University of the Diliman Student Research This report is published for educational purposes only by Philippine Real Estate Industry students competing in the CFA Institute Research Challenge. Robinsons Land Corporation

Date: 2 Dec 2011 Ticker: ●RLC (PSE Ticker) Recommendation: ●BUY Price: ●Php 11.70 Price Target: ●Php 15.32

Highlights We initiate a BUY rating for Robinsons Land Corporation (RLC) with a one-year target price per share of Php 15.32, offering a 30.9% upside potential from its closing price on December 2, 2011. We ground our recommendation on RLC’s timely expansion in its Build-and-Keep segments to effectively capitalize on growth opportunities in the Philippine real estate industry.

 Stable Growth in Earnings from Build-and-Keep Component: Aggressive expansion in the Commercial Centers, Office Buildings and Hotels segments will increase Build-and-Keep core revenue contribution from 72.6% in 2011 to 87.9% by 2016. Capitalizing on the stable growth of the economy, the company focuses on developing these rental-based segments, which are expected to fuel most of RLC’s revenues in the next five years. This results in a Compounded Annual Growth Rate (CAGR) of 8.1% for total revenues over a five-year period. Together with this increasing revenue, EBIT will have a CAGR of 7.0% over the same period.

 Strong Operating Cash Flows: The strengthened position in RLC’s Build-and-Keep segments will translate to even stronger operating cash flows, reaching an estimated Php 8.8B in 2016 from Php 5.2B in 2010. The nature of its Build-and-Keep businesses, where most of the expenses are in the form of depreciation, explains why operating cash flows are high. Consequently, the earnings quality ratio (OCF/EBIT) is expected to improve from 1.13 in 2010 to 1.30 in 2016.  Financial Flexibility and Diminishing Reliance on Debt: Significant capital expenditures in 2012 will be financed by operating cash flows and proceeds from the recent stock rights offer. Moving forward, RLC’s strong operating cash flows will be sufficient not only to fund future capital outlays, but to service debt as well. As as result, long-term debt-equity ratio will decrease from 54.1% in 2010 to 10.3% in 2016. This gives RLC the financial flexibility to seize opportunities as they arise.  Valuation: Using the discounted free cash flow to firm method, a one-year target price of Php 15.32 per share was computed. The price is expected to be driven by the company’s strategy to focus on the Build- and-Keep component, which contributes 81.1% to the price estimate.

Market Profile 52 Week Price Range (Php) 10.00 - 17.26 Beta 1.32 Dividend Yield 3.1% Shares Outstanding (M) 4,093.83 Market Capitalization (Php M) 48,880.34

Free Float 39%

Long-term Debt to Equity 0.34 Return on Equity 10.8% EPS, 30 Sept 2010 (Php) 1.31 P/E Ratio, 2 Dec 2011 8.93

Source: PSE S o urce: P S E, B lo o m berg

CFA Institute Research Challenge 2 Dec 2011

Business Description Robinsons Land Corporation (RLC) is one of the leading real estate companies in the Philippines. It is mainly engaged in building, operating, and leasing of malls, office buildings, and hotels, as well as developing and selling of residential real property. Incorporated on June 4, 1980, the company is a 61%- owned subsidiary of JG Summit Holdings, Inc. (Ticker: JGS). Its shares were publicly listed on October 16, 1989. In 2011, RLC successfully concluded a stock rights offer, raising Php 13.6B to fund its expansion. As of September 30, 2010, the company’s assets amounted to Php 53.1B and generated net income of more than Php 3.6B from its two components, namely Build-and-Keep and Build-and-Sell.

The Build-and-Keep Component provides the company with stable cash flows primarily based on rental income of real properties. It is comprised of the following segments:

Commercial Centers Segment It develops, leases out and manages shopping malls. Currently, it earns rental and amusement revenue through six commercial centers in Metro and 23 in developing provinces. Approximately 40% of total rental revenue is based on fixed lease rates, while the remaining revenue is based on a percentage of tenant sales. Lease contract terms range from one to five years.

Office Buildings Segment Source: RLC disclosures It develops and leases out office spaces. At present, rental revenue earned by this segment comes from eight office buildings. Lessees are subject to long-term contracts ranging from three to five years, with predetermined annual escalation clauses.

Hotels Segment It develops and operates its own hotel brands, Go Hotel and Summit. In May 2010, RLC opened its first Go Hotel, located in Pioneer, EDSA. The company also earns revenues from its other hotels, Crowne Plaza and Holiday Inn Galleria, which are managed by the Intercontinental Group, one of the world’s largest hotel chains.

The Build-and-Sell Component is responsible for the residential projects for sale. It has one segment:

Residential Segment It develops and sells residential condominium spaces, as well as subdivision houses and lots. For the nine- month period ending June 2011, RLC had launched a total of 14 projects all over the country under its different residential brands.

Philippine Economic Overview With an estimated GDP growth of 4% in 2011, the Philippine economy has emerged resilient despite global economic downturns. This is largely driven by high consumption, which continues to be the biggest GDP contributor at 70.2% in 2011.1

Steadily Increasing Consumption In 2011, Household Final Consumption Expenditure is estimated to total Php 7.1Tr, which grew by 5.5% from 2010.2 Consumption has been steadily growing due to strong Overseas Filipino Worker (OFW) remittances, a robust Business Process Outsourcing (BPO) sector, and a healthy domestic tourism industry.

Resilient OFW Remittances As the fourth largest remittance recipient in the world,3 the Philippine economy is highly dependent on the inflow of remittances from OFWs, which increased by 5.6% in 2009 amidst the global economic crisis at that Source: National Statistical Coordination Board time. With several labor agreements with different countries and the rising foreign demand for Filipino workers, the World Bank forecasts a high growth in remittances, with 2011 projections reaching US$ 23B. This represents a 22.3% growth from US$ 18.8B in remittances 2010. The strong OFW remittances are expected to continue in the foreseeable future.4

Thriving BPO Sector The BPO sector provided an estimated 100,000 additional jobs in 2011, contributing to the high growth of consumption. According to the Business Processing Association of the Philippines (BPAP), sector revenues may more than double from US$ 11.0B in 2011 to US$ 25.0B by 2016, should the government provide additional support through public-private partnerships. Without this government support, the sector is still expected to grow by a CAGR of 12.7% from US$ 11.0B in 2011 to US$ 20.0B in revenues by 2016.5

Source: Business Processing Association of the Philippines

2 CFA Institute Research Challenge 2 Dec 2011

Domestic Tourism: Backbone of Tourism Industry Domestic mobility of Filipinos is influenced by 1) the upward trend of employment rate, 2) availability of cheap transport (e.g. passenger ferries and low cost air carriers), 3) increasing internet penetration and 4) growth in the use of credit cards and Electronic Payment Systems (EPS).6 In 2010, Domestic Tourism Expenditure (DTE) reached Php 932.8B, which is 8.5 times higher than Foreign Tourism Expenditure at Php 109.2B.7 For 2012, the government has prioritized the tourism industry through its National Tourism Development Plan.8

Low Interest Rates Affected by the monetary policy direction of the Central Bank of the Philippines, bank lending rates have eased to an all-time-low of 6.8%.9 Low borrowing rates benefit the economy as it fuels purchases of Source: Central Bank of the Philippines residential properties and other big ticket items. In the coming year, the Monetary Board of the Central Bank of the Philippines has pronounced its decision to maintain current interest rates because of the stable and manageable outlook for inflation.10

