions to which it is currently subject will materially affect the daily operations of its business nor will they have a material adverse effect on the Company's consolidated financial position and results of operations. INTELLECTUAL PROPERTY SM Prime has intellectual property rights on the use of various trademark and names for each of its commercial and residential development projects. The “SM” name is owned by its parent company, SMIC, and is registered with the Philippine Intellectual Property Office (“IPO”). SM Prime owns the trademark “SM Prime” which registration is set to expire in 2020. SMDC owns the trademark “SM Development”, which registration will expire in 2021. Most of SM Prime’s projects have been issued a Certificate of Registration by the IPO. SM Prime believes that its trademark and the names of its development projects play a significant role in its effort to create brand recall and strengthen its position in the industry. Details of SM Prime’s other applicable licenses are set out below:

Registered Logo/Brand Date of Registration The SM City November 23, 2009 SM Mall of Asia with slogan “No other mall comes close” May 3, 2017 SM Southmall October 1, 2105 SM Supercenter October 1, 2015 SM Supermalls October 1, 2015 SM Megamall January 31, 2015 Interior Zone SM City North EDSA October 1, 2010 Skygarden SM City North EDSA October 1, 2010 SM Storyland and logo May 5, 2011 SM Science Discovery Center logo and device June 24, 2010 SM Skating Rink logo and device June 24, 2010 SM Bowling logo and device June 24, 2010 SM Prime December 31, 2010 SM City December 31, 2010 SM Center (inside a circle logo) December 31, 2010 SM Supermalls December 31, 2010 SM Malls and Device (inside a circle) May 11, 2012 Megatrade Hall May 3, 2012 E-plus August 30, 2012 SM Little Star September 22, 2016 SM Aura Premier at the Fort February 13, 2014 E-plus Tap to Pay March 20, 2014 Director’s Club Cinema March 20, 2014 Snack Time – horizontal May 22, 2014 Snack Time – ribbon

May 22, 2014

Skyranch with device (4-2015-00808) July 16, 2015 Skyranch 4-2015-000809

Skyranch 4-2015-000810 Skyranch 4-2015-000811

Skyranch 4-2015-000812 Skyranch 4-2015-000813

Taza Fresh Table

July 16, 2015 July 16, 2015 July 16, 2015 July 16, 2015 July 16, 2015

December 10, 2015 SM Foodcourt 4-2015-007114 January 7, 2016

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SM Foodcourt 4-2015-007116 January 7, 2016 Food on Four January 7, 2016 SM Megamall Food Hall January 7, 2016 China Blue January 7, 2016 SM Foodcourt 4-2015-007119 April 29, 2016 C Lounge May 5, 2016 Braisserie on 3 August 11, 2016 S Mall with device May 12, 2016 SM Food Hall April 15, 2016 Maison April 20, 2017 Bru Coffee Bar with device

Veranda

Cafe Veranda Skyhall Seaside Cebu

SM Click & Collect Click & Collect

Click & Deliver Logo

SM Supermalls Online SM Mall of Asia No Other Mall Comes Close Culinaire Savor.Match.Experience The Food Village

Style Residences SMDC Residences: Home Beside the Mall

Sails

Sushi Saki and DeviceTrend Residences

June 16, 2016 May 25, 2017

September 18, 2014 November 23, 2017

March 8, 2018 August 30, 2018 August 30, 2018

July 05, 2018 May 3, 2018 May 3, 2018

February 14, 2019 September 16, 2018

July 26, 2018 April 12, 2018

August 18, 2019 Mall of Asia Complex and Logo 4-2018-018198 August 18, 2019 Mall of Asia Complex and Logo 4-2018-018199 August 18, 2019

CAPITAL EXPENDITURE

SM Prime incurred capital expenditure of approximately P43,671 million, P58,286 million, P91,155 million, and P45,362 million in 31 December 2016, 2017, 2018, and 30 September 2019, respectively, related to construction of shopping malls and land banking activities, project development costs of condominium buildings and resort facilities, and hotel development costs . The Company expects to incur capital expenditures of approximately P31.2 billion for the remaining quarter of 2019 and P80.0 billion in 2020. This will be funded with internally generated funds and external borrowings. GOVERNMENT REGULATIONS AND AUTHORIZATIONS

Our legal department is responsible for ensuring our continued compliance with applicable laws and regulations, including any changes or updates that may materially impact or adversely affect the Company and its principal subsidiaries’ operations and business. As of the date of this Prospectus, the Company and its principal subsidiaries are in material compliance with applicable regulatory requirements, including permits and licenses which are necessary to its business operations, the failure to possess any of which would have a material adverse effect on the business and operations of the Company. See “Regulatory” beginning on page 121 of this Prospectus for a detailed discussion of the government regulations and environmental laws affecting the Company’s businesses.

EMPLOYEES

As at 30 September 2019, the Company had 11,472 regular employees. The employees are classified as follows:

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No. of Employees

Rank and file 9,050 Junior/ mid-level managers 2,067 Senior executive officers 355 Headcount approximately increases by an average rate of 9% annually. The employees are not subject to a collective bargaining agreement. Apart from the basic employment compensation package, the Company does not and will not have any supplemental benefits or incentive arrangements with its employees. As at 30 September 2019, SM Prime’s mall business unit is supported by 8,252 officers and employees of the Management Companies. Management Companies manage and operate the malls, including the provision of manpower, maintenance and engineering and security and promotional activities. The Company complies with minimum compensation and benefits standards as well as other applicable labor and employment regulations. RELATED PARTY TRANSACTIONS

The Company has transactions with related parties such as SMIC, SM Retail, BDO Unibank and China Banking Corporation, among others. These transactions generally comprise rent, service fees, dividend income, cash placement and loans. Rent SM Prime has existing lease agreements for office and commercial spaces with related companies (including SM Retail and banking groups and other affiliates).

Service Fees

The Company provides manpower and other services to affiliates. Dividend Income

SM Prime’s equity instruments at fair value through other comprehensive income of certain affiliates earn income upon the declaration of dividends by the investees. Cash Placements and Loans

SM Prime has certain bank accounts and cash placements that are maintained with associate banks BDO Unibank and China Banking Corporation. Such accounts earn interest based on prevailing market interest rates. SM Prime also has borrowed bank loans and long-term debt from BDO Unibank and China Banking Corporation and pays interest based on prevailing market interest rates. Others

SM Prime, in the normal course of business, has outstanding receivables from and payables to related companies as of reporting period which are unsecured and normally settled in cash. For a discussion of related party transactions concerning the Company, see [Note 21] to the Company’s audited consolidated financial statements as at 31 December 2017 and 2018 and for the three years ended 31 December 2016, 2017, and 2018, and [Note 18] to the Company’s unaudited interim condensed consolidated financial statements as at 30 September 2019 and for the nine-month periods ended 30 September 2019. MATERIAL CONTRACTS

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As of the date of this Prospectus, the Company is not a party to any material contracts, except for contracts entered into in the ordinary course of business.

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REGULATORY REAL ESTATE LAWS AND REGULATIONS

General P.D. 957, R.A. 4726 and B.P. 220 are the principal statutes which regulate the development and sale of real property as part of a condominium or subdivision project. P.D. 957, R.A. 4726 and B.P. 220 cover subdivision projects and all areas included therein for residential, commercial, industrial and recreational purposes, and condominium projects for residential or commercial purposes. The HLURB is the administrative agency of the Government which, together with LGUs, enforces these decrees and has jurisdiction to regulate the real estate trade and business. All subdivision and condominium plans for residential, commercial, industrial and other development projects are required to be filed with the HLURB and the pertinent LGU of the area in which the project is situated. Approval of such plans is conditional on, among other things, the developer’s financial, technical and administrative capabilities. Alterations of approved plans which affect significant areas of the project, such as infrastructure and public facilities, also require prior approval of the relevant government body or agency. The development of subdivision and condominium projects can commence only after the relevant government body has issued the development permit. The issuance of a development permit is dependent on, among others (i) compliance with required project standards and technical requirements which may differ depending on the nature of the project, and (ii) issuance of the barangay clearance, the HLURB locational clearance, DENR permits, and, as applicable, DAR conversion or exemption orders as discussed below. A bond equivalent to 10% of the total project cost is required to be posted by the project developer to ensure commencement of the project within one year from the issuance of the development permit. Developers who sell lots or units in a subdivision or a condominium project are required to register the project with and obtain a license to sell from the HLURB. Subdivision or condominium units may be sold or offered for sale only after a license to sell has been issued by the HLURB. As a prerequisite for the issuance of a license to sell by the HLURB, developers are required to file with the HLURB any of the following to guarantee the construction and maintenance of the roads, gutters, drainage, sewerage, water system, lighting systems, and full development of the subdivision or condominium project and compliance with the applicable laws, rules and regulations:

§ a surety bond callable upon demand equivalent to 20.0% of the development cost of the unfinished portion of the approved plan, issued by a duly accredited surety company (whether private or government), and acceptable to the HLURB;

§ a real estate mortgage executed by the developer as mortgagor in favor of the Republic of the

Philippines as mortgagee, represented by the HLURB, over property other than the land used for the project for which the license to sell is being obtained, free from any liens and encumbrance and the value of such property, computed on the basis of the zonal valuation of the BIR, must be at least 20.0% of the total development cost; or

§ other forms of security equivalent to 10.0% of the development cost of the unfinished portion

of the approved plan which may be in the form of the following:

- a cash bond; - a fiduciary deposit made with the cashier and/or disbursing officer of the HLURB; - a certificate of guaranty deposit issued by any bank or financing institution of good standing

in favor of the HLURB for the total development cost;

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- a letter from any bank of recognized standing certifying that so much has been set aside from the bank account of the developer in favor of the HLURB, which amount may be withdrawn by the Chief Executive Officer of HLURB or his authorized representative, at any time the developer fails or refuses to comply with his duties and obligations under the bond contract; or

- any irrevocable credit line to be utilized in the development of the project from any bank of recognized standing and a refinancing re-structuring program indicating sources of funding from duly accredited funding institutions.

Project permits and licenses to sell may be suspended, cancelled or revoked by the HLURB, on its own initiative or upon a verified complaint from an interested party, for reasons such as insolvency, involvement in fraudulent transactions, misrepresentations concerning the subdivision project or condominium project in any literature which has been distributed to prospective buyers. A license or permit to sell may only be suspended, cancelled or revoked after notice to the developer has been served and all parties have been given an opportunity to be heard in compliance with the HLURB’s rules of procedure and other applicable laws. Real estate dealers, brokers and salesmen are also required to register and secure a certificate of registration with the HLURB before they can sell lots or units in a registered subdivision or condominium project. The certificate of registration will expire on the first day of December of each year. On June 29, 2009, Republic Act No. 9646 or the Real Estate Service Act of the Philippines (“R.A. 9646”) was signed into law. R.A. 9646 strictly regulates the practice of real estate brokers by requiring licensure examinations and attendance in continuing professional education programs. Subdivision Projects

There are essentially two different types of residential subdivision developments, which are distinguished by different development standards issued by the HLURB. The first type of subdivision, aimed at low-cost housing, must comply with B.P. 220, a Philippine statute regulating the development and sale of real property as part of a condominium project or subdivision, which allows for a higher density of building and relaxes some construction standards. Other subdivisions must comply with P.D. 957, which sets out standards for lower density developments. Both types of development must comply with standards regarding the suitability of the site, road access, necessary community facilities, open spaces, water supply, the sewage disposal system, electrical supply, lot sizes, the length of the housing blocks and house construction. Under P.D. 957, a developer of a subdivision with an area of one hectare or more is required to reserve at least 30% of the gross land area of such subdivision for open space for common uses, which include roads and recreational facilities. In low-density subdivisions (20 family lots and below per gross hectare), a developer is required to reserve at least 3.5% of the gross project area for parks and playgrounds. HLURB Resolution No. 926, or the “2015 Revised Implementing Rules and Regulations on Time of Completion” (“Resolution 926”) was issued on 3 February 2016 and took effect on 14 February 2016. Resolution 926 requires owner or developers of subdivision and condominium projects to construct and provide the facilities, improvements, infrastructures and other forms of development, including water supply and electrical facilities, which are offered and indicated in the approved project plan, within one year from the date of the issuance of the license for the project or such other period of time as may be fixed by the HLURB. Resolution 926 also provided limited grounds upon which developers or owners may be granted additional time to complete a given project. Republic Act No. 7279, as amended recently by Republic Act No. 10884, or the Urban Development and Housing Act of 1992, requires developers of proposed subdivision projects to develop an area for socialized housing equivalent to at least fifteen percent (15%) of the total subdivision area or total subdivision project cost, and at least five percent (5%) of condominium area or project cost, at the

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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. Alternatively, the developer may opt to buy socialized housing bonds issued by various accredited government agencies or enter into joint venture arrangements with other developers engaged in socialized housing development. On May 3, 2017, HLURB issued Resolution No. 946, Series of 2017, which provides for the rules and regulations implementing Republic Act No. 10884 (“IRR of RA 10884”). The IRR of RA 10884 provides for the other manners in which developers may comply with the required projects for socialized housing which includes the: (i) development of socialized housing in a new settlement; (ii) entering into joint venture arrangements with LGUs, housing agencies, private developer and non-government organization engaged in the provision of socialized housing; and (iii) participation in a new project under the community mortgage program. Under the IRR of RA 10884, the license to sell of the main project may be suspended, cancelled or revoked, if the required compliance project has not been developed or has not been completely developed in accordance with the approved work program and within the period approved by the HLURB. Republic Act No. 11201: Department of Human Settlements and Urban Development Act

Republic Act No. 11201, otherwise known as “Department of Human Settlements and Urban Development Act was signed by the President on 14 February 2019. The Implementing Riled and Regulations of the Act was approved on 19 July 2019. This Act created DHSUD through the consolidation of HUDCC and HLURB, simultaneously with the reconstitution of HLURB into Human Settlement Adjudication Commission (“HSAC”). The functions of the HUDCC and the planning and regulatory functions of HLURB shall be transferred to and consolidated in the DHSUD, while the HSAC shall assume and continue to perform the adjudication functions of HL URB. The DHSUD shall:

1. Act as the primary national government entity responsible for the management of housing, human settlement and urban development;

2. Be the sole and main planning and policy-making, regulatory, program, coordination, and performance monitoring entity for all housing, human settlement and urban development concerns, primarily focusing on the access to an affordability of basic human needs. The following functions of HLURB are transferred to DHSUD:

a. The land use planning and monitoring function, including the imposition of penalties for noncompliance to ensure that LGUs will follow the planning guidelines and implement their CLUPs and ZOs;

b. The regulatory function, including the formulation, promulgation, and enforcement of rules, standards and guidelines over subdivisions, condominiums and similar real estate developments, and imposition of fines and other administrative sanctions for violations, pursuant to PD 957, as amended, BP 220 and other related laws; and

c. The registration, regulation and supervision of Homeowners Associations, including the imposition of fines for violations, pursuant to RA 9904, Section 26 of RA 8763 in relation to Executive Order No. (EO) 535, series of 1979, and other related laws; and

3. Develop and adopt a national strategy to immediately address the provision of adequate and affordable housing to all Filipinos, and ensure the alignment of the policies, programs, and projects of all its attached agencies to facilitate the achievement of this objective.

All existing policies, and rules and regulations of the HUDCC and the HLURB shall continue to remain in full force and effect unless subsequently revoked, modified or amended by the DHSUD or the HSAC, as the case may be. All applications for permits, licenses and other issuances pending upon the effectivity of the Act and filed during the transition period shall continue to be acted upon by the incumbents until transition shall

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have been completed. All cases and appeals pending with the HLURB shall continue to be acted upon by the HLURB Arbiters and the Board of Commissioners, respectively, until transition shall have been completed and the Commission's operations are in place. Thereafter, the Regional Adjudicators and the Commission shall correspondingly assume jurisdiction over those cases and appeals. All decisions of the Commission shall thenceforth be appealable to the Court of Appeals under Rule 43 of the Rules of Court. The transition period shall commence upon the effectivity of the Implementing Rules and Regulations and shall end on 31 December 2019. Thereafter, the Act shall be in full force and effect.

Condominium Projects R.A. 4726 regulates the development and sale of condominium projects. R.A. 4726 requires that an annotation be registered on the master deed or on the certificate of title of the land on which the condominium project shall be located. The annotation should indicate, among other things, the description of the land, buildings, common areas and facilities of the condominium project. A condominium project may be managed by a condominium corporation, an association, a board of governors or a management agent, depending on what is provided in the declaration of restriction of the condominium project. However, whenever the common areas are held by a condominium corporation, such corporation shall constitute the management body of the project. Real Estate Sales and Installments

The Maceda Law applies to all transactions or contracts involving the sale or financing of real estate through installment payments, including residential condominium units. 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. The Maceda Law also requires the sellers of real estate to refund at least 50% of total payments made should the sale contract be cancelled provided that the buyer has paid at least two years of installments, with an additional 5% per annum in cases where at least five years of installment have been paid (but with the total not to exceed 90% of the total payments). Buyers who have paid less than two years of installment 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 right of refund. The Maceda Law does not apply when payments are made through bank financing. Shopping Malls

Shopping malls are regulated by the local government unit of the city or municipality where the shopping mall is located. Shopping mall operators must secure a mayor’s permit or municipal license before operating. Shopping mall operators must also comply with the provisions of Republic Act No. 9514 or the Fire Code, and other applicable local ordinances. Shopping malls that have restaurants and other food establishments as tenants must obtain a sanitary permit from the Department of Health. Shopping malls that discharge commercial wastewater must apply for a wastewater discharge permit from the DENR and pay the fee incidental to the permit. As a tourism-related establishment, shopping malls may obtain accreditation from DOT. A shopping mall can only be accredited upon complying with the minimum physical, staff and service requirements promulgated by the DOT. Hotels and Resorts

Hotels were previously classified by the DOT into the following categories: (a) De Luxe Class, (b) First Class, (c) Standard Class and (d) Economy Class.

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Memorandum Circular No. 2012-02 promulgated by the DOT in May 2012 imposes new national accreditation standards for hotels, resorts and apartment hotels, pursuant to the Tourism Act of 2009. The Memorandum Circular adopts the star grading system, with five levels of accommodation standards which are equivalent to one to five stars. For instance, a one star rating will be granted to hotels which achieve 251 to 400 points (25% to 40% of the standards) and a five star rating will be granted to hotels which achieve 851 to 1,000 points (85% to 100% of the standards). The accreditation process under the Memorandum Circular No. 2012-02 is currently being implemented by the DOT. Once an application for accreditation is filed, the DOT sends an inspection team to conduct an audit of the establishment and determine compliance its classification. The Certificate of Accreditation issued by the DOT is valid for two years, unless sooner revoked. The rights over the accreditation are non-transferrable. Zoning and Land Use

Under the agrarian reform law currently in effect in the Philippines and the regulations issued thereunder by the DAR, land classified for agricultural purposes as of or after June 15, 1988, cannot be converted to non-agricultural use without the prior approval of DAR. Land use may be also limited by zoning ordinances enacted by LGUs. Once enacted, land use may be restricted in accordance with a comprehensive land use plan approved by the relevant LGU. Lands may be classified under zoning ordinances as commercial, industrial, residential or agricultural. While a procedure for change of allowed land use is available, this process may be lengthy and cumbersome. Special Economic Zone Republic Act No. 7916 (“R.A. 7916”), as amended provides for the creation and management of Special Economic Zones (“Ecozones”), which are selected areas with highly developed or which have the potential to be developed into agro-industrial, industrial tourist/recreational, commercial, banking, investment, and financial centers. PEZA is the government agency that operates, administers and manages designated PEZA Ecozones around the country. These Ecozones are generally established by a proclamation issued by the President of the Philippines, upon recommendation of the PEZA. An Ecozone may contain any or all of the following: industrial estates, export processing zones, free trade zones, and tourist/recreational centers. There are several activities eligible for PEZA registration and incentives including, but not limited to, IT services, Tourism and Retirement activities. PEZA registered enterprises locating in an Ecozone are generally entitled to fiscal and non-fiscal incentives such as income tax holidays and duty free importation of equipment, machinery and raw materials.

1. IT enterprises offering IT services (such as call centers, and BPO using electronic commerce) are entitled to fiscal and non-fiscal incentives if they are PEZA-registered locators in a PEZA-registered IT Park, IT Building, or Ecozone. An IT Park is an area which has been developed into a complex capable of providing infrastructures and other support facilities required by IT enterprises, as well as amenities required by professionals and workers involved in IT enterprises, or easy access to such amenities. An IT Building is an edifice, a portion or the whole of which, provides such infrastructure, facilities and amenities.

PEZA requirements for the registration of an IT Park or IT Building differ depending on whether it is located in Metro Manila. Metro Manila is the area that covers the 16 cities of Manila, Caloocan, Las Piñas, Makati, Mandaluyong, Marikina, Muntinlupa, Parañaque, Pasay, Pasig, Quezon, Valenzuela, Malabon, Navotas, San Juan and Taguig and the municipality of Pateros. These PEZA requirements include clearances or certifications issued by the city or municipal legislative council, the DAR, the National Water Resources Board (“NWRB”), and the DENR.

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2. Tourism activities involve the establishment and operation of PEZA registered Tourism

Ecozones (“PEZA TEZs”). These are areas which have been developed into an integrated resort complex which have tourist facilities and activities. PEZA TEZ developers and locator enterprises are generally entitled to fiscal and non-fiscal incentives. However, on November 13, 2012, PEZA Board Resolution No. 12-610 withdrew particular fiscal incentives from developers and locator enterprises of TEZs in Metro Manila, Cebu City, Mactan Island, and Boracay Island. The same Board Resolution also denied the establishment of new TEZs in the four areas.

PEZA rules for the registration of a TEZ require, among others, an endorsement from the DOT, conversion or exemption orders from the DAR, and clearances, certifications, and endorsements from Department of Agriculture (“DA”), HLURB, Environmental Management Bureau-DENR (“EMB-DENR”), NWRB, and the concerned LGUs.

3. Retirement activities involve the establishment and operation of areas capable of providing

retirement infrastructure and other support facilities such as accommodation facilities, health and wellness facilities, sports, recreation centers, and lifestyle facilities, cultural facilities, theme parks, and other amenities required by foreign retirees. Retirement Ecozone developers/operators and retirement Ecozone facilities enterprises are entitled to fiscal and non-fiscal incentives.

EO 1037 created the Philippine Retirement Authority (“PRA”), a government owned and controlled corporation under control and supervision of the office of the Board of Investments (“BOI”). It is mandated to attract foreign nationals and former Filipino citizens to invest, reside, and retire in the Philippines to accelerate the socio-economic development of the country and contribute to the foreign currency reserve of the economy.

PEZA rules for registration of retirement Ecozones and facilities enterprises require, among others, the endorsement from the PRA, and clearances and certifications from the DAR, DA, HLURB, EMB-DENR, NWRB, and the concerned LGUs.

Another government agency which is tasked to administer certain Ecozones is the Tourism Infrastructure and Enterprise Zone Authority (“TIEZA”). The TIEZA is an attached agency to the DOT tasked to designate, regulate, and supervise its own TEZs as well as develop, manage and supervise tourism infrastructure projects in the Philippines. Tourism enterprises are facilities, services, and attractions primarily engaged in tourism to attract visitors. TEZ Operators and Tourism Enterprises registered with the TIEZA may be granted fiscal and non-fiscal incentives. Activities eligible for registration with the TIEZA include, among others, accommodation establishments such as hotels, resorts, apartelles, tourist inns, motels, pension houses, and home stay operators, tourist estate management services, restaurants, shops, and department stores. TIEZA rules for the registration of a TEZ will depend on the nature of the business and the type of business organization of the applicant. TIEZA registration requirements include, among others, certifications and endorsements from the DAR, the National Historical Institute, DENR, and DOH. Tax and Other Incentives

Generally, the fiscal incentives enjoyed by PEZA registered enterprises include an income tax holiday (“ITH”) for four to six years, depending on the nature and location of the enterprise; thereafter, the enterprise enjoys a preferential tax rate of 5% on gross income earned (the “5% GIT”), in lieu of all national and local taxes (except for real property tax). “Tourism Ecozone Developer/Operator” refers to the owner and/or operator of a Tourism Development Zone/Tourism Estate seeking registration with PEZA and the required Presidential Proclamation of the Tourism Development Zone/Tourism Estate as a Tourism Ecozone for the availment of incentives provided under R.A. 7916, as amended. “Tourism Development Zone/Tourism Estate” refers to a tract of land with defined boundaries, suitable for development into an integrated resort complex, with

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prescribed carrying capacities of tourist facilities and activities, such as, but not limited to, sports and recreation centers, accommodations, convention and cultural facilities, food and beverage outlets, commercial establishments and other special interest and attraction activities/establishments, and provided with roads, water supply facilities, power distribution facilities, drainage and sewage systems and other necessary infrastructure and public utilities. A Tourism Development Zone/Tourism Estate must be under unified and continuous management, and can either be a component of an ecozone or the whole ecozone itself. “Tourism Ecozone” refers to a Tourism Development Zone/Tourism Estate which has been granted special economic zone status, through PEZA registration and issuance of the required Presidential Proclamation, with its metes and bounds delineated by the Proclamation pursuant to R.A. 7916, as amended. “Retirement Ecozone Developer/Operator” refers to a business entity duly endorsed by the PRA and registered with PEZA to develop, operate and maintain a Retirement Ecozone Park/Center and provide the required infrastructure facilities and as may be required for retirement economic zone. PEZA-registered Retirement Economic Zones shall be located in priority areas endorsed by the PRA and must be at least 4 hectares. Retirement Ecozone refers to an estate which is highly developed or which has the potential to be developed into a Retirement Ecozone Park/Center whose metes and bounds are fixed or delimited by Presidential Proclamation. The retirement economic zone shall be planned and designed in accordance with the accreditation standards of the PRA to have support facilities and services required by the retirement industry. An “IT Park” or “IT Building” is an area or a building (the whole or a part of which) has been developed to provide infrastructure and other support facilities required by an IT Enterprise. The PEZA Board, through its Board Resolution No. 12-610 dated November 13, 2012, withdrew (i) the 5% GIT incentive to developers of Tourism Economic Zones in Metro Manila, Cebu City, Mactan Island and Boracay Island; and (ii) the ITH incentive and 5% GIT given to locator enterprises of Tourism Enterprise Zones in the aforesaid 4 areas. Nevertheless, tourism enterprise locators in these areas continue to enjoy tax and duty-free importation and zero-VAT rating on local purchase of capital equipment. The above policy does not have retroactive effect and therefore, existing PEZA TEZ developers and operators and tourism enterprises located in TEZs in the four aforesaid areas shall not be covered by the new PEZA policy. Existing and future PEZA TEZ developers and tourism enterprise locators outside the four areas shall continue to be entitled to four years ITH, as may be provided in and in accordance with the provisions of the Investment Priorities Plan, and tax and duty-free importation of capital equipment required for the technical viability and operation of the registered activities of the enterprises. Upon expiry of the ITH period, PEZA TEZ locators are entitled to the 5% GIT incentive, provided, however, that they have the option to forego their ITH incentive entitlement and immediately avail of the 5% tax GIT incentive upon start of their commercial operations. All PEZA-registered Tourism Developers/Operators and Locator Enterprises must conform with the development guidelines and operating standards of the DOT, land use and zoning regulations, as well as the policies and guidelines of other concerned government agencies, provided that in the case of Ecotourism Projects, endorsement from the National Ecotourism Steering Committee shall also be secured prior to PEZA registration. PEZA-registered Tourism Ecozone Developers/Operators and Locators are entitled to the following non-fiscal incentives: (a) employment of foreign nationals, as provided under R.A. 7916; (b) Special Investor’s Resident Visa, as provided under Executive Order No. 63; and (c) Incentives under the Build-Operate-Transfer Law, as may be applicable, subject to prescribed guidelines. Retirement Economic Zone Developer/Operator of a proposed or partially developed Retirement Ecozone Park/Center shall be entitled to pay a special 5% tax on gross income, in lieu of all national and local taxes, except real property tax on land and shall be entitled to the following non-fiscal incentives: (a) Employment of foreign national; and (b) Special Investor’s Resident Visa, as provided under Executive Order No. 63.

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Pursuant to Board Resolution No. 12-329 dated July 6, 2012, IT Parks and Buildings to be located in Metro Manila and Cebu City shall no longer be entitled to incentives. Developers and owners of new IT Parks and Buildings to be located outside Metro Manila and Cebu City shall continue to enjoy fiscal incentives. Furthermore, in order to be entitled to PEZA incentives, Ecozones such as, but not limited to manufacturing, agro-industrial, and tourism, the Ecozone must have an area of at least 25 hectares except for single locator economic zones which shall be covered by specific guidelines issued by PEZA. The Company routinely secures the required governmental approvals for its projects during the planning and construction and marketing stages of project development. The Company is not aware of any pending legislation or governmental regulation that is expected to materially affect its business. The Company believes that it has obtained the required government approvals relevant for each project at its current state of development. ENVIRONMENTAL LAWS Development projects that are classified by law as environmentally critical or projects within statutorily defined environmentally critical areas are required to obtain an ECC prior to commencement. The DENR through its regional offices or through the Environmental Management Bureau (“EMB”), determines whether a project is environmentally critical or located in an environmentally critical area. As a requisite for the issuance of an ECC, an environmentally critical project is required to submit an Environmental Impact Statement (“EIS”) to the EMB while a project in an environmentally critical area is generally required to submit an Initial Environmental Examination (“IEE”) to the proper DENR regional office. In case of an environmentally critical project within an environmentally critical area, an EIS is required. The construction of major roads and bridges are considered environmentally critical projects for which EISs and ECCs are mandated. The EIS refers to both the document and the study of a project’s environmental impact, including a discussion of scoping agreement identifying critical issues and concerns as validated by the EMB, environmental risk assessment if determined necessary by EMB during the scoping, environmental management program, the direct and indirect consequences to human welfare and ecological as well as environmental integrity. The IEE refers to the document and the study describing the environmental impact, including mitigation and enhancement measures, for projects in environmentally critical areas. While the EIS or an IEE may vary from project to project, as a minimum, it contains all relevant information regarding the projects’ environmental effects. The entire process of organization, administration and assessment of the effects of any project on the quality of the physical, biological and socio-economic environment as well as the design of appropriate preventive, mitigating and enhancement measures is known as the EIS System. The EIS System successfully culminates in the issuance of an ECC. The issuance of an ECC is a Government certification, indicating that the proposed project or undertaking will not cause a significant negative environmental impact; that the proponent has complied with all the requirements of the EIS System and that the proponent is committed to implement its approved Environmental Management Plan in the EIS or, if an IEE was required, that it shall comply with the mitigation measures provided therein before or during the operations of the project and in some cases, during the project’s abandonment phase. The ECC also provides for other terms and conditions, any violation of which would result in a fine or the cancellation of the ECC. Project proponents that prepare an EIS are required to establish an Environmental Guarantee Fund (“EGF”) when the ECC is issued to projects determined by the DENR to pose a significant public risk to life, health, property and the environment. The EGF is intended to answer for damages caused by such a project as well as any rehabilitation and restoration measures. Project proponents that prepare an EIS are mandated to include a commitment to establish an Environmental Monitoring Fund (“EMF”) when an ECC is eventually issued. The EMF shall be used to support the activities of a multi-partite monitoring team which will be organized to monitor compliance with the ECC and applicable laws, rules and regulations.

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Aside from the EIS and IEE, engineering, geological and geo-hazard assessment are also required for ECC applications covering subdivisions, housing and other development and infrastructure projects. All development projects, installations and activities that discharge liquid waste into and pose a threat to the environment of the Laguna de Bay Region are also required to obtain a discharge permit from the Laguna Lake Development Authority. The Company incurs expenses for the purposes of complying with environmental laws that consist primarily of payments for Government regulatory fees. Such fees are standard in the industry and are minimal. PROPERTY REGISTRATION

The Philippines has adopted a Torrens System of land registration which conclusively confirms land ownership which is binding on all persons, including the Government. Once registered, title to registered land becomes indefeasible after one year from the date of entry of the decree of registration except with respect to claims noted on the certificate of title. Title to registered lands cannot be lost through adverse possession or prescription. Presidential Decree No. 1529, as amended, codified the laws relative to land registration and is based on the generally accepted principles underlying the Torrens System. After proper surveying, application, publication and service of notice and hearing, unregistered land may be brought under the system by virtue of judicial or administrative proceedings. In a judicial proceeding, the Regional Trial Court within whose jurisdiction the land is situated confirms title to the land. Persons opposing the registration may appeal the judgment within 15 days to the Court of Appeals or the Supreme Court. After the lapse of the period of appeal, the Register of Deeds may issue an Original Certificate of Title. The decree of registration may be annulled on the ground of actual fraud within one year from the date of entry of the decree of registration. Similarly, in an administrative proceeding, the land is granted to the applicant by the DENR by issuance of a patent and the patent becomes the basis for issuance of the Original Certificate of Title by the Register of Deeds. All land patents such as homestead, sales and free patents, must be registered with the appropriate registry of deeds since the conveyance of the title to the land covered thereby takes effect only upon such registration. Any subsequent transfer of encumbrance of the land must be registered in the system in order to bind third persons. Subsequent registration and a new Transfer Certificate of Title in the name of the transferee will be granted upon presentation of certain documents and payment of fees and taxes. All documents evidencing conveyances of subdivision and condominium units should also be registered with the Register of Deeds. Title to the subdivision or condominium unit must be delivered to the purchaser upon full payment of the purchase price. Any mortgage existing thereon must be released within six months from the delivery of title. To evidence ownership of condominium units, a Condominium Certificate of Title is issued by the Register of Deeds. NATIONALITY RESTRICTIONS

The Philippine Constitution limits ownership of land in the Philippines to Filipino citizens or to corporations the outstanding capital stock of which is at least 60% owned by Philippine Nationals. While the Philippine Constitution prescribes nationality restrictions on land ownership, there is generally no prohibition against foreigners owning building and other permanent structures. However, with respect to condominium developments, the foreign ownership of units in such developments is limited to 40%. Republic Act No. 7042, as amended, otherwise known as the Foreign Investments Act of 1991, and the Eleventh Regular Foreign Investment Negative List, provide that certain activities are nationalized or partly- nationalized, such that the operation and/or ownership thereof are wholly or partially reserved for Filipinos. Under these regulations, and in accordance with the Philippine Constitution, ownership of private lands is partly- nationalized and thus, landholding companies may only have a maximum of 40% foreign equity.

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For as long as the Company or any of its Subsidiaries own land in the Philippines , foreign ownership in the Company is limited to a maximum of 40% of the capital stock of the Company which is outstanding and entitled to vote. Accordingly, the Company shall disallow the issuance or the transfer of Shares to persons other than Philippine Nationals and shall not record transfers in its books if such issuance or transfer would result in the Company ceasing to be a Philippine National for purposes of complying with the restrictions on foreign ownership discussed above. In the Philippine Supreme Court case of Wilson P. Gamboa v. Finance Secretary Margarito B. Teves, et. al. dated June 28, 2011 (G.R. No. 176579), a case involving a public utility company (which under the Philippine Constitution is also subject to the 60-40 rule on capital ownership), the Philippine Supreme Court ruled that the term “capital”, as used in Section 11 of Article XII of the Philippine Constitution, refers only to shares of stocks entitled to vote in the election of directors and not to the total outstanding capital stock. This is because it is the said voting rights which translate to control. Subsequently and acting on the motions for reconsideration filed by various parties, the Supreme Court, sitting en banc issued on October 9, 2012 a Resolution (G.R. No. 176579) affirming their earlier ruling and denying such motions for reconsideration. Pursuant to the above ruling of the Philippine Supreme Court, the SEC, on May 20, 2013, issued Memorandum Circular No. 8 or the Guidelines on Compliance with the Filipino-Foreign Ownership Requirements Prescribed in the Constitution and/or Existing Laws by Corporations Engaged in Nationalized and Partly Nationalized Activities. The Circular provides that for purposes of determining compliance therewith, the required percentage of Filipino ownership shall be applied to BOTH (a) the total number of outstanding shares of stock entitled to vote in the election of directors; AND (b) the total number of outstanding shares of stock, whether or not entitled to vote in the election of directors.” A petition for certiorari has since been filed sometime in June 2013, questioning the constitutionality of the Rules on Foreign Ownership (Memorandum Circular No. 8, Series of 2013) promulgated by the SEC. This petition remains pending with the Supreme Court as of this time.

LAND RECLAMATION Land reclaimed from foreshore and reclaimed areas is public land owned by the Philippine State under the Regalian doctrine, under which the Philippine State owns all lands and waters in Philippine territory. The Government may allow land to become privately owned under relevant laws. The Constitution prohibits corporations from acquiring such public land unless such land is first reclassified as private. An additional rule applies to individual Philippine citizens; such individuals may also acquire public land classified as agricultural land and only up to 12.0 hectares of land classified as such. Commonwealth Act No. 141, or the Public Land Act, provides that before the Government alienates such public land, the President of the Philippines, upon the DENR’s recommendation, must reclassify these lands as alienable or disposable. However, Supreme Court decisions, including those dealing with reclaimed foreshore land, have ruled that such reclassification to make public land alienable may also be implied and a clear intent exhibited by the Government may effect the necessary reclassification. The Philippine Reclamation Authority (formerly the Public Estates Authority), has been delegated the authority to approve reclamation projects, and is authorized by its charter to develop, lease and sell any and all kinds of lands managed by it; the disposition of reclaimed lands is subject to the above constitutional restrictions. PROPERTY TAXATION Real property taxes are payable annually based on the property’s assessed value. The assessed value of property and improvements vary depending on the location, use and the nature of the property. Land is ordinarily assessed at 20% to 50% of its fair market value; buildings may be assessed at up to 80% of their fair market value; and machinery may be assessed at 40% to 80% of its fair market value. Real property taxes may not exceed 2% of the assessed value in municipalities and cities within Metro Manila or in other chartered cities and 1% in all other areas. An additional special education fund tax of 1% of the assessed value of the property is also levied annually.

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PHILIPPINE COMPETITION ACT

Republic Act No. 10667, or the Philippine Competition Act was signed into law on July 21, 2015 and took effect on August 8, 2015. This is the first antitrust statute in the Philippines and provides the competition framework in the Philippines. The Philippine Competition Act was enacted to provide free and fair competition in trade, industry and all commercial economic activities. To implement its objectives, the Philippine Competition Act provides for the creation of a Philippine Competition Commission (the “Commission”), an independent quasi-judicial agency with five commissioners. The Philippine Competition Act prohibits anti-competitive agreements between or among competitions, and mergers and acquisitions which have the object or effect of substantially preventing, restricting or lessening competition. It also prohibits practices which involve abuse of dominant position, such as selling goods or services below cost to drive out competition, imposing barriers to entry or prevent competitors from growing, and setting prices or terms that discriminate unreasonably between customers or sellers or the same goods, subject to exceptions.

On June 3, 2016 the Commission issued the implementing rules and regulations of the Philippine Competition Act (“IRR”). Under the IRR and pursuant to Commission Memorandum Circular No. 18-001 dated 1 March 2018 and Commission Advisory 2019-001, as a general rule, parties to a merger or acquisition are required to provide notification when: (a) The aggregate annual gross revenues in, into or from the Philippines, or value of the assets in the Philippines of the ultimate parent entity of the acquiring or the acquired entities exceed ₱5.6 Billion; and (b) the value of the transaction exceeds ₱2.2 Billion, as determined in the IRR; while parties to a joint venture transaction shall be subject to the notification requirement if either (a) the aggregate value of the assets that will be combined in the Philippines or contributed into the proposed joint venture exceeds ₱2.2 Billion, or (b) the gross revenues generated in the Philippines by assets to be combined in the Philippines or contributed into the proposed joint venture exceed ₱2.2 Billion.

Violations of the Philippine Competition Act and its IRR have severe consequences. Under the law and the IRR, a transaction that meets the thresholds and does not comply with the notification requirements and waiting periods shall be considered void and will subject the parties to an administrative fine of one percent (1%) to five percent (5%) of the value of the transaction. Fines of between ₱50 million and ₱250 million may also be imposed by the courts on entities that enter into these defined anti-competitive agreements between competitors that are either prohibited per se or that have the object of substantially preventing, restricting or lessening competition by setting, limiting or controlling production, markets, technical development or investment or by dividing or sharing the market. Directors and management personnel of such entities, who knowingly and willfully participate in such criminal offenses, may also be sentenced to imprisonment for two to seven years. Treble damages may be imposed by the Commission or the courts, as the case may be, where the violation involves the trade or movement of basic necessities and prime commodities.

REVISED CORPORATION CODE

Republic Act No. 11232, also known as the Revised Corporation Code, was signed into law on February 20, 2019 and. took effect on February 23, 2019. Among the salient features of the Revised Corporation Code are: · Corporations are granted perpetual existence, unless the articles of incorporation provide

otherwise. Perpetual existence shall also benefit corporations whose certificates of incorporation were issued before the effectivity of the Revised Corporation Code, unless a corporation, upon a vote of majority of the stockholders of the outstanding capital stock notifies the SEC that it elects to retain its specific corporate term under its current Articles of Incorporation.

· A corporation vested with public interest must submit to its shareholders and to the SEC an annual report of the total compensation of each of its directors or trustees, and a director or trustee appraisal or performance report and the standards or criteria used to assess each director, or trustee.

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· Banks, quasi-banks, pawnshops, non-stock savings and loan associations (NSSLA), and corporations engaged in money service business, preneed trust and insurance companies, and other financial required, must have at least twenty percent (20%) independent directors in the Board, in accordance with the Securities and Regulation Code. This requirement also applies to other corporations engaged in businesses imbued with public interest, as may be determined by the SEC.

· The Revised Corporation Code allows the creation of a “One Person Corporation”. However, it expressly prohibits banks and quasi-banks, preneed, trust, insurance, public and publicly-listed companies, among others, from being incorporated as such. This restriction also applies with respect incorporations as Close Corporation.

· Material contracts between the Corporation and its own directors, trustees, officers, or their spouses and relatives within the fourth civil degree of consanguinity or affinity must be approved by at least two-thirds (2/3) of the entire membership of the Board, with at least a majority of the independent directors voting to approve the same.

· The right of stockholders to vote in the election of directors or trustees, or in shareholders meetings, may now be done through remote communication or in absentia if authorized by the corporate by-laws. However, as to corporations vested with public interest, these votes are deemed available, even if not expressly stated in the corporate by-laws. The shareholders who participate through remote communication or in absentia are deemed present for purposes of quorum. When attendance, participation and voting are allowed by remote communication or in absentia, the notice of meetings to the stockholders must state the requirements and procedures to be followed when a stockholder or member elects either option.

· As to the filing of the by-laws and any amendments made to the by-laws of any bank, banking institution, building and loan association, trust company, insurance company, public utility, and other corporations governed by special laws, the Revised Corporation Code requires that a prior certificate of the appropriate government agency to the effect that such bylaws or amendments are in accordance with law, must be submitted.

· A favorable recommendation by the appropriate government agency is likewise required for banks or banking institutions, building and loan associations, trust companies, insurance companies, public utilities, and other corporations governed by special laws, before the SEC approves any merger or consolidation; or any voluntary dissolution.

· In case of transfer of shares of listed companies, the SEC may require that these corporations whose securities are traded in trading markets and which can reasonably demonstrate their capability to do so, to issue their securities or shares of stock in uncertificated or scripless form in accordance with the Rules of the SEC.

The Revised Corporation Code refers to the Philippine Competition Act in case of covered transactions under said law involving the sale, lease, exchange, mortgage, pledge, or disposition of properties or assets; increase or decrease in the capital stock, incurring creating or increasing bonded indebtedness; or mergers or consolidations covered by the Philippine Competition Act thresholds. Data Privacy Act of 2012

The Data Privacy Act of 2012 is a comprehensive and strict privacy legislation aimed to protect the fundamental human right to privacy of data subjects by: (a) protecting the privacy of individuals while ensuring free flow of information; (b) regulating the collection, recording, organization, storage, updating or modification, retrieval, consultation, use, consolidation, blocking, erasure or destruction of personal data; and (c) ensuring that the Philippines complies with international standards set for data protection through National Privacy Commission (NPC). Intended to protect the privacy of individuals, it mandates companies to inform the individuals about

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how their personal information are collected and processed. It also ensures that all personal information must be (a) collected and processed with lawful basis, which includes consent, and only for reasons that are specified, legitimate, and reasonable; (b) handled properly, ensuring its accuracy and retention only for as long as reasonably needed; and (c) discarded properly to avoid access by unauthorized third parties. Its Implementing Rules and Regulations took effect on September 9, 2016, mandating all Philippines companies to comply with the following: (a) appointment of a Data Protection Officer; (b) conduct of a privacy impact assessment; (c) adoption of a privacy management program and privacy policy; (d) implement privacy and data protection measures; and (e) establish a breach reporting procedure. In addition, companies with at least 250 employees or access to sensitive personal information of at least 1,000 individuals are required to register their data processing systems with the National Privacy Commission. The IRR, furthermore provides the only instances when data sharing is allowed, to wit: (a) data sharing is authorized by law, provided that there are adequate safeguards for data privacy and security, and processing adheres to principles of transparency, legitimate purpose and proportionality; (b) in the private sector, data sharing for commercial purposes is allowed upon (i) consent of data subject, and (ii) when covered by a data sharing agreement; (c) data collected from parties other than the data subject for purpose of research shall be allowed when the personal data is publicly available; and (d) data sharing among government agencies for purposes of public function or provision of a public service shall be covered by a data sharing agreement.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Prospective investors should read the following discussion and analysis of the Issuer’s consolidated financial position and financial performance together with (i) the report of independent auditors, (ii) the audited consolidated financial statements as at 31 December 2017 and 2018 and for the years ended 31 December 2016, 2017, and 2018 and the notes thereto, and (iii) the unaudited interim condensed consolidated financial statements as at 30 September 2019 and for the nine-month periods ended 30 September 2018 and 2019 and the notes thereto. Overview

SM Prime Holdings, Inc. was incorporated in the Philippines and registered with the SEC on 6 January 1994. It is a leading integrated Philippine real estate company with business units focused on malls, residential, commercial, and hotels and convention centers. SM Prime is the surviving company of a series of transactions involving the real estate companies of the SM Group. As at 30 September 2019, SMPH is 49.70% and 21.90% directly-owned by SMIC and the Sy Family, respectively. SMIC, the ultimate parent company, is a Philippine corporation which listed its common shares with the PSE in 2005. SMIC and all its subsidiaries are herein referred to as the “SM Group”. SM Prime’s registered office is at the 10th Floor, Mall of Asia Arena Annex Building, Coral Way corner J. W. Diokno Boulevard, Mall of Asia Complex, Brgy. 76, Zone 10, CBP-1A, Pasay City, Metro Manila, Philippines. Basis of Preparation

Basis of Preparation The accompanying consolidated financial statements have been prepared on a historical cost basis, except for financial instruments at fair value through profit or loss and equity instruments at fair value through other comprehensive income which have been measured at fair value. The consolidated financial statements are presented in Philippine peso, which is the Parent Company’s functional and presentation currency under Philippine Financial Reporting Standards (PFRS). All values are rounded to the nearest thousand peso, except when otherwise indicated. Statement of Compliance The accompanying consolidated financial statements as at 31 December 2018 and 2017 and for each of the three years in the period ended 31 December 2018 have been prepared in compliance with the PFRS. The accompanying unaudited interim condensed consolidated financial statements as at 30 September 2019 and for the nine-month periods ended 30 September 2019 and 2018 have been prepared in accordance with PAS 34, Interim Financial Reporting.

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Changes in Accounting Policies The accounting policies adopted are consistent with those of the previous financial year, except for the adoption of the following amended PFRS, which were adopted starting January 1, 2019:

· PFRS 9, Prepayment Features with Negative Compensation (Amendments) · PFRS 16, Leases, sets out the principles for the recognition, measurement, presentation and

disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under PAS 17, Leases.

· PAS 19, Employee Benefits, Plan Amendment, Curtailment or Settlement (Amendments) · PAS 28, Long-term Interests in Associates and Joint Ventures (Amendments) · Philippine Interpretation IFRIC-23, Uncertainty over Income Tax Treatments · Annual Improvements to PFRSs 2015-2017 Cycle

The standards that have been adopted are deemed to have no material impact on the unaudited interim condensed consolidated financial statements of the Company. FINANCIAL PERFORMANCE

Nine months ended 30 September 2019 vs. nine months ended 30 September 2018

Revenue SM Prime recorded consolidated revenues of P85.03 billion for the first nine months of 2019, an increase of 14% from P74.56 billion in the same period in 2018, primarily due to the following:

Rent SM Prime recorded consolidated revenues from rent of P44.91 billion in 2019, an increase of 8% from P41.72 billion in 2018. The increase in rental revenue was due to strong tenants’ sales, rental rate escalations and expansion of leasable areas and temporary selling areas. Out of the total rental revenues, 88% is contributed by the malls and the rest from office and hotels and convention centers. Excluding the new malls opened in 2018, same-store rental growth is at 7%. Likewise, rent from commercial operations increased due to the opening of Three E-Com Center and SM Southmall South Tower in 2018.

Real Estate Sales SM Prime recorded a 26% increase in real estate sales in 2019 from P24.84 billion to P31.35 billion primarily due to higher construction accomplishments of launched projects including Cheerful, Green 2, Trees Ph3, Hope, Charm and Bloom and fast take-up of various Ready-For-Occupancy (RFO) projects particularly those located within the Mall of Asia (MOA) and Makati Central Business District areas, fueled by international buyers, Overseas Filipinos’ remittances, and rising consumer disposable income. Actual construction of projects usually starts within twelve to eighteen months from launch date and revenues are recognized in the books based on percentage of completion. Cinema and Event Ticket Sales SM Prime cinema and event ticket sales increased by 6% to P4.14 billion in 2019 from P3.92 billion in 2018 due to the 13% increase in international movie sales and higher event ticket sales led by the super blockbuster “Avengers: Endgame”, which now holds the title of highest grossing movie of all time in the Philippines. Other major blockbusters screened in 2019 include “Hello, Love, Goodbye”, “Captain Marvel”, “Aladdin”, and “The Lion King” accounting for 41% of gross ticket sales. Major blockbusters screened in 2018 include “Avengers: Infinity War”, “The Hows of Us”, “Jurassic World: Fallen Kingdom”, “Black Panther”, and “The Nun” accounting for 36% of gross ticket sales. On the other hand, local movie sales dropped by 14% due to fewer blockbusters and fewer movies shown.

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Other Revenues Other revenues increased by 13% to P4.63 billion in 2019 from P4.08 billion in 2018. The increase was mainly due to higher income from sponsorships and advertising revenues, bowling and ice skating operations and increase in net merchandise sales from snackbars resulting from higher cinema ticket attendance. Costs and Expenses SM Prime recorded consolidated costs and expenses of P44.03 billion in 2019, an increase of 11% from P39.65 billion in the same period in 2018, as a result of the following:

Costs of Real Estate Consolidated costs of real estate increased by 17% to P14.64 billion in 2019 from P12.52 billion in 2018 primarily due to costs related to higher recognized real estate sales. Gross profit margin on real estate sales improved from 50% in 2018 to 53% in 2019 as a result of improving cost efficiencies, tighter monitoring and control of construction costs and increase in selling prices of projects particularly those located in the prime areas of MOA, Manila and Makati. Operating Expenses SM Prime’s consolidated operating expenses increased by 8% to P29.39 billion in 2019 compared to last year’s P27.13 billion. Out of the total operating expenses, 70% is contributed by the malls where same-store mall growth in operating expenses is at 6%. Operating expenses include depreciation and amortization, film rentals, taxes and licenses, marketing and selling expenses, utilities and manpower, including agency costs. Other Income (Charges) Interest Expense SM Prime’s consolidated interest expense increased by 15% to P5.69 billion in 2019 compared to P4.96 billion in 2018 mainly due to the retail bonds issued in May 2019 and March 2018 amounting to P10.0 billion and P20.0 billion, respectively, and new bank loans availed for working capital and capital expenditure requirements, net of the capitalized interest on proceeds spent for construction and development of investment properties. Interest and Dividend Income Interest and dividend income increased by 8% to P1.47 billion in 2019 from P1.36 billion in 2018. This account is mainly composed of interest and dividend income received from cash and cash equivalents and equity instruments at fair value through other comprehensive income. Other income (charges) - net Other income – net increased to P0.80 billion in 2019 from P0.65 billion in 2018. This account includes equity in net earnings from associates and joint ventures, forfeited tenants’ and customers’ deposits, foreign exchange gains and losses and hedging costs related to foreign currency obligations. Provision for income tax SM Prime’s consolidated provision for income tax increased by 17% to P7.86 billion in 2019 from P6.69 billion in 2018.

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Net income attributable to equity holders of the Parent SM Prime’s consolidated net income attributable to Parent for the nine months ended September 30, 2019 increased by 18% to P27.60 billion as compared to P23.44 billion in the same period last year.

Year ended 31 December 2018 vs. year ended 31 December 2017

Revenue SM Prime recorded consolidated revenues of P104.08 billion in the year ended 2018, an increase of 14% from P90.92 billion in the year ended 2017, primarily due to the following:

Rent SM Prime recorded consolidated revenues from rent of P57.16 billion in 2018, an increase of 11% from P51.41 billion in 2017. The increase in rental revenue was primarily due to the new malls and expansions opened in 2017 and 2018 namely, SM CDO Downtown Premier, S Maison, SM City Puerto Princesa, SM Center Tuguegarao Downtown, SM City Urdaneta Central, SM City Telabastagan, SM City Legazpi and SM Center Ormoc with a total gross floor area of 0.53 million square meters. Out of the total rental revenues, 88% is contributed by the malls and the rest from office and hotels and convention centers. Excluding the new malls, same-store rental growth is at 8%. Rent from commercial operations also increased due to the opening of Three E-Com Center and SM Southmall South Tower in 2018.

