Fulfilling Dreams 2009 Integrated Annual and Sustainability Report Cover Rationale Ayala Land has always believed in sustainable development. We achieve this through a firm commitment to equitable growth that balances our responsibilities to our investors while minimizing our environmental footprint as a major property developer. We also recognize the needs of the broader base of aspiring homeowners beyond our core markets who are less financially capable but are driven by dreams to one day live in their own homes and be part of Ayala Land communities. We intend to pursue these opportunities aggressively by investing in new technologies and participating in partnerships that will allow us to create relevant real estate products and contribute significantly to meaningful change through social development. What’s Inside? Table of Contents 2009 in Review GRI Sustainability Report 2 Year in Summary 74 Sustainability Management 6 Chairman’s Message 80 Environmental Stewardship 10 President’s Message and Impact Reduction 17 CFO and Compliance Officer’s Report 100 Community Stewardship and Social Development Our Businesses 106 Personnel Development, Health and Safety 26 Growth Centers 116 Market Shaping 32 Residential 122 The Journey Ahead 38 Malls, Offices and Hotels 124 Stakeholders’ Commentaries 44 Construction and Property Management 126 Sustainability Awards and Recognition 128 GRI Index Corporate Governance 50 Board of Directors Financial Review 54 Management Committee 132 Management’s Discussion and Analysis 56 Corporate Governance Report of Financial Results 69 Risk Management Report 136 Report of the Audit and Risk Committee to the Board of Directors 137 Statement of Management’s Responsibility 138 Report of Independent Auditors 139 Financial Statements 147 Notes to Financial Statements 208 Subsidiaries and Affiliates 210 Key Officers and Consultants Vision and Mission Enhancing Land and Enriching Lives, for More People Our vision is to enhance our standing and reputation as the Philippines’ leading real estate developer, and to be a strong partner in nation building. By developing integrated, masterplanned and sustainable mixed-use communities in vibrant growth centers all over the country, we strive to continually elevate the quality of life for all of our customers. We shall be a responsible corporate citizen and act with integrity, foresight and prudence. We shall empower our employees to deliver products that exceed our customers’ expectations and build long-term value for our shareholders. About this Integrated Annual and Sustainability Report This is the first time that Ayala Land, Inc. is releasing In addition, the sustainability portion of this report an Integrated Annual and Sustainability Report. will contain reviews and commentaries from representatives of some of our most important Sustainable development has always been one of our stakeholders. Their views are their own, and based key guiding principles and in 2008, we formalized strictly on their experience and understanding of how this approach with the publication of our first we conduct our business as a Company. We believe Sustainability Report covering our initiatives and that the inclusion of this additional feedback makes performance in 2007. This was a self-declared C-level this integrated report much more meaningful. report which complied with the guidelines of the Global Reporting Initiative (GRI). Last year, we issued A feedback form has been included in this report our second Sustainability Report, which took a step and we hope that you can share your views and further and was published in accordance with GRI comments with us. We intend to keep improving the B-level guidelines, and where we reported on a total standards of both our sustainability practices and of 23 GRI performance indicators. reporting in the years to come and your feedback is a very important part of this process. Alternatively, you As we continue to more closely integrate and may also contact us about this report and its contents embed sustainability concepts and practices into our via email at [email protected]. strategies and business models, we have deemed it appropriate to issue a single, fully-integrated report which covers the financial as well as the environmental and social aspects of our Company’s performance in 2009. This report remains compliant with GRI B-level guidelines and we are proud to have continued our progression as we are now reporting on a total of 37 GRI performance. Ayala Land, Inc. 2009 Integrated Annual and Sustainability Report 1 How did we do? Year in Summary “With the prospect of a challenging and volatile 2009, we adopted a measured and conservative approach to our product launches. Despite this, we maintained our strong financial performance and generated the highest one-year return for our shareholders in 15 years.” Total Shareholder Return (TSR) Shareholder Returns see p.6 2009 76% 2008 -55% 76% 1 2007 12% Total Shareholder Return 2006 55% 2005 39% Our TSR for 2009 was a 15-year high. Net Income and Return on Equity Financial Performance see p.132 4,039 2009 8.0% 4,812 2008 P4.0 B 10.2% Net Income After Tax 2 4,386 2007 10.2% Core net income nearly matched record NIAT ROE level achieved in 2008. Capital Expenditure Growth Centers see pp.26 and 132 7% 8% Residential 8% Strategic Landbank P16.2 B Shopping Centers Capital expenditure 60% 3 17% Corporate Business Geographic Businesses We spent Php16.2 billion for the completion of committed projects and expansion into new growth centers. 