Commercial Centers Segment Table 3.1: Major Mall Competitors Industry Overview and Competitive Positioning Number of Malls Highly integrated into the country’s culture, shopping is a favorite pastime of many Filipinos, with about Major 80% of the population considered to be mall patrons.11 Consumers depend on malls not only for food and Players Metro Provincial Manila Areas clothing options, but also for the varied entertainment and multi-faceted services such as cinemas, day care, Sunday mass, and even driver’s license renewal. Key industry players include SM Prime Holdings (Ticker: SMPH 16 25 SMPH), RLC and , Inc. (Ticker: ALI), with an aggregated foot traffic of 4.1M daily (see RLC 6 23 Appendix I). ALI 7 4 Thriving Middle Income Class Sources: SMPH, RLC, ALI disclosures According to the National Statistical Coordination Board (NSCB), the middle income class comprised 18.0% of total families as of 2010. This segment’s average monthly income per family grew at a CAGR of 5.7% from Php 25,100 in 2003 to Php 36,900 in 2010. Spending about an average of 80.6% of their income, average monthly expenditure for the middle income class grew at pace with income. This serves as a positive indicator for the major players, specifically RLC and SMPH, who target the middle income segment.12 To effectively compete in this market, RLC selects locations accessible through public transport while SMPH banks on its sheer size and number of tenants. On the other hand, ALI generally caters to the upper-tier with its premier “lifestyle” malls. To attract their target end-users, malls actively manage their tenant mixes based on their markets’ purchasing needs.

Booming Provincial Economic Activity Due to overcrowding and lack of viable land in metropolitan cities, developers are looking into thriving rural

Source: National Statistical Coordination Board areas for growth. The Gross Regional Domestic Product (GRDP) of the Visayas and Mindanao regions posted CAGRs of 10.5% and 11.6%, respectively, over the 2003-2009 period. These CAGRs are better than the 10.4% growth in NCR.13 Both RLC and SMPH are present in only 15 out of the 30 Top Performing Table 3.2: Philippine Provinces of 2010 (see Appendix H),14 giving more room for expansion in different regions. With Areas with RLC as the First-mover this potential, RLC and SMPH will be opening two and three new provincial malls, respectively, in 2012.15

Start of Mall Provinces Operations Company Strategy RLC SMPH Race to Establish Presence in Developing Provinces Historically, nine out of RLC’s 29 malls had enjoyed at least three years of a monopolized market. To Negros Occidental 1997 2007 continue capitalizing on the strengthening economic activity in the provinces, five out of the six new malls Laguna 2000 2006 opening in 2012 and 2013 will be located in developing cities. By obtaining a first mover advantage, RLC Rizal 2003 2007 aims to recover investment costs faster while it still has a monopoly of select provinces. Tarlac 2007 2010 Nueva Ecija 2008 N/A Synergy with Robinsons Retail Group and Other Business Segments Tagaytay 2008 N/A RLC’s new malls are assured of a steady tenant base as there are stores under the Robinsons Retail Group General Santos 2009 2012 (see Appendix J) which will automatically be put up in every new RLC mall. Robinsons Retail Group, whose Leyte 2009 N/A diversified portfolio ranges from clothing to appliances, and supermarkets to toy stores, is one of RLC’s Negros Oriental 2010 N/A affiliated companies. Also, RLC builds office and residential condominiums around the vicinity of its own Palawan 2012 N/A commercial centers. Occupants of these condominiums serve as a captive market for its malls. Agusan del Norte 2013 N/A

Sources: Department of Interior and Local Financial Analysis Government, SMPH and RLC disclosures Rising Revenues and Steady EBITDA Margins The Commercial Centers segment remains to be the highest revenue contributor with an expected share of 54.4% by 2016 (see Appendix F). The segment is projected to have exceptional revenue growth of 16.9% and 12.7% in 2013 and 2014, respectively, because of the opening of six new malls. After 2014, malls are expected to have a same-store revenue CAGR of 6% due to escalation clauses and increases in store sales commissions. EBITDA margins are expected to be maintained at an average of 90.3% for the next five years.

3 CFA Institute Research Challenge 2 Dec 2011

Table 4.1: Office Buildings Segment RLC Office Buildings No. of Industry Overview and Competitive Positioning Leasable Location Office The office space leasing business continues to shift towards servicing the growing BPO sector. As of 2011, Area Buildings BPOs occupy 65.5% of the total 5.5M sq.m. office stock in Metro Manila.16 This percentage is expected to 17 Existing as of September 2011 grow over the forecast period with an estimated 80-90% of future office space demand coming from BPOs. Ortigas CBD 2 18,000 CBD 1 31,000 Office Demand Driven by BPO Sector Pioneer, 4 139,000 The rapid growth of the BPO sector had pushed down Metro Manila office vacancy rates from an average of Mandaluyong 6% in 2010 to 4% in 2011.18 In the future, employment rates and office space demand is expected to grow Cebu City 1 6,000 alongside the continuous expansion of this industry. Pursuant to the attractive BPO industry, RLC offices are To be completed by mid-2013 built to suit round-the-clock BPO requirements,19 allowing flexibility in work area organization and electrical Ortigas CBD 2 80,000 consumption. This design specialization allowed RLC to become one of the leading providers of BPO and call center office space in the Philippines, with 77% of its current stock leased by BPOs.20 Source: RLC disclosures Tax Incentives: Catalyst of Office Buildings Industry The Philippine Economic Zone Authority (PEZA) provides significant tax benefits to IT-BPO, tourism, agro- industrial, and manufacturing companies operating within registered zones. Such benefits include income tax holidays for four to six years, duty-free importation of select items, and 5% preferential gross income taxation. In addition to boosting the marketability of the country to BPO companies and ensuring high demand for office space, these tax incentives may even extend to owners or operators of PEZA-registered zones given certain conditions.21

Company Strategy Continued Expansion to Capture BPO Potential RLC’s newest office building, Cybergate Cebu, recently contributed an additional 6,000 sq.m. of fully- occupied office space in the third quarter of 2011. Its two on-going Cyberscape office buildings in the Ortigas CBD will provide another 80,000 sq.m. of net leasable area by mid-2013. For its upcoming projects, RLC aims to continue securing major BPOs as tenants by constructing its office spaces with BPO design specifications in mind.

Active Pursuit of PEZA Registration Currently, there are seven RLC office building projects already accredited by PEZA, while the two upcoming Cyberscape buildings have pending applications. Aside from the increased demand driven by such PEZA registration, RLC’s revenue from the four buildings located in the Pioneer Cyberpark Complex is subject to special 5% gross income taxation, delivering greater tax savings.

Financial Analysis Growth in Revenues with High Margins While revenue growth from 2009 to 2010 was at 3.1%, projected growth over the forecasted years is higher due to the completion of new projects. Revenues are expected to grow by 21.6% and 11.6% in 2011 and 2012, respectively, because of the completion of Cybergate Plaza and Cybergate Cebu (see Appendix F). In 2015, the two additional Cyberscape buildings are expected to further drive annual revenue up by 28.2%. Due to low operating expenses, such growing revenue will translate to average EBITDA and EBIT margins of 96.1% and 62.2%, respectively, over the five-year forecast period. Revenue growth after expansionary years will be mainly influenced by RLC’s annual lease escalation policy.