Real Estate Sales SM Prime recorded a 22% increase in real estate sales in 2018 from P29.43 billion to P35.87 billion primarily due to higher construction accomplishments of projects launched in 2015 to 2017 namely Shore 2, Fame, Coast, Spring, Shore 3 and S Residences and continued increase in sales take-up of various projects due to strong demand fueled by international buyers, Overseas Filipinos’ remittances, and rising disposable income of the emerging middle class. Actual construction of projects usually starts within twelve to eighteen months from launch date and revenues are recognized in the books based on percentage of completion. Cinema and Event Ticket Sales SM Prime cinema and event ticket sales increased by 9% to P5.22 billion in 2018 from P4.77 billion in 2017 due to higher gross box office receipts from international and local blockbuster movies shown in 2018 compared to 2017. The major blockbusters screened in 2018, accounting for 29% of gross ticket sales, include “Avengers: Infinity War”, “The Hows of Us”, “Jurassic World: Fallen Kingdom”, “Black Panther”, and “Aquaman”. The major blockbusters screened in 2017 were “Beauty and the Beast”, “Justice League”, “Wonder Woman”, “Thor: Ragnarok“ and “The Revenger Squad” accounting for 23% of gross ticket sales. Other Revenues Other revenues increased by 10% to P5.83 billion in 2018 from P5.31 billion in 2017. The increase was mainly due to higher income from bowling and ice skating operations, sponsorships, opening of new amusement attractions particularly SM Skyranch Baguio and increase in net merchandise sales from snackbars. This account also includes amusement income from rides, merchandise sales from snackbars and sale of food and beverages in hotels. Costs and Expenses SM Prime recorded consolidated costs and expenses of P55.75 billion for the year ended 2018, an increase of 11% from P50.29 billion in 2017, as a result of the following:

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Costs of Real Estate Consolidated costs of real estate increased by 17% to P17.77 billion in 2018 from P15.15 billion in 2017 primarily due to costs related to higher recognized real estate sales, offset by result of improving cost efficiencies as a result of economies of scale, tighter monitoring and control of construction costs hence, leading to improved gross profit margin on real estate sales from 49% in 2017 to 50% in 2018. Operating Expenses SM Prime’s consolidated operating expenses increased by 8% to P37.98 billion in 2018 compared to last year’s P35.14 billion due to new mall openings. Out of the total operating expenses, 71% is contributed by the malls where same-store mall growth in operating expenses is at 4%. Operating expenses include depreciation and amortization, film rentals, taxes and licenses, marketing and selling expenses, utilities and manpower, including agency costs. Other Income (Charges) Interest Expense SM Prime’s consolidated interest expense increased by 38% to P7.54 billion in 2018 compared to P5.47 billion in 2017 due to the series of retail bonds issued in March 2018 and May 2017 amounting to P20 billion each and new bank loans availed for working capital and capital expenditure requirements, net of the capitalized interest on proceeds spent for construction and development of investment properties. Interest and Dividend Income Interest and dividend income increased by 51% to P1.83 billion in 2018 from P1.21 billion in 2017. This account is mainly composed of interest and dividend income received from cash and cash equivalents, investments held for trading and AFS investments. The increase is due to higher average balance of cash and cash equivalents and higher dividends received in 2018 on available-for-sale investments. Other income (charges) – net Other charges – net increased by 54% to P0.65 billion in 2018 from P0.42 billion in 2017 due to foreign exchange and other incidental costs related to mall projects.

Provision for income tax SM Prime’s consolidated provision for income tax increased by 16% to P9.06 billion in 2018 from P7.82 billion in 2017. Net income attributable to equity holders of the Parent SM Prime’s consolidated net income attributable to Equity holders of the Parent in the year ended December 31, 2018 increased by 17% to P32.17 billion as compared to P27.57 billion in 2017.

Year ended 31 December 2017 vs. year ended 31 December 2016

Revenue SM Prime recorded consolidated revenues of P90.92 billion in the year ended 2017, an increase of 14% from P79.82 billion in the year ended 2016, primarily due to the following: Rent SM Prime recorded consolidated revenues from rent of P51.41 billion in 2017, an increase of 13% from P45.69 billion in 2016. The increase in rental revenue was primarily due to the new malls and expansions

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opened in 2016 and 2017, namely, SM City San Jose Del Monte, SM City Trece Martires, SM City East Ortigas, SM CDO Downtown Premier, S Maison at the Conrad Manila, SM City Puerto Princesa, SM Center Tuguegarao Downtown, SM City San Pablo Expansion, SM City Sucat Expansion and SM Center Molino Expansion with a total gross floor area of 0.63 million square meters. Out of the total rental revenues, 88% is contributed by the malls and the rest from office and hotels and convention centers. Excluding the new malls and expansions, same-store rental growth is at 7%. Room rentals from hotels and convention centers likewise increased due to the opening of Conrad Manila in June 2016 and the improvement in average room rates and occupancy rates of the hotels and convention centers as a result of ASEAN-related events held throughout 2017. Real Estate Sales SM Prime recorded an 18% increase in real estate sales in 2017 from P25.00 billion to P29.43 billion primarily due to higher construction accomplishments of projects launched in 2013 up to 2016 namely Shore, Shore 2, Air, Fame, S Residences and Silk Residences in China and continued increase in sales take-up of Ready-for-Occupancy (RFO) projects due to strong demand fueled by OFW remittances, sustained growth of the BPO sector, government spending and rising disposable income of the emerging middle class. Actual construction of projects usually starts within twelve to eighteen months from launch date and revenues are recognized in the books based on percentage of completion. Cinema and Event Ticket Sales SM Prime cinema and event ticket sales increased to P4.77 billion in 2017 from P4.67 billion in 2016 due to decrease in both local and international blockbuster movies shown in 2017 compared to 2016. The major blockbusters screened in 2017 were “Beauty and the Beast”, “Justice League”, “Wonder Woman”, “Thor: Ragnarok“ and “The Revenger Squad” accounting for 23% of gross ticket sales. Other Revenues Other revenues increased by 19% to P5.31 billion in 2017 from P4.46 billion in 2016. The increase was mainly due to opening of new amusement attractions as a result of new malls and expansions and increase in hotels’ food and beverages income due to the opening of Conrad Manila. This account includes amusement income from rides, bowling and ice skating operations, merchandise sales from snackbars and sale of food and beverages in hotels. Costs and Expenses SM Prime recorded consolidated costs and expenses of P50.29 billion for the year ended 2017, an increase of 13% from P44.55 billion in 2016, as a result of the following: Costs of Real Estate Consolidated costs of real estate increased by 16% to P15.15 billion in 2017 from P13.12 billion in 2016 primarily due to costs related to higher recognized real estate sales offset by result of improving cost efficiencies, tighter monitoring and control of construction costs hence, leading to improved gross profit margin on real estate sales from 48% in 2016 to 49% in 2017. Operating Expenses SM Prime’s consolidated operating expenses increased by 12% to P35.14 billion in 2017 compared to last year’s P31.43 billion. Out of the total operating expenses, 71% is contributed by the malls where same-store mall growth in operating expenses is 3%. Operating expenses include depreciation and amortization, taxes and licenses, marketing and selling expenses, utilities and manpower including agency costs in line with related increase in revenues from same-store as well as the opening of new malls and expansions. Other Income (Charges)

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Interest Expense SM Prime’s consolidated interest expense increased by 24% to P5.47 billion in 2017 compared to P4.41 billion in 2016 due to the P10.0 billion retail bond issued in July 2016, P20.0 billion retail bond issued in May 2017 and new bank loans availed for working capital and capital expenditure requirements, net of the capitalized interest on proceeds spent for construction and development of investment properties. Interest and Dividend Income Interest and dividend income increased by 9% to P1.21 billion in 2017 from P1.11 billion in 2016. This account is mainly composed of interest and dividend income received from cash and cash equivalents, investments held for trading and AFS investments. The increase in interest income is due to higher average balance of cash and cash equivalents in 2017 as compared to last year. The increase in dividend income is due to higher dividends received in 2017 on available-for-sale investments compared to last year. Other income (charges) - net Other charges – net decreased by 57% to P0.42 billion in 2017 from P0.98 billion in 2016 due to increase in equity in net earnings of associates and joint ventures and others. Provision for income tax SM Prime’s consolidated provision for income tax increased by 18% to P7.82 billion in 2017 from P6.62 billion in 2016. Net income attributable to equity holders of the Parent SM Prime’s consolidated net income in the year ended December 31, 2017 increased by 16% to P27.57 billion as compared to P23.81 billion in 2016. Year ended 31 December 2016 vs. year ended 31 December 2015

Revenue SM Prime recorded consolidated revenues of P79.82 billion in the year ended 2016, an increase of 12% from P71.51 billion in the year ended 2015, primarily due to the following: Rent SM Prime recorded consolidated revenues from rent of P45.69 billion in 2016, an increase of 12% from P40.74 billion in 2015. The increase in rental revenue was primarily due to the new malls and expansions opened in 2015 and 2016, namely, SM Seaside City Cebu, SM City Cabanatuan, SM City San Mateo, SM Center Sangandaan, SM City San Jose Del Monte, SM City Trece Martires, SM City Iloilo Expansion, S Maison in SM Mall of Asia and SM Center Molino Expansion with a total gross floor area of 1 million square meters. In addition, retail podiums of Light, Shine, Shell and Green Residences also opened in 2015 and 2016. Out of the total rental revenues, 90% is contributed by the malls and the rest from office and hotels and convention centers. Excluding the new malls and expansions, same-store rental growth is at 7%. Rent from commercial operations also increased due to the opening of Five E-Com Center, and the expansion of SM Clark office tower in 2015. Room rentals from hotels and convention centers contributed to the increase due to the opening of Park Inn Clark in December 2015 and Conrad Manila in June 2016 and the improvement in average room rates and occupancy rates. Real Estate Sales

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SM Prime recorded a 13% increase in real estate sales in 2016 from P22.19 billion to P25.00 billion primarily due to higher construction accomplishments of projects launched in 2013 up to 2015 namely Shore 2, Grass, Air and South Residences and continued increase in sales take-up of Ready-for-Occupancy (RFO) projects namely Princeton, Jazz, M Place and Mezza II Residences due to sales promotions. Actual construction of projects usually starts within twelve to eighteen months from launch date and revenues are recognized in the books based on percentage of completion. Cinema and Event Ticket Sales SM Prime cinema and event ticket sales slightly decreased to P4.67 billion in 2016 from P4.80 billion in 2015 due to fewer local blockbuster movies shown in 2016 compared to 2015. The major blockbusters screened in 2016 were “Captain America: Civil War”, “The Super Parental Guardians”, “Batman vs. Superman: Dawn of Justice”, “X-Men: Apocalypse” and “Suicide Squad” accounting for 23% of gross ticket sales. The major blockbusters shown in 2015 were “Avengers: Age of Ultron”, “Jurassic World”, ”A Second Chance“, “Fast & Furious 7”, and “Star Wars: The Force Awakens” accounting for 23% of gross ticket sales. Other Revenues Other revenues increased by 18% to P4.46 billion in 2016 from P3.79 billion in 2015. The increase was mainly due to opening of new amusement centers as a result of new malls and expansions, increase in merchandise sales and hotels’ food and beverages income due to opening of Park Inn Clark and Conrad Manila. This account is mainly composed of amusement income from rides, bowling and ice skating operations, merchandise sales from snackbars and sale of food and beverages in hotels. Costs and Expenses SM Prime recorded consolidated costs and expenses of P44.55 billion for the year ended 2016, an increase of 11% from P40.07 billion in 2015, primarily due to the following: Costs of Real Estate Consolidated costs of real estate increased by 9% to P13.12 billion in 2016 from P12.04 billion in 2015 primarily due to costs related to higher recognized real estate sales. Gross profit margin for residential improved to 48% in 2016 compared to 46% in 2015 as a result of improving cost efficiencies, tighter monitoring and control of construction costs. Operating Expenses SM Prime’s consolidated operating expenses increased by 12% to P31.43 billion in 2016 compared to last year’s P28.03 billion. Out of the total operating expenses, 73% is contributed by the malls where same-store mall growth in operating expenses is 1%. Contributors to the increase are administrative expenses, depreciation and amortization, taxes and licenses and marketing and selling expenses, in line with related increase in revenues from same-store as well as the opening of new malls and expansions. Other Income (Charges) Gain on Sale of Available-for-Sale (AFS) Investments In 2015, SM Prime recorded a P7.41 billion realized gain on sale of AFS investments. Interest Expense SM Prime’s consolidated interest expense increased by 30% to P4.41 billion in 2016 compared to P3.38 billion in 2015 due to the P20.0 billion retail bond issued in November 2015, P10.0 billion retail bond issued in July 2016 and new bank loans availed for working capital and capital expenditure requirements net of the capitalized interest on proceeds spent for construction of investment properties.

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Interest and Dividend Income Interest and dividend income decreased by 5% to P1.11 billion in 2016 from P1.17 billion in 2015. This account is mainly composed of dividend and interest income received from cash and cash equivalents, investments held for trading and AFS investments. The increase in interest income is due to higher average balance of cash and cash equivalents in 2016 as compared to last year which was offset by the decrease in dividend income due to less dividends received on available-for-sale investments held compared to last year. Other income (charges) - net Other charges – net decreased by 43% to P0.98 billion in 2016 from P1.73 billion in 2015 due to increase in unrealized mark-to-market gain on investments held for trading, income from forfeitures of residential units and other incidental income. Provision for income tax SM Prime’s consolidated provision for income tax increased by 10% to P6.62 billion in 2016 from P6.02 billion in 2015 due to the related increase in taxable income. Net income attributable to equity holders of the Parent SM Prime’s consolidated net income in the year ended December 31, 2016 increased by 14% to P23.81 billion in 2016 as compared to P20.89 billion in 2015 as a result of the foregoing and excluding onetime gain on sale of AFS in 2015. FINANCIAL CONDITION

September 30, 2019 vs. December 31, 2018

SM Prime’s total assets amounted to P656.79 billion as of September 30, 2019, an increase of 9% from P604.13 billion as of December 31, 2018. Cash and cash equivalents increased by 8% from P38.77 billion to P41.97 billion as of December 31, 2018 and September 30, 2019, respectively, mainly due to the proceeds from the issuance of bonds in May 2019 amounting to P10.0 billion and increase in the Company’s cash flows from operations, net of payments for capital expenditure projects during the period. Receivables and contract assets increased by 21% from P35.23 billion to P42.47 billion as of December 31, 2018 and September 30, 2019, respectively, due to high take-up from projects nearing completion. Real estate inventories increased by 7% from P37.58 billion to P40.13 billion as of December 31, 2018 and September 30, 2019, respectively, construction accomplishments for the period, net of cost of sold units. Prepaid expenses and other current assets increased by 23% from P15.15 billion to P18.58 billion as of December 31, 2018 and September 30, 2019, respectively, due to deposits and advances to contractors related to construction projects and various prepayments. Derivative assets increased by 72% from P0.85 billion to P1.47 billion as of December 31, 2018 and September 30, 2019 respectively, mainly resulting from the net fair value changes on principal only swap transactions, cross currency swap transactions and interest rate swap transactions entered into in 2016 to 2017 and 2019, respectively. Likewise, derivative liabilities increased by 68% from P0.34 billion to P0.56 billion as of December 31, 2018 and September 30, 2019, respectively, mainly resulting from the net fair value changes on the cross currency swap transactions entered into in 2018.

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Equity instruments at fair value through other comprehensive income decreased by 13% from P23.53 billion to P20.49 billion as of December 31, 2018 and September 30, 2019, respectively, due to sale of shares to SM Investments Corporation net of changes in fair values under this portfolio. Investment properties increased by 11% from P343.42 billion to P380.53 billion as of December 31, 2018 and September 30, 2019, respectively, primarily due to adoption of PFRS 16 Leases. In 2019, the Company adopted PFRS 16 using the modified retrospective approach with the date of initial application of January 1, 2019 which resulted to the recognition of right-of-use assets amounting to P18.69 billion as of September 30, 2019. Loans payable increased from P0.04 billion to P0.48 billion as of December 31, 2018 and September 30, 2019, respectively, due to availment of loans. Accounts payable and other current liabilities increased by 23% from P61.77 billion to P75.92 billion as of December 31, 2018 and September 30, 2019, respectively, mainly due to payables to contractors and suppliers related to ongoing projects, customers’ deposits and current portion of the lease liability. Long-term debt increased by 5% from P222.77 billion to P234.49 billion as of December 31, 2018 and September 30, 2019, respectively, mainly due to the issuance of P10.00 billion retail bonds in May 2019 and new loan availments to fund capital expenditures requirements, net of payment of maturing loans. Tenants’ and customers’ deposits increased by 10% from P18.68 billion to P20.63 billion as of December 31, 2018 and September 30, 2019, respectively, mainly due to the new malls and office buildings and increase in customers’ deposits from residential buyers. Liability for purchased land decreased by 29% from P6.04 billion to P4.29 billion as of December 31, 2018 and September 30, 2019, respectively, due to subsequent payments. Deferred tax liabilities increased by 38% from P3.53 billion to P4.87 billion as of December 31, 2018 and September 30, 2019, respectively, mainly due to unrealized gross profit on sale of real estate for tax purposes. Other noncurrent liabilities increased by 114% from P10.51 billion to P22.45 billion as of December 31, 2018 and September 30, 2019, respectively, due to adoption of PFRS 16 which resulted to the recognition of lease liabilities amounting to P11.13 billion as of September 30, 2019. As at September 30, 2019 and December 31, 2018, the amount of retained earnings appropriated for the continuous corporate and mall expansions amounted to P42,200 million. This represents a continuing appropriation for land banking activities and planned construction projects. The appropriation is being fully utilized to cover part of the annual capital expenditure requirement of the Company. For the year 2019, the Company expects to incur capital expenditures of around P80 billion. This will be funded with internally generated funds and external borrowings.

2018 vs. 2017

SM Prime’s total assets amounted to P604.13 billion as of December 31, 2018, an increase of 12% from P538.42 billion as of December 31, 2017. Cash and cash equivalents decreased by 13% from P44.37 billion to P38.77 billion as of December 31, 2017 and December 31, 2018, respectively, mainly due to payments for capital expenditure projects during the period, net of increase in the Company’s cash flows from operations and proceeds from longterm debt. Financial assets at fair value through other comprehensive income were sold during the period.

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Receivables and contract assets increased by 4% from P33.99 billion to P35.23 billion as of December 31, 2017 and December 31, 2018, respectively, due to increase in rental receivables from new malls and expansions and increase in sales of residential projects. Condominium and residential units for sale decreased by 7% from P8.73 billion to P8.09 billion as of December 31, 2017 and December 31, 2018, respectively, due to faster sales take up of RFO units, particularly those projects located in the bay area. Land and development increased by 35% from P58.67 billion to P79.33 billion as of December 31, 2017 and December 31, 2018, respectively, due to landbanking and construction accomplishments for the period, net of cost of sold units and transfers of RFO units to condominium and residential units for sale. Investments in associates and joint ventures increased by 7% from P24.57 billion to P26.20 billion as of December 31, 2017 and 2018, respectively, due to increase in equity in net earnings of associates and joint ventures. Equity instruments at fair value through other comprehensive income decreased by 24% from P31.11 billion to P23.53 billion as of December 31, 2017 and December 31, 2018, respectively, due to disposals and changes in fair values under this portfolio. Investment properties increased by 8% from P273.08 billion to P293.57 billion as of December 31, 2017 and December 31, 2018, respectively, primarily due to ongoing new mall projects, ongoing commercial building construction, including the Four E-Com Center and the ongoing redevelopment of SM Mall of Asia and other existing malls. Also, the increase is attributable to landbanking and construction costs incurred for ongoing projects. Derivative assets decreased by 76% from P3.55 billion to P0.85 billion as of December 31, 2017 and December 31, 2018, respectively, mainly resulting from the maturity of the $350 million cross currency swap transaction. While the 57% decrease in derivative liabilities from P0.78 billion to P0.34 billion as of December 31, 2017 and December 31, 2018, respectively, mainly resulted from the net fair value changes on the principal only swap transaction and cross currency swap transaction entered into in 2016 to 2017. Other noncurrent assets, which includes the noncurrent portion of receivables from sale of real estate, increased by 91% from P42.42 billion to P80.91 billion as of December 31, 2017 and December 31, 2018, due to additional bonds and deposits for real estate acquisitions and construction accomplishments of sold units as well as new sales for the period. Loans payable decreased by 95% from P0.74 billion to P0.04 billion as of December 31, 2017 and December 31, 2018, respectively, due to payment of maturing loans. Accounts payable and other current liabilities increased by 21% from P51.08 billion to P61.77 billion as of December 31, 2017 and December 31, 2018, respectively, mainly due to payables to contractors and suppliers related to ongoing projects, customers’ deposits from residential buyers and liability for purchased land. Long-term debt increased by 16% from P192.85 billion to P222.77 billion as of December 31, 2017 and December 31, 2018, respectively, mainly due to the issuance of P20.00 billion retail bonds in March 2018 and new loan availments to fund capital expenditures requirements, net of payment of maturing loans. Tenants’ and customers’ deposits increased by 14% from P16.38 billion to P18.68 billion as of December 31, 2017 and December 31, 2018, respectively, mainly due to the new malls and office buildings and increase in customers’ deposits from residential buyers. Liability for purchased land increased to P6.04 billion from P2.17 billion as of December 31, 2018 and

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December 31, 2017, respectively, due to landbanking. Deferred tax liabilities increased by 23% from P2.88 billion to P3.53 billion as of December 31, 2017 and December 31, 2018, respectively, mainly due to unrealized gross profit on sale of real estate for tax purposes. Other noncurrent liabilities increased by 38% from P7.62 billion to P10.51 billion as of December 31, 2017 and December 31, 2018, respectively, due to increase in retention payable and output VAT on residential sales. As at December 31, 2018 and 2017, the amount of retained earnings appropriated for the continuous corporate and mall expansions amounted to P42,200 million. This represents a continuing appropriation for land banking activities and planned construction projects. The appropriation is being fully utilized to cover part of the annual capital expenditure requirement of the Company. 2017 vs. 2016

Cash and cash equivalents increased by 76% from P25.20 billion to P44.37 billion as of December 31, 2016 and 2017, respectively. This account includes the remaining proceeds from debt drawn in 2017. Investments held for trading decreased by 20% from P919 million to P731 million as of December 31, 2016 and 2017, respectively, mainly due to scheduled maturities of investments in Philippine government and corporate bonds. Receivables increased by 4% from P32.83 billion to P34.28 billion as of December 31, 2016 and 2017, respectively, due to increase in rental receivables from new malls and expansions and increase in sales of residential projects. Condominium and residential units for sale increased by 12% from P7.79 billion to P8.73 billion as of December 31, 2016 and 2017, respectively, mainly due to completion of condominium towers in Trees, Breeze, Cool and Grace Residences. Land and development increased by 33% from P44.12 billion to P58.67 billion as of December 31, 2016 and 2017, respectively, due to landbanking and construction accomplishments for the period, net of cost of sold units and transfers of RFO units to condominium and residential units for sale. Prepaid expenses and other current assets increased by 20% from P11.90 billion to P14.30 billion as of December 31, 2016 and 2017, respectively, due to deposits and advances to contractors related to construction projects and increase in input and creditable withholding taxes. Investments in associates and joint ventures increased by 8% from P22.83 billion to P24.57 billion as of December 31, 2016 and 2017, respectively, due to increase in equity in net earnings of associates and joint ventures. AFS investments increased by 47% from P21.21 billion to P31.11 billion as of December 31, 2016 and 2017, respectively, due to additional investments and changes in fair values under this portfolio. Investment properties increased by 9% from P251.50 billion to P273.08 billion as of December 31, 2016 and 2017, respectively, primarily due to ongoing new mall projects located in Pangasinan, Pampanga, Zambales and Albay and the ongoing redevelopment of SM Mall of Asia. Also, the increase is attributable to landbanking and construction costs incurred for ongoing projects, including the Commercial group’s Three E-Com and Four E-Com buildings. The changes in the derivative assets and derivative liabilities mainly resulted from the net fair value changes on the principal only swap transaction and cross currency swap transaction entered into in 2017 and 2016.

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Other noncurrent assets, which includes the noncurrent portion of receivable from sale of real estate, increased by 8% from P39.40 billion to P42.42 billion as of December 31, 2016 and 2017, due to construction accomplishments of sold units as well as new sales for the period. Loans payable decreased by 11% from P0.84 billion to P0.74 billion as of December 31, 2016 and 2017, respectively, due to payment of maturing loans. Accounts payable and other current liabilities increased by 27% from P40.32 billion to P51.08 billion as of December 31, 2016 and 2017, respectively, mainly due to payables to contractors and suppliers related to ongoing projects and customers’ deposits from residential buyers. Long-term debt increased by 18% from P163.54 billion to P192.85 billion as of December 31, 2016 and 2017, respectively, mainly due to issuance of P20.00 billion bonds in May 2017 to fund capital expenditures requirements. Tenants’ and customers’ deposits increased by 11% from P14.81 billion to P16.38 billion as of December 31, 2016 and 2017, respectively, mainly due to the new malls and expansions. Liability for purchased land increased by 79% from P1.21 billion to P2.17 billion as of December 31, 2016 and 2017, respectively, due to landbanking. Deferred tax liabilities increased by 13% from P2.55 billion to P2.88 billion as of December 31, 2016 and 2017, respectively, mainly due to unrealized gross profit on sale of real estate for tax purposes. Other noncurrent liabilities increased by 31% from P5.82 billion to P7.62 billion as of December 31, 2016 and 2017, respectively, due to increase in retention payable and output VAT on residential sales. As at December 31, 2017 and 2016, the amount of retained earnings appropriated for the continuous corporate and mall expansions amounted to P42,200 million. This represents a continuing appropriation for land banking activities and planned construction projects. The appropriation is being fully utilized to cover part of the annual capital expenditure requirement of the Company. 2016 vs. 2015 Cash and cash equivalents decreased by 3% from P25.87 billion to P25.20 billion as of December 31, 2015 and 2016, respectively, mainly due to payments for capital expenditure projects during the period, net of proceeds from the retail bond issuance and loans drawn in 2016. Investments held for trading increased by 9% from P843 million to P919 million as of December 31, 2015 and 2016, respectively, mainly due to increase in market prices of the listed shares. Receivables slightly increased from P32.49 billion to P32.83 billion as of December 31, 2015 and 2016, respectively, mainly due to increase in rental receivables due to new malls and expansions in 2016 and increase in sales of residential projects. Out of the total receivables, 73% pertains to sale of real estate and 22% from leases of shopping mall and commercial spaces. Condominium and residential units for sale decreased by 5% from P8.16 billion to P7.79 billion as of December 31, 2015 and 2016, respectively, mainly due to sales take up of RFO units. Land and development increased by 3% from P42.92 billion to P44.12 billion as of December 31, 2015 and 2016, respectively, mainly due to landbanking and construction accomplishments for the period, net of cost of sold units and transfers of RFO units to condominium and residential units for sale. Prepaid expenses and other current assets increased by 5% from P11.30 billion to P11.90 billion as of December 31, 2015 and 2016, respectively, mainly due to deposits and advances to contractors related to construction projects and various prepayments.

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Investment properties increased by 9% from P230.34 billion to P251.50 billion as of December 31, 2015 and 2016, respectively, primarily due to ongoing new mall projects located in Cagayan de Oro, Puerto Princesa, Olongapo and Tuguegarao in the Philippines and the ongoing expansions and renovations of SM Mall of Asia, SM City Sucat and SM Xiamen. Also, the increase is attributable to landbanking and construction costs incurred for ongoing projects, including the Commercial group’s Three E-Com and Four E-Com Centers and the recently opened Conrad Manila. AFS investments increased by 4% from P20.33 billion to P21.21 billion as of December 31, 2015 and 2016, respectively, due to unrealized gain on changes in fair values under this portfolio. Derivative assets increased by 96% from P2.60 billion to P5.10 billion as of December 31, 2015 and 2016, respectively, to hedge the Company’s foreign exchange and interest rate risk. These are the $270 million interest rate swap transaction and $380 million principal only swap transaction entered into in 2016 and the $350 million cross currency swap transaction in 2013. Deferred tax assets increased by 34% from P0.85 billion to P1.14 billion as of December 31, 2015 and 2016, respectively, mainly due to NOLCO. Other noncurrent assets, which includes the noncurrent portion of receivable from sale of real estate, increased by 11% from P35.49 billion to P39.40 billion as of December 31, 2015 and 2016, due to additional bonds and deposits for real estate acquisitions and construction accomplishments of sold units as well as new sales for the period. Loans payable decreased by 82% from P4.68 billion to P0.84 billion as of December 31, 2015 and 2016, respectively, due to payment of maturing loans. Long-term debt increased by 8% from P150.99 billion to P163.54 billion as of December 31, 2015 and 2016, respectively, due to net loan availments to fund capital expenditures and for working capital requirements. Tenants’ and customers’ deposits increased by 12% from P13.22 billion to P14.81 billion as of December 31, 2015 and 2016, respectively, due to the new malls and expansions and increase in customers’ deposits from residential buyers. Liability for purchased land decreased by 42% from P2.08 billion to P1.21 billion as of December 31, 2015 and 2016, respectively, due to payments made. Other noncurrent liabilities increased by 22% from P4.75 billion to P5.82 billion as of December 31, 2015 and 2016, respectively, due to increase in retention payable and output VAT on residential sales.

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KEY PERFORMANCE INDICATORS The following are the major financial ratios of the Issuer as at and for the years ended 31 December 2016, 2017, and 2018, and as at and for the nine-month period ended 30 September 2019:

Year ended 31 December

Nine months ended

30 September

2016 2017 2018 2019

Current ratio 2.10 1.61 1.45 1.35 Acid test ratio 1.21 1.02 0.85 0.80 Solvency ratio 2.02 1.95 1.86 1.80 Debt to Equity 42:58 43:57 45:55 45:55 Net Debt to Equity 37:63 36:64 40:60 40:60 Return on Equity 11% 11% 12% 13% Debt to EBITDA 3.87 3.95 3.89 3.63 Asset to equity ratio 2.01 2.08 2.19 2.26 Interest Service Coverage Ratio 9.64 8.96 7.59 8.53 Return on Investment Properties 11% 12% 13% 12% The Company’s key financial indicators are measured in terms of the following:

(1) Current ratio which measures the ratio of total current assets to total current liabilities; (2) Acid test ratio which measures total current assets less inventory and prepaid expenses to total

current liabilities; (3) Debt to Equity ratio which measures the ratio of interest bearing liabilities to equity; (4) Net Debt to Equity which measures the ratio of interest bearing liabilities net of cash and cash

equivalents and investment held for trading to equity; (5) Solvency ratio which measures the ratio of total assets to total liabilities; (6) Asset to equity ratio which measures the ratio of total assets to total equity attributable to

equity holders of the Parent; (7) Interest Service Coverage ratio which measures the ratio of EBITDA to interest expense; (8) Debt to EBITDA which measures the ratio of EBITDA to total interest-bearing liabilities; (9) Return on Equity which measures the ratio of net income to capital provided by stockholders;

and (10) Return on Investment Properties which measures the ratio of net income to total average

investment properties (excluding shopping mall complex under construction). Expansion Plans / Prospects for the Future

For the year 2019, SM Prime expects to incur capital expenditures of around P80 billion. This will be funded with internally generated funds and external borrowings. SM Prime’s malls business unit has seventy-three shopping malls in the Philippines with 8.5 million square meters of GFA and seven shopping malls in China with 1.3 million square meters of GFA. For the last quarter of 2019, SM Prime is slated to open one new mall and one expansion in the Philippines to add around 47,000 square meters of additional space. By the end of 2019, the malls business unit will have seventy-four malls in the Philippines and seven malls in China with an estimated combined GFA of almost 9.8 million square meters. SM Prime currently has forty-eight residential projects in the market, thirty-eight of which are in Metro Manila and ten are outside Metro Manila. For the nine months ended 2019, SM Prime has already launched 14,500 new units to the market. For full year 2019, SM Prime is targeting to launch between 15,000 to 20,000 residential units that includes high-rise buildings, mid-rise buildings and single detached house and lot projects. These projects will be located in Metro Manila and other key cities in the provinces.

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SM Prime’s Commercial Properties Group has twelve office buildings with a combined gross floor area of 662,000 square meters. NU Mall of Asia (NUMA) and Three E-Com Center were completed in August 2019 and September 2018, respectively. SM Prime is set to launch Four E-Com Center in MOA, Pasay in 2020. SM Prime’s hotels and convention centers business unit currently has a portfolio of four convention centers, three trade halls and eight hotels with over 1,900 rooms. This includes Park Inn by Radisson – Iloilo and Park Inn by Radisson – North EDSA which opened in April 2019 and September 2019, respectively.

The above expenditures will be funded through internally generated sources and other capital raising initiatives such as bond issuances and loan availments. The Company has no known direct or contingent financial obligation that is material to the Company, including any default or acceleration of an obligation. There were no contingent liabilities or assets in the Company’s balance sheet. The Company has no off-balance sheet transactions, arrangements, obligations during the reporting year as at the relevant balance sheet dates. There are no known trends, events, material changes, seasonal aspects or uncertainties that are expected to affect the Company’s continuing operations. There are no known trends or any known demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in the Issuer’s liquidity increasing or decreasing in any material way. The Issuer does not anticipate having any cash flow or liquidity problems within the next twelve months. There are no significant elements of income or loss arising outside of the Issuer’s continuing operations. The Issuer is not in default or in breach of any note, loan, lease or other indebtedness or financing arrangement. There are no significant amounts of the Issuer’s trade payables that have not been paid within the stated trade terms.

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DESCRIPTION OF PROPERTIES The Issuer’s principally owned properties consist of malls and lands. The land, land improvements, buildings, and equipment owned by the Issuer have a net book value of P380.53 billion as at 30 September 2019. The locations and general descriptions of these properties and equipment are described below. Supermalls The Issuer has 73 malls as at 30 September 2019 in the following locations:

· SM City North EDSA EDSA cor. North Ave., Quezon City

· SM City Sta. Mesa Ramon Magsaysay Boulevard cor Araneta, Quezon City, Metro Manila

· SM Megamall EDSA Corner Julia Vargas Avenue, Ortigas Business District, Mandaluyong City, Metro Manila

· SM City Cebu North Reclamation Area, Cebu City, Cebu

· SM Southmall Alabang-Zapote Road, Almanza, Las Piñas City

· SM City Bacoor General Aguinaldo Highway cor. Tirona Highway, Brgy. Habay, Bacoor, Cavite

· SM City Fairview Quirino Highway cor. Regalado Ave., Greater Lagro, Quezon City

· SM City Iloilo Benigno Aquino Jr. Avenue, West Diversion Road, Mandurriao, Iloilo City

· SM City Manila Concepcion corner Arroceros and San Marcelino Streets, Manila

· SM City Pampanga Olongapo-Gapan Road, Brgy. San Jose, San Fernando City, Pampanga

· SM City Sucat Dr. A. Santos Avenue, Brgy. San Dionisio, Parañaque City

· SM City Davao Quimpo Boulevard corner Tulip Drive, Ecoland Subdivision, Brgy. Matina, Davao City

· SM City Bicutan Doña Soledad Avenue corner West Service Road, Brgy. Don Bosco, Bicutan, Parañaque City

· SM City Cagayan de Oro Masterson's Ave, Pueblo de Oro Business Park, Carmen, Cagayan de Oro City

· SM City Lucena Dalahican Road, corner Maharlika Highway Brgy. Ibabang Dupay, Lucena City

· SM City Baguio Luneta Hill, Upper Session Road corner Governor Pack Road, Baguio City, Benguet

· SM City Marilao Km 21 Mc Arthur Highway, Brgy. Ibayo, Marilao Bulacan

· SM City Dasmariñas Governors Drive, Brgy. Pala-Pala, Dasmariñas, Cavite

· SM City Batangas Pastor Village, Brgy Pallocan Kanluran, Batangas City

· SM City San Lazaro Felix Huertas Street corner A.H. Lacson Extension, Sta. Cruz, Manila

· SM Center Valenzuela Mc Arthur Highway, Brgy. Karuhatan, Valenzuela City

· SM Center Molino Molino Road, Molino 4, Bacoor, Cavite

· SM City Santa Rosa

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National Road, Barrio Tagapo, Sta. Rosa, Laguna · SM City Clark

M.A. Roxas Highway, Brgy. Malabanias, Angeles City, Pampanga · SM Mall of Asia

J.W. Diokno Boulevard, Mall of Asia Complex, 1300 Pasay City, Philippines · SM Center Pasig

Frontera Verde, C5, Brgy. Ugong, Pasig City · SM City Lipa

Ayala Highway, Lipa City, Batangas · SM City Bacolod

Rizal St., Bacolod City, Negros Occidental 2 · SM City Taytay

Manila East Road, Brgy. Dolores,Taytay, Rizal · SM Center Muntinlupa

National Road, Brgy. Tunasan, Muntinlupa City · SM City Marikina

Marcos Highway, Brgy. Kalumpang, Marikina City · SM City Rosales

MacArthur Highway, Brgy. Carmen East, Rosales, Pangasinan · SM City Baliwag

Doña Remedios Trinidad Highway, Brgy. Pagala, Baliwag, Bulacan · SM City Naga

Central Business District II, Brgy. Triangulo, Naga City · SM Center Las Piñas

Alabang Zapote Rd., Brgy. Talon Dos, Las Piñas City · SM City Rosario

General Trias Drive, Brgy. Tejeros, Rosario, Cavite · SM City Tarlac

Mc Arthur Highway, Brgy. San Roque, Tarlac City · SM City San Pablo

National Highway, Brgy. San Rafael, San Pablo City · SM City Calamba

National Road, Brgy. Real, Calamba, Laguna · SM City Novaliches

Quirino Highway Brgy. San Bartolome, Novaliches, Quezon City · SM City Masinag

Marcos Highway, Brgy. Mayamot, Antipolo City · SM City Olongapo

Magsaysay Drive corner Gordon Avenue, Brgy. Pag-Asa, Olongapo City, Zambales · SM San Fernando

V. Tiomco Street, Brgy. Poblacion, San Fernando City, Pampanga · SM General Santos

Cor. Santiago Boulevard and San Miguel Street, Barangay Lagao, General Santos City · SM Lanang

J P Laurel Avenue Lanang, Brgy. San Antonio, Davao City, Davao del Sur · SM City Consolacion

North Road, Brgy. Lamac, Consolacion, Cebu · SM Aura Premier

26th Street corner McKinley Parkway, Brgy. Fort Bonifacio, Global City, 1630 Taguig City

· SM City BF Parañaque Dr. A. Santos Ave. cor Presidents Ave., Brgy. BF Homes, 1700 Parañaque City

· SM City Cauayan Maharlika Highway, Brgy. District II, 3305 Cauayan City, Isabela, Philippines

· SM Center Angono Manila East Road, Brgy. San Isidro, 1930 Angono, Rizal

· SM Megacenter Cabanatuan

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Gen. Tinio and Melencio Streets, Cabanatuan City, Nueva Ecija · SM City San Mateo

Gen. Luna Avenue, Brgy. Ampid 1, San Mateo, Rizal · SM City Cabanatuan

Along Maharlika Highway, Brgy. H. Concepcion, Cabanatuan City · SM Center Sangandaan

M. H. Del Pilar cor. Samson Road, Brgy. 003 Sangandaan, Caloocan City · SM Cherry Shaw

Shaw Boulevard, Brgy. Pleasant Hills, Mandaluyong City · SM Seaside City Cebu

South Road Properties, Cebu City · SM City San Jose Del Monte

Quirino Hi-way, Tungkong Mangga, City of San Jose Del Monte, Bulacan · SM City Trece Martires

Governor's Drive Cor. Capitol Road, San Agustin (Pob.), Trece Martires City, Cavite · SM Cherry Congressional

Congressional Avenue Extension, Brgy. Bahay Toro, Quezon City · SM City East Ortigas

Ortigas Avenue Extension Barangay Sta Lucia, Pasig City · SM CDO Downtown Premier

C. M. Recto corner Osmena St., Brgy 24, Cagayan de Oro City, 9000, Misamis Oriental · S Maison

S Maison, Marina Way, Mall of Asia Complex, Bgy 76, Zone 10, CBP-IA, 1300 Pasay City, Philippines

· SM Cherry Antipolo Marcos Highway Brgy. Mayamot, Antipolo City

· SM Puerto Princesa Malvar Street cor. Lacao Street Puerto Princesa, Palawan

· SM Center Tuguegarao Downtown Luna Street corner Mabini Street, Brgy. Ugac Sur, Tuguegarao City 3500, Cagayan, Philippines

· SM Center Pulilan Plaridel- Pulilan Diversion Road, Brgy. Sto. Cristo, Pulilan, Bulacan 3005 Philippines

· SM Center Lemery Illustre Ave Corner P Gomez St., Brgy District IV, Lemery, Batangas

· SM Center Imus Alapan Street, Barangay Bucandala, Imus, Cavite

· SM Urdaneta Central Barangay Nancayasan, McArthur Highway, Urdaneta City, Pangasinan

· SM City Telabastagan Macarthur Highway, Barangay Telabastagan, City Of San Fernando, Pampanga 2000

· SM City Legazpi Imelda Roces Ave., Zone 9, Brgy. 37 Bitano, Legazpi City, Albay 4500

· SM Center Ormoc Real Street, Barangay District 14, Ormoc City, Leyte 6541

· SM Olongapo Central Rizal Ave, Olongapo, 2200 Zambales

There are no mortgages, liens or encumbrances over any properties owned by the Company or its subsidiaries. Land and Development Land and development costs pertain to SMDC’s on-going residential condominium projects. Estimated cost to complete the projects amounted to P53,324 million, P51,097 million, and P79,819 million as at 31 December 2017 and 2018 and as at 30 September 2019, respectively. SMDC also acquired several parcels of land for future development with aggregate carrying values of

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P13,112 million, P17,419 million, and P2,325 million for the years ended 31 December 2017 and 2018 and for the nine months ended 30 September 2019, respectively. These costs are included as part of land and development costs. SMDC acquired Landfactors for P300.0 million in 2009, Vancouver Lands, Inc. (VLI) for P566.6 million in 2010, Twenty Two Forty One Properties, Inc. (TTFOPI) for P195.6 million in 2011, Union Madison Realty Company Inc. (UMRC) and 102 E. De Los Santos Realty Co. Inc. (102 EDSA) for P758.9 and P1,250.8 million, respectively in 2014 and became its wholly-owned subsidiaries. The purchase of Landfactors, VLI and TTFOPI were accounted for as an acquisition of asset. Landfactors, VLI and TTFOPI own parcels of land which are being developed into commercial/residential condominium projects. On 30 June 2004, SMDC entered into a joint venture agreement with the Government Service Insurance System (GSIS) for the development of a residential condominium project on a parcel of land owned by GSIS. Under the joint venture agreement, GSIS shall contribute all its rights, title and interest in and to the property. In turn, SMDC shall provide financing for the implementation of the project in consideration for a certain percentage share of the value of the total saleable units in the project. On 7 September 2005, the parties amended joint venture agreement to change the property subject for development to 14,430 square meters, more or less, a portion of the Tree Park Area of the GSIS-Baguio Convention Center. Under the amended joint venture agreement, in the event of a decrease in the investment commitment but not below the amount of P1,100.0 million, there will be no adjustment in the sharing or allocation percentage of both parties as agreed upon based on the original joint venture agreement. In case the reduction goes lower than P1,100.0 million, there shall be a corresponding adjustment in the sharing or allocation percentage of both parties, which shall be subject to the agreement of both parties. As at 30 June 2015, the development of the project has not yet started. Leased Properties

As at 30 September 2019, the Issuer and its subsidiaries had 20 leased properties with total annual lease of P734.5 million.

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BOARD OF DIRECTORS AND MANAGEMENT OF THE ISSUER DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth the persons who served as a Director and/or executive officer of SM Prime as at the date of this Prospectus:

Office Name Citizenship Age

Chairman Emeritus Henry Sy, Sr.** Filipino 94 Chairman Henry T. Sy, Jr. Filipino 65 Vice Chairman and Lead Independent Director Jose L. Cuisia, Jr. Filipino 75 Independent Director Gregorio U. Kilayko Filipino 64 Independent Director Joselito H. Sibayan Filipino 61 Director and President Jeffrey C. Lim Filipino 57 Director Hans T. Sy Filipino 64 Director Herbert T. Sy Filipino 62 Director Jorge T. Mendiola Filipino 60 Adviser to the Board of Directors Teresita T. Sy Filipino 68 Adviser to the Board of Directors Elizabeth T. Sy Filipino 67 Corporate Secretary/Alternate Compliance

Officer Elmer B. Serrano Filipino 51

Assistant Corporate Secretary Arthur A. Sy Filipino 50 Chief Finance Officer/Compliance

Officer/Corporate Indormation Officer John Nai Peng C. Ong Filipino 49 Vice President – Internal Audit Christopher S. Bautista Filipino 60 Vice President-Finance/Alternate Compliance Officer/Alternate Corporate Information Officer

Teresa Cecilia H. Reyes Filipino 44

Chief Risk Officer Marvin Perrin L. Pe Filipino 40 EVP and Chief Operating Officer, Malls Steven T. Tan Filipino 50 EVP, Residential (Primary) Jose Mari H. Banzon Filipino 58 EVP, Residential (Leisure) Shirley C. Ong Filipino 57 VP, Commercial Russel T. Sy Filipino 46 EVP, Hotels and Convention Centers Ma. Luisa E. Angeles Filipino 61 ** Passed away on 19 January 2019.

MANAGEMENT

Board of Directors The Directors of the Issuer are elected at the annual stockholders’ meeting to hold office until the next succeeding annual meeting and until their respective successors have been appointed or elected and qualified. The following describes the background and business experience of the Issuer ’s Directors and Executive Officers during the last five years: Henry Sy, Sr. has been the Chairman Emeritus of the Board of Directors of SMPH until his passing on January 19, 2019. He served as Chairman of the Board of Directors of SMPH for ten (10) years from 1994 to April 2014. He was the founder of the SM Group and is currently, Chairman Emeritus of SMIC, SM Development Corporation (SMDC), Highlands Prime, Inc. (HPI) and BDO Unibank, Inc. (BDO) 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 five lines of businesses – shopping malls, retail, financial services, real estate development and tourism oriented entities such as but not limited to hotels and convention centers. Mr. Sy earned his Associate of Arts Degree in Commerce Studies at

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Far Eastern University and was conferred an Honorary Doctorate in Business Management by De La Salle University. Henry T. Sy, Jr. has been a director of SMPH since 1994. He was appointed as Chairman of the Board in 2014. He is responsible for the real estate acquisitions and development activities of the SM Group, which include the identification, evaluation and negotiation for potential sites, as well as the input of design ideas. He is currently the Vice Chairman of SMIC, Chairman and Chief Executive Officer of SMDC, Chairman of Pico de Loro Beach and Country Club Inc., and Vice Chairman of The National Grid Corporation of the Philippines. He holds a Bachelor’s Degree in Management from De La Salle University. Jose L. Cuisia, Jr.* has served as Vice Chairman and Independent Director of the Board of Directors of SM Prime since 1994. He was first appointed Lead Independent Director of the Company in February 2017 and has been reappointed as such the following year. He served as the Ambassador of the Republic of the Philippines to the United States of America from April 2, 2011 until June 2016. Mr. Cuisia was also the Vice Chairman of Philam Life after having served the company as its President and Chief Executive Officer for 16 years. He was also Chairman of the Board for BPI-Philam Life Assurance Co., the Philam Foundation and Tower Club, Inc. Mr. Cuisia was also the Governor of the Bangko Sentral ng Pilipinas (BSP) and Chairman of its Monetary Board from 1990-1993. He was also Governor for the Philippines to the International Monetary Fund and Alternate Governor to the World Bank. Prior to joining the BSP, he was Administrator and CEO of the Philippine Social Security System from 1986- 1990. Mr. Cuisia is also a Non-Executive Director of Bacnotan Consolidated Industries (now PHINMA Corporation); Independent Director of Century Properties Group & Manila Water Company, Inc. (all of which are publicly listed companies). Likewise, he is also Chairman of the Board of The Covenant Car Company, Inc., and holds directorates in PHINMA, Inc. In 2018, he was appointed Chairman of the Board of FWD Insurance and elected as Chairman of the Ramon Magsaysay Awards Foundation. Ambassador Cuisia was active in educational institutions, having been Chairman of the Board of Trustees of the Asian Institute of Management, a previous Trustee of the University of Asia & the Pacific and Chairman of De La Salle University Board of Trustees. He was the CV Starr Chairman of Corporate Governance for the Asian Institute of Management. He is also a Convenor-Trustee of the Philippine Business for Education (PBEd). Mr. Cuisia is an alumnus of De La Salle University, where he graduated in 1967 with degrees in Bachelor of Arts in Social Science and Bachelor of Science in Commerce (magna cum laude). He finished his Masters in Business Administration-Finance at The Wharton School, University of Pennsylvania in 1970 as a University Scholar. Mr. Cuisia is a recipient of numerous awards and accolades including 2017 Signum Meriti for exemplary public service from De La Salle University; 2006 Distinguished La Sallian Award; Ten Outstanding Filipino (TOFIL) awardee on December 2016 by the JCI Senate and ANZA Foundation; the Order of the Sikatuna with the rank of Grand Cross by President Benigno Aquino III in 2016; Lifetime Contributor Award (public sector) by the Asia CEO Forum in 2015; “Joseph Wharton Award for Lifetime Achievement” by the prestigious Wharton Club of Washington, DC in May 2011; Management Association of the Philippines’ Management Man of the Year for 2007; Manuel L. Quezon Award for Exemplary Governance in 2006; Raul Locsin CEO of the Year Award in 2004; and Ten Outstanding Young Men (TOYM) Award for Domestic Banking in 1982. Gregorio U. Kilayko* has been an Independent Director of SM Prime since 2008. He 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 Philippine Stock Exchange in 2003. He is currently an Independent Director in Belle Corporation and Philequity Fund. He took his Masters in Business Administration at the Wharton School of the University of Pennsylvania. Joselito H. Sibayan* has been an Independent Director of the Company since 2011. He has spent the past 31 years of his career in investment banking. From 1987 to 1994, and after taking his Master of Business Administration from University of California in Los Angeles, he served as Head of International Fixed Income Sales at Deutsche Bank in New York and later moved to Natwest Markets to set up its International Fixed Income and Derivatives Sales/Trading operations. He then moved to London in 1995 to run Natwest Market’s 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

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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. * Independent director – The Independent Directors of the Company are Messrs. Jose L. Cuisia, Jr.,

Gregorio U. Kilayko and Joselito H. Sibayan. The Company has complied and will comply with the Guidelines set forth by Securities Regulation Code (SRC) Rule 38, as amended, regarding the Nomination and Election of Independent Directors. The Company’s By-Laws incorporate the procedures for the nomination and election of independent director/s in accordance with the requirements of the said Rule.

Jeffrey C. Lim was appointed President of SM Prime in October 2016 and has been reappointed as such since then. He is a member of the Company’s Executive Committee. He also serves as President of SM Development Corporation. He was elected to the Board of Directors of SM Prime in April 2016. He holds various board and executive positions in other SMPH’s subsidiaries. He is a Certified Public Accountant and holds a Bachelor of Science degree in Accounting from the University of the East. Prior to joining the Company in 1994, he worked for a multi-national company and for SGV & Co.

Hans T. Sy is the Chairman of the Executive Committee of SM Prime and has been a Director of the Company since 1994. He previously held the position of President of SM Prime until September 2016. He also held key positions in several companies engaged in banking, real estate development, mall operations, as well as leisure and entertainment. He is currently Adviser to the Board of SM Investments Corporation, Chairman of China Banking Corporation, and Chairman of National University. Mr. Sy holds a B.S. Mechanical Engineering degree from De La Salle University. Herbert T. Sy has been a director of the Company since 1994. He is an Adviser to the Board of SMIC and is currently the Chairman of Supervalue Inc., Super Shopping Market Inc. and Sanford Marketing Corporation and Director of Alfamart Trading Philippines Inc. and China Banking Corporation. He also holds board positions in several companies within the SM Group. He has worked with SM Group Companies for more than 30 Years, engaged in food retailing. He is actively involved in the SM Group's Supermarket Operations, which include acquisition, evaluation and negotiation for potential sites. He holds a Bachelor’s degree in management from De La Salle University. Jorge T. Mendiola has been a director of the SM Prime since 2012. He is currently a Director of SM Retail, Inc. He started his career with The SM Store as a Special Assistant to the Senior Branch Manager in 1989 and rose to become its President in 2011. He is also currently the Vice Chairman for Advocacy of the Philippine Retailers Association. He received his Masters in Business Management from the Asian Institute of Management. He holds 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 Group for over 20 years and has varied experiences in retail merchandising, mall development and banking businesses. A graduate of Assumption College, she is currently Chairperson of BDO Unibank, Inc. and Vice Chairperson of SMIC. She also holds board positions in several companies within the SM Group. She is the Philippine representative to the ASEAN Business Advisory Council. Elizabeth T. Sy was elected as an Adviser to the Board in April 2012. She serves as a member of the Executive Committee and Trust Committee of the Board of Directors of BDO Private Bank, Inc. She is also the Chairperson and President of SM Hotels and Conventions Corporation where she steers SM’s continuous growth in the tourism, leisure and hospitality industry. She is also the Chairman of Nazareth School of National University. Ms. Sy likewise serves as Adviser to the Board of SM Investments Corporation and Co-Chairperson of Pico De Loro Beach and Country Club. She graduated with a degree in Business Administration from Maryknoll College. Members of the Board of Directors are given a standard per diem of P10,000 per Board meeting, except for the Chairman and Vice Chairman which are given P20,000 per Board meeting.

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Elmer B. Serrano is the Corporate Secretary of the SMPH and of SMIC since November 2014. He is a practicing lawyer recognized by TheLegalASia500 Asia Pacific and IFLR1000 in the areas of Corporate and Mergers & Acquisitions, Capital Markets and Banking & Finance. Mr. Serrano is a director of 2GO Group, Inc. and DFNN Inc., both publicly-listed companies. He is also the Corporate Secretary of Premium Leisure Corp., Crown Equities, Inc., as well as various subsidiaries of BDO. He is also Corporate Secretary of, and counsel to, prominent banking industry associations and companies such as the Bankers Association of the Philippines and PDS Group. Mr. Serrano is a Certified Associate Treasury Professional (2017) and was among the top graduates of the Trust Institute of the Philippines in 2001. Mr. Serrano holds a Juris Doctor degree from the Ateneo Law School and a BS Legal Management degree from Ateneo de Manila University.

Atty. Arthur A. Sy is the Assistant Corporate Secretary of SMPH. He is the Senior Vice President for Corporate Legal Affairs of SMIC, where he also serves as the Assistant Corporate Secretary. He is likewise the currently appointed Assistant Corporate Secretary of Belle Corporation and Premium Leisure Corp. and the Corporate Secretary of various major companies within the SM Group and the National University. A member of the New York Bar, Atty. Sy holds a Bachelor of Arts degree in Philosophy from the University of Santo Tomas and a Juris Doctor degree from the Ateneo de Manila University, School of Law. Executive Officers John Nai Peng C. Ong is the Chief Finance Officer, Compliance Officer and a member of the Company’s Executive Committee. He holds various board and executive positions in other SMPH’s subsidiaries. He is a Certified Public Accountant and holds a Bachelor of Science degree in Accounting from Ateneo de Zamboanga University. He received his Master in Management from the Asian Institute of Management. Prior to joining the Company in 2014, he was an assurance partner in SGV & Co. Christopher S. Bautista is the Vice President for Internal Audit (Chief Audit Executive). Prior to joining the Company in 1998, he was the Chief Finance Officer of a large palm oil manufacturer based in Jakarta, Indonesia and was a partner (principal) for several years of an audit and management consulting firm based also in Jakarta. He started his professional career as staff auditor of SGV & Co. Teresa Cecilia H. Reyes is the Vice President for Finance and the Alternate Compliance and Corporate Information Officer. Prior to her joining the Company in June 2004 as a Senior Manager in the Finance Group, she was an Associate Director in the business audit and advisory group of SyCip Gorres Velayo & Co. (SGV). She graduated from De La Salle University with degrees in Bachelor of Science in Accountancy and Bachelor of Arts in Economics and placed 16th in the 1997 Certified Public Accountants board examinations. Marvin Perrin L. Pe is the Chief Risk Officer and Vice President for Enterprise Risk Management. He holds a Bachelor of Science degree in Accountancy from Centro Escolar University. He has completed his Masters in Management Degree, with distinction, from the Asian Institute of Management. Before joining SM Prime Holdings, Inc., Mr. Pe was an Advisory Partner of SyCip Gorres Velayo & Co. (SGV).

