SHAPING A BETTER TOMORROW Conrad Hotel Vision To build and manage innovative integrated property developments that are catalysts for a better quality of life. Mission We will serve the ever changing needs and aspirations of our customers, provide opportunities for the professional growth of our employees, foster social responsibility in the communities we serve, enhance shareholder value for our investors and ensure that everything we do safeguards a healthy environment for future generations. About the Cover The Mall of Asia (MOA) Complex, one of SM Prime’s biggest investments, was planned with resiliency in mind. Special considerations were taken in the planning of this project to ensure that it can withstand major disasters that can come to the area. Read more on page 29. 2 At a Glance Financial Highlights Message to Shareholders President’s Report 10 Our Businesses Malls Residences Offices Hotels and Convention Centers 29 Our Community Sustainability Report Summary Building for Resilience: Mall of Asia Complex SM Cares 36 Our Company Contents Corporate Governance Board of Directors Corporate Executives Awards and Accolades Corporate Information 51 Financial Reports Management’s Discussion and Analysis Audit and Risk Management Report Auditor’s Report Consolidated Financials 2 SM Prime Holdings, Inc. SM Prime at a Glance Fast Facts • 60 Malls in the Philippines • 7 Malls in China • 9.0 million sqm total Gross Floor Area Malls • 43 Residential Projects • 102,424 Residential Units (since 2003) Residences • 6 Office Buildings • 383,084 sqm total Gross Floor Area Offices • 6 Hotels • 1,510 Hotel Rooms • 4 Convention Centers and Hotels & Convention 3 Trade Halls Centers 2016 Annual Report 3 Consolidated Financial Highlights Revenues Operating Income Php48.6 Billion* Php25.8 Billion Grew by Grew by 9.1% 8.8% Php208.5 Billion Total Investment Properties Php25.4 Billion* Php7.1 Billion Grew by Grew by 12.6% 16.9% Php110.5 Billion Total Assets Php2.7 Billion* Php2.1 Billion Increased by Grew by 32.4% 56.9% Php32.6 Billion Total Investment Properties Php3.2 Billion Php0.5 Billion Increased by Grew by 31.5% 8.2% Php10.4 Billion Total Investment Properties *Revenues per segment in 2015 have been reclassified to conform with 2016 presentation. 4 SM Prime Holdings, Inc. Financial Highlights 2016 2015 2014 Balance Sheet Highlights (in PHP millions) Total Assets 465,560 434,966 388,840 Investment Properties 251,499 230,340 192,639 Total Debt 164,378 155,668 129,283 Net Debt 138,258 128,955 93,070 Total Stockholders’ Equity 231,481 212,489 199,088 Income Statement Highlights (in PHP millions) Revenues 79,816 71,511 66,240 Cost and Expenses 44,551 40,072 38,554 Operating Income 35,265 31,439 27,687 Net Income* 23,806 20,892 18,390 EBITDA 42,517 37,815 33,760 Financial Ratios Debt to Equity 42:58 42:58 39:61 Net Debt to Equity 37:63 38:62 32:68 Return on Equity 0.11 0.10 0.10 Debt to EBITDA 3.87 4.12 3.83 EBITDA to Interest Expense 9.64 11.19 8.24 Operating Income to Revenues 0.44 0.44 0.42 EBITDA Margin 0.53 0.53 0.51 Net Income to Revenues 0.30 0.29 0.28 Revenue Profile** Malls 61% 62% 61% Residences 32% 32% 34% Offices 3% 3% 2% Hotels and Conventions 4% 3% 3% Asset Profile** Malls 67% 66% 65% Residences 24% 25% 27% Offices 7% 7% 6% Hotels and Conventions 2% 2% 2% Market Capitalization 818,726 626,679 492,100 Dividends Paid 6,642 6,065 5,286 *Excluding one-time gain on sale of AFS in 2015 **Revenue and Asset Profile in 2014 and 2015 have been reclassified to conform with 2016 presentation 2016 Annual Report 5 Financial Highlights 79,816 23,806 2016 2015 2014 71,511 20,892 Balance Sheet Highlights (in PHP millions) 66,240 18,390 Total Assets 465,560 434,966 388,840 Investment Properties 251,499 230,340 192,639 Total Debt 164,378 155,668 129,283 Net Debt 138,258 128,955 93,070 2014 2015 2016 2014 2015 2016 Total Stockholders’ Equity 231,481 212,489 199,088 Revenues Net Income Income Statement Highlights (in PHP millions) Revenues 79,816 71,511 66,240 Cost and Expenses 44,551 40,072 38,554 42,517 465,560 Operating Income 35,265 31,439 27,687 37,815 434,966 Net Income* 23,806 20,892 18,390 33,760 388,840 EBITDA 42,517 37,815 33,760 Financial Ratios Debt to Equity 42:58 42:58 39:61 Net Debt to Equity 37:63 38:62 32:68 2014 2015 2016 2014 2015 2016 Return on Equity 0.11 0.10 0.10 EBITDA Assets Debt to EBITDA 3.87 4.12 3.83 EBITDA to Interest Expense 9.64 11.19 8.24 35,245 231,481 Operating Income to Revenues 0.44 0.44 0.42 212,489 EBITDA Margin 0.53 0.53 0.51 25,870 199,088 Net Income to Revenues 0.30 0.29 0.28 25,201 Revenue