Hotels Segment Industry Overview and Competitive Positioning Improvements in domestic tourism benefit hotel operations, driving occupancy rates up. Domestic tourism expenditure on accommodation services increased from Php 33.9B in 2000 to Php 98.8B in 2010. 22

Strong Confidence in Economy Hotel Category Hotel categories include Deluxe, First Class, Standard and Economy.23 A CB Richard Ellis (CBRE) report shows that the Economy category tops the roll of promising hotel investments in the Asia Pacific region.24 This confidence is also shared by several industry players, such as RLC, Filinvest,25 Liwayway Marketing, and Jinjiang International Hotel Investment Company,26 who have been entering the Economy hotel category. The country has yet to see an established nationwide Economy hotel brand. Source: National Statistical Coordination Board

4 CFA Institute Research Challenge 2 Dec 2011

Dynamic Brand Positioning A hotel’s success is largely determined by price, location, service and design.27 RLC’s strategy is to implement a value-for-money approach in the different hotel categories it competes in. The inclusion of its Go Hotel chain improves its coverage on multiple price points. Refer to Appendix K for the summary of competitive analysis of RLC’s hotels.

Company Strategy Rapid Expansion of Go Hotel Budget Brand Consistent with investor preferences towards Economy hotels, RLC continues to expand its Go Hotel brand which uses the “no frills” business model. Within the next five years, RLC aims to open 30 new Go Hotels which will either be company-managed or under franchise agreements. These hotels will be located in strategic tourist hot spots nationwide, as 90% of its current customers are domestic travellers.

Synergistic Affiliation of Go Hotels and Airline Future collaborations with its affiliate airline, Cebu Pacific (Ticker: CEB), give RLC a distinct advantage over its competitors. CEB operates under a low-cost carrier model, which will complement the economy model strategy of Go Hotel. The airline’s existing technology for a one-stop hotel and flight booking facility allows the two companies to integrate their customer bases and offer package deals at low prices.

Financial Analysis Growth in Revenues and EBIT Margins Propelled by Go Hotels Hotel revenues are expected to increase by an average of 21.5% over the next five years as compared to the modest 2010 growth at 7.6% (see Appendix F). This is due to the recently refurbished Summit Circle, the expected completion of the Summit Shores by 2013, and the construction of nine new Go Hotels from 2012 to 2013. By 2016, Go Hotel’s share of total hotel revenue is expected to increase to 17.3% from its 3.0% share in 2010. This will result to EBIT margin improvement from 9.5% in 2010 to 24.0% in 2016.

Table 6.1: Residential Segment Residential Industry Categories (by Price) Industry Overview and Competitive Positioning Category Price Points The Philippine residential industry generally offers two types of developments: vertical (low- to high-rise condominiums) and horizontal (subdivision houses and lots). Vertical developments are prevalent in Socialized Up to Php 400,000 metropolitan areas,28 while horizontal developments are usually in provincial cities. Price is another way to Low Cost Php 400,000 to 2M classify residential units, which can be categorized as Open Housing, Medium Cost, Low Cost or Medium Cost Php 2M to 4M Socialized.29 Open Housing Above Php 4M Focus on Middle-Income and OFW Segment

Key industry players are mostly positive about the prospects in the residential development market, though Source: Housing and Land Use Regulatory Board there is some concern about increased competition. In reaction to this, most residential real estate companies concentrate on a particular segment of the market. MEG,30 VLL,31 DMCI Homes32 and SMDC33 all remain focused on their core target market – the middle-income segment and Overseas Foreign Workers (OFWs).

Aggressive Movement towards the Low Cost Housing Market Real estate research firm Colliers International is also expecting a surge in developments in the affordable housing segment.34 ALI launched Bella Vita, their new economic housing brand,35 while SM Development Corp. (Ticker: SMDC) entered the affordable condominium segment through six new launches during the year under their new brand, MPlace.36

Expected Supply Surge Jones Lang LaSalle Leechiu is expecting a surge in the number of high-end and mid-end developments, with more than 103T projected additional condominium units from 2011 to 2015, as compared to the 59T units from 1999 to 2010. The anticipated high influx of supply is expected to increase condominium vacancy rates in the Makati, Ortigas and Fort Bonifacio business districts to 12-14% within the next year.37

Company Strategy Wait-and-See Approach for New Projects Source: Colliers International RLC’s management is concerned with the large supply of residential developments in the medium term.38 As such, the company plans to take a “wait-and-see” attitude for new projects and defer landbanking for the residential segment. RLC intends to complete on-going and launched projects which are scheduled to be completed by 2016.

5 CFA Institute Research Challenge 2 Dec 2011

Diversified Brands Designed for Key Markets Table 7.1: RLC recently separated its Residential segment into four brands: Luxuria, Robinsons Residences, Robinsons Summary of Industry Outlooks Communities and Robinsons Homes. The company’s operations are slowly being restructured to allow these and RLC Strategies brands to operate as four distinct units. This diversified brand architecture (see Appendix M) allows the Build and Keep Component company to cater to different target markets. Commercial Centers Segment Macroeconomic Factor: Financial Analysis Growing consumption Decreasing Contribution to Total RLC Revenue Competitive Environment: Residential segment revenue is expected to peak at Php 7.7B in 2014 (see Appendix F). After the completion Developers racing to expand mall of residential pipeline projects in 2016, segment revenue contribution will plunge from 27.0% in 2010 to portfolios to capture growing 12.1% as an effect of the management’s decision to develop only to the extent of its current land bank. At the consumption same time, EBITDA margins will decline from 38.4% in 2013 to 36.9% in 2016 due to increased competition RLC Strategy: and rising supply. Expand aggressively in developing provinces to tap potential markets Office Buildings Segment Macroeconomic Factor: Overall Company Analysis Thriving BPO industry RLC’s strategy is to focus on the Build-and-Keep component where the industry prospects are optimistic. Competitive Environment: Table 7.1 summarizes the industry outlook and strategies of RLC for each segment. Developers putting up more offices catering to BPOs Company Strategy RLC Strategy: Reliable Revenue Stream from Build-and-Keep Component Continue BPO-focused strategic Based on 2010 data, RLC provided the most stable revenue stream with its high Build-and-Keep core expansion to capitalize on the revenue contribution at 73% as compared to other diversified property companies, such as ALI, MEG and robust growth of the industry FLI (see Appendix G). Long-term contracts for commercial and office spaces assure the company of Hotels Segment revenues from these segments in the future. Macroeconomic Factor: Increasing domestic tourism Synergy among RLC’s Segments and with Affiliates Competitive Environment: As previously stated, synergistic opportunities exist among RLC’s segments and with affiliates. Within RLC, Industry players entering Economy the close proximities of RLC malls, office buildings, hotels and residential condominiums and subdivisions hotel category to capture domestic enhance the individual appeal and marketability of each project. tourism growth; no established nationwide brand Outside the company, RLC also takes advantage of collaborations with companies under JG Summit and RLC Strategies: other affiliates. For instance, budget carrier Cebu Pacific’s tie-up with Go Hotel results in an enhanced ability Focus on rapid roll-out of low-cost to capture domestic tourism traffic. In addition, the Robinsons Retail Group provides a steady tenant base for high-margin Go Hotels RLC’s malls. Construct hotels beside RLC provincial malls Partner with Cebu Pacific to ensure Financial Analysis success of Go Hotel brand Revenue and EBIT Growth Driven by Build-and-Keep Component Build-and-Sell Component Because of RLC’s thrust towards the Build-and-Keep component, its contribution to core revenues is projected to grow from 72.6% in 2011 to 87.9% by 2016. Revenues are expected to increase by a CAGR of Residential Segment 8.1% for the next five years. The Commercial Centers segment is antcipated to remain the highest revenue Macroeconomic Factor: contributor, reaching Php 9.4B by 2016 from Php 2.9B in 2010. Low interest rates