Steven T. Tan is the Chief Operating Officer of SM Supermalls and handles mall properties in the Philippines and China. He took up Business Management at University of Santo Tomas and completed his Masters in Business Administration from Paris School of Management. Prior to joining the Company, Mr. Tan began his career in Howard Plaza Hotel at Taipei, Taiwan from 1990-1998 and moved to Shanghai, China to form part of the opening team of the Barcelo Grand Hotel. He returned to the Philippines in 2001 to work as Regional Director of Marketing and Communications for FilBarcelo, handling external affairs for the group. In 2004, he joined SM handling mall operations for The Podium and in January 2006, led the launch and operations of SM Mall of Asia. Jose Mari H. Banzon is the Business Unit Head for Residential (Primary). He holds a Bachelor of Arts degree in Economics and a Bachelor of Science degree in Management of Financial Institutions from De La Salle University. Prior to joining SMDC in 2013, he was executive vice president and general manager of Federal Land, Inc. He had also worked in the corporate banking department of various

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financial institutions in the Philippines and Hong Kong. Shirley C. Ong is the Business Unit Head for Residential (Leisure). She is also the Director of the Midlands Golf and Country Club. Before joining the Company, she was First Vice President for Business Development of Filinvest Alabang, Inc from 1995 to 2009. She brings with her over 26 years of experience, 21 years of which has been in various areas of real estate from city development, office/residential, high rise development, residential village development including finance, marketing, sales and property management. She graduated cum laude with a bachelor’s degree in Arts, Major in Economics from the University of Sto. Tomas. Russell T. Sy is the Business Unit Head for Commercial. He holds a Bachelor of Science degree in Management Engineering from Ateneo de Manila University. He received his MBA from International Institute for Management Development (IMD) in Lausanne, Switzerland. Prior to joining the Company in 2014, he was Chief Strategy Officer at TECOM Investments in Dubai, United Arab Emirates. Ma. Luisa E. Angeles is the Business Unit Head for Hotels and Convention Centers. She holds a Bachelor of Science degree in Hotel and Restaurant Administration from the University of the Philippines. She has 37 years of work expertise in the hotel management industry specifically in sales and marketing. The Directors of the Company are elected at the Annual Stockholders’ Meeting. Directors will hold office for a term of one (1) year or until the next succeeding annual meeting and until their respective successors have been elected and qualified. The Directors possess all the qualifications and none of the disqualifications provided for in the SRC and its Implementing Rules and Regulations. Procedure for Nomination of Directors:

§ Any stockholder of record, including a minority stockholder, as of Record Date may be nominated for election to the Board of Directors of SMPH.

§ The Corporate Governance Committee passes upon, and deliberates on, the qualifications of all persons nominated to be elected to the Board of Directors of SMPH, and pre-screens nominees from the pool of candidates submitted by the nominating stockholders in accordance with the Company’s By-Laws and Manual of Corporate Governance. The Corporate Governance Committee shall prepare a Final List of Candidates containing information of the listed nominees, from the candidates who have passed the Guidelines, Screening Policies and Parameters for the nomination of directors. Only nominees qualified by the Corporate Governance Committee and whose names appear on the Final List of Candidates shall be eligible for election as director of the Company. No other nomination shall be entertained after the Final List of Candidates shall have been prepared. No further nomination shall be entertained or allowed on the floor during the actual annual stockholders’ meeting.

§ In case of resignation, disqualification or cessation of directorship before the next annual

stockholders’ meeting, the vacancy shall be filled by the vote of at least a majority of the remaining directors, provided, the Board of Directors still constituting a quorum and only after notice has been made with the Commission within five (5) days from such resignation, disqualification or cessation of directorship, upon the pre-qualification of the Corporate Governance Committee. Otherwise, the vacancy shall be filled by stockholders in a regular or special meeting called for that purpose. The director so elected to fill a vacancy shall serve only for the unexpired term of his or her predecessor in office.

All new directors will undergo an orientation program soon after election. This is intended to familiarize the new directors on their statutory/fiduciary roles and responsibilities in the Board and its Committees, SMPH’s strategic plans, enterprise risks, group structures, business activities, compliance programs, Code of Business Conduct and Ethics, Insider Trading Policy and Corporate Governance Manual. All directors are also encouraged to participate in continuing education programs at SMPH’s expense to promote relevance and effectiveness and to keep them abreast of the latest developments in corporate

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directorship and good governance. Aside from the Directors and Executive Officers enumerated above, there are no other employees expected to hold significant executive/officer position in the Company. All SMPH directors are expected to exercise due discretion in accepting and holding directorships outside of the Company. The directors notify the Board prior to accepting directorship in another company. The following are directorships held by SMPH Directors and Executive Officers in other reporting companies at least, in the last five years: Henry Sy, Sr.

Name of Corporation Position SM Investments Corporation Chairman Emeritus China Banking Corporation Honorary Chairman BDO Unibank, Inc. Chairman Emeritus

Henry T. Sy, Jr.

Name of Corporation Position SM Investments Corporation Vice Chairman

Jose L. Cuisia, Jr.

Name of Corporation Position

PHINMA Corporation Non-Executive Director Manila Water Company, Inc. Independent Director Century Properties Group, Inc. Independent Director

Gregorio U. Kilayko

Name of Corporation Position Belle Corporation Independent Director

Joselito H. Sibayan

Name of Corporation Position Apex Mining Corporation. Independent Director A Brown Company, Inc Director

Hans T. Sy

Name of Corporation Position China Banking Corporation Chairman SM Investments Corporation Adviser to the Board

Herbert T. Sy

Name of Corporation Position China Banking Corporation Director SM Investments Corporation Adviser to the Board

Teresita T. Sy

Name of Corporation Position BDO Unibank, Inc. Chairperson

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Name of Corporation Position SM Investments Corporation Vice Chairperson

Elizabeth T. Sy

Name of Corporation Position SM Investments Corporation Adviser to the Board

Elmer B. Serrano

Name of Corporation Position 2Go Group, Inc. Director DFNN, Inc. Director

Involvement in Legal Proceedings The Issuer is not aware of any of the following events having occurred during the past five years up to the date of this Prospectus that are material to an evaluation of the ability or integrity of any director, nominee for election as Director, executive officer, underwriter or controlling person of the Issuer:

(a) any bankruptcy petition filed by or against any business of which such person was a general

partner or executive officer either at the time of the bankruptcy or within two years prior to

that time;

(b) any conviction by final judgment, including the nature of the offense, in a criminal proceeding,

domestic or foreign, or being subject to a pending criminal proceeding, domestic or foreign,

excluding traffic violations and other minor offenses;

(c) being subject to any order, judgment or decree, not subsequently reversed, suspended or

vacated, of any court of competent jurisdiction, domestic or foreign, permanently or

temporarily enjoining, barring suspending or otherwise limiting his involvement in any type of

business, securities, commodities or banking activities; and

(d) being found by a domestic or foreign court of competent jurisdiction (in a civil action), the SEC

or comparable foreign body, or a domestic or foreign exchange or other organized trading

market or self-regulatory organization, to have violated a securities or commodities law or

regulation, and the judgment has not been reversed, suspended or vacated.

CORPORATE GOVERNANCE The Issuer’s platform of governance remains rooted in its Manual on Corporate Governance and its Code of Ethics. The Manual on Corporate Governance (the “Governance Manual”), which is completely aligned with the SEC Revised Code of Corporate Governance, institutionalizes the principles of good corporate governance in the entire organization. It lays down the Issuer’s compliance system and identifies the responsibilities of the Board and management in relation to good corporate governance. The Governance Manual also provides for the Issuer’s policies on disclosure and transparency, the conduct of communication and training programs on corporate governance, the rights of all shareholders, and the protection of the interests of non-controlling shareholders. Under the Governance Manual, it is the Board’s responsibility to foster the long term success of the Issuer and secure its sustained competitiveness in a manner consistent with its fiduciary responsibility, which it shall exercise with the highest standards of corporate governance, in the best interests of the Issuer, its shareholders and other stakeholders. The Code of Ethics (the “Code”) serves as a guiding principle for the Issuer’s directors, officers and employees in the performance of their duties and responsibilities, and in their business transactions

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with investors, creditors, customers, contractors, suppliers, regulators, and the public. To supplement the Code, the Issuer adopted policies on acceptance of gifts, insider trading, conflict of interest, related-party transactions, to name a few. The Issuer has also implemented a whistleblowing policy, referred to as the Policy on Accountability, Integrity and Vigilance (PAIV), which was adopted to create an environment where concerns and issues, made in good faith, may be raised freely within the organization. The Issuer continues to align with corporate governance best practices through the continuous review and development of its policies and programs in conjunction with the continuous enhancement of its enterprise risk management systems. The Board is composed of eight (8) directors, three (3) of whom are non-executive independent directors, in the persons of Mr. Jose L. Cuisia, Jr., Mr. Gregorio U. Kilayko, and Mr. Joselito H. Sibayan. Under the Issuer’s Governance Manual, an independent director must possess all of the qualifications and none of the disqualifications of a regular director. He must also be independent of Management, substantial shareholdings and material relations, whether it be business or otherwise, which could reasonably be perceived to impede the performance of independent judgment. The Board is supported in its corporate governance functions by five committees: the Executive Committee, the Audit Committee, the Risk Oversight Committee, the Corporate Governance Committee, and the Related Party Transactions Committee. All Board Committees have adopted their respective charters which identify the Committees’ composition, roles and responsibilities, in alignment with the Issuer’s Governance Manual. Annually, the Corporate Governance Committee facilitates the evaluation of the performance of the Board as a whole, its respective Board Committees, the individual directors and the President, based on duties and responsibilities provided in the Issuer’s Governance Manual and By-Laws. The annual evaluation also serves as a venue for identifying areas for improvement in terms of trainings, continuing education programs or any other form of assistance that the directors may need in the performance of their duties. The evaluation forms also include support services given to the Board, such as the quality and timeliness of information provided to them, the frequency and conduct of regular, special or committee meetings and their accessibility to Management, the Corporate Secretary and the Board advisors. The Issuer provides access to training courses to directors as a matter of continuous professional education and to maintain and enhance their skills as directors. For the year 2018, the Issuer engaged the Institute of Corporate Directors (August 8 and November 7), McKinsey and Company (September 19), and Good Governance Advocates and Practitioners of the Philippines (October 11) to provide an exclusive training for the Issuer’s Board of Directors and key executives covering such topics as Financial Technology (FinTech), Sustainability, Blockchain Technology, Data Privacy, Technological innovation affecting businesses and industries, and Responding to cyber-security risks. As a testament to the Issuer’s unwavering commitment to good corporate governance, ethics and integrity, in 2018, the ASEAN Corporate Governance Award, the most prestigious in the ASEAN region, recognized the Issuer as one of the Top 3 in ASEAN Corporate Governance Scorecard in the Philippines, PLCs Category and Top 10 ASEAN Publicly Listed Company PLCs Category. Committees of the Board The Executive Committee

The Executive Committee functions when the Board of Directors is not in session. Generally, the committee is responsible for assisting the Board in overseeing the implementation of strategies and long-term goals, reviewing major issues facing the organization, monitoring the operating activities of each business group, and defining and monitoring the Company's performance improvement goals. The Executive Committee is composed of Mr. Hans T. Sy, Mr. Henry T. Sy, Jr., Mr. Herbert T. Sy, Ms. Elizabeth T. Sy, Mr. Jeffrey C. Lim and Mr. John Nai Peng C. Ong as members. Mr. Hans T.

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Sy is a non-executive director and the Chairman of the Committee.

The Audit Committee The Audit Committee assists and advises the Board of Directors in fulfilling its oversight responsibilities to ensure the quality and integrity of the Company’s accounting, financial reporting, auditing practices, risk management and internal control systems and adhere to over-all corporate governance best practice. The Committee also oversees the Company’s process for monitoring compliance with laws, regulations and the Code of Ethics. The Audit Committee is composed of Mr. Jose L. Cuisia, Jr., Mr. Joselito H. Sibayan and Mr. Jorge T. Mendiola. Mr. Cuisia is an independent director and the Chairman of the Committee.

The Risk Oversight Committee The Risk Oversight Committee oversees the Company’s Enterprise Risk Management system to ensure its functionality and effectiveness. The Committee assists the Board in ensuring that there is an effective and integrated risk management process in place. The Risk Oversight Committee is composed of Mr. Gregorio U. Kilayko, Mr. Jose L. Cuisia, Jr., and Mr. Jorge T. Mendiola. Mr. Kilayko is an independent director and the Chairman of the Committee. The Corporate Governance Committee

The Corporate Governance Committee assists the Board in the performance of its corporate governance responsibilities, including functions that were formerly assigned to the Nomination and Compensation and Remuneration Committees. The Corporate Governance Committee is currently composed of Mr. Joselito H. Sibayan, Mr. Gregorio U. Kilayko and Mr. Jose L. Cuisia, Jr. Mr. Sibayan is an independent director and the Chairman of the Committee.

The Related Party Transactions Committee

The Related Party Transactions Committee reviews all material related party transactions of the Company. The Related Party Transactions Committee is composed of Mr. Joselito H. Sibayan, Mr. Gregorio U. Kilayko and Mr. Jorge T. Mendiola. Mr. Sibayan is an independent director and the Chairman of the Committee. EXECUTIVE COMPENSATION Aside from regular standard per diems, all directors do not receive regular annual salaries from the Company. The following are the most highly compensated executive officers:

Name and Position

Jeffrey C. Lim President John Nai Peng C. Ong Chief Finance Officer Steven T. Tan Chief Operating Officer of SM Supermalls Jose Mari H. Banzon Head, Residential (Primary)

Shirley C. Ong Head, Residential (Leisure)

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Summary Compensation Table

President & 4 Most Highly Compensated Executive Officers

Year Salary Bonus

2019 (estimate) P=136,000,000 P=23,000,000 2018 (actual) 124,000,000 21,000,000

2017 (actual) 112,000,000 19,000,000

All other officers* as a group unnamed

2019 (estimate) P=381,000,000 P=64,000,000 2018 (actual) 346,000,000 58,000,000

2017 (actual) 314,000,000 52,000,000 *Managers & up

Other Arrangements

There are no standard or other arrangements pursuant to which the directors of the Issuer are compensated, or are to be compensated, directly or indirectly, by the Issuer for services rendered by such directors as of the date of this Prospectus. There are no employment contracts between the Issuer and any named executive officer. There is no compensatory plan nor arrangement with respect to an executive officer which shall result or will result from the resignation, retirement or any other termination of such executive officer’s employment with the Company, or from a change-in-control of the Company, or a change in an executive officer’s responsibilities following a change-in-control of the Company. Warrants and Options Outstanding

As of the date of this Prospectus, there are no outstanding warrants or options in respect of the Issuer’s shares held by the Issuer’s President, named executive officers and all directors and officers as a group. Significant Employees

The Issuer has no individual employee who is not an executive officer but who is expected to make a significant contribution to the business.

Family Relationships Mr. Henry Sy, Sr. is the father of Teresita T. Sy, Elizabeth T. Sy, Henry T. Sy, Jr., Hans T. Sy, Herbert T. Sy and Harley T. Sy. All other directors and officers are not related either by consanguinity or affinity. There are no other family relationships known to the registrant other than the ones disclosed herein.

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MARKET PRICE OF AND DIVIDENDS ON THE ISSUER’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

HOLDERS OF THE ISSUER’S COMMON SHARES

As at 30 September 2019, the following are the top 20 stockholders of the Issuer.

Stockholder Name No. of shares

% to

Total

1 SM Investments Corporation 14,353,464,952 49.70%

2 PCD Nominee Corp. (Non-Filipino) 6,720,130,183 23.27%

3 PCD Nominee Corp. (Filipino) 1,345,604,785 4.66%

4 Harley T. Sy 690,048,248 2.39%

5 Henry Sy, Jr. 687,953,713 2.38%

6 Teresita T. Sy 661,356,934 2.29%

7 Elizabeth T. Sy 661,251,450 2.29%

8 Herbert T. Sy 661,037,924 2.29%

9 Hans T. Sy 655,650,971 2.27%

10 Syntrix Holdings, Inc. 312,726,835 1.08%

11 Sysmart Corporation 263,226,285 0.91%

12 Cutad, Inc. 19,694,544 0.07%

13 HSBB, Inc. 19,694,400 0.07%

14 Lucky Securities, Inc. 3,000,000 0.01%

15 Jose T. Tan &/or Pacita L. Tan 892,126 0.00%

16 Senen Mendiola 800,763 0.00%

17 Deborah Pe 781,909 0.00%

18 Chen Zan Xing 771,611 0.00%

19 Edwin Francis L. Tan 610,402 0.00%

20 Eric Ruben L. Tan 610,402 0.00%

27,059,308,437 93.70%

As at 30 September 2019, the Issuer had 2,404 shareholders of its common shares. The foreign ownership level in the Issuer is 23%.

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DIVIDENDS AND DIVIDEND POLICY The Company targets a dividend payout of 30% to 35% of the previous year’s net income. As at 30 September 2019, there are no restrictions that would limit the ability of the Issuer to pay dividends to the common stockholders, except with respect to P2.985 billion representing the cost of shares held in treasury and P86.460 billion representing accumulated equity in net earnings of subsidiaries, associates and joint ventures. These earnings are not available for dividend distribution until such time that the Issuer receives the dividends from the subsidiaries. In 2019, the Board of Directors approved the declaration of cash dividend of P0.35 per share or P10,108 million to stockholders of record as of May 8, 2019, P8 million of which was received by SMDC. This was paid on May 22, 2019. In 2018, the Board of Directors approved the declaration of cash dividends of P0.35 per share or P10,108 million to stockholders of record as of May 9, 2018, P9 million of which was received by SMDC. This was paid on May 23, 2018. The Company’s subsidiaries have no defined dividend policy. The amount of dividend declaration annually by SMPH and its subsidiaries depend on the net income, cash availability and the investment projects as approved by the Board of Directors of SMPH and each of the subsidiaries. The dividends declared and paid out or issued by the Company’s subsidiaries during the years 2016, 2017, and 2018 are set out below.

Subsidiary

Cash Dividends

(in million P) 2016 2017 2018

First Asia Realty Development Corp. 1,394.7 1,483.8 1,483.8 Premier Central, Inc. - 450.0 30.0 Premier Southern Corp. 500.0 250.0 800.0 First Leisure Ventures Group, Inc. 40.0 50.0 60.0 Southernpoint Properties Corp. 200.0 350.0 - Consolidated Prime Dev. Corp. 100.0 600.0 400.0 SM Arena Complex Corporation - - 400.0 Highlands Prime, Inc. - - 300.0 Prime Commercial Property Management Corporation and Subsidiaries

- 200.0 600.0

Aside from the companies listed above, none of the subsidiaries of SM Prime have declared and paid out or issued any cash or stock dividends during the last three years. MARKET PRICE OF ISSUER’S COMMON EQUITY

The registrant’s common equity is principally traded at the Philippine Stock Exchange. The high and low sales prices for each period are indicated in the table below.

2017 2018 2019

(in P) High Low High Low High Low

1st Quarter 31.30 28.00 39.70 33.00 39.95 31.75

2nd Quarter 35.00 28.70 38.30 32.35 41.80 37.10

3rd Quarter 35.00 32.95 39.00 35.40 39.50 34.05

4th Quarter 37.95 34.65 37.40 31.75 NA NA

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The total number of stockholders as at 30 September 2019 was 2,404. Market price of the Issuer’s shares as at 30 September 2019 was P37.20 per share. RECENT SALES OF UNREGISTERED SECURITIES

As discussed in Note 19 of the consolidated financial statements, the Company registered with the SEC the P20 billion retail bonds issued in March 2018. The issue consists of the five-year or Series H Bonds amounting to P10 billion with a fixed interest rate equivalent to 5.6630% per annum due in March 2023 and seven-year or Series I Bonds amounting to P10 billion with a fixed interest rate equivalent to 6.0804% per annum due in March 2025. The Company also registered with the SEC the P10 billion retail bonds issued in May 2019. The issue consists of the three-year or Series J Bonds amounting to P10 billion with a fixed interest rate equivalent to 6.2223% per annum due in May 2022. There are no other recent sales of unregistered or exempt securities, including recent issuance of securities constituting an exemption transaction. The Company has no other registered debt securities. There are no existing or planned stock options. There are no registered securities subject to redemption or call. There are no existing or planned stock warrant offerings.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Security Ownership of Certain Record and Beneficial Owners As at 30 September 2019, the following are the owners of the Issuer’s common stock in excess of 5% of total outstanding shares:

Title of

Class

Name &

address of

record owner & relationship

with Issuer

Name of beneficial

owner &

relationship with record owner

Citizenship No. of shares

held

Percent

Common SM Investments Corporation

(parent company of Issuer)1

One E-com Center, Harbor Drive, Mall of Asia Complex, CBP-1A, Pasay City

Same as the record owner

Filipino

14,353,464,952 (b) 49.70%

Common PCD Nominee Corp.2 MSE Bldg., Ayala Ave., Makati City

PCD Participants2 Filipino - 4.66% Non-Filipino - 23.27%

8,065,734,968 (r)

27.93%

Notes:

1. The following are the individuals holding the direct beneficial ownership of SMIC: Felicidad T. Sy – 3.21%, Henry T. Sy, Jr. - 7.28%, Hans T. Sy - 8.21%, Herbert T. Sy - 8.21%, Harley T. Sy - 7.29%, Teresita T. Sy - 7.11% and Elizabeth T. Sy-5.82%. Henry Sy, Sr. is the Chairman of SMIC and Teresita T. Sy and Henry Sy, Jr. are the Vice Chairmen of SMIC. They have the power to vote the common shares of SMIC in SM Prime.

2. The PCD participants have the power to decide how their shares are to be voted. There are no other individual shareholders which own more than 5% of the Company.

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Security Ownership of Management

As at 30 September 2019, the following are the number of shares owned of record by the Issuer’s directors and key executive officers:

Title of Class Name of Beneficial

Owner Citizenship

Amount and Nature of

Beneficial Ownership

(d) Direct

Percent of Class

Common Stock Jose L. Cuisia, Jr. Filipino 497,661 (d)(i) 0.00%

Common Stock Teresita T. Sy Filipino 661,356,934 (d)(i) 2.29%

Common Stock Henry T. Sy, Jr. Filipino 687,953,713 (d) 2.38%

Common Stock Hans T. Sy Filipino 675,733,814 (d)(i) 2.34%

Common Stock Herbert T. Sy Filipino 661,037,924 (d)(i) 2.29%

Common Stock Elizabeth T. Sy Filipino 661,251,450 (d)(i) 2.29%

Common Stock Gregorio U. Kilayko Filipino 202,580 (d)(i) 0.00%

Common Stock Joselito H. Sibayan Filipino 1,375 (i) 0.00%

Common Stock Jorge T. Mendiola Filipino 703,167 (d)(i) 0.00%

Common Stock Jeffrey C. Lim Filipino 50,000 (i) 0.00%

Common Stock Christopher S. Bautista Filipino 37,500 (i) 0.00%

Common Stock Teresa Cecilia H. Reyes Filipino 100,000 (i) 0.00%

Common Stock Steven T. Tan Filipino 84,800 (i) 0.00%

Directors and Executive Officers as a group 3,438,180,760 11.59%

Voting Trust Holders of 5% or More

There are no persons holding more than 5% of a class of shares under a voting trust or any similar agreements.

Change in Control

No change in control in the Issuer has occurred since the beginning of its last fiscal year.

WARRANTS AND OPTIONS

As of the date of this Prospectus, there are no existing or planned stock options / stock warrant offerings.

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DESCRIPTION OF DEBT

The Company is subject to covenants under agreements evidencing or governing its outstanding indebtedness, including but not limited to those set forth in loan agreements with local banks and financial institutions. Under these loans, the Company undertook to maintain the financial covenants set forth below.

(a) Debt to Equity Ratio of not more than 70:30; and (b) Interest Coverage Ratio of not less than 2.5.

Debt to Equity Ratio is calculated as the ratio of the Company’s total interest-bearing debt to total equity. Interest Coverage Ratio is calculated as the consolidated EBITDA of the Company divided by interest expense. The Company does not believe that these covenants will impose constraints on its ability to finance its capital expenditure program or, more generally, to develop its business and enhance its financial performance. The Company is in full compliance with the covenants required by the creditors.

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TAXATION The statements herein regarding taxation are based on the laws in force as of the date of this Prospectus and are subject to any changes in law occurring after such date, which changes could be made on a retroactive basis. The following summary does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to purchase, own or dispose of the Debt Securities and does not purport to deal with the tax consequences applicable to all categories of investors, some of which (such as dealers in securities or commodities) may be subject to special rules. Prospective purchasers of the Debt Securities are advised to consult their own tax advisers concerning the overall tax consequences of their ownership of the Debt Securities.

Philippine Taxation On January 1, 2018, Republic Act No. 10963, otherwise known as the “Tax Reform for Acceleration and Inclusion” (TRAIN) Act, took into effect. The TRAIN Act amended provisions of the Tax Code including provisions on Documentary Stamp Tax, tax on interest income and other distributions, Estate Tax, and Donor’s Tax. As used in this section, the term “non-resident alien” means an individual whose residence is not within the Philippines and who is not a citizen of the Philippines. A non-resident alien who is actually within the Philippines for an aggregate period of more than 180 days during any calendar year is considered a “non-resident alien doing business in the Philippines”; however, a non-resident alien who is actually within the Philippines for an aggregate period of 180 days or less during any calendar year may be considered a “non-resident alien not engaged in trade or business within the Philippines”. A “non-resident foreign corporation” is a foreign corporation not engaged in trade or business within the Philippines. TAXATION OF INTEREST

The Tax Code provides that interest-bearing obligations of Philippine residents are Philippine sourced income subject to Philippine income tax. Interest income derived by Philippine citizens and alien resident individuals from the Debt Securities is thus subject to income tax, which is withheld at source, at the rate of 20% based on the gross amount of interest. Generally, interest on the Debt Securities received by non-resident aliens engaged in trade or business in the Philippines is subject to a 20% final withholding tax while that received by non-resident aliens not engaged in trade or business is subject to a final withholding tax rate of 25%. Interest income received by domestic corporations and resident foreign corporations from the Debt Securities is subject to a final withholding tax rate of 20%. Interest income received by non-resident foreign corporations from the Debt Securities is subject to a 30% final withholding tax. The foregoing rates are subject to further reduction by any applicable tax treaties in force between the Philippines and the country of residence of the non-resident owner. Most tax treaties to which the Philippines is a party generally provide for a reduced tax rate of 15% in cases where the interest which arises in the Philippines is paid to a resident of the other contracting state. However, most tax treaties also provide that reduced withholding tax rates shall not apply if the recipient of the interest who is a resident of the other contracting state, carries on business in the Philippines through a permanent establishment and the holding of the relevant interest-bearing instrument is effectively connected with such permanent establishment. TAX-EXEMPT STATUS OR ENTITLEMENT TO PREFERENTIAL TAX RATE

The tax authorities have prescribed certain procedures for availment of tax treaty relief on interest under Revenue Memorandum Order No. 8-2017. The preferential treaty rates for interest shall be applied and used outright by the withholding agent/income payer upon submission of the Certificate of Residence for Tax Treaty Relief (CORTT) Form by the non-resident before interest is credited. The CORTT Form is made up of two parts: Part I states the information of the income recipient/beneficial

149

owner and the certification from the competent tax authority or authorized tax office of country of residence. Part II includes the information of the withholding agent/income payor, details of income payment and the affixture of signatures by both the non-resident income recipient/beneficial owner and the income payor. The withholding agent/income payor shall submit an original copy of the duly accomplished CORTT Form within 30 days after the remittance of the withholding tax to the BIR. In the case of staggered payment of interest, the withholding agent shall submit an updated Part II of the CORTT Form within 30 days after payment of withholding taxes. The BIR will no longer issue a ruling for the said CORTT Form submissions but the compliance check and post reporting validation on withholding tax obligations and confirmation of appropriateness of availment of treaty benefits shall be part of BIR’s regular audit investigations. For claims of tax exemption, BIR Revenue Memorandum Circular No. 8-2014 mandates the Company, as a withholding agent, to require from individuals and entities claiming tax exemption a copy of a valid, current, and subsisting tax exemption certificate or ruling before payment of the related income. The tax exemption certificate or ruling must explicitly recognize the tax exemption, as well as the corresponding exemption from withholding tax. Failure on the part of the taxpayer to present the said tax exemption certificate or ruling shall subject him to the payment of the appropriate withholding taxes due on the transaction. If the Company withheld taxes, or withheld the regular rate of tax imposed pursuant to the Tax Code on interest, the concerned bondholder may file a claim for a refund from the Philippine taxing authorities on the basis of a tax exemption or applicable tax treaty. VALUE-ADDED TAX Gross receipts arising from the sale of the Debt Securities in the Philippines by dealers in securities shall be subject to a 12% value-added tax. The term “gross receipt” means gross selling price less acquisition cost of the Debt Securities sold. GROSS RECEIPTS TAX

Bank and non-bank financial intermediaries performing quasi-banking functions are subject to gross receipts tax on gross receipts derived from sources within the Philippines in accordance with the following schedule: On interest, commissions and discounts from lending activities as well as income from financial leasing, on the basis of remaining maturities of instruments from which such receipts are derived:

Maturity period is five years or less 5% Maturity period is more than five years 1%

Non-bank financial intermediaries not performing quasi-banking functions doing business in the Philippines are likewise subject to gross receipts tax. Gross receipts of such entities derived from sources within the Philippines from interests, commissions and discounts from lending activities are taxed in accordance with the following schedule based on the remaining maturities of the instruments from which such receipts are derived:

Maturity period is five years or less 5% Maturity period is more than five years 1%

In case the maturity period of the instruments held by banks, non-bank financial intermediaries

150

performing quasi-banking functions and non-bank financial intermediaries not performing quasi-banking functions is shortened through pre-termination, then the maturity period shall be reckoned to end as of the date of pretermination for purposes of classifying the transaction and the correct rate shall be applied accordingly. Net trading gains realized within the taxable year on the sale or disposition of the Debt Securities by banks and nonbank financial intermediaries performing quasi-banking functions shall be taxed at 7%. DOCUMENTARY STAMP TAX

A documentary stamp tax is imposed upon the issuance of debt instruments issued by Philippine companies, such as the Debt Securities, at the rate of P1.50 for each P200, or fractional part thereof, of the issue price of such debt instruments; provided that, for debt instruments with terms of less than one year, the documentary stamp tax to be collected shall be of a proportional amount in accordance with the ratio of its term in number of days to 365 days. The documentary stamp tax is collectible wherever the document is made, signed, issued, accepted, or transferred, when the obligation or right arises from Philippine sources, or the property is situated in the Philippines. Any applicable documentary stamp taxes on the original issue shall be paid by the Issuer for its own account. TAXATION ON SALE OR OTHER DISPOSITION OF THE DEBT SECURITIES

Income Tax

Any gain realized from the sale, exchange or retirement of debt instruments as a rule, form part of the gross income of the sellers, for purposes of computing the relevant taxable income subject to ordinary income tax rates (at graduated rates from 20%-35% for individuals and 30% for domestic and resident foreign corporations). On the other hand, gains realized by non-residents from the sale or transfer of debt instruments are subject to final withholding tax at the rate of (i) 25%, if the holder is a non-resident alien not engaged in trade or business within the Philippines, or (ii) 30%, if the holder is a non-resident foreign corporation. If the debt instrument are sold by a seller, who is an individual and who is not a dealer in securities, who has held the debt instrument for a period of more than 12 months prior to the sale, only 50% of any capital gain will be recognized and included in the sellers’ gross taxable income. However, under the Tax Code, any gain realized from the sale, exchange or retirement of bonds, debentures and other certificates of indebtedness with an original maturity date of more than five years (as measured from the date of issuance of such bonds, debentures or other certificates of indebtedness) shall not be subject to income tax. Moreover, any gain arising from such sale, regardless of the original maturity date of the debt instruments, may be exempt from income tax pursuant to various income tax treaties to which the Philippines is a party, and subject to procedures prescribed by the Bureau of Internal Revenue for the availment of tax treaty benefits. Estate and Donor‘s Tax

The transfer by a deceased person, whether a Philippine resident or a non-Philippine resident, to his heirs of the Debt Securities shall be subject to an estate tax which is levied on the net estate of the deceased at a uniform rate of 6.0%. A bondholder shall be subject to donor’s tax based on the transfer of the Debt Securities by gift at a uniform rate of 6.0% on the basis of the total gifts in excess of P250,000.00 made during a calendar year for both individuals and corporate holders, whether the donor is a stranger or not. The estate or donor’s taxes payable in the Philippines may be credited with the amount of any estate

151

or donor's taxes imposed by the authority of a foreign country, subject to limitations on the amount to be credited, and the tax status of the donor. The estate tax and the donor‘s tax, in respect of the Debt Securities and the Debt Securities, shall not be collected (a) if the deceased, at the time of death, or the donor, at the time of the donation, was a citizen and resident of a foreign country which, at the time of his death or donation, did not impose a transfer tax of any character in respect of intangible personal property of citizens of the Philippines not residing in that foreign country; or (b) if the laws of the foreign country of which the deceased or donor was a citizen and resident, at the time of his death or donation, allows a similar exemption from transfer or death taxes of every character or description in respect of intangible personal property owned by citizens of the Philippines not residing in the foreign country. In case the Debt Securities and the Debt Securities are transferred for less than an adequate and full consideration in money or money's worth, the amount by which the fair market value of the Debt Securities exceeded the value of the consideration may be deemed a gift and may be subject to donor‘s taxes. However, a sale, exchange, or other transfer made in the ordinary course of business (a transaction which is bona fide, at arm’s length, and free from any donative intent), will be considered as made for an adequate and full consideration in money or money’s worth. Documentary Stamp Tax

No documentary stamp tax is imposed on the subsequent sale or disposition of the Debt Securities, trading the Debt Securities in a secondary market or through an exchange. However, if the transfer constitutes a renewal of the Debt Securities, documentary stamp tax is payable anew.

152

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF THE ISSUER

Audited Consolidated Financial Statements as at 31 December 2017 and 2018 and

for the years ended 31 December 2016, 2017 and 2018 for the Issuer and its Subsidiaries Independent Auditors’ Report SM Prime Holdings, Inc. Consolidated Balance Sheets as at 31 December 2017 and 2018 SM Prime Holdings, Inc. Consolidated Statements of Income for the years ended 31 December 2016, 2017 and 2018 SM Prime Holdings, Inc. Consolidated Statements of Comprehensive Income for the years ended 31 December 2016, 2017 and 2018 SM Prime Holdings, Inc. Consolidated Statements of Changes in Equity for the years ended 31 December 2016, 2017 and 2018 SM Prime Holdings, Inc. Consolidated Statements of Cash Flows for the years ended 31 December 2016, 2017 and 2018 SM Prime Holdings, Inc. Notes to Consol idated Financial Statements Unaudited Interim Condensed Consolidated Financial Statements as at 30 September 2019 and for the nine-month periods ended 30 September 2018 and 2019 for the Issuer and its Subsidiaries

*SGVFS038338*

REPORT ON REVIEW OF INTERIM CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

The Stockholders and the Board of DirectorsSM Prime Holdings, Inc.

Introduction

We have reviewed the accompanying interim condensed consolidated financial statements of SM Prime Holdings,Inc. and its subsidiaries, which comprise the interim consolidated balance sheet as at September 30, 2019 and therelated interim consolidated statements of income, comprehensive income, changes in equity and cash flows for thenine-month periods ended September 30, 2019 and 2018, and other explanatory information. Management isresponsible for the preparation and presentation of these interim condensed consolidated financial statements inaccordance with Philippine Accounting Standard (PAS) 34, Interim Financial Reporting. Our responsibility is toexpress a conclusion on these interim condensed consolidated financial statements based on our review.

Scope of Review

We conducted our review in accordance with Philippine Standard on Review Engagements 2410, Review of Interim

Financial Information Performed by the Independent Auditor of the Entity. A review of interim financialinformation consists of making inquiries, primarily of persons responsible for financial and accounting matters, andapplying analytical and other review procedures. A review is substantially less in scope than an audit conducted inaccordance with Philippine Standards on Auditing. Consequently, it does not enable us to obtain assurance that wewould become aware of all significant matters that might be identified in an audit. Accordingly, we do not expressan audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim

condensed consolidated financial statements are not prepared, in all material respects, in accordance withPAS 34, Interim Financial Reporting.

SYCIP GORRES VELAYO & CO.

Sherwin V. YasonPartnerCPA Certificate No. 104921SEC Accreditation No. 1514-AR-1 (Group A), August 6, 2018, valid until August 5, 2021Tax Identification No. 217-740-478BIR Accreditation No. 08-001998-112-2018, February 14, 2018, valid until February 13, 2021PTR No. 7332635, January 3, 2019, Makati City

November 21, 2019

SyCip Gorres Velayo & Co.6760 Ayala Avenue1226 Makati CityPhilippines

Tel: (632) 891 0307Fax: (632) 819 0872ey.com/ph

BOA/PRC Reg. No. 0001, October 4, 2018, valid until August 24, 2021SEC Accreditation No. 0012-FR-5 (Group A), November 6, 2018, valid until November 5, 2021

A member firm of Ernst & Young Global Limited

*SGVFS038338*

SM PRIME HOLDINGS, INC. AND SUBSIDIARIES

INTERIM CONSOLIDATED BALANCE SHEETSEPTEMBER 30, 2019

(With Comparative Audited Figures as at December 31, 2018)

(Amounts in Thousands)

September 30,

2019

(Unaudited)

December 31,2018

(Audited)

ASSETS

Current Assets

Cash and cash equivalents (Notes 6, 18, 22 and 23) P=41,970,265 P=38,766,467Receivables and contract assets (Notes 7, 18, 22 and 23) 42,471,300 35,229,450Real estate inventories (Note 8) 40,132,192 37,575,103Equity instruments at fair value through other comprehensive income

(Notes 9, 18, 22 and 23) 670,928 639,316Derivative assets (Notes 22 and 23) – 432,898Prepaid expenses and other current assets (Notes 10 and 18) 18,576,684 15,147,029

Total Current Assets 143,821,369 127,790,263

Noncurrent Assets

Equity instruments at fair value through other comprehensive income - netof current portion (Notes 9, 18, 22 and 23) 19,821,497 22,892,937

Investment properties - net (Note 11) 380,531,637 343,418,862Investments in associates and joint ventures (Note 12) 26,842,763 26,199,380Derivative assets - net of current portion (Notes 22 and 23) 1,468,286 420,035Deferred tax assets - net 1,048,061 1,083,670Other noncurrent assets - net (Notes 13, 18, 22 and 23) 83,257,014 82,329,171

Total Noncurrent Assets 512,969,258 476,344,055

P=656,790,627 P=604,134,318

LIABILITIES AND EQUITY

Current Liabilities

Loans payable (Notes 14, 18, 22 and 23) P=480,000 P=39,400Accounts payable and other current liabilities (Notes 3, 15, 18, 22 and 23) 75,915,158 61,767,086Current portion of long-term debt (Notes 16, 18, 22 and 23) 28,417,673 25,089,624Income tax payable 1,363,543 1,383,742

Total Current Liabilities 106,176,374 88,279,852


Long-term debt - net of current portion (Notes 16, 18, 22 and 23) 206,067,861 197,682,262Tenants’ and customers’ deposits - net of current portion

(Notes 15, 22 and 23) 20,625,865 18,676,022Liability for purchased land - net of current portion (Notes 15, 22 and 23) 4,285,574 6,044,220Deferred tax liabilities - net 4,865,325 3,527,501Derivative liabilities (Notes 22 and 23) 563,017 335,008Other noncurrent liabilities (Notes 3, 15, 22 and 23) 22,450,293 10,511,491

Total Noncurrent Liabilities 258,857,935 236,776,504

Total Liabilities (Carried Forward) 365,034,309 325,056,356

(Forward)

*SGVFS038338*

- 2 -

September 30,

2019

(Unaudited)

December 31,2018

(Audited)

Total Liabilities (Brought Forward) P=365,034,309 P=325,056,356


Capital stock (Notes 17 and 24) 33,166,300 33,166,300Additional paid-in capital - net (Note 5) 38,007,668 39,953,218Cumulative translation adjustment 1,272,553 1,955,999Net fair value changes of equity instruments at fair value through other

comprehensive income (Note 9) 17,251,754 19,084,597Net fair value changes on cash flow hedges (1,544,494) (842,098)Remeasurement loss on defined benefit obligation (348,480) (348,480)Retained earnings (Note 17):

Appropriated 42,200,000 42,200,000Unappropriated 163,092,635 143,118,153

Treasury stock (Notes 17 and 24) (2,984,695) (2,984,695)

Total Equity Attributable to Equity Holders of the Parent 290,113,241 275,302,994

Non-controlling Interests 1,643,077 3,774,968

Total Equity 291,756,318 279,077,962

P=656,790,627 P=604,134,318

See accompanying Notes to Interim Condensed Consolidated Financial Statements.

*SGVFS038338*


INTERIM CONSOLIDATED STATEMENTS OF INCOME(Amounts in Thousands, Except Per Share Data)

Nine-Month Periods Ended

September 30

2019 2018

(Unaudited)

REVENUE

Rent (Note 18) P=44,910,701 P=41,719,270Sales:

Real estate 31,354,327 24,838,114Cinema and event ticket 4,140,305 3,924,337

Others (Notes 18 and 19) 4,627,784 4,078,369

85,033,117 74,560,090

COSTS AND EXPENSES (Note 20) 44,032,584 39,650,634

INCOME FROM OPERATIONS 41,000,533 34,909,456

OTHER INCOME (CHARGES)

Interest expense (Notes 18 and 21) (5,687,780) (4,961,202)Interest and dividend income (Notes 6, 7, 9, 10, 13 and 21) 1,465,620 1,357,819Others - net (Notes 12, 15, 16 and 18) (802,559) (651,537)

(5,024,719) (4,254,920)

INCOME BEFORE INCOME TAX 35,975,814 30,654,536

PROVISION FOR INCOME TAX

Current 6,450,437 6,657,263Deferred 1,408,819 34,019

7,859,256 6,691,282

NET INCOME P=28,116,558 P=23,963,254

Attributable to

Equity holders of the Parent (Notes 17 and 24) P=27,595,045 P=23,439,290Non-controlling interests (Note 17) 521,513 523,964

P=28,116,558 P=23,963,254

Basic/Diluted earnings per share (Note 24) P=0.956 P=0.812


*SGVFS038338*


INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(Amounts in Thousands)


September 30

2019 2018

(Unaudited)

NET INCOME P=28,116,558 P=23,963,254

OTHER COMPREHENSIVE INCOME (LOSS)

Other comprehensive income (loss) that will not be reclassifiedto profit or loss in subsequent periods:

Unrealized gain (loss) due to changes in fair value of financial assets at fair value through other

comprehensive income (Note 9) 1,046,339 (5,821,028)Other comprehensive income (loss) that may be reclassified

to profit or loss in subsequent periods:Net fair value changes on cash flow hedges (702,396) 27,522Cumulative translation adjustment (683,446) 196,260

(339,503) (5,597,246)

TOTAL COMPREHENSIVE INCOME P=27,777,055 P=18,366,008

Attributable to

Equity holders of the Parent (Notes 17 and 24) P=27,255,542 P=17,842,044Non-controlling interests (Note 17) 521,513 523,964

P=27,777,055 P=18,366,008


*SGVFS038338*


INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITYFOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2019 AND 2018


Equity Attributable to Equity Holders of the Parent (Notes 17 and 24)

Capital Stock

Additional

Paid-in Capital

– Net

Cumulative

Translation

Net Fair Value

Changes of

Equity

Instruments at

Fair Value

through Other

Comprehensive

Income

Net Fair Value

Changes on

Cash Flow

Remeasurement

Loss on

Defined Benefit Retained Earnings (Note 17)Treasury

Stock Non-controlling Total

(Notes 17 and 24) (Note 5) Adjustment (Note 9) Hedges Obligation Appropriated Unappropriated (Notes 17 and 24) Total Interests Equity

At December 31, 2018 (Audited) P=33,166,300 P=39,953,218 P=1,955,999 P=19,084,597 (P=842,098) (P=348,480) P=42,200,000 P=143,118,153 (P=2,984,695) P=275,302,994 P=3,774,968 P=279,077,962

Net income for the period – – – – – – – 27,595,045 – 27,595,045 521,513 28,116,558

Transfer of unrealized gain on equity instruments at fairvalue through other comprehensive income – – – (2,879,182) – – – 2,879,182 – – – –

Other comprehensive income (loss) – – (683,446) 1,046,339 (702,396) – – – – (339,503) – (339,503)

Total comprehensive income (loss) for the period – – (683,446) (1,832,843) (702,396) – – 30,474,227 – 27,255,542 521,513 27,777,055

Cash dividends – – – – – – – (10,507,731) – (10,507,731) – (10,507,731)

Cash dividends received by a subsidiary – – – – – – – 7,986 – 7,986 – 7,986

Cash dividends received by non-controlling interests – – – – – – – – – – (551,200) (551,200)

Sale (acquisition) of non-controlling interest - net – (1,945,550) – – – – – – – (1,945,550) (2,241,355) (4,186,905)

Increase in non-controlling interest – – – – – – – – – – 139,151 139,151

At September 30, 2019 (Unaudited) P=33,166,300 P=38,007,668 P=1,272,553 P=17,251,754 (P=1,544,494) (P=348,480) P=42,200,000 P=163,092,635 (P=2,984,695) P=290,113,241 P=1,643,077 P=291,756,318

At December 31, 2017 (Audited) P=33,166,300 P=39,662,168 P=2,110,745 P=25,489,705 (P=311,429) (P=199,126) P=42,200,000 P=120,125,945 (P=3,287,087) P=258,957,221 P=3,916,693 P=262,873,914

Net income for the period – – – – – – – 23,439,290 – 23,439,290 523,964 23,963,254Other comprehensive income (loss) – – 196,260 (5,821,028) 27,522 – – – – (5,597,246) – (5,597,246)

Total comprehensive income (loss) for the period – – 196,260 (5,821,028) 27,522 – – 23,439,290 – 17,842,044 523,964 18,366,008

Cash dividends – – – – – – – (10,307,731) – (10,307,731) – (10,307,731)Cash dividends received by a subsidiary – – – – – – – 9,154 – 9,154 – 9,154

Cash dividends received by non-controlling interests – – – – – – – – – – (541,200) (541,200)Sale of treasury shares held by subsidiary – 288,701 – – – – – – 302,392 591,093 – 591,093

Sale (acquisition) of non-controlling interest - net – 4,499 – – – – – – – 4,499 (340,809) (336,310)

At September 30, 2018 (Unaudited) P=33,166,300 P=39,955,368 P=2,307,005 P=19,668,677 (P=283,907) (P=199,126) P=42,200,000 P=133,266,658 (P=2,984,695) P=267,096,280 P=3,558,648 P=270,654,928


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INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS(Amounts in Thousands)


September 30

2019 2018

(Unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES

Income before income tax P=35,975,814 P=30,654,536Adjustments for:

Depreciation and amortization (Notes 11, 13 and 20) 8,013,116 7,152,266Interest expense (Note 21) 5,687,780 4,961,202Interest and dividend income (Notes 6, 7, 9, 10, 13, 18 and 21) (1,465,620) (1,357,819)Equity in net earnings of associates and joint ventures (Note 12) (902,355) (781,798)

Net loss on unrealized foreign exchange and fair value changeson derivatives - net 220,439 286,970

Operating income before working capital changes 47,529,174 40,915,357Decrease (increase) in:

Receivables and contract assets (14,540,350) (6,365,871)Real estate inventories (1,068,243) (5,525,073)Prepaid expenses and other current assets (3,440,279) 111,225

Increase in:Accounts payable and other current liabilities 19,100,984 9,845,782Tenants’ and customers’ deposits 2,225,391 1,642,449

Cash generated from operations 49,806,677 40,623,869Income tax paid (6,460,462) (6,599,499)

Cash provided by operating activities 43,346,215 34,024,370

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from sale of equity instruments at fair value through othercomprehensive income (Note 9) 4,107,135 3,023,585

Interest received 1,123,106 967,160Dividends received 489,684 370,990Additions to:

Investment properties - net (Note 11) (33,906,146) (43,269,974) Equity instruments at fair value through other

comprehensive income (Note 9) – (1,326)Increase in investments in associates and joint ventures (Note 12) (26,418) (509,282)Increase in other noncurrent assets (3,796,124) (6,757,197)

Net cash used in investing activities (32,008,763) (46,176,044)

(Forward)

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September 30

2019 2018

(Unaudited)

CASH FLOWS FROM FINANCING ACTIVITIES

Availments of bank loans and long-term debt (Notes 14 and 16) P=15,030,330 P=53,825,835Payments of:

Dividends (Note 17) (11,050,944) (10,839,777)Interest (Notes 16 and 21) (5,783,781) (5,113,240)Long-term debt (Note 16) (2,476,847) (26,238,321)Lease liabilities (Notes 3 and 15) (57,142) –Bank loans (Note 14) (39,400) (185,000)

Acquisition of non-controlling interest (Note 5) (4,186,905) –Proceeds from:

Maturity of derivatives 394,574 3,212,542Reissuance of treasury shares (Note 17) – 591,092

Net cash provided by (used in) financing activities (8,170,115) 15,253,131

EFFECT OF EXCHANGE RATE CHANGES ON

CASH AND CASH EQUIVALENTS 36,461 95,219

NET INCREASE IN CASH

AND CASH EQUIVALENTS 3,203,798 3,196,676

CASH AND CASH EQUIVALENTS

AT BEGINNING OF PERIOD 38,766,467 44,371,534

CASH AND CASH EQUIVALENTS AT END OF PERIOD P=41,970,265 P=47,568,210


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NOTES TO INTERIM CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

1. Corporate Information

SM Prime Holdings, Inc. (SMPH or the Parent Company) was incorporated in the Philippines andregistered with the Securities and Exchange Commission (SEC) on January 6, 1994. SMPH and itssubsidiaries (collectively known as “the Company”) are incorporated to acquire by purchase,exchange, assignment, gift or otherwise, and to own, use, improve, subdivide, operate, enjoy, sell,assign, transfer, exchange, lease, let, develop, mortgage, pledge, traffic, deal in and hold forinvestment or otherwise, including but not limited to real estate and the right to receive, collect anddispose of, any and all rentals, dividends, interest and income derived therefrom; the right to vote onany proprietary or other interest on any shares of stock, and upon any bonds, debentures, or othersecurities; and the right to develop, conduct, operate and maintain modernized commercial shoppingcenters and all the businesses appurtenant thereto, such as but not limited to the conduct, operationand maintenance of shopping center spaces for rent, amusement centers, movie or cinema theatreswithin the compound or premises of the shopping centers, to construct, erect, manage and administerbuildings such as condominium, apartments, hotels, restaurants, stores or other structures for mixeduse purposes.

SMPH’s shares of stock are publicly traded in the Philippine Stock Exchange (PSE).

As at September 30, 2019, SMPH is 49.70% and 21.90% directly-owned by SM InvestmentsCorporation (SMIC) and the Sy Family, respectively. SMIC, the ultimate parent company, is aPhilippine corporation which listed its common shares with the PSE in 2005. SMIC and all itssubsidiaries are herein referred to as the “SM Group”.

The registered office and principal place of business of the Parent Company is at 10th Floor Mall ofAsia Arena Annex Building, Coral Way cor. J.W. Diokno Blvd., Mall of Asia Complex, Brgy. 76,Zone 10, CBP-1A, Pasay City 1300.

The accompanying interim condensed consolidated financial statements were approved andauthorized for issue by the the Board of Directors (BOD) on November 21, 2019.

2. Basis of Preparation

The accompanying interim condensed consolidated financial statements have been prepared on ahistorical cost basis, except for financial instruments at fair value through profit or loss (FVTPL) andequity instruments at fair value through other comprehensive income (FVOCI) which have beenmeasured at fair value.

Statement of ComplianceThe interim condensed consolidated financial statements have been prepared in accordance withPhilippine Accounting Standard (PAS) 34, Interim Financial Reporting. The interim condensedconsolidated financial statements are presented in Philippine peso, which is the Parent Company’sfunctional and presentation currency under Philippine Financial Reporting Standards (PFRS). Allvalues are rounded to the nearest thousand peso, except when otherwise indicated.

The interim condensed consolidated financial statements do not include all the information anddisclosures required in the annual consolidated financial statements, and should be read in

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conjunction with the Company’s annual audited consolidated financial statements as atDecember 31, 2018. These interim condensed consolidated financial statements have been preparedfor inclusion in the offering circular to be prepared by the Company for its planned offering of bonds.

Basis of ConsolidationThe interim condensed consolidated financial statements include the accounts of the Parent Companyand all of its subsidiaries. As at September 30, 2019, there were no significant changes in thecomposition of the Company and in the Parent Company’s ownership interests in its subsidiariesexcept for acquisition of non-controlling interests in Prime Metroestate, Inc. (PMI) (see Note 5).

Significant Accounting Judgments, Estimates and AssumptionsThe preparation of the interim condensed consolidated financial statements requires management tomake judgments, estimates and assumptions that affect the reported amounts of revenue, expenses,assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However,uncertainty about these estimates and assumptions could result in outcomes that could require amaterial adjustment to the carrying amount of the affected asset or liability in the future.

Except as otherwise stated, there were no significant changes in the significant accounting judgments,estimates, and assumptions used by the Company for the nine-month period endedSeptember 30, 2019.

3. Summary of Significant Accounting and Financial Reporting Policies

Changes in Accounting Policies and DisclosuresThe accounting policies and method of computation adopted in the preparation of the interimcondensed consolidated financial statements are consistent with those followed in the preparation ofthe Company’s annual consolidated financial statements for the year ended December 31, 2018,except for the following amendments and new accounting standards which the Company has adoptedstarting January 1, 2019. Adoption of these pronouncements did not have any significant impact onthe Company’s financial position or performance unless otherwise indicated.

Amendments to PFRS 9, Prepayment Features with Negative Compensation, allow debtinstrument to be measured at amortized cost or at FVOCI, provided that the contractual cashflows are ‘solely payments of principal and interest on the principal amount outstanding’ (theSPPI criterion) and the instrument is held within the appropriate business model for thatclassification. The amendments to PFRS 9 clarify that a financial asset passes the SPPI criterionregardless of the event or circumstance that causes the early termination of the contract andirrespective of which party pays or receives reasonable compensation for the early termination ofthe contract.

PFRS 16, Leases, sets out the principles for the recognition, measurement, presentation anddisclosure of leases and requires lessees to account for all leases under a single on-balance sheetmodel similar to the accounting for finance leases under PAS 17, Leases. The standard includestwo recognition exemptions for lessees – leases of ’low-value’ assets (e.g., personal computers)and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencementdate of a lease, a lessee will recognize a liability to make lease payments (i.e., the lease liability)and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognize the interest expense on the leaseliability and the depreciation expense on the right-of-use asset.

