The Prospectus is being displayed in the website to make the Prospectus accessible to more investors. The Philippine Stock Exchange, Inc.

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1 The Prospectus is being displayed in the website to make the Prospectus accessible to more investors. The Philippine Stock Exchange, Inc. ( PSE ) assumes no responsibility for the correctness of any statements made or opinions or reports expressed in the Prospectus. Furthermore, the PSE makes no representation as to the completeness of the Prospectus and disclaims any liability whatsoever for any loss arising from or in reliance in whole or in part on the contents of the Prospectus.

2 Subject to Completion PRELIMINARY PROSPECTUS CEBU LANDMASTERS, INC. (A corporation organized and existing under Philippine laws) Prospectus relating to the Primary and Secondary Offer of up to [505,000,000] Common Shares with an Over-allotment Option of up to [75,000,000] Common Shares at the Offer Price of [up to P6.56] per Offer Share to be listed and traded on the Main Board of The Philippine Stock Exchange, Inc. ISSUE MANAGER JOINT LEAD UNDERWRITERS AND BOOKRUNNERS PARTICIPATING UNDERWRITERS [ ] This Preliminary Prospectus is dated as of [April 18, 2017] 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.

3 CEBU LANDMASTERS, INC. 10th Floor, Park Centrale Tower Cebu I.T. Park, J.M. Del Mar Street Lahug, Cebu City Tel: Fax: This Prospectus relates to the offer and sale to the public of [up to 505,000,000] new and existing common shares (the Firm Offer, and such shares, the Firm Shares ), with a par value of P1.00 per share (the Common Shares ), of Cebu Landmasters, Inc., a corporation organized under Philippine law ( CLI, or the Company or the Issuer ). The Firm Shares will comprise of (i) up to [430,000,000] new Common Shares to be issued and offered by the Company by way of a primary offer (the Primary Offer, and such Common Shares subject thereof, the Primary Offer Shares ), and (ii) up to [75,000,000] existing Common Shares to be offered by Jose R. Soberano III and Ma. Rosario B. Soberano (the Selling Shareholders ) (the Secondary Offer, and the Common Shares subject thereof, the Secondary Offer Shares ). The Firm Shares shall be offered at a price of [up to 6.56] per Common Share (the Offer Price ). The determination of the Offer Price is described on page [50] of this Prospectus and is based on a book-building process and discussions between the Company, the Selling Shareholders, BDO Capital & Investments Corporation (the Issue Manager, Joint Bookrunner and Joint Lead Underwriter or BDO Capital ), and BPI Capital Corporation (the Joint Bookrunner and Joint Lead Underwriter or BPI, and together with BDO Capital, the Joint Lead Underwriters ) After the Offer (as defined below), a total of up to [1,714,000,000] Common Shares will be outstanding. The Firm Shares will represent [29.46%] of the outstanding Common Shares after the Offer. The Offer Shares (as defined below) will be listed and traded on the Main Board of The Philippine Stock Exchange, Inc. ( PSE ) under the trading symbol CLI. The Company has appointed BDO Capital to act as the stabilizing agent (the Stabilizing Agent ), with an option exercisable in whole or in part for a period beginning on the date of the initial listing of the Common Shares on the PSE (the Listing Date ) and ending on a date no later than 30 calendar days from and including the Listing Date, to purchase up to an additional [75,000,000] Common Shares at the Offer Price (the Optional Shares, and together with the Firm Shares, the Offer Shares ), on the same terms and conditions as the Firm Shares as set forth in this Prospectus, solely to cover over-allotments, if any (the Over-allotment Option ). The offer of the Offer Shares, including the Optional Shares, is referred to as the Offer. The Stabilizing Agent or any person acting on its behalf may over-allot Offer Shares or effect transactions with a view to supporting the market price of the Offer Shares at a level higher than that which might otherwise prevail for a limited period after the Listing Date. However, there is no assurance that the Stabilizing Agent (or any person acting on behalf of the Stabilizing Agent) will undertake stabilization activities. Pursuant to its amended articles of incorporation, as approved by the Board of Directors on July 1, 2016 and approved by the Securities and Exchange Commission (the SEC ) on October 24, 2016, the Company has an authorized capital stock of 2,500,000,000 divided into 2,400,000,000 Common Shares with a par value of P1.00 per Common Share and 1,000,000,000 Preferred Shares with a par value of P0.10 per Preferred Share, of which 1,284,000,000 Common Shares are outstanding as of the date of this Prospectus. The total proceeds from the sale of Primary Shares will be [2,820,800,000]. The estimated net proceeds from the sale of Primary Offer Shares (after deducting fees and expenses payable by the Company) will be approximately [2,660,000,000]. The Selling Shareholders total proceeds and estimated net proceeds (after deducting fees and expenses payable by the Selling Shareholders) to be raised from the sale of the Secondary Offer Shares and Optional Shares will be approximately [984,000,000] and [908,414,476.74], respectively, assuming full exercise of the Over-allotment Option. The Company will not receive any proceeds from the sale of the Secondary Offer Shares and Optional Shares by the Selling Shareholders. i

4 The Company intends to use the net proceeds from the Primary Offer to fund key land acquisitions, development costs for new projects, investment in joint ventures and associates, debt repayment and general corporate purposes. For a more detailed discussion on the Company s proposed use of proceeds, see Use of Proceeds on page [39] of this Prospectus. The Joint Lead Underwriters will receive a transaction fee based on the gross proceeds from the sale of the Offer Shares. This is inclusive of the amounts to be paid to the Selling Agents and other underwriters, where applicable. For a more detailed discussion on the fees to be received by the Joint Lead Underwriters, see Use of Proceeds on page [39] of this Prospectus. All of the Offer Shares issued and to be issued pursuant to this Offer have identical rights and privileges. Each holder of the Offer Shares will be entitled to such dividends as may be declared by the Company s Board of Directors. A corporation may pay dividends in cash, by the distribution of property, or by the issuance of shares. Approval of the Board of Director suffices for the declaration of cash and property dividends. However, stock dividends may be paid and distributed only upon the approval of the shareholders representing not less than 2/3 of the outstanding capital stock at a regular or special meeting called for that purpose. The payment of stock dividends is subject to the approval of the SEC and PSE. The payment of dividends in the future will depend upon the earnings, cash flow and financial condition of the Company and other factors. Special cash dividends are declared depending on the availability of cash, taking into account the Company s capital expenditures and project requirements. Under Philippine law, a corporation can only declare dividends to the extent that it has unrestricted retained earnings. However, despite the existence of unrestricted retained earnings, dividend declaration may be withheld by the Board of Directors when: (i) justified by definite corporate expansion; or (ii) when the Company is prohibited under any loan agreement with any financial institution or creditor, whether local or foreign, from declaring dividends without its consent, and such consent has not been secured; or (iii) when it can be clearly shown that the retention of earnings is necessary under special circumstances obtaining in the Company, such as when there is a need for special reserves for probable contingencies. There can be no guarantee that the Company will pay any dividends in the future. The Company has not adopted any dividend policy. See Dividends and Dividend Policy on page [48] of this Prospectus. Up to [101,000,000] or approximately 20% of the total Firm Shares are being offered to all the trading participants of the PSE (the PSE Trading Participants ), with approximately [765,100] Firm Shares being allocated to each of the 132 PSE Trading Participants. The balance of 6,800 Firm Shares will be allocated by the Joint Lead Underwriters among the PSE Trading Participants. Up to [50,500,000] Firm Shares or approximately 10% of the total Firm Shares are being offered to local small investors ( LSIs ) under the Local Small Investors Program. The remaining up to [353,500,000] Firm Shares or approximately 70% of the total Firm Shares and any Firm Shares not taken up by the PSE Trading Participants and the LSIs shall be distributed by the Joint Lead Underwriters to its clients or to the general public. Firm Shares not taken up by the PSE Trading Participants, LSIs, the Joint Lead Underwriters clients, or the general public shall be purchased by the Joint Lead Underwriters pursuant to the terms and conditions of the Underwriting Agreement. See Plan of Distribution on page [55] of this Prospectus. The Offer Shares may be owned by any person or entity regardless of citizenship or nationality, provided that no more than 40% of the capital stock outstanding and entitled to vote of the Company may be owned by foreigners. The Company owns land and is engaged in real estate development in the Philippines. Under the Philippine Constitution and related statutes, such activities are reserved for Filipino citizens or corporations or associations at least 60% of capital stock is owned by Filipino citizens. See Restriction on Foreign Ownership on page [18] of this Prospectus. As of the date of this Prospectus, the Company is 100% owned by Filipino citizens. On February 20, 2016, the Company filed a Registration Statement covering the Offer Shares with the SEC, in accordance with the provisions of the Securities Regulation Code. On [ ], the SEC issued a Pre-Effective ii

5 Letter in respect of the Company s Registration Statement. The SEC is expected to issue an Order of Effectivity and Permit to Sell. The Offer is conditioned on the listing of the Offer Shares on the PSE. On February 20, 2016, the Company filed its application for the listing and trading of the Offer Shares with the PSE. The Board of Directors of the PSE approved the listing of the common shares on [ ] subject to compliance with certain conditions. The approval for listing is merely permissive and does not constitute a recommendation or endorsement of the Offer by the PSE. The PSE assumes no responsibility for the correctness of any of the statements made or opinions expressed in this Prospectus. Furthermore, the PSE makes no representation as to the completeness and expressly disclaims any liability whatsoever for any loss arising from or in reliance upon the whole or any part of the contents of this Prospectus. The Company and the Selling Shareholders reserve the right to withdraw the offer and sale of the Offer Shares at any time, and the Joint Lead Underwriters reserve the right to reject any commitment to subscribe for the Offer Shares in whole or in part and to allot to any prospective purchaser less than the full amount of the Offer Shares sought by such purchaser. If the Offer is withdrawn or discontinued, the Company shall subsequently notify the SEC and the PSE. The information contained in this Prospectus relating to the Company and its operations has been supplied by the Company, unless otherwise stated herein. To the best of its knowledge and belief, the Company, which has taken reasonable care to ensure that such is the case, confirms that, as of the date of this Prospectus, the information contained in this Prospectus relating to it and its operations is correct, and that there is no material misstatement or omission of fact which would make any statement in this Prospectus misleading in any material respect and that the Company hereby accepts full and sole responsibility for the accuracy of the information contained in this Prospectus with respect to the same. The Company and the Joint Lead Underwriters confirm that they have exercised the required due diligence in verifying that all material information in this Prospectus, including its amendments and supplements, if any, is true and that no material information was omitted, which was necessary in order to make the statements contained herein not misleading. The Joint Lead Underwriters assume no liability for any information supplied by the Company in relation to this Prospectus. Unless otherwise indicated, all information in this Prospectus is as of the date of this Prospectus. Neither the delivery of this Prospectus nor any sale made pursuant to this Prospectus shall, under any circumstances, create any implication that the information contained herein is correct as of any date subsequent to the date hereof or that there has been no change in the affairs of the Company since such date. In making an investment decision, applicants are advised to carefully consider all the information contained in this Prospectus, including risks associated with an investment in the Offer Shares. These risks include: risks relating to the Company s existing business and industry, risks relating to the Philippines, and risks relating to the Offer and the Offer Shares. For a more detailed discussion on the risks in investing, see section on Risk Factors on page [24] 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 Offer Shares. The Offer Shares are offered solely on the basis of the information contained and the representations made in the Prospectus. No dealer, salesman or other person has been authorized by the Company or the Joint Lead Underwriters to issue any advertisement or to give any information or make any representation in connection with the Offer other than those contained in this Prospectus and, if issued, given or made, such advertisement, information or representation must not be relied upon as having been authorized by the Company or the Joint Lead Underwriters. iii

6 The distribution of this Prospectus and the offer and sale of the Offer Shares may, in certain jurisdictions, be restricted by law. This Prospectus does not constitute an offer of any securities, or any offer to sell, or a solicitation of any offer to buy any securities of the Company in any jurisdiction, to or from any person to whom it is unlawful to make such offer in such jurisdiction. The Company and the Joint Lead Underwriters require persons into whose possession this Prospectus comes, to inform themselves of and observe all such restrictions. Each investor in the Offer Shares must comply with all laws applicable to it and must obtain the necessary consent, approvals or permission for its purchase or subsequent offer and sale of the Offer Shares under the laws and regulations in force in any jurisdiction to which it is subject. Neither the Company nor the Joint Lead Underwriters will have any responsibility therefore. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, BUT HAS NOT YET BECOME EFFECTIVE. THESE SECURITIES MAY NOT BE SOLD NOR OFFERS TO BUY THEM BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT IS RENDERED EFFECTIVE. THIS COMMUNICATION SHALL NOT CONSTITUTE AN OFFER TO SELL OR BE CONSIDERED A SOLICITATION TO BUY. CEBU LANDMASTERS, INC. By: JOSE R. SOBERANO III Chairman, President and CEO REPUBLIC OF THE PHILIPPINES ) [ ] CITY ) SS. SUBSCRIBED AND SWORN to before me this in the City of [ ], Philippines, affiant exhibiting to me the following as competent evidence of identity: NAME GOVERNMENT ISSUED I.D. DATE AND PLACE OF ISSUE Jose R. Soberano III Phil. Passport EB Doc. No. ; Page No. ; Book No. ; Series of iv

7 No representation or warranty, express or implied, is made by the Company, the Selling Shareholders, the Joint Lead Underwriters, regarding the legality of an investment in the Offer Shares under any legal, investment or similar laws or regulations. The contents of this Prospectus are not investment, legal or tax advice. Prospective investors should consult their own counsel, accountant and other advisors as to legal, tax, business, financial and related aspects of a purchase of the Offer Shares. In making any investment decision regarding the Offer Shares, prospective investors must rely on their own examination of the Company and the terms of the Offer, including the merits and risks involved. Any reproduction or distribution of this Prospectus, in whole or in part, and any disclosure of its contents or use of any information herein for any purpose other than considering an investment in the Offer Shares is prohibited. Conventions which apply to this Prospectus In this Prospectus, unless otherwise specified or the context otherwise requires, all references to the Company are to the Issuer and its subsidiaries and affiliates (or the Issuer and any one or more of its subsidiaries or affiliates, as the context may require). All references to the Philippines are references to the Republic of the Philippines. All references to the Government are to the national government of the Philippines. The items expressed in the Glossary of Terms may be defined otherwise by appropriate government agencies or regulations from time to time, or by conventional or industry usage. BASIS FOR CERTAIN INDUSTRY DATA Market data and certain industry information used throughout this Prospectus were obtained from internal surveys, market research, publicly available information and industry publications. Industry publications generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. This Prospectus also contains industry information that was prepared from independent market research conducted by Santos Knight Frank 1 to provide an overview of the real estate market in Cebu. However, there is no assurance that such information is accurate or complete. Similarly, internal surveys, industry forecasts and market research, while believed to be reliable, have not been independently verified and neither the Company, any of the Selling Shareholders nor the Joint Lead Underwriters make any representation as to the accuracy and completeness of such information. PRESENTATION OF FINANCIAL INFORMATION The Company s consolidated financial statements are reported in Philippine Pesos and are prepared based on its accounting policies, which are in accordance with the PFRS issued by the Financial Reporting Standard Council of the Philippines. PFRS include statements named PFRS and Philippine Accounting Standards, and Philippines Interpretations from International Financial Reporting Interpretations Committee. Figures in this Prospectus have been subject to rounding adjustments. Accordingly, figures shown in the same item of information may vary, and figures which are totals may not be an arithmetic aggregate of their components. The Company s fiscal year begins on January 1 and ends on December 31 of the year. Punongbayan & Araullo, the Company s independent auditor, has audited and rendered unqualified audit reports on the Company s consolidated financial statements as at December 30, 2016 and December 31, 2015 and for the years ended December 31, 2014 and Formerly known as CB Richard Ellis Philippines, Inc. or CBRE Philippines v