Competitive Environment: EBIT is expected to grow from Php 4.9B in 2011 to Php 6.8B in 2016. This translates to a CAGR of 7% over Developers aggressively putting up this five-year period. more residential units, resulting to increased competition Strong Operating Cash Flows RLC Strategies: Operating cash flows is estimated to reach Php 8.8B in five years, 92.7% of which is directly attributable to Continue with on-going projects the Build-and-Keep component. This strong operating cash flow is due to the following: 1) collection Take cautious stance by postponing problems are minimal and 2) most of its expenses are in the form of depreciation. Consequently, the earnings land banking activities quality ratio (OCF/EBIT) is expected to improve from 1.13 in 2010 to 1.30 in 2016. Take a “wait and see” attitude for new projects Diminishing Reliance on Debt RLC’s long-term debt-equity ratio was 54.1% in 2010 and is expected to go down to 10.3% in 2016. RLC’s Source: Student analysis ability to generate healthy operating cash flows will allow the company to pare down its debt.

6 CFA Institute Research Challenge 2 Dec 2011

Investment Summary The team initiates a buy rating for RLC, with a one-year price target of Php 15.32 resulting to an upside of 30.9% from the December 2, 2011 stock price of Php 11.70. RLC’s management intends to focus on expanding its Build-and-Keep segments: Commercial Centers, Office Buildings, and Hotels. As disclosed, RLC is taking a cautious stance on its Residential segment due to concerns on the European debt crisis and the potential high influx of residential supply. As a result, the company will concentrate on current residential projects and postpone land banking activities.

Earnings Highlights Aggressive expansion in the Build-and-Keep segments, coupled with the stable growth of the economy, are expected to fuel most of the company’s revenues in the next five years resulting in a total revenue CAGR of 8.1% from 2011 to 2016. Together with this increasing revenue, EBIT will have a CAGR of 7% over the same period.

Financing Sources The strong balance sheet and operating cash flows of the company will allow it to finance most of its future projects through internally generated funds. This will improve its long-term debt ratio from 54.1% in 2010 to 10.3% in 2016. This gives RLC the financial flexibility to seize opportunities as they arise. Sources: RLC disclosures, student estimates Valuation RLC’s stock was valued based on a per-segment Discounted Cash Flow analysis. Each segment operates in different competitive environments with varying business success drivers: regional consumption for Commercial Centers; BPO growth for Office Buildings; domestic tourism for Hotels; and housing needs for the Residential segment. As such, segment revenues, expenses, and contribution to value were forecasted individually using the identified factors. Of the computed Php 15.32 target price, the Build-and-Keep segments comprise 81.1% or approximately Php 12.43 per share.

Figure 8.2: RLC Share Price Movement and News Flow 19 RLC‘s pronouncement RLC announcement of cautious stance in 18 of plan to build 30 residential market Go Hotels

17 Phil. Property Advent of EU Developers' decline on debt crisis valuation outlook 16

15 Downgrade of Stock rights offer USA’s AAA credit announcement rating 14

13

12

11

10 8/2/10 10/2/10 12/2/10 2/2/11 4/2/11 6/2/11 8/2/11 10/2/11 12/2/11

Sources: Bloomberg, RLC disclosures

7 CFA Institute Research Challenge 2 Dec 2011

Table 9.1: Value Contributors Valuation Share Value Applying the discounted Free Cash Flow to Firm (FCFF) method, a target price of Php15.32 per share was to Segments (in determined. To obtain the firm value, the present value of the operating free cash flows per segment was Value Php) aggregated with the fair value of land bank. The value of equity was then computed by deducting the market (%) value of net debt from the firm value. Build-And-Keep 12.43 81.1 Commercial Centers 9.19 60.0 Revenue Forecast Office Buildings 2.55 16.6 Commercial Centers Segment Hotels 0.69 4.5 Segment revenues, composed of rental and amusement income, were projected on a per-mall basis. Rental Build-And-Sell 2.76 18.0 income forecast was based on two components – variable and fixed. The variable component was forecasted (Residential) based on nominal GRDP growth applicable to each mall location while the fixed component was based on RLC’s 5.0% annual escalation policy. Amusement income was grown based on expected inflation of 4.9%, Land bank 3.37 21.9 which was computed from the CPI CAGR from 2001 to 2011. Net Debt (3.24) -21.0 Target Price 15.32 Office Buildings Segment Occupancy and lease rates drive the revenue projections. Demand for office space was projected under the

base-case BPO growth scenario of the BPAP forecast, which assumes that BPO revenue of US$ 20B will be Sources: Student estimates, RLC disclosures generated in 2016. Occupancy was estimated assuming constant market share in such projected demand, subject to industry supply levels. Lease rates were based on RLC’s 5% annual escalation policy. The Table 9.2: Segment Terminal significant revenue growth of 21.6% in 2011 is attributed to the addition of two buildings to RLC’s portfolio. Growth Rates Hotels Segment Segment Rate Basis Revenues were forecasted as a function of room occupancy and room rates. To estimate room occupancy, Commercial 4.97% Lease rate current market share was maintained and applied to projected demand per region based on tourist arrivals. Centers escalation Room rates were then estimated based on expected inflation of 4.9%. Incremental revenues in 2012 and 2013 policy and from nine additional company-operated Go Hotels and one Summit hotel is expected to boost revenue growth inflation to 33.9% and 50.9%, respectively. Office 5.00% Lease rate Buildings escalation Residential Segment policy Revenues were forecasted on the basis of take-up and project completion. Taking into account the company’s Hotels 4.96% Inflation- conservative stance on the housing industry, only projects launched as of 3Q 2011 were included in the adjusted room forecast. To estimate take-up, expected supply and demand conditions applicable to each project’s location rates and price range were considered. The robust growth anticipated by 2011 to 2013 at a CAGR of 36.7% Residential 0% Cautious reflects the take-up and completion of majority of the launched projects. management stance on the Terminal Growth segment Terminal growth assumptions for each segment were determined in nominal terms to match the nominal

Sources: Student estimates, RLC disclosures discount rate. For conservatism, only maintenance capital expenditures were assumed in the terminal phase. Thus, terminal growth for the Build-and-Keep segments is expected to arise solely from price increases in the form of lease escalation policies and inflation. To reflect the limited prospects that the company currently

expects for the Residential segment, a zero growth rate was assumed for this segment.

Discount Rate Varying WACC was applied to the FCFF per year to reflect changing capital structure over the forecast period. To compute the cost of equity, the initial levered beta as calculated was unlevered and re-levered Table 10.1: using the debt-equity ratio for each year. The post-tax cost of debt was computed per year from the effective Target Price Scenario Analysis interest on loans and applicable tax rates. Effect on Target Price Peer Comparison Variable (in Php) As shown in Appendix E, RLC is relatively undervalued compared to the larger and more aggressive SMPH, (-)* (+)* SMDC and ALI companies.