2 Fulfilling Dreams Year in Summary Year Number of Units Launched Residential Development see pp.32 and 132 2009 2,229 2008 4,238 33,749 2,229 5,182 2007 4,636 Residential units launched Messages 2006 3,565 4,636 4 2005 3,565 Project launches were deliberately slowed down in expectation of soft market conditions. Total Gross Leasable Area (‘000 sqm) Leasing Portfolio see pp.38 and 132 Our Businesses 2009 994 349 1,343 2008 975 292 1,267 1.3M 2007 972 127 1,099 Square meters of total GLA for malls and office buildings 2006 760 110 870 5 Governance 2005 754 98 850 Our leasing portfolio expanded 6% with the addition of MarQuee Mall and 4 BPO Shopping Center Office buildings at U.P.-AyalaLand TechnoHub. Net Operating Income (NOI) Margins Operating Margins see pp.17 and 132 Sustainability 34% 34% 32% 31% 32% NOI Margins 30% 6 Margin improvement was a result of cost Financial Review 2005 2006 2007 2008 2009 control measures, project savings, and improved operating efficiencies. Sustainability Reporting see p.74 For the year, we: • Created the Board Sustainability Committee 61% • Established multi-year targets for Increase in GRI performance indicators environmental, social and economic reported 7 sustainability We maintained GRI B-Level reporting but • Rolled out ALI Green Training Series increased the indicators from 23 to 37, and included stakeholders’ commentaries. Ayala Land, Inc. 2009 Integrated Annual and Sustainability Report 3 Perspectives on 2009 and beyond Messages Chairman’s Message President’s Message CFO and Compliance Officer’s Report Chairman’s Message Fernando Zobel de Ayala My fellow stockholders, Chairman hat a difference a year makes. Just twelve months ago, real estate Wmarkets all over the world were gripped by fear and panic, causing asset prices to collapse in many major economies. Our own property market experienced a brief crisis of confidence in the first quarter of 2009 which affected both overseas and domestic Key Points buyers. This prompted your Company to take a • Macroeconomic fundamentals remain conservative posture which was oriented more stable and supportive towards the preservation of liquidity and the • Real estate market resilient, completion of existing project commitments, with strong demand rather than the aggressive launch of new • 2009 a transitional year, with a new products. strategy in place • 76% TSR highest in 15 years; cash As the year progressed, however, we started to get dividends to increase a clearer sense of the impact of the crisis. Major • Will retain industry leadership in economies remained in a state of recession, but many sustainability keen observers began to realize that the worst was likely over, that the coordinated stimulus packages of central banks all over the world had stabilized the markets, and that the correction in asset markets had bottomed. 6 Fulfilling Dreams Year in Summary Year “It is estimated that more than half of the US$17.3 billion in remittance flows received in 2009 will end up having Messages a positive impact on the real estate industry, either being spent directly on residential purchases or property- supporting industries such as retail.“ Our Businesses In the Philippines, demand for higher-end residential remittance flows received in 2009 will end up having a projects slowed down in the fourth quarter of 2008 positive impact on the real estate industry, either being Governance and the first quarter of 2009, but prices did not spent directly on residential purchases or property- correct in any meaningful fashion and neither was supporting industries such as retail. Credit, meanwhile, there any evidence of a spike-up in secondary market remains highly affordable and available, especially sales. This, to us, was a clear indication that both when one considers the very high amounts of liquidity macroeconomic and industry fundamentals were, in being kept in the banks and in special deposit accounts fact, robust and resilient. It also meant that demand with the Bangko Sentral ng Pilipinas. Sustainability would likely recover quickly once buyers realized that the corrections experienced during the Asian crisis a As far as the real estate sector is concerned, we also decade ago were not going to be repeated. believe that there was no bubble to burst simply because we did not build one in the preceding five Strong industry fundamentals years, unlike many other areas around the world.