8 FORWARD-LOOKING STATEMENTS This Prospectus includes forward-looking statements that are, by their nature, subject to significant risks and uncertainties. These forward-looking statements include, without limitation, statements relating to: known and unknown risks; uncertainties and other factors that may cause the Company s actual results, performance or achievements to be materially different from any future results; and performance or achievements expressed or implied by forward-looking statements. Important factors that could cause some or all of the assumptions not to occur or result in performance or achievements materially different from those in the forward-looking statements include, among other things: the Company s ability to successfully implement its strategies; the Company s ability to anticipate and respond to economic and market trends, including changes in the Philippine, Asian or global economies; changes in interest rates, inflation rates and foreign exchange rates of the Peso against other currencies; and changes in the laws, rules and regulations, including tax laws and licensing requirements, in the Philippines. The Company has based these forward-looking statements largely on its current expectation and projections about future events and financial trends affecting its business and operations. Words including, but not limited to believe, may, will, estimates, continues, anticipates, intends, expects, and similar words are intended to identify forward-looking statements. In addition, all statements other than statements of historical facts included in this Prospectus are forward-looking statements. Statements in the Prospectus as to the opinions, beliefs and intentions of the Company accurately reflect in all material respects the opinions, beliefs and intentions of its management as to such matters as of the date of this Prospectus, although the Company gives no assurance that such opinions or beliefs will prove to be correct or that such intentions will not change. This Prospectus discloses, under the section Risk Factors and elsewhere, important factors that could cause actual results to differ materially from the Company s expectations. All subsequent written and oral forwardlooking statements attributable to the Company or persons acting on behalf of the Company are expressly qualified in their entirety by the above cautionary statements. In light of the risks and uncertainties associated with forward-looking statements, prospective investors should be aware that the forward-looking events and circumstances in this Prospectus may or may not occur. The Company s actual results could differ significantly from those anticipated in the Company s forward-looking statements. vi

9 TABLE OF CONTENTS GLOSSARY OF TERMS... 1 EXECUTIVE SUMMARY... 6 SUMMARY OF THE OFFER SUMMARY FINANCIAL AND OPERATING INFORMATION RISK FACTORS USE OF PROCEEDS DESCRIPTION OF THE SHARES DIVIDENDS AND DIVIDENDS POLICY DETERMINATION OF OFFER PRICE DILUTION PRINCIPAL AND SELLING SHAREHOLDERS PLAN OF DISTRIBUTION CAPITALIZATION AND INDEBTEDNESS MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND FINANCIAL PERFORMANCE BUSINESS OVERVIEW LEGAL PROCEEDINGS INDUSTRY OVERVIEW BOARD OF DIRECTORS AND SENIOR MANAGEMENT RELATED PARTY TRANSACTIONS THE PHILIPPINE STOCK MARKET REGULATORY FRAMEWORK TAXATION LEGAL MATTERS INDEPENDENT AUDITORS ANNEXES Audited Financial Statements of the Company as of and for the years ended December 31, 2016, 2015 and Santos Knight Frank Real Estate Industry Study dated September 16, vii

10 GLOSSARY OF TERMS In this Prospectus, unless the context otherwise requires, the following terms shall have the meanings set out below. AB Soberano Applicant Application Ascott Banking Day Base Line Center BDO BDO Capital BDO Trust BERDE BIR Board or Board of Directors BOI AB Soberano Holdings Corp. (formerly known as A B Soberano International Corporation) A person, whether natural or juridical, who seeks to subscribe to the Firm Shares by submitting an Application under the terms and conditions prescribed in this Prospectus. A subscription for the Firm Shares. As used in this Prospectus, Scott Philippines, Inc., a wholly owned subsidiary of The Ascott Limited. A day (except Saturdays, Sundays and holidays) on which banks in Makati and Cebu City, Philippines are open for business. A mixed-use development which includes Base Line Premier, Base Line HQ and Citadines Cebu City. BDO Unibank, Inc. BDO Capital & Investment Corporation; also referred to as Issue Manager and/or Joint Lead Underwriter and/or Underwriter. BDO Unibank, Inc. Trust and Investments Group Securities Services and Corporate Agencies Department. Building for Ecologically Responsible Design Excellence. Bureau of Internal Revenue. The Board of Directors of the Company. Board of Investments. BP 220 Batas Pambansa Blg BPI Capital BPO BSP Building Code Capex Cebu CDO CLI BPI Capital Corporation; also referred to as a Joint Lead Underwriter and/or Underwriter. Business process outsourcing. Bangko Sentral ng Pilipinas, the central bank of the Philippines. Presidential Decree No. 1096, or the National Building Code of the Philippines. Capital expenditure. Cebu Province which includes Metro Cebu. Cagayan de Oro City. Cebu Landmasters, Inc. and, where the context requires, together with its subsidiary. 1

11 CMT CNC Common Shares Company Corporation Code DAR Davao DENR DOLE EBITDA or Earnings Before Interest, Taxes, Depreciation and Amortization ECC Economic housing EGF EIS El Camino Eligible Investors EMB EMF IEE Firm Offer Firm Shares GDP GFA Government The Company s Crisis Management Team composed of senior managers appointed by the Chief Executive Officer. Certificate of Non-Coverage. The Company s shares of common stock, each with a par value of P1.00. Cebu Landmasters, Inc. and, where the context requires, together with its subsidiary. Batas Pambansa Blg. 68, otherwise known as The Corporation Code of the Philippines. Department of Agrarian Reform. Davao region including Davao City and Davao provinces. Department of Environment and Natural Resources. Department of Labor and Employment. Measures as net income excluding interest expense, interest income, provision for (benefit from) income tax and depreciation and depletion of property, plant and equipment taken to profit or loss. Environmental Compliance Certificate. Housing units sold at a price ranging from P450,000 to P3 million. Environmental Guarantee Fund. Environmental Impact Statement. El Camino Developers Cebu, Inc. Applicants who are qualified to subscribe to the Firm Shares. Environmental Management Bureau of the DENR. Environmental Monitoring Fund. Initial Environmental Examination. The offer and sale of [up to 505,000,000] Common Shares. The Firm Offer will comprise (i) [up to 430,000,000] new Common Shares to be issued and offered by the Company and (ii) [up to 75,000,000] existing Common Shares offered by the Selling Shareholders. [Up to 430,000,000] new Common Shares to be issued and offered by the Company and (ii) [up to 75,000,000] existing Common Shares offered by the Selling Shareholders. Gross Domestic Product. Gross Floor Area. The Government of the Republic of the Philippines. 2

12 Habitat for Humanity High-end housing HLURB IPO Issue Manager Issuer Joint Lead Underwriters JV Listing Date Local Small Investor (LSI) Magspeak Manual Metro Cebu Mid-market or mid-cost housing Ming-Mori Reclamation Project Offer Habitat for Humanity Philippines Foundation Inc. Residential units sold at a price of P4 million per unit or higher. Housing and Land Use Regulatory Board. Initial Public Offering. BDO Capital & Investment Corporation. Cebu Landmasters, Inc. BDO Capital and BPI Capital Joint venture [ ]. A share subscriber or purchaser who is willing to subscribe or purchase a minimum board lot or whose subscription or purchase does not exceed P50,000 (such minimum amount having been fixed pursuant to a request made by the Company to increase the maximum subscription of each Local Small Investor from P25,000 to P50,000). Magspeak Nature Park, Inc. The Manual on Corporate Governance of the Company. This comprises seven cities namely Cebu, Mandaue, Lapu-Lapu, Danao, Talisay, Naga and Carcar, and six municipalities namely Compostela, Lilo-an, Consolacion, Cordova, Minglanilla, and San Fernando. Housing units sold at a price ranging from P3 million to P4 million per unit. The 100-hectare reclamation project proposed by the Municipality of Minglanilla, Cebu in partnership with Ming-Mori Development Corporation, an affiliate of CLI, which has undertaken to finance, design, reclaim and develop the property into the proposed Minglanilla TechnoBusiness Hub. The offer and sale of the Offer Shares. Offer Period Period commencing at 9:00 a.m., Manila time on [ ] and ending at 12:00 noon, Manila time on [ ] for the sale of the Firm Shares. Offer Price Offer Shares OFWs Optional Shares Over-allotment Option Up to P[6.56] per Offer Share. The Firm Shares and the Optional Shares. Overseas Filipino Workers. Up to [75,000,000] Common Shares to be sold by the Selling Shareholders and purchased by the Stabilizing Agent upon exercise of the Over-allotment Option. An option granted by the Selling Shareholders to the Stabilizing Agent, exercisable within 30 days from and including the Listing Date, to purchase Optional Shares. P, PhP or Pesos Philippine Pesos, the lawful currency of the Republic of the Philippines. 3

13 Parent Company PCAB PCD PD 957 P/E PDTC PEZA PFRS Philippine Nationals CLI only, excluding its subsidiary. Philippine Contractors Accreditation Board. Philippine Central Depository. Presidential Decree No. 957, or the Subdivision and Condominium Buyers Protective Decree, as amended. Price-to-Earnings, the ratio obtained by dividing a company s share price by its earnings per share. The Philippine Depository and Trust Corporation, the central securities depositary of, among others, securities listed and traded on the PSE. Philippine Economic Zone Authority. Philippine Financial Reporting Standards. Pursuant to the Foreign Investments Act of 1991 (Republic Act No. 7042, as amended), the term shall mean any of the following: (1) a citizen of the Philippines; or (2) a domestic partnership or association wholly owned by citizens of the Philippines; or (3) a corporation organized under the laws of the Philippines of which at least 60% of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines; or (4) a corporation organized abroad and registered as doing business in the Philippines under the Corporation Code of which 100% of the capital stock outstanding and entitled to vote is wholly owned by Filipinos; or (5) a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine national and at least 60% of the fund will accrue to the benefit of the Philippine nationals. Where a corporation and its non-filipino stockholders own stocks in an SECregistered enterprise, at least 60% of the capital stock outstanding and entitled to vote of both corporations must be owned and held by citizens of the Philippines and at least 60% of the members of the Board of Directors of both corporations must be citizens of the Philippines, in order that the corporations shall be considered a Philippine national. Under SEC Memorandum Circular No. 08 dated May 20, 2013, for purposes of determining compliance with the nationality requirement, 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. Philippine Tax Code PRA Preferred Shares Primary Offer Republic Act No. 8424, as amended, or the National Internal Revenue Code. Philippine Reclamation Authority. The Company s preferred shares, each with a par value of P[0.10]. The offer and sale of [up to 430,000,000] new Common Shares to be issued and offered by the Company. 4

14 Primary Offer Shares Prospectus PSE PSE EDGE PSE Trading Participants [Up to 430,000,000] Firm Shares offered by the Company. This Prospectus together with all its annexes, appendices, supplements and amendments, if any. The Philippine Stock Exchange, Inc. PSE Electronic Disclosure Generation Technology. Entities authorized by the PSE to own and operate a trading right, pursuant to applicable PSE rules. Q1, Q2, Q3, Q4 First quarter, second quarter, third quarter and fourth quarter, respectively. Receiving Agent SCCP SEC Selling Agents Selling Shareholders Secondary Offer Secondary Offer Shares Securities Regulation Code SJMV Socialized housing sq. m. SRC Rules Stabilizing Agent Stock Transfer Agent Stock Transfer Agreement Trading Day Underwriting Agreement VAT VisMin Yuson BDO Trust. Securities Clearing Corporation of the Philippines. Securities and Exchange Commission of the Philippines. Trading Participants of The Philippine Stock Exchange. Jose R. Soberano III and Ma. Rosario B. Soberano. The offer and sale of [up to 75,000,000] existing Common Shares offered by the Selling Shareholders. [Up to 75,000,000] Firm Shares offered by the Selling Shareholders. Republic Act No. 8799, otherwise known as The Securities Regulation Code and, as applicable, its implementing regulations. San Jose Maria Villages. Housing units sold at a price not exceeding P450,000 per unit. Square meters Implementing Rules and Regulations of the Securities Regulation Code (Republic Act No. 8799) BDO Capital acting in such capacity. BDO Trust. The Stock Transfer Agreement executed between the Company and the Stock Transfer Agent. Any day on which trading is allowed in the PSE. The agreement entered into by and between the Company and the Joint Lead Underwriters, indicating the terms and conditions of the Offer and providing that the Offer shall be fully underwritten by the Joint Lead Underwriters. Value Added Tax. Visayas and Mindanao Yuson Comm. Investments, Inc. 5