CC* occupancy rate (0.59) 0.60 OB* occupancy rate (0.22) 0.12 Scenario Analysis Hotels occupancy rate (0.02) 0.02 To assess the sensitivity of the price target to varying market conditions, critical variables were adjusted. Residential units sold (0.05) 0.04  Occupancy rates of the Commercial Centers, Office Buildings and Hotels segments were adjusted by Total (0.88) 0.78 3.0% of the base-case. Target price 14.44 16.10  The number of residential units sold was adjusted by 3.0% of the base-case. Upside 23.4% 37.6% Recommendation BUY BUY The price target still provides a significant upside potential even in the pessimistic case, indicating the *LEGEND: (-) – Pessimistic, (+) – Optimistic, resilience of the base-case upside and further supporting the team’s Buy recommendation. CC – Commercial Centers, OB – Office Buildings

Source: Student estimates 8 CFA Institute Research Challenge 2 Dec 2011

Table 11.1: Risks at a Glance Investment Risks Political Risk Risks Mitigating Threats to National Security: National security greatly affects the overall performance of RLC. Terrorist and Factors criminal attacks, such as bombings, may occur in its real estate developments, which may result not only to Threats to Insurance; security infrastructure losses, but more critically, loss of customers and brand equity. To address these, the company National measures insures all of its projects against infrastructure losses and implements strict security measures in their malls, Security office buildings and hotels. Revocation of Focus on projects Tax Incentive catering to Regulatory Risk Accreditation government- Revocation of Tax Incentive Accreditation: RLC actively seeks tax incentives for both itself and its tenants by prioritized registering its developments with PEZA and BOI. Since these incentives are dependent on the government’s industries economic priorities, it is primarily discretionary. To address this risk, RLC chooses to focus on projects Negative Comprehensive which cater to industries currently prioritized by the government, such as the BPO and Tourism industries. Effects of insurance Fortuitous Force Majeure Risk Events Negative Effects of Fortuitous Events: Natural calamities may cause significant damage to RLC’s properties. Default Customer credit Such disasters may also disrupt RLC’s operations, and thus lead to lost revenues. This risk is mitigated by Payments from policies; obtaining comprehensive insurance coverage. Customers and agreements with Tenants reputable banks Credit Risk Inability to Low leverage Default of Payments from Customers and Tenants: In the housing industry, there is a trade-off between sales Obtain ratios and credit risk. To drive up sales, companies may be forced to approve sales to buyers who have substandard Funding credit ratings. RLC strictly adheres to its credit approval procedures to mitigate such risk. Also, to limit its Increase in Vendor selection exposure to risk of customer default, RLC does not offer in-house financing and opts to rely instead on Cost of via competitive agreements with reputable banks. Construction bidding process Materials Liquidity Risk Fluctuations in Conservative Inability to Obtain Funding: RLC’s internally-generated funds may not be able to support all its future capital Interest Rates capital structure expenditures, which may compromise the company’s growth prospects. Nevertheless, RLC’s low leverage and high credit allows financial flexibility and easy access to both long- and short-term external financing. rating Market Risks Increase in Reduced Increase in Cost of Construction Materials: A large part of real estate project costs comes from construction Mortgage dependence on materials. As such, any increase in the prices of these materials may adversely affect the financial returns on Interest Rates Build-and-Sell these projects. The company partially addresses this risk by selecting suppliers through a competitive bidding component process.

Source: Student analysis, RLC disclosures Fluctuations in Interest Rates: Real estate companies normally rely on long-term financing in developing their projects, thus exposing them to fluctuating interest rates. As of 2011, RLC has Php 10B worth of bonds payable maturing in 2014. As an issuer of the bonds, it is in the interest of RLC to have a more stable market value for its debt securities. This can be achieved through a more conservative capital structure and maintaining a high credit rating as practiced by RLC.

Increase in Mortgage Interest Rates: Increasing interest rates discourage residential property purchases. Nonetheless, the company's dependence on its Build-and-Sell component is expected to go down as a result of the company's thrust to the Build-and-Keep component, which is expected to account for 88% of the revenues in 2016. .

9 CFA Institute Research Challenge 2 Dec 2011

Appendices Appendix A – Disclosures

Ownership and material conflicts of interest: The author(s), or any member of their household, of this report does not hold a financial interest in the securities of this company. The author(s) of this report does not know of the existence of any conflicts of interest that might bias the content or publication of this report. Receipt of compensation: Compensation of the author(s) of this report is not based on investment banking revenue. Position as an officer or director: The author(s) does not act as an officer, director or advisory board member of the subject company. Market making: The author(s) does not act as a market maker in the subject company‘s securities. Ratings guide: Banks rate companies as a BUY, HOLD or SELL. A BUY rating is given when the security is expected to deliver absolute returns of 15% or greater over the next 12 month period, and recommends that investors take a position above the security‘s weight in the Philippine Composite. A SELL rating is given when the security is expected to deliver negative returns over the next 12 months, while a HOLD rating implies flat returns over the next twelve months. Disclaimer: The information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s) to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness. The information is not intended to be used as the basis of any investment decisions by any person or entity. This information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This report should not be considered to be a recommendation by any individual affiliated with the CFA Philippines or the Investment Research Challenge with regard to this company‘s stock. 10 CFA Institute Research Challenge 2 Dec 2011

Appendix B – Forecasted Financial Statements

Robinsons Land Corporation Statement of Profit and Loss For the Period Ending, September 30

(in Php M) 2009 2010 2011E 2012E 2013E 2014E 2015E 2016E Revenue from divisions 10,496 10,595 11,477 15,639 18,626 20,380 19,136 17,311 Residential 4,212 2,858 3,148 6,289 7,296 7,650 5,078 2,097 Office buildings 1,099 1,133 1,378 1,538 1,615 1,793 2,298 2,597 Commercial centers 4,161 5,501 5,674 6,103 7,136 8,046 8,719 9,416 Hotel operations 1,024 1,102 1,277 1,709 2,579 2,891 3,041 3,201 Interest income 238 702 616 616 612 604 592 574 Gross revenue 10,734 11,297 12,092 16,255 19,238 20,985 19,728 17,885 Real estate expense 4,130 4,135 4,585 6,988 8,385 9,117 7,857 6,357 Hotel operations expense 906 997 1,141 1,453 1,994 2,253 2,385 2,431 General administrative expense 1,349 1,595 1,502 2,009 2,370 2,586 2,469 2,288 Interest expense 69 300 293 347 405 260 217 168 Cost and expenses 6,453 7,027 7,521 10,798 13,155 14,217 12,926 11,245 Income before income tax 4,280 4,270 4,571 5,457 6,083 6,768 6,801 6,640 Provision for income tax 1,014 674 721 866 969 1,081 1,133 1,105 NET INCOME 3,266 3,596 3,851 4,591 5,114 5,687 5,669 5,535 Basic EPS (in Php) 1.19 1.32 1.13 1.12 1.24 1.38 1.38 1.35