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*SGVFS038338*

Lessees will be also required to remeasure the lease liability upon the occurrence of certain events(e.g., a change in the lease term, a change in future lease payments resulting from a change in anindex or rate used to determine those payments). The lessee will generally recognize the amountof the remeasurement of the lease liability as an adjustment to the right-of-use asset.

Lessor accounting under PFRS 16 is substantially unchanged from today’s accounting underPAS 17. Lessors will continue to classify all leases using the same classification principle as inPAS 17 and distinguish between two types of leases: operating and finance leases.

PFRS 16 also requires lessees and lessors to make more extensive disclosures than under PAS 17.

A lessee can choose to apply the standard using either a full retrospective or a modifiedretrospective approach. The standard’s transition provisions permit certain reliefs.

The Company applied PFRS 16 using modified retrospective approach with the cumulative effectof initially applying the standard recognized at the date of initial application of January 1, 2019.The Company also elected to use the recognition exemptions for low-value assets and short-termleases.

The Company has various lease contracts, as lessee, for parcels of land which were accounted foras operating leases under PAS 17. Upon adoption of PFRS 16, the Company applied a singlerecognition and measurement approach for all these leases.

Set out below are the new accounting policies of the Company and its effect upon initial adoptionof PFRS 16.

Right-of-Use Assets (ROUA). The Company recognizes ROUA at the commencement date ofthe lease. ROUA are measured at cost, less any accumulated depreciation and impairmentlosses, and adjusted for any remeasurement of lease liabilities. The cost of ROUA includesthe amount of lease liabilities recognized, initial direct costs incurred, and lease paymentsmade at or before the commencement date less any lease incentives received. Upon transitiondate, the ROUA are initially measured at an amount equal to the lease liabilities plusprepayments less accrued rent and subsequently depreciated on a straight-line basis over theshorter of its estimated useful life and remaining lease term.

The Company recognized ROUA amounting to P=19,615 million, including land use rights ofP=9,976 million previously presented as part of “Other noncurrent assets”. These werepresented under “Investment properties - net” account in the interim consolidated balancesheet as at January 1, 2019. Moreover, accrued rent pertaining to land leases previouslyaccounted for as operating leases under PAS 17 amounting to P=1,772 million as ofDecember 31, 2018 was adjusted to ROUA as at January 1, 2019.

Lease Liabilities. At the commencement date of the lease, the Company recognizes leaseliabilities measured at the present value of fixed lease payments (including in-substance fixedpayments). Lease liabilities are subsequently measured at amortized cost using the effectiveinterest method.

The Company recognized lease liabilities amounting to P=11,264 million. These werepresented as part of “Accounts payable and other current liabilities” and “Other noncurrentliabilities” in the interim consolidated balance sheet as at January 1, 2019.

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*SGVFS038338*

Short-term Leases and Leases of Low-value Assets. The Company applies the short-termlease recognition exemption to its short-term leases (i.e., those leases that have a lease termof 12 months or less from the commencement date and do not contain a purchase option). Italso applies the lease of low-value assets recognition exemption. These are recognized asexpense on a straight-line basis over the lease term.

As at December 31, 2018, the undiscounted operating lease commitments amounted toP=31,068 million. Upon adoption of PFRS 16, this amount was discounted using incrementalborrowing rate ranges from 4.95% to 5.18% resulting to recognized lease liabilities ofP=11,264 million (net of discounted lease commitments related to low-value assets) atJanuary 1, 2019.

Amendments to PAS 19, Employee Benefits, Plan Amendment, Curtailment or Settlement,address the accounting when a plan amendment, curtailment or settlement occurs during areporting period. The amendments specify that when a plan amendment, curtailment orsettlement occurs during the annual reporting period, an entity is required to:

Determine current service cost for the remainder of the period after the plan amendment,curtailment or settlement, using the actuarial assumptions used to remeasure the net definedbenefit liability (asset) reflecting the benefits offered under the plan and the plan assets afterthat event.

Determine net interest for the remainder of the period after the plan amendment, curtailmentor settlement using: the net defined benefit liability (asset) reflecting the benefits offeredunder the plan and the plan assets after that event; and the discount rate used to remeasurethat net defined benefit liability (asset).

The amendments also clarify that an entity first determines any past service cost, or a gain or losson settlement, without considering the effect of the asset ceiling. This amount is recognized inprofit or loss. An entity then determines the effect of the asset ceiling after the plan amendment,curtailment or settlement. Any change in that effect, excluding amounts included in the netinterest, is recognized in other comprehensive income.

The amendments apply to plan amendments, curtailments, or settlements occurring on or after thebeginning of the first annual reporting period that begins on or after January 1, 2019.

Amendments to PAS 28, Long-term Interests in Associates and Joint Ventures, clarify that anentity applies PFRS 9 to long-term interests in an associate or joint venture to which the equitymethod is not applied but that, in substance, form part of the net investment in the associate orjoint venture (long-term interests). This clarification is relevant because it implies that theexpected credit losses (ECL) model in PFRS 9 applies to such long-term interests.

The amendments also clarified that, in applying PFRS 9, an entity does not take account of anylosses of the associate or joint venture, or any impairment losses on the net investment,recognized as adjustments to the net investment in the associate or joint venture that arise fromapplying PAS 28, Investments in Associates and Joint Ventures.

The amendments should be applied retrospectively effective from January 1, 2019.

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*SGVFS038338*

Philippine Interpretation IFRIC-23, Uncertainty over Income Tax Treatments, addresses theaccounting for income taxes when tax treatments involve uncertainty that affects the applicationof PAS 12 and does not apply to taxes or levies outside the scope of PAS 12, nor does itspecifically include requirements relating to interest and penalties associated with uncertain taxtreatments.

The interpretation specifically addresses the following:Whether an entity considers uncertain tax treatments separatelyThe assumptions an entity makes about the examination of tax treatments by taxationauthoritiesHow an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused taxcredits and tax ratesHow an entity considers changes in facts and circumstances

An entity must determine whether to consider each uncertain tax treatment separately or togetherwith one or more other uncertain tax treatments. The approach that better predicts the resolutionof the uncertainty should be followed.

Annual Improvements to PFRSs 2015-2017 Cycle

Amendments to PFRS 3, Business Combinations, and PFRS 11, Joint Arrangements, Previously

Held Interest in a Joint Operation, clarify that, when an entity obtains control of a business that isa joint operation, it applies the requirements for a business combination achieved in stages,including remeasuring previously held interests in the assets and liabilities of the joint operationat fair value. In doing so, the acquirer remeasures its entire previously held interest in the jointoperation.

A party that participates in, but does not have joint control of, a joint operation might obtain jointcontrol of the joint operation in which the activity of the joint operation constitutes a business asdefined in PFRS 3. The amendments clarify that the previously held interests in that jointoperation are not remeasured.

An entity applies those amendments to business combinations for which the acquisition date is onor after the beginning of the first annual reporting period beginning on or after January 1, 2019and to transactions in which it obtains joint control on or after the beginning of the first annualreporting period beginning on or after January 1, 2019.

Amendments to PAS 12, Income Tax Consequences of Payments on Financial Instruments

Classified as Equity, clarify that the income tax consequences of dividends are linked moredirectly to past transactions or events that generated distributable profits than to distributions toowners. Therefore, an entity recognizes the income tax consequences of dividends in profit orloss, other comprehensive income or equity according to where the entity originally recognizedthose past transactions or events.

An entity applies those amendments for annual reporting periods beginning on or afterJanuary 1, 2019.

Amendments to PAS 23, Borrowing Costs, Borrowing Costs Eligible for Capitalization,

clarify that an entity treats as part of general borrowings any borrowing originally made todevelop a qualifying asset when substantially all of the activities necessary to prepare that assetfor its intended use or sale are complete.

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An entity applies those amendments to borrowing costs incurred on or after the beginning of theannual reporting period in which the entity first applies those amendments. An entity appliesthose amendments for annual reporting periods beginning on or after January 1, 2019.

March 2019 IFRIC Agenda Decision on Over Time Transfer of Constructed Good (PAS 23,

Borrowing Costs). In March 2019, the IFRIC issued update summarizing the decisions reachedin its public meetings. The March 2019 IFRIC update includes Agenda Decision on thecapitalization of borrowing cost on over time transfer of constructed goods. The IFRIC AgendaDecision clarified whether borrowing costs may be capitalized in relation to the construction of aresidential multi-unit real estate development (building) which are sold to customers prior to startof construction or completion of the development.

Applying paragraph 8 of PAS 23, Borrowing Cost, an entity capitalizes borrowing costs that aredirectly attributable to the acquisition, construction or production of a qualifying asset as part ofthe cost of that asset. Paragraph 5 of PAS 23 defines a qualifying asset as ‘an asset thatnecessarily takes a substantial period of time to get ready for its intended use or sale’. The March2019 IFRIC Update clarified that the related assets that might be recognized in the real estatecompany’s financial statements (i.e., installment contract receivable, contract asset, or inventory)will not qualify as a qualifying asset and the corresponding borrowing cost may no longer becapitalized.

4. Segment Information

For management purposes, the Company is organized into business units based on their products andservices, and has four reportable operating segments as follows: mall, residential, commercial andhotels and convention centers.

Mall segment develops, conducts, operates and maintains the business of modern commercialshopping centers and all businesses related thereto such as the conduct, operation and maintenance ofshopping center spaces for rent, amusement centers, or cinema theaters within the compound of theshopping centers.

Residential and commercial segments are involved in the development and transformation of majorresidential, commercial, entertainment and tourism districts through sustained capital investments inbuildings and infrastructure.

Hotels and convention centers segment engages in and carry on the business of hotel and conventioncenters and operates and maintains any and all services and facilities incident thereto.

Management, through the Executive Committee, monitors the operating results of its business unitsseparately for the purpose of making decisions about resource allocation and performance assessment.Segment performance is evaluated based on operating profit or loss and is measured consistently withthe operating profit or loss in the interim condensed consolidated financial statements.

The amount of segment assets and liabilities and segment profit or loss are based on measurementprinciples that are similar to those used in measuring the assets and liabilities and profit or loss in theinterim condensed consolidated financial statements, which is in accordance with PFRS.

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Inter-segment TransactionsInter-segment transactions are eliminated in the interim condensed consolidated financial statements.

Business Segment Data

Nine-month period ended September 30, 2019 (Unaudited)

Mall Residential Commercial

Hotels and

Convention

Centers

Eliminations/

Adjustments

Consolidated

Balances

Revenue:(In Thousands)

External customers P=46,341,852 P=31,924,914 P=3,246,250 P=3,520,101 P= P=85,033,117

Inter-segment 84,566 – 53,607 9,859 (148,032)

P=46,426,418 P=31,924,914 P=3,299,857 P=3,529,960 (P=148,032) P=85,033,117

Segment results: Income before income tax P=22,717,753 P=10,898,597 P=2,613,472 P=615,139 (P=869,147) P=35,975,814

Provision for income tax (5,351,351) (1,849,233) (492,467) (166,205) – (7,859,256)

Net income P=17,366,402 P=9,049,364 P=2,121,005 P=448,934 (P=869,147) P=28,116,558

Net income attributable to: Equity holders of the Parent P=16,850,565 P=9,043,688 P=2,121,005 P=448,934 (P=869,147) P=27,595,045

Non-controlling interests 515,837 5,676 – – – 521,513

Other information: Capital expenditures P=22,182,131 P=18,297,389 P=3,585,712 P=1,296,470 P=– P=45,361,702

Depreciation and amortization 7,051,354 113,811 433,510 414,441 – 8,013,116

Nine-month period ended September 30, 2018 (Unaudited)


Hotels andConvention

CentersEliminations/Adjustments

ConsolidatedBalances


External customers P=43,191,286 P=25,264,716 P=2,525,264 P=3,578,824 P= P=74,560,090 Inter-segment 66,343 – 57,164 6,817 (130,324)

P=43,257,629 P=25,264,716 P=2,582,428 P=3,585,641 (P=130,324) P=74,560,090

Segment results: Income before income tax P=20,334,440 P=7,446,247 P=2,131,778 P=792,900 (P=50,829) P=30,654,536 Provision for income tax (5,112,242) (1,002,890) (385,056) (191,094) – (6,691,282)


Net income attributable to: Equity holders of the Parent P=14,701,512 P=6,440,079 P=1,746,722 P=601,806 (P=50,829) P=23,439,290 Non-controlling interests 520,686 3,278 – – – 523,964

Other information: Capital expenditures P=19,026,938 P=44,456,984 P=3,234,277 P=390,038 P=– P=67,108,237 Depreciation and amortization 6,294,374 126,247 320,758 410,887 – 7,152,266

September 30, 2019 (Unaudited)


Hotels and

Convention

Centers Eliminations

Consolidated

Balances

(In Thousands)

Segment assets P=389,082,919 P=213,006,368 P=42,976,158 P=13,405,211 (P=1,680,029) P=656,790,627

Segment liabilities P=233,801,757 P=126,541,471 P=5,421,776 P=949,334 (P=1,680,029) P=365,034,309

December 31, 2018 (Audited)



Centers EliminationsConsolidated

Balances

(In Thousands)

Segment assets P=366,324,387 P=186,098,844 P=40,308,522 P=12,278,302 (P=875,737) P=604,134,318

Segment liabilities P=212,781,100 P=108,996,681 P=3,163,510 P=990,802 (P=875,737) P=325,056,356

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For the nine-month periods ended September 30, 2019 and 2018, there were no revenue transactionswith a single external customer which accounted for 10% or more of the consolidated revenue fromexternal customers. The Company disaggregates its revenue information the same manner as itreports its segment information.

SeasonalityThe Company’s operations has no significant seasonality.

5. Acquisition of Non-controlling Interests

In August 2019, the Parent Company acquired the remaining 40% of the outstanding common stockof PMI from SMIC for a total consideration of P=4,106 million. The valuation of the non-controllinginterest was based on the appraised values of the real estate assets of PMI as at January 25, 2019. Theacquisition resulted to equity reserve adjustment, included under “Additional paid-in capital-net”account in the equity section of the interim condensed consolidated balance sheet amounting toP=1,946 million.

6. Cash and Cash Equivalents

Cash and cash equivalents comprised the following:

September 30,

2019

(Unaudited)

December 31,2018

(Audited)

September 30,2018

(Unaudited)

(In Thousands)

Cash on hand and in banks (see Note 18) P=6,732,185 P=3,887,600 P=2,576,769Temporary investments (see Note 18) 35,238,080 34,878,867 44,991,441

P=41,970,265 P=38,766,467 P=47,568,210

Interest income earned from cash in banks and temporary investments amounted to P=1,094 millionand P=884 million for the nine-month periods ended September 30, 2019 and 2018, respectively(see Note 21).

7. Receivables and Contract Assets

This account consists of:

September 30,

2019

(Unaudited)

December 31,2018

(Audited)(In Thousands)

Trade (billed and unbilled):Sale of real estate* P=66,078,144 P=50,748,255

(Forward)

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September 30,

2019

(Unaudited)

December 31,2018


Rent:Third parties P=5,356,696 P=5,544,270Related parties (see Note 18) 2,852,023 3,024,750

Others (see Note 18) 17,283 124,530Nontrade 311,400 252,196Accrued interest (see Note 18) 204,585 134,801Others (see Note 18) 2,253,081 2,666,855

77,073,212 62,495,657Less allowance for ECLs 1,043,254 1,034,040

76,029,958 61,461,617Less noncurrent portion of receivables from sale

of real estate (see Note 13) 33,558,658 26,232,167

P=42,471,300 P=35,229,450

*Includes unbilled revenue from sale of real estate amounting to P=60,860 million and P=46,501 million as

at September 30, 2019 and December 31, 2018, respectively.

Interest income earned from receivables amounted to P=68 million and P=55 million for the nine-monthperiods ended September 30, 2019 and 2018, respectively (see Note 21).

The movements in the allowance for ECLs related to receivables are as follows:

September 30,

2019

(Nine Months)

(Unaudited)

December 31,2018

(One Year)(Audited)

(In Thousands)

At beginning of the period P=1,034,040 P=1,053,582Provision (write-off) - net 9,214 (19,542)

At end of the period P=1,043,254 P=1,034,040

The aging analyses of receivables and unbilled revenue from sale of real estate are as follows:

September 30,

2019

(Unaudited)

December 31,2018

(Audited)

(In Thousands)

Neither past due nor impaired P=69,972,130 P=55,907,949Past due but not impaired:

Less than 30 days 2,006,882 2,124,71531–90 days 1,847,196 1,340,88991–120 days 772,887 687,725Over 120 days 1,430,863 1,400,339

Impaired 1,043,254 1,034,040

P=77,073,212 P=62,495,657

Receivables, except for those that are impaired, are assessed by the Company’s management as notimpaired, good and collectible.

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8. Real Estate Inventories

This account consists of the following:

September 30,

2019

(Unaudited)

December 31,2018


Land and development P=32,237,402 P=29,486,964Condominium units for sale 7,797,170 7,939,941Residential units and subdivision lots 97,620 148,198

P=40,132,192 P=37,575,103

Land and development pertains to the Company’s on-going residential units and condominiumprojects. Estimated cost to complete the projects amounted to P=79,819 million and P=51,097 millionas at September 30, 2019 and December 31, 2018, respectively.

The average rates used to determine the amount of borrowing costs eligible for capitalization is4.60% to 5.10% in 2018.

The movements in “Land and development” account are as follows:

September 30,

2019

(Nine Months)

(Unaudited)

December 31,2018

(One Year)(Audited)

(In Thousands)

At beginning of the period P=29,486,964 P=58,666,174Development cost incurred 15,684,665 20,320,803Reclassifications/transfers from (to) “land held for

future development” under investmentproperties account (see Note 11) 1,389,436 (32,400,724)

Reclassifications from investment properties - netaccount (see Note 11) 274,190 –

Cost of real estate sold (see Note 20) (11,804,020) (15,390,337)Transfer to condominium and residential units for

sale (2,642,600) (1,733,711)Translation adjustment and others (151,233) 24,759


The movements in “Condominium units for sale” account are as follows:

September 30,

2019

(Nine Months)

(Unaudited)

December 31,2018

(One Year)(Audited)

(In Thousands)

At beginning of the period P=7,939,941 P=8,566,351Transfer from land and development 2,625,909 1,550,984Cost of real estate sold (see Note 20) (2,768,680) (2,177,394)


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Condominium units for sale pertain to the completed projects and are stated at cost as atSeptember 30, 2019 and December 31, 2018.

The movements in “Residential units and subdivision lots” account are as follows:

September 30,

2019

(Nine Months)

(Unaudited)

December 31,2018

(One Year)(Audited)

(In Thousands)

At beginning of the period P=148,198 P=166,948Transfer from land and development 16,691 182,727Cost of real estate sold (see Note 20) (67,269) (201,477)

At end of the period P=97,620 P=148,198

Residential units and subdivision lots for sale are stated at cost as at September 30, 2019 andDecember 31, 2018.

9. Equity Instruments at FVOCI

This account consists of investments in:

September 30,

2019

(Unaudited)

December 31,2018


Shares of stock:Listed (see Note 18) P=20,489,044 P=23,508,022Unlisted 3,381 24,231

20,492,425 23,532,253Less noncurrent portion 19,821,497 22,892,937

P=670,928 P=639,316

In August 2019, the Parent Company sold a portion of its listed shares to SMIC based on 30-dayvolume-weighted average price as of July 26, 2019 resulting to a realized gain amounting toP=2,879 million directly recognized in retained earnings.

Dividend income from investments at FVOCI amounted to P=273 million and P=366 million for thenine-month periods ended September 30, 2019 and 2018, respectively.

Unrealized gain on changes in fair value amounting to P=1,046 million for the nine-month periodended September 30, 2019 and unrealized loss amounting to P=5,821 million for the nine-month periodended September 30, 2018 were included under other comprehensive income.

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10. Prepaid Expenses and Other Current Assets


September 30,

2019

(Unaudited)

December 31,2018


Advances and deposits P=8,189,635 P=6,108,850Input and creditable withholding taxes 7,122,048 5,658,232Prepaid taxes and other prepayments 2,777,134 2,845,331Supplies and inventories 370,303 362,833Cash in escrow and others (see Note 18) 117,564 171,783

P=18,576,684 P=15,147,029

Interest income earned from the cash in escrow amounted to P=4 million and P=1 million for the nine-month periods ended September 30, 2019 and 2018, respectively.

11. Investment Properties


September 30,

2019

(Unaudited)

December 31,2018


Investment properties - net P=330,116,188 P=293,574,616Land held for future development 50,415,449 49,844,246

P=380,531,637 P=343,418,862

The movements in “Investment properties - net” are as follows:

Land andImprovements

Buildings andImprovements

BuildingEquipment,

Furnitureand Others

Right-of-UseAssets

Constructionin Progress Total

(In Thousands)

Cost

Balance as at December 31, 2017 P=64,067,484 P=207,454,220 P=36,077,251 P=– P=33,182,636 P=340,781,591Additions 4,331,600 8,480,962 3,016,764 – 14,318,076 30,147,402

Reclassifications (1,450,592) 9,070,215 1,112,147 – (8,731,468) 302

Translation adjustment (5,531) (166,451) (12,678) – (4,949) (189,609)Disposals (65,250) (63,044) (413,314) – (24,124) (565,732)

Balance as at December 31, 2018 66,877,711 224,775,902 39,780,170 – 38,740,171 370,173,954Additions 4,557,121 1,234,568 1,143,326 – 20,306,852 27,241,867

Effect of PFRS 16 adoption (see Notes 3 and 13) – – – 19,615,650 – 19,615,650Reclassifications (134,050) 10,380,632 987,529 – (11,274,695) (40,584)

Translation adjustment (71,272) (2,089,018) (166,869) (487,951) (73,287) (2,888,397)Disposals (71) (16,463) (145,142) – – (161,676)

Balance as at September 30, 2019 P=71,229,439 P=234,285,621 P=41,599,014 P=19,127,699 P=47,699,041 P=413,940,814

Accumulated Depreciation and Amortization

Balance as at December 31, 2017 P=1,920,473 P=43,981,769 P=21,795,203 P=– P=– P=67,697,445

Depreciation and amortization 212,082 6,182,725 3,060,234 – – 9,455,041Reclassifications (26,656) 179,884 (153,212) – – 16

Translation adjustment (9,243) (68,853) (14,860) – – (92,956)

(Forward)

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BuildingEquipment,

Furnitureand Others

Right-of-UseAssets


(In Thousands)

Disposals (P=25,807) (P=61,055) (P=373,346) P=– P=– (P=460,208)

Balance as at December 31, 2018 2,070,849 50,214,470 24,314,019 – – 76,599,338Depreciation and amortization (see Note 20) 163,300 4,997,560 2,257,998 448,304 – 7,867,162

Reclassifications 7,563 (7,563) – – – –Translation adjustment (37,452) (376,713) (94,482) (5,813) – (514,460)

Disposals 63 (8,576) (118,901) – – (127,414)

Balance as at September 30, 2019 P=2,204,323 P=54,819,178 P=26,358,634 P=442,491 P=– P=83,824,626

Net Book Value

As at December 31, 2018 P=64,806,862 P=174,561,432 P=15,466,151 P=– P=38,740,171 P=293,574,616

As at September 30, 2019 69,025,116 179,466,443 15,240,380 18,685,208 47,699,041 330,116,188

Consolidated rent income from investment properties amounted to P=44,911 million andP=41,719 million for the nine-month periods ended September 30, 2019 and 2018, respectively.Consolidated costs and expenses from investment properties amounted to P=24,636 million andP=22,795 million for the nine-month periods ended September 30, 2019 and 2018, respectively.

Construction in progress includes shopping mall complex under construction and landbanking andcommercial building constructions amounting to P=47,699 million and P=38,740 million as atSeptember 30, 2019 and December 31, 2018, respectively.

Construction contracts with various contractors related to the construction of the on-going projectsamounted to P=52,536 million and P=40,953 million as at September 30, 2019 and December 31, 2018,respectively, inclusive of overhead, cost of labor and materials and all other costs necessary for theproper execution of the works. The outstanding contracts are valued at P=23,294 million andP=16,230 million as at September 30, 2019 and December 31, 2018, respectively.

Interest capitalized to the construction of investment properties amounted to P=3,427 million andP=2,681 million and capitalization rates used range from 2.35% to 5.89% and from 2.35% to 5.04%,for the nine-month period ended September 30, 2019 and year ended December 31, 2018,respectively.

The fair value of investment properties amounted to P=800,445 million as at December 31, 2015 asdetermined by an independent appraiser who holds a recognized and relevant professionalqualification. The valuation of investment properties was based on market values using incomeapproach. The fair value represents the amount at which the assets can be exchanged between aknowledgeable, willing seller and a knowledgeable, willing buyer in an arm’s length transaction atthe date of valuation, in accordance with International Valuation Standards as set out by theInternational Valuation Standards Committee.

Below are the significant assumptions used in the valuation:

Discount rate 8.00%–11.00%Capitalization rate 5.75%–8.50%Average growth rate 2.34%–12.08%

Investment properties are categorized under Level 3 fair value measurement.

The Company’s management believes that there are no conditions present in 2019 that would

significantly reduce the fair value of the investment properties from that determined onDecember 31, 2015. Management also believes that the carrying values of additions to investmentproperties subsequent to the most recent valuation date would approximate their fair values.

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*SGVFS038338*

The Company has no restriction on the realizability of its investment properties and no obligation toeither purchase, construct or develop or for repairs, maintenance and enhancements.

The movements in “Land held for future development” account are as follows:

September 30,

2019

(Nine Months)

(Unaudited)

December 31,2018

(One Year)(Audited)

(In Thousands)

At beginning of the period P=49,844,246 P=–Land acquisitions 2,340,240 17,443,522Reclassifications and transfers from (to) real estate

inventories (see Note 8) (1,389,436) 32,400,724Reclassifications to investment properties (379,601) –

At end of period P=50,415,449 P=49,844,246

12. Investments in Associates and Joint Ventures

Investments in AssociatesThis pertains mainly to investments in the following companies:

OCLP Holdings, Inc. (OHI)

Feihua Real Estate (Chongqing) Company Ltd. (FHREC)

On May 7, 2015, SMPH acquired 39.96% collective ownership interest in OHI, through acquisitionof 100% interest in six (6) holding entities, for a total consideration of P=15,433 million, whichapproximates the proportionate share of SMPH in the fair values of the identifiable net assets of OHIbased on the provisional amounts. OHI owns strategic residential, commercial and landbank areas inkey cities in Metro Manila.

As at September 30, 2019, OHI’s total assets, total liabilities and total equity amounted toP=39,802 million, P=30,850 million and P=8,952 million, respectively, and the carrying value ofinvestment in OHI amounted to P=17,191 million, which consists of its proportionate share in the netassets of OHI amounting to P=3,419 million and fair value adjustments and others totalingP=13,772 million. The share in profit and total comprehensive income amounted to P=271 million andP=406 million for the nine-month periods ended September 30, 2019 and 2018, respectively.

The carrying value of investment in FHREC amounted to P=1,272 million and P=1,340 million as atSeptember 30, 2019 and December 31, 2018, respectively, with cumulative equity in net earningsamounting to P=995 million and P=1,048 million as at September 30, 2019 and December 31, 2018,respectively. There were no share in profit or loss and other comprehensive income for thenine-month periods ended September 30, 2019 and 2018.

Investment in Joint VenturesThis significantly pertains to the 51% ownership interest of the Company in Waltermart. Waltermartis involved in shopping mall operations and currently owns 29 malls across Metro Manila and Luzon.

The aggregate carrying values of investments in Waltermart amounted to P=6,673 million andP=6,304 million as at September 30, 2019 and December 31, 2018, respectively. These consist of the

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*SGVFS038338*

acquisition costs totaling P=5,145 million and cumulative equity in net earnings and dividend totalingP=1,528 million and P=1,159 million as at September 30, 2019 and December 31, 2018, respectively.The aggregate share in profit and total comprehensive income, net of dividend received, amounted toP=369 million and P=325 million for the nine-month periods ended September 30, 2019 and 2018,respectively.

In June 2016, SMDC entered into a shareholder’s agreement through ST 6747 Resources Corporation(STRC) for the development of “The Estate”, a high-end luxury residential project along AyalaAvenue, Makati City. Under the provisions of the agreement, each party shall have 50% ownershipinterest and is required to maintain each party’s equal equity interest in STRC. The carrying value ofinvestment in STRC amounted P=1,500 million as at September 30, 2019 and December 31, 2018.The investment in STRC is accounted as joint venture using equity method of accounting because thecontractual arrangement between the parties establishes joint control. The project was launched in2019.

Investments in associates and joint ventures are accounted for using the equity method.

The Company has no outstanding contingent liabilities or capital commitments related to itsinvestments in associates and joint ventures as at September 30, 2019 and December 31, 2018.

13. Other Noncurrent Assets


September 30,

2019

(Unaudited)

December 31,2018


Bonds and deposits P=42,869,647 P=39,594,024Receivables from sale of real estate - net of current

portion (see Note 7)* 33,558,658 26,232,167Time deposits (see Note 18) 2,540,941 2,392,622Property and equipment - net of accumulated

depreciation of P=1,884 million andP=1,746 million, respectively (see Note 20) 1,366,473 1,419,111

Deferred input tax 1,397,357 1,171,185Land use rights and others (see Notes 3 and 11) 1,523,938 11,520,062

P=83,257,014 P=82,329,171

*Pertains to noncurrent portion of unbilled revenue from sale of real estate (see Note 7).

Interest income earned from time deposits amounted to P=26 million and P=33 million for thenine-month periods ended September 30, 2019 and 2018, respectively (see Note 21).

14. Loans Payable

This account consists of unsecured Philippine peso-denominated loans obtained from local banksamounting to P=480 million and P=39 million as at September 30, 2019 and December 31, 2018, withdue dates of less than one year. These loans bear interest rate of 5.00% in 2019 and 6.00% in 2018.

Interest expense incurred from loans payable amounted to P=20 million and P=8 million for thenine-month periods ended September 30, 2019 and 2018, respectively (see Note 21).

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*SGVFS038338*

15. Accounts Payable and Other Current Liabilities


September 30,

2019

(Unaudited)

December 31,2018


Trade:Third parties P=26,991,964 P=25,987,678Related parties (see Note 18) 206,293 282,337

Tenants’ and customers’ deposits* 42,999,926 31,375,908Lease liabilities (see Note 3) 11,224,988 –

Accrued operating expenses:Third parties 11,858,918 9,338,262Related parties (see Note 18) 468,407 455,954

Liability for purchased land 9,660,676 14,019,013Deferred output VAT 4,655,264 3,087,528Accrued interest (see Note 18) 1,779,546 1,881,165Payable to government agencies 1,284,499 1,170,561Nontrade 301,547 286,841Others 3,980,064 1,458,027


P=75,915,158 P=61,767,086*Includes unearned revenue from sale of real estate amounting to P=7,700 million and P=4,195 million as atSeptember 30, 2019 and December 31, 2018, respectively.

Lease liabilities included in “Other noncurrent liabilities” amounted to P=11,126 million as atSeptember 30, 2019. Interest on lease liabilities included under “Others - net” in the interimconsolidated statement of income amounted to P=254 million for the nine-month period endedSeptember 30, 2019.

The payments of lease liabilities are scheduled as follows:

Within 1 year P=99,094More than 1 year to 5 years 365,674More than 5 years 10,760,220

P=11,224,988

Accrued operating expenses - third parties consist of:

September 30,

2019

(Unaudited)

December 31,2018


Utilities P=5,021,743 P=4,484,483Marketing and advertising 1,434,931 1,092,560Payable to contractors and others 5,402,244 3,761,219

P=11,858,918 P=9,338,262

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*SGVFS038338*

16. Long-term Debt


Outstanding Balance

Availment Date Maturity Date Interest Rate Condition

September 30,

2019

(Unaudited)

December 31, 2018

(Audited)

Parent Company(In Thousands)

Philippine peso-denominated loans and bonds January 12, 2012 – May 17, 2019 March 1, 2020 – July 26, 2026 Floating BVAL+ margin; 4.20% – 6.74% Unsecured P=122,148,400 P=112,323,200

U.S. dollar-denominated loans July 30, 2018 June 14, 2023 LIBOR + spread; semi-annual Unsecured 5,701,300 5,783,800Subsidiaries

Philippine peso-denominated loans June 3, 2013 – September 7, 2019 January 28, 2019 – August 7, 2029 Floating BVAL+ margin; 3.84% – 7.55% Unsecured 69,862,469 66,490,939

U.S. dollar-denominated loans April 23, 2014 – April 15, 2019 April 14, 2019 – February 28, 2024 LIBOR + spread; semi-annual Unsecured 34,963,488 36,191,602China yuan renminbi-denominated loans July 28, 2015 – October 16, 2017 December 31, 2019 – October 16, 2022 CBC rate less 10%; quarterly Secured* 2,943,397 3,118,514

235,619,054 223,908,055

Less debt issue cost 1,133,520 1,136,169

234,485,534 222,771,886

Less current portion 28,417,673 25,089,624

P=206,067,861 P=197,682,262

LIBOR – London Interbank Offered Rate

BVAL – Bloomberg Valuation Service

CBC – Central Bank of China

*Secured by portions of investment properties located in China.

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*SGVFS038338*

Debt issue cost pertaining to the loan availments amounted to P=300 million. Amortization of debtissue cost (included under “Others - net” in the interim consolidated statements of income) for thenine-month periods ended September 30, 2019 and 2018 amounted to P=288 million and P=277 million,respectively.

The loan agreements of the Company provide certain restrictions and requirements principally withrespect to maintenance of required financial ratios (i.e., current ratio of not less than 1.00:1.00, debtto equity ratio of not more than 0.70:0.30 to 0.75:0.25 and interest coverage ratio of not less than2.50:1.00) and material change in ownership or control. As at September 30, 2019 andDecember 31, 2018, the Company is in compliance with the terms of its loan covenants.

Repayment ScheduleThe repayments of long-term debt are scheduled as follows:

Gross LoanDebt Issue

Cost Net(In Thousands)

Within 1 year P=28,417,673 (P=90,930) P=28,326,743More than 1 year to 5 years 128,947,819 (961,062) 127,986,757More than 5 years 78,253,562 (81,528) 78,172,034

P=235,619,054 (P=1,133,520) P=234,485,534

Interest expense incurred from long-term debt amounted to P=5,643 million and P=4,873 million for thenine-month periods ended September 30, 2019 and 2018, respectively (see Note 21).

17. Equity

Capital StockAs at September 30, 2019 and December 31, 2018, the Company has an authorized capital stock of40,000 million with a par value of P=1 a share, of which 33,166 million shares were issued.

As at September 30, 2019 and December 31, 2018, the Parent Company has 28,879 millionoutstanding shares including 23 million shares held by SMDC.

Retained EarningsIn 2019, the BOD approved the declaration of cash dividend of P=0.35 per share or P=10,108 million tostockholders of record as of May 8, 2019, P=8 million of which was received by SMDC. This waspaid on May 22, 2019.

In 2018, the BOD approved the declaration of cash dividend of P=0.35 per share or P=10,108 million tostockholders of record as of May 9, 2018, P=9 million of which was received by SMDC. This waspaid on May 23, 2018.

As at September 30, 2019 and December 31, 2018, the amount of retained earnings appropriated forthe continuous corporate and mall expansions amounted to P=42,200 million. This represents acontinuing appropriation for land banking activities and planned construction projects. Theappropriation is being fully utilized to cover part of the annual capital expenditure requirement of theCompany.

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*SGVFS038338*

The retained earnings account is restricted for the payment of dividends to the extent ofP=89,445 million and P=75,721 million as at September 30, 2019 and December 31, 2018, respectively,representing the cost of shares held in treasury amounting to P=2,985 million as at September 30, 2019and December 31, 2018 and accumulated equity in net earnings of SMPH subsidiaries, associates andjoint ventures totaling P=86,460 million and P=72,736 million as at September 30, 2019 andDecember 31, 2018, respectively. The accumulated equity in net earnings of subsidiaries, associatesand joint ventures is not available for dividend distribution until such time that the Parent Companyreceives the dividends from its subsidiaries, associates and joint ventures.

Treasury StockThis includes reacquired capital stock and shares held by a subsidiary, stated at acquisition cost ofP=2,985 million as at September 30, 2019 and December 31, 2018. The movement of the treasurystock of the Company are as follows:

September 30,

2019

(Unaudited)

December 31,2018

(Audited)

(In Thousands)

Balance at beginning of period 4,309,888 4,328,486Sale of treasury shares (18,598)

Balance at end of period 4,309,888 4,309,888

18. Related Party Transactions

The significant related party transactions entered into by the Company with its related parties and theamounts included in the accompanying interim condensed consolidated financial statements withrespect to these transactions follow:

Amount of TransactionsOutstanding Amount

[Asset (Liability)]

September 30,

2019

(Unaudited)

September 30,2018

(Unaudited)

September 30,

2019

(Unaudited)

December 31,2018

(Audited) Terms Conditions

(In Thousands)

Ultimate Parent

Rent income P=37,917 P=33,902 P= P=Rent receivable 22,914 4,967 Noninterest-bearing Unsecured; not impairedService income 36,000 36,000Service fee receivable 14,000 Noninterest-bearing Unsecured; not impairedRent expense 83,794 75,647Accrued rent payable (13,251) (808) Noninterest-bearing UnsecuredTrade payable (14,990) (16,805) Noninterest-bearing UnsecuredEquity instruments at FVOCI 136,461 134,050Dividend income 1,332 1,198

Banking and Retail Group

Cash and cash equivalents 128,761,151 130,619,652 23,791,463 24,890,200 Interest bearing basedon prevailing rates

Unsecured; not impaired

Rent income 12,112,612 11,433,711Rent receivable 2,814,192 3,006,209 Noninterest-bearing Unsecured; not impairedService income 19,253 20,221Service fee receivable Noninterest-bearing Unsecured; not impairedManagement fee income 256 75Management fee receivable 8,441 14,469 Noninterest-bearing Unsecured; not impairedDeferred rent income (895) (8,950) Noninterest bearing Unsecured

(Forward)

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*SGVFS038338*

Amount of TransactionsOutstanding Amount

[Asset (Liability)]

September 30,

2019

(Unaudited)

September 30,2018

(Unaudited)

September 30,

2019

(Unaudited)

December 31,2018

(Audited) Terms Conditions

(In Thousands)

Interest income P=727,903 P=202,598 P= P=Accrued interest receivable 90,163 29,963 Noninterest-bearing Unsecured; not impairedTime deposits 158,344 2,540,941 2,382,597 Interest-bearing UnsecuredLoans payable and long-term

debt1,000,330 8,913,368 (10,784,750) (9,824,904) Interest-bearing

Combination of securedand unsecured

Interest expense 509,268 73,075Accrued interest payable (53,811) (3,878) Noninterest-bearing UnsecuredRent expense 346 522Trade payable (95,921) (138,782) Noninterest-bearing UnsecuredManagement fee expense 3,321 1,738Equity instruments at FVOCI 12,873,488 15,011,058Cash in escrow 71,743 157,719 Interest bearing based

on prevailing ratesUnsecured; not impaired

Dividend income 186,098 198,350

Other Related Parties

Rent income 131,554 79,704 –Rent receivable 14,917 13,574 Noninterest-bearing Unsecured; not impairedService income 99,744 37,145Service fee receivable 2,756 62 Noninterest-bearing Unsecured; not impairedManagement fee income 7,745 3,235Management fee receivable 7,993 7,993 Noninterest-bearing Unsecured; not impairedRent expense 6,438 4,219Accrued expenses 10 (455,156) (455,146) Noninterest-bearing UnsecuredTrade payable (95,382) (126,750) Noninterest-bearing UnsecuredDividend income 88,266

Due from and due to related parties amounted to nil as at September 30, 2019 and December 31,2018. Due from and due to related party transactions amounted to nil and P=43 million for the nine-month periods ended September 30, 2019 and 2018, respectively.

Compensation of Key Management PersonnelThe aggregate compensation and benefits related to key management personnel for the nine-monthperiods ended September 30, 2019 and 2018 consist of short-term employee benefits amounting toP=802 million and P=690 million, respectively, and post-employment benefits (pension benefits)amounting to P=115 million and P=112 million, respectively.

19. Other Revenue


September 30,

2019

(Unaudited)

September 30,2018

(Unaudited)(In Thousands)

Food and beverages P=1,214,286 P=1,210,615Net merchandise sales 709,749 633,746Amusement income 628,539 603,921Bowling and ice skating fees 215,985 184,090Advertising and others (see Note 18) 1,859,225 1,445,997

P=4,627,784 P=4,078,369

Others include service fees, parking terminal, sponsorships, commissions and membership revenue.

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*SGVFS038338*

20. Costs and Expenses


September 30,

2019

(Unaudited)

September 30,2018


Cost of real estate sold (see Note 8) P=14,639,969 P=12,515,324Administrative 8,550,021 7,857,465Depreciation and amortization (see Notes 11 and 13) 8,013,116 7,152,266Marketing and selling expenses 4,233,797 3,678,971Business taxes and licenses 3,726,079 3,557,472Film rentals 2,254,491 2,113,123Rent (see Note 18) 870,964 1,233,556Insurance 388,367 371,000Others 1,355,780 1,171,457

P=44,032,584 P=39,650,634

Others include bank charges, donations, dues and subscriptions, services fees and transportation andtravel.

21. Interest Income and Interest Expense

The details of the sources of interest income and interest expense follow:

September 30,

2019

(Unaudited)

September 30,2018


Interest income on:Cash and cash equivalents (see Note 6) P=1,094,442 P=884,454Time deposits (see Note 13) 26,243 32,935Others (see Notes 7 and 10) 72,204 56,177

P=1,192,889 P=973,566

Interest expense on:Long-term debt (see Note 16) P=5,642,575 P=4,873,232Loans payable (see Note 14) 20,121 7,888Others 25,084 80,082

P=5,687,780 P=4,961,202

22. Financial Risk Management Objectives and Policies

The Company’s principal financial instruments, other than derivatives, comprise of cash and cashequivalents, accrued interest and other receivables, equity instruments at FVOCI and bank loans. Themain purpose of these financial instruments is to finance the Company’s operations. The Companyhas other financial assets and liabilities such as trade receivables and trade payables, which arisedirectly from its operations.

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*SGVFS038338*

The Company also enters into derivative transactions, principally, cross currency swaps, principal

only swaps, interest rate swaps and forward swaps. The purpose is to manage the interest rate andforeign currency risks arising from the Company’s operations and its sources of finance(see Note 23).

The main risks arising from the Company’s financial instruments are interest rate risk, foreigncurrency risk, liquidity risk, credit risk and equity price risk. The Company’s BOD and managementreview and agree on the policies for managing each of these risks.

Interest Rate RiskThe Company’s policy is to manage its interest rate risk related to its financial instruments withfloating interest and/or fixed interest rates by using a mix of fixed and floating rate debts. To managethis mix in a cost-efficient manner, it enters into interest rate swaps, in which the Company agrees toexchange, at specified intervals, the difference between fixed and floating rate interest amountscalculated by reference to an agreed-upon notional principal amount. These swaps are designated toeconomically hedge underlying debt obligations. As at September 30, 2019 and December 31, 2018,after taking into account the effect of interest rate swaps, approximately 83% of its long-termborrowings are at a fixed rate of interest.

Foreign Currency RiskForeign currency risk is the risk that the fair value or future cash flows of a financial instrument willfluctuate because of changes in foreign exchange rates.

The Company’s policy is to manage its foreign currency risk mainly from U.S. dollar-denominateddebt issuances by entering into foreign currency swap contracts, cross-currency swaps, foreigncurrency call options, non-deliverable forwards and foreign currency range options aimed at reducingand/or managing the adverse impact of changes in foreign exchange rates on financial performanceand cash flow.

The Company’s foreign currency-denominated monetary assets amounted to US$36 million(P=1,844 million) as at September 30, 2019 and US$43 million (P=2,252 million) as at December 31,2018. The Company’s foreign currency-denominated monetary liabilities amounted to nil as atSeptember 30, 2019 and December 31, 2018.

In translating the foreign currency-denominated monetary assets to peso amounts, the exchange ratesused were ¥7.15 to US$1.00 and ¥6.88 to US$1.00, the China Yuan Renminbi to U.S. dollarexchange rate as at September 30, 2019 and December 31, 2018, respectively and P=51.83 to US$1.00and P=52.58 to US$1.00, the Philippine peso to U.S. dollar exchange rate as at September 30, 2019and December 31, 2018, respectively.

Liquidity RiskLiquidity risk arises from the possibility that the Company may encounter difficulties in raising fundsto meet commitments from financial instruments or that a market for derivatives may not exist insome circumstance.

The Company seeks to manage its liquidity profile to be able to finance capital expenditures andservice maturing debts. To cover its financing requirements, the Company intends to use internallygenerated funds and proceeds from debt and equity issues.

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*SGVFS038338*

As part of its liquidity risk management program, the Company regularly evaluates its projected andactual cash flow information and continuously assesses conditions in the financial markets foropportunities to pursue fund-raising initiatives. These initiatives may include bank loans and debtcapital and equity market issues.

Credit RiskCredit risk is the risk that a counterparty will not meet its obligations under a financial instruments orcustomer contract, leading to a financial loss. The Company is exposed to credit risk from itsoperating activities (primarily trade receivables) and from its financing activities, including depositswith banks and financial institutions, foreign exchange transactions and other financial instruments.

The changes in the gross carrying amount of receivables and unbilled revenue from sale of real estateduring the periods did not materially affect the allowance for ECLs.

Equity Price RiskEquity price risk arises from the changes in the levels of equity indices and the value of individualstocks traded in the stock exchange.

As a policy, management monitors its equity price risk pertaining to its investments in quoted equitysecurities which are classified as equity instruments at FVOCI in the interim consolidated balancesheets based on market expectations. Material equity investments within the portfolio are managedon an individual basis and all buy and sell decisions are approved by management.

Capital ManagementCapital includes equity attributable to the owners of the Parent.

The primary objective of the Company’s capital management is to ensure that it maintains a strongcredit rating and healthy capital ratios in order to support its business and maximize shareholdervalue.

The Company manages its capital structure and makes adjustments to it, in the light of changes ineconomic conditions. To maintain or adjust the capital structure, the Company may adjust thedividend payment to shareholders, pay-off existing debts, return capital to shareholders or issue newshares.

23. Financial Instruments

Fair ValuesThe following table sets forth the carrying values and estimated fair values of financial assets andliabilities, by category and by class, other than those whose carrying values are reasonableapproximations of fair values:

September 30, 2019 (Unaudited) December 31, 2018 (Audited)

Carrying Value Fair Value Carrying Value Fair Value

(In Thousands)Financial Assets

Financial assets at FVTPL:Derivative assets P=1,468,286 P=1,468,286 P=852,933 P=852,933

Equity instruments (included under “Prepaid expenses and other current

assets”) 16,700 16,700 – –Financial assets at amortized cost -

Time deposits (included under “Othernoncurrent assets”) 2,540,941 2,493,972 2,392,622 2,339,327

Equity instruments 20,492,425 20,492,425 23,532,253 23,532,253

24,518,352 24,471,383 26,777,808 26,724,513

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September 30, 2019 (Unaudited) December 31, 2018 (Audited)


(In Thousands)

Financial Liabilities

Financial liabilities at FVTPL:Derivative liabilities P=563,017 P=563,017 P=335,008 P=335,008

Loans and borrowings: Liability for purchased land - net

of current portion 4,285,574 3,891,251 6,044,220 6,011,668Long-term debt - net of current portion 206,067,861 163,727,659 197,682,262 182,162,127Tenants’ deposits - net of current portion 20,008,500 19,685,060 18,177,479 17,770,876Other noncurrent liabilities* 18,479,188 18,237,682 7,078,916 6,978,719

P=249,404,140 P=206,104,669 P=229,317,885 P=213,258,398

*Excluding nonfinancial liabilities amounting to P=3,971 million and P=3,433 million as at September 30, 2019 and December 31, 2018,

respectively.

The following methods and assumptions were used to estimate the fair value of each class of financialinstrument for which it is practicable to estimate such value:

Equity Instruments at FVTPL. The fair values are based on the quoted market prices of theinstruments.

Derivative Instruments. The fair values are based on quotes obtained from counterparties.

Equity Instruments at FVOCI. The fair value of investments that are actively traded in organizedfinancial markets is determined by reference to quoted market bid prices at the close of business.

Long-term Debt. Fair value is based on the following:

Debt Type Fair Value Assumptions

Fixed Rate Loans Estimated fair value is based on the discounted value of futurecash flows using the applicable rates for similar types of loans.Discount rates used range from 3.08% to 6.48% and 3.82% to8.45% as at September 30, 2019 and December 31, 2018,respectively.

Variable Rate Loans For variable rate loans that re-price every three months, thecarrying value approximates the fair value because of recent andregular repricing based on current market rates. For variable rateloans that re-price every six months, the fair value is determinedby discounting the principal amount plus the next interestpayment amount using the prevailing market rate for the periodup to the next repricing date. Discount rates used was 6.95% to6.99% and 6.98% to 9.01% as at September 30, 2019 andDecember 31, 2018, respectively.

Tenants’ Deposits, Liability for Purchased Land and Other Noncurrent Liabilities. The estimatedfair value is based on the discounted value of future cash flows using the applicable rates. Thediscount rates used range from 4.70% to 5.04% and 7.80% to 7.85% as at September 30, 2019 andDecember 31, 2018, respectively.

The Company assessed that the carrying values of cash and cash equivalents, receivables, cash inescrow, bank loans and accounts payable and other current liabilities approximate their fair valuesdue to the short-term nature and maturities of these financial instruments.

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There were no financial instruments subject to an enforceable master netting arrangement that werenot off-set in the interim consolidated balance sheets.

Fair Value HierarchyThe Company uses the following hierarchy for determining and disclosing the fair value of financialinstruments by valuation technique:

Level 1: Quoted prices in active markets for identical assets or liabilities, except for related embeddedderivatives which are either classified as Level 2 or 3;

Level 2: Those measured using inputs other than quoted prices included in Level 1 that are observablefor the asset or liability, either directly (as prices) or indirectly (derived from prices); and,

Level 3: Those with inputs for the asset or liability that are not based on observable market data(unobservable inputs).

The following tables show the fair value hierarchy of Company’s financial instruments as at:

September 30, 2019 (Unaudited)

Level 1 Level 2 Level 3


Financial assets at FVTPL -Derivative assets P=– P=1,468,286 P=–

Equity instruments (included under “Prepaid expenses and other current

assets”) 16,700 – –

Financial assets at amortized cost - Time deposits (included under “Other

noncurrent assets”) – 2,493,972 –

Financial assets at FVOCI -Equity instruments 20,489,044 – 3,381

20,505,744 3,962,258 3,381


Financial liabilities at FVTPL:Derivative liabilities P=– P=563,017 P=–

Loans and borrowings: Liability for purchased land - net of current

portion – – 3,891,251

Long-term debt - net of current portion – – 163,727,659

Tenants’ deposits – – 19,685,060

Other noncurrent liabilities* – – 18,237,682

P=– P=563,017 P=205,541,652

*Excluding nonfinancial liabilities amounting to P=3,971 million as at September 30, 2019.




Financial assets at FVTPL:Derivative assets P=– P=852,933 P=–

Financial assets at amortized cost - Time deposits (included under “Other

noncurrent assets”) – 2,339,327 –Financial assets at FVOCI -

Equity instruments 23,508,022 – 24,231

P=23,508,022 P=3,192,260 P=24,231

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(In Thousands)Financial Liabilities

Financial liabilities at FVTPL:Derivative liabilities P=– P=335,008 P=–

Loans and borrowings: Liability for purchased land - net of current

portion – – 6,011,668Long-term debt - net of current portion – – 182,162,127Tenants’ deposits – – 17,770,876Other noncurrent liabilities* – – 6,978,719

P=– P=335,008 P=212,923,390

*Excluding nonfinancial liabilities amounting to P=3,433 million as at December 31, 2018.

During the periods ended September 30, 2019 and December 31, 2018, there were no transfersbetween Level 1 and Level 2 fair value measurements and no transfers into and out of Level 3 fairvalue measurements.

Derivative Financial Instruments Accounted for as Cash Flow Hedges

Cross Currency Swaps. In 2019, SM Land (China) Limited entered into cross-currency swaptransactions to hedge both the foreign currency and interest rate exposures on its U.S. dollar-denominated five-year term loans (the hedged loans) obtained on April 15, 2019 (see Note 16).

Under the floating-to-fixed cross-currency swaps, it effectively converted the hedged US dollar-denominated loans into China renminbi-denominated loans. Details of the floating-to-fixed cross-currency swaps are as follows:

Swap the face amount of the loans at US$ for their agreed China renminbi equivalents(¥1,919 million for US$286 million) with the counterparty banks and to exchange, at maturitydate, the principal amount originally swapped.

Pay fixed interest at the China renminbi notional amount and receive floating interest on the US$notional amount, on a quarterly basis, simultaneous with the interest payments on the hedgedloans at an interest rates ranging from 3.86% to 3.97%.

In June and July 2018, SMPH entered into cross-currency swap transactions to hedge both the foreigncurrency and interest rate exposures on its U.S. dollar-denominated five-year term syndicated loans(the hedged loans) obtained on July 30, 2018.

Details of the floating-to-fixed cross-currency swaps are as follows:

Swap the face amount of the loans at US$ for their agreed Philippine peso equivalents(P=3,199 million for US$60 million and P=2,667 million for US$50 million on June 14, 2023) withthe counterparty banks and to exchange, at maturity date, the principal amount originallyswapped.

Pay fixed interest at the Philippine peso notional amount and receives floating interest on the US$notional amount, on a quarterly to semi-annual basis, simultaneous with the interest payments onthe hedged loans at an interest rates ranging from 6.37% to 6.39%.

In 2017, SM Land (China) Limited entered into cross-currency swap transactions to hedge both theforeign currency and interest rate exposures on its U.S. dollar-denominated five-year term loans (thehedged loans) obtained on May 8, 2017 and October 16, 2017 (see Note 16).

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Swap the face amount of the loans at US$ for their agreed China renminbi equivalents(¥672 million for US$100 million) with the counterparty banks and to exchange, at maturity date,the principal amount originally swapped.

Pay fixed interest at the China renminbi notional amount and receives floating interest on the US$notional amount, on a quarterly basis, simultaneous with the interest payments on the hedgedloans at an interest rates ranging from 4.95% to 5.43%.

The outstanding cross-currency swaps have a fair value of P=127 million as of September 30, 2019.

Principal only Swaps. In 2016 and 2017, SM Land (China) Limited entered into principal only swaptransactions to hedge the foreign currency exposures amounting to $420 million of five-year termsyndicated loans and advances obtained on January 11, 2016 to March 22, 2016 andJanuary 11-17, 2017 (see Note 16). Under the principal only swap, it effectively converted the hedgedUS dollar-denominated loans and advances into China renminbi-denominated loans.

As at September 30, 2019, SM Land (China) Limited’s outstanding principal only swaps havenotional amounts totaling US$270 million which were fixed to US$:¥ exchange rates ranging from6.458 to 6.889 and will mature on January 29, 2021. Fair value of the outstanding principal onlyswaps amounted to P=723 million as of September 30, 2019.