15 EXECUTIVE SUMMARY The following summary is qualified in its entirety by the more detailed information presented in this Prospectus, including the Company s audited consolidated financial statements and notes relating thereto. For a discussion of certain matters that should be considered in evaluating an investment in the Firm Shares, see the section of this Prospectus titled Risk Factors on page [24]. Investors are recommended to read this entire Prospectus carefully. OVERVIEW CLI is the leading homegrown developer in Cebu. In just 12 years since it started operations in 2004, it has become one of the top real estate players in the region with its growing mix of residential, commercial, hospitality, industrial and mixed-use product offerings. CLI is the number one local condominium developer in Cebu and among the top three players in the local housing market 2. CLI takes pride in its topquality, award-winning and innovative developments, strong market demand and absorption, fast-selling projects, timely construction and delivery, and its hands-on and personalized approach which allows itself to respond effectively to its clients and industry partners. Compared with other homegrown developers in Visayas and Mindanao, CLI s proven track record covers a more diverse range of real estate product offerings. It caters to the high-end, mid-market, economic and socialized housing segments of the market. This ability to tailor-fit its projects to the best use of each site has enabled it to maximize the favorable supply and demand indicators in Cebu, CDO, Davao, Dumaguete and soon in Bacolod and Iloilo. CLI s real estate offerings have consistently enjoyed strong market demand and absorption. CLI commands an 11% market share in terms of the total supply of condominium units in Metro Cebu, second to Ayala Land, Inc. (17%) and followed by Filinvest Land Inc. (8%) 3. In terms of the number of condominium units sold, the Company has a 9% market share, second to Ayala Land, Inc. (17%) and tied with Filinvest Land Inc. (9%) 4. This makes CLI the number one local condominium developer in Cebu. For the current housing market, CLI ranks among the top three Cebu players with a 10% market share. 5 CLI believes that its market share is bound to grow even higher with its newly launched 3,000-unit Casa Mira project in the south of Cebu. Even as CLI has diversified into high-rise residential, commercial and mixed-use developments, it remains committed to its roots as a home developer, where its expertise has been sharpened. CLI s projects are usually sold-out at a higher selling velocity than competitors 6. Among its completed projects, 96% of the inventory has been sold out. Please see the next page and Business Overview on page [66] of this Prospectus for a list of the Company s completed projects. CLI s notable projects include its mid-rise residential condominium, Mivesa Garden Residences (Phase 1), and one of its economic housing, Casa Mira Linao, both of which have sold out in less than three months on average. The strong market demand for the Company s projects, as evidenced by the fast absorption rate of its projects, translates into faster cash flows and demonstrates CLI s ability to deplete its inventory at a faster rate. Moreover, CLI takes utmost pride in its timely construction and delivery of projects, and it has even outperformed national players in Cebu in that aspect. On average, the Company can convert raw land into a completed project in less than two to three years depending on the project size. CLI s condominium developments Base Line Residences, Park Centrale Tower, Mivesa Garden Residences (Phase 1), and Midori Residences were delivered to the buyers within two years from groundbreaking, as committed by the Company in its marketing materials. Across its 28 completed, ongoing and newly launched developments as of the date of the Prospectus, CLI has over 11,000 units in various stages of construction. These units have an equivalent sales value of P30 2 Santos Knight Frank Market Study, September 16, 2016, p Id., p Id., p Id, p Id., p

16 billion. These are spread out among its growing number of commercial and high-end residential, midmarket, economic and socialized housing projects. For the three years ended December 31, 2014, 2015 and 2016, CLI s revenues amounted to billion billion and billion, respectively. CLI has grown steadily in recent years, with net income increasing from million in 2014 to million in 2015 and million in 2016, representing a compounded annual growth rate ( CAGR ) of 27.28% during that period. The Company aspires to be the leading and most preferred local developer in the Visayas and Mindanao by Real estate development overview The Company s project mix, which includes projects in various stages of development, is composed of 80% residential projects, 18% commercial/office developments and 3% hotel projects, measured in terms of total sales value. To date, CLI has 13 completed developments, 15 projects in various stages of development, and eight possible future projects where final definitive agreements are yet to be finalized and signed. Please see below for a list of these various pages and Business Overview starting on page [65] for additional information on these projects. Completed projects The Company s 13 completed developments are a mix of vertical and horizontal residential projects and its first commercial office development. Majority of the projects are fully sold out, showing that CLI is a trusted brand in the local housing market in Cebu. Below is a list of the Company s completed projects to date. The completed projects are located in Cebu City and the Province of Cebu. Project 1 San Jose Maria Village Balamban 2 San Jose Maria Village Minglanilla 3 San Jose Maria Village Talisay 4 San Jose Maria Village Toledo Location Type Use Balamban, Cebu Horizontal Mid-Market Housing Minglanilla, Cebu Horizontal Mid-Market Housing Talisay City, Cebu Horizontal Mid-Market Housing Toledo City, Cebu Horizontal Mid-Market Housing No. of Units Sold Units Villa Casita Balamban, Cebu Horizontal Socialized Housing Midori Plains Minglanilla, Cebu Horizontal Mid-Market Housing 7 Asia Premier Residences Cebu City Vertical Residential Condo Base Line Residences Cebu City Vertical Residential Condo Midori Residences Mandaue City, Cebu Vertical Residential Condo Park Centrale Tower Cebu City Vertical Office Condo/BPO Mivesa Garden Residences (Phase 1) Cebu City Vertical Residential Condo Velmiro Heights (Phase 1) Minglanilla, Cebu Horizontal Mid-Market Housing 13 Casa Mira Linao Minglanilla, Cebu Horizontal Economic Housing Ongoing projects (under construction) CLI has the following ongoing projects in various stages of construction. The projects are all located in Metro Cebu, except for MesaVerte Residences which forms part of the Company s expansion in CDO. 7

17 Project Location Type Use No. of Units 1. Base Line Center* Vertical Mixed-Use - Sold Units Percentage of Completion a. Base Line Premier Cebu City Vertical Residential % Condo b. Base Line HQ Cebu City Vertical Office % Condo/BPO c. Citadines Cebu City Cebu City Vertical Hotel % 2. Casa Mira Towers Labangon a. Tower 1 b. Tower 2 3. MesaVerte Residences (Phase 1) CDO a. Tower 1 b. Tower 2 Cebu City Vertical Residential Condo CDO Vertical Residential Condo Mivesa Garden Residences (Phase 2) ** Cebu City Vertical Residential Condo % *Base Line Center is a mixed-use development which includes Base Line Premier, Base Line HQ and Citadines Cebu City. **Mivesa Garden Residences (Phase 2) is expected to be completed and turned over to buyers by Q Other ongoing projects In addition to its projects under construction, CLI has in its portfolio a mix of horizontal and vertical housing projects in various stages of development. CLI has completed land development for MesaVerte Residences (Phase 2) in CDO and is currently pre-selling the project. The Company is set to commence land development and marketing efforts for the other Cebu-based projects in the table below. Project Location Type Use No. of Units Sold Units 38% 12% 33% 27% Percenta ge of Completi on 1. MesaVerte Residences CDO Vertical Residential Condo % (Phase 2) Tower 3 CDO 2. Casa Mira South (Phase 1) Naga City Horizontal Economic Housing 1, % 3. Casa Mira South (Phase 2) and San Fernando, Horizontal Economic Housing 962-0% 4. Casa Mira South (Phase 3) Cebu Horizontal Economic Housing 1,273-0% 5. Mivesa Garden Residences (6- Cebu City Vertical Residential Condo 502-0% 7) (Phase 3) 6. Velmiro Heights (Phase 2) Minglanilla, Cebu Horizontal Mid-Market Housing 81-92% Newly-launched projects The Company has launched a roster of vertical mixed-use and residential developments in the last quarter of 2016 to the first quarter of 2017 in Metro Cebu and Davao. Shortly after launching these latest projects, CLI has started site preparations for Latitude Corporate Center and 38 Park Avenue at the Cebu IT Park, respectively, and is now pre-selling both projects. Once the necessary permits are secured, CLI will commence the development of its flagship project in Davao, MesaTierra Garden Residences. CLI s newly-launched projects are the result of the Company s strategic collaboration with joint venture partners, which enabled the Company to position itself in strategic locations and obtain the necessary funding for prime property acquisitions, without straining its finances and limiting its capability to continue existing projects. Latitude Corporate Center is a project of BL CBP Ventures, Inc., a joint venture between CLI and Borromeo Bros. Estate Inc. Meanwhile, 38 Park Avenue at the Cebu IT Park is a project of El Camino Developers Cebu, Inc. ( El Camino ), a joint venture between the Company and several individual partners. Lastly, MesaTierra Garden Residences Davao is a project of Yuson Excellence Soberano, Inc., a 8

18 joint venture between CLI and Yuson Comm. Investments, Inc. ( Yuson ). In all these JV projects, CLI has been appointed as the project developer and manager and is entitled to receive management fees. Project Location Type Use No. Of Sold Units Units 1. Latitude Corporate Center, Cebu Business Park Cebu City Vertical Office Condo/BPO Park Avenue at the Cebu IT Park Cebu City Vertical Residential/Retail MesaTierra Garden Residences Davao Davao Vertical Residential Condo Pipeline projects In 2017, CLI is set to launch several projects in Metro Cebu such as the AS Fortuna Center Mandaue, a mixed-use project along A.S. Fortuna Avenue, a bustling business and residential corridor located in Mandaue City, Cebu. The Company intends to develop this 9,989-sq.m. property with its joint venture partners as a boutique mall with a residential, office and commercial component. The Company will also launch Base Line Center (Phase 2) and Casa Mira Towers Guadalupe this year. It has also positioned itself in the next two years with key pipeline projects in VisMin such as Casa Mira Coast in Dumaguete, Velmiro Heights in CDO and Casa Mira Bacolod. Project Type Use Location 1. AS Fortuna Center Mandaue Vertical Mixed-use Mandaue, Cebu 2. Casa Mira Coast Horizontal Residential Sibulan, Dumaguete 3. Base Line Center (Phase 2) Vertical Residential Cebu City 4. Velmiro Heights CDO Horizontal Residential CDO 5. Casa Mira Towers - Guadalupe Vertical Residential Cebu City 6. Casa Mira Bacolod Vertical Residential Bacolod City Prospects The Company is also looking into possible future projects with its existing JV partners and associates. While the definitive agreements for these projects have yet to be finalized and signed, the Company is either firming up negotiations with landowners, or is intending to sign an agreement with its JV partner or associate for CLI to be the project developer and manager. Among the projects that CLI is looking into is its public-private partnership with the Municipality of Minglanilla through CLI s associate Ming-Mori Development Corporation. CLI has subscribed to shares equivalent to 19.87% of Ming-Mori, the issuance of which is subject to the approval by the SEC of Ming- Mori s increase in authorized capital stock. The Company intends to diversify into industrial development through Ming-Mori s proposal to finance, design and undertake the Ming-Mori Reclamation Project which was accepted and endorsed by the municipal council of the Municipality of Minglanilla in May The Municipality of Minglanilla has submitted to the PRA a letter of intent to undertake the reclamation and land development of the proposed project, and in December 2016, the Municipality entered into a Memorandum of Understanding with the PRA setting out requirements and timeline for the review and evaluation of the project. Should the Minglanilla Reclamation Project materialize and be awarded to Ming-Mori after completing public bidding and Swiss challenge requirements, as applicable, Ming-Mori plans to enter into an agreement where CLI will be appointed as the project manager, and for which CLI will be paid a management fee as may be agreed by the parties. Once the reclamation is complete, CLI will develop and manage the proposed Minglanilla TechnoBusiness Hub, a 100-hectare techno-business park in the progressive town of Minglanilla, a mere 30 minutes away from Cebu City. With Cebu s scarce supply of industrial properties that are in close proximity to highly urbanized areas, this project is expected to generate over 75,000 jobs. 9

19 On the other hand, the Company s associate, Magspeak Nature Park, Inc. 7 ( Magspeak ) plans to develop a 30-hectare outdoor leisure park and conference center to be launched in 2017 in Mt. Manunggal, the highest mountain in Cebu. The Company is also completing the acquisition of the land where Casa Mira Towers Guadalupe will be constructed. The Company plans to construct a Grade A office building on its 1.17-hectare property inside the Cebu IT Park to be named the Park Avenue Corporate Center. Lastly, the Company is in talks with several landowners for its planned Mactan Hotel Project. Meanwhile, the two Davao mixed-use developments are intended as future projects of the Company and Yuson, subject to the final agreement between the parties. In Iloilo, the Company is finalizing the acquisition of a property as it is targeting to launch Casa Mira Iloilo by Q CLI will also position itself in the booming tourism hub of Bohol, eyeing to bring its economic housing brand, Casa Mira, which will suit locals benefiting from the growing economic activity and Bohol OFWs. Project Type Use Location 1. Minglanilla TechnoBusiness Hub Horizontal Mixed-use Cebu 2. Magspeak Leisure Park Horizontal Recreational Cebu 3. Casa Mira Towers - Guadalupe Vertical Residential Cebu 4. Park Avenue Corporate Center Vertical Office Condo/BPO Cebu 5. Mactan Hotel Project Vertical Hotel Cebu 6. Davao Mixed Use - Riverside Vertical Mixed-use Davao 7. Davao Mixed Use - Times Beach Vertical Mixed-use Davao 8. Casa Mira Iloilo Horizontal Residential Iloilo 9. Casa Mira Bohol Horizontal Residential Bohol Residential development CLI s initial forte is in residential development. It created a niche when it started developing low to middle cost subdivisions in the south of Cebu, with house and lot packages ranging from P2 million to P5 million. Today, CLI is one of the leading horizontal and vertical residential players in Cebu. More importantly, CLI has diversified its residential offerings to cater to the four major market segments socialized, economic, mid-market and high-end. High-end residential developments have a price of more than P4 million per unit, while mid-market housing projects are priced at P3 million to P4 million per unit. Economic housing should be priced at within the range of P450,000 to P3 million. Meanwhile, to qualify as socialized housing, the price of the housing units must not exceed P450,000. The list below categorizes the projects according to market segments: Horizontal (Subdivision) Projects: Socialized: Economic: Mid-Market: Villa Casita, Guadalupe Pinamalayan Socialized Housing Project Casa Mira Linao, Casa Mira South San Jose Maria Villages, Midori Plains, Velmiro Heights Vertical (Condominium) Projects: Economic: Casa Mira Towers Labangon, Casa Mira Towers Guadalupe (2017) 7 As of the date of the Prospectus, Mr. Jose R. Soberano, III has executed a Deed of Assignment in favor of CLI for his shares in Magspeak, but the BIR Certificate of Registration of the shares is still being processed. 10

20 Mid-Market: High-End: Midori Residences, Mivesa Garden Residences, MesaVerte Residences CDO Asia Premier Residences, Base Line Residences, Base Line Premier Commercial development CLI capitalized on the growth of the BPO sector in Cebu when it launched its first commercial office project, Park Centrale Tower, in 2013 at the Cebu IT Park. This is also part of CLI s strategy of significantly growing its recurring income properties. It has also launched two more office developments in prime Cebu City locations, namely Base Line HQ and Latitude Corporate Center. Base Line HQ will be part of the Base Line Center mixed-use development and will be completed in Q In November 2016, CLI launched Latitude Corporate Center, a Grade A office tower at the Cebu Business Park with a GFA of 35,000 sq.m. Office Buildings: Park Centrale Tower, Base Line HQ, Latitude Corporate Center, Park Avenue Corporate Tower Mixed-use development With its growing brand, experience and portfolio, CLI pursued larger scale developments in prime urban locations. CLI s first major mixed-use development is the Base Line Center, a 1.6-hectare modern redevelopment in the heart of midtown Cebu. The Company removed the existing structures in the old Base Line, a well-known favorite gathering place of Cebuano families, and built a mixed-use development. Phase 1 of Base Line Center will be completed in Q It will house a retail center, residential condominium units, offices and the first Ascott-managed property outside Manila, the Citadines Cebu City. This 2017, CLI is set to launch another major mixed-used development, the AS Fortuna Center, in the booming AS Fortuna Mandaue area, a growing commercial district and the major thoroughfare that connects Cebu and Mandaue. This medium-density project will house a hotel, residential, office and boutique mall. CLI, through its joint venture, El Camino, also recently acquired a 1.17-hectare property inside the Cebu IT Park, the largest remaining private property inside the prestigious address. This property called 38 Park Avenue at the Cebu IT Park, will be transformed into a mixed-use urban park with a 38-storey residential tower, BPO office and retail boulevard. Mixed-Use Developments: Base Line Center, AS Fortuna Center Mandaue, 38 Park Avenue at the Cebu IT Park Hotel and recreational development Aside from residential and commercial developments, CLI has recently entered the hospitality business after sealing a partnership with Scotts Philippines, Inc., a wholly-owned subsidiary of The Ascott Limited ( Ascott ), the world s largest serviced residence operator. CLI will develop Citadines Cebu City, with Ascott as the hotel operator. Citadines Cebu City will house over 180 rooms, of which 92 condotel units were offered for sale and 88 units will be retained by the Company. As part of the upcoming AS Fortuna Center, CLI will add a second hotel property to its portfolio. As of Q1 2017, the Company is still evaluating potential global management brands that will run the hotel. A third hotel, the Mactan Hotel Project, is part of the Company s future prospects as the Company is currently negotiating with property owners of key sites in Cebu s resort haven, Mactan Island. Meanwhile, the Company s associate, Magspeak plans to develop the Magspeak Leisure Park, a 30-hectare outdoor leisure park and conference center in Mt. Manunggal to be launched in Hotel and Recreational Development: Citadines Cebu City, AS Fortuna Center Hotel Project, Mactan Hotel Project, Magspeak Leisure Park Industrial development 11