Robinsons Land Corporation Statement of Financial Position As of September 30

(In Php M) 2009 2010 2011E 2012E 2013E 2014E 2015E 2016E ASSETS Cash and cash equivalents 8,926 5,498 11,272 793 915 1,008 1,858 788 Receivables – net 4,069 5,451 5,533 5,712 5,882 5,936 5,840 5,633 Other assets 1,922 1,691 ------Total current assets 14,916 12,639 16,805 6,505 6,797 6,944 7,698 6,421 Subdivision land and condo and residential units for sale - 5,084 6,197 3,855 4,351 4,727 3,690 2,457 1,610 net Investment property – net 29,294 31,934 44,613 59,542 65,646 66,084 66,667 67,129 Property and equipment – net 2,185 2,331 2,410 2,427 3,027 3,069 3,153 3,355 Total noncurrent assets 36,563 40,462 50,879 66,320 73,400 72,843 72,277 72,094 TOTAL ASSETS 51,479 53,101 67,684 72,825 80,197 79,787 79,976 78,515 TRUE TRUE TRUE TRUE TRUE TRUE TRUE TRUE LIABILITIES 2009 2010 2011E 2012E 2013E 2014E 2015E 2016E Accounts payable & accrued expenses 5,796 4,941 5,263 6,879 8,141 8,946 8,665 8,144 Income tax payable 341 90 ------Deposits and other liabilities 3,489 4,137 3,707 5,363 5,976 6,204 5,130 3,831 Total current liabilities 9,627 9,168 8,970 12,241 14,116 15,151 13,795 11,975 Loans payable 15,115 15,000 15,000 14,000 16,300 11,300 9,300 6,200 Net deferred tax payable 1,171 1,196 ------Total noncurrent liabilities 16,286 16,196 15,000 14,000 16,300 11,300 9,300 6,200 TOTAL LIABILITIES 25,913 25,364 23,970 26,241 30,416 26,451 23,095 18,175 0 0 0 0 0 0 EQUITY 2,009 2,010 2011E 2012E 2013E 2014E 2015E 2016E Capital stock 2,747 2,747 4,112 4,112 4,112 4,112 4,112 4,112 Additional paid-in capital 8,182 8,182 20,386 20,386 20,386 20,386 20,386 20,386 Retained earnings 14,518 16,798 19,205 22,075 25,273 28,828 32,372 35,833 Treasury shares 0 (222) (222) (222) (222) (222) (222) (222) Equity Attributable to Equity Holders of the Parent 25,447 27,505 43,481 46,351 49,548 53,104 56,648 60,108 Minority Interest in a Consolidated Subsidiary 120 233 233 233 233 233 233 233 TOTAL SHAREHOLDERS' EQUITY 25,566 27,737 43,713 46,583 49,781 53,336 56,880 60,341 TOTAL LIAB. AND SHAREHOLDERS' EQUITY 51,479 53,101 67,684 72,825 80,197 79,787 79,976 78,515

Sources: RLC disclosures, student estimates

11 CFA Institute Research Challenge 2 Dec 2011

Appendix B – Forecasted Financial Statements (continuation)

Robinsons Land Corporation Consolidated Statement of Cash Flows For the Period Ending, September 30

(In Php M) 2009 2010 2011E 2012E 2013E 2014E 2015E 2016E Income before income tax 4,280 4,270 4,571 5,457 6,083 6,768 6,801 6,640 Depreciation and amortization 1,669 1,912 2,308 2,774 3,469 3,975 4,271 4,462 Change in working capital 484 304 2,845 2,595 1,328 2,018 (27) (764) Others (830) (1,310) (2,336) (1,133) (1,174) (1,425) (1,509) (1,514) Cash flows from operating activities 5,603 5,176 7,389 9,693 9,706 11,336 9,537 8,824 Capital expenditures (3,806) (4,698) (15,067) (17,720) (10,173) (4,456) (4,938) (5,126) Change in long-term investments (158) (1,026) 1,620 616 612 604 592 574 Cash flows from investing activities (3,964) (5,724) (13,447) (17,104) (9,561) (3,851) (4,346) (4,552) Change in debt 8,532 (1,386) (293) (1,347) 1,895 (5,260) (2,217) (3,268) Change in capital/dividends (686) (1,534) 12,126 (1,721) (1,917) (2,132) (2,125) (2,074) Change in other long-term liabilities (1,079) 39 ------Cash flows from financing activities 6,767 (2,880) 11,833 (3,068) (22) (7,391) (4,341) (5,342) Net change in cash 8,407 (3,428) 5,774 (10,479) 123 93 850 (1,070) Cash and cash equivalents, beginning 519 8,926 5,498 11,272 793 915 1,008 1,858 CASH AND CASH EQUIVALENTS, ENDING 8,926 5,498 11,272 793 915 1,008 1,858 788

Sources: RLC disclosures, student estimates

Appendix C – Key Financial Ratios

2009 2010 2011E 2012E 2013E 2014E 2015E 2016E Efficiency Fixed assets (x) 0.18 0.20 0.18 0.16 0.16 0.17 0.19 0.21 Profitability EBITDA margin (%) 57.33 61.18 62.50 54.85 53.46 53.99 58.99 65.10 EBIT margin (%) 41.43 43.13 42.38 37.11 34.83 34.48 36.67 39.33 Return on equity (%) 13.45 13.49 10.78 10.17 10.61 11.03 10.29 9.44 Leverage Long-term debt-equity ratio (%) 59.12 54.08 34.31 30.05 32.74 21.19 16.35 10.28 Total debt-equity ratio (%) 101.35 91.44 54.83 56.33 61.10 49.59 40.60 30.12 Liquidity Current ratio (x) 2.08 2.05 2.30 0.89 0.82 0.70 0.74 0.67 Quick ratio (x) 1.35 1.19 1.87 0.53 0.48 0.46 0.56 0.54 Per Share Data Earnings per share (Php) 1.19 1.32 1.13 1.12 1.25 1.39 1.38 1.35 Book value per share (Php) 9.35 10.15 12.81 11.38 12.16 13.03 13.89 14.74

Sources: RLC disclosures, student estimates

Appendix D – Discount Rate Assumptions

Initial Variable Description Value EQUITY FINANCING Levered beta 1.32 Estimated by regressing RLC monthly returns against the PSEi returns Risk-free return 5.68% Used ten-year government treasury bond yield Market premium 6.55% Derived from PSEi returns less government treasury yields Terminal growth 4.97% Calculated using weighted revenue growth in projected stable growth years DEBT FINANCING Cost of debt 8.03% Derived from weighted average of effective interest rate of loans (pretax) Tax rate 15.77% Computed from company disclosure LT debt-to-equity 34.31% Calculated using projected capital structure

12 CFA Institute Research Challenge 2 Dec 2011

Appendix E – Relative Valuation Metrics

RLC ALI SMDC SMPH MEG Dec. 2 Price 11.70 15.98 7.36 12.92 1.83 Year-end EPS 1.31 0.42 0.53 0.58 0.20 EPS TTM 1.40 0.49 0.55 0.61 0.32 Trailing P/E Ratio 8.36 32.91 13.44 21.07 5.74 Price to Sales 2.84 5.49 4.19 8.26 2.19 Price to Book 1.27 3.58 1.88 3.05 0.79 Price to OCF 6.68 20.54 -5.42 11.11 7.33 Div. Yield (%) 3.13 0.94 1.23 2.09 1.33

Sources: Student estimates, RLC disclosures, Bloomberg

Appendix F – Segments’ Financial Forecasts

Commercial Centers Segment* 2009 2010 2011E 2012E 2013E 2014E 2015E 2016E Revenue (in Php M) 4,161 5,501 5,674 6,103 7,136 8,046 8,719 9,416 EBITDA (in Php M) 3,892 4,886 5,098 5,480 6,425 7,276 7,902 8,546 EBIT (in Php M) 2,735 3,486 3,468 3,536 3,900 4,383 4,879 5,328 Gross Floor Area (in ‘000 sq.m.) 1,427 1,508 1,508 1,663 1,736 1,736 1,736 1,736

Office Buildings Segment* 2009 2010 2011E 2012E 2013E 2014E 2015E 2016E Revenue (in Php M) 1,099 1,133 1,378 1,538 1,615 1,793 2,298 2,597 EBITDA (in Php M) 1,028 1,070 1,318 1,476 1,552 1,723 2,208 2,495 EBIT (in Php M) 727 786 937 994 988 1,089 1,426 1,626 Leased Area (in ‘000 sq.m.) 137.7 150.7 183.3 194.9 194.9 206.0 251.4 270.7