Interest Rate Swaps. In 2017 and 2016, SM Land (China) Limited entered into US$ interest rateswap agreement with notional amount of US$150 million and US$270 million, respectively. Underthe agreement, SM Land (China) Limited effectively converts the floating rate U.S. dollar-denominated loan into fixed rate loan (see Note 16). Fair value of the outstanding interest rate swapsamounted to P=55 million.

As the terms of the swaps have been negotiated to match the terms of the hedged loans, the hedgeswere assessed to be effective. No ineffectiveness was recognized in the interim consolidatedstatements of income for the nine-month periods ended September 30, 2019 and 2018.

Cumulative fair value changes recognized in equity under other comprehensive income from thematured interest rate swaps amounting to P=18 million gain was recognized in the interim consolidatedstatements of income for the nine-month period ended September 30, 2019.

Assessment of Hedge EffectivenessThere is an economic relationship between the hedged items and the hedging instruments as the termsof the cross-currency swaps, principal only swaps and interest rate swaps match the terms of thehedged items (i.e., notional amount and expected payment date). The Company has established ahedge ratio of 1:1 for the hedging relationships as the underlying risk of the cross-currency swaps,principal only swaps and interest rate swaps are identical to the hedged risk components. To test thehedge effectiveness, the Company uses the hypothetical derivative method and compares the changesin the fair value of the hedging instruments against the changes in fair value of the hedged itemsattributable to the hedged risks.

The hedge ineffectiveness can arise from differences in the timing of the cash flows of the hedgeditems and the hedging instruments and the counterparties’ credit risk differently impacting the fairvalue movements of the hedging instruments.

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The fair value of the outstanding cross-currency swaps, principal only swaps and interest rate swapsamounting to P=905 million gain and P=124 million gain as at September 30, 2019 and December 31,2018, respectively, was taken to equity under other comprehensive income. For the nine-monthperiods ended September 30, 2019 and 2018, no ineffectiveness was recognized in the interimconsolidated statements of income. Foreign currency translation arising from the hedged loanamounting to P=1,484 million loss and P=2,096 million gain for the nine-month periods endedSeptember 30, 2019 and 2018 was recognized in the interim consolidated statements of income.Foreign exchange loss equivalent to the same amounts were recycled from equity to the interimconsolidated statements of income during the same period.

Other Derivative Instruments Not Designated as Hedges

Forward Swaps. In 2018, SM Land (China) Limited entered into forward swap transactions to capthe foreign currency exposures on its U.S. dollar-denominated three-year term syndicated loans (thehedged loans) obtained on March 14, 2018 to May 25, 2018 (see Note 16).

Fair value changes from the matured forward swaps amounting to P=22 million gain was recognized inthe interim consolidated statements of income for the nine-month period ended September 30, 2019.

24. EPS Computation

Basic/diluted EPS is computed as follows:

September 30, 2019

(Unaudited)

September 30, 2018(Unaudited)

(In Thousands, Except Per Share Data)

Net income attributable to equity holders of the parent (a) P=27,595,045 P=23,439,290

Common shares issued 33,166,300 33,166,300Less weighted average number of treasury stock 4,309,888 4,312,644

Weighted average number of common sharesoutstanding (b) 28,856,412 28,853,656

Earnings per share (a/b) P=0.956 P=0.812

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INDEPENDENT AUDITOR�S REPORT

The Stockholders and the Board of DirectorsSM Prime Holdings, Inc.10th Floor Mall of Asia Arena Annex BuildingCoral Way cor. J.W. Diokno Blvd.Mall of Asia ComplexBrgy. 76, Zone 10, CBP-1A, Pasay City 1300

Opinion

We have audited the consolidated financial statements of SM Prime Holdings, Inc. and its subsidiaries(the Company), which comprise the consolidated balance sheets as at December 31, 2018 and 2017, and theconsolidated statements of income, consolidated statements of comprehensive income, consolidated statementsof changes in equity and consolidated statements of cash flows for each of the three years in the period endedDecember 31, 2018, and notes to the consolidated financial statements, including a summary of significantaccounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, theconsolidated balance sheets of the Company as at December 31, 2018 and 2017, and its consolidated financialperformance and its consolidated cash flows for each of the three years in the period ended December 31, 2018in accordance with Philippine Financial Reporting Standards (PFRSs).

Basis for Opinion

We conducted our audits in accordance with Philippine Standards on Auditing (PSAs). Our responsibilitiesunder those standards are further described in the Auditor�s Responsibilities for the Audit of the Consolidated

Financial Statements section of our report. We are independent of the Company in accordance with the Codeof Ethics for Professional Accountants in the Philippines (Code of Ethics) together with the ethicalrequirements that are relevant to our audit of the consolidated financial statements in the Philippines, and wehave fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for ouropinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our auditof the consolidated financial statements of the current period. These matters were addressed in the context ofour audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we donot provide a separate opinion on these matters. For each matter below, our description of how our auditaddressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor�s Responsibilities for the Audit of the

Consolidated Financial Statements section of our report, including in relation to these matters. Accordingly,our audit included the performance of procedures designed to respond to our assessment of the risks ofmaterial misstatement of the consolidated financial statements. The results of our audit procedures, includingthe procedures performed to address the matters below, provide the basis for our audit opinion on theaccompanying consolidated financial statements.

SyCip Gorres Velayo & Co.6760 Ayala Avenue1226 Makati CityPhilippines

Tel: (632) 891 0307Fax: (632) 819 0872ey.com/ph

BOA/PRC Reg. No. 0001, October 4, 2018, valid until August 24, 2021SEC Accreditation No. 0012-FR-5 (Group A), November 6, 2018, valid until November 5, 2021


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Adoption of PFRS 15, Revenue from Contracts with Customers

Effective January 1, 2018, the Company adopted the new revenue recognition standard, PFRS 15,Revenue from Contracts with Customers, under modified retrospective approach. The adoption ofPFRS 15 resulted in significant changes in the Company�s revenue processes, policies and procedures andrevenue recognition accounting policy. The following matters are significant to our audit because theseinvolve application of significant judgment and estimation: (1) identification of the contract for sale ofreal estate property that would meet the requirements of PFRS 15; (2) assessment of the probability thatthe entity will collect the consideration from the buyer; (3) determination of the transaction price;(4) application of the output method as the measure of progress in determining revenue from real estatesale; (5) determination of the actual costs incurred as cost of real estate sold; and (6) recognition of coststo obtain a contract.

The Company identifies the contract that meets all the criteria required under PFRS 15 for a valid revenuecontract. In the absence of a signed contract to sell, the Company identifies alternative documentationthat are enforceable and that contains each party�s rights regarding the real estate property to betransferred, the payment terms and the contract�s commercial substance.

In evaluating whether collectability of the amount of consideration is probable, the Company considersthe significance of the buyer�s initial payments in relation to the total contract price (or buyer�s equity).Collectability is also assessed by considering factors such as past history with the buyer, age of theoutstanding receivables and pricing of the property. Management regularly evaluates the historical salescancellations if it would still support its current threshold of buyers� equity before commencing revenuerecognition.

In determining the transaction price, the Company considers the selling price of the real estate propertyand other fees collected from the buyers that are not held on behalf of other parties.

In measuring the progress of its performance obligation over time, the Company uses the output method.This method measures progress based on physical proportion of work done on the real estate projectwhich requires technical determination by the Company�s project engineers. This is based on themonthly project accomplishment report prepared by the third-party project managers as approved by theconstruction managers.

The Company identifies sales commissions after contract inception as costs of obtaining a contract. Forcontracts which qualified for revenue recognition, the Company capitalizes the total sales commissionsdue to sales agent as costs to obtain a contract and recognizes the related commissions payable. TheCompany uses percentage of completion (POC) method in amortizing sales commissions consistent withthe Company�s revenue recognition policy.

The disclosures related to the adoption of PFRS 15 are included in Note 3 to the consolidated financialstatements.

Audit Response

We obtained an understanding of the Company�s revenue recognition processes and tested relevantcontrols. We reviewed the PFRS 15 adoption papers and accounting policies prepared by management,including revenue streams identification and scoping, and contract analysis.


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For the identification of the alternative documentation for sale of real estate property (in the absence of asigned contract to sell) that would meet the requirements of PFRS 15, our audit procedures include,among others, involvement of our internal specialist in reviewing the Company�s legal basis regarding theenforceability of the alternative documentation against previous court decisions, buyers� behavior andindustry practices.

For the buyers� equity, we evaluated management�s basis of the buyer�s equity by comparing this to thehistorical analysis of sales collections from buyers with accumulated payments above the collectionthreshold.

For the determination of the transaction price, we obtained an understanding of the nature of other feescharged to the buyers. For selected contracts, we agreed the amounts excluded from the transaction priceagainst the expected amounts required to be remitted to the government based on existing tax rules andregulations (e.g., documentary stamp taxes, transfer taxes and real property taxes).

For the application of the output method, in determining revenue from sale of real estate, we obtained anunderstanding of the Company�s processes for determining the POC, and performed tests of the relevantcontrols. We obtained the certified POC reports prepared by the third-party project managers andassessed their competence and objectivity by reference to their qualifications, experience and reportingresponsibilities. For selected projects, we conducted ocular inspections, made relevant inquiries andobtained the supporting details of POC reports showing the completion of the major activities of theproject construction.

For the cost of real estate sold, we obtained an understanding of the Company�s cost accumulationprocess and performed tests of the relevant controls. For selected projects, we traced costs accumulated,including those incurred but not yet billed costs, to supporting documents such as contractors billinginvoices, certificates of progress acceptance, official receipts, among others.

For the recognition of costs to obtain a contract, we obtained an understanding of the sales commissionsprocess. For selected contracts, we agreed the basis for calculating the sales commissions capitalized andportion recognized in profit or loss, particularly (a) the percentage of commissions due against contractswith sales agents, (b) the total commissionable amount (e.g., net contract price) against the relatedcontract to sell, and, (c) the POC against the POC used in recognizing the related revenue from sale ofreal estate.

We test computed the transition adjustments and evaluated the disclosures made in the consolidatedfinancial statements on the adoption of PFRS 15.

Other Information

Management is responsible for the other information. The other information comprises the information

included in the SEC Form 20 IS (Definitive Information Statement), SEC Form 17 A and Annual Report for

the year ended December 31, 2018, but does not include the consolidated financial statements and our

auditor�s report thereon. The SEC Form 20 IS (Definitive Information Statement), SEC Form 17 A and

Annual Report for the year ended December 31, 2018 are expected to be made available to us after the date ofthis auditor�s report.


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Our opinion on the consolidated financial statements does not cover the other information and we will notexpress any form of assurance conclusion thereon.

In connection with our audits of the consolidated financial statements, our responsibility is to read the otherinformation identified above when it becomes available and, in doing so, consider whether the otherinformation is materially inconsistent with the consolidated financial statements or our knowledge obtained inthe audits, or otherwise appears to be materially misstated.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial

Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements inaccordance with PFRSs, and for such internal control as management determines is necessary to enable thepreparation of consolidated financial statements that are free from material misstatement, whether due to fraudor error.

In preparing the consolidated financial statements, management is responsible for assessing the Company�sability to continue as a going concern, disclosing, as applicable, matters related to going concern and using thegoing concern basis of accounting unless management either intends to liquidate the Company or to ceaseoperations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company�s financial reporting process.

Auditor�s Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as awhole are free from material misstatement, whether due to fraud or error, and to issue an auditor�s report thatincludes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an auditconducted in accordance with PSAs will always detect a material misstatement when it exists. Misstatementscan arise from fraud or error and are considered material if, individually or in the aggregate, they couldreasonably be expected to influence the economic decisions of users taken on the basis of these consolidatedfinancial statements.

As part of an audit in accordance with PSAs, we exercise professional judgment and maintain professionalskepticism throughout the audit. We also:

· Identify and assess the risks of material misstatement of the consolidated financial statements, whether dueto fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidencethat is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a materialmisstatement resulting from fraud is higher than for one resulting from error, as fraud may involvecollusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

· Obtain an understanding of internal control relevant to the audit in order to design audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectivenessof the Company�s internal control.

· Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimatesand related disclosures made by management.


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· Conclude on the appropriateness of management�s use of the going concern basis of accounting based onthe audit evidence obtained, whether a material uncertainty exists related to events or conditions that maycast significant doubt on the Company�s ability to continue as a going concern. If we conclude that amaterial uncertainty exists, we are required to draw attention in our auditor�s report to the relateddisclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify ouropinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor�s report.However, future events or conditions may cause the Company to cease to continue as a going concern.

· Evaluate the overall presentation, structure and content of the consolidated financial statements, includingthe disclosures, and whether the consolidated financial statements represent the underlying transactionsand events in a manner that achieves fair presentation.

· Obtain sufficient appropriate audit evidence regarding the financial information of the entities or businessactivities within the Company to express an opinion on the consolidated financial statements. We areresponsible for the direction, supervision and performance of the audit. We remain solely responsible forour audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope andtiming of the audit and significant audit findings, including any significant deficiencies in internal control thatwe identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethicalrequirements regarding independence, and to communicate with them all relationships and other matters thatmay reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were ofmost significance in the audit of the consolidated financial statements of the current period and are thereforethe key audit matters. We describe these matters in our auditor�s report unless law or regulation precludespublic disclosure about the matter or when, in extremely rare circumstances, we determine that a matter shouldnot be communicated in our report because the adverse consequences of doing so would reasonably beexpected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor�s report is Sherwin V. Yason.

SYCIP GORRES VELAYO & CO.

Sherwin V. YasonPartnerCPA Certificate No. 104921SEC Accreditation No. 1514-AR-1 (Group A), August 6, 2018, valid until August 5, 2021Tax Identification No. 217-740-478BIR Accreditation No. 08-001998-112-2018, February 14, 2018, valid until February 13, 2021PTR No. 7332635, January 3, 2019, Makati City

February 11, 2019


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CONSOLIDATED BALANCE SHEETS(Amounts in Thousands)

December 31

2018 2017

ASSETS

Current Assets

Cash and cash equivalents (Notes 6, 21, 28 and 29) P=38,766,467 P=44,371,534Financial assets at fair value through other comprehensive income

(Notes 7, 21, 28 and 29) � 731,076Receivables and contract assets (Notes 8, 15, 16, 21, 28 and 29) 35,229,450 33,990,678Condominium and residential units for sale (Notes 2 and 9) 8,088,139 8,733,299Land and development (Notes 2 and 10) 29,486,964 22,518,138Equity instruments at fair value through other comprehensive income

(Notes 11, 21, 28 and 29) 639,316 641,300Derivative assets (Notes 28 and 29) 432,898

Prepaid expenses and other current assets (Notes 12, 21, 28 and 29) 15,147,029 14,590,015

Total Current Assets 127,790,263 125,576,040

Noncurrent Assets

Investments in associates and joint ventures (Note 15) 26,199,380 24,566,239Equity instruments at fair value through other comprehensive income -

net of current portion (Notes 11, 21, 28 and 29) 22,892,937 30,464,845Property and equipment - net (Note 13) 1,419,111 1,493,427Investment properties - net (Notes 14 and 19) 293,574,616 273,084,146Land and development - net of current portion (Note 10) 49,844,246 36,148,036Derivative assets - net of current portion (Notes 28 and 29) 420,035 3,546,694Deferred tax assets - net (Note 26) 1,083,670 1,114,291Other noncurrent assets (Notes 16, 21, 25, 28 and 29) 80,910,060 42,423,880

Total Noncurrent Assets 476,344,055 412,841,558

P=604,134,318 P=538,417,598

LIABILITIES AND EQUITY

Current Liabilities

Loans payable (Notes 17, 21, 28 and 29) P=39,400 P=744,400Accounts payable and other current liabilities

(Notes 18, 21, 28 and 29) 61,767,086 51,084,082Current portion of long-term debt (Notes 19, 21, 28 and 29) 25,089,624 25,344,035Income tax payable 1,383,742 1,035,215

Total Current Liabilities 88,279,852 78,207,732


Long-term debt - net of current portion (Notes 19, 21, 28 and 29) 197,682,262 167,509,484Tenants� and customers� deposits - net of current portion

(Notes 18, 27, 28 and 29) 18,676,022 16,376,024Liability for purchased land - net of current portion

(Notes 18, 28 and 29) 6,044,220 2,170,998Deferred tax liabilities - net (Note 26) 3,527,501 2,877,971Derivative liabilities (Notes 28 and 29) 335,008 777,408Other noncurrent liabilities (Notes 16, 18, 25, 28 and 29) 10,511,491 7,624,067

Total Noncurrent Liabilities 236,776,504 197,335,952

Total Liabilities (Carried Forward) 325,056,356 275,543,684

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December 31

2018 2017

Total Liabilities (Brought Forward) P=325,056,356 P=275,543,684


Capital stock (Notes 20 and 30) 33,166,300 33,166,300Additional paid-in capital - net (Notes 5 and 20) 39,953,218 39,662,168Cumulative translation adjustment 1,955,999 2,110,745Net fair value changes of equity instruments at fair value through other

comprehensive income (Note 11) 19,084,597 25,489,705Net fair value changes on cash flow hedges (Note 29) (842,098) (311,429)Remeasurement loss on defined benefit obligation (Note 25) (348,480) (199,126)Retained earnings (Note 20):

Appropriated 42,200,000 42,200,000Unappropriated 143,118,153 120,125,945

Treasury stock (Notes 20 and 30) (2,984,695) (3,287,087)

Total Equity Attributable to Equity Holders of the Parent 275,302,994 258,957,221

Non-controlling Interests (Note 20) 3,774,968 3,916,693

Total Equity 279,077,962 262,873,914

P=604,134,318 P=538,417,598

See accompanying Notes to Consolidated Financial Statements.

*SGVFS032857*


CONSOLIDATED STATEMENTS OF INCOME(Amounts in Thousands, Except Per Share Data)

Years Ended December 31

2018 2017 2016

REVENUE

Rent (Notes 21, 22 and 27) P=57,162,796 P=51,406,294 P=45,693,269Sales:

Real estate 35,872,552 29,434,050 24,999,811Cinema and event ticket 5,218,434 4,767,364 4,666,686

Others (Notes 21 and 22) 5,826,783 5,314,142 4,456,465

104,080,565 90,921,850 79,816,231

COSTS AND EXPENSES (Note 23) 55,753,334 50,293,058 44,551,175

INCOME FROM OPERATIONS 48,327,231 40,628,792 35,265,056

OTHER INCOME (CHARGES)

Interest expense (Notes 21, 24, 28 and 29) (7,540,045) (5,474,422) (4,409,614)Interest and dividend income (Notes 7, 11, 21 and 24) 1,828,776 1,214,347 1,114,931Others - net (Notes 7, 15, 19, 21 and 29) (649,787) (420,856) (981,696)

(6,361,056) (4,680,931) (4,276,379)

INCOME BEFORE INCOME TAX 41,966,175 35,947,861 30,988,677

PROVISION FOR INCOME TAX (Note 26)Current 8,534,428 7,531,782 6,335,370Deferred 520,618 291,616 285,683

9,055,046 7,823,398 6,621,053

NET INCOME P=32,911,129 P=28,124,463 P=24,367,624

Attributable to:

Equity holders of the Parent (Notes 20 and 30) P=32,172,886 P=27,573,866 P=23,805,713Non-controlling interests (Note 20) 738,243 550,597 561,911

P=32,911,129 P=28,124,463 P=24,367,624

Basic/Diluted earnings per share (Note 30) P=1.115 P=0.956 P=0.826


*SGVFS032857*


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(Amounts in Thousands)


2018 2017 2016

NET INCOME P=32,911,129 P=28,124,463 P=24,367,624

OTHER COMPREHENSIVE INCOME (LOSS)

Other comprehensive income (loss) that will not to bereclassified to profit or loss in subsequent periods:

Unrealized gain (loss) due to changes in fair value of financial assets at fair value through other

comprehensive income (Note 11) (5,287,209) 7,987,295 880,863 Remeasurement gain (loss) on defined benefit obligation

(Note 25) (152,405) (244,103) 82,202

(5,439,614) 7,743,192 963,065Other comprehensive income (loss) that may be reclassified to

profit or loss in subsequent periods:Net fair value changes on cash flow hedges (Note 29) (530,669) (1,123,054) 382,826Cumulative translation adjustment (154,746) 710,372 394,395

(6,125,029) 7,330,510 1,740,286

TOTAL COMPREHENSIVE INCOME P=26,786,100 P=35,454,973 P=26,107,910

Attributable to:

Equity holders of the Parent (Notes 20 and 30) P=26,050,908 P=34,906,622 P=25,542,289Non-controlling interests (Note 20) 735,192 548,351 565,621

P=26,786,100 P=35,454,973 P=26,107,910


*SGVFS032857*


CONSOLIDATED STATEMENTS OF CHANGES IN EQUITYFOR THE YEARS ENDED DECEMBER 31, 2018, 2017 AND 2016



Capital Stock

(Notes 20

Additional

Paid-in

Capital - Net

Cumulative

Translation

Net fair value

changes of equity

instruments at

fair value

through other

comprehensive

income

Net Fair Value

Changes on

Cash Flow

Hedges

Remeasurement

Gain (Loss) on

Defined Benefit

Obligation Retained Earnings (Note 20)

Treasury

Stock

(Notes 20

Non-controlling

Interests Total

and 30) (Notes 5 and 20) Adjustment (Note 11) (Note 29) (Note 25) Appropriated Unappropriated and 30) Total (Note 20) Equity

At January 1, 2018 P=33,166,300 P= 39,662,168 P=2,110,745 P=25,489,705 (P=311,429) (P=199,126) P=42,200,000 P=120,125,945 (P=3,287,087) P=258,957,221 P=3,916,693 P=262,873,914

Net income for the year � � � � � � � 32,172,886 � 32,172,886 738,243 32,911,129

Transfer of unrealized gain on equity instruments at fair valuethrough other comprehensive income � � � (1,117,899) � � � 1,117,899 � � � �

Other comprehensive income (loss) � � (154,746) (5,287,209) (530,669) (149,354) � � � (6,121,978) (3,051) (6,125,029)

Total comprehensive income (loss) for the year � � (154,746) (6,405,108) (530,669) (149,354) � 33,290,785 � 26,050,908 735,192 26,786,100

Cash dividends (Note 20) � � � � � � � (10,307,731) � (10,307,731) � (10,307,731)

Cash dividends received by a subsidiary � � � � � � � 9,154 � 9,154 � 9,154

Cash dividends received by non-controlling interests � � � � � � � � � � (576,200) (576,200)

Sale of treasury shares held by subsidiary � 282,816 � � � � � � 302,392 585,208 � 585,208

Sale (acquisition) of non-controlling interests (Notes 2 and 5) � 8,234 � � � � � � � 8,234 (300,717) (292,483)

At December 31, 2018 P=33,166,300 P=39,953,218 P=1,955,999 P=19,084,597 (P=842,098) (P=348,480) P=42,200,000 P=143,118,153 (P=2,984,695) P=275,302,994 P=3,774,968 P=279,077,962

At January 1, 2017, as previously reported P=33,166,300 P=39,545,625 P=1,400,373 P=17,502,410 P=811,625 P=39,687 P=42,200,000 P=100,170,486 (P=3,355,474) P=231,481,032 P=3,882,512 P=235,363,544

Effect of common control business combination (Note 5) � � � � � (3,046) � � � (3,046) (585) (3,631)

At January 1, 2017, as adjusted 33,166,300 39,545,625 1,400,373 17,502,410 811,625 36,641 42,200,000 100,170,486 (3,355,474) 231,477,986 3,881,927 235,359,913


Other comprehensive income (loss) � � 710,372 7,987,295 (1,123,054) (241,857) � � � 7,332,756 (2,246) 7,330,510

Total comprehensive income (loss) for the year � � 710,372 7,987,295 (1,123,054) (241,857) � 27,573,866 � 34,906,622 548,351 35,454,973

Cash dividends (Note 20) � � � � � � � (7,708,600) � (7,708,600) � (7,708,600)Cash dividends received by a subsidiary � � � � � � � 11,862 � 11,862 � 11,862Cash dividends received by non-controlling interests � � � � � � � � � � (580,791) (580,791)

Sale of treasury shares held by subsidiary � 89,929 � � � � � � 68,387 158,316 � 158,316Acquisition of subsidiary (Note 14) � � � � � � � � � � 327,729 327,729Sale (acquisition) of non-controlling interests (Notes 2 and 5) � 26,614 � � � 6,090 � 78,331 � 111,035 (260,523) (149,488)

At December 31, 2017 P=33,166,300 P=39,662,168 P=2,110,745 P=25,489,705 (P=311,429) (P=199,126) P=42,200,000 P=120,125,945 (P=3,287,087) P=258,957,221 P=3,916,693 P=262,873,914

*SGVFS032857*

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Capital Stock(Notes 5,

AdditionalPaid-in

Capital - NetCumulativeTranslation

Net fair value

changes of equityinstruments at fair

value through

othercomprehensive

income

Net Fair Value

Changes on Cash Flow

Hedges

Remeasurement

Gain (Loss) on Defined Benefit

Obligation Retained Earnings (Note 20)

TreasuryStock

(Notes 20Non-controlling

Interests Total

20 and 30) (Notes 5 and 20) Adjustment (Note 11) (Note 29) (Note 25) Appropriated Unappropriated and 30) Total (Note 20) Equity

At January 1, 2016 P=33,166,300 P=39,304,027 P=1,005,978 P=16,621,547 P=428,799 (P=50,458) P=42,200,000 P=83,168,103 (P=3,355,474) P=212,488,822 P=3,354,025 P=215,842,847

Effect of common control business combination (Note 5) � 241,598 � � � 11,653 � (171,600) � 81,651 38,382 120,033

At January 1, 2016 33,166,300 39,545,625 1,005,978 16,621,547 428,799 (38,805) 42,200,000 82,996,503 (3,355,474) 212,570,473 3,392,407 215,962,880


Other comprehensive income (loss) � � 394,395 880,863 382,826 78,492 � � � 1,736,576 3,710 1,740,286

Total comprehensive income (loss) for the year � � 394,395 880,863 382,826 78,492 � 23,805,713 � 25,542,289 565,621 26,107,910

Cash dividends (Note 20) � � � � � � � (6,642,223) � (6,642,223) � (6,642,223)Cash dividends received by a subsidiary � � � � � � � 10,493 � 10,493 � 10,493Cash dividends received by non-controlling interests � � � � � � � � � � (505,291) (505,291)

Acquisition of subsidiaries (Note 14) � � � � � � � � � � 429,775 429,775

At December 31, 2016 P=33,166,300 P=39,545,625 P=1,400,373 P=17,502,410 P=811,625 P=39,687 P=42,200,000 P=100,170,486 (P=3,355,474) P=231,481,032 P=3,882,512 P=235,363,544


*SGVFS032857*


CONSOLIDATED STATEMENTS OF CASH FLOWS(Amounts in Thousands)


2018 2017 2016

CASH FLOWS FROM OPERATING ACTIVITIES

Income before income tax P=41,966,175 P=35,947,861 P=30,988,677Adjustments for:

Depreciation and amortization (Note 23) 9,655,426 8,959,170 7,814,344Interest expense (Note 24) 7,540,045 5,474,422 4,409,614Interest and dividend income (Notes 7, 11 and 24) (1,828,776) (1,214,347) (1,114,931)Loss (gain) on:

Unrealized foreign exchange - net 557,067 (26,266) 556,343 Mark-to-market on investments held for trading

(Note 7) 13,690 (61,424)Disposal of investments held for trading (Note 7) 10,096

Equity in net earnings of associates and joint ventures(Note 15) (1,297,528) (1,106,816) (471,081)

Operating income before working capital changes 56,592,409 48,057,810 42,121,542Decrease (increase) in:

Receivables and contract assets (11,618,774) (6,715,156) (2,796,008)Condominium and residential units for sale 4,398,296 4,744,813 6,475,919Current portion of land and development (6,523,262) (2,965,245) (10,930,360)Prepaid expenses and other current assets (557,890) (2,368,411) (470,119)

Increase in:Accounts payable and other liabilities 9,552,450 11,154,924 1,669,684Tenants� and customers� deposits 2,306,209 1,476,602 1,606,956

Cash generated from operations 54,149,438 53,385,337 37,677,614Income tax paid (8,185,024) (7,607,930) (6,186,690)

Net cash provided by operating activities 45,964,414 45,777,407 31,490,924

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from sale of:Financial assets at FVOCI 3,023,585

Available-for-sale investments 2,529Investments held for trading (Note 7) 286,500

Interest received 1,417,478 823,686 766,565Dividends received 577,014 603,011 377,385Additions to:

Investment properties (Note 14) (31,244,741) (26,658,723) (30,376,621)Land and development - noncurrent portion (9,107,248) (16,019,718) 3,355,087Property and equipment (Note 13) (126,355) (132,262) (337,071)Equity instruments at FVOCI (Note 11) (5,826) (1,906,125) (2,045)Investments held for trading (122,660)

Investments in associates and joint ventures and acquisition of asubsidiary - net of cash acquired (Notes 5 and 15) (509,282) (775,500) (331,000)

Decrease (increase) in bonds and deposits and other noncurrentassets (Note 16) (28,102,681) 2,889,806 (534,737)

Net cash used in investing activities (64,078,056) (41,011,985) (27,079,908)

(Forward)

*SGVFS032857*

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2018 2017 2016

CASH FLOWS FROM FINANCING ACTIVITIES

Availments of loans (Notes 17 and 19) P=54,115,835 P=41,997,671 P=34,380,938Payments of:

Bank loans (Notes 17 and 19) (27,212,233) (14,546,140) (28,797,979)Dividends (Note 20) (10,874,777) (8,277,529) (7,137,021)Interest (7,193,222) (5,156,332) (4,049,935)

Proceeds from:Maturity of derivatives 3,212,542

Reissuance of treasury shares (Note 20) 585,207 158,316

Net cash provided by (used in) financing activities 12,633,352 14,175,986 (5,603,997)

EFFECT OF EXCHANGE RATE CHANGES ON CASH

AND CASH EQUIVALENTS (124,777) 229,144 524,055

NET INCREASE (DECREASE) IN CASH AND CASH

EQUIVALENTS (5,605,067) 19,170,552 (668,926)


AT BEGINNING OF YEAR 44,371,534 25,200,982 25,869,908


AT END OF YEAR P=38,766,467 P=44,371,534 P=25,200,982


*SGVFS032857*


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Corporate Information

SM Prime Holdings, Inc. (SMPH or the Parent Company) was incorporated in the Philippines andregistered with the Securities and Exchange Commission (SEC) on January 6, 1994. SMPH and itssubsidiaries (collectively known as the �Company�) are incorporated to acquire by purchase,exchange, assignment, gift or otherwise, and to own, use, improve, subdivide, operate, enjoy, sell,assign, transfer, exchange, lease, let, develop, mortgage, pledge, traffic, deal in and hold forinvestment or otherwise, including but not limited to real estate and the right to receive, collect anddispose of, any and all rentals, dividends, interest and income derived therefrom; the right to vote onany proprietary or other interest on any shares of stock, and upon any bonds, debentures, or othersecurities; and the right to develop, conduct, operate and maintain modernized commercial shoppingcenters and all the businesses appurtenant thereto, such as but not limited to the conduct, operationand maintenance of shopping center spaces for rent, amusement centers, movie or cinema theatreswithin the compound or premises of the shopping centers, to construct, erect, manage and administerbuildings such as condominium, apartments, hotels, restaurants, stores or other structures for mixeduse purposes.

SMPH�s shares of stock are publicly traded in the Philippine Stock Exchange (PSE).

As at December 31, 2018, SMPH is 49.70% and 25.86% directly-owned by SM InvestmentsCorporation (SMIC) and the Sy Family, respectively. SMIC, the ultimate parent company, is aPhilippine corporation which listed its common shares with the PSE in 2005. SMIC and all itssubsidiaries are herein referred to as the �SM Group�.

The registered office and principal place of business of the Parent Company is at 10th Floor Mall ofAsia Arena Annex Building, Coral Way cor. J.W. Diokno Blvd., Mall of Asia Complex, Brgy. 76,Zone 10, CBP-1A, Pasay City 1300.

The accompanying consolidated financial statements were approved and authorized for issue inaccordance with a resolution by the Board of Directors (BOD) on February 11, 2019.

2. Basis of Preparation

The accompanying consolidated financial statements of the Company have been prepared on ahistorical cost basis, except for financial assets at fair value through profit or loss (FVTPL), financialassets at fair value through other comprehensive income (FVOCI) and derivative financialinstruments that have been measured at fair value. The consolidated financial statements arepresented in Philippine peso, which is the Parent Company�s functional and presentation currencyunder Philippine Financial Reporting Standards (PFRS). All values are rounded to the nearestthousand peso, except when otherwise indicated.

Statement of ComplianceThe accompanying consolidated financial statements have been prepared in compliance with PFRS,which include the availment of the relief granted by the SEC under Memorandum Circular No. 14,Series of 2018, and Memorandum Circular No. 3, Series of 2019, as discussed in Note 3 to theconsolidated financial statements.

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*SGVFS032857*

Basis of Consolidation

The consolidated financial statements include the accounts of the Parent Company and the followingsubsidiaries:

CompanyCountry of

Incorporation

Percentage ofOwnership

2018 2017

Malls

First Asia Realty Development Corporation Philippines 74.2 74.2Premier Central, Inc. - do - 100.0 100.0Consolidated Prime Dev. Corp. - do - 100.0 100.0Premier Southern Corp. (PSC) - do - 100.0 100.0San Lazaro Holdings Corporation - do - 100.0 100.0Southernpoint Properties Corp. - do - 100.0 100.0First Leisure Ventures Group Inc. (FLVGI) - do - 50.0 50.0CHAS Realty and Development Corporation and Subsidiaries - do - 100.0 100.0Affluent Capital Enterprises Limited and Subsidiaries British Virgin

Islands (BVI) 100.0 100.0Mega Make Enterprises Limited and Subsidiaries - do - 100.0 100.0Springfield Global Enterprises Limited - do - 100.0 100.0Simply Prestige Limited and Subsidiaries - do - 100.0 100.0SM Land (China) Limited and Subsidiaries (SM Land China) Hong Kong 100.0 100.0Rushmore Holdings, Inc. Philippines 100.0 100.0Prime_Commercial Property Management Corporation and

Subsidiaries (PCPMC) - do - 100.0 100.0Magenta Legacy, Inc. - do - 100.0 100.0Associated Development Corporation - do - 100.0 100.0Prime Metroestate, Inc. and Subsidiary - do - 60.0 60.0SM Arena Complex Corporation - do - 100.0 100.0Mindpro Incorporated (Mindpro) - do - 70.0 70.0A. Canicosa Holdings, Inc. - do - 100.0 100.0AD Canicosa Properties, Inc. - do - 100.0 100.0Cherry Realty Development Corporation* - do - 91.3 65.0Residential

SM Development Corporation and Subsidiaries (SMDC) - do - 100.0 100.0Highlands Prime Inc. (HPI) - do - 100.0 100.0Costa del Hamilo, Inc. and Subsidiary (Costa) - do - 100.0 100.0Commercial

Tagaytay Resort Development Corporation - do - 100.0 100.0MOA Esplanade Port, Inc. - do - 100.0 100.0Hotels and Convention Centers

SM Hotels and Conventions Corp. and Subsidiaries - do - 100.0 100.0*Acquired in 2017 which was accounted for as acquisition of assets - single-asset entity (see Note 14).

FLVGI is accounted for as a subsidiary by virtue of control, as evidenced by the majority members ofthe BOD representing the Parent Company.

The individual financial statements of the Parent Company and its subsidiaries, which were preparedfor the same reporting period using their own set of accounting policies, are adjusted to theaccounting policies of the Company when the consolidated financial statements are prepared. Allintracompany balances, transactions, income and expenses, and profits and losses resulting fromintracompany transactions and dividends are eliminated in full.

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*SGVFS032857*

Subsidiaries are consolidated from the date of acquisition, being the date on which the Companyobtains control, and continue to be consolidated until the date that such control ceases. Control isachieved when the Company is exposed, or has rights, to variable returns from its involvement withthe investee and when the Company has the ability to affect those returns through its power over theinvestee. A change in the ownership interest of a subsidiary, without a loss of control, is accountedfor as an equity transaction. If the Company loses control over a subsidiary, it:

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

· Derecognizes the carrying amount of any non-controlling interest;

· Derecognizes the cumulative translation differences recorded in equity;

· Recognizes the fair value of the consideration received;

· Recognizes the fair value of any investment retained;

· Recognizes any surplus or deficit in profit or loss; and

· Reclassifies the parent�s share of components previously recognized in other comprehensiveincome to profit or loss or retained earnings, as appropriate.

Non-controlling interests represent the portion of profit or loss and net assets not held by theCompany and are presented separately in the consolidated statements of income and within equitysection in the consolidated balance sheets, separately from equity attributable to equity holders of theparent.

Significant Accounting Judgments, Estimates and AssumptionsThe preparation of the consolidated financial statements requires management to make judgments,estimates and assumptions that affect the reported amounts of revenue, expenses, assets andliabilities, and the disclosure of contingent liabilities, at the reporting date. However, uncertaintyabout these estimates and assumptions could result in outcomes that could require a materialadjustment to the carrying amount of the affected asset or liability in the future.

JudgmentsIn the process of applying the Company�s accounting policies, management has made the followingjudgments, apart from those involving estimations, which have the most significant effect on theamounts recognized in the consolidated financial statements.

Existence of a Contract. The Company�s primary document for a contract with a customer is a signedcontract to sell or the combination of its other signed documentation such as reservation agreement,official receipts, quotation sheets and other documents, would contain all the criteria to qualify ascontract with the customer under PFRS 15.

In addition, part of the assessment process of the Company before revenue recognition is to assess theprobability that the Company will collect the consideration to which it will be entitled in exchange forthe real estate property that will be transferred to the customer. In evaluating whether collectabilityof an amount of consideration is probable, an entity considers the significance of the buyer�s initialpayments in relation to the total contract price.

Measure of Progress. The Company has determined that output method used in measuring theprogress of the performance obligation faithfully depicts the Company�s performance in transferringcontrol of real estate development to the customers.

Operating Lease Commitments - as Lessor. The Company has entered into commercial propertyleases in its investment property portfolio. Management has determined, based on an evaluation ofthe terms and conditions of the arrangements, that it retains all the significant risks and rewards ofownership of the properties and thus accounts for the contracts as operating leases. The ownership of

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*SGVFS032857*

the asset is not transferred to the lessee by the end of the lease term, the lessee has no option topurchase the asset at a price that is expected to be sufficiently lower than the fair value at the date theoption is exercisable, and, the lease term is not for the major part of the asset�s economic life.

Rent income amounted to P=57,163 million, P=51,406 million and P=45,693 million for the years endedDecember 31, 2018, 2017 and 2016, respectively (see Note 27).

Operating Lease Commitments - as Lessee. The Company has entered into various lease agreementsas a lessee. Management has determined that all the significant risks and benefits of ownership ofthese properties, which the Company leases under operating lease arrangements, remain with thelessor. Accordingly, the leases were accounted for as operating leases.

Rent expense amounted to P=1,730 million, P=1,598 million and P=1,451 million for the years endedDecember 31, 2018, 2017 and 2016, respectively (see Notes 23 and 27).

Estimates and AssumptionsThe key estimates and assumptions that may have significant risks of causing material adjustments tothe carrying amounts of assets and liabilities within the next financial period are discussed below.

Revenue Recognition Method and Measure of Progress. The percentage-of-completion method isused to recognize income from sales of projects where the Company has material obligations underthe sales contract to complete the project after the property is sold, the equitable interest has beentransferred to the buyer, construction is beyond preliminary stage (i.e., engineering, design work,construction contracts execution, site clearance and preparation, excavation and the buildingfoundation are finished), and the costs incurred or to be incurred can be measured reliably.

Revenue from sale of real estate amounted to P=35,873 million, P=29,434 million and P=25,000 millionfor the years ended December 31, 2018, 2017 and 2016, respectively, while the cost of real estate soldamounted to P=17,769 million, P=15,152 million and P=13,117 million for the years ended December 31,2018, 2017 and 2016, respectively (see Note 23).

Provision for Expected Credit Losses (ECL) of Receivables and Contract Assets (or referred also in

the consolidated financial statements as �Unbilled revenue from sale of real estate�). The Companymaintains an allowance for impairment loss at a level considered adequate to provide for potentialuncollectible receivables. The Company uses a provision matrix for rent and other receivables andunbilled revenue from sale of real estate, and vintage approach for receivable from sale of real estateto calculate ECLs. The Company performs a regular review of the age and status of these accounts,designed to identify accounts for impairment. The assessment of the correlation between historicalobserved default rates, forecasted economic conditions and ECLs is a significant estimate. Theamount of ECLs is sensitive to changes in circumstances and of forecast economic conditions.

The allowance for ECLs amounted to P=1,034 million and P=1,054 million as at December 31, 2018and January 1, 2018, respectively.

Net Realizable Value of Condominium and Residential Units for Sale and Current Portion of Land

and Development. The Company writes down the carrying value of condominium and residentialunits for sale and current portion of land and development when the net realizable value becomeslower than the carrying value due to changes in market prices or other causes. The net realizablevalue is assessed with reference to market price at the balance sheet date for similar completedproperty, less estimate cost to complete the construction and estimated cost to sell. The carryingvalue is reviewed regularly for any decline in value.

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*SGVFS032857*

The carrying values of condominium and residential units for sale and current portion of land anddevelopment amounted to P=8,088 million and P=29,487 million as at December 31, 2018, respectively,and P=8,733 million and P=22,518 million as at December 31, 2017, respectively (see Notes 9 and 10).

Estimated Useful Lives of Property and Equipment and Investment Properties. The useful life ofeach of the Company�s property and equipment and investment properties is estimated based on theperiod over which the asset is expected to be available for use. Such estimation is based on acollective assessment of industry practice, internal technical evaluation and experience with similarassets. The estimated useful life of each asset is reviewed periodically and updated if expectationsdiffer from previous estimates due to physical wear and tear, technical or commercial obsolescenceand legal or other limitations on the use of the asset. It is possible, however, that future financialperformance could be materially affected by changes in the amounts and timing of recorded expensesbrought about by changes in the factors mentioned above. A reduction in the estimated useful life ofany property and equipment and investment properties would increase the recorded costs andexpenses and decrease noncurrent assets.

The aggregate carrying values of property and equipment and investment properties amounted toP=294,994 million and P=274,578 million as at December 31, 2018 and 2017, respectively(see Notes 13 and 14).

Impairment of Other Nonfinancial Assets. The Company assesses at each reporting date whetherthere is an indication that an item of investments in associates and joint ventures, property andequipment, investment properties, noncurrent portion of land and development and other noncurrentassets (excluding time deposits) may be impaired. Determining the value in use of the assets, whichrequires the determination of future cash flows expected to be generated from the continued use andultimate disposition of such assets, requires the Company to make estimates and assumptions that canmaterially affect the consolidated financial statements. Future events could cause the Company toconclude that these assets are impaired. Any resulting impairment loss could have a material impacton the consolidated financial position and performance.

The preparation of the estimated future cash flows involves judgment and estimations. While theCompany believes that its assumptions are appropriate and reasonable, significant changes in theseassumptions may materially affect the assessment of recoverable values and may lead to futureimpairment charges.

The aggregate carrying values of investments in associates and joint ventures, property andequipment, investment properties, noncurrent portion of land and development and other noncurrentassets (excluding time deposits) amounted to P=449,555 million and P=373,915 million as atDecember 31, 2018 and 2017, respectively (see Notes 13, 14, 15 and 16).

Realizability of Deferred Tax Assets. The Company�s assessment on the recognition of deferred taxassets on deductible temporary differences and carryforward benefits of excess minimum corporateincome tax (MCIT) and net operating loss carryover (NOLCO) is based on the projected taxableincome in future periods. Based on the projection, not all deductible temporary differences andcarryforward benefits of excess MCIT and NOLCO will be realized.

Deferred tax assets - net recognized in the consolidated balance sheets amounted to P=1,084 millionand P=1,114 million as at December 31, 2018 and 2017, respectively (see Note 26).

Fair Value of Assets and Liabilities. The Company carries and discloses certain assets and liabilitiesat fair value, which requires extensive use of accounting judgments and estimates. The significantcomponents of fair value measurement were determined using verifiable objective evidence (i.e.,

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foreign exchange rates, interest rates and volatility rates). The amount of changes in fair value woulddiffer if the Company utilized different valuation methodologies and assumptions. Any changes inthe fair value of these assets and liabilities that are carried in the consolidated financial statementswould directly affect consolidated statements of income and consolidated other comprehensiveincome.

The fair value of assets and liabilities are discussed in Notes 14 and 29.

Contingencies. The Company is currently involved in various legal and administrative proceedings.The estimate of the probable costs for the resolution of these proceedings has been developed inconsultation with in-house as well as outside legal counsel handling defense in these matters and isbased upon an analysis of potential results. The Company currently does not believe that theseproceedings will have a material adverse effect on its consolidated financial position andperformance. It is possible, however, that future consolidated financial performance could bematerially affected by changes in the estimates or in the effectiveness of strategies relating to theseproceedings. No provisions were made in relation to these proceedings (see Note 32).

3. Summary of Significant Accounting and Financial Reporting Policies

Changes in Accounting PoliciesThe accounting policies adopted are consistent with those of the previous financial year, except thatthe Company has adopted the following new accounting pronouncements starting January 1, 2018.Adoption of these pronouncements did not have any significant impact on the Company�s financialposition or performance unless otherwise indicated.

Effective beginning on or after January 1, 2018

· Amendments to PFRS 2, Share-based Payment, Classification and Measurement of Share-based

Payment Transactions

The amendments to PFRS 2 address three main areas: the effects of vesting conditions on themeasurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and theaccounting where a modification to the terms and conditions of a share-based paymenttransaction changes its classification from cash-settled to equity-settled. Entities are required toapply the amendments to: (1) share-based payment transactions that are unvested or vested butunexercised as of January 1, 2018, (2) share-based payment transactions granted on or afterJanuary 1, 2018 and to (3) modifications of share-based payments that occurred on or afterJanuary 1, 2018. Retrospective application is permitted if elected for all three amendments and ifit is possible to do so without hindsight.

The amendments are not applicable to the Company since it has no share-based paymenttransactions.

· PFRS 9, Financial Instruments, replaces PAS 39, Financial Instruments: Recognition andMeasurement, for annual periods beginning on or after January 1, 2018, bringing together allthree aspects of the accounting for financial instruments: classification and measurement;impairment; and hedge accounting.

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The Company applied PFRS 9 using modified retrospective approach, with an initial applicationdate of January 1, 2018. The effect of adopting PFRS 9 follows:

(a) Classification and measurement

Under PFRS 9, debt instruments are subsequently measured at FVTPL, amortized cost, orFVOCI. The classification is based on two criteria: the Company�s business model for managingthe assets; and whether the instruments� contractual cash flows represent �solely payments ofprincipal and interest� on the principal amount outstanding.

The assessment of the Company�s business model was made as of the date of initial application,January 1, 2018, and then applied prospectively to those financial assets that were notderecognized before January 1, 2018. The assessment of whether contractual cash flows on debtinstruments are solely comprised of principal and interest was made based on the facts andcircumstances as at the initial recognition of the assets.

The classification and measurement requirements of PFRS 9 did not have a significant impact onthe Company. The Company continued measuring at fair value all financial assets previouslyheld at fair value under PAS 39.

The following are the changes in the classification of the Company�s financial assets:

§ Cash and cash equivalents, receivables and other financial assets (i.e., cash in escrow, timedeposits) amounting to P=98,068 million as at December 31, 2017 previously classified asloans and receivables are held to collect contractual cash flows and give rise to cash flowsrepresenting solely payments of principal and interest. These are now classified andmeasured as debt instruments at amortized cost, except for unbilled revenue from sale of realestate amounting to P=34,083 million, beginning January 1, 2018.

§ Investments held for trading amounting to P=731 million as at December 31, 2017 werereclassified as financial assets at FVOCI.

§ Equity instruments previously classified as available-for-sale (AFS) financial assetsamounting to P=31,106 million as at December 31, 2017 are now classified and measured asequity instrument at FVOCI. There were no impairment losses recognized in profit or lossfor these investments in prior periods.

There are no changes in classification and measurement for the Company�s financial liabilities.

(b) Impairment

The adoption of PFRS 9 has fundamentally changed the Company�s accounting for impairmentlosses for financial assets by replacing PAS 39�s incurred loss approach with a forward-lookingECL approach.

The adoption of ECL approach has no significant impact on the allowance for impairment lossesrecognized in the consolidated financial statements.

(c) Hedge accounting

At the date of initial application, all of the Company�s existing hedging relationships wereeligible to be treated as continuing hedging relationships. Before the adoption of PFRS 9, the

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Company designated the change in fair value of the entire cross currency swaps, interest rateswaps and principal only swaps contracts as cash flow hedges. Changes in the fair value of thecross currency swaps, interest rate swaps and principal only swaps contracts are recognized inOCI and accumulated as a separate component of equity under net fair value changes on cashflow hedges.

· Amendments to PFRS 4, Insurance Contracts, Applying PFRS 9, Financial Instruments, withPFRS 4, address concerns arising from implementing PFRS 9, the new financial instrumentsstandard before implementing the new insurance contracts standard. The amendments introducetwo options for entities issuing insurance contracts: a temporary exemption from applyingPFRS 9 and an overlay approach. The temporary exemption is first applied for reporting periodsbeginning on or after January 1, 2018. An entity may elect the overlay approach when it firstapplies PFRS 9 and apply that approach retrospectively to financial assets designated ontransition to PFRS 9. The entity restates comparative information reflecting the overlay approachif, and only if, the entity restates comparative information when applying PFRS 9.

The amendments are not applicable to the Company since none of the entities within theCompany have activities that are predominantly connected with insurance or issue insurancecontracts.

· PFRS 15, Revenue from Contracts with Customers, supersedes PAS 11, Construction Contracts,PAS 18, Revenue, and related interpretations and it applies, with limited exceptions, to allrevenue arising from contracts with its customers. PFRS 15 establishes a five-step model toaccount for revenue arising from contracts with customers and requires that revenue berecognized at an amount that reflects the consideration to which an entity expects to be entitled inexchange for transferring goods or services to a customer.

PFRS 15 requires entities to exercise judgement, taking into consideration all of the relevant factsand circumstances when applying each step of the model to contracts with their customers. Thestandard also specifies the accounting for the incremental costs of obtaining a contract and thecosts directly related to fulfilling a contract. In addition, the standard requires extensivedisclosures.

On February 14, 2018, the Philippine Interpretations Committee (PIC) issued PIC Q&A 2018-12(PIC Q&A) which provides guidance on some implementation issues of PFRS 15 affecting realestate industry. On October 25, 2018 and February 8, 2019, the Philippine SEC issued SECMemorandum Circular No. 14 Series of 2018 and SEC Memorandum Circular No. 3 Series of2019, respectively, providing relief to the real estate industry by deferring the application of thefollowing provisions of the above PIC Q&A for a period of 3 years:

§ Exclusion of land and uninstalled materials in the determination of POC discussed in PICQ&A 2018-12-E

§ Accounting for significant financing component discussed in PIC Q&A 2018-12-D

§ Accounting for Common Usage Service Area (CUSA) charges discussed in PIC Q&A2018-12-H

Under the same SEC Memorandum Circular No. 3 Series of 2019, the adoption of PIC Q&A2018-14: PFRS 15 � Accounting for Cancellation of Real Estate Sales was also deferred.

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The Company availed of the deferral of adoption of the above specific provisions, except for landexclusion in determination of POC. Had these provisions been adopted, it would have impactedretained earnings as at January 1, 2018 and revenue from real estate sales, cost of real estate sold,other income and real estate inventories for 2018.

Given the deferral of the implementation of certain provisions of PIC Q&A 2018-12 and PICQ&A 2018-14, adoption of PFRS 15 have no material impact to the consolidated financialstatements.

· PIC Q&A 2018-11, Classification of Land by Real Estate Developer, clarifies the correctclassification of purchased raw land by real estate developers to inventory and investmentproperty, and current and noncurrent assets. The adoption of this PIC Q&A resulted to thereclassification of land and development from real estate inventories to investment property(see Note 10).

· PIC Q&A 2018-15, Classification of Advances to Contractors in the Nature of Prepayments:Current vs. Non-current, aims to classify the prepayment based on the actual realization of suchadvances based on the determined usage/realization of the asset to which it is intended for (e.g.inventory, investment property, property plant and equipment). The Company�s policy on theclassification of prepayments is consistent with the interpretation hence adoption of the PIC Q&Adid not have any significant impact in the Company.

· Amendments to PAS 28, Measuring an Associate or Joint Venture at Fair Value (Part of Annual

Improvements to PFRS 2014 - 2016 Cycle), clarify that an entity that is a venture capitalorganization, or other qualifying entity, may elect, at initial recognition on an investment-by-investment basis, to measure its investments in associates and joint ventures at FVTPL. Theyalso clarify that if an entity that is not itself an investment entity has an interest in an associate orjoint venture that is an investment entity, the entity may, when applying the equity method, electto retain the fair value measurement applied by that investment entity associate or joint venture tothe investment entity associate�s or joint venture�s interests in subsidiaries. This election is madeseparately for each investment entity associate or joint venture, at the later of the date on which(a) the investment entity associate or joint venture is initially recognized; (b) the associate or jointventure becomes an investment entity; and (c) the investment entity associate or joint venture firstbecomes a parent.

· Amendments to PAS 40, Investment Property, Transfers of Investment Property, clarify when anentity should transfer property, including property under construction or development into, or outof investment property. The amendments state that a change in use occurs when the propertymeets, or ceases to meet, the definition of investment property and there is evidence of the changein use. A mere change in management�s intentions for the use of a property does not provideevidence of a change in use. The amendments should be applied prospectively to changes in usethat occur on or after the beginning of the annual reporting period in which the entity first appliesthe amendments. Retrospective application is only permitted if this is possible without the use ofhindsight.

· Philippine Interpretation International Financial Reporting Interpretations Committee(IFRIC) - 22, Foreign Currency Transactions and Advance Consideration, clarifies that, indetermining the spot exchange rate to use on initial recognition of the related asset, expense orincome (or part of it) on the derecognition of a non-monetary asset or non-monetary liabilityrelating to advance consideration, the date of the transaction is the date on which an entityinitially recognizes the nonmonetary asset or non-monetary liability arising from the advanceconsideration. If there are multiple payments or receipts in advance, then the entity must

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determine a date of the transactions for each payment or receipt of advance consideration.Entities may apply the amendments on a fully retrospective basis. Alternatively, an entity mayapply the interpretation prospectively to all assets, expenses and income in its scope that areinitially recognized on or after the beginning of the reporting period in which the entity firstapplies the interpretation or the beginning of a prior reporting period presented as comparativeinformation in the financial statements of the reporting period in which the entity first applies theinterpretation.


Pronouncements issued but not yet effective are listed below. Unless otherwise indicated, theCompany does not expect that the future adoption of the said pronouncements will have a significantimpact on its consolidated financial statements. The Company intends to adopt the followingpronouncements when they become effective.