21 CLI intends to diversify into industrial development through its associate, Ming Mori, which has proposed to finance, design and undertake the Ming-Mori Reclamation Project through private-public partnership with the Municipality of Minglanilla. The proposal of Ming-Mori was accepted and endorsed by the municipal council of the Municipality of Minglanilla in May 2013 and since then, the Municipality of Minglanilla has submitted to the PRA a letter of intent to undertake the reclamation and land development of the proposed project. In December 2016, the Municipality entered into a Memorandum of Understanding with the PRA setting out requirements and timeline for the review and evaluation of the project, and as of the date of this Prospectus, CLI has subscribed to shares equivalent to 19.87% of Ming-Mori, the issuance of which is subject to the approval by the SEC of Ming-Mori s increase in authorized capital stock. This project is intended to be the Company s initial foray into the industrial property segment. See Business Overview Prospects on page [66] of this Prospectus. Industrial: Minglanilla TechnoBusiness Hub Regional expansion CDO After 20 developments in Cebu, CLI debuted its first regional expansion when it launched its MesaVerte Residences in CDO. MesaVerte Residences is a three-tower condominium complex in the heart of downtown CDO and is expected to be completed by Q A second project in CDO is in the pipeline this 2017 as CLI will be launching Velmiro Heights CDO, a mid-market housing project in the Pueblo De Oro area. Davao CLI has recently positioned itself in Davao where it introduced its highly successful mid-market condominium format. The Company launched in Q MesaTierra Garden Residences, a 21-storey residential condominium with over 694 units, located on E. Jacinto St., Davao, which is targeted for completion by Q The Company is also firming up its plans to develop two mixed-use projects in Davao, (1) a 1.9-hectare riverside mixed-use project along McArthur Highway, and (2) another major mixed-use lifestyle project in a four-hectare property in Times Beach, Matina. Dumaguete The Company has recently completed the acquisition of a six-hectare property in Sibulan, Dumaguete. This will be the site of another Casa Mira economic housing development. Situated near the coastline, the project will be called Casa Mira Coast. Bacolod Going further into other areas in the Visayas to roll out its economic housing brand Casa Mira, CLI has completed the acquisition of a one-hectare property in Bacolod. The Company intends to launch Casa Mira Bacolod by Q Iloilo The Company is finalizing the acquisition of a property in Iloilo as the Company is set to launch Casa Mira Iloilo in Q With its diverse portfolio, CLI is able to tailor-fit its various product offerings to address the right supply and demand indicators and maximize the full potential of a property. Regional Developments: 12

22 CDO: MesaVerte Residences, Velmiro Heights CDO (2017) Davao City: MesaTierra Garden Residences (2017), Mixed-Use (McArthur / Matina) Dumaguete: Casa Mira Coast (2017) Iloilo: Casa Mira Iloilo (2017) Bacolod: Casa Mira Bacolod (2017) Bohol: Casa Mira Bohol (2017) COMPETITIVE STRENGTHS The Company considers the following as its competitive strengths: Leading property developer in Cebu with a distinguished brand and reliable track record of project execution Strategic location selection to provide value for money proposition to customers Diversified portfolio of projects and socio-economic markets Experienced management team and organizational culture Socially responsible development Strategic joint venture partnerships Financial strength Operational excellence KEY STRATEGIES The Company s business strategies include the following: Expansion to key in cities in the Visayas and Mindanao Building recurring income developments Vertical integration property management and construction companies Growth of economic housing brand (Casa Mira) Capitalizing on pipeline projects Establish and leverage strategic partnerships, alliances, joint ventures and cooperation Risks of Investing Before making an investment decision, prospective investors should carefully consider the risks associated with an investment in the Offer Shares. Some of these risks are discussed in the section entitled Risk Factors and include risks relating to business, risks relating to the Philippines, and risks relating to the Offer and the Offer Shares and in this Prospectus. Corporate Information The registered office of the Company is at the 10th Floor, Park Centrale Tower, Cebu I.T. Park, J. M. del Mar Street, Apas, Cebu City, Philippines. The Company s telephone number at this location is +63 (032) and The Company s website is Investor Relations Office The Company has developed an Investor Relations Program which will reflect standards of disclosure, dialogue and transparency, to foster quality communication flows between the Company and its stockholders. Stephen A. Tan will serve as the Company s designated Investor Relations Officer ( IRO ). The IRO will prepare and handle all corporate communications intended for dissemination to the public and handle feedback and comments from stakeholders. 13

23 Through its Investor Relations Program, the Company will make regular use of various communication channels such as press releases, s, investor presentations, regulatory disclosures and face-to-face meetings, to disseminate correct and up-to-date information on the Company, promote investor s awareness of developments in the Company and effectively address concerns or issues of stakeholders. The IRO may be contacted through the following contact details: STEPHEN A. TAN 10th Floor, Park Centrale Tower, Cebu I.T. Park, J. M. del Mar Street Apas, Cebu City, Philippines Telephone number: (032) address: stephen@cebulandmasters.com Atty. Larri-Nil G. Veloso serves as the Company s Compliance Officer with respect to disclosures and continuing requirements of the SEC and the PSE. Information Relating to the Common Shares Authorized capital stock P2,500,000,000 Common Shares outstanding before the Offer 1,284,000,000 Total Issued and Outstanding Common Shares before the Offer Common Shares issued and outstanding after the Offer 1,284,000,000 1,714,000,000 Market Capitalization at the Offer Price of up to P[11,243,840,000] P[6.56] per Offer Share * *Computed at the Offer Price of up to P[6.56] multiplied by the equivalent number of Common Shares issued and outstanding after the Offer. The PSE computes market capitalization based on the number of listed shares multiplied by the market price. Article III, Part A, Section 9 of the Revised Listing Rules of the PSE provides that [a]ll issued and outstanding securities of the type and class applied for, including treasury shares shall be applied for listing in the Exchange. 14

24 SUMMARY OF THE OFFER The following does not purport to be a complete listing of all the rights, obligations, and privileges attaching to or arising from the Offer Shares. Some rights, obligations, or privileges may be further limited or restricted by other documents and subject to final documentation. Prospective investors are enjoined to perform their own independent investigation and analysis of the Company and the Offer Shares. Each prospective investor must rely on its own appraisal of the Company and the Offer Shares and its own independent verification of the information contained herein and any other investigation it may deem appropriate for the purpose of determining whether to invest in the Shares and must not rely solely on any statement or 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. Issuer... Selling Shareholders... Issue Manager... Joint Lead Underwriters.. Underwriters. Selling Agents Cebu Landmasters, Inc. Jose R. Soberano III Ma. Rosario B. Soberano BDO Capital & Investment Corporation BDO Capital and BPI Capital BDO Capital, BPI Capital and [ ] PSE Trading Participants The Offer Offer of up to [505,000,000] Firm Shares, consisting of up to [430,000,000] new Common Shares representing the Primary Offer Shares to be offered by the Company through the Primary Offer and up to [75,000,000] existing Common Shares representing the Secondary Offer Shares to be offered by the Selling Shareholders through the Secondary Offer, together with an offer of up to [75,000,000] existing Common Shares representing the Optional Shares to be offered pursuant to the Over-allotment Option (as described below). Offer Shares.. Offer Price.. Over-allotment Option. Offer Period The Firm Shares and the Optional Shares The Offer Shares are being offered at the price of up to P[6.56] per Offer Share, which was established through a book-building process and discussions among the Company, the Selling Shareholders and the Joint Lead Underwriters. The Selling Shareholders have granted the Stabilizing Agent, BDO Capital, acting for and on behalf of the Joint Lead Underwriters an overallotment option, exercisable in whole or in part, to purchase up to 75,000,000 Optional Shares at up to the Offer Price, on the same terms and conditions as the Firm Shares as set out in this Prospectus, solely to cover over-allotments, if any, and effect price stabilization transactions. The Over-allotment Option is exercisable from time to time for a period which shall not exceed [30] calendar days from and including the Listing Date. See Plan of Distribution The Over-allotment Option on page [57] of this Prospectus. The Offer Period shall commence at 9:00 a.m., Manila time on [ ] and end at 12:00 noon, Manila time on [ ]. The Company and the Joint Lead Underwriters reserve the right to extend or shorten the Offer Period, subject to the approval of the PSE. Applications must be received by the Receiving Agent not later than 12:00 noon, Manila Time on [ ]. Applications received thereafter or without the required documents will be rejected. 15

25 Applications shall be considered irrevocable upon submission to a Selling Agent or an Underwriter, and shall be subject to the terms and conditions of the Offer as stated in this Prospectus and in the application. The actual purchase of the Offer Shares shall become effective only upon the actual listing of the Offer Shares on the PSE and upon the obligations of the Joint Lead Underwriters under the Underwriting Agreement becoming unconditional and not being suspended, terminated or cancelled on or before the Listing Date in accordance with the provisions of such agreement. Use of Proceeds. Minimum Subscription. Eligible Investors and Restrictions on Ownership... Procedure for Application. The Company intends to use the net proceeds from the Primary Offer to fund (i) key land acquisitions; (ii) investment in joint ventures and associates, (iii) debt repayment and (iv) general corporate purposes. See Use of Proceeds on page [39] of this Prospectus. Each Application must be for a minimum of [1,000] Offer Shares, and thereafter, in multiples of [100] Offer Shares. Applications for multiples of any other number of shares may be rejected or adjusted to conform to the required multiple, at the discretion of the Company. The Offer Shares may be subscribed for or held by any person of legal age or duly organized and existing corporations, partnerships or other corporate entities regardless of nationality, subject to the Company s right to reject an application or reduce the number of Offer Shares applied for subscription or purchase if the same will cause the Company to be in breach of the Philippine capital ownership requirements under relevant Philippine laws. See Foreign Ownership Restriction on page [18] of this Prospectus. The Application forms to purchase the Offer Shares may be obtained from the Joint Lead Underwriters or any Selling Agent. All Applications shall be evidenced by the Application to Purchase form duly executed in each case by the Applicant himself or by any authorized signatory of the Applicant, accompanied (i) by two completed signature cards which, for corporate and institutional Applicants, should be authenticated by the corporate secretary, and for individual applicants, should be authenticated by the Joint Lead Underwriters and broker which forwarded the application, and the corresponding payment for the Offer Shares covered by the Application and (ii) all other required documents. The duly executed Application form and required documents should be submitted during the Offer Period to the same office of the Joint Lead Underwriters or the Selling Agent where it was obtained. If the Applicant is a corporation, partnership or trust account, the Application must be accompanied by the following documents: A certified true copy of the Applicant s latest articles of incorporation and by-laws (or articles of partnership in the case of a partnership) and other constitutive documents (each as amended to date) duly certified by its corporate secretary; A certified true copy of the Applicant s SEC certificate of registration duly certified by its corporate secretary (or managing partner in the case of a partnership); and A duly notarized corporate secretary s certificate (or certificate of the managing partner in the case of a partnership) setting forth the resolution of the Applicant s board of directors or equivalent body authorizing the purchase of the Offer Shares indicated in the Application to Purchase, identifying the designated signatories authorized for the purpose, including his or her specimen signature, and certifying to the percentage 16

26 of the Applicant s capital or capital stock held by Philippine citizens and/or corporations, if any. Foreign corporate and institutional Applicants which qualify as Eligible Investors, in addition to the documents listed above, are required to submit in quadruplicate a document signed by an authorized signatory setting out their representation and warranty that their purchase of the Offer Shares to which their Application relates will not violate the laws of their jurisdiction of incorporation or organization, and that they are allowed under such laws, to acquire, purchase and hold the Offer Shares. Submission of the completed Application to Purchase to the PSE Trading Participants or the Joint Lead Underwriters shall constitute an instruction and authority by the Applicant to the Company and/or the Joint Lead Underwriters to execute any application form or other documents and generally to do all such other things as the Company and/or the Joint Lead Underwriters may consider necessary or desirable to effect the registration in the name of the Applicant of the Offer Shares applied for, or any lesser number in respect of which an Application may be accepted in the stock and transfer book of the Company. The Applicant shall undertake to sign all documents and to do all other acts necessary to enable the Applicant to be registered as the owner of the Offer Shares applied for or any lesser number in respect of which an Application may be accepted, subject to the Articles of Incorporation and the Bylaws of the Company, and the laws of the Republic of the Philippines. Payment Terms Acceptance/Rejection of Applications The Offer Shares must be paid in full upon submission of the Application. Payment must be made by personal check, corporate check, manager s check or cashier s check drawn against a bank account with a BSP- authorized agent bank or any branch thereof located in Metro Manila to the order of [Cebu Landmasters IPO] and crossed Payee s Account Only. The check must be dated as of the date of submission of the Application. Checks subject to clearing periods of over three banking days shall not be accepted. The actual number of Offer Shares that an Applicant will be allowed to subscribe for in the Offer is subject to the confirmation of the Joint Lead Underwriters in consultation with the Company. Application shall be subject to the final approval of the Company. The Company reserves the right to accept or reject, in whole or in part, any Application due to any grounds specified in the Underwriting Agreement entered into by the Company and the Joint Lead Underwriters. Applications where checks are dishonored upon first presentation and Applications which do not comply with the terms of the Offer shall be rejected. Moreover, any payment received pursuant to the Application does not mean approval or acceptance by the Company of the Application. An Application, when accepted, shall constitute an agreement between the Applicant and the Company for the subscription to the Offer Shares at the time, in the manner and subject to terms and conditions set forth in the Application and those described in this Prospectus. All Applications accepted by the Company may not be unilaterally revoked or cancelled by the Applicant, in full or in part, and the rights and privileges pertaining thereto are non-transferable. Notwithstanding the acceptance of any Application, the actual subscription and purchase by the Applicant of the Offer Shares will become effective only upon listing of the Offer Shares on the PSE and upon the obligations of the Joint Lead Underwriters under the Underwriting Agreement becoming unconditional and not being suspended, terminated, cancelled, on or before the Listing Date, in accordance with the provisions of such agreement. If such 17