Hotels Segment* 2009 2010 2011E 2012E 2013E 2014E 2015E 2016E Revenue (in Php M) 1,024 1,102 1,277 1,709 2,579 2,891 3,041 3,201 EBITDA (in Php M) 301 306 396 544 898 1,011 1,064 1,119 EBIT (in Php M) 118 105 136 256 585 638 657 769 Room Capacity 866 1,089 1,089 1,794 2,194 2,194 2,194 2,194

Residential Segment* 2009 2010 2011E 2012E 2013E 2014E 2015E 2016E Revenue (in Php M) 4,212 2,858 3,148 6,289 7,296 7,650 5,078 2,097 Gross Margin (%) 45.3 38.9 39.6 39.3 38.9 38.9 39.2 39.2 EBIT (in Php M) 1,879 1,085 1,210 2,412 2,775 2,899 1,933 799 Units Take-up 401 544 1,602 1,632 1,540 1,396 866 520

*Sources: RLC disclosures, student estimates

13 CFA Institute Research Challenge 2 Dec 2011

Appendix G – Percentage of Real Estate Companies’ Revenues in Build-and-Keep Component

Real Estate Company Build-and-Keep Revenue (2010) SM Prime Holdings (PSE Ticker: SMPH) 100.0% Robinsons Land Corporation (PSE Ticker: RLC) 73.0% Ayala Land, Inc. (PSE Ticker: ALI) 26.2% Filinvest Land, Inc. (PSE Ticker: FLI) 20.2% (PSE Ticker: MEG) 16.0% Vista Land and Lifescapes (PSE Ticker: VLL) 0.0% SM Development Corporation (PSE Ticker: SMDC) 0.0%

Sources: RLC, SMPH, SMDC, MEG, VLL, FLI & ALI disclosures

Appendix H – Malls in Top Performing Provinces of the Philippines for 2010

Shown below are the Top 30 Performing Provinces as determined by the Department of the Interior and Local Government based on five factors, namely: economic, social, administrative, environmental and fundamentals of good governance. Though this analysis, areas already entered into by RLC and/or SM are identified. Conversely, untapped provinces indicate potentials for expansion.

Region Top Performing Provinces SM RLC Region Top Performing Provinces SM RLC I La Union V Camarines Sur 1 I Ilocos Sur VI Antique I Quirino VI Aklan I Ilocos Norte 1 VI Negros Occidental 1 1 I Pangasinan 1 1 VII Bohol III Aurora VII Negros Oriental 1 III Zambales 1 VIII Leyte 1 III Tarlac 1 1 IX Zamboanga del Norte III Bulacan 2 1 XI Compostela IV Marinduque XI Davao Oriental 1 IV Rizal 1 1 XII Sultan Kudarat IV Laguna 3 2 XII North Cotabato IV Cavite 4 2 XII South Cotabato V Camarines Norte Caraga Agusan del Norte 1 V Albay 1 Caraga Surigao del Norte

SM RLC

Total number of Top Performing Provinces with RLC or SM retail centers 10 12

Sources: Department of Interior and Local Governemnt, SMPH disclosures, RLC disclosures

Appendix I – Foot Traffic in Major Malls

Average Major Competitors Daily Foot Sources Traffic SMPH 3,000,000 SMPH 2010 Annual Report RLC 333,333 RLC Website; Computed from an annual foot traffic of 120M ALI (Ayala Center) 464,286 “The New Greenbelt”, BusinessWorld, January 2003; Averaged the daily foot traffic of 450T for weekdays and 500T for weekends ALI (Trinoma) 190,000 http://www.quezoncity.gov.ph; Averaged the daily foot traffic of 180,000-200,000 ALI (Cebu) 90,000 Cebu Holdings Corp. President Report 2011 Total 4,077,619

14 CFA Institute Research Challenge 2 Dec 2011

Appendix J – Robinsons Retail Group Brands

Robinsons Retail Group is the second largest multi-format retailer in the Philippines. The Robinsons Retail Group creates synergy with RLC’s Commercial Centers by attracting mall patrons using a varied range of store brands that transcend all market profiles.

Store Name Store Type Store Name Store Type Department Store Topshop offering a full range of Popular High Street Topman Robinsons merchandise that Fashion specialty brands Dorothy Perkins Department Store anchors on fashion, for stylish men and Warehouse home, and lifestyle women Trucco items Supermarket that gives emphasis to the growing The world’s largest toy market of health, fitness store, carries the most Robinsons and wellness in-demand toys, games, Toys R Us Supermarket enthusiasts; offers its baby products, sporting consumers the goods, and electronic

proposition of “eat well, gadgets spend less” An upscale hardware Hardware store with a store which carries one- warehouse template; of-a-kind lifestyle Handyman Do It offers a wide range of products for hobbyist True Value Best Home Center merchandise for such as outdoor contractors and enthusiasts, gardening designers and automotive aficionados An electronics store which has sought-after brands in technology, Robinsons audio-video and home

Appliances appliances, including mobile phones, digital cameras, music players, and laptops.

Sources: Robinsons Retail Group Careers website, JG Summit website

Appendix K – Competitive Analysis of Hotels Segment

Location Pasig City Pasig City Tagaytay City Cebu City Mandaluyong City Classification Deluxe Deluxe Deluxe Standard Economy Room Rates Php 4,105 Php 3,945 Php 5,297 Php 2,885 Php 928 Key Competitors Discovery Suites Linden Suites Taal Vista Crown Regency; Kabayan Hotel (First Class) (First Class) (First Class) Marriott (Standard) (Economy) Average Deluxe First Class Deluxe First Class Deluxe Standard Economy Competitor Rates Php 6,500 Php3,581 Php 6,500 Php3,581 Php 5,717 Php 3,999 Php 1,208

Sources: RLC disclosures, Department of Tourism Accreditation Division, online booking websites

15 CFA Institute Research Challenge 2 Dec 2011

Appendix L – Residential Market Price Analysis

The following tables list the prices of selected RLC projects and key competitors per location.

Ortigas - Affordable Size Price per Developer Project Name Floors Price (sqm) sqm RLC The Pearl Place 37 24 1,610,000 67,083 Cityland Grand Emerald Tower 39 20 1,500,000 75,000 Pyramid Construction and Engineering Corp ADB Avenue Tower 35 26 2,080,000 80,000

Ortigas – Low Rise Size Price per Developer Project Name Floors Price (sqm) sqm RLC Vimana Verde Residences 7 72 5,158,000 71,639

Pioneer, Mandaluyong – Low Rise Size Price per Developer Project Name Floors Price (sqm) sqm RLC Gateway Garden Heights 33 32.78 2,342,918 71,474 RLC The Gateway Regency 28 31.4 2,400,000 76,433

DMCI Flair Towers 41 29 2,296,000 79,172 RLC Axis Residences 41 24 1,920,000 80,000 SMDC Light Residences 40 20 1,800,000 90,000 Empire East Land Holdings Inc. Pioneer Woodlands 30 26 2,645,285 101,742

Cubao, Quezon City Size Price per Developer Project Name Floors Price (sqm) sqm RLC Escalades 12 49.5 2,900,000 58,586 DMCI Accolade 6 48 3,503,000 72,979 MEG Manhattan Heights 43 24 2,400,000 100,000