· Amendments to PFRS 9, Prepayment Features with Negative Compensation, allow debtinstrument to be measured at amortized cost or at FVOCI, provided that the contractual cashflows are �solely payments of principal and interest on the principal amount outstanding� (theSPPI criterion) and the instrument is held within the appropriate business model for thatclassification. The amendments to PFRS 9 clarify that a financial asset passes the SPPI criterionregardless of the event or circumstance that causes the early termination of the contract andirrespective of which party pays or receives reasonable compensation for the early termination ofthe contract. The amendments should be applied retrospectively and are effective from January 1,2019, with earlier application permitted. The Company is currently assessing the impact ofadopting this standard.

· PFRS 16, Leases, sets out the principles for the recognition, measurement, presentation anddisclosure of leases and requires lessees to account for all leases under a single on-balance sheetmodel similar to the accounting for finance leases under PAS 17, Leases. The standard includestwo recognition exemptions for lessees � leases of �low-value� assets (e.g., personal computers)and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencementdate of a lease, a lessee will recognize a liability to make lease payments (i.e., the lease liability)and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognize the interest expense on the leaseliability and the depreciation expense on the right-of-use asset.

Lessees will be also required to remeasure the lease liability upon the occurrence of certain events(e.g., a change in the lease term, a change in future lease payments resulting from a change in anindex or rate used to determine those payments). The lessee will generally recognize the amountof the remeasurement of the lease liability as an adjustment to the right-of-use asset.

Lessor accounting under PFRS 16 is substantially unchanged from today�s accounting underPAS 17. Lessors will continue to classify all leases using the same classification principle as inPAS 17 and distinguish between two types of leases: operating and finance leases.

PFRS 16 also requires lessees and lessors to make more extensive disclosures than under PAS 17.

Early application is permitted, but not before an entity applies PFRS 15. A lessee can choose toapply the standard using either a full retrospective or a modified retrospective approach. Thestandard�s transition provisions permit certain reliefs. The Company is currently assessing theimpact of adopting PFRS 16.

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· Amendments to PAS 19, Employee Benefits, Plan Amendment, Curtailment or Settlement,

address the accounting when a plan amendment, curtailment or settlement occurs during areporting period. The amendments specify that when a plan amendment, curtailment or settlementoccurs during the annual reporting period, an entity is required to:

§ Determine current service cost for the remainder of the period after the plan amendment,curtailment or settlement, using the actuarial assumptions used to remeasure the net definedbenefit liability (asset) reflecting the benefits offered under the plan and the plan assets afterthat event.

§ Determine net interest for the remainder of the period after the plan amendment, curtailmentor settlement using: the net defined benefit liability (asset) reflecting the benefits offeredunder the plan and the plan assets after that event; and the discount rate used to remeasurethat net defined benefit liability (asset).

The amendments also clarify that an entity first determines any past service cost, or a gain or losson settlement, without considering the effect of the asset ceiling. This amount is recognized inprofit or loss. An entity then determines the effect of the asset ceiling after the plan amendment,curtailment or settlement. Any change in that effect, excluding amounts included in the netinterest, is recognized in other comprehensive income.

The amendments apply to plan amendments, curtailments, or settlements occurring on or after thebeginning of the first annual reporting period that begins on or after January 1, 2019, with earlyapplication permitted. These amendments will apply only to any future plan amendments,curtailments, or settlements of the Company.

· Amendments to PAS 28, Long-term Interests in Associates and Joint Ventures, clarify that anentity applies PFRS 9 to long-term interests in an associate or joint venture to which the equitymethod is not applied but that, in substance, form part of the net investment in the associate orjoint venture (long-term interests). This clarification is relevant because it implies that the ECLmodel in PFRS 9 applies to such long-term interests.

The amendments also clarified that, in applying PFRS 9, an entity does not take account of anylosses of the associate or joint venture, or any impairment losses on the net investment,recognized as adjustments to the net investment in the associate or joint venture that arise fromapplying PAS 28, Investments in Associates and Joint Ventures.

The amendments should be applied retrospectively and are effective from January 1, 2019, withearly application permitted. The Company is currently assessing the impact of adopting thisstandard.

· Philippine Interpretation IFRIC-23, Uncertainty over Income Tax Treatments, addresses theaccounting for income taxes when tax treatments involve uncertainty that affects the applicationof PAS 12 and does not apply to taxes or levies outside the scope of PAS 12, nor does itspecifically include requirements relating to interest and penalties associated with uncertain taxtreatments.

The interpretation specifically addresses the following:§ Whether an entity considers uncertain tax treatments separately§ The assumptions an entity makes about the examination of tax treatments by taxation

authorities

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§ How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused taxcredits and tax rates

§ How an entity considers changes in facts and circumstances

An entity must determine whether to consider each uncertain tax treatment separately or togetherwith one or more other uncertain tax treatments. The approach that better predicts the resolutionof the uncertainty should be followed. The Company is currently assessing the impact ofadopting this standard.

Annual Improvements to PFRSs 2015-2017 Cycle

· Amendments to PFRS 3, Business Combinations, and PFRS 11, Joint Arrangements, Previously

Held Interest in a Joint Operation, clarify that, when an entity obtains control of a business that isa joint operation, it applies the requirements for a business combination achieved in stages,including remeasuring previously held interests in the assets and liabilities of the joint operationat fair value. In doing so, the acquirer remeasures its entire previously held interest in the jointoperation.

A party that participates in, but does not have joint control of, a joint operation might obtain jointcontrol of the joint operation in which the activity of the joint operation constitutes a business asdefined in PFRS 3. The amendments clarify that the previously held interests in that jointoperation are not remeasured.

An entity applies those amendments to business combinations for which the acquisition date is onor after the beginning of the first annual reporting period beginning on or after January 1, 2019and to transactions in which it obtains joint control on or after the beginning of the first annualreporting period beginning on or after January 1, 2019, with early application permitted. TheCompany is currently assessing the impact of adopting this standard.

· Amendments to PAS 12, Income Tax Consequences of Payments on Financial Instruments

Classified as Equity, clarify that the income tax consequences of dividends are linked moredirectly to past transactions or events that generated distributable profits than to distributions toowners. Therefore, an entity recognizes the income tax consequences of dividends in profit orloss, other comprehensive income or equity according to where the entity originally recognizedthose past transactions or events.

An entity applies those amendments for annual reporting periods beginning on or after January 1,2019, with early application is permitted. These amendments are not relevant to the Companybecause dividends declared by the Company do not give rise to tax obligations under the currenttax laws.

· Amendments to PAS 23, Borrowing Costs, Borrowing Costs Eligible for Capitalization,

clarify that an entity treats as part of general borrowings any borrowing originally made todevelop a qualifying asset when substantially all of the activities necessary to prepare that assetfor its intended use or sale are complete.

An entity applies those amendments to borrowing costs incurred on or after the beginning of theannual reporting period in which the entity first applies those amendments. An entity appliesthose amendments for annual reporting periods beginning on or after January 1, 2019, with earlyapplication permitted. The Company is currently assessing the impact of adopting this standard.

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· Amendments to PFRS 3, Definition of a Business, clarify the minimum requirements to be abusiness, remove the assessment of a market participant�s ability to replace missing elements, andnarrow the definition of outputs. The amendments also add guidance to assess whether anacquired process is substantive and add illustrative examples. An optional fair valueconcentration test is introduced which permits a simplified assessment of whether an acquired setof activities and assets is not a business.

An entity applies those amendments prospectively for annual reporting periods beginning on orafter January 1, 2020, with earlier application permitted. The Company is currently assessing theimpact of adopting this standard.

· Amendments to PAS 1, Presentation of Financial Statements, and PAS 8, Accounting Policies,Changes in Accounting Estimates and Errors, Definition of Material, refine the definition ofmaterial in PAS 1 and align the definitions used across PFRSs and other pronouncements. Theyare intended to improve the understanding of the existing requirements rather than to significantlyimpact an entity�s materiality judgements.

An entity applies those amendments prospectively for annual reporting periods beginning on orafter January 1, 2020, with earlier application permitted. The Company is currently assessing theimpact of adopting this standard.


· PFRS 17, Insurance Contracts, covers recognition and measurement, presentation and disclosure.Once effective, PFRS 17 will replace PFRS 4, Insurance Contracts. This new standard oninsurance contracts applies to all types of insurance contracts (i.e., life, non-life, direct insuranceand re-insurance), regardless of the type of entities that issue them, as well as to certainguarantees and financial instruments with discretionary participation features. A few scopeexceptions will apply.

The overall objective of PFRS 17 is to provide an accounting model for insurance contracts thatis more useful and consistent for insurers. In contrast to the requirements in PFRS 4, which arelargely based on grandfathering previous local accounting policies, PFRS 17 provides acomprehensive model for insurance contracts, covering all relevant accounting aspects. The coreof PFRS 17 is the general model, supplemented by:

§ A specific adaptation for contracts with direct participation features (the variable feeapproach)

§ A simplified approach (the premium allocation approach) mainly for short-duration contracts

PFRS 17 is effective for reporting periods beginning on or after January 1, 2021, withcomparative figures required. Early application is permitted. The Company is currentlyassessing the impact of adopting this standard.

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Deferred effectivity

· Amendments to PFRS 10, Consolidated Financial Statements, and PAS 28, Sale or Contributionof Assets between an Investor and its Associate or Joint Venture.

Cash and Cash EquivalentsCash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investmentsthat are readily convertible to known amounts of cash with original maturities of three months or lessfrom acquisition date and are subject to an insignificant risk of change in value.

Determination of Fair ValueFair value is the estimated price that would be received to sell an asset or paid to transfer a liability inan orderly transaction between market participants at the measurement date. The fair valuemeasurement is based on the presumption that the transaction to sell the asset or transfer the liabilitytakes place either:

· in the principal market for the asset or liability, or

· in the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible to the Company.

The fair value of an asset or a liability is measured using the assumptions that market participantswould use when pricing the asset or liability, assuming that market participants act in their economicbest interest.

A fair value measurement of a nonfinancial asset takes into account a market participant�s ability togenerate economic benefits by using the asset in its highest and best use or by selling it to anothermarket participant that would use the asset in its highest and best use.

The Company uses valuation techniques that are appropriate in the circumstances and for whichsufficient data are available to measure fair value, maximizing the use of relevant observable inputsand minimizing the use of unobservable inputs.

Assets and liabilities for which fair value is measured or disclosed in the consolidated financialstatements are categorized within the fair value hierarchy, described as follows, based on the lowestlevel input that is significant to the fair value measurement as a whole:

Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities;

Level 2 - Valuation techniques for which the lowest level input that is significant to the fair valuemeasurement is directly or indirectly observable; and

Level 3 - Valuation techniques for which the lowest level input that is significant to the fair valuemeasurement is unobservable.

For assets and liabilities that are recognized in the consolidated financial statements on a recurringbasis, the Company determines whether transfers have occurred between Levels in the hierarchy byre-assessing categorization (based on the lowest level input that is significant to the fair valuemeasurement as a whole) at the end of each reporting period.

The Company determines the policies and procedures for both recurring and non-recurring fair valuemeasurements. For the purpose of fair value disclosures, the Company has determined classes of

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assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and thelevel of the fair value hierarchy.

The Company recognizes transfers into and transfers out of fair value hierarchy levels by re-assessingcategorization (based on the lowest level input that is significant to the fair value measurement as awhole) as at the date of the event or change in circumstances that caused the transfer.

�Day 1� Difference. Where the transaction price in a non-active market is different from the fairvalue of other observable current market transactions in the same instrument or based on a valuationtechnique whose variables include only data from observable market, the Company recognizes thedifference between the transaction price and fair value (a �Day 1� difference) in the consolidatedstatement of income unless it qualifies for recognition as some other type of asset or liability. Incases where unobservable data is used, the difference between the transaction price and model valueis only recognized in the consolidated statement of income when the inputs become observable orwhen the instrument is derecognized. For each transaction, the Company determines the appropriatemethod of recognizing the �Day 1� difference amount.

Financial Instruments - Initial Recognition and Subsequent Measurement

Effective beginning January 1, 2018

A financial instrument is any contract that gives rise to a financial asset of one entity and a financialliability or equity instrument of another entity.

Financial Assets

Initial recognition and measurement. Financial assets are classified, at initial recognition, assubsequently measured at amortized cost, FVOCI, and FVTPL.

The classification of financial assets at initial recognition depends on the financial asset�s contractualcash flow characteristics and the Company�s business model for managing them. The Companyinitially measures a financial asset at its fair value plus, in the case of a financial asset not at FVTPL,transaction costs.

In order for a financial asset to be classified and measured at amortized cost or FVOCI, it needs togive rise to cash flows that are �solely payments of principal and interest (SPPI)� on the principalamount outstanding. This assessment is referred to as the SPPI test and is performed at an instrumentlevel.

The Company�s business model for managing financial assets refers to how it manages its financialassets in order to generate cash flows. The business model determines whether cash flows will resultfrom collecting contractual cash flows, selling the financial assets, or both.

Purchases or sales of financial assets that require delivery of assets within a time frame established byregulation or convention in the market place (regular way trades) are recognized on the trade date,i.e., the date that the Company commits to purchase or sell the asset.

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Subsequent measurement. For purposes of subsequent measurement, financial assets are classified infour categories:

· Financial assets at amortized cost (debt instruments): The Company measures financial assets atamortized cost if both of the following conditions are met:

§ The financial asset is held within a business model with the objective to hold financial assetsin order to collect contractual cash flows, and

§ The contractual terms of the financial asset give rise on specified dates to cash flows that aresolely payments of principal and interest on the principal amount outstanding.

Financial assets at amortized cost are subsequently measured using the EIR method and aresubject to impairment. Gains and losses are recognized in profit or loss when the asset isderecognized, modified or impaired.

The Company�s financial assets at amortized cost includes cash and cash equivalents, receivables,cash in escrow (included under �Prepaid expenses and other current assets� account) and timedeposits (included under �Other noncurrent assets� account). Other than those financial assets atamortized cost whose carrying values are reasonable approximation of fair values, the aggregatecarrying values of financial assets under this category amounted to P=2,393 million as atDecember 31, 2018 (see Note 29).

· Financial assets at FVOCI (debt instruments): The Company measures debt instruments atFVOCI if both of the following conditions are met:

§ The financial asset is held within a business model with the objective to hold financial assetsin order to collect contractual cash flows, and

§ Selling and the contractual terms of the financial asset give rise on specified dates to cashflows that are solely payments of principal and interest on the principal amount outstanding.

Classified under this category are debt instruments held for trading. The carrying values offinancial assets classified under this category amounted to nil as at December 31, 2018(see Note 29).

· Financial assets at FVTPL. Financial assets at FVTPL include financial assets held for trading,financial assets designated upon initial recognition at FVTPL, or financial assets mandatorilyrequired to be measured at fair value. Financial assets are classified as held for trading if they areacquired for the purpose of selling or repurchasing in the near term. Derivatives, includingseparated embedded derivatives, are also classified as held for trading unless they are designatedas effective hedging instruments. Financial assets with cash flows that are not solely payments ofprincipal and interest are classified and measured at FVTPL, irrespective of the business model.Notwithstanding the criteria for debt instruments to be classified at amortized cost or FVOCI, asdescribed above, debt instruments may be designated at FVTPL on initial recognition if doing soeliminates, or significantly reduces, an accounting mismatch.

Financial assets at FVTPL are carried in the consolidated balance sheet at fair value with netchanges in fair value recognized in the consolidated statement of income.

This category includes derivative instruments. The carrying values of financial assets classifiedunder this category amounted to P=853 million as at December 31, 2018 (see Note 29).

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A derivative embedded in a hybrid contract, with a financial liability or non-financial host, isseparated from the host and accounted for as a separate derivative if: the economic characteristicsand risks are not closely related to the host; a separate instrument with the same terms as theembedded derivative would meet the definition of a derivative; and the hybrid contract is notmeasured at FVTPL. Embedded derivatives are measured at fair value with changes in FVTPL.Reassessment only occurs if there is either a change in the terms of the contract that significantlymodifies the cash flows that would otherwise be required or a reclassification of a financial assetout of the FVTPL category.

A derivative embedded within a hybrid contract containing a financial asset host is not accountedfor separately. The financial asset host together with the embedded derivative is required to beclassified in its entirety as a financial asset at FVTPL.

· Financial assets at FVOCI (equity instruments). Upon initial recognition, the Company can electto classify irrevocably its equity investments as equity instruments at FVOCI when they meet thedefinition of equity under PAS 32, Financial Instruments: Presentation, and are not held fortrading. The classification is determined on an instrument-by-instrument basis.

Gains and losses on these financial assets are never recycled to profit or loss. Dividends arerecognized in the consolidated statements of income when the right of payment has beenestablished, except when the Company benefits from such proceeds as a recovery of part of thecost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments atFVOCI are not subject to impairment assessment.

The Company elected to classify irrevocably its investments in equity instruments under thiscategory.

Classified under this category are the investments in shares of stocks of certain companies. Thecarrying values of financial assets classified under this category amounted to P=23,532 million asat December 31, 2018 (see Note 29).

Derecognition. A financial asset (or, where applicable, a part of a financial asset or part of aCompany of similar financial assets) is primarily derecognized (i.e., removed from the Company�sconsolidated balance sheet) when:

· The rights to receive cash flows from the asset have expired, or,

· the Company has transferred its rights to receive cash flows from the asset or has assumed anobligation to pay the received cash flows in full without material delay to a third party under a�pass-through� arrangement; and either (a) the Company has transferred substantially all the risksand rewards of the asset, or (b) the Company has neither transferred nor retained substantially allthe risks and rewards of the asset, but has transferred control of the asset.

When the Company has transferred its rights to receive cash flows from an asset or has entered into apass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards ofownership. When it has neither transferred nor retained substantially all of the risks and rewards ofthe asset, nor transferred control of the asset, the Company continues to recognize the transferredasset to the extent of its continuing involvement. In that case, the Company also recognized anassociated liability. The transferred asset and the associated liability are measured on a basis thatreflects the rights and obligations that the Company has retained. Continuing involvement that takesthe form of a guarantee over the transferred asset is measured at the lower of the original carryingamount of the asset and the maximum amount of consideration that the Company could be required torepay.

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Impairment of financial assets. The Company recognizes an allowance for ECLs for all debtinstruments not held at FVTPL. ECLs are based on the difference between the contractual cash flowsdue in accordance with the contract and all the cash flows that the Company expects to receive,discounted at an approximation of the original effective interest rate. The expected cash flows willinclude cash flows from the sale of collateral held or other credit enhancements that are integral to thecontractual terms. The Company uses a provision matrix for rent and other receivables and unbilledrevenue from sale of real estate, vintage approach for receivables from sale of real estate andsimplified approach (low credit risk simplification) for treasury assets to calculate ECLs.

The Company applies provision matrix and has calculated ECLs based on lifetime ECLs. Therefore,the Company does not track changes in credit risk, but instead recognizes a loss allowance based onlifetime ECLs at each reporting date, adjusted for forward-looking factors specific to the debtors andthe economic environment.

Vintage approach accounts for expected credit losses by calculating the cumulative loss rates of agiven real estate receivable pool. It derives the probability of default from the historical data of ahomogenous portfolio that share the same origination period. The information on the number ofdefaults during fixed time intervals of the accounts is utilized to create the probability model. Itallows the evaluation of the loan activity from its origination period until the end of the contractperiod. In addition to life of loan loss data, primary drivers like macroeconomic indicators ofqualitative factors such as, but not limited to, forward-looking data on inflation rate was added to theexpected loss calculation to reach a forecast supported by both quantitative and qualitative datapoints. The probability of default is applied to the estimate of the loss arising on default which isbased on the difference between the contractual cash flows due and those that the Company wouldexpect to receive, including from the repossession of the subject real estate property, net of cashoutflows. For purposes of calculating loss given default, accounts are segmented based on the type ofunit. In calculating the recovery rates, the Company considered collections of cash and/or cash fromresale of real estate properties after foreclosure, net of direct costs of obtaining and selling the realestate properties after the default event such as commission, refurbishment, payment required underMaceda law, cost to complete (for incomplete units). As these are future cash flows, these arediscounted back to the time of default using the appropriate effective interest rate, usually being theoriginal effective interest rate (EIR) or an approximation thereof.

The Company considers a financial asset in default generally when contractual payments are 120 dayspast due or when the sales are cancelled supported by a notarized cancellation letter executed by theCompany and unit buyer. However, in certain cases, the Company may also consider a financialasset to be in default when internal or external information indicates that the Company is unlikely toreceive the outstanding contractual amounts in full before taking into account any creditenhancements held by the Company.

A financial asset is written off when there is no reasonable expectation of recovering the contractualcash flows.

Effective before January 1, 2018

Date of Recognition. The Company recognizes a financial asset or a financial liability in theconsolidated balance sheets when it becomes a party to the contractual provisions of the instrument.In the case of a regular way purchase or sale of financial assets, recognition and derecognition, asapplicable, are done using settlement date accounting. Regular way purchases or sales are purchasesor sales of financial assets that require delivery of assets within the period generally established byregulation or convention in the market place. Derivatives are recognized on a trade date basis.

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Initial Recognition of Financial Instruments. Financial instruments are recognized initially at fairvalue, which is the fair value of the consideration given (in case of an asset) or received (in case of aliability). The initial measurement of financial instruments, except for those classified as FVTPL,includes transaction costs.

The Company classifies its financial instruments in the following categories: financial assets andfinancial liabilities at FVTPL, loans and receivables, AFS investments and other financial liabilities.The classification depends on the purpose for which the instruments are acquired and whether theyare quoted in an active market. Management determines the classification at initial recognition and,where allowed and appropriate, re-evaluates this classification at every reporting date.

· Financial assets at FVTPL. Financial assets at FVTPL include financial assets held for tradingand financial assets designated upon initial recognition as at FVTPL.

Financial assets are classified as held for trading if they are acquired for the purpose of selling orrepurchasing in the near term. Derivatives, including any separated derivatives, are alsoclassified under financial assets or liabilities at FVTPL, unless these are designated as hedginginstruments in an effective hedge or financial guarantee contracts. Gains or losses on investmentsheld for trading are recognized in the consolidated statement of income under �Others - net�account. Interest income on investments held for trading is included in the consolidatedstatement of income under the �Interest and dividend income� account. Instruments under thiscategory are classified as current assets if these are held primarily for the purpose of trading orexpected to be realized within 12 months from balance sheet date. Otherwise, these are classifiedas noncurrent assets.

Financial assets may be designated by management at initial recognition as FVTPL when any ofthe following criteria is met:

§ the designation eliminates or significantly reduces the inconsistent treatment that wouldotherwise arise from measuring the assets or recognizing gains or losses on a different basis;or

§ the assets are part of a group of financial assets which are managed and their performancesare evaluated on a fair value basis, in accordance with a documented risk management orinvestment strategy; or

§ the financial instrument contains an embedded derivative, unless the embedded derivativedoes not significantly modify the cash flows or it is clear, with little or no analysis, that itwould not be separately recorded.

Classified as financial assets at FVTPL are the Company�s investments held for trading andderivative assets. The aggregate carrying values of financial assets under this category amountedto P=4,278 million as at December 31, 2017.

· Loans and Receivables. Loans and receivables are nonderivative financial assets with fixed ordeterminable payments that are not quoted in an active market. They are not entered into with theintention of immediate or short-term resale and are not designated as AFS investments orfinancial assets at FVTPL.

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After initial measurement, loans and receivables are subsequently measured at amortized costusing the effective interest method, less allowance for impairment. Amortized cost is calculatedby taking into account any discount or premium on acquisition and fees that are an integral part ofthe effective interest rate. Gains and losses are recognized in the consolidated statement ofincome when the loans and receivables are derecognized and impaired, as well as through theamortization process. Loans and receivables are included under current assets if realizability orcollectability is within twelve months from reporting period. Otherwise, these are classified asnoncurrent assets.

Classified under this category are cash and cash equivalents, receivables (including noncurrentportion of receivables from sale of real estate), cash in escrow (included under �Prepaid expensesand other current assets� account) and time deposits (included under �Other noncurrent assets�account). Other than those loans and receivables whose carrying values are reasonableapproximation of fair values, the aggregate carrying values of financial assets under this categoryamounted to P=19,654 million as at December 31, 2017.

· AFS Investments. AFS investments are nonderivative financial assets that are designated underthis category or are not classified in any of the other categories. These are purchased and heldindefinitely, and may be sold in response to liquidity requirements or changes in marketconditions. Subsequent to initial recognition, AFS investments are carried at fair value in theconsolidated balance sheet. Changes in the fair value of such assets are reported as net unrealizedgain or loss on AFS investments in the consolidated statement of comprehensive income until theinvestment is derecognized or the investment is determined to be impaired. On derecognition orimpairment, the cumulative gain or loss previously reported in the consolidated statement ofcomprehensive income is transferred to the consolidated statement of income. Interest earned onholding AFS investments are recognized in the consolidated statement of income using theeffective interest method. Assets under this category are classified as current assets if expected tobe disposed of within twelve months from reporting period and as noncurrent assets if expecteddate of disposal is more than twelve months from reporting period.

Classified under this category are the investments in quoted and unquoted shares of stocks ofcertain companies. The carrying values of financial assets classified under this categoryamounted to P=31,106 million as at December 31, 2017.

Impairment of financial assets. The Company assesses at each reporting period whether a financialasset or a group of financial assets is impaired. A financial asset or a group of financial assets isdeemed to be impaired, if and only if, there is objective evidence of impairment as a result of one ormore events that occurred after the initial recognition of the asset (an incurred loss event) and thatloss event has an impact on the estimated future cash flows of the financial asset or a group offinancial assets that can be reliably estimated. Objective evidence of impairment may includeindications that the borrower or a group of borrowers is experiencing significant financial difficulty,default or delinquency in interest or principal payments, the probability that they will enterbankruptcy or other financial reorganization and where observable data indicate that there ismeasurable decrease in the estimated future cash flows, such as changes in arrears or economicconditions that correlate with defaults.

· Financial assets carried at amortized cost. The Company first assesses whether objectiveevidence of impairment exists for financial assets that are individually significant, andindividually or collectively for financial assets that are not individually significant. If it isdetermined that no objective evidence of impairment exists for an individually assessed financialasset, whether significant or not, the asset is included in a group of financial assets with similarcredit risk characteristics and that group of financial assets is collectively assessed for

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impairment. Assets that are individually assessed for impairment and for which an impairmentloss is or continues to be recognized are not included in the collective impairment assessment.

If there is objective evidence that an impairment loss on loans and receivables carried atamortized cost has been incurred, the amount of the loss is measured as the difference betweenthe asset�s carrying amount and the present value of estimated future cash flows (excluding futurecredit losses that have not been incurred) discounted at the financial asset�s original effectiveinterest rate (i.e., the effective interest rate computed at initial recognition).

The carrying amount of the impaired asset shall be reduced through the use of an allowanceaccount. The amount of the loss shall be recognized in the consolidated statement of income.Interest income continues to be accrued on the reduced carrying amount based on the originaleffective interest rate of the asset. Loans and receivables together with the associated allowanceare written off when there is no realistic prospect of future recovery and all collateral, if any, hasbeen realized or has been transferred to the Company. If, in a subsequent period, the amount ofthe impairment loss increases or decreases because of an event occurring after the impairmentwas recognized, the previously recognized impairment loss is increased or decreased by adjustingthe allowance account. If a future write-off is later recovered, the recovery is recognized in theconsolidated statement of income under �Others - net� account.

· Financial Assets Carried at Cost. If there is objective evidence that an impairment loss has beenincurred in an unquoted equity instrument that is not carried at fair value because its fair valuecannot be reliably measured, or on a derivative asset that is linked to and must be settled bydelivery of such an unquoted equity instrument, the amount of the loss is measured as thedifference between the asset�s carrying amount and the present value of estimated future cashflows discounted at the current market rate of return for a similar financial asset.

· AFS Investments. In the case of equity instruments classified as AFS investments, evidence ofimpairment would include a significant or prolonged decline in fair value of investments belowits cost. Where there is evidence of impairment, the cumulative loss - measured as the differencebetween the acquisition cost and the current fair value, less any impairment loss on that financialasset previously recognized in the consolidated statement of income - is removed from theconsolidated statement of comprehensive income and recognized in the consolidated statement ofincome. Impairment losses on equity investments are not reversed through the consolidatedstatement of income. Increases in fair value after impairment are recognized directly in theconsolidated statement of comprehensive income.

In the case of debt instruments classified as AFS investments, impairment is assessed based onthe same criteria as financial assets carried at amortized cost. Future interest income is based onthe reduced carrying amount of the asset and is accrued based on the rate of interest used todiscount future cash flows for the purpose of measuring impairment loss. Such accrual isrecorded as part of �Interest and dividend income� account in the consolidated statement ofincome. If, in subsequent year, the fair value of a debt instrument increased and the increase canbe objectively related to an event occurring after the impairment loss was recognized in theconsolidated statement of income, the impairment loss is reversed through the consolidatedstatement of income.


Initial recognition and measurement. Financial liabilities are classified, at initial recognition, asfinancial liabilities at FVTPL, loans and borrowings and payables, or as derivatives designated ashedging instruments in an effective hedge, as appropriate.

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All financial liabilities are recognized initially at fair value and, in the case of loans and borrowingsand payables, net of directly attributable transaction costs.

Subsequent measurement. The Company classifies its financial liabilities in the following categories:

· Financial liabilities at FVTPL. Financial liabilities at fair value through profit or loss includefinancial liabilities held for trading and financial liabilities designated upon initial recognition asat FVTPL.

Financial liabilities are classified as held for trading if they are incurred for the purpose ofrepurchasing in the near term. Derivatives, including any separated derivatives, are alsoclassified under liabilities at FVTPL, unless these are designated as hedging instruments in aneffective hedge or financial guarantee contracts. Gains or losses on liabilities held for trading arerecognized in the consolidated statement of income under �Others - net� account. Classified asfinancial liabilities at FVTPL are the Company�s derivative liabilities amounting toP=335 million and P=777 million as at December 31, 2018 and 2017, respectively (see Note 29).

· Loans and borrowings. This category pertains to financial liabilities that are not held for tradingor not designated as at FVTPL upon the inception of the liability. These include liabilities arisingfrom operations or borrowings. After initial recognition, interest-bearing loans and borrowingsare subsequently measured at amortized cost using the EIR method. Gains and losses arerecognized in the consolidated statement of income when the loans and borrowings arederecognized, as well as through the amortization process. Loans and borrowings are includedunder current liabilities if settlement is within twelve months from reporting period. Otherwise,these are classified as noncurrent liabilities.

Classified under this category are loans payable, accounts payable and other current liabilities,long-term debt, tenants� deposits, liability for purchased land and other noncurrent liabilities(except for taxes payables and other payables covered by other accounting standards). Other thanthose other financial liabilities whose carrying values are reasonable approximation of fair values,the aggregate carrying values of financial liabilities under this category amounted toP=228,983 million and P=190,846 million as at December 31, 2018 and 2017, respectively(see Note 29).

Derecognition. A financial liability is derecognized when the obligation under the liability isdischarged or cancelled or expired. When an existing financial liability is replaced by another fromthe same lender on substantially different terms, or the terms of an existing liability are substantiallymodified, such an exchange or modification is treated as the derecognition of the original liability andthe recognition of a new liability. The difference in the respective carrying amounts is recognized inthe consolidated statement of income.

Offsetting Financial InstrumentsFinancial assets and financial liabilities are offset and the net amount is reported in the consolidatedbalance sheet if there is a currently enforceable legal right to set off the recognized amounts and thereis intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. TheCompany assesses that it has a currently enforceable right of offset if the right is not contingent on afuture event, and is legally enforceable in the normal course of business, event of default, and eventof insolvency or bankruptcy of the Company and all of the counterparties. This is not generally thecase with master netting agreements, and the related assets and liabilities are presented at gross in theconsolidated balance sheet.

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Classification of Financial Instruments Between Liability and EquityA financial instrument is classified as liability if it provides for a contractual obligation to:

· deliver cash or another financial asset to another entity;

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

· satisfy the obligation other than by the exchange of a fixed amount of cash or another financialasset for a fixed number of own equity shares.

If the Company does not have an unconditional right to avoid delivering cash or another financialasset to settle its contractual obligation, the obligation meets the definition of a financial liability.

The components of issued financial instruments that contain both liability and equity elements areaccounted for separately, with the equity component being assigned the residual amount afterdeducting from the instrument as a whole the amount separately determined as the fair value of theliability component on the date of issue.

Debt Issue CostsDebt issue costs are presented as reduction in long-term debt and are amortized over the terms of therelated borrowings using the effective interest method.

Derivative Financial Instruments

Initial recognition and subsequent measurement. The Company uses derivative financialinstruments, such as non-deliverable forwards, cross currency swaps, interest rate swaps and principalonly swaps contracts to hedge its foreign currency risks and interest rate risks. Such derivativefinancial instruments are initially recognized at fair value on the date on which a derivative contract isentered into and are subsequently remeasured at fair value. Derivatives are carried as financial assetswhen the fair value is positive and as financial liabilities when the fair value is negative.

The Company only has hedges classified as cash flow hedges. These hedge the exposures tovariability in cash flows that is either attributable to a particular risk associated with a recognizedasset or liability or a highly probable forecast transaction or the foreign currency risk in anunrecognized firm commitment.

At the inception of a hedge relationship, the Company formally designates and documents the hedgerelationship to which it wishes to apply hedge accounting and the risk management objective andstrategy for undertaking the hedge.

Before 1 January 2018, the documentation includes identification of the hedging instrument, thehedged item or transaction, the nature of the risk being hedged and how the Company will assess theeffectiveness of changes in the hedging instrument�s fair value in offsetting the exposure to changesin the hedged item�s fair value or cash flows attributable to the hedged risk. Such hedges areexpected to be highly effective in achieving offsetting changes in fair value or cash flows and areassessed on an ongoing basis to determine that they actually have been highly effective throughoutthe financial reporting periods for which they were designated.

Effective January 1, 2018, the documentation includes identification of the hedging instrument, thehedged item, the nature of the risk being hedged and how the Company will assess whether thehedging relationship meets the hedge effectiveness requirements (including the analysis of sources of

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hedge ineffectiveness and how the hedge ratio is determined). A hedging relationship qualifies forhedge accounting if it meets all of the following effectiveness requirements:

· There is �an economic relationship� between the hedged item and the hedging instrument.

· The effect of credit risk does not �dominate the value changes� that result from that economicrelationship.

· The hedge ratio of the hedging relationship is the same as that resulting from the quantity of thehedged item that the Company actually hedges and the quantity of the hedging instrument that theCompany actually uses to hedge that quantity of hedged item.

Hedges that meet all the qualifying criteria for hedge accounting are accounted for, as describedbelow:

Cash flow hedges. The effective portion of the gain or loss on the hedging instrument is recognizedin OCI in the net fair value changes on cash flow hedges, while any ineffective portion is recognizedimmediately in the consolidated statement of income. The net fair value changes on cash flow hedgesis adjusted to the lower of the cumulative gain or loss on the hedging instrument and the cumulativechange in fair value of the hedged item.

The Company uses cross currency swaps, interest rate swaps and principal only swaps contracts tohedge its foreign currency risks and interest rate risks.

Changes in the fair value of the cross currency swaps, interest rate swaps and principal only swapscontracts are recognized in OCI and accumulated as a separate component of equity under Net fairvalue changes on cash flow hedges.

Before 1 January 2018, the Company designated all of the cross currency swaps, interest rate swapsand principal only swaps contracts as hedging instrument. Any gains or losses arising from changesin the fair value of derivatives were taken directly to profit or loss, except for the effective portion ofcash flow hedges, which were recognized in OCI and later reclassified to profit or loss when thehedge item affects profit or loss.

Effective January 1, 2018, the Company designates only the elements of the cross currency swaps,interest rate swaps and principal only swaps contracts as hedging instruments to achieve its riskmanagement objective. These elements are recognized in OCI and accumulated in a separatecomponent of equity under net fair value changes on cash flow hedges.

The amounts accumulated in OCI are accounted for, depending on the nature of the underlyinghedged transaction. If the hedged transaction subsequently results in the recognition of a non-financial item, the amount accumulated in equity is removed from the separate component of equityand included in the initial cost or other carrying amount of the hedged asset or liability. This is not areclassification adjustment and will not be recognized in OCI for the period. This also applies wherethe hedged forecast transaction of a non-financial asset or non-financial liability subsequentlybecomes a firm commitment for which fair value hedge accounting is applied.

For any other cash flow hedges, the amount accumulated in OCI is reclassified to profit or loss as areclassification adjustment in the same period or periods during which the hedged cash flows affectprofit or loss.

If cash flow hedge accounting is discontinued, the amount that has been accumulated in OCI mustremain in accumulated OCI if the hedged future cash flows are still expected to occur. Otherwise, theamount will be immediately reclassified to profit or loss as a reclassification adjustment. After

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discontinuation, once the hedged cash flow occurs, any amount remaining in accumulated OCI mustbe accounted for depending on the nature of the underlying transaction as described above.

Condominium and Residential Units for Sale and Current Portion of Land and DevelopmentCondominium and residential units for sale and current portion of land and development, orcollectively, real estate inventories, are stated at the lower of cost and net realizable value. Netrealizable value is the selling price in the ordinary course of business, less costs to complete and theestimated cost to make the sale. Current portion of land and development and condominium andresidential units for sale include properties being constructed for sale in the ordinary course ofbusiness, rather than to be held for rental or capital appreciation.

Cost incurred for the development and improvement of the properties includes the following:

· Land cost;

· Amounts paid to contractors for construction and development; and

· Borrowing costs, planning and design costs, costs of site preparation, professional fees, propertytransfer taxes, construction overheads and other related costs.

Prepaid Expenses and Other Current AssetsOther current assets consist of advances to suppliers and contractors, advances for projectdevelopment, input tax, creditable withholding taxes, deposits, cash in escrow, prepayments andothers. Advances to contractors are carried at cost. These represent advance payments to contractorsfor the construction and development of the projects. These are recouped upon every progress billingpayment depending on the percentage of accomplishment. Advances for project developmentrepresent advances made for the purchase of land and is stated initially at cost. Advances for projectdevelopment are subsequently measured at cost, net of any impairment. Prepaid taxes and otherprepayments are carried at cost less amortized portion. These include prepayments for taxes andlicenses, rent, advertising and promotions and insurance. Deposits represent advances made foracquisitions of property for future development and of shares of stocks.

Property Acquisitions and Business CombinationsWhen property is acquired, through corporate acquisitions or otherwise, management considers thesubstance of the assets and activities of the acquired entity in determining whether the acquisitionrepresents an acquisition of a business.

When such an acquisition is not judged to be an acquisition of a business, it is not treated as abusiness combination. Rather, the cost to acquire the corporate entity is allocated between theidentifiable assets and liabilities of the entity based on their relative fair values at the acquisition date.Accordingly, no goodwill or additional deferred tax arises. Otherwise, the acquisition is accountedfor as a business combination.

Business combinations are accounted for using the acquisition method. Applying the acquisitionmethod requires the (a) determination whether the Company will be identified as the acquirer,(b) determination of the acquisition date, (c) recognition and measurement of the identifiable assetsacquired, liabilities assumed and any non-controlling interest in the acquiree and (d) recognition andmeasurement of goodwill or a gain from a bargain purchase.

The cost of an acquisition is measured as the aggregate of the consideration transferred, measured atacquisition date fair value and the amount of any non-controlling interest in the acquiree. For eachbusiness combination, the Company measures the non-controlling interest in the acquiree either at fairvalue or at the proportionate share of the acquiree�s identifiable net assets. Acquisition costs incurredare expensed and included in the costs and expenses.

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When the Company acquires a business, it assesses the financial assets and liabilities assumed for

appropriate classification and designation in accordance with the contractual terms, economiccircumstances and pertinent conditions as at the acquisition date. This includes the separation ofembedded derivatives in host contracts by the acquiree.

If the business combination is achieved in stages, the acquisition date fair value of the Company�spreviously held equity interest in the acquiree is remeasured to fair value at the acquisition datethrough profit or loss.

Any contingent consideration to be transferred by the Company is recognized at fair value at theacquisition date. Subsequent changes to the fair value of the contingent consideration which isdeemed to be an asset or liability is recognized in accordance with PFRS 9 either in profit or loss oras change to other comprehensive income. If the contingent consideration is classified as equity, it isnot remeasured until it is finally settled and final difference is recognized within equity.

Common Control Business CombinationsBusiness combinations involving entities or businesses under common control are businesscombinations in which all of the entities or businesses are ultimately controlled by the same party orparties both before and after the business combination, and that control is not transitory. Businesscombinations under common control are accounted for similar to pooling of interests method. Underthe pooling of interests method:

· The assets, liabilities and equity of the acquired companies for the reporting period in which thecommon control business combinations occur and for the comparative periods presented, areincluded in the consolidated financial statements at their carrying amounts as if the consolidationhad occurred from the beginning of the earliest period presented in the financial statements,regardless of the actual date of the acquisition;

· No adjustments are made to reflect the fair values, or recognize any new assets or liabilities at thedate of the combination. The only adjustments would be to harmonize accounting policiesbetween the combining entities;

· No �new� goodwill is recognized as a result of the business combination;

· The excess of the cost of business combinations over the net carrying amounts of the identifiableassets and liabilities of the acquired companies is considered as equity adjustment from businesscombinations, included under �Additional paid-in capital - net� account in the equity section ofthe consolidated balance sheet; and

· The consolidated statement of income in the year of acquisition reflects the results of thecombining entities for the full year, irrespective of when the combination took place.

Acquisition of Non-controlling InterestsChanges in a parent�s ownership interest in a subsidiary that do not result in a loss of control areaccounted for as equity transactions (i.e., transactions with owners in their capacity as owners). Insuch circumstances, the carrying amounts of the controlling and non-controlling interests shall beadjusted to reflect the changes in their relative interests in the subsidiary. Any difference between theamount by which the non-controlling interests are adjusted and the fair value of the considerationpaid shall be recognized directly in equity and included under �Additional paid-in capital - net�account in the equity section of the consolidated balance sheet.

Property and EquipmentProperty and equipment, except land and construction in progress, is stated at cost less accumulateddepreciation and amortization and any accumulated impairment in value. Such cost includes the costof replacing part of the property and equipment at the time that cost is incurred, if the recognition

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criteria are met, and excludes the costs of day-to-day servicing. Land is stated at cost less anyimpairment in value.

The initial cost of property and equipment consists of its purchase price, including import duties,taxes and any directly attributable costs necessary in bringing the asset to its working condition andlocation for its intended use. Cost also includes any related asset retirement obligation and interestincurred during the construction period on funds borrowed to finance the construction of the projects.When each major inspection is performed, its cost is recognized in the carrying amount of theproperty and equipment as a replacement if the recognition criteria are satisfied. Expendituresincurred after the item has been put into operation, such as repairs, maintenance and overhaul costs,are normally recognized as expense in the period such costs are incurred. In situations where it canbe clearly demonstrated that the expenditures have improved the condition of the asset beyond theoriginally assessed standard of performance, the expenditures are capitalized as additional cost ofproperty and equipment.

Depreciation and amortization are calculated on a straight-line basis over the following estimateduseful lives of the assets:

Land improvements 5 yearsBuildings 10�25 yearsLeasehold improvements 5�10 years or term of the lease,

whichever is shorterData processing equipment 5�8 yearsTransportation equipment 5�6 yearsFurniture, fixtures and equipment 5�10 years

The residual values, useful lives and method of depreciation and amortization of the assets arereviewed and adjusted, if appropriate, at each reporting period.

The carrying values of property and equipment are reviewed for impairment when events or changesin circumstances indicate that the carrying value may not be recoverable.

Fully depreciated assets are retained in the accounts until they are no longer in use and no furtherdepreciation and amortization is credited or charged to current operations.

An item of property and equipment is derecognized when either it has been disposed or when it ispermanently withdrawn from use and no future economic benefits are expected from its use ordisposal. Any gains or losses arising on the retirement and disposal of an item of property andequipment are recognized in the consolidated statements of income in the period of retirement ordisposal.

Investment PropertyThis account consists of investment properties and noncurrent portion of land and developmentpresented in the consolidated balance sheets. These accounts consist of commercial spaces/propertiesheld for rental and/or capital appreciation and land held for future development. These accounts aremeasured initially at cost. The cost of a purchased investment property and land for futuredevelopment comprises of its purchase price and any directly attributable costs. Subsequently, theseaccounts, except land and construction in progress, are measured at cost, less accumulateddepreciation and amortization and accumulated impairment in value, if any. The carrying amountincludes the cost of replacing part of an existing investment property at the time that cost is incurredif the recognition criteria are met, and excludes the costs of day-to-day servicing of an investmentproperty. Land is stated at cost less any impairment in value.

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Property under construction or development for future use as an investment property is classified asinvestment property.

Depreciation and amortization are calculated on a straight-line basis over the following estimateduseful lives of the assets:

Land improvements 5 yearsBuildings and improvements 20�40 yearsBuilding equipment, furniture and others 3�15 yearsBuilding and leasehold improvements 5 years or term of lease

whichever is shorter

The residual values, useful lives and method of depreciation and amortization of the assets arereviewed and adjusted, if appropriate, at each reporting period.

Construction in progress represents structures under construction and is stated at cost. This includescost of construction, property and equipment, and other direct costs. Cost also includes interest onborrowed funds incurred during the construction period. Construction in progress is not depreciateduntil such time that the relevant assets are completed and are ready for use.

Investment property is derecognized when either it has been disposed or when it is permanentlywithdrawn from use and no future economic benefit is expected from its disposal. Any gains orlosses on the retirement or disposal of an investment property are recognized in the consolidatedstatement of income in the period of retirement or disposal.

Transfers are made from investment property to inventories when, and only when, there is a change inuse, as evidenced by an approved plan to construct and develop condominium and residential unitsfor sale. Transfers are made to investment property from inventories when, and only when, there ischange in use, as evidenced by commencement of an operating lease to a third party or change in theoriginally approved plan. The cost of property for subsequent accounting is its carrying value at thedate of change in use.

Transfers are made to investment property when, and only when, there is a change in use, evidencedby ending of owner-occupation or commencement of an operating lease to another party. Transfersare made from investment property when, and only when, there is a change in use, evidenced bycommencement of owner-occupation or commencement of development with a view to sell.

For a transfer from investment property to owner-occupied property, the cost of property forsubsequent accounting is its carrying value at the date of change in use. If the property occupied bythe Company as an owner-occupied property becomes an investment property, the Company accountsfor such property in accordance with the policy stated under property and equipment up to the date ofchange in use.

Investments in Associates and Joint VenturesAn associate is an entity over which the Company has significant influence. Significant influence isthe power to participate in the financial and operating policy decisions of the investee, but is notcontrol or joint control over those policies.

A joint venture is a type of joint arrangement whereby the parties that have joint control of thearrangement have rights to the net assets of the joint venture. Joint control is the contractually agreedsharing of control of an arrangement, which exists only when decisions about the relevant activitiesrequire unanimous consent of the parties sharing control.

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The considerations made in determining significant influence or joint control are similar to thosenecessary to determine control over subsidiaries.

The Company�s investments in shares of stocks of associates and joint ventures are accounted forunder the equity method of accounting.

Under the equity method, investment in an associate or a joint venture is carried in the consolidatedbalance sheet at cost plus post-acquisition changes in the Company�s share in the net asset of theassociate or joint venture. The consolidated statements of income reflect the share in the result ofoperations of the associate or joint venture under �Others-net� account. Where there has been achange recognized directly in the equity of the associate or joint venture, the Company recognizes itsshare in any changes and discloses this, when applicable, in the consolidated statement of income.Profit and losses resulting from transactions between the Company and the associate or joint ventureare eliminated to the extent of the interest in the associate or joint venture. After application of theequity method, the Company determines whether it is necessary to recognize any additionalimpairment loss with respect to the Company�s net investment in the associate or joint venture. Aninvestment in associate or joint venture is accounted for using the equity method from the date whenit becomes an associate or joint venture. On acquisition of the investment, any difference between thecost of the investment and the investor�s share in the net fair value of the associate�s identifiableassets, liabilities and contingent liabilities is accounted for as follow:

· Goodwill relating to an associate or joint venture is included in the carrying amount of theinvestment. However, amortization of that goodwill is not permitted and is therefore not includedin the determination of the Company�s share in the associate�s or joint venture�s profits or losses.

· Any excess of the Company�s share in the net fair value of the associate�s identifiable assets,liabilities and contingent liabilities over the cost of the investment is excluded from the carryingamount of the investment and is instead included as income in the determination of the investor�sshare in the associate�s or joint venture�s profit or loss in the period in which the investment isacquired.

Also, appropriate adjustments to the Company�s share of the associate�s or joint venture�s profit orloss after acquisition are made to account for the depreciation of the depreciable assets based on theirfair values at the acquisition date and for impairment losses recognized by the associate or jointventure.

The Company discontinues the use of equity method from the date when it ceases to have significantinfluence or joint control over an associate or joint venture and accounts for the investment inaccordance with PFRS 9, from that date, provided the associate or joint venture does not become asubsidiary. Upon loss of significant influence or joint control over the associate or joint venture, theCompany measures and recognizes any remaining investment at its fair value. Any difference in thecarrying amount of the associate or joint venture upon loss of significant influence or joint controland the fair value of the remaining investment and proceeds from disposal is recognized in theconsolidated statement of income. When the Company�s interest in an investment in associate orjoint venture is reduced to zero, additional losses are provided only to the extent that the Companyhas incurred obligations or made payments on behalf of the associate or joint venture to satisfyobligations of the investee that the Company has guaranteed or otherwise committed. If the associateor joint venture subsequently reports profits, the Company resumes recognizing its share of the profitsif it equals the share of net losses not recognized.

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The financial statements of the associates and joint ventures are prepared for the same reportingperiod as the Company. The accounting policies of the associates and joint ventures conform to thoseused by the Company for like transactions and events in similar circumstances.

Other Noncurrent AssetsOther noncurrent assets consist of bonds and deposits, receivables from sale of real estate - net ofcurrent portion, land use rights, time deposits, deferred input tax and others. Other noncurrent assetsare carried at cost. Land use rights are amortized over its useful life of 40 to 60 years.

Impairment of Nonfinancial AssetsThe carrying values of investments in associates and joint ventures, property and equipment,investment properties, noncurrent portion of land and development accounted fro as investmentproperty, and other noncurrent assets (excluding time deposits) are reviewed for impairment whenevents or changes in circumstances indicate that the carrying values may not be recoverable. If anysuch indication exists, and if the carrying value exceeds the estimated recoverable amount, the assetsor cash-generating units are written down to their recoverable amounts. The recoverable amount ofthe asset is the greater of fair value less costs to sell or value in use. The fair value less costs to sell isthe amount obtainable from the sale of an asset in an arm�s-length transaction betweenknowledgeable, willing parties, less costs of disposal. In assessing value in use, the estimated futurecash flows are discounted to their present value using a pre-tax discount rate that reflects currentmarket assessments of the time value of money and the risks specific to the asset. For an asset thatdoes not generate largely independent cash inflows, the recoverable amount is determined for thecash-generating unit to which the asset belongs. Impairment losses are recognized in the consolidatedstatement of income in those expense categories consistent with the function of the impaired asset.

An assessment is made at each reporting date as to whether there is any indication that previouslyrecognized impairment loss may no longer exist or may have decreased. If such indication exists, therecoverable amount is estimated. A previously recognized impairment loss is reversed only if therehas been a change in the estimates used to determine the asset�s recoverable amount since the lastimpairment loss was recognized. If that is the case, the carrying amount of the asset is increased to itsrecoverable amount. That increased amount cannot exceed the carrying amount that would have beendetermined, net of depreciation and amortization, had no impairment loss been recognized for theasset in prior years. Such reversal is recognized in the consolidated statement of income. After sucha reversal, the depreciation or amortization charge is adjusted in future periods to allocate the asset�srevised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

Tenants� DepositsTenants� deposits are measured at amortized cost. Tenants� deposits refer to security depositsreceived from various tenants upon inception of the respective lease contracts on the Company�sinvestment properties. At the termination of the lease contracts, the deposits received by theCompany are returned to tenants, reduced by unpaid rental fees, penalties and/or deductions fromrepairs of damaged leased properties, if any. The related lease contracts usually have a term of morethan twelve months.

Customers� DepositsCustomers� deposits mainly represent reservation fees and advance payments. These deposits will berecognized as revenue in the consolidated statement of income as the related obligations to the realestate buyers are fulfilled.

Capital Stock and Additional Paid-in CapitalCapital stock is measured at par value for all shares issued. Incremental costs incurred directlyattributable to the issuance of new shares are shown in equity as deduction from proceeds, net of tax.

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Proceeds and/or fair value of considerations received in excess of par value, if any, are recognized as�Additional paid-in capital - net� account.

Retained EarningsRetained earnings represent accumulated net profits, net of dividend distributions and other capitaladjustments.

Treasury StockOwn equity instruments which are acquired (treasury shares) are deducted from equity and accountedfor at cost. No gain or loss is recognized in the consolidated statement of income on the purchase,sale, issuance or cancellation of own equity instruments.

DividendsDividends on common shares are recognized as liability and deducted from equity when declared andapproved by the BOD. Dividends for the year that are approved after balance sheet date are dealtwith as an event after the reporting period.

Revenue RecognitionRevenue from contracts with customers is recognized when control of the goods or services aretransferred to the customer at an amount that reflects the consideration to which the Company expectsto be entitled in exchange for those goods or services. The Company assesses its revenuearrangements against specific criteria to determine if it is acting as a principal or as an agent. TheCompany has concluded that it is acting as principal in majority of its revenue arrangements. Thefollowing specific recognition criteria, other than those disclosed in Note 2 to the consolidatedfinancial statements, must also be met before revenue is recognized:

The disclosures of significant accounting judgements, estimates and assumptions relating to revenuefrom contracts with customers are provided in Note 2.

Rent. Revenue is recognized on a straight-line basis over the lease term or based on the terms of thelease as applicable.

Sale of Amusement Tickets and Merchandise. Revenue is recognized upon receipt of cash from thecustomer which coincides with the rendering of services or the delivery of merchandise. Revenuefrom sale of amusement tickets and merchandise are included in the �Revenue - Others� account inthe consolidated statement of income.

Dividend. Revenue is recognized when the Company�s right as a shareholder to receive the paymentis established. These are included in the �Interest and dividend income� account in the consolidatedstatement of income.

Management and Service Fees. Revenue is recognized when earned in accordance with the terms ofthe agreements.

Interest. Revenue is recognized as the interest accrues, taking into account the effective yield on theasset.

Room Rentals, Food and Beverage, and Others. Revenue from room rentals is recognized on actualoccupancy, food and beverage sales when orders are served, and other operated departments when theservices are rendered. Revenue from other operated departments include, among others, businesscenter, laundry service, and telephone service. Revenue from food and beverage sales and other hotelrevenue are included under the �Revenue - Others� account in the consolidated statement of income.

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Revenue and Cost from Sale of Real Estate effective beginning January 1, 2018. The Companyderives its real estate revenue from sale of lots, house and lot and condominium units. Revenue fromthe sale of these real estate projects under pre-completion stage are recognized over time during theconstruction period (or percentage of completion) since based on the terms and conditions of itscontract with the buyers, the Company�s performance does not create an asset with an alternative useand the Company has an enforceable right to payment for performance completed to date.