27 conditions have not been fulfilled on or before the period provided above, all the application payments will be returned to the Applicants without interest and, in the meantime, said application payments will be held in a separate bank account with the Receiving Agent. Refunds Registration and Lodgment of Shares with PDTC In the event that the number of Offer Shares to be received by an Applicant, as confirmed by the Joint Lead Underwriters, is less than the number covered by its Application, or if an Application is rejected by the Company, then the applicant is entitled to refund, without interest, within five Banking Days from the end of the Offer Period, of all or a portion of the payment corresponding to the number of Offer Shares wholly or partially rejected. All refunds shall be made through the Joint Lead Underwriters or the Selling Agent with whom the Applicant has filed the Application, at the Applicant s risk. The Offer Shares are required to be lodged with PDTC. The Applicants must provide the required information in the space provided in the Application to effect the lodgment. The Offer Shares will be lodged with the PDTC at least two Trading Days prior to the Listing Date. The Applicant may request for the uplifting of their shares and to receive stock certificates evidencing their investment in the Offer Shares through his/her broker after the Listing Date. Any expense to be incurred by such issuance of certificates shall be borne by the Applicant. Registration of Foreign Investments Restrictions on Foreign Ownership The BSP requires that investments in shares of stock funded by inward remittance of foreign currency be registered with the BSP if the foreign exchange needed to service capital repatriation or dividend remittance will be sourced from the banking system. The registration with the BSP of all foreign investments in the Offer Shares will be the responsibility of the foreign investors. The Offer Shares may be subscribed by any individual of legal age, or by any corporation, association, partnership or trust, regardless of citizenship or nationality. However, as the Company owns land and may engage in or enter into certain types of infrastructure contracts, Philippine laws limit the foreign shareholdings in the Company to a certain percentage. As of the date of this Prospectus, the Company owns land and is therefore required by the Philippine Constitution and related statutes to be a Philippine national by limiting foreign ownership in the Company to a maximum of 40% of its outstanding capital stock. In the event that foreign ownership of the Company s outstanding capital stock will exceed such allowable maximum percentage, the Company has the right to reject a transfer request by a stockholder to persons other than Philippine nationals and has the right not to record such purchases in the Company s books. Moreover, if any share is inadvertently issued and/or transferred in violation of the said restriction, the shares issued and/or transferred in excess of the allowable maximum percentage shall be null and void and the Company may immediately proceed to cancel, and demand the surrender of the certificate of stock covering such shares. Should any stockholder acquire shares in excess of the foregoing restriction, such stockholder shall not be considered a stockholder and shall have no right with respect to such shares except to demand payment therefore from the Company or transferor, as the case may be, or to dispose of the same to qualified shareholders within 30 days of receipt of notice from the Company. 18

28 For more information relating to restrictions on the ownership of the Offer Shares, see the discussion under Risk Factors on foreign ownership limitations on page [38] of this Prospectus. Restriction on Issuance and Disposal of Shares... Existing shareholders who own an equivalent of at least 10% of the issued and outstanding Common Shares of the Company are required under the revised listing rules of the PSE applicable to companies applying for listing on the PSE Main Board, not to sell, assign or otherwise dispose of their Common Shares for a minimum period of 180 days after the Listing Date. The Revised Listing Rules of the PSE also require that if there is any issuance or transfer of shares or securities (i.e., private placements, asset for shares swap or a similar transaction) or instruments which lead to issuance of shares or securities (i.e., convertible bonds, warrants or a similar instrument) done and fully paid for within 180 days prior to the start of the offering period, and the transaction price is lower than that of the Offer Price in the initial public offering, all shares or securities availed of shall be subject to a lock-up period of at least one year from listing of the shares or securities. The shares held by the following shareholders will be subject to the lock-up period specified below: Shareholder No. of Common Shares Held before the Offer % Total of Shareho lding before the Offer % Total of Shareholdi ng after the Firm Offer % Total of Shareholding Assuming Full Exercise of the Overallotment Option Period of Lockup (in days) AB Soberano Holdings 135,823, % 76.78% 57.52% 180 Corp. 850,000, Jose R. Soberano III 134,125, % [5.64%] 3.45% 180 Ma. Rosario B. 134,125, % [5.64%] 3.45% 180 Soberano Jesus N. Alcordo 1 nil nil nil 365 Rufino Luis Manotok 1 nil nil nil 365 Ma. Aurora D Geotina- Garcia 1 nil nil nil 365 To implement this lock-up requirement, the PSE requires, among others, to lodge the shares with the PDTC through a participant of the PDTC system for the electronic lock-up of the shares or to enter into an escrow agreement with the trust department or custodian unit of an independent and reputable financial institution. The Company and the Selling Shareholders listed above, being subject to the lock-up requirement, will enter into an escrow agreement with BDO Trust as the escrow agent thereunder. See Plan of Distribution on page [55] of this Prospectus for further details. Listing and Trading.. Expected Timetable. The Company s application for the listing of the Common Shares was approved by the PSE on [ ]. All of the Common Shares in issue or to be issued including the Offer Shares are expected to be listed on the Main Board of the PSE on [ ]. Trading is expected to commence on the same date. The expected timetable of the Offer is tentatively scheduled as follows: Pricing Date [May 4, 2017] Notification of Final Offer Price to PSE [May 4, 2017] Start of the Offer Period [May 8, 2017] 19

29 Deadline for PSE Trading Participants Submission of Undertaking to Purchase [May 10, 2017] Deadline for LSI and General Public s Submission of Application [May 12, 2017] End of Offer Period [May 12, 2017] Listing Date and Commencement of Trading on the PSE [May 19, 2017] 20

30 SUMMARY FINANCIAL AND OPERATING INFORMATION The following tables present summary financial information for the Company and should be read in conjunction with the Company s Audited Consolidated Financial Statements as of and for the years ended December 31, 2016, 2015 and 2014, and notes relating thereto, all included elsewhere in this Prospectus, as well as the section of this Prospectus entitled Management s Discussion and Analysis of Financial Position and Financial Performance. They are not indicative of results of future operations. Statements of Financial Position (All amounts in Philippine Pesos) 2014 (Restated) As at December (Restated) 2016 ASSETS Current Assets Cash and cash equivalents 114,482, ,644,624 90,617,743 Receivables net 794,796,047 1,206,274,995 2,069,449,137 Real Estate Inventory 1,473,711,694 1,439,841,508 1,831,424,419 Deposits on land for future development 45,000,000 77,559, ,897,127 Advances to related parties net 188,388, ,583,998 26,739,222 Prepayments and other current assets 67,832,682 98,262, ,631,805 Total Current Assets 2,684,211,816 3,117,167,608 4,380,759,453 Noncurrent Assets Receivables - net 646,299 56,183, ,374,872 Available-for-Sale financial assets 40,611,133 49,768,275 54,133,275 Investment in associates and joint ventures - 12,680, ,935,316 Property and equipment net 24,573,652 75,260, ,166,429 Investment properties net 66,545, ,660, ,664,109 Other noncurrent assets 8,657,782 12,183,334 22,878,048 Total Noncurrent Assets 141,034, ,736, ,152,049 TOTAL ASSETS 2,825,246,546 3,650,903,700 5,346,911,502 LIABILITIES AND EQUITY Interest-bearing loans 568,880, ,768, ,980,146 Trade and other payables 381,779, ,055, ,447,566 Customers deposits 306,110, ,651, ,968,051 Reserve for property development 157,292, ,620, ,236,408 Total Current Liabilities 1,414,063,050 1,519,095,939 2,059,632,171 Noncurrent Liabilities Interest-bearing loans 431,047, ,653,906 1,604,059,047 Trade and other payables 43,486,403 21,810,990 16,956,129 Post-employment defined benefit obligation 2,737,398 5,023,696 2,105,858 Deferred tax liability - net 22,839,807 59,714, ,919,779 Total Noncurrent Liabilities 500,111, ,202,678 1,749,040,813 Total Liabilities 1,914,174,553 2,407,298,617 3,808,672,984 Equity 21

31 Capital stock 537,690, ,690,000 1,284,000,000 Revaluation reserves (80,998) (2,718,140) (6 25,202) Retained earnings (Deficit) 373,462, ,633, ,863,720 Total Equity 911,071,993 1,243,605,083 1,538,238,518 TOTAL LIABILITIES AND EQUITY 2,825,246,546 3,650,903,700 5,346,911,502 Statements of Profit or Loss (All amounts in Philippine Pesos) For the years ended December Revenues Sale of real estate 1,279,415,168 1,532,930,791 2,139,479,877 Rental 4,216,300 12,555,220 38,870,444 1,283,631,468 1,545,486,011 2,178,350,321 Cost of sales and rental 578,300, ,832,331 1,010,348,131 Gross profit 705,331, ,653,680 1,168,002,190 Operating expenses (235,351,833) (268,561,092) (335,832,043) Other Operating income 16,673,709 13,012,072 17,525,070 Operating profit 486,653, ,104, ,695,217 Finance costs (10,388,266) (10,258,035) (16,572,078) Other losses - (11,897,711) Finance income 882, , ,973 Other gains 1,239,822-6,353,291 Profit before tax 478,387, ,213, ,056,692 Tax expense 44,838,119 71,042, ,732,738 NET INCOME / (LOSS) 433,549, ,170, ,323,954 Statements of Cash Flows (All amounts in Philippine Pesos) Cash flows from operating activities (242,133,069) (96,478,606) (487,622,429) Cash flows from investing activities (200,293,644) (15,541,660) (176,346,571) Cash flows from financing activities 447,373, ,182, ,942,119 Key Performance Indicators The Company uses a range of financial and operational key performance indicators ( KPIs ) to help measure and manage its performance. These KPIs reflect the Company s continuous focus on efficiency, cost control and profitability across all its operations. The management considers the following as KPIs: Gross Profit Margin 1 55% 57% 54% Net Income Margin 2 34% 35% 32% EBITDA 3 500,324, ,017, ,935,842 22

32 EBITDA Margin 4 39% 41% 40% Return on Assets 5 15% 15% 13% Return on Average Equity 6 50% 50% Current Ratio Debt to Equity Ratio Interest Coverage Ratio Gross Profit Margin is gross profit as a percentage of revenues Net Income Margin is net income as a percentage of revenues EBITDA is defined as earnings before interest, tax, depreciation and amortization from continuing operations and before exceptional items. EBITDA margin is EBITDA as a percentage of revenues Return on Assets is net income as a percentage of assets Return on Average Equity is net income as a percentage of the average of the equity as at year-end and equity as at end of the immediately preceding year. Current Ratio is current assets divided by current liabilities Debt to Equity Ratio is interest bearing debt over total equity Interest Coverage ratio is EBITDA divided by interest expense 23

33 RISK FACTORS GENERAL RISK WARNING An investment in the Offer Shares involves a number of risks. Prospective investors should carefully consider the risks described below, in addition to other information contained in this Prospectus, including the Company s financial statements and notes relating thereto, before making any investment decision relating to the Offer Shares. These factors, which have been arranged according to their level of importance, may be summarized into those that pertain to the business and operations of the Company, those that pertain to the overall political, economic, and business environment in the Philippines, and those that pertain to the Offer Shares. This section does not purport to disclose all of the risks and other significant aspects of investing in the Offer Shares. Investors deal in a range of investments each of which may carry a different level of risk. Investors should seek professional advice regarding any aspect of the securities such as the nature of the risks involved in the trading of the securities. Investors should undertake independent research regarding the Company and the trading of securities before commencing any trading activity and may request all publicly available information regarding the Company and the Offer Shares from the SEC. The Company s past performance is not an indication of its future performance. There is an extra risk of losing money when securities are bought from smaller companies. There may be a big difference between the buying price and the selling price of these securities. The occurrence of any of the events discussed below and any additional risks and uncertainties not presently known to the Company or are currently considered immaterial could have a material adverse effect on the Company s business, result of operations, financial condition and prospects, and could cause the market price of the Offer Shares to fall significantly and investors may lose all or part of their investment. 1. RISKS RELATED TO THE COMPANY There is heightened competition among local and national players where the Company is operating and expanding. Competition for the acquisition of land for new projects could adversely affect the Company s business. The Company s future growth and development are dependent, in part, on its ability to acquire or enter into agreements to develop additional tracts of land suitable for the Company s planned real estate projects. When the Company and its competitors attempt to locate sites for development, the Company may experience difficulty in locating parcels of land of suitable size in locations and at prices acceptable to the Company. In the event the Company is unable to acquire suitable land at acceptable prices, with reasonable returns, or at all, its growth prospects could be limited and its business and results of operations could be adversely affected. The Company faces tough competition from a number of local and national players that take advantage of the growing real estate market in Cebu. For residential projects, CLI competes with Ayala Land, Inc., Filinvest Land, Federal Land, Taft Properties, Primary Homes, Aboitiz Land and a host of other local and national players. For commercial developments and office space leasing, CLI faces Ayala Land, Inc., Primary Structures Corporation, Skyrise Realty and Development Corporation, Megaworld, Inc. and other players as its competitors in addressing the demand for office buildings of the fast growing BPO industry and retail spaces. Nevertheless, CLI has been able to establish itself as Cebu s leading local housing developer due to its strong track record in the four main market segments namely high-end, mid-market, economic and socialized housing. Thus, the Company can tailor-fit its residential developments not only to achieve the best use of a property but also to ensure its optimal market acceptance. This has enabled CLI to sell its projects at a higher velocity, turn over quickly on its developments, and move swiftly from pre-selling to construction and delivery. CLI s consistently high sales performance is enabled by innovative sales and marketing strategies, which allows itself to bring products to the market faster than the competition with the commanding support of its 5,000-strong real estate broker and agent network. 24