Profile** Malls 61% 62% 61% Residences 32% 32% 34% 2014 2015 2016 2014 2015 2016 Offices 3% 3% 2% Cash and Cash Equivalents Equity Hotels and Conventions 4% 3% 3% Asset Profile** Malls 67% 66% 65% 818,726 6,642 Residences 24% 25% 27% 626,679 6,065 Offices 7% 7% 6% 492,100 5,286 Hotels and Conventions 2% 2% 2% Market Capitalization 818,726 626,679 492,100 Dividends Paid 6,642 6,065 5,286 2014 2015 2016 2014 2015 2016 *Excluding one-time gain on sale of AFS in 2015 Market Capitalization Dividends Paid **Revenue and Asset Profile in 2014 and 2015 have been reclassified to conform with 2016 presentation 6 SM Prime Holdings, Inc. Message to Shareholders To Our Valued Shareholders, Moving forward, SM Prime will continue to grow and create value by proactively identifying areas On behalf of the Board of Directors and of growth opportunities, aligning our strategies Management, I would like to thank you for your and resources to these opportunities, and carefully continued support in 2016. executing our business plans. In the last few years, we have opened more malls in the provinces as we SM Prime’s strategy as an integrated property see increase in income and development in these developer since our consolidation in 2013 has areas. We will continue this strategy, even for our proven highly successful as demonstrated by the other businesses - hotels, BPOs and residences. company’s leading market position and overall This aligns well with the government’s nationwide financial performance in 2016. SM Prime’s net investment priorities and we expect to increase income growth of 14% to Php23.8 billion reflects the momentum of our regional growth as a result. the success of our focus on increasing recurring income, supported by the solid performance of In Metro Manila, we leverage our malls as the residential business. SM Prime is now one anchors to integrated lifestyle developments. of the highest profitable publicly listed companies This synergy among our property businesses is in the Philippines and has emerged as the largest most evident in the Mall of Asia Complex where company in terms of market capitalization at we recently added the Conrad Hotel, a 347-room Php818.7 billion as of 31 December 2016, luxury hotel, in June 2016. Additional office and reflecting investors’ confidence in our business residential buildings are also on-going construction model and strategies. in the area, along with the expansion and 2016 Annual Report 7 “SM Prime will continue to grow and create value by proactively identifying areas of growth opportunities, aligning our strategies and resources to these opportunities, and carefully executing our business plans.” redevelopment of SM Mall of Asia. Similar strategy and innovative strategies across our property is carried out in other malls like SM Megamall, developments. SM North EDSA and SM Fairview to maximize utilization and value of available resources. We would like to express our deepest appreciation to our former President, Mr. Hans Our growth and expansion also continue in T. Sy, who continues to guide our company as China as we remain optimistic about its economy. Chairman of the Executive Committee. For almost Every new mall we open, the seventh and most 12 years of his leadership, SM Prime significantly recent one being SM Tianjin which we opened increased its presence and overall impact in the last December 2016, adds to our understanding Philippines and spearheaded our expansion in of the Chinese consumer and retail opportunities. China. This allows us to continue our cautious growth in China and to capture further opportunities as we We also extend our appreciation to our seek to be an international property developer Board of Directors for their wisdom and guidance. over time. We commend the leadership of the management team and loyalty of our employees. We would On our residential business, SM Development also like to express our sincere gratitude to our Corp (SMDC) will continue to deliver attractive urban shareholders, customers and business partners for lifestyles that meet the growing aspirations of young their continued support and commitment. We look professionals and start-up families. In 2016, it posted forward to another fruitful year of partnership. high reservation sales growth of 21%, one of the highest among high-rise developers. We have also started to expand SMDC’s product line-up to include mid-rise buildings and single detached house and lot developments recognizing the larger opportunity of broad housing needs across all segments in the Philippines.