In measuring the progress of its performance obligation over time, the Company uses output method.The Company recognizes revenue on the basis of direct measurements of the value to customers ofthe goods or services transferred to date, relative to the remaining goods or services promised underthe contract. Progress is measured using survey of performance completed to date/ milestonesreached/ time elapsed. This is based on the monthly project accomplishment report prepared by thethird party project managers as approved by the construction managers which integrates the surveysof performance to date of the construction activities.

Estimated development costs of the real estate project include costs of land, land development,building costs, professional fees, depreciation of equipment directly used in the construction,payments for permits and licenses. Revisions in estimated development costs brought about byincreases in projected costs in excess of the original budgeted amounts, form part of total projectcosts on a prospective basis.

Any excess of progress of work over the right to an amount of consideration that is unconditional,recognized as receivables from sale of real estate, under trade receivables, is accounted for as unbilledrevenue from sale of real estate.

Any excess of collections over the total of recognized installment real estate receivables is included inthe contract liabilities (or referred also in the consolidated financial statements as �Unearned revenuefrom sale of real estate�).

Information about the Company�s performance obligation. The Company entered into contracts tosell with one identified performance obligation which is the sale of the real estate unit together withthe services to transfer the title to the buyer upon full payment of contract price. The amount ofconsideration indicated in the contract to sell is fixed and has no variable consideration.

Payment commences upon signing of the contract to sell and the consideration is payable in cash orunder a financing scheme entered with the customer. The financing scheme would include paymentof certain percentage of the contract price spread over a certain period (e.g. one to three years) at afixed monthly payment with the remaining balance payable in full at the end of the period eitherthrough cash or external financing. The amount due for collection under the amortization schedulefor each of the customer does not necessarily coincide with the progress of construction.

The Company has a quality assurance warranty which is not treated as a separate performanceobligation.

Cost of real estate sold. The Company recognizes costs relating to satisfied performance obligationsas these are incurred taking into consideration the contract fulfillment assets such as land andconnection fees. These include costs of land, land development costs, building costs, professionalfees, depreciation, permits and licenses and capitalized borrowing costs. These costs are allocated tothe saleable area, with the portion allocable to the sold area being recognized as costs of real estatesold while the portion allocable to the unsold area being recognized as part of real estate inventories(condominium and residential units for sale and current portion of land and development). In

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addition, the Company recognizes as an asset only costs that give rise to resources that will be used insatisfying performance obligations in the future and that are expected to be recovered.

Contract Balances

Receivables. A receivable represents the Company�s right to an amount of consideration that isunconditional (i.e., only the passage of time is required before payment of the consideration is due).

Contract assets. These pertain to unbilled revenue from sale of real estate. This is the right toconsideration that is conditional in exchange for goods or services transferred to the customer. Thisis reclassified as trade receivable from sale of real estate when the monthly amortization of thecustomer is already due for collection.

Contract liabilities. These pertain to unearned revenue from sale of real estate. This is the obligationto transfer goods or services to a customer for which the Company has received consideration (or anamount of consideration is due) from the customer. These also include customers� deposits related tosale of real estate. These are recognized as revenue when the Company performs its obligation underthe contract.

Costs to obtain contract. The incremental costs of obtaining a contract with a customer arerecognized as an asset if the Company expects to recover them. The Company has determined thatcommissions paid to brokers and marketing agents on the sale of pre-completed real estate units aredeferred when recovery is reasonably expected and are charged to expense in the period in which therelated revenue is recognized as earned. Commission expense is included in the �Costs andexpenses� account in the consolidated statement of income. Costs incurred prior to obtaining contractwith customer are not capitalized but are expensed as incurred.

Contract fulfillment assets. Contract fulfillment costs are divided into: (i) costs that give rise to anasset; and (ii) costs that are expensed as incurred. When determining the appropriate accountingtreatment for such costs, the Company firstly considers any other applicable standards. If thosestandards preclude capitalization of a particular cost, then an asset is not recognized under PFRS 15.

If other standards are not applicable to contract fulfillment costs, the Company applies the followingcriteria which, if met, result in capitalization: (i) the costs directly relate to a contract or to aspecifically identifiable anticipated contract; (ii) the costs generate or enhance resources of the entitythat will be used in satisfying (or in continuing to satisfy) performance obligations in the future; and(iii) the costs are expected to be recovered. The assessment of this criteria requires the application ofjudgement, in particular when considering if costs generate or enhance resources to be used to satisfyfuture performance obligations and whether costs are expected to be recoverable.

The Company�s contract fulfillment assets mainly pertain to land acquisition costs (included undercurrent portion of land and development).

Amortization, de-recognition and impairment of contract fulfillment assets and capitalized costs to

obtain a contract. The Company amortizes contract fulfillment assets and capitalized costs to obtaina contract to cost of sales over the expected construction period using POC following the pattern ofreal estate revenue recognition. The amortization is included within cost of real estate sold.

A contract fulfillment asset or capitalized costs to obtain a contract is derecognized either when it isdisposed of or when no further economic benefits are expected to flow from its use or disposal.

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At each reporting date, the Company determines whether there is an indication that contractfulfillment asset or cost to obtain a contract maybe impaired. If such indication exists, the Companymakes an estimate by comparing the carrying amount of the assets to the remaining amount ofconsideration that the Company expects to receive less the costs that relate to providing servicesunder the relevant contract. In determining the estimated amount of consideration, the Company usesthe same principles as it does to determine the contract transaction price, except that any constraintsused to reduce the transaction price will be removed for the impairment test.

Where the relevant costs are demonstrating indicators of impairment, judgement is required inascertaining whether or not the future economic benefits from these contracts are sufficient to recoverthese assets.

Revenue and Cost Recognition from Sale of Real Estate effective before January 1, 2018. TheCompany assesses whether it is probable that the economic benefits will flow to the Company whenthe sales prices are collectible. Collectability of the contract price is demonstrated by the buyer�scommitment to pay, which is supported by the buyer�s initial and continuous investments thatmotivates the buyer to honor its obligation. Collectability is also assessed by considering factors suchas collections, credit standing of the buyer and location of the property.

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 hasmaterial obligations under the sales contract to complete the project after the property is sold, theequitable interest has been transferred to the buyer, construction is beyond preliminary stage (i.e.,engineering, design work, construction contracts execution, site clearance and preparation, excavationand the building foundation are finished), and the costs incurred or to be incurred can be measuredreliably. Under this method, revenue is recognized as the related obligations are fulfilled, measuredprincipally on the basis of the estimated completion of a physical proportion of the contract work.

Any excess of collections over the recognized receivables are included in the �Tenants� andcustomers� deposits� account in the consolidated balance sheet. If any of the criteria under the fullaccrual or percentage-of-completion method is not met, the deposit method is applied until all theconditions for recording a sale are met. Pending recognition of sale, cash received from buyers arepresented under the �Tenants� and customers� deposits� account in the consolidated balance sheet.

Revenue from construction contracts included in the �Revenue from sale of real estate� account in theconsolidated statement of income is recognized using the percentage-of-completion method,measured principally on the basis of the estimated physical completion of the contract work.

Cost of real estate sold. Cost of real estate sold is recognized consistent with the revenue recognitionmethod applied. Cost of condominium units sold before the completion of the development isdetermined on the basis of the acquisition cost of the land plus its full development costs, whichinclude estimated costs for future development works. The cost of inventory recognized in theconsolidated statement of income upon sale is determined with reference to the specific costs incurredon the property, allocated to saleable area based on relative size and takes into account the percentageof completion used for revenue recognition purposes. Expected losses on contracts are recognizedimmediately when it is probable that the total contract costs will exceed total contract revenue.Changes in the estimated cost to complete the condominium project which affects cost of real estatesold and gross profit are recognized in the year in which changes are determined.

Management FeesManagement fees are recognized as expense in accordance with the terms of the agreements.

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General, Administrative and Other ExpensesCosts and expenses are recognized as incurred.

Pension BenefitsThe Company is a participant in the SM Corporate and Management Companies EmployerRetirement Plan. The plan is a funded, noncontributory defined benefit retirement plan administeredby a Board of Trustees covering all regular full-time employees. The cost of providing benefits underthe defined benefit plan is determined using the projected unit credit method. This method reflectsservice rendered by employees to the date of valuation and incorporates assumptions concerning theemployees� projected salaries. The net defined benefit liability or asset is the aggregate of the presentvalue of the defined benefit obligation at the end of the reporting period reduced by the fair value ofplan assets, if any, adjusted for any effect of limiting a net defined benefit asset to the asset ceiling.The asset ceiling is the present value of any economic benefits available in the form of refunds fromthe plan or reductions in future contributions to the plan.

Defined benefit pension costs comprise the following:

· Service cost

· Net interest on the net defined benefit obligation or asset

· Remeasurements of net defined benefit obligation or asset

Service cost which includes current service costs, past service costs and gains or losses on non-routine settlements are recognized as part of �Costs and expenses� under �Administrative� account inthe consolidated statement of income. Past service costs are recognized when plan amendment orcurtailment occurs.

Net interest on the net defined benefit obligation or asset is the change during the period in the netdefined benefit obligation or asset that arises from the passage of time which is determined byapplying the discount rate based on government bonds to the net defined benefit liability or asset. Netinterest on the net defined benefit obligation or asset is recognized as part of �Costs and expenses�under �Administrative� account in the consolidated statement of income.

Remeasurements comprising actuarial gains and losses, return on plan assets and any change in theeffect of the asset ceiling (excluding net interest on defined benefit obligation) are recognizedimmediately in other comprehensive income in the period in which they arise. Remeasurements arenot reclassified to profit or loss in subsequent periods.

Plan assets are assets that are held by a long-term employee benefit fund. Fair value of plan assets isbased on market price information. When no market price is available, the fair value of plan assets isestimated by discounting expected future cash flows using a discount rate that reflects both the riskassociated with the plan assets and the maturity or expected disposal date of those assets (or, if theyhave no maturity, the expected period until the settlement of the related obligations).

The Company�s right to be reimbursed of some or all of the expenditure required to settle a definedbenefit obligation is recognized as a separate asset at fair value when and only when reimbursement isvirtually certain.

Foreign Currency-denominated TransactionsThe consolidated financial statements are presented in Philippine peso, which is SMPH�s functionaland presentation currency. Transactions in foreign currencies are initially recorded in the functionalcurrency rate at the date of the transaction. Monetary assets and liabilities denominated in foreigncurrencies are restated at the functional currency rate of exchange at reporting period. Nonmonetary

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items denominated in foreign currency are translated using the exchange rates as at the date of initialrecognition. All differences are taken to the consolidated statements of income.

Foreign Currency TranslationThe assets and liabilities of foreign operations are translated into Philippine peso at the rate ofexchange ruling at reporting period and their respective statements of income are translated at theweighted average rates for the year. The exchange differences arising on the translation are includedin the consolidated statements of comprehensive income and are presented within the �Cumulativetranslation adjustment� account in the consolidated statements of changes in equity. On disposal of aforeign entity, the deferred cumulative amount of exchange differences recognized in equity relatingto that particular foreign operation is recognized in the profit or loss.

LeasesThe determination of whether an arrangement is, or contains, a lease is based on the substance of thearrangement and requires an assessment of whether the fulfillment of the arrangement is dependenton the use of a specific asset or assets and the arrangement conveys a right to use the asset.

Company as Lessee. Finance leases, which transfer to the Company substantially all the risks andbenefits incidental to ownership of the leased item, are capitalized at the inception of the lease at thefair value of the leased property or, if lower, at the present value of the minimum lease payments.Lease payments are apportioned between the finance charges and reduction of the lease liability so asto achieve a constant rate of interest on the remaining balance of the liability. Finance charges arereflected in the consolidated statement of income.

Capitalized leased assets are depreciated over the shorter of the estimated useful life of the asset andthe lease term, if there is no reasonable certainty that the Company will obtain ownership by the endof the lease term.

Leases which do not transfer to the Company substantially all the risks and benefits of ownership ofthe asset are classified as operating leases. Operating lease payments are recognized as expense in theconsolidated statement of income on a straight-line basis over the lease term. Associated costs, suchas maintenance and insurance, are expensed as incurred.

Company as Lessor. Leases where the Company does not transfer substantially all the risks andbenefits of ownership of the asset are classified as operating leases. Lease income from operatingleases are recognized as income on a straight-line basis over the lease term. Initial direct costsincurred in negotiating an operating lease are added to the carrying amount of the leased asset andrecognized over the lease term on the same basis as rental income. Contingent rents are recognized asrevenue in the period in which they are earned.

ProvisionsProvisions are recognized when the Company has a present obligation (legal or constructive) as aresult of a past event, it is probable that an outflow of resources embodying economic benefits will berequired to settle the obligation, and a reliable estimate can be made of the amount of the obligation.If the effect of the time value of money is material, provisions are determined by discounting theexpected future cash flows at a pre-tax rate that reflects current market assessments of the time valueof money and, where appropriate, the risks specific to the liability. Where discounting is used, theincrease in the provision due to the passage of time is recognized as interest expense. Where theCompany expects a provision to be reimbursed, the reimbursement is recognized as a separate assetbut only when the receipt of the reimbursement is virtually certain.

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Borrowing CostsBorrowing costs are capitalized if they are directly attributable to the acquisition or construction of aqualifying asset as part of the cost of that asset. Capitalization of borrowing costs commences whenthe activities to prepare the asset are in progress and expenditures and borrowing costs are beingincurred. Borrowing costs are capitalized until the assets are substantially ready for their intendeduse. Borrowing costs are capitalized when it is probable that they will result in future economicbenefits to the Company. For borrowing associated with a specific asset, the actual rate on thatborrowing is used. Otherwise, a weighted average cost of borrowings is used.

Borrowing costs include exchange differences arising from foreign currency borrowings to the extentthat they are regarded as an adjustment to interest cost. The Company limits exchange losses taken asamount of borrowing costs to the extent that the total borrowing costs capitalized do not exceed theamount of borrowing costs that would be incurred on functional currency equivalent borrowings. Theamount of foreign exchange differences eligible for capitalization is determined for each periodseparately. Foreign exchange losses that did not meet the criteria for capitalization in previous yearsare not capitalized in subsequent years. All other borrowing costs are expensed as incurred.

Taxes

Current Tax. Current tax assets and liabilities for the current and prior periods are measured at theamount expected to be recovered from or paid to the taxation authorities. The tax rates and tax lawsused to compute the amount are those that are enacted or substantively enacted as at reporting period.

Deferred Tax. Deferred tax is provided, using the balance sheet liability method, on temporarydifferences at reporting period between the tax bases of assets and liabilities and their carryingamounts for financial reporting purposes. Deferred tax liabilities are recognized for all taxabletemporary differences, except:

· where the deferred tax liability arises from the initial recognition of goodwill or of an asset orliability in a transaction that is not a business combination and, at the time of the transaction,affects neither the accounting profit nor taxable profit or loss; and

· with respect to taxable temporary differences associated with investments in subsidiaries,associates and interests in joint ventures, where the timing of the reversal of the temporarydifferences can be controlled and it is probable that the temporary differences will not reverse inthe foreseeable future.

Deferred tax assets are recognized for all deductible temporary differences and carryforward benefitsof excess MCIT and NOLCO, to the extent that it is probable that taxable profit will be availableagainst which the deductible temporary differences and the carryforward benefits of excess MCITand NOLCO can be utilized, except:

· where the deferred tax asset relating to the deductible temporary difference arises from the initialrecognition of an asset or liability in a transaction that is not a business combination and, at thetime of the transaction, affects neither the accounting profit nor taxable profit or loss; and

· with respect to deductible temporary differences associated with investments in subsidiaries,associates and interests in joint ventures, deferred tax assets are recognized only to the extent thatit is probable that the temporary differences will reverse in the foreseeable future and taxableprofit will be available against which the temporary differences can be utilized.

The carrying amount of deferred tax assets is reviewed at each reporting period and reduced to theextent that it is no longer probable that sufficient taxable profit will be available to allow all or part ofthe deferred income tax assets to be utilized. Unrecognized deferred tax assets are reassessed at each

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reporting period and are recognized to the extent that it has become probable that future taxable profitwill allow the deferred tax assets to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the periodthe asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted orsubstantively enacted at reporting period.

Income tax relating to items recognized directly in the consolidated statement of comprehensiveincome is recognized in the consolidated statement of comprehensive income and not in theconsolidated statement of income.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to offsetcurrent tax assets against current tax liabilities and the deferred taxes relate to the same taxable entityand the same taxation authority.

Value Added Tax (VAT). Revenues, expenses, and assets are recognized net of the amount of VAT, ifapplicable.

When VAT from sales of goods and/or services (output VAT) exceeds VAT passed on frompurchases of goods or services (input VAT), the excess is recognized as part of �Accounts payableand other current liabilities� account in the consolidated balance sheets. When VAT passed on frompurchases of goods or services (input VAT) exceeds VAT from sales of goods and/or services (outputVAT), the excess is recognized as part of �Prepaid expenses and other current assets� account in theconsolidated balance sheets to the extent of the recoverable amount.

Business SegmentsThe Company is organized and managed separately according to the nature of business. The fouroperating business segments are mall, residential, commercial and hotels and convention centers.These operating businesses are the basis upon which the Company reports its segment informationpresented in Note 4 to the consolidated financial statements.

Basic/Diluted Earnings Per Common Share (EPS)Basic EPS is computed by dividing the net income for the period attributable to owners of the Parentby the weighted-average number of issued and outstanding common shares during the period, withretroactive adjustment for any stock dividends declared.

For the purpose of computing diluted EPS, the net income for the period attributable to owners of theParent and the weighted-average number of issued and outstanding common shares are adjusted forthe effects of all dilutive potential ordinary shares, if any.

ContingenciesContingent liabilities are not recognized in the consolidated financial statements. They are disclosedin the notes to consolidated financial statements unless the possibility of an outflow of resourcesembodying economic benefits is remote. Contingent assets are not recognized in the consolidatedfinancial statements but are disclosed in the notes to consolidated financial statements when an inflowof economic benefits is probable.

Events after the Reporting PeriodPost year-end events that provide additional information about the Company�s financial position atthe end of the reporting period (adjusting events) are reflected in the consolidated financialstatements. Post year-end events that are not adjusting events are disclosed in the notes to theconsolidated financial statements when material.

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4. Segment Information

For management purposes, the Company is organized into business units based on their products andservices, and has four reportable operating segments as follows: mall, residential, commercial andhotels and convention centers.

Mall segment develops, conducts, operates and maintains the business of modern commercialshopping centers and all businesses related thereto such as the conduct, operation and maintenance ofshopping center spaces for rent, amusement centers, or cinema theaters within the compound of theshopping centers.

Residential and commercial segments are involved in the development and transformation of majorresidential, commercial, entertainment and tourism districts through sustained capital investments inbuildings and infrastructure.

Hotels and convention centers segment engages in and carry on the business of hotel and conventioncenters and operates and maintains any and all services and facilities incident thereto.

Management, through the Executive Committee, monitors the operating results of its business unitsseparately for the purpose of making decisions about resource allocation and performance assessment.Segment performance is evaluated based on operating profit or loss and is measured consistently withthe operating profit or loss in the consolidated financial statements.

The amount of segment assets and liabilities and segment profit or loss are based on measurementprinciples that are similar to those used in measuring the assets and liabilities and profit or loss in theconsolidated financial statements, which is in accordance with PFRS.

Inter-segment TransactionsTransfer prices between business segments are set on an arm�s length basis similar to transactionswith nonrelated parties. Such transfers are eliminated in the consolidated financial statements.

Business Segment Data

2018


Hotels and

Convention

Centers Eliminations

Consolidated

Balances


External customers P=59,188,798 P=36,519,311 P=3,504,224 P=4,868,232 P=� P=104,080,565

Inter-segment 88,489 � 73,856 85 (162,430)

P=59,277,287 P=36,519,311 P=3,578,080 P=4,868,317 (P=162,430) P=104,080,565

Segment results: Income before income tax P=27,413,548 P=10,664,058 P=2,864,711 P=1,179,145 (P=155,287) P=41,966,175

Provision for income tax (6,816,792) (1,448,652) (510,274) (279,328) � (9,055,046)


Net income attributable to: Equity holders of the Parent P=19,869,360 P=9,204,559 P=2,354,437 P=899,817 (P=155,287) P=32,172,886

Non-controlling interests 727,396 10,847 � � � 738,243

Segment assets P=366,324,387 P=186,098,844 P=40,308,522 P=12,278,302 (P=875,737) P=604,134,318

Segment liabilities P=212,781,100 P=108,996,681 P=3,163,510 P=990,802 (P=875,737) P=325,056,356

Other information: Capital expenditures P=28,991,530 P=57,128,644 P=4,213,470 P=820,890 P=� P=91,154,534

Depreciation and amortization 8,495,514 156,599 446,646 556,667 � 9,655,426

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2017




Balances


External customers P=53,102,361 P=30,039,222 P=2,998,731 P=4,781,536 P=� P=90,921,850 Inter-segment 93,279 � 61,767 15,472 (170,518)

P=53,195,640 P=30,039,222 P=3,060,498 P=4,797,008 (P=170,518) P=90,921,850

Segment results: Income before income tax P=24,669,099 P=7,932,778 P=2,471,844 P=1,156,616 (P=282,476) P=35,947,861 Provision for income tax (6,237,757) (876,195) (443,757) (265,689) � (7,823,398)


Net income attributable to: Equity holders of the Parent P=17,883,603 P=7,053,725 P=2,028,087 P=890,927 (P=282,476) P=27,573,866 Non-controlling interests 547,739 2,858 � � � 550,597


Segment liabilities P=204,608,715 P=68,954,662 P=2,577,233 P=1,066,798 (P=1,663,724) P=275,543,684

Other information: Capital expenditures P=23,635,417 P=29,951,127 P=3,937,079 P=761,980 P=� P=58,285,603 Depreciation and amortization 7,814,104 191,829 397,705 555,532 � 8,959,170

2016




Balances


External customers P=48,527,870 P=25,418,929 P=2,668,059 P=3,201,373 P=� P=79,816,231 Inter-segment 72,562 � 68,879 16,321 (157,762)

P=48,600,432 P=25,418,929 P=2,736,938 P=3,217,694 (P=157,762) P=79,816,231

Segment results: Income before income tax P=22,389,603 P=6,455,501 P=2,096,048 P=579,574 (P=532,049) P=30,988,677 Provision for income tax (5,473,398) (655,333) (347,946) (144,376) � (6,621,053)


Net income attributable to: Equity holders of the Parent P=16,356,409 P=5,798,053 P=1,748,102 P=435,198 (P=532,049) P=23,805,713 Non-controlling interests 559,796 2,115 � � � 561,911


Segment liabilities P=176,037,532 P=52,504,057 P=2,190,109 P=621,101 (P=1,156,211) P=230,196,588

Other information: Capital expenditures P=24,126,694 P=14,421,200 P=3,921,999 P=1,200,868 P=� P=43,670,761 Depreciation and amortization 6,847,363 178,205 384,758 404,018 � 7,814,344

For the years ended December 31, 2018, 2017 and 2016, there were no revenue transactions with asingle external customer which accounted for 10% or more of the consolidated revenue from externalcustomers.

The Company disaggregates its revenue information in the same manner as it reports its segmentinformation.

5. Business Combinations

Common Control Business AcquisitionsIn January 2017, the Parent Company, through SM Lifestyle, Inc. (SMLI), acquired 90% of theoutstanding common stock of Family Entertainment Center, Inc.. The companies involved are allunder common control by the Sy Family thus the acquisition was considered as common control

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business combinations and was accounted for using the pooling of interest method. Assets, liabilitiesand equity of the acquired businesses are included in the consolidated financial statements at theircarrying amounts. No restatement of prior period was made as a result of the acquisitions due toimmateriality. Had the Company restated its prior period financial statements, net income for theyear ended December 31, 2016 would have decreased by P=5 million.

In December 2016, the Parent Company through PCPMC acquired 90% of the outstanding shares ofShopping Center Management Corporation (SCMC). In September 2017, the Parent Company,through PCPMC, acquired the remaining 10% of the outstanding common stock of SCMC.

6. Cash and Cash Equivalents


2018 2017(In Thousands)

Cash on hand and in banks (see Note 21) P=3,887,600 P=2,170,090Temporary investments (see Note 21) 34,878,867 42,201,444

P=38,766,467 P=44,371,534

Cash in banks earn interest at the respective bank deposit rates. Temporary investments are made forvarying periods of up to three months depending on the immediate cash requirements of theCompany, and earn interest at the respective temporary investment rates.

Credit risk from balances with banks and financial institutions is managed by the Company�s treasurydepartment in accordance with the Company�s policy. Investments of surplus funds are made onlywith approved counterparties and within credit limits assigned to each counterparty. The limits areset to minimize the concentration of risks and therefore mitigate financial loss through acounterparty�s potential failure to make payments.

Interest income earned from cash in banks and temporary investments amounted to P=1,297 million,P=723 million and P=652 million for the years ended December 31, 2018, 2017 and 2016, respectively(see Note 24).

7. Financial Assets at FVOCI

This account consisted of investments in government and corporate bonds and listed common shares.These corporate bonds matured in 2017 and the listed common shares were disposed in 2018.

The movements in this account are as follows:


At beginning of the year P=731,076 P=918,702Mark-to-market gain (loss) during the year (3,860) (13,690)Disposals � net (727,216) (173,936)

At end of the year P=� P=731,076

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In 2017, mark-to-market loss on changes in fair value of financial assets at FVTPL is included under

�Others - net� account in the consolidated statement of income. In 2018, mark-to-market loss onchanges in fair value of financial assets at FVOCI is recognized in other comprehensive income.

Interest income earned amounted to nil, P=15 million and P=18 million for the years endedDecember 31, 2018, 2017 and 2016, respectively (see Note 24).

Dividend income earned amounted to P=18 million, P=16 million and P=15 million for the years endedDecember 31, 2018, 2017 and 2016, respectively.

8. Receivables and Contract Assets



Trade (billed and unbilled):Sale of real estate* P=50,748,255 P=40,355,345Rent:

Third parties 5,544,270 5,162,398Related parties (see Note 21) 3,024,750 2,716,458

Others (see Note 21) 124,530 136,580Nontrade 252,196 145,151Accrued interest (see Note 21) 134,801 135,831Due from related parties (see Note 21) � 130Others (see Note 21) 2,666,855 2,246,437

62,495,657 50,898,330Less allowance for ECLs 1,034,040 1,053,582

61,461,617 49,844,748Less noncurrent portion of trade receivables from

sale of real estate (see Note 16) 26,232,167 15,854,070

P=35,229,450 P=33,990,678

*Includes unbilled revenue from sale of real estate amounting to 46,501 million as at December 31, 2018.

The terms and conditions of the above receivables are as follows:

· Trade receivables from tenants are noninterest-bearing and are normally collectible on a 30 to 90days� term. Trade receivables from sale of real estate pertains to sold condominium andresidential units at various terms of payments, which are noninterest-bearing.

The Company assigned receivables from sale of real estate on a without recourse basis tolocal banks amounting to P=1,664 million and P=4,924 million for the years endedDecember 31, 2018 and 2017, respectively (see Note 21).

The Company also has assigned receivables from real estate on a with recourse basis to localbanks with outstanding balance of nil and P=515 million as at December 31, 2018 and 2017,respectively. The related liability from assigned receivables, which is of equal amount with theassigned receivables, bear interest rate of 4.50% to 6.50% in 2018 and 3.30% to 4.38% in 2017.The fair value of the assigned receivables and liability from assigned receivables approximates itscost.

· Accrued interest and other receivables are normally collected throughout the financial period.

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Interest income earned from receivables totaled P=75 million, P=58 million and P=51 million for theyears ended December 31, 2018, 2017 and 2016, respectively (see Note 24).

Customer credit risk is managed by each business unit subject to the Company�s established policy,procedures and control relating to customer credit risk management. Credit quality of a customer isassessed and individual credit limits are defined in accordance with this assessment. Outstandingcustomer receivables are regularly monitored.

There is no allowance for ECLs on unbilled revenue from sale of real estate. The movements in theallowance for ECLs related to receivables from sale of real estate and other receivables are asfollows:


At beginning of year P=1,053,582 P=966,427Provision (write-off) - net (19,542) 87,155

At end of year P=1,034,040 P=1,053,582

The aging analyses of receivables and unbilled revenue from sale of real estate as at December 31 areas follows:


Neither past due nor impaired P=55,907,949 P=42,158,909Past due but not impaired:

Less than 30 days 2,124,715 2,309,90531�90 days 1,340,889 1,812,56691�120 days 687,725 815,749Over 120 days 1,400,339 2,747,619

Impaired 1,034,040 1,053,582

P=62,495,657 P=50,898,330

Receivables, except for those that are impaired, are assessed by the Company�s management as notimpaired, good and collectible.

The transaction price allocated to the remaining performance obligations as at December 31, 2018totaling P=12,929 million is expected to be recognized over the construction period ranging from oneto five years.

9. Condominium and Residential Units for Sale



Condominium units for sale P=7,939,941 P=8,566,351Residential units and subdivision lots 148,198 166,948

P=8,088,139 P=8,733,299

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The movements in �Condominium units for sale� account are as follows:


At beginning of the year P=8,566,351 P=7,505,117Transfer from land and development (see Note 10) 1,550,984 5,380,827Cost of real estate sold (see Note 23) (2,177,394) (4,319,593)

At end of the year P=7,939,941 P=8,566,351

Condominium units for sale pertains to completed projects and are stated at cost as at December 31,2018 and 2017.

The movements in �Residential units and subdivision lots� account are as follows:


At beginning of the year P=166,948 P=282,432Transfer from land and development (see Note 10) 182,727 309,736Cost of real estate sold (see Note 23) (201,477) (425,220)

At end of the year P=148,198 P=166,948

Residential units and subdivision lots for sale are stated at cost as at December 31, 2018 and 2017.

10. Land and Development

This account consists of the following items stated at cost:

· Land and development, accounted for as real estate inventories, amounting to P=29,487 millionand P=22,518 million as at December 31, 2018 and 2017, respectively.

· Land and development, accounted for as investment property, amounting to P=49,844 million andP=36,148 million as at December 31, 2018 and 2017, respectively.

The movements in �Land and development� accounted as real estate inventories as at December 31follow:


At beginning of the year P=58,666,174 P=44,119,128Reclassifications and transfers to land and

development accounted as investment property(see Note 3) (32,400,724) (23,019,894)

Development cost incurred 20,320,803 16,792,977Capitalized borrowing cost 4,047 38,240Cost of real estate sold (see Note 23) (15,390,337) (10,406,991)Transfer to condominium and residential units

for sale (see Note 9) (1,733,711) (5,690,563)Reclassification and others (see Note 14 and 16) 20,712 685,241


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The average rates used to determine the amount of borrowing costs eligible for capitalization rangefrom 4.60% to 5.10% in 2018 and from 3.52% to 4.57% in 2017.

Estimated cost to complete the projects amounted to P=51,097 million and P=53,324 million as atDecember 31, 2018 and 2017, respectively.

Contract fulfillment assets, included under land and development accounted for as real estateinventories, mainly pertain to unamortized portion of land cost totaling P=1,232 million as atDecember 31, 2018.

The movements in �Land and development� accounted as investment property as at December 31follow:


Reclassifications and transfers from real estateinventories to investment property (see Note 3) P=32,400,724 P=23,019,894

Land acquisitions 17,443,522 13,128,142

At end of year P=49,844,246 P=36,148,036

11. Equity Instruments at FVOCI

This account consists of investments in:


Shares of stock:Listed (see Note 21) P=23,508,022 P=31,090,564Unlisted 24,231 15,581


P=639,316 P=641,300

· Listed shares of stock pertain to investments in publicly-listed companies.

· Unlisted shares of stock pertain to stocks of private corporations.

Dividend income from investments at FVOCI amounted to P=394 million, P=354 million andP=327 million for the years ended December 31, 2018, 2017 and 2016, respectively (see Note 21).

The movements in the �Net fair value changes of equity instruments at FVOCI� account are asfollows:


At beginning of the year P=25,489,705 P=17,502,410Unrealized gain (loss) due to changes in fair value �

net of transfers (6,405,108) 7,987,295


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12. Prepaid Expenses and Other Current Assets



Advances and deposits P=6,108,850 P=6,322,339Input and creditable withholding taxes 5,658,232 5,219,909Prepaid taxes and other prepayments 2,845,331 2,619,209Supplies and inventories 362,833 370,337Cash in escrow and others (see Notes 21 and 28) 171,783 58,221

P=15,147,029 P=14,590,015

· Advances and deposits pertain to downpayments made to suppliers or contractors to coverpreliminary expenses of the contractors in construction projects. The amounts are noninterest-bearing and are recouped upon every progress billing payment depending on the percentage ofaccomplishment. This account also includes construction bonds, rental deposits and deposits forutilities and advertisements.

· Input tax represents VAT paid to suppliers that can be claimed as credit against the future outputVAT liabilities without prescription. Creditable withholding tax is the tax withheld by thewithholding agents from payments to the Company which can be applied against the income taxpayable.

· Prepaid taxes and other prepayments consist of prepayments for insurance, real property taxes,rent, and other expenses which are normally utilized within the next financial period.

· Cash in escrow pertains to the amounts deposited in the account of an escrow agent as requiredby the Housing and Land Use Regulatory Board (HLURB) in connection with SMDC�stemporary license to sell properties for specific projects prior to HLURB�s issuance of a licenseto sell and certificate of registration. Under this temporary license to sell, all payments, inclusiveof down payments, reservation and monthly amortization, among others, made by buyers withinthe selling period shall be deposited in the escrow account.

Interest income earned from the cash in escrow amounted to P=2 million, P=2 million andP=3 million for the years ended December 31, 2018, 2017 and 2016, respectively (see Note 24).

13. Property and Equipment


Land and

Improvements

Buildings andLeasehold

Improvements

DataProcessing

Equipment

Transportation

Equipment

Furniture,Fixtures and

Equipment

Construction

in Progress Total

(In Thousands)

Cost

Balance at December 31, 2016 P=218,892 P=1,644,522 P=197,959 P=351,470 P=655,387 P=� P=3,068,230Additions 1,323 95,147 21,676 2,808 26,824 312 148,090

Disposals/retirements � (174,933) (280) (1,004) � � (176,217)Reclassifications � 208,684 67,958 (286,072) 9,430 � �

Balance at December 31, 2017 220,215 1,773,420 287,313 67,202 691,641 312 3,040,103

Additions 22,629 45,439 23,516 18,723 14,491 1,557 126,355Disposals/retirements � � � � (679) � (679)

Reclassifications 6,480 3,017 3,922 4,888 (18,289) (312) (294)

Balance at December 31, 2018 P=249,324 P=1,821,876 P=314,751 P=90,813 P=687,164 P=1,557 P=3,165,485

(Forward)

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Land and

Improvements

Buildings andLeasehold

Improvements

DataProcessing

Equipment

Transportation

Equipment

Furniture,Fixtures and

Equipment

Construction

in Progress Total

(In Thousands)

Accumulated Depreciation

and Amortization

Balance at December 31, 2016 P=238 P=712,107 P=140,902 P=160,156 P=435,226 P=� P=1,448,629Depreciation and amortization

(see Note 23) 177 148,281 29,200 5,264 75,515 � 258,437Disposals/retirements � (159,116) (270) (1,004) � � (160,390)

Reclassifications � 43,329 45,545 (105,406) 16,532 � �

Balance at December 31, 2017 415 744,601 215,377 59,010 527,273 � 1,546,676

Depreciation and amortization(see Note 23) 792 113,826 31,371 19,112 35,284 � 200,385

Disposals/retirements � � � � (679) � (679)Reclassifications 6,480 6,268 3,327 � (16,083) � (8)

Balance at December 31, 2018 P=7,687 P=864,695 P=250,075 P=78,122 P=545,795 P=� P=1,746,374

Net Book Value

As at December 31, 2017 P=219,800 P=1,028,819 P=71,936 P=8,192 P=164,368 P=312 P=1,493,427

As at December 31, 2018 241,637 957,181 64,676 12,691 141,369 1,557 1,419,111

14. Investment Properties




BuildingEquipment,

Furnitureand Others


(In Thousands)

Cost

Balance as at December 31, 2016 P=63,162,938 P=189,593,066 P=32,991,894 P=24,438,795 P=310,186,693Effect of common control business

combination (see Note 5) � 1,047 929 � 1,976Additions 3,766,470 4,272,682 1,769,895 18,407,346 28,216,393Reclassifications (see Note 10) (2,926,085) 11,289,884 1,166,605 (9,879,449) (349,045)

Translation adjustment 75,699 2,459,685 193,841 215,944 2,945,169Disposals (11,538) (162,144) (45,913) � (219,595)

Balance as at December 31, 2017 64,067,484 207,454,220 36,077,251 33,182,636 340,781,591

Additions 4,331,600 8,480,962 3,016,764 14,318,076 30,147,402Reclassifications (1,450,592) 9,070,215 1,112,147 (8,731,468) 302Translation adjustment (5,531) (166,451) (12,678) (4,949) (189,609)

Disposals (65,250) (63,044) (413,314) (24,124) (565,732)

Balance as at December 31, 2018 P=66,877,711 P=224,775,902 P=39,780,170 P=38,740,171 P=370,173,954

Accumulated Depreciation,

and Amortization

Balance as at December 31, 2016 P=1,700,431 P=37,904,008 P=19,083,190 P=� P=58,687,629Effect of common control business

combination (see Note 5) � 527 769 � 1,296Depreciation and amortization (see Note 23) 194,050 5,845,746 2,660,937 � 8,700,733Translation adjustment 37,530 325,992 95,175 � 458,697

Disposals (11,538) (94,504) (44,868) � (150,910)

Balance as at December 31, 2017 1,920,473 43,981,769 21,795,203 � 67,697,445Depreciation and amortization (see Note 23) 212,082 6,182,725 3,060,234 � 9,455,041

Reclassifications (26,656) 179,884 (153,212) � 16Translation adjustment (9,243) (68,853) (14,860) � (92,956)Disposals (25,807) (61,055) (373,346) � (460,208)

Balance as at December 31, 2018 P=2,070,849 P=50,214,470 P=24,314,019 P=� P=76,599,338

Net Book Value

As at December 31, 2017 P=62,147,011 P=163,472,451 P=14,282,048 P=33,182,636 P=273,084,146

As at December 31, 2018 64,806,862 174,561,432 15,466,151 38,740,171 293,574,616

Consolidated rent income from investment properties amounted to P=57,163 million, P=51,406 millionand P=45,693 million for the years ended December 31, 2018, 2017 and 2016, respectively.

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Consolidated costs and expenses from investment properties, which generate income, amounted to

P=31,684 million, P=29,370 million and P=26,295 million for the years ended December 31, 2018, 2017and 2016, respectively.

The Company acquired several parcels of land through acquisition of certain single-asset entitiestotaling P=937 million in 2017 (see Note 2).

Construction in progress includes shopping mall complex under construction and landbanking andcommercial building constructions amounting to P=38,740 million and P=33,183 million as atDecember 31, 2018 and 2017, respectively.

Construction contracts with various contractors related to the construction of the above-mentionedprojects amounted to P=47,100 million and P=40,511 million as at December 31, 2018 and 2017,respectively, inclusive of overhead, cost of labor and materials and all other costs necessary for theproper execution of the works. The outstanding contracts are valued at P=15,738 million andP=14,571 million as at December 31, 2018 and 2017, respectively.

Interest capitalized to the construction of investment properties amounted to P=2,681 million,P=2,299 million and P=2,921 million for the years ended December 31, 2018, 2017 and 2016,respectively. Capitalization rates used range from 2.35% to 5.04%, from 2.35% to 4.77%, and from2.35% to 4.82% for the years ended December 31, 2018, 2017 and 2016, respectively.

The most recent fair value of investment properties amounted to P=800,445 million as determined byan independent appraiser who holds a recognized and relevant professional qualification. Thevaluation of investment properties was based on market values using income approach. The fairvalue represents the amount at which the assets can be exchanged between a knowledgeable, willingseller and a knowledgeable, willing buyer in an arm�s length transaction at the date of valuation, inaccordance with International Valuation Standards as set out by the International Valuation StandardsCommittee.

Below are the significant assumptions used in the valuation:

Discount rate 8.00%�11.00%Capitalization rate 5.75%�8.50%Average growth rate 2.34%�12.08%

Investment properties are categorized under Level 3 fair value measurement.

The Company�s management believes that there were no conditions present in 2018 that wouldsignificantly reduce the fair value of the investment properties from that determined on December 31,2015.

The Company has no restriction on the realizability of its investment properties and no obligation toeither purchase, construct or develop or for repairs, maintenance and enhancements.

15. Investments in Associates and Joint Ventures

Investments in AssociatesThis pertains mainly to investments in the following companies:

· OCLP Holdings, Inc. (OHI)

· Feihua Real Estate (Chongqing) Company Ltd. (FHREC)

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On May 7, 2015, SMPH acquired 39.96% collective ownership interest in OHI, through acquisitionof 100% interest in six (6) holding entities, for a total consideration of P=15,433 million, whichapproximates the proportionate share of SMPH in the fair values of the identifiable net assets ofOHI. OHI owns strategic residential, commercial and landbank areas in key cities in Metro Manila.

As at December 31, 2018, OHI�s total assets, total liabilities and total equity amounted toP=34,563 million, P=27,442 million and P=7,121 million, respectively. The carrying value of investmentin OHI amounted to P=16,920 million, which consists of its proportionate share in the net assets ofOHI amounting to P=1,661 million and fair value adjustments and others totaling P=15,259 million.

As at December 31, 2017, OHI�s total assets, total liabilities and total equity amounted toP=26,619 million, P=21,167 million and P=5,452 million, respectively. The carrying value of investmentin OHI amounted to P=16,193 million, which consists of its proportionate share in the net assets ofOHI amounting to P=1,661 million and fair value adjustments and others totaling P=14,532 million.

The share in profit of OHI amounted to P=727 million, P=589 million and P=144 million for the yearsended December 31, 2018, 2017 and 2016, respectively. There is no share in other comprehensiveincome for the years ended December 31, 2018, 2017 and 2016.

On April 10, 2012, SMPH, through Tennant Range Corporation (TRC), entered into a Memorandumof Agreement with Trendlink Holdings Limited (THL), a third party, wherein Fei Hua Real EstateCompany (FHREC), a company incorporated in China and 100% subsidiary of TRC, issued newshares to THL equivalent to 50% equity interest. In addition, THL undertakes to pay for thedifference between cash invested and the 50% equity of FHREC and the difference between thecurrent market value and cost of the investment properties of FHREC. Management assessed thatFHREC is an associate of SMPH by virtue of the agreement with the shareholders of THL.

The carrying value of investment in FHREC amounted to P=1,340 million and P=1,287 million as atDecember 31, 2018 and 2017, respectively. This consists of the acquisition cost amounting toP=292 million and P=294 million as at December 31, 2018 and 2017, respectively, and cumulativeequity in net earnings amounting to P=1,048 million and P=993 million as at December 31, 2018 and2017, respectively. The share in profit amounted to P=61 million, P=47 million and P=60 million for theyears ended December 31, 2018, 2017 and 2016, respectively. There is no share in othercomprehensive income for the years ended December 31, 2018, 2017 and 2016.

Investment in Joint VenturesOn January 7, 2013, SMPH entered into Shareholders Agreement and Share Purchase Agreement forthe acquisition of 51% ownership interest in the following companies (collectively, Waltermart):

· Winsome Development Corporation

· Willin Sales, Inc.

· Willimson, Inc.

· Waltermart Ventures, Inc.

· WM Development, Inc.

On July 12, 2013, the Deeds of Absolute Sale were executed between SMPH and shareholders ofWaltermart. Waltermart is involved in shopping mall operations and currently owns 28 malls acrossMetro Manila and Luzon. The investment in Waltermart is accounted as joint venture using equitymethod of accounting because the contractual arrangement between the parties establishes jointcontrol.

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The aggregate carrying values of investment in Waltermart amounted to P=6,304 million andP=5,977 million as at December 31, 2018 and 2017, respectively. These consist of the acquisitioncosts totaling P=5,145 million and cumulative equity in net earnings totaling P=1,159 million andP=832 million as at December 31, 2018 and 2017, respectively. The share in profit amounted toP=326 million, P=204 million and P=242 million for the years ended December 31, 2018, 2017 and 2016,respectively. There is no share in other comprehensive income for the years ended December 31,2018, 2017 and 2016.

In June 2016, SMDC entered into a shareholder�s agreement through ST 6747 Resources Corporation(STRC) for the development of a high-end luxury residential project. Under the provisions of theagreement, each party shall have 50% ownership interest and is required to maintain each party�sequal equity interest in STRC. The carrying value of investment in STRC amounted toP=1,500 million and P=1,000 million as at December 31, 2018 and 2017, respectively. The investmentin STRC is accounted as joint venture using equity method of accounting because the contractualarrangement between the parties establishes joint control The project was launched in 2019.

In 2016, PSC entered into a joint venture agreement through Metro Rapid Transit Services, Inc.(MRTSI) for the establishment and operation of a high quality public transport system. Theinvestment in MRTSI is accounted as joint venture using equity method of accounting because thecontractual arrangement between the parties establishes joint control. The carrying values ofinvestment in MRTSI amounted to P=47 million and P=31 million as at December 31, 2018 and 2017,respectively. These consist of the acquisition costs totaling P=60 million and P=51 million andcumulative equity in net loss totaling P=13 million and P=20 million as at December 31, 2018 and 2017,respectively. There is no share in other comprehensive income for the years ended December 31,2018 and 2017.

The Company has no outstanding contingent liabilities or capital commitments related to itsinvestments in associates and joint ventures as at December 31, 2018 and 2017.

16. Other Noncurrent Assets



Bonds and deposits P=39,594,024 P=9,518,290Receivables from sale of real estate - net of current

portion* (see Note 8) 26,232,167 15,854,070Land use rights (see Note 10) 10,403,350 10,630,926Time deposits (see Notes 21 and 29) 2,392,622 3,800,809Deferred input tax 1,171,185 1,399,343Others (see Note 25) 1,116,712 1,220,442

P=80,910,060 P=42,423,880

*Pertains to noncurrent portion of unbilled revenue from sale of real estate (see Note 8).

Bonds and DepositsBonds and deposits consist of deposits to contractors and suppliers to be applied throughoutconstruction and advances, deposits paid for leased properties to be applied at the last term of thelease and advance payments for land acquisitions which will be applied against the purchase price ofthe properties upon fulfillment by both parties of certain undertakings and conditions.

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Land use rightsIncluded under �Land use rights� account are certain parcels of real estate properties planned forresidential development in accordance with the cooperative contracts entered into by SMPH withGrand China International Limited (Grand China) and Oriental Land Development Limited (OrientalLand) in March 2007. The value of these real estate properties were not part of the consideration paidby SMPH to Grand China and Oriental Land. Accordingly, the assets were recorded at their carryingvalues under �Other noncurrent assets� account and a corresponding liability equivalent to the sameamount, which is shown as part of �Other noncurrent liabilities� account in the consolidated balancesheets.

Portions of land use rights with carrying amount of P=319 million and P=328 million as atDecember 31, 2018 and 2017, respectively, are mortgaged as collaterals to secure the domesticborrowings in China (see Note 19).

Time DepositsTime deposits with various maturities within one year were used as collateral for use of credit linesobtained by the Company from related party banks. Interest income earned amounted toP=42 million, P=46 million and P=50 million for the years ended December 31, 2018, 2017 and 2016,respectively (see Note 24).

17. Loans Payable

This account consists of unsecured Philippine peso-denominated loans obtained from local banks

amounting to P=39 million and P=744 million as at December 31, 2018 and 2017, respectively, with duedates of less than one year. These loans bear interest rates of 6.00% in 2018 and 3.00% to 3.50% in2017.

Interest expense incurred from loans payable amounted to P=21 million, P=31 million andP=22 million for the years ended December 31, 2018, 2017 and 2016, respectively (see Note 24).

18. Accounts Payable and Other Current Liabilities



Trade:Third parties P=25,987,678 P=21,997,141Related parties (see Note 21) 282,337 297,093

Tenants� and customers� deposits* (see Note 27) 31,375,908 26,584,557Liability for purchased land 14,019,013 6,423,989Accrued operating expenses:

Third parties 9,338,262 8,566,372Related parties (see Note 21) 455,954 593,097

Deferred output VAT 3,087,528 2,345,506Accrued interest (see Note 21) 1,881,165 1,355,403

(Forward)

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Payable to government agencies P=1,170,561 P=1,001,818Nontrade 286,841 603,048Others 1,458,027 1,921,682


P=61,767,086 P=51,084,082* Includes unearned revenue from sale of real estate amounting to P=4,195 million as at December 31, 2018.

The terms and conditions of the above liabilities follow:

· Trade payables primarily consist of liabilities to suppliers and contractors, which are noninterest-bearing and are normally settled within a 30-day term.

· Accrued operating expenses pertain to accrued selling, general and administrative expenses whichare normally settled throughout the financial period. Accrued operating expenses - third partiesconsist of:


Utilities P=4,484,483 P=4,530,529Marketing and advertising 1,092,560 606,729Payable to contractors and others 3,761,219 3,429,114

P=9,338,262 P=8,566,372

· Tenants� deposits refers to security deposits received from various tenants upon inception of therespective lease contracts on the Company�s investment properties. At the termination of thelease contracts, the deposits received by the Company are returned to tenants, reduced by unpaidrental fees, penalties and/or deductions from repairs of damaged leased properties, if any.Customers� deposits mainly represent excess of collections from buyers over the related revenuerecognized based on the percentage of completion method. This also includes nonrefundablereservation fees by prospective buyers which are to be applied against the receivable uponrecognition of revenue.

· Deferred output VAT represents output VAT on unpaid portion of recognized receivable fromsale of real estate. This amount is reported as output VAT upon collection of the receivables.

· Liability for purchased land, payable to government agencies, accrued interest and other payablesare normally settled throughout the financial period.

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19. Long-term Debt


Availment Date Maturity Date Interest Rate Condition Outstanding Balance

2018 2017

Parent Company(In Thousands)

Philippine peso-denominated loans January 12, 2012 � March 1, 2018 March 1, 2020 - July 26, 2026 Floating PDST-R2 + margin; 4.20%�6.74% Unsecured P=112,323,200 P=92,923,000U.S. dollar-denominated loans February 14, 2013 - July 30, 2018 January 29, 2018 � June 14, 2023 LIBOR + spread; semi-annual Unsecured 5,783,800 19,972,000Subsidiaries

Philippine peso-denominated loans June 3, 2013 - September 21, 2018 August 28, 2018 � June 18, 2025 Floating PDST-R2 + margin; 3.84%�7.55% Unsecured 66,490,939 43,054,253U.S. dollar-denominated loans April 23, 2014 - October 16, 2017 April 14, 2019 - June 30, 2022 LIBOR + spread; semi-annual Unsecured 36,191,602 34,415,944China yuan renminbi-denominated loans July 28, 2015 - October 16, 2017 December 31, 2019 - October 16, 2022 CBC rate less 10%; quarterly Secured* 3,118,514 3,445,302

223,908,055 193,810,499Less debt issue cost 1,136,169 956,980

222,771,886 192,853,519

Less current portion 25,089,624 25,344,035

P=197,682,262 P=167,509,484

LIBOR � London Interbank Offered Rate

PDST-R2 � Philippine Treasury Reference Rates � PM

CBC � Central Bank of China

*Secured by portions of investment properties and land use rights located in China.

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Parent Company

Philippine Peso-denominated Loans

This includes the following:

· A P=20 billion fixed rate bonds issued in March 2018. The issue consists of the five-year or SeriesH Bonds amounting to P=10 billion with a fixed interest rate equivalent to 5.6630% per annum duein March 2023 and seven-year or Series I Bonds amounting to P=10 billion with a fixed interestrate equivalent to 6.0804% per annum due in March 2025.

· A P=20 billion fixed rate bonds issued in May 2017. The issue consists of the seven-year or SeriesG Bonds amounting to P=20 billion with a fixed interest rate equivalent to 5.1683% per annum duein May 2024.

· A P=10 billion fixed rate bonds issued in July 2016. The issue consists of the ten-year or Series FBonds amounting to P=10 billion with a fixed interest rate equivalent to 4.2005% per annum due inJuly 2026.

· A P=20 billion fixed rate bonds issued in November 2015. The issue consists of the five-year andthree months or Series D Bonds amounting to P=17,969 million with a fixed interest rateequivalent to 4.5095% per annum due in February 2021 and ten-year or Series E Bondsamounting to P=2,031 million with a fixed interest rate equivalent to 4.7990% per annum due inNovember 2025.

· A P=20 billion fixed rate bonds issued in September 2014. The issue consists of the five-year andsix months or Series A Bonds amounting to P=15,036 million with a fixed interest rate equivalentto 5.1000% per annum due in March 2020, seven-year or Series B Bonds amounting toP=2,362 million with a fixed interest rate equivalent to 5.2006% per annum due inSeptember 2021, and ten-year or Series C Bonds amounting to P=2,602 million with a fixedinterest rate equivalent to 5.7417% per annum due in September 2024.

U.S. Dollar-denominated Five-Year Term Loans

This five-year term loans in US dollar denomination consisting of the following matured during theperiod:

· A US$300 million syndicated loan obtained on various dates in 2013. The loans bear an interestrate based on LIBOR plus spread and matured in March 2018. The portion of the loan amountingto US$150 million is hedged against interest rate risk and foreign exchange risk.

· A US$200 million syndicated loan obtained in January 2013. The loan bears an interest ratebased on LIBOR plus spread, matured in January 2018. This loan is hedged against interest rateand foreign exchange risks.

U.S. Dollar-denominated Loans

· This includes a US$110 million syndicated loan obtained in July 2018. The loan bears an interestrate based on LIBOR plus spread, with a bullet maturity in June 2023. This loan is hedgedagainst foreign exchange risks (see Notes 28 and 29).

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Subsidiaries

U.S. Dollar-denominated Loans

· This includes a US$270 million syndicated loan obtained in March 2016. The loans bear aninterest rate based on LIBOR plus spread, with maturity in January 2021. This loan is hedgedagainst interest rate risks (see Notes 28 and 29).

China Yuan Renminbi-denominated Loans

· This includes a ¥159 million obtained in July 2015. The loan is payable in quarterly installmentsuntil June 2020. The loan carries an interest rate of 4.75%. Portions of investment properties andland use rights located in China with total carrying value of P=1,886 million and P=1,898 million asat December 31, 2018 and 2017, respectively, are mortgaged as collaterals to secure the loan(see Notes 14 and 16).

The loan agreements of the Company provide certain restrictions and requirements principally withrespect to maintenance of required financial ratios (i.e., current ratio of not less than 1.00:1.00, debt toequity ratio of not more than 0.70:0.30 to 0.75:0.25 and interest coverage ratio of not less than2.50:1.00 and material change in ownership or control. As at December 31, 2018 and 2017, theCompany is in compliance with the terms of its loan covenants.

The re-pricing frequencies of floating rate loans of the Company range from three to six months.

Interest expense incurred from long-term debt amounted to P=7,451 million, P=5,251 million andP=4,135 million for the years ended December 31, 2018, 2017 and 2016, respectively (see Note 24).