34 In order to gain further versatility, the Company has also diversified into commercial, hospitality and industrial developments. With CLI s growing local leadership and expertise in various real estate product offerings, the company believes it will be able to sustain its growth amidst heightened competition. The Company s limited land bank inventory compared to other developers is deliberate. CLI s thrust is to immediately develop a property once acquired and after completion, to quickly turn over the same to the buyers to achieve faster financial gains and to ensure efficient use of capital. The Company emphasizes creating shareholder value by being opportunistic with investments and being judicious in its deployment of capital. Decisions on capital expenditures, whether financed by equity or debt, are made with a priority on generating a strong return on investment in a measurable and realistic timeframe. Having too large a land bank would necessarily mean that much capital is devoted to holding non-revenue generating assets while incurring cost of debt or equity. Much in the same way that capitalefficient firms employ a just-in-time to efficiently utilize capital, CLI chooses only to raise capital when it can confidently forecast and execute a project with a reasonable rate of return. Nevertheless, despite the heightened competition for land in Cebu and VisMin, the Company does not find any substantial difficulty in acquiring target properties. The Company s local connections in VisMin and familiarity with the people and the territories where it is operating enable CLI to attract reverse inquiries for possible JVs with landowners or offers for sale of properties. The Company will continue to open its doors to JV partnerships and to work on the success of its current JVs and projects in order to retain its good reputation in the territories where it is operating. The Company s business is affected by various regulations in the Philippines. CLI operates a material part of its businesses in a highly regulated environment. CLI s business is subject to numerous environmental laws and regulations relating to the protection of the environment and human health and safety. These include laws and regulations governing air emissions, water and waste water discharges, odor emissions, and the management and disposal of, and exposure to, hazardous materials. The Company cannot predict what environmental or health and safety legislation or regulations will be amended or enacted in the future; how existing or future laws or regulations will be enforced, administered or interpreted; or the amount of future expenditures that may be required to comply with these environmental or health and safety laws or regulations or to respond to environmental claims. In addition, CLI is required to obtain licenses to sell before making sales or other dispositions of housing and condominium units. For more information on the environmental laws and other regulations affecting the Company s operations, please see discussion on Regulatory Framework on page [145]. Project permits and any license to sell may be suspended, cancelled or revoked by the HLURB or by the courts upon its findings or upon complaint from an interested party, and there can be no assurance that the Company will receive the requisite approvals or licenses, or that such permits, approvals or licenses will not be cancelled or suspended. Any of the foregoing circumstances or events could affect the Company s ability to complete projects on time, within budget or at all, and could have a material adverse effect on its financial condition and results of operations. CLI, through its construction and property management arms, keeps itself abreast of the latest technologies that enable it to implement existing sanitation, environment and safety laws and regulations at costefficient means. It also continuously exerts earnest efforts to secure and maintain all relevant and material permits and licenses required under such laws and regulations for its subdivision and condominium projects. The Company also practices and adheres to a strong compliance culture and maintains positive relationships with regulatory and local government agencies. The Company s current portfolio is composed of approximately 90% for-sale properties and 10% recurring income properties. For 12 years, the Company has been successful in selling its various residential and commercial for-sale projects. Only two out of its 13 completed projects have not reached at least 90% sales performance so far. Nevertheless, it may be affected during market downturns when end-user financing becomes less accessible. Though the Company has been building up its recurring income assets, this still composes only roughly 10% of its portfolio. 25

35 The Company, in anticipation of these market downturns, has positioned itself to grow its current mix of recurring income properties in the next five years. In three to five years, the Company s target mix is composed of 80% residential developments and 20% recurring income projects. CLI is currently developing the 180-room Citadines Hotel and Latitude Corporate Center, a 24-storey Grade A office building at the Cebu Business Park. By 2017, two significant mixed-use developments will be launched: (1) 38 Park Avenue at the Cebu IT Park, a 1.17-hectare site which will feature a mixed-use urban park with a 38-storey residential tower, BPO office and retail boulevard; and (2) AS Fortuna Center, a 1-hectare site in AS Fortuna, Mandaue City, which will house a hotel, residential, office and boutique mall. Both sites will generate up to 60,000 sq.m. of gross leasable area. The Company also considers as a mitigant its current diverse residential portfolio, encompassing the high, mid-market, economic and socialized housing segments. Though the Company is expanding in all four segments, it can easily maneuver to where the demand and market conditions provide more support. The Company is new to regional markets including Cagayan de Oro, Davao, Dumaguete, Bacolod and Iloilo. Despite the Company s strong track record and successful projects in Cebu, CLI is susceptible to failures in the implementation of its business expansion plans and strategies, especially with respect to new projects and undertakings in other regional markets. There is no guarantee that CLI s future projects will, similar to its real estate offerings in Cebu, be successfully completed and sold as planned. There is likewise no guarantee that the take up for its new developments will remain robust. That being said, the Company is confident it can successfully penetrate new markets using the project templates that has made it the leading developer in Cebu. Particularly, CLI is rolling out its successful midmarket condominium brand (Mivesa Garden Residences) and highly-touted economic housing brand (Casa Mira) which have outperformed even national players in Cebu. In November 2015, CLI embarked on its first regional expansion by launching in CDO a 3-tower residential condominium project with 798 units called MesaVerte Residences, located in the heart of downtown CDO. As of end-december 2016, the first two towers are already 95% sold while the third tower was launched one year ahead of schedule due to the brisk sales accomplishment. Construction for Towers 1 and 2 are well underway. In 2016, CLI also expanded its footprint in Davao and Dumaguete. In the first quarter of 2017, acquisitions in Bacolod and Iloilo will be cemented. In order to successfully carry out the expansion, CLI will be setting-up both sales and engineering teams per location. Similar to its progressive CDO set-up, having these two business units in the Company s regional branches will enable it to both address sales performance and ensure optimal project delivery. Support from the main headquarters in Cebu will remain seamless through CLI s project management team approach. The Philippine property market is cyclical. The Company expects to derive a substantial portion of its revenue in the future from current and future portfolio of residential and mixed-use development projects. Accordingly, the Company is dependent on the state of the Philippine property market. The Philippine property market has in the past 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. While the Company has no control over the property market, this risk is mitigated by the fact that construction for the Company s projects are completed in a fraction of the time taken for comparable-sized projects by other developers. Construction normally begins immediately once properties are acquired in the normal course of business. There remains a significant backlog of housing units in the economic and socialized housing segments in which the Company competes. There is also a growing demand for office spaces to cater to the booming BPO business in Cebu, which is now considered one of the top outsourcing destinations in the world. Financing facilities for buyers in the housing segment has become widely available from financial institutions. Lastly, the Company believes that its reputation as a quality home 26

36 builder and real estate developer, coupled with value for money project developments, will help it withstand the cut-throat competition in the Philippine property market. Given the current geographic concentration of the Company s real estate sales, the Company s results of operations would suffer if the residential housing and land development industry in the Company s current markets decline. A significant portion of the Company s residential housing and land development business is located within Metro Cebu. As a consequence of this, any prolonged economic downturn in this market could have a material adverse effect on the Company s business, results of operations and financial condition. To further cushion the impact of stiff competition in Metro Cebu, the Company is expanding project developments to other highly urbanized centers in CDO, Davao, Dumaguete, Iloilo and Bacolod. The Company remains steadfast in its 2020 vision of becoming the leading local developer in the Visayas and Mindanao regions. The Company might risk being exposed to housing price bubbles brought by historically low interest rates, expansion in overall liquidity, and extensive construction of housing units. With the aggressiveness in the real estate sector developments in the country, a steep rise in property prices was observed. A housing price bubble occurs when demand for property suddenly decreases when the supply on real estate property increases. The rapid upsurge in asset prices might result into an eventual decline in prices as markets recalibrate. In addition, housing price bubble may also happen when speculative investing, which is ubiquitous in China, Hong Kong and Singapore, is apparent. To counter that, the demand registered in the local sector is backed by demands from end-users rather than speculative buyers. This, in turn, diminishes the probability of having the asset price bubbles since real estate properties are not bought as investments but for the purpose of living. Central banks worldwide have kept overall interest rates at historically low levels for an extended period of time. Along with the sustained levels of domestic liquidity owing to strong and growing remittances from OFWs, the expansion of consumer credit provided by banks, the expiry of the BSP s requirement for banks to maintain special deposit accounts, and strong inflows of foreign investments, among other factors, the real estate industry is expected to take advantage of the stronger purchasing power in the current economic environment. The Company is confident in the efforts of the BSP to control inflation and prevent the formation of asset bubbles in real estate. In addition, the Company operates and competes in a market segment where there remains a significant backlog of housing units for end-users comprising of middle-income individuals, couples and families. By doing so, the Company is catering to a market segment which has a particular and real housing need. Moreover, the Company is growing its recurring income with its commercial and office developments, upcoming hospitality business and foray into industrial development, to mitigate the effects of a possible housing price bubble. Increased inflation, fluctuations in interest rates, changes in Government borrowing patterns and Government regulations could have a material adverse effect on the Company s and its customers ability to obtain financing. Interest rates, the Government s fiscal policy and lending regulations among others, could have a material adverse effect on the Company and on the demand for its products. With the bank lending cap imposed by the BSP to the real estate sector, the Company s access to capital and its cost of financing become limited. Once the single borrower limit with respect to their current or preferred bank or banks is met, the Company may encounter difficulty in obtaining financing on the same or similar commercial terms from other banks. A sustainable increase in inflation in the country might push the cost of raw materials upward, which the Company may not be able to pass on to its customers, or to its contractors by having them absorb raw material costs. 27

37 In the event the Government substantially increases its borrowing levels in the domestic currency market, the interest rates charged by banks and other financial institutions are likely to increase and effectively reduce the amount of bank financing available to both prospective property purchasers and real estate developers, including the Company. Since the Company believes that a substantial portion of its customers avail themselves of financing, through either the developer s in-house scheme or through the bank, to fund their property purchases, higher interest is expected to be observed which would make purchases of real estate more expensive, and consequently affects demand for the Company s residential projects. The existence of any of the abovementioned events, or any combination thereof, or of any similar events could have an adverse effect on the Company s business, financial condition, and results of operations. The Government, specifically the BSP, has introduced measures to monitor the real estate sector. Its interventions would help the market become resilient and sustainable. The Company prudently manages its balance sheet and its gearing and leverage ratios are all within or better than industry standards, giving CLI headway to obtain additional bank financing. The real estate sector is capital intensive and might cause difficulty for the Company to readily raise the necessary capital to acquire new land or complete existing projects. The Philippines real estate sector requires a substantial amount of capital to acquire land for development, complete existing projects, and commence construction on new developments. The Company has spent million, million and million for the foregoing activities on years 2014, 2015 and 2016, respectively. The Company has relied on internally-generated funds and external financing for its land banking expenditures and real estate development programs. Due to the capital intensive nature of the real estate industry, it is inevitable that developers will need external support to finance their projects. Failure to obtain the requisite funds could delay or prevent the acquisition of land, completion of ongoing projects or commencement of new projects, which could materially and adversely affect the Company s reputation, financial condition and results of operations. To mitigate this risk, the Company cultivates strong relationships with its partner banks and has always demonstrated caution in its financial management as it strives to be efficient and effective in utilizing its capital. The Company also enters into strategic joint venture partnerships which enable it to position its developments in strategic and prime locations, as its joint venture partners either contribute the land or share in the acquisition cost and the Company takes charge of the property development and project management. Moreover, the Company ensures a high sales turnover of its real estate projects through its industry-leading sales support teams in VisMin. With over 30 sales support personnel, this team collaborates, coordinates and supports over 5,000-strong accredited broker/agent network. This would involve the Company employing a value for money philosophy which creates a larger demand for its real estate developments in comparison to competitors. A portion of demand for the Company s products is from Overseas Filipinos, which exposes the Company to risks relating to the performance of the economies of the countries where these potential customers are located. Sales to overseas Filipinos, including OFWs and Filipino expatriates, who comprise 39% of the Company s buyers, generate a significant portion of the demand for the Company s housing and land development projects. A number of factors could lead to reduced remittances from OFWs, reduced number of overseas Filipinos, or reduced purchasing power of overseas Filipinos. These factors are: an appreciation of the Philippine peso, which would result in decreased value of the other currencies transmitted by overseas Filipinos; any difficulties in the repatriation of funds; a downturn in the economic performance of the countries and regions where a significant number of these potential customers and supporters are located such as the United States, the Middle East, Italy, the United Kingdom, Singapore, Hong Kong and Japan; a change in Government regulations that currently exempt the income of OFWs from taxation in the Philippines; 28

38 the imposition of restrictions by the Government on the deployment of OFWs to particular countries or regions such as the Middle East; and restrictions imposed by other countries on the entry or the continued employment of foreign workers. Any of these events could adversely affect demand for the Company s projects from overseas Filipinos, which could have a material adverse effect on the Company s business, financial condition and results of operations. However, OFW remittances continue to enjoy consistent growth for the past two years. OFW remittances have grown consistently on a year to year basis since For the period from January to December 2016, OFW cumulative remittances reached US$26.9 billion, a growth of 5.1% year-on-year 8. Thus, it is expected that the demand for the Company s housing and land development projects from overseas Filipinos and their families will continue to enjoy stable financing from OFW remittances. The Company engages third party brokers and agents to sell its residential housing, residential condominium, office condominium, and condotel projects. The Company uses third party brokers to market and sell its various real estate offerings to potential customers. If these brokers do not meet their requisite sales targets, the Company s business, financial condition and results of operations could be adversely affected. Moreover, there is competition for the services of third party brokers in the Philippines and many of the Company s competitors may attempt to recruit brokers away from the Company. If a large number of these third party brokers were to cease selling for the Company, the Company would be required to seek other external brokers, and there can be no assurance that the Company could do so quickly or in sufficient numbers. Nevertheless, CLI has maintained a very professional and harmonious working relationship with its extensive brokerage network. All brokers and agents must secure accreditation from CLI as this allows the Company to properly screen, monitor and onboard these third party brokers and agents. As part of its quality commitment, CLI schedules weekly product knowledge seminars, which provide a comprehensive orientation per project. This equips brokers and agents with the latest project data, and gives them greater confidence in the diverse offerings of the Company. With inventory in almost all residential segments and its growing commercial portfolio, these third party brokers are able to offer more enticing options to their potential buyers. The Company has also pioneered various incentive programs for its brokers, which have paved the way for multiple and repeat selling efforts from individual sellers and brokerages. Cancellation of sales involving the Company s projects could adversely affect its business, financial condition and results of operations. As a developer and seller of residential real estate, the Company s business, financial condition and results of operations could be adversely affected in the event a material number of subdivision and condominium unit sales are cancelled. While the Company has historically less than 1% cancellation rate based on the provisions for bad debts in its financial statements, there can be no assurance that it will not experience a material number of cancellations in the future. Should it happen, it will have a material adverse effect on the Company s business, financial condition and results of operations. To prevent cancellations, the Company ensures value for its customers money with its competitive pricing, quality locations, planning and design, generous amenities, timely and quality construction, wellestablished customer care, and after-sales and property management support. Furthermore, to minimize the risk of cancellations, the Company targets a prudent mix of clients, the bulk of which are OFWs and employed professionals and employees. Additionally, the Company markets its brand across several markets in several regions of the world and OFWs comprise 39% of its buyers. The Company aims to diversify its market further in order to avoid excessive dependency on a particular geographic location of buyers. The Company enjoys certain tax exemptions and incentives, the loss of which may increase the Company s tax liability and decrease future Company profits. 8 Bangko Sentral ng Pilipinas data 29