Aurora Boulevard, Quezon City Price per Developer Project Name Floors Size (sqm) Price sqm RLC Magnolia Residences 38 36 2,933,848 81,496 SMDC Princeton Residences 37 23.47 1,987,000 84,661

Makati Central Business District Price per Developer Project Name Floors Size (sqm) Price sqm Century Properties Grand Soho Makati 43 96 7,000,000 72,917 Geo Estate Development Corporation The Beacon 42 63 5,781,000 91,762 MEG Greenbelt Chancellor 35 36 3,440,021 95,556 MEG Two Central 35 62 6,000,000 96,774 Federal Land The Grand Midori 32 39 3,847,684 98,659 MEG Greenbelt Madisons 31 36.3 3,637,260 100,200 Eton Properties Eton Residences Greenbelt 39 60.28 6,200,000 102,853 ALI Senta 39 32 3,300,000 103,125 Federal Land Oriental Place 35 23 2,380,000 103,478 MEG San Lorenzo Place 36 35 3,643,905 104,112 RLC Signa Designer Residences 29 36 3,761,523 104,487 Eton Properties Eton Parkview Greenbelt 34 48 5,100,000 106,250 VLL Laureano di Trevi Towers 35 20.4 2,242,744 109,938 VLL KL mosaic at Legaspi 32 24 2,640,366 110,015 VLL The Gallery Salcedo Village 32 22 2,560,321 116,378 Century Properties Centuria Medical Arts Building 30 30 3,600,000 120,000 Century Properties Gramercy Residences 80 27 3,272,541 121,205 ALI Park Terraces 49 37 4,670,000 126,216 Century Properties Milano Versace Residences 53 47.2 6,000,000 127,119 Century Properties The Knightsbridge Residences 50 26.1 3,391,514 129,943 Kingdom Hotel Investments The Raffles Manila 30 82 11,200,000 207,317

Sources: Advertisements, brochures, Condo-hunter.com

16 CFA Institute Research Challenge 2 Dec 2011

Appendix M - Residential Segment Brand Architecture

Target Market City dwellers, retirees from Urban professionals with a Middle income families Young couples looking to buy overseas live-work-play lifestyle their first homes Locations Prime Within business districts and At the periphery of CBDs Urbanized cities outside of prime locations and suburban locations Metro Manila Type of Development Low density vertical or Mid to high-rise mixed-use Low to mid rise compact Themed subdivision with horizontal developments developments condos w/ large open spaces option for house construction Key Competitors ALI (Alveo Brand), Century MEG SMDC; DMCI Local developers

Source: RLC disclosures

17 CFA Institute Research Challenge 2 Dec 2011

Appendix N - References

1 National Statistical Coordination Board. "National Accounts of the Philippines." May 2011. National Statistical Coordination Board. 7 November 2011 .

2 National Statistical Coordination Board. "National Accounts of the Philippines." May 2011. National Statistical Coordination Board. 7 November 2011 .

3 The World Bank. "Migration and Development Brief." 1 December 2011. The World Bank. 16 January 2012 .

4 Remo, Michelle V. WB sees OFW Remittances Rising to $23B in 2011. 1 December 2011. 8 December 2011 .

5 Hamlin, Michael Allan. "IT-BPO Road Map 2011-2016: Driving to Global Leadership." The Philippine Business Process Outsourcing Newsletter January 2011: 1-2.

6 Euromonitor International. Travel and Tourism in the Philippines. June 2011. 1 December 2011 .

7 National Statistical Coordinaton Board. "Derived Indicators." 2011. National Statistical Coordination Board. 10 January 2012 .

8 Charles Colon. Philippines: Banking on Tourism. 12 January 2012. 18 January 2012 .

9 Central Bank of the Philippines. "Philippines: Selected Domestic Interest Rates." November 2011. Banko Sentral ng Pilipinas. 12 January 2012 .

10 Central Bank of the Philippines. "Highlights of the Meeting of the Monetary Board on Monetary Policy Issues." 1 December 2011. Bangko Sentral ng Pilipinas. 12 January 2012 .

11 Reuters. “Malling Consumes Shoppers in the Philippines.” 24 August 2008. Reuters. 23 November 2011 .

12 Euromonitor International. "Retailing in the Philippines." 2011.

13 National Statistical Coordination Board. "National Accounts of the Philippines." May 2011. National Statistical Coordination Board. 7 November 2011 .

14 Department of the Interior and Local Government. "2010 State of Performance: Provinces in the Philippines." 1 August 2011. Local Governance Performance Management System. 6 December 2011 .

15 SM Development . "SM Development ." 2011. SM Develoment Annual Report 2010 - Scaling New Heights. 31 October 2011 .

16 Colliers International. Philippine Property Market Update 3Q11. Makati City: Colliers International, 2011.

17Samaniego, Theresa S. Property Developers Cash in on BPO Boom. 17 June 2011. 25 November 2011 .

18 Salazar, Tessa R. BPO Demand High, Top Developers in Construction 'Frenzy'. 25 November 2011. 28 November 2011 .

19 Robinsons Land Corporation. Robinsons Land Office Buildings. 2011. 27 October 2011 .

20 "RLC Investment Briefing." 2011. 18 CFA Institute Research Challenge 2 Dec 2011

21 Interview with PEZA Polaris Investments. 24 November 2011.

22 National Statistical Coordination Board. Philippine Tourism Satellite Account (PTSA). December 2011. 10 January 2012 .

23 "Department of Tourism Main Portal." 26 August 1992. 27 October 2011 .

24 McIntosh, Robert. "2011 Investment Strategy: What Every Developer Should Know." 27 September 2011. CBRE Vietnam. 8 November 2011 .

25 Dumlao, Doris C. "Filinvest to put up budget hotel chain." Philippine Daily Inquirer 29 May 2011.

26 McIntosh, Robert. "2011 Investment Strategy: What Every Developer Should Know." 27 September 2011. CBRE Vietnam. 8 November 2011 .

27 Euromonitor International. "Travel Accommodation - Philippines." 2011.

28 Salazar, Tessa R. "Affordable condos gain foothold in metro." Philippine Daily Inquirer 2 December 2011.

29 Housing and Land Use Regulatory Board. Questions Concerning the Implementing Rules and Regulations of PD 957 and BP 220. 2010. 2 December 2011 .

30 Megaworld Corporation. Megaworld Corporation 2010 Annual Report. Annual Report. Makati City: Megaworld Corporation, 2011.

31 Vista Land and Lifescapes, Inc. 2010 Annual Report. Annual Report. San Juan: Vista Land and Lifescapes, Inc., 2011.

32 DMCI Homes, Inc. DMCI Homes 2010 Annual Report. Annual Report. Quezon City : DMCI Homes, Inc, 2011.

33 SM Development . "SM Development ." 2011. SM Develoment Annual Report 2010 - Scaling New Heights. 31 October 2011 .

34 Colliers International. Philippine Property Market Update 3Q11. Makati City: Colliers International, 2011. —. "Philippine Property Market Update 3Q11." 2011.

35 abs-cbnNEWS.com. Ayala Land Goes into Socialized Housing. 31 August 2011. 20 November 2011 .

36 Colliers International. Philippine Property Market Update 3Q11. Makati City: Colliers International, 2011. —. "Philippine Property Market Update 3Q11." 2011.

37 Colliers International. Philippine Property Market Update 3Q11. Makati City: Colliers International, 2011. —. "Philippine Property Market Update 3Q11." 2011.

38 "RLC Company Presentation." 2011. .

19