Debt Issue CostThe movements in unamortized debt issue cost of the Company follow:


Balance at beginning of the year P=956,980 P=1,041,797Additions 549,560 297,730Amortization (370,371) (382,547)

Balance at end of the year P=1,136,169 P=956,980

Amortization of debt issuance costs is recognized in the consolidated statements of income under�Others - net� account.

Repayment ScheduleThe repayments of long-term debt are scheduled as follows:

Gross Loan Debt Issue Cost Net(In Thousands)

Within 1 year P=25,089,624 (P=316,070) P=24,773,554More than 1 year to 5 years 144,120,691 (744,576) 143,376,115More than 5 years 54,697,740 (75,523) 54,622,217

P=223,908,055 (P=1,136,169) P=222,771,886

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20. Equity

Capital StockAs at December 31, 2018 and 2017, the Company has an authorized capital stock of 40,000 millionwith a par value of P=1 a share, of which 33,166 million shares were issued.

The movement of the outstanding shares of the Company are as follows:


Balance at beginning of the year 28,837,814 28,833,608Reissuance of treasury shares 18,598 4,206

Balance at end of the year 28,856,412 28,837,814

The following summarizes the information on SMPH's registration of securities under the SecuritiesRegulation Code:

Date of SEC Approval/Notification to SEC

AuthorizedShares

No. of SharesIssued

Issue/OfferPrice

March 15, 1994 10,000,000,000 � P=�April 22, 1994 � 6,369,378,049 5.35May 29, 2007 10,000,000,000 � �May 20, 2008 � 912,897,212 11.86October 14, 2010 � 569,608,700 11.50October 10, 2013 20,000,000,000 15,773,765,315 19.50

SMPH declared stock dividends in 2012, 2007, 1996 and 1995. The total number of shareholders is2,407 as at December 31, 2018.

Additional Paid-in Capital - NetFollowing represents the nature of the consolidated �Additional paid-in capital - net�:


Paid-in subscriptions in excess of par value P=33,549,808 P=33,266,992Net equity adjustments from common control

business combinations (see Note 5) 9,309,730 9,309,730Arising from acquisition of non-controlling interests (2,906,320) (2,914,554)

As presented in the consolidated balance sheets P=39,953,218 P=39,662,168

Retained EarningsIn 2018, the BOD approved the declaration of cash dividend of P=0.35 per share or P=10,108 million tostockholders of record as of May 9, 2018, P=9 million of which was received by SMDC. This waspaid on May 23, 2018. In 2017, the BOD approved the declaration of cash dividend of P=0.26 pershare or P=7,509 million to stockholders of record as of May 12, 2017, P=12 million of which wasreceived by SMDC. This was paid on May 25, 2017. In 2016, the BOD approved the declaration ofcash dividend of P=0.23 per share or P=6,642 million to stockholders of record as of April 29, 2016,P=10 million of which was received by SMDC. This was paid on May 12, 2016

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As at December 31, 2018 and 2017, the amount of retained earnings appropriated for the continuouscorporate and mall expansions amounted to P=42,200 million. This represents a continuingappropriation for land banking activities and planned construction projects. The appropriation isbeing fully utilized to cover part of the annual capital expenditure requirement of the Company.

For the year 2019, the Company expects to incur capital expenditures of approximately P=80 billion.

The retained earnings account is restricted for the payment of dividends to the extent ofP=75,721 million and P=65,156 million as at December 31, 2018 and 2017, respectively, representingthe cost of shares held in treasury (P=2,985 million and P=3,287 million as at December 31, 2018 and2017, respectively) and accumulated equity in net earnings of SMPH subsidiaries, associates and jointventures totaling P=72,736 million and P=61,869 million as at December 31, 2018 and 2017,respectively. The accumulated equity in net earnings of subsidiaries is not available for dividenddistribution until such time that the Parent Company receives the dividends from its subsidiaries,associates and joint ventures.

Treasury StockAs at December 31, 2018 and 2017, this includes reacquired capital stock and shares held by asubsidiary stated at acquisition cost of P=2,985 million and P=3,287 million, respectively. Themovement of the treasury stock of the Company are as follows:


Balance at beginning of year 4,328,486 4,332,692Sale of treasury shares (18,598) (4,206)

Balance at end of year 4,309,888 4,328,486

21. Related Party Transactions

Parties are considered to be related if one party has the ability, directly and indirectly, to control theother party or exercise significant influence over the other party in making financial and operatingdecisions. Parties are also considered to be related if they are subject to common control. Relatedparties may be individuals or corporate entities.

Terms and Conditions of Transactions with Related PartiesThere have been no guarantees/collaterals provided or received for any related party receivables orpayables. For the years ended December 31, 2018 and 2017, the Company has not recorded anyimpairment of receivables relating to amounts owed by related parties. This assessment is undertakeneach financial period through examining the financial position of the related party and the market inwhich the related party operates. Settlement of the outstanding balances normally occur in cash.

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The significant related party transactions entered into by the Company with its related parties and theamounts included in the accompanying consolidated financial statements with respect to thesetransactions follow:

Amount of TransactionsOutstanding Amount[Asset (Liability)]

2018 2017 2016 2018 2017 Terms Conditions

(In Thousands)

Ultimate Parent

Rent income P=45,391 P=55,459 P=47,870 P= P= Rent receivable 4,967 5,844 Noninterest-bearing Unsecured;

not impairedManagement fee income 2,885

Service income 57,600 48,000 31,368

Service fee receivable 14,000 4,497 Noninterest-bearing Unsecured;not impaired

Rent expense 105,583 102,231 83,335

Accrued rent payable � � � (808) (2,875) Noninterest-bearing UnsecuredTrade payable 6,539 5,952 (16,805) (10,266) Noninterest-bearing UnsecuredEquity instruments at

FVOCI 134,050 144,643 Noninterest-bearing Unsecured;

not impairedDividend income 1,198 1,135 1,035

Banking and Retail Group

Cash and cash equivalents 160,983,099 171,812,742 339,752,362 24,890,200 32,118,321 Interest bearing basedon prevailing rates

Unsecured;not impaired

Investments held for trading 122,660 731,076 Noninterest-bearing Unsecured;not impaired

Rent income 16,079,276 14,558,585 13,600,314

Noninterest-bearing Unsecured;not impaired

Rent receivable 3,006,209 2,656,892

Service income 28,559 30,023 36,944

Management fee income 999 5,979 4,164

Noninterest-bearing Unsecured;not impaired

Management fee receivable 14,469 23,933

Deferred rent income (8,950) (23,548) Noninterest bearing UnsecuredInterest income 374,432 297,719 164,128

Accrued interest receivable 29,963 51,829 Noninterest-bearing Unsecured;not impaired

Receivable financed 1,663,822 4,923,847 3,297,217 Without recourse UnsecuredTime deposits 2,382,597 3,709,270 Interest-bearing UnsecuredLoans payable and long-term debt 9,205,385 386 1,275,667 (9,824,904) (907,953) Interest-bearing Combination

of securedand unsecured

Interest expense 252,296 139,292 21,923

Accrued interest payable (3,878) (518) Noninterest-bearing UnsecuredRent expense 634 1,004 1,203

Trade payable 38,510 47,803 46,583 (138,782) (100,272) Noninterest-bearing UnsecuredManagement fee expense 11,217 3,093 2,748

Accrued management fee (17,030) Noninterest-bearing UnsecuredEquity instruments at

FVOCI 15,011,058 18,740,177 Noninterest-bearing Unsecured;

not impairedCash in escrow 157,719 157,719 50,881 Interest bearing based

on prevailing ratesUnsecured;


Other Related Parties

Rent income 178,572 119,238 P=62,743 � �Rent receivable � � � 13,574 53,722 Noninterest-bearing Unsecured;

not impairedService income 77,579 92,943 72,387

Service fee receivable � � � 62

Management fee income 6,859 2,799 3,532

Management fee receivable � � � 7,993 7,939Rent expense 8,311 5,735 5,164

Accrued expenses � � � (455,146) (573,192) Noninterest-bearing UnsecuredTrade payable � 176,761 (126,750) (186,555) Noninterest-bearing UnsecuredEquity instruments at

FVOCI 2,853,947 Noninterest-bearing Unsecured;


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Due from related parties amounted to nil and P=0.13 million as at December 31, 2018 and 2017,respectively, which are noninterest-bearing and are not impaired. The amount of transactions withrelated parties amounted to nil, P=0.02 million and nil for the years ended December 31, 2018, 2017and 2016, respectively.

Affiliate refers to an entity that is neither a parent, subsidiary, nor an associate, with stockholderscommon to the SM Group or under common control.

Below are the nature of the Company�s transactions with the related parties:

RentThe Company has existing lease agreements for office and commercial spaces with related companies(SM Retail and Banking Groups and other affiliates).

Service FeesThe Company provides manpower and other services to affiliates.

Dividend IncomeThe Company�s equity instruments at FVOCI of certain affiliates earn income upon the declaration ofdividends by the investees.

Cash Placements and LoansThe Company has certain bank accounts and cash placements that are maintained with BDOUnibank, Inc. (BDO) and China Banking Corporation (China Bank) (Bank Affiliates). Such accountsearn interest based on prevailing market interest rates (see Notes 6 and 7).

The Company also availed of bank loans and long-term debt from BDO and China Bank and paysinterest based on prevailing market interest rates (see Notes 17 and 19).

The Company also entered into financing arrangements with BDO and China Bank. There were noassigned receivables on a with recourse basis to BDO and China Bank in 2018 and 2017(see Note 8).

OthersThe Company, in the normal course of business, has outstanding receivables from and payables torelated companies as at reporting period which are unsecured and normally settled in cash.

Compensation of Key Management PersonnelThe aggregate compensation and benefits related to key management personnel for the years endedDecember 31, 2018, 2017 and 2016 consist of short-term employee benefits amounting toP=1,104 million, P=930 million and P=712 million, respectively, and post-employment benefits (pensionbenefits) amounting to P=165 million, P=144 million and P=98 million, respectively.

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22. Other Revenue

Details of other revenue follows:

2018 2017 2016

(In Thousands)

Food and beverages P=1,668,705 P=1,620,269 P=1,158,033Amusement and others 911,580 851,264 844,394

Net merchandise sales 902,730 740,356 764,207Bowling and ice skating fees 253,911 219,378 253,229Advertising income 214,473 202,000 236,529Others 1,875,384 1,680,875 1,200,073

P=5,826,783 P=5,314,142 P=4,456,465

Others include service fees, parking terminal, sponsorships, commissions and membership revenue.

23. Costs and Expenses


2018 2017 2016

(In Thousands)

Cost of real estate sold (see Notes 9 and 10) P=17,769,208 P=15,151,804 P=13,117,141Administrative (see Notes 21 and 25) 11,329,111 10,860,321 9,607,265Depreciation and amortization

(see Notes 13 and 14) 9,655,426 8,959,170 7,814,344Marketing and selling 5,530,794 4,788,603 4,644,125Business taxes and licenses 4,790,129 4,406,480 3,803,376Film rentals 2,829,629 2,600,839 2,567,038Rent (see Notes 21 and 27) 1,729,671 1,597,970 1,450,981Insurance 518,168 475,732 463,462Others 1,601,198 1,452,139 1,083,443

P=55,753,334 P=50,293,058 P=44,551,175

Others include bank charges, donations, dues and subscriptions, services fees and transportation andtravel.

24. Interest Income and Interest Expense

The details of the sources of interest income and interest expense follow:

2018 2017 2016

(In Thousands)

Interest income on:Cash and cash equivalents (see Note 6) P=1,297,364 P=723,235 P=651,506Time deposits (see Note 16) 42,160 46,424 50,130Financial asset at FVTPL (see Note 7) � 14,891 17,655Others (see Notes 8 and 12) 76,924 59,288 53,955

P=1,416,448 P=843,838 P=773,246

(Forward)

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2018 2017 2016

(In Thousands)

Interest expense on:Long-term debt (see Note 19) P=7,451,159 P=5,251,144 P=4,134,944Loans payable (see Note 17) 21,054 30,737 22,415Others 67,832 192,541 252,255

P=7,540,045 P=5,474,422 P=4,409,614

25. Pension Benefits

The Company has funded defined benefit pension plans covering all regular and permanentemployees. The benefits are based on employees� projected salaries and number of years of service.The latest actuarial valuation report is as at December 31, 2018.

The following tables summarize the components of the pension plan as at December 31:

Net Pension Cost (included under �Costs and expenses� account under �Administrative�)

2018 2017 2016(In Thousands)

Current service cost P=296,007 P=286,297 P=175,449Net interest income (13,279) (32,062) (20,563)

P=282,728 P=254,235 P=154,886

Net Pension Asset (included under �Other noncurrent assets� account)


Fair value of plan assets P=1,427,448 P=1,822,755Defined benefit obligation (1,339,655) (1,619,868)Effect of asset ceiling limit (15,148) (28,759)

Net pension asset P=72,645 P=174,128

Net Pension Liability (included under �Other noncurrent liabilities� account)


Defined benefit obligation P=1,160,163 P=544,951Fair value of plan assets (1,023,976) (454,472)

Net pension liability P=136,187 P=90,479

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The changes in the present value of the defined benefit obligation are as follows:


Balance at beginning of the year P=2,164,819 P=1,489,462Effect of common control business combination

(see Note 5) � 17,133Actuarial loss (gain):

Experience adjustments 433,932 284,102Changes in financial assumptions (495,054) 81,882Changes in demographic assumptions 14,117 (35,627)

Current service cost 296,007 286,297Interest cost 125,370 92,538Benefits paid (57,447) (49,745)Transfer to (from) the plan 10,109 (1,223)Other adjustments 7,965 �

Balance at end of the year P=2,499,818 P=2,164,819

The above present value of defined benefit obligation are broken down as follows:


Related to pension asset P=1,339,655 P=1,619,868Related to pension liability 1,160,163 544,951

P=2,499,818 P=2,164,819

The changes in the fair value of plan assets are as follows:


Balance at beginning of year P=2,277,227 P=1,985,776Effect of common control business combination

(see Note 5) � 16,605Contributions 356,040 260,810Interest income 140,309 129,158Benefits paid from assets (57,447) (47,745)Transfer to (from) the plan and others 10,109 (1,223)Remeasurement loss (274,814) (66,154)

Balance at end of year P=2,451,424 P=2,277,227

The changes in the fair value of plan assets are broken down as follows:


Related to pension asset P=1,427,448 P=1,822,755Related to pension liability 1,023,976 454,472

P=2,451,424 P=2,277,227

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The changes in the effect of asset ceiling limit are as follows:


Asset ceiling limit at beginning of year P=28,759 P=74,352Remeasurement gain (15,271) (50,151)Interest cost 1,660 4,558

P=15,148 P=28,759

The carrying amounts and fair values of the plan assets as at December 31, 2018 and 2017 are asfollows:

2018 2017

Carrying

Amount

Fair

Value

CarryingAmount

FairValue

(In Thousands)

Cash and cash equivalents P=203,807 P=203,807 P=151,181 P=151,181Investments in:

Common trust funds 799,380 799,380 825,023 825,023Government securities 715,089 715,089 536,290 536,290Debt and other securities 662,123 662,123 629,506 629,506Equity securities 56,500 56,500 84,685 84,685

Other financial assets 14,525 14,525 50,542 50,542

P=2,451,424 P=2,451,424 P=2,277,227 P=2,277,227

· Cash and cash equivalents includes regular savings and time deposits;

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

· Investments in government securities consist of retail treasury bonds which bear interest rangingfrom 3.09% to 8.75% and have maturities ranging from 2019 to 2030;

· Investments in debt and other securities consist of short-term and long-term corporate loans,notes and bonds which bear interest ranging from 3.80% to 7.51% and have maturities rangingfrom 2019 to 2025;

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

· Other financial assets include accrued interest income on cash deposits held by the RetirementPlan.

Debt and other securities, equity securities and government securities have quoted prices in activemarket. The remaining plan assets do not have quoted market prices in active market.

The plan assets have diverse instruments and do not have any concentration of risk.

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The following table summarizes the outstanding balances and transactions of the pension plan withBDO, an affiliate, as at and for the years ended December 31:


Cash and cash equivalents P=203,807 P=151,181Interest income from cash and cash equivalents 10,328 3,983Investments in common trust funds 799,380 825,023Loss from investments in common trust funds (3,858) (28,901)

The principal assumptions used in determining pension obligations for the Company�s plan are shownbelow:

2018 2017 2016

Discount rate 7.4%�7.8% 5.7%�5.8% 5.4%�6.1%Future salary increases 3.0%�9.0% 4.0%�10.0% 3.0%�9.0%

Remeasurement effects recognized in other comprehensive income at December 31 follow:

2018 2017 2016 (In Thousands)

Actuarial loss (gain) P=227,809 P=396,511 (P=119,406)Remeasurement loss (gain) -

excluding amountsrecognized in net interest cost (15,271) (50,151) 11,919

P=212,538 P=346,360 (P=107,487)

The sensitivity analysis below has been determined based on reasonably possible changes of eachsignificant assumption on the defined benefit obligation as at December 31, 2018 and 2017,respectively, assuming all other assumptions were held constant:

Increase (Decrease)in Basis Points

Increase (Decrease) inDefined Benefit Obligation

2018 (In Thousands)

Discount rates 50 (P=101,386)

(50) 109,328

Future salary increases 100 221,857

(100) (194,777)

2017Discount rates 50 (P=94,965)

(50) 103,147Future salary increases 100 183,672

(100) (159,152)

The Company and the pension plan has no specific matching strategies between the pension planassets and the defined benefit obligation under the pension plan.

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Shown below is the maturity analysis of the undiscounted benefit payments as at December 31, 2018and 2017, respectively:

Year 2018 Amount

(In Thousands)

2019 P=390,127

2020 233,043

2021�2022 671,628

2023�2028 2,219,158

Year 2017 Amount(In Thousands)

2018 P=278,5022019 171,403

2020�2021 522,8212022�2027 1,611,990

The Company expects to contribute about P=365 million to its defined benefit pension plan in 2019.

The weighted average duration of the defined benefit obligation is 9.7 years and 9.8 years as ofDecember 31, 2018 and 2017, respectively.

26. Income Tax

The details of the Company�s deferred tax assets and liabilities are as follows:

2018 2017

(In Thousands)

Deferred tax assets:NOLCO P=508,314 P=560,589

Excess of fair value over cost of investmentproperties and others 364,249 380,872

Unrealized foreign exchange losses 231,560 230,856Provision for ECLs on receivables 105,090 101,858Unamortized past service cost 17,443 13,662Deferred rent income 4,073 18,479MCIT 3,394 8,370Others 303,857 255,884

1,537,980 1,570,570

Deferred tax liabilities:Unrealized gross profit on sale of real estate (2,000,677) (1,339,441)

Undepreciated capitalized interest, unrealizedforeign exchange gains and others (1,791,729) (1,817,431)

Pension asset (40,201) (34,041)Others (149,204) (143,337)

(3,981,811) (3,334,250)

Net deferred tax liabilities (P=2,443,831) (P=1,763,680)

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The net deferred tax assets and liabilities are presented in the consolidated balance sheets as follows:


Deferred tax assets - net P=1,083,670 P=1,114,291Deferred tax liabilities - net (3,527,501) (2,877,971)

(P=2,443,831) (P=1,763,680)

As at December 31, 2018 and 2017, unrecognized deferred tax assets amounted to P=430 million andP=69 million, respectively, bulk of which pertains to NOLCO.

The reconciliation between the statutory tax rates and the effective tax rates on income before incometax as shown in the consolidated statements of income follows:

2018 2017 2016

Statutory tax rate 30.0% 30.0% 30.0%Income tax effects of: Equity in net earnings

of associates and jointventures (0.9) (0.9) (0.4)

Availment of income tax holiday (4.0) (4.4) (3.4) Interest income subjected to final

tax and dividend incomeexempt from income tax (1.2) (1.0) (0.7)

Nondeductible expenses andothers (2.3) (1.9) (4.1)

Effective tax rates 21.6% 21.8% 21.4%

27. Lease Agreements

Company as LessorThe Company�s lease agreements with its mall tenants are generally granted for a term of one year,with the exception of some of the larger tenants operating nationally, which are granted initial leaseterms of five years, renewable on an annual basis thereafter. Upon inception of the lease agreement,tenants are required to pay certain amounts of deposits. Tenants likewise pay either a fixed monthlyrent, which is calculated by reference to a fixed sum per square meter of area leased, or pay rent on apercentage rental basis, which comprises of a basic monthly amount and a percentage of gross salesor a minimum set amount, whichever is higher.

Also, the Company�s lease agreements with its commercial property tenants are generally granted fora term of one year, with the exception of some tenants, which are granted initial lease terms of 2 to 20years, renewable on an annual basis thereafter. Upon inception of the lease agreement, tenants arerequired to pay certain amounts of deposits. Tenants pay either a fixed monthly rent or a percentageof sales, depending on the terms of the lease agreements, whichever is higher.

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The Company�s future minimum rent receivables for the noncancellable portions of the operatingcommercial property leases follow:

2018 2017(In Millions)

Within one year P=3,838 P=2,976After one year but not more than five years 9,944 6,540After more than five years 3,259 3,672

P=17,041 P=13,188

Consolidated rent income amounted to P=57,163 million, P=51,406 million and P=45,693 million for theyears ended December 31, 2018, 2017 and 2016, respectively.

Company as LesseeThe Company also leases certain parcels of land where some of their malls are situated orconstructed. The terms of the lease are for periods ranging from 15 to 50 years, renewable for thesame period under the same terms and conditions. Rental payments are generally computed based ona certain percentage of the gross rental income or a certain fixed amount, whichever is higher.

Also, the Company has various operating lease commitments with third party and related parties. Thenoncancellable periods of the lease range from 2 to 30 years, mostly containing renewal options.Several lease contracts provide for the payment of additional rental based on certain percentage ofsales of the tenants.

The Company�s future minimum lease payables under the noncancellable operating leases as atDecember 31 are as follows:

2018 2017(In Millions)

Within one year P=999 P=983After one year but not more than five years 3,623 4,080After five years 26,447 26,964

Balance at end of year P=31,069 P=32,027

Consolidated rent expense included under �Costs and expenses� account in the consolidatedstatements of income amounted to P=1,730 million, P=1,598 million and P=1,451 million for the yearsended December 31, 2018, 2017 and 2016, respectively (see Note 23).

28. Financial Risk Management Objectives and Policies

The Company�s principal financial instruments, other than derivatives, comprise of cash and cashequivalents, financial assets at FVTPL, accrued interest and other receivables, equity instruments atFVOCI and bank loans. The main purpose of these financial instruments is to finance the Company�soperations. The Company has other financial assets and liabilities such as trade receivables and tradepayables, which arise directly from its operations.

The Company also enters into derivative transactions, principally, cross currency swaps, interest rateswaps, foreign currency call options, non-deliverable forwards and foreign currency range options.The purpose is to manage the interest rate and foreign currency risks arising from the Company�soperations and its sources of finance (see Note 29).

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The main risks arising from the Company�s financial instruments are interest rate risk, foreign

currency risk, liquidity risk, credit risk and equity price risk. The Company�s BOD and managementreview and agree on the policies for managing each of these risks and they are summarized in thefollowing tables.

Interest Rate RiskThe Company�s policy is to manage its interest cost using a mix of fixed and floating rate debts. Tomanage this mix in a cost-efficient manner, it enters into interest rate swaps, in which the Companyagrees to exchange, at specified intervals, the difference between fixed and floating rate interestamounts calculated by reference to an agreed-upon notional principal amount. These swaps aredesignated to economically hedge underlying debt obligations. As at December 31, 2018 and 2017,after taking into account the effect of interest rate swaps, approximately 80% and 83%, respectively,of its long-term borrowings, are at a fixed rate of interest (see Note 29).

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Interest Rate RiskThe following tables set out the carrying amount, by maturity, of the Company�s long-term financial liabilities that are exposed to interest rate risk as at December 31,2018 and 2017:

2018

Interest Rate 1�<2 Years 2�<3 Years 3�<4 Years 4�<5 Years =>5 Years Total

Fixed Rate

Philippine peso-denominated corporate notes 5.25%�5.88% P=8,700 P=5,708,520 P=499,460 P=2,460 P=2,437,860 P=8,657,000

Philippine peso-denominated notes 3.84%�7.55% P=6,606,800 P=906,800 P=5,811,800 P=11,908,800 P=17,500,000 42,734,200

Philippine peso-denominated retail bonds 4.20%�6.08% P=� P=15,035,740 P=20,331,520 P=� P=54,632,740 90,000,000

Other bank loans 4.28%�6.25% P=388,939 P=250,000 P=� P=� P=� 638,939

Floating Rate

U.S. dollar-denominated five-year term loans LIBOR + spread $300,000 $� $270,000 $100,000 $110,000 41,975,402

Philippine peso-denominated corporate notes PDST-R2+margin% P=100,000 P=100,000 P=100,000 5,160,000 P=� 5,460,000

Philippine peso-denominated notes PDST-R2+margin% P=1,325,000 P=1,725,000 P=3,225,000 P=2,925,000 P=22,124,000 31,324,000

China yuan renminbi-denominated five-year loan CBC rate less 10% ¥40,857 ¥19,382 ¥� ¥347,900 ¥� 3,118,514

223,908,055

Less debt issue cost 1,136,169

P=222,771,886

2017

Interest Rate 1�<2 Years 2�<3 Years 3�<4 Years 4�<5 Years =>5 Years Total

Fixed Rate

Philippine peso-denominated corporate notes 5.25%�5.88% P=8,700 P=8,700 P=5,708,520 P=499,460 P=2,440,320 P=8,665,700

Philippine peso-denominated notes 3.84%�6.74% P=4,606,800 P=6,606,800 P=906,800 P=5,106,800 P=19,118,800 36,346,000Philippine peso-denominated retail bonds 4.20%�5.74% P=� P=� P=15,035,740 P=20,331,520 P=34,632,740 70,000,000Other bank loans 3.13%�5.00% P=25,093 P=49,907 P=375,000 P=263,553 P=250,000 963,553

Floating Rate

U.S. dollar-denominated five-year term loans LIBOR + spread $400,000 $300,000 $� $270,000 $100,000 54,387,944Philippine peso-denominated corporate notes PDST-R2+margin% P=100,000 P=100,000 P=100,000 P=100,000 P=5,160,000 5,560,000

Philippine peso-denominated notes PDST-R2+margin% P=318,000 P=1,118,000 P=1,218,000 P=118,000 P=11,670,000 14,442,000China yuan renminbi-denominated five-year loan CBC rate less 10% ¥40,847 ¥40,857 ¥19,382 ¥� ¥347,900 3,445,302

193,810,499

Less debt issue cost 956,980

P=192,853,519

LIBOR - London Interbank Offered Rate

PDST-R2 - Philippine Treasury Reference Rates - PM

CBC - Central Bank of China

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Interest Rate Risk Sensitivity Analysis. The following table demonstrates the sensitivity to areasonably possible change in interest rates, with all other variables held constant of the Company�sincome before income tax.

Increase (Decrease)in Basis Points

Effect on IncomeBefore Income Tax

(In Thousands)

2018 100 (P=67,204)

50 (33,602)

(100) 67,204

(50) 33,602

2017 100 (P=73,686)50 (36,843)

(100) 73,686(50) 36,843

Fixed rate debts, although subject to fair value interest rate risk, are not included in the sensitivityanalysis as these are carried at amortized costs. The assumed movement in basis points for interestrate sensitivity analysis is based on currently observable market environment, showing a significantlyhigher volatility as in prior years.

Foreign Currency RiskForeign currency risk is the risk that the fair value or future cash flows of a financial instrument willfluctuate because of changes in foreign exchange rates.

The Company�s policy is to manage its foreign currency risk mainly from its debt issuances which aredenominated in U.S. dollars and subsequently remitted to China to fund its capital expenditurerequirements by entering into foreign currency swap contracts, cross-currency swaps, foreigncurrency call options, non-deliverable forwards and foreign currency range options aimed at reducingand/or managing the adverse impact of changes in foreign exchange rates on financial performanceand cash flow.

The Company�s foreign currency-denominated monetary assets amounted to US$43 million(P=2,252 million) as at December 31, 2018 and US$97 million (P=4,864 million) as at December 31,2017. The Company�s foreign currency-denominated monetary liabilities amounted tonil as at December 31, 2018 and US$300 million (¥1,954 million) as at December 31, 2017.

In translating the foreign currency-denominated monetary assets and liabilities to peso amounts, theexchange rates used were ¥6.88 to US$1.00 and ¥6.51 to US$1.00, the China Yuan Renminbi to U.S.dollar exchange rate as at December 31, 2018 and 2017, respectively and P=52.58 to US$1.00 andP=49.93 to US$1.00, the Philippine peso to U.S. dollar exchange rate as at December 31, 2018 and2017, respectively.

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Foreign Currency Risk Sensitivity Analysis. The following table demonstrates the sensitivity to areasonably possible change in U.S. dollar to Philippine peso exchange rate and U.S. dollar to Chinayuan renminbi, with all other variables held constant, of the Company�s income before income tax(due to changes in the fair value of monetary assets and liabilities, including the impact of derivativeinstruments). There is no impact on the Company�s equity.

Appreciation(Depreciation) of $

Effect on IncomeBefore Tax

Appreciation(Depreciation) of $

Effect on IncomeBefore Tax

(In Thousands) (In Thousands)

2018 1.50 P=16,063 1.50 ¥�

1.00 10,709 1.00 �

(1.50) (16,063) (1.50) �

(1.00) (10,709) (1.00) �

2017 1.50 P=36,534 1.50 (¥112,622)1.00 24,356 1.00 (75,082)

(1.50) (36,534) (1.50) 112,622(1.00) (24,356) (1.00) 75,082

Liquidity RiskLiquidity risk arises from the possibility that the Company may encounter difficulties in raising fundsto meet commitments from financial instruments or that a market for derivatives may not exist insome circumstance.

The Company seeks to manage its liquidity profile to be able to finance capital expenditures andservice maturing debts. To cover its financing requirements, the Company intends to use internallygenerated funds and proceeds from debt and equity issues.

As part of its liquidity risk management program, the Company regularly evaluates its projected andactual cash flow information and continuously assesses conditions in the financial markets foropportunities to pursue fund-raising initiatives. These initiatives may include bank loans and debtcapital and equity market issues.

The Company�s financial assets, which have maturities of less than 12 months and used to meet itsshort-term liquidity needs, include cash and cash equivalents, financial assets at FVTPL and equityinstruments at FVOCI amounting to P=38,766 million, nil and P=639 million, respectively, as atDecember 31, 2018 and P=44,372 million, P=731 million and P=641 million, respectively, as atDecember 31, 2017 (see Notes 6, 7 and 11). The Company also has readily available credit facilitywith banks and affiliates to meet its long-term financial liabilities.

The tables below summarize the maturity profile of the Company�s financial liabilities based on thecontractual undiscounted payments as at December 31:

2018

Within 1 Year

More than 1

Year to 5 Years

More than

5 Years Total

(In Thousands)

Loans payable P=39,400 P=� P=� P=39,400

Accounts payable and other current liabilities* 49,454,491 � � 49,454,491

Long-term debt (including current portion) 35,048,713 178,038,797 50,800,897 263,888,407

Derivative liabilities � 335,008 � 335,008

Liability for purchased land - net of current portion � 6,044,220 � 6,044,220

Tenants� deposits - net of current portion � 18,177,479 � 18,177,479

Other noncurrent liabilities** � 7,078,916 � 7,078,916

P=84,542,604 P=209,674,420 P=50,800,897 P=345,017,921

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2017

Within 1 YearMore than 1 Year

to 5 YearsMore than

5 Years Total

(In Thousands)

Loans payable P=744,400 P=� P=� P=744,400Accounts payable and other current liabilities* 41,316,183 � � 41,316,183Long-term debt (including current portion) 33,076,813 138,804,369 54,768,749 226,649,931

Derivative liabilities � 777,408 � 777,408Liability for purchased land - net of current portion � 2,170,998 � 2,170,998Tenants� deposits - net of current portion � 16,039,216 � 16,039,216

Other noncurrent liabilities** � 5,126,222 � 5,126,222

P=75,137,396 P=162,918,213 P=54,768,749 P=292,824,358

** Excluding nonfinancial liabilities amounting to P=12,313 million and P=9,768 million as at December 31, 2018 and 2017, respectively.

** Excluding nonfinancial liabilities amounting to P=3,433 million and P=2,498 million as at December 31, 2018 and 2017, respectively.

Credit RiskCredit risk is the risk that a counterparty will not meet its obligations under a financial instrument orcustomer contract, leading to a financial loss. The Company is exposed to credit risk from itsoperating activities (primarily trade receivables) and from its financing activities, including depositswith banks and financial institutions, foreign exchange transactions and other financial instruments(see Notes 6, 8, 11 and 12).

The maximum exposure to credit risk at the reporting date is the carrying value of each class offinancial assets. The fair values of these financial assets are disclosed in Note 29. For receivablesfrom real estate sale, the title of the real estate property is only transferred to the customer if theconsideration had been fully paid. In case of default, after enforcement activities, the Company hasthe right to cancel the sale and enter into another contract to sell to another customer after certainproceedings (e.g. grace period, referral to legal, cancellation process, reimbursement of previouspayments) had been completed. Given this, based on the experience of the Company, the maximumexposure to credit risk at the reporting date is nil considering that fair value less cost to repossess ofthe real estate projects is higher than the exposure at default. The Company evaluates theconcentration of risk with respect to trade receivables and unbilled revenue from sale of real estate aslow, as its customers are located in several jurisdictions and industries and operate in largelyindependent markets.

The changes in the gross carrying amount of receivables and unbilled revenue from sale of real estateduring the year did not materially affect the allowance for ECLs.

As at December 31, 2018 and 2017, the financial assets, except for certain receivables, are generallyviewed by management as good and collectible considering the credit history of the counterparties(see Note 8). Past due or impaired financial assets are very minimal in relation to the Company�sconsolidated total financial assets.

Credit Quality of Financial Assets. The credit quality of financial assets is managed by the Companyusing high quality and standard quality as internal credit ratings.

High Quality. Pertains to counterparty who is not expected by the Company to default in settling itsobligations, thus credit risk exposure is minimal. This normally includes large prime financialinstitutions, companies and government agencies.

Standard Quality. Other financial assets not belonging to high quality financial assets are included inthis category.

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As at December 31, 2018 and 2017, the credit quality of the Company�s financial assets is as follows:

2018

Neither Past Due nor Impaired Past Due

High Standard but not

Quality Quality Impaired Total

(In Thousands)Financial assets at amortized cost

Cash and cash equivalents* P=38,637,321 P= P= P=38,637,321

Receivables** 134,801 9,271,008 5,553,669 14,959,478

Cash in escrow (included under �Prepaidexpenses and other current assets�) 157,719 157,719

Time deposits (included under �Othernoncurrent assets�) 2,392,622 � � 2,392,622

Financial assets at FVTPL

Derivative assets 852,933 � � 852,933

Financial assets at FVOCI

Equity instruments 23,508,022 24,231 � 23,532,253

P=65,683,418 P=9,295,239 P=5,553,669 P=80,532,326

** Excluding cash on hand amounting to P=129 million

** Excluding nonfinancial assets amounting to P=20,270 million

2017

Neither Past Due nor Impaired Past Due

High Standard but notQuality Quality Impaired Total

(In Thousands)Financial assets at amortized cost

Cash and cash equivalents* P=44,285,071 P= P= P=44,285,071Receivables** 300,363 26,001,944 7,685,839 33,988,146Cash in escrow (included under �Prepaid

expenses and other current assets�) 50,881 50,881Real estate receivable - noncurrent (included

under �Other noncurrent assets�) 15,854,070 � � 15,854,070Time deposits (included under �Other

noncurrent assets�) 3,800,809 � � 3,800,809

Financial assets at FVTPL

Investments held for trading -Bonds and shares 731,076 � � 731,076

Derivative assets 3,546,694 � � 3,546,694

Financial assets at FVOCI

Equity instruments 31,090,564 15,581 � 31,106,145

P=99,659,528 P=26,017,525 P=7,685,839 P=133,362,892

** Excluding cash on hand amounting to P=86 million

** Excluding nonfinancial assets amounting to P=2 million

Equity Price RiskEquity price risk arises from the changes in the levels of equity indices and the value of individualstocks traded in the stock exchange.

As a policy, management monitors its equity price risk pertaining to its investments in quoted equitysecurities which are classified as equity instruments designated at FVOCI in the consolidated balancesheets based on market expectations. Material equity investments within the portfolio are managedon an individual basis and all buy and sell decisions are approved by management.

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The effect on equity after income tax (as a result of change in fair value of equity instruments atFVOCI as at December 31, 2018 and 2017) due to a possible change in equity indices, based onhistorical trend of PSE index, with all other variables held constant is as follows:

2018

Change in Equity Price Effect on Equity

(In Millions)

Equity instruments atFVOCI +1.78% P=103

-1.78% (103)

2017

Change in Equity Price Effect on Equity(In Millions)

Equity instruments atFVOCI +2.94% P=242

-2.94% (242)

Capital ManagementCapital includes equity attributable to the owners of the Parent.

The primary objective of the Company�s capital management is to ensure that it maintains a strongcredit rating and healthy capital ratios in order to support its business and maximize shareholdervalue.

The Company manages its capital structure and makes adjustments to it, in the light of changes ineconomic conditions. To maintain or adjust the capital structure, the Company may adjust thedividend payment to shareholders, pay-off existing debts, return capital to shareholders or issue newshares.

The Company monitors capital using the following gearing ratios as at December 31:

Interest-bearing Debt to Total Capital plus Interest-bearing Debt


Loans payable P=39,400 P=744,400Current portion of long-term debt 25,089,624 25,344,035Long-term debt - net of current portion 197,682,262 167,509,484

Total interest-bearing debt (a) 222,811,286 193,597,919Total equity attributable to equity holders

of the parent 275,302,994 258,957,221

Total interest-bearing debt and equity attributable toequity holders of the parent (b) P=498,114,280 P=452,555,140

Gearing ratio (a/b) 45% 43%

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Net Interest-bearing Debt to Total Capital plus Net Interest-bearing Debt


Loans payable P=39,400 P=744,400Current portion of long-term debt 25,089,624 25,344,035Long-term debt - net of current portion 197,682,262 167,509,484Less cash and cash equivalents and financial assets

at FVTPL (38,766,467) (45,102,610)

Total net interest-bearing debt (a) 184,044,819 148,495,309Total equity attributable to equity holders of the

parent 275,302,994 258,957,221

Total net interest-bearing debt and equityattributable to equity holders of the parent (b) P=459,347,813 P=407,452,530

Gearing ratio (a/b) 40% 36%

29. Financial Instruments

Fair ValuesThe following table sets forth the carrying values and estimated fair values of financial assets andliabilities, by category and by class, other than those whose carrying values are reasonableapproximations of fair values, as at December 31:

2018 2017



Financial assets at FVTPL:Derivative assets P=852,933 P=852,933 P=3,546,694 P=3,546,694

Financial assets at amortized cost: Time deposits (included under �Other

noncurrent assets�) 2,392,622 2,339,327 3,800,809 3,699,811Financial assets at FVOCI:

Equity instruments 23,532,253 23,532,253 31,106,145 31,106,145Debt instruments " " 731,076 731,076

26,777,808 26,724,513 39,184,724 39,083,726Noncurrent portion of receivable from sale of

real estate* 15,854,070 14,478,480

#26,777,808 #26,724,513 "55,038,794 "53,562,206


Financial liabilities at FVTPL -Derivative liabilities P=335,008 P=335,008 P=777,408 P=777,408

Loans and borrowings: Liability for purchased land - net

of current portion P=6,044,220 P=6,011,668 P=2,170,998 P=2,107,453Long-term debt - net of current portion 197,682,262 182,162,127 167,509,484 166,129,172Tenants� deposits - net of current portion 18,177,479 17,770,876 16,039,216 15,569,760Other noncurrent liabilities** 7,078,916 6,978,719 5,126,222 4,912,244

P=229,317,885 P=213,258,398 P=191,623,328 P=189,496,037

*Accounted for as unbilled revenue from sale of real estate beginning January 1, 2018 upon adoption of PFRS 15

**Excluding nonfinancial liabilities amounting to P=3,433 million and P=2,498 million as at December 31, 2018 and 2017, respectively.

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The following methods and assumptions were used to estimate the fair value of each class of financialinstrument for which it is practicable to estimate such value:

Financial Assets at FVTPL. The fair values are based on the quoted market prices of the instruments.

Derivative Instruments. The fair values are based on quotes obtained from counterparties.

Noncurrent Portion of Receivable from Sale of Real Estate. The estimated fair value of thenoncurrent portion of receivables from real estate buyers is based on the discounted value of futurecash flows using the prevailing interest rates on sales of the Company�s accounts receivable. Averagediscount rates used is 4.72% as at December 31, 2017.

Equity Instruments at FVOCI. The fair value of investments that are actively traded in organizedfinancial markets is determined by reference to quoted market bid prices at the close of business.

Long-term Debt. Fair value is based on the following:

Debt Type Fair Value Assumptions

Fixed Rate Loans Estimated fair value is based on the discounted value of futurecash flows using the applicable rates for similar types of loans.Discount rates used range from 3.82% to 8.45% and from 3.14%to 6.86% as at December 31, 2018 and 2017, respectively.

Variable Rate Loans For variable rate loans that re-price every three months, thecarrying value approximates the fair value because of recent andregular repricing based on current market rates. For variable rateloans that re-price every six months, the fair value is determinedby discounting the principal amount plus the next interestpayment amount using the prevailing market rate for the periodup to the next repricing date. Discount rates used was 6.98% to9.01% and 3.38% to 6.37% as at December 31, 2018 and 2017,respectively.

Tenants� Deposits, Liability for Purchased Land and Other Noncurrent Liabilities. The estimatedfair value is based on the discounted value of future cash flows using the applicable rates. Thediscount rates used range from 7.80% to 7.85% and 4.47% to 4.97% as at December 31, 2018 and2017, respectively.

The Company assessed that the carrying values of cash and cash equivalents, receivables, cash inescrow, bank loans and accounts payable and other current liabilities approximate their fair valuesdue to the short-term nature and maturities of these financial instruments.

There were no financial instruments subject to an enforceable master netting arrangement that werenot set-off in the consolidated balance sheets.

Fair Value HierarchyThe Company uses the following hierarchy for determining and disclosing the fair value of financialinstruments by valuation technique:

Level 1: Quoted prices in active markets for identical assets or liabilities, except for related embeddedderivatives which are either classified as Level 2 or 3;

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Level 2: Those measured using inputs other than quoted prices included in Level 1 that are observablefor the asset or liability, either directly (as prices) or indirectly (derived from prices); and,

Level 3: Those with inputs for the asset or liability that are not based on observable market data(unobservable inputs).

The following tables show the fair value hierarchy of Company�s financial instruments as atDecember 31:

2018



Financial assets at FVTPL - Derivative assets P=� P=852,933 P=�

Financial assets at amortized cost - Time deposits (included under �Other

noncurrent assets�) � 2,339,327 �

Financial assets at FVOCI -Equity instruments 23,532,253 � �

#23,532,253 #3,192,260 #


Financial liabilities at FVTPL -Derivative liabilities P=� P=335,008 P=�

Other financial liabilities: Liability for purchased land - net of current

portion P=� P=� P=6,011,668

Long-term debt - net of current portion � � 182,162,127

Tenants� deposits � � 17,770,876

Other noncurrent liabilities* � � 6,978,719

P=� P=335,008 P=212,923,390


2017



Financial assets at FVTPL:Derivative assets P=� P=3,546,694 P=�Debt instruments 731,076 � �

Financial assets at amortized cost:Noncurrent portion of receivable from sale of

real estate sale* 14,478,480 Time deposits (included under �Other

noncurrent assets�) � 3,699,811 �Financial assets at FVOCI:

Equity instruments 31,106,145 � 15,581

P=31,837,221 P=7,246,505 P=14,494,061


Financial liabilities at FVTPL -Derivative liabilities P=� P=777,408 P=�Other financial liabilities: Liability for purchased land - net of current

portion P=� P=� P=2,107,453Long-term debt - net of current portion � � 166,129,172

Tenants� deposits � � 15,569,760Other noncurrent liabilities* � � 4,912,244

� � 188,718,629

P=� P=777,408 P=188,718,629


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During the years ended December 31, 2018 and 2017, there were no transfers between Level 1 andLevel 2 fair value measurements and no transfers into and out of Level 3 fair value measurements.

Derivative Financial Instruments Accounted for as Cash Flow Hedges

Cross Currency Swaps. In June and July 2018, SMPH entered into cross-currency swap transactionsto hedge both the foreign currency and interest rate exposures on its U.S. dollar-denominated five-year term syndicated loans (the hedged loans) obtained on July 30, 2018.


· Swap the face amount of the loans at US$ for their agreed Philippine peso equivalents(P=3,199 million for US$60 million and P=2,667 million for US$50 million on June 14, 2023) withthe counterparty banks and to exchange, at maturity date, the principal amount originallyswapped.

· Pay fixed interest at the Philippine peso notional amount and receives floating interest on the US$notional amount, on a quarterly to semi-annual basis, simultaneous with the interest payments onthe hedged loans.

Fair value of the outstanding cross-currency swaps amounted to P=25 million.

In 2017, SM Land (China) Limited entered into cross-currency swap transactions to hedge both theforeign currency and interest rate exposures on its U.S. dollar-denominated five-year term loans (thehedged loans) obtained on May 8, 2017 (see Note 19).


· Swap the face amount of the loans at US$ for their agreed China renminbi equivalents(¥672 million for US$100 million) with the counterparty banks and to exchange, at maturity date,the principal amount originally swapped.

· Pay fixed interest at the China renminbi notional amount and receives floating interest on the US$notional amount, on a quarterly basis, simultaneous with the interest payments on the hedgedloans at an interest rates ranging from 4.95% to 5.43%.

The outstanding cross-currency swaps has a negative fair value of P=111 million.

In 2013, SMPH entered into cross-currency swap transactions to hedge both the foreign currency andinterest rate exposures on its U.S. dollar-denominated five-year term syndicated loans (the hedgedloans) obtained on January 29, 2013 and April 16, 2013 (see Note 19).


· Swap the face amount of the loans at US$ for their agreed Philippine peso equivalents(P=8,134 million for US$200 million on January 29, 2018 and P=6,165 million for US$150 millionon March 23, 2018) with the counterparty banks and to exchange, at maturity date, the principalamount originally swapped.

· Pay fixed interest at the Philippine peso notional amount and receives floating interest on the US$notional amount, on a semi-annual basis, simultaneous with the interest payments on the hedgedloans.

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No gain or loss was recognized in consolidated statements of income upon maturity in January andMarch 2018 since these swaps are designated as cash flow hedges.

Principal only Swaps. In 2016 and 2017, SM Land (China) Limited entered into principal only swaptransactions to hedge the foreign currency exposures amounting to $420 million of five-year termsyndicated loans and advances obtained on January 11, 2016 to March 22, 2016 and January 11-17,2017 (see Note 19). Under the principal only swap, it effectively converted the hedged US dollar-denominated loans and advances into China renminbi-denominated loans.

As at December 31, 2018, SM Land (China) Limited�s outstanding principal only swaps havenotional amounts totaling US$270 million which were fixed to US$:¥ exchange rates ranging from6.458 to 6.889 and will mature on January 29, 2021. The outstanding principal swaps has a negativefair value of P=224 million.

Interest Rate Swaps. In 2017 and 2016, SM Land (China) Limited entered into US$ interest rateswap agreement with notional amount of US$150 million and US$270 million, respectively. Underthe agreement, SM Land (China) Limited effectively converts the floating rate U.S. dollar-denominated loan into fixed rate loan (see Note 19). Fair value of the outstanding interest rate swapsamounted to P=434 million.

As the terms of the swaps have been negotiated to match the terms of the hedged loans, the hedgeswere assessed to be highly effective. No ineffectiveness was recognized in the consolidatedstatement of income for the year ended December 31, 2018.

Below is the maturity profile of derivative financial instruments accounted for as cash flow hedges asat December 31, 2018:

Hedge Instruments* Within 1 year 2 to 3 years 4 to 5 years Total(amounts in thousands)

Cross currency swaps $# $# $210,000 $210,000Principal only swaps # 270,000 # 270,000Interest rate swaps 150,000 270,000 # 420,000

$150,000 $540,000 $210,000 $900,000

*Notional amounts of hedge instruments are US dollar-denominated.

Assessment of Hedge EffectivenessThere is an economic relationship between the hedged items and the hedging instruments as the termsof the cross-currency swaps, principal only swaps and interest rate swaps match the terms of thehedged items (i.e., notional amount and expected payment date). The Company has established ahedge ratio of 1:1 for the hedging relationships as the underlying risk of the cross-currency swaps,principal only swaps and interest rate swaps are identical to the hedged risk components. To test thehedge effectiveness, the Company uses the hypothetical derivative method and compares the changesin the fair value of the hedging instruments against the changes in fair value of the hedged itemsattributable to the hedged risks.

The hedge ineffectiveness can arise from differences in the timing of the cash flows of the hedged itemsand the hedging instruments and the counterparties� credit risk differently impacting the fair valuemovements of the hedging instruments.

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Hedge Effectiveness ResultsHedge effectiveness is assessed at inception of the hedge, at each quarterly or semi-annual reportingdate and upon a significant change in the circumstances affecting the hedge effectivenessrequirements. As the terms of the swaps have been negotiated to match the terms of the hedged loan,the hedges were assessed to be highly effective. The fair value of the outstanding cross-currencyswaps, principal only swaps and interest rate swaps amounting to P=124 million gain andP=2,769 million gain as at December 31, 2018 and 2017, respectively, was taken to equity under othercomprehensive income. For the years ended December 31, 2018 and 2017, no ineffectiveness wasrecognized in the consolidated statement of income. Foreign currency translation gain arising fromthe hedged loan amounting to P=2,247 million in 2018 and P=1,082 million in 2017 was recognizedunder other comprehensive income. Foreign currency translation loss arising from the hedged loanamounting to P=2,119 million in 2016 was recognized under other comprehensive income. Foreignexchange gain equivalent to the same amounts were recycled from equity to the consolidatedstatement of income during the same year.

Other Derivative Instruments Not Designated as Hedges

Non-deliverable Currency Forwards and Swaps. In 2018 and 2017, SMPH entered into sellP= and buy US$ currency forward contracts. It also entered into sell US$ and buy P= currency forwardand swap contracts with the same aggregate notional amount. Net fair value changes from the settledcurrency forward and swap contracts recognized in the consolidated statements of income amountedto P=110 million gain, P=27 million gain and P=25 million gain in 2018, 2017 and 2016, respectively.

In 2018, SM Land (China) Limited entered into forward swap transactions to cap the foreign currencyexposures on its U.S. dollar-denominated three-year term syndicated loans (the hedged loans)obtained on March 14, 2018 to May 25, 2018 (see Note 19).

As at December 31, 2018, SM Land (China) Limited�s outstanding forward swaps consist of US$100million with low strike 6.3135 and high strike 6.4850, US$100 million with low strike 6.2885 andhigh strike 6.4955 and US$100 million with low strike 6.3828 and high strike 6.5473, all maturing atApril 15, 2019. Fair value changes from the forward swaps recognized in the consolidated statementsof income amounted to P=410 million gain.

Fair Value Changes on DerivativesThe net movements in fair value of all derivative instruments are as follows:


Balance at beginning of year P=2,769,286 P=5,102,735Net changes in fair value during the year (2,199,029) (2,315,403)Fair value of settled derivatives (52,332) (18,046)

Balance at end of year P=517,925 P=2,769,286

In 2018, the net changes in fair value amounting to P=2,199 million include net interest paid on interestrate swap and cross currency swap contracts amounting to P=58 million, which is charged against�Interest expense� account in the consolidated statements of income, net mark-to-market loss onderivative instruments accounted for as cash flow hedges amounting to P=2,645 million, which isincluded under �Net fair value changes on cash flow hedges� account in equity, and net mark-to-market gain on derivative instruments not designated as hedges amounting to P=504 million, which isincluded under �Others - net� account in the consolidated statements of income.

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In 2017, the net changes in fair value amounting to P=2,315 million include net interest paid on interestrate swap and cross currency swap contracts amounting to P=9 million, which is charged against�Interest expense� account in the consolidated statements of income, net mark-to-market loss onderivative instruments accounted for as cash flow hedges amounting to P=2,333 million, which isincluded under �Net fair value changes on cash flow hedges� account in equity, and net mark-to-market gain on derivative instruments not designated as hedges amounting to P=27 million, which isincluded under �Others - net� account in the consolidated statements of income.

30. EPS Computation

Basic/diluted EPS is computed as follows:

2018 2017 2016

(In Thousands, Except Per Share Data)

Net income attributable to equity holders of the parent (a) P=32,172,886 P=27,573,866 P=23,805,713

Common shares issued 33,166,300 33,166,300 33,166,300Less weighted average number treasury stock

(see Note 20) 4,311,949 4,332,630 4,332,692

Weighted average number of common sharesoutstanding (b) 28,854,351 28,833,670 28,833,608

Earnings per share (a/b) P=1.115 P=0.956 P=0.826

31. Change in Liabilities Arising from Financing Activities

Movements in loans payable and long-term debt accounts are as follows (see Note 17):

2018 2017

Loans

Payable

Long-term

Debt

LoansPayable

Long-termDebt

(In Thousands)

Balance at beginning of year P=744,400 P=192,853,519 P=840,000 P=163,537,685Availments � 54,115,835 4,639,400 37,358,271Payments (475,000) (26,737,233) (4,735,000) (9,811,140)Cumulative translation adjustment � (188,713) � 2,675,627Foreign exchange movement � 2,677,665 � (991,740)Loan refinancing (230,000) 230,000 � �Others � (179,187) � 84,816

Balance at end of year P=39,400 P=222,771,886 P=744,400 P=192,853,519

There are no non-cash changes in accrued interest and dividends payable. Others include debt issuecost additions and amortization.

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32. Other Matters

Bases Conversion and Development Authority (BCDA) CaseIn 2012, the Company filed Petition for Certiorari with prayer for issuance of a TemporaryRestraining Order against BCDA and Arnel Paciano Casanova (Casanova), President and CEO ofBCDA. On August 13, 2014, the Supreme Court granted the Petition and ordered BCDA andCasanova to conduct and complete the Competitive Challenge, among others (�Decision�). BCDAfiled several Motions for Reconsideration of the Decision, which motions were all denied by theSupreme Court. The Supreme Court subsequently ordered the issuance of an Entry of Judgment, andthe Decision became final and executory.

On 23 February 2018, BCDA conducted the opening, examination and ranking of proposals for theCompetitive Challenge in accordance with the 2008 NEDA Guidelines. On 21 March 2018, theCompany exercised its right to match a bid submitted by a challenger. After the conduct of post-qualification, BCDA declared the Company�s offer as the best and most advantageous proposal andissued a Notice of Award in favor of the Company. BCDA and the Company are working inaccordance with applicable laws.

SM PRIME HOLDINGS, INC. · BS P Bangk o Sentral ng Pilipinas, the Philippine Central Bank Business Day means a day, other than Saturday, Sunday and public holidays, on which facilities

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