39 The Company benefits from Philippine tax law and regulations which exempt sales of residential lot with gross selling price of 1.9 million or less, and residential houses and lots with a gross selling price of 3.2 million or less from the VAT of 12%. The threshold amount was adjusted by the BIR in 2012, and may be further adjusted relative to changes in the Consumer Price Index released by the Philippine Statistics Authority. In the event such sale will later be subject to the VAT, it is expected that the selling prices for the Company s housing or condominium units may increase, which could adversely affect the Company s sales and results of operations. The Company also has accredited a number of its projects with the BOI, which has allowed such projects to enjoy certain tax incentives. The Company s sales of low-cost subdivision lots and housing units, with unit price between 450,000 and 3 million are currently not subject to corporate income tax. The Company s projects that qualify for the tax holiday are described elsewhere in this Prospectus. There is no guarantee that the Company s future development projects will be able to benefit from the income tax holiday benefits under the BOI, or that accreditation to receive such benefit will not be delayed. The delay or absence of this income tax holiday on any of the Company s future development projects could have an adverse effect on the Company s results of operations. The Company regularly obtains tax advisories from expert consultants to keep it updated on the best tax saving practices. CLI ensures compliance with all the requirements for its tax exemptions or benefits to be able to continue the enjoyment of such benefits. Natural catastrophes may affect the Company s business adversely. The Philippines has experienced a number of major natural catastrophes over the years, including typhoons, volcanic eruptions and earthquakes. The occurrence of such natural catastrophes may materially disrupt and adversely affect the business operations, cause damage to the Company s projects or result to work stoppages or delay construction and project delivery. Although there can be no assurance that it will be adequately compensated for all damages and economic losses resulting from natural catastrophes, the Company maintains comprehensive insurance against natural catastrophes to cover its various developments. Titles over land owned by the Company may be contested by third parties. 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 which has already been registered and over which a title has been issued to another person or entity. The Company, from time to time, may be required to defend itself against third parties who claim to be the rightful owners of land. The Company conducts extensive title searches to determine the authenticity of titles to land offered to it before it acquires any parcel of land. It traces back titles of prospective properties up to the last three significant partitions or ownership transfer and then perform an exhaustive background check of the persons or parties involved in these transactions, especially their court records. It likewise conducts its own topographical and technical surveys of these properties to verify the accuracy of technical descriptions and the correctness of all boundaries. Furthermore, the Company investigates the existence of any prevailing liens or tax obligations which may adversely affect its ownership rights to properties to be acquired. The Company s reputation will be adversely affected if its projects are not completed on time or if the projects do not meet customers requirements. The Company s reputation will be negatively affected if any of its projects carry construction or infrastructure failures, design flaws, significant project delays or quality control issues. Any reputational deterioration may consequently make it more difficult for the Company to attract new buyers to its future projects, to command a higher selling price or to presell its housing and land development projects. The Company has inherent strengths in engineering, project planning and execution. CLI has over 50 inhouse engineers enabling it to handle the project and construction management aspect of every project, and 30

40 to competently manage the various contractors and sub-contractors hired for each project. Due to the Company s technical strengths, it is able to properly control the quality and timely completion of its projects. Park Centrale Tower, the Company s first office development and winner of the Best Commercial Development in Cebu in the 2014 Philippines Property Awards, is proof of the Company s commitment to quality developments. On average, CLI can convert raw land to a fully-developed project in less than two to three years. The Company has historically completed almost all of its projects on time or ahead of schedule, outperforming even national players in this aspect. Independent contractors may not always be available, or may not be able to meet the Company s quality standards, or complete projects on time or within budget, and may encounter difficulties which will result in a delay of the project. The Company relies on various general and specialty independent contractors with both local and national experience to provide various construction services, including land clearing and infrastructure development. Should its independent contractors become unable to perform the contracted scope of work, or are unable to sufficiently meet the Company s demands and project requirements, these will result to delays in the project completion and delivery to customers. Although the Company s personnel works closely with its independent contractors, there can be no assurance that the services rendered by any of its independent contractors will always match the Company s quality standards, or will comply with government requirements and regulations relevant to their contracted scope of work. Independent contractors may also experience financial or other difficulties such as insolvency, shortages or price increase of construction materials, work site accidents or labor issues, any of which could delay the completion or increase the project costs. Violations by the independent contractor of their government permits and licenses, may also affect the progress of the projects they are engaged to work on. Last August 31, 2016, a work site accident occurred at the Company s project in Labangon, Cebu City, involving a welder employed by the independent contractor. While the incident was being investigated by the Office of the Building Official, the project construction was temporarily suspended for 24 days. Although the work site accident was the contractor s liability, the Company voluntarily extended financial assistance to the welder s family. There is no pending or anticipated legal proceedings against the Company arising from this incident. More importantly, the accident has not resulted in buyer cancellations and work has resumed at the project site with completion of this condominium project still on-track as scheduled. Any of these factors will have a negative effect on the Company s reputation and make it more difficult to attract new customers to its new and existing development projects, and have a material adverse effect on the Company s business, financial condition and results of operations. To mitigate this risk, the Company takes on an active role as project managers in supervising each phase of the construction of its projects. The Company also plans to put up its own construction arm in the future. Construction defects and other building-related claims may be asserted against the Company, and the Company may be subject to liability for such claims. Philippine law provides that property developers warrant the structural integrity of condominium units, buildings, resorts and other structures designed or built by them for a period of 15 years from the date of completion. The Company may also be held responsible for hidden (i.e., latent or non-observable) defects in a housing unit sold by it when such hidden defects render the unit 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 unit to the buyer. In addition, Presidential Decree No. 1096, or the National Building Code of the Philippines (the Building Code ), governs, among others, the design and construction of buildings, as well as certain requirements and standards that must be complied with. The Company or its officials may be held liable for administrative fines or criminal penalties in case of any violation of the Building Code. 31

41 There can be no assurance that the Company 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 the Company s insurance and not subject to effective indemnification agreements with the Company s contractors. Neither can there be any assurance that the contractors hired by the Company will be able to either correct any such defects or indemnify the Company for costs incurred by the Company to correct such defects. In the event a substantial number of claims arising from structural or construction defects arise, this could have a material adverse effect on the Company s reputation and on its business, financial condition and results of operations. The Company has inherent strengths in engineering, project planning and execution. While the Company outsources the construction of its projects to third party contractors, CLI actively takes charge of the technical planning, engineering and project management of its developments. Part of its land acquisition process involves the determination of the technical suitability of potential properties to be acquired for its projects. This includes the determination of any technical hindrances, via technical surveys, and the determination of applicable local government requirements, which may impair any development plans and such development s quality. Due to the Company s technical strengths and its strict adherence to its own high development standards and the requirements of the Building Code, it is able to properly control, and assure itself of, the quality and timely completion of its projects. The Company relies on its key executives and officers and the members of the Soberano Family to manage business operations. The Company s key executives and management have contributed to its success with their combined knowledge, experience, business relationship and expertise in the industry. Key executives and members of management of the Company include members of the Soberano family. Aside from occupying key executive positions in the business, the members of the Soberano family also occupy key executive positions in the Company s subsidiary, joint venture companies and affiliates. Jose R. Soberano III is the president of CLI Premier Hotels Intl., Inc., a wholly owned subsidiary, as well as El Camino Developers Cebu, Inc. and Yuson Excellence Soberano, Inc., which are joint venture affiliates of the Company. He also serves as Chairman of the Board of BL CBP Ventures, Inc., and Director of Ming- Mori Development Corporation and Magspeak, which are all joint venture affiliates of the Company. Meanwhile, Jose Franco B. Soberano is concurrently a Director and Corporate Secretary of CLI Premier Hotels Intl., Inc., while Ma. Rosario B. Soberano serves as Director of BL CBP Ventures, Inc., El Camino Developers Cebu, Inc., Yuson Excellence Soberano, Inc., and CLI Premier Hotels Intl., Inc. All three key executives sit on the board of the parent company AB Soberano Holdings Corp. There is no assurance that these other roles will not require significant time and commitment from the members of the Soberano Family which might reduce their time devoted to their current roles in the Company s business. If the Company loses the services of any such individuals or is unable to fill any other vacant key executive or management positions with qualified candidates, the business and operations of the Company may be adversely affected. To minimize the risk, the Company maintains a competent and dynamic team of professional executives and managers engaged in the management of the business. Efforts to professionalize the Company over the last 12 years is evident as the Company has grown from two employees to a dynamic team of 166 executives, managers, officers and staff instilled with the Company s brand of professional work ethics and strong corporate values. The Company believes it maintains a positive and harmonious working relationship with its executives, members of senior management and other key officers. The Company is a party to a number of related party transactions. As of the date of this Prospectus, the Company has no outstanding related party balances with any of its shareholders. It does have outstanding related-party balances to its joint ventures, homeowners associations and condominium corporations ( HACCs ), and with key management personnel. These transactions are described under Related Party Transactions and the notes to the Company s consolidated financial statements appearing elsewhere in this Prospectus. The Company expects that it will continue to 32

42 enter into transactions with companies directly or indirectly controlled by or associated with the CLI s majority shareholders. These transactions may involve potential conflicts of interest between the Company and the CLI majority shareholders in a number of other areas relating to its businesses, including: major business combinations involving the Company and/or its affiliates; plans to develop the respective businesses of the Company and/or its affiliates; and business opportunities that may be attractive to the CLI majority shareholders and the Company. The Company can provide no assurance that its related-party transactions will not have a material adverse effect on its business or results of operations. To mitigate this risk, the Company enters into related-party transactions at an arms-length basis. Moreover, certain related party transactions benefit the Company. For instance, certain loans are collateralized by real estate mortgage on real properties owned by the major stockholders at no cost to the Company. CLI has dramatically reduced any remaining advances to related parties. Company has in fact zeroed out advances to shareholders in The Company may be involved in legal and other proceedings arising out of its operations from time to time. The Company may, in the future, be involved in disputes involving the construction and operation of its properties such as contractual disputes with contractors, suppliers, and homeowners, or disputes involving property damage or personal liability claims from time to time. If these disputes occur, it may result in delays in the Company s project development schedule, incurring substantial costs, and the diversion of Company resources and management s attention. In the course of its operations, the Company may also have disagreements with regulatory bodies, or local government units responsible for issuing the necessary permits or licenses for the Company s business, which may subject it to administrative proceedings and unfavorable decisions or result in fines or penalties and/or delay its projects. Should any of these occur, the Company s business, financial condition, results of operations and cash flows could be materially and adversely affected. To mitigate the risk, the Company strives to maintain good relationship with customers, suppliers, contractors, regulators and other parties it regularly deals with. This is evident in the fact that, at present, the Company is not involved in any material litigation. The Company also endeavors to amicably settle legal proceedings, resort to alternative methods of dispute resolution, and exhaust all legal remedies available. The Company works with various joint venture partners for some of its projects, whose interest may differ from that of the Company s. As part of its land acquisition and development strategy, the Company has entered into joint ventures, and may continue to do so for its future projects and undertakings. The Company and its joint venture partners share in the project in proportion to their respective contribution, and the Company is typically appointed as project developer and project manager having direct control and primary supervision over the conduct, management and operations of the project. Because the joint venture partners or landowners may have economic or business interests that differ from the Company, the joint venture acquisitions and project developments involve additional risks. For example, joint venture partners or landowners may fail to meet their obligations, and dispute the distribution of their joint venture shares or the management and supervision exercised by the Company over the project. In cases where joint venture partners contribute the land for the project, titles to the property in the name of joint venture landowners may still be contested by third parties which will affect the right to possess and develop such land. Any of the foregoing could have a material adverse effect on the Company's business, financial condition and the results of its operations. To reduce this risk, the Company conducts due diligence of its joint ventures partners, and exclusively serves as the developer and project manager in all its joint venture undertakings. 33

43 2. RISKS RELATED TO THE PHILIPPINES Economic Considerations In the past, the Philippines has experienced periods of slow or negative growth, high inflation, significant devaluation of the Philippine currency, imposition of exchange controls, debt restructuring and electricity shortages and blackouts. The regional Asian financial crisis in 1997 resulted in, among others, the depreciation of the Philippine peso, higher interest rates, slower growth, and a reduction in the country s credit ratings. Since the Asian financial crisis, the country experienced a ballooning budget deficit, volatile exchange rates and a relatively weak banking sector. The Government instituted several reform measures in the fiscal and banking sectors, among others, that strengthened the country s economic fundamentals, resulting in improved investor confidence and increased economic activities. Real gross domestic product (GDP) rose by 6.8% in 2016 higher than the 5.9% growth in 2015, due to manufacturing, trade, real estate, renting and other business activities. In 2016, the Philippines posted one of the fastest GDP growths in Asia along with China (6.7%) and Vietnam (6.2%). Among the major economic sectors, industry had the fastest growth at 7.6% percent, higher than previous year s 6.5% growth. The Philippines good economic performance is also attributed to domestic demand, particularly in terms of investment and consumption. For 2017, the economy is expected to advance between 6.5% to 7.5%. It was opined that possible risks to economic growth include extreme weather disturbances such as El Niño and typhoons, possible policy shifts in the U.S., greater volatility in capital outflows and geopolitical risks. Any future economic, political or social instability in the Philippines could adversely affect the Company s business, financial condition or results of operations. To mitigate the abovementioned risks, CLI shall continue to adopt what it considers conservative financial and operational controls and policies within the context of the prevailing business, economic and political environments, taking into consideration the interests of its customers, stakeholders and creditors. Political Considerations The Philippines has from time to time experienced severe political and social instability, including acts of political violence. For example, in 2001, allegations of corruption against former President Joseph Estrada resulted in protracted televised impeachment proceedings against him. These proceedings were followed by widespread street demonstrations and a public withdrawal of support for Estrada by the military that eventually forced Estrada to resign. On July 27, 2003, over 270 military officers and soldiers conducted an unsuccessful coup d état against Estrada s successor, President Gloria Macapagal-Arroyo, due to allegations of corruption. After the May 2004 elections, President Arroyo was re-elected and persistent accusations of corruption and electoral fraud were made against Arroyo during her second term. On February 24, 2006, another attempted coup d état led President Arroyo to issue Proclamation 1017, which was criticized as a virtual declaration of martial law and portions of it were later declared unconstitutional by the Supreme Court of the Philippines. On November 29, 2007, Senator Antonio Trillanes IV, a leader of the 2003 coup d état who was elected to the Senate while in jail, led an armed occupation by military officers and soldiers of a luxury hotel in the Makati financial district and publicly called for President Arroyo s ouster. Senator Trillanes and his troops later surrendered. On November 23, 2009, in the southern island of Mindanao s Maguindanao province, approximately 100 armed men allegedly affiliated with the Ampatuan political family murdered 58 persons, including members of the Mangudadatu family (the Ampatuans political rivals in the province), lawyers, journalists and aides accompanying them, and motorists whose vehicles were behind the Mangudadatus vehicles. This was the deadliest incident of political violence and of violence directed at journalists in recent history and President Arroyo sent hundreds of troops to and declared martial law over Maguindanao after the incident, although martial law has subsequently been lifted. On December 12, 2011, the Philippine House of Representatives initiated impeachment proceedings against Renato Corona, Chief Justice of the Supreme Court of the Philippines. The impeachment complaint accused Corona of improperly issuing decisions that 34

44 favored former President Arroyo, as well as failure to disclose certain properties, in violation of rules applicable to all public employees and officials. The trial of Chief Justice Corona began in January On May 29, 2012, the impeachment court found Corona guilty of failing to disclose to the public his statement of assets, liabilities and net worth and removed Corona from his position as Chief Justice of the Supreme Court of the Philippines. Moreover, since the beginning of the term of President Rodrigo R. Duterte ( Pres. Duterte ), more than 7,000 people have been killed in his so-called war on drugs. These drug-related killings have been subject to legislative inquiries. As a result of the legislative inquiries, the Senate Committees on Justice and Human Right and on Public Order and Dangerous Drugs released a joint Committee Report No. 18 on December 7, 2017, raising standards of accountability while expressing support for the war against illegal drugs and criminality within boundaries of the law. There is no guarantee that future events will not cause political instability in the Philippines. Such instability may disrupt the country and its economy and could materially and adversely affect the business, prospects, financial condition and results of operations of the Company. Terrorist acts, crimes, natural disasters and outbreaks of infectious diseases or fears of such occurrences in 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. On September 2, 2016 an explosion rocked a night market in Davao City, leading to the death of at least 14 people and injuries to over 60 people. As a result of the bombing, Pres. Duterte has declared a state of lawlessness in the country indefinitely. The most recent terrorist activity occurred on December 28, 2016 where two explosions occurred during a town fiesta in Hilongos, Leyte, leaving at least 34 people injured. 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 natural disasters over the years. 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 September 26, 2009, Typhoon Ketsana (Ondoy) resulted in millimeters of rainfall in six hours, causing massive flooding that submerged several areas of Metro Manila and adjacent provinces. The typhoon caused 464 deaths and approximately 86 billion in property damage. On August 6, 2012, a monsoon hit Metro Manila and other nearby provinces which also caused severe flooding and landslides. Other calamities in recent years include unusually strong earthquakes and outbreaks of infectious diseases such as H1N1 influenza (commonly known as swine flu). 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 December 3, 2012, Typhoon Bopha struck the southern island of Mindanao as a Category 5 typhoon, triggering widespread flash flooding and landslides throughout the region. Typhoon Bopha killed over 1,000 people and caused an estimated 42 billion in property damage. 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 35

45 and Cebu. According to recent official reports by the National Disaster Risk 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. More recently on February 10, 2017, a magnitude 6.7 earthquake hit Surigao City, Surigao del Norte in Northern Mindanao. Buildings, road and bridges near the epicenter area were damaged and six people were reported dead, and over a hundred injured. 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. It is not possible to predict the extent to which the Company s business will be affected by any future occurrences of natural calamities such as those described above or fears that such occurrences will take place, and there can be no assurance that any disruption to its business 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 business 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. RISKS RELATING TO THE OFFER AND THE OFFER SHARES The market price of securities can and does fluctuate. The Offer Shares have not been publicly traded and the relative volatility and illiquidity of the securities market may substantially limit investors ability to sell the Offer Shares at a suitable price or at a time they desire. The market prices of securities can and do fluctuate, and it is impossible to predict whether the price of the Offer Shares will rise or fall. An individual security may experience upward or downward movements, and may even lose all its value. There is an inherent risk that losses may be incurred rather than profit made as a result of buying and selling securities. There is an extra risk of losing money when securities are bought from smaller companies. There may be a substantial difference between the buying price and the selling price of such securities. Trading prices of the Offer Shares will be influenced by, among other things: Variations in the Company s operating results; Success or failure of the Company s management team in implementing business and growth strategies; Gain or loss of an important business relationship; Changes in securities analysts recommendations, perceptions or estimates of the Company s financial performance; Changes in conditions affecting the industry, the general economic conditions or stock market sentiments or other events or factors; Differences between the Company s actual financial operating results and those expected by investors and analysts; Additions or departures of key personnel; Changes in general market conditions and broad market fluctuations; and Involvement in litigation. These fluctuations may be exaggerated if the trading volume of the Company s Common Shares is low. The securities market is substantially smaller, less liquid, and more volatile than major securities markets in the United States and other jurisdictions, and is not as highly regulated or supervised as some of these other markets. The Offer Price has been determined by the Company in consultation with the Joint Lead Underwriters, and could differ significantly from the price at which the Offer Shares will trade subsequent to the completion of the Offer. There can be no assurance that after the Offer Shares have been approved for listing on the PSE, an active trading market for the Offer Shares will develop or be sustained after the Offer, or that the Offer Price will correspond to the price at which the Offer Shares will trade in the Philippine public market subsequent to the offer. There is no assurance that investors may sell the Offer Shares at prices or at times deemed appropriate. 36

46 There can be no guarantee that the Offer Shares will be listed on the PSE. Subscribers of the Offer Shares are required to pay for their purchase upon submission of their Applications during the Offer Period. Assuming approval by the PSE of the Company s application to list the Offer Shares, the Listing Date will be scheduled after the Offer Period. The Company has taken steps to ensure that it fully complies with the registration and listing requirements and regulations in order to ensure that the Offer Shares will be listed on the PSE. However, there can be no guarantee that listing will occur on the anticipated Listing Date or at all. Delays in admission and commencement of trading in shares on the PSE have occurred in the past. If the PSE does not admit the Offer Shares onto the PSE, the market for the Offer Shares will not be liquid and investors may not be able to trade the Offer Shares. However, they would be able to sell their Shares by negotiated sale. This may materially and adversely affect the value of the Offer Shares. There may be no liquidity in the market for the Offer Shares and the price of the Offer Shares may fall. The Offer Shares will be listed in the PSE where trading volumes have been historically and significantly smaller and highly volatile compared to major securities markets in more developed countries. There can be no assurance that an active market for the Offer Shares will develop following the Offer or, if developed, that such market will be sustained. The Offer Price will be determined after taking into consideration a number of factors including, but not limited to, the Company s prospects, the market prices for shares of comparable companies and prevailing market conditions. The price at which the Offer Shares will trade on the PSE at any point after the Offer may vary significantly from the Offer Price. Foreign ownership limitations may affect the liquidity of the market for the Offer Shares. The Constitution and other related statutes restrict the exploration, development, and utilization of natural resources, as well as, ownership of private lands to Philippine Nationals. The term Philippine National as defined under the Foreign Investments Act (Republic Act No. 7042, as amended) means a citizen of the Philippines, or a domestic partnership or association wholly-owned by citizens of the Philippines, or a corporation organized under the laws of the Philippines of which at least 60% of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines, or a corporation organized abroad and registered to do business in the Philippines under the Corporation Code, of which 100% of the capital stock outstanding and entitled to vote is wholly-owned by Filipinos or a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine National and at least 60% of the fund will accrue to the benefit of Philippine Nationals. Pursuant to Philippine SEC Memorandum Circular No. 8, Series of 2013, which generally applies to all corporations engaged in identified areas of activities or enterprises specifically reserved, wholly or partly, to Philippine nationals by the Philippine Constitution, the Foreign Investments Act of 1991 and other existing laws, amendments thereto, and implementing rules and regulations of the said laws, for purposes of determining compliance with the constitutional or statutory ownership requirement, the required percentage of Filipino ownership shall be applied to both: (i) the total number of outstanding shares of stock entitled to vote in the election of directors; and (ii) the total number of outstanding shares of stock, whether or not entitled to vote in the election of directors. Foreign equity participation in entities such as the Company, which owns and continues to acquire private lands, is limited to a maximum of 40%. Therefore, to the extent that foreign investors ability to buy the Offer Shares is limited, these restrictions may affect the liquidity of the Offer Shares. Future sales of Common Shares in the public market could adversely affect the prevailing market price of the Common Shares and shareholders may experience dilution in their holdings. In order to finance the expansion of the Company s business and operations, the Company s board of directors will consider all funding options available to the Company at the time, which may include the issuance of new Common Shares. If additional funds are raised through the issuance of new equity or equity-linked securities other than on a pro rata basis to existing shareholders, the percentage ownership of 37

47 the shareholders may be reduced, shareholders may experience subsequent dilution and/or such securities may have rights, preferences and privileges senior to those of the Common Shares. Further, the market price of the Common Shares could decline as a result of future sales of substantial amounts of the Common Shares in the public market or the issuance of new Common Shares, or the perception that such sales, transfers or issuances may occur. This could also materially and adversely affect the prevailing market price of the Common Shares or the Company s ability to raise capital in the future at a time and at a price the Company deems appropriate. Investors in the Offer Shares will face immediate and substantial dilution in the net asset value per Offer Share and may experience future dilution. The Offer Price is substantially higher than the net book value per share of P1.198 per share as at December 31, Thus, there will be an immediate and substantial dilution in the net asset value per share to new investors. See Dilution on page [51] of this Prospectus. 38

48 USE OF PROCEEDS Assuming a maximum Offer Price of P[6.56] per Primary Offer Share and the stabilization option being exercised in full, the Company expects to raise from the Primary Offer gross proceeds of approximately P[2,820,800,000]. After deducting fees, taxes and other expenses related to the Offer and payable by the Company as set out below, the net proceeds of the Primary Offer will be approximately P[2,660,000,000]. The Company will not receive any proceeds from the Secondary Offer. The costs and expenses to be incurred by the Company for the Offer will be approximately P[160.8] million, consisting of: Primary (in P) Secondary (in P) Total (in P) Gross Proceeds [2,820,800,000] [984,000,000] [3,804,800,000] Estimated Offer expenses: PSE listing and processing fees [9,377,781.63] [3,271,319.17] [12,649,100.80] SEC registration and listing fees [1,347,602.95] [470,094.05] [1,817,697.00] Underwriting and selling commission fees [75,827,956.99] [26,451,612.90] [102,279,569.89] Estimated professional and accounting fees [7,413,793.10] [2,586,206.90] [10,000,000.00] Estimated fee of Stock Transfer Agent and Receiving Agent [1,482,758.62] [517,241.38] [2,000,000.00] Estimated costs of printing and marketing [3,706,896.55] [1,293,103.45] [5,000,000.00] Documentary stamp tax [2,150,000.00] [562,500.00] [2,712,500.00] IPO Tax [56,416,000.00] [39,360,000.00] [95,776,000.00] Miscellaneous expenses [3,077,210.16] [1,073,445.40] [4,150,655.56] Total Offer Expenses [160,800,000.00] [75,585,523.26] [236,385,523.26] Estimated Net Proceeds [2,660,000,000.00] [908,414,476.74] [3,568,414,476.74] The net proceeds from the sale of the Primary Offer Shares are intended to be used in the following order of priority, estimated amounts and estimated disbursement schedule: Use of Proceeds Estimated Amount (in ) Estimated Timing of Disbursement Capital Expenditures Land Acquisitions and [2,200,000,000] Investment in Joint Ventures and Associates Debt Repayment [400,000,000] Working Capital [60,000,000] Total [2,660,000,000] 39

49 Use of Proceeds from the Primary Offer The Company will use the proceeds of the Offer to partially finance key land acquisitions, investments in joint ventures and associates, debt repayment and general corporate purposes. To fully finance the Company s land acquisitions and development costs for its VisMin expansion and Cebu projects enumerated below, CLI will use internally generated funds and bank financing. To completely pay off the debts enumerated below, the Company will use internally generated funds. Capital expenditures Land acquisitions VisMin The Company aims to further expand its footprint in the VisMin regions. The proceeds will be used to acquire strategic sites in CDO, Davao City, Bacolod, Iloilo and Dumaguete. The Company will primarily roll out its successful mid-market residential format (the Garden-series) and economic housing brand (Casa Mira). It will also seek opportunities for mixed-use developments in these key regional hubs. CLI intends to use approximately P1.05 billion to acquire various properties for the following VisMin projects: Land Acquisition VisMin Intended Use Estimated Allocation (in ) Estimated Timing of Disbursement Status Davao City Residential [120,000,000] 2H 2017 Completed negotiation but no payments made Davao City Mixed-Use [300,000,000] 1H 2018 Completed negotiation but no payments made Bacolod City Mixed-Use [150,000,000] 2H 2017 Completed negotiation but no payments made Bacolod City Residential [120,000,000] 2H 2017 Under negotiation Jaro, Iloilo Residential [60,000,000] 2H 2017 Under negotiation Dumaguete City Residential [50,000,000] 2H 2017 Completed negotiation with downpayment Cagayan de Oro Residential [150,000,000] 2H 2017 Completed negotiation with downpayment Bohol Residential [100,000,000] 1H 2018 Ongoing site evaluation Total [1,050,000,000] As of the date of this Prospectus, the development of these projects has not yet commenced. Land acquisitions Cebu In Cebu, the Company will use the proceeds to further cement its hold as Cebu s leading local home developer while also gaining increased market share in the office, retail and hospitality segments. CLI intends to use approximately P[910] million to acquire various properties for the following Cebu projects: Land Acquisition Cebu Intended Use Estimated Allocation (in ) Estimated Timing of Disbursement Status Guadalupe, Cebu Residential [180,000,000] 2H 2017 Completed negotiation with downpayment Mactan, Cebu Hotel/Residential [400,000,000] 2H 2017 Ongoing site evaluation Bogo City, Cebu Residential [30,000,000] 2H 2017 Under negotiation Minglanilla/Talisay [300,000,000] 1H 2018 Ongoing site evaluation Total [910,000,000] As of the date of this Prospectus, the development of these projects has not yet commenced. Investment in joint ventures and associates 40

50 The Company will invest approximately P240 million in additional capital investments in its joint ventures and associates. The final breakdown of the amount to be invested in each entity will be determined at a future date depending on the specific needs that may arise for the projects developed under each entity. Investment in Joint Ventures and Associates Intended Use Estimated Allocation (in ) Estimated Timing of Disbursement Capital Investments in JVs and Additional Investment 240,000,000 2H H 2018 Associates Total 240,000,000 For a detailed discussion on these joint ventures and associates and their respective objectives, see discussion under Business Overview Joint Ventures / Associates. Debt Repayment The Company intends to use P400 million of the net proceeds to partially repay its short-term loans with Philippine National Bank ( PNB ), China Bank Corporation ( China Bank ) and Metropolitan Bank and Trust Company ( Metrobank ), as follows: Banks to be Repaid Interest Rate Maturity Estimated Allocation (in ) Estimated Timing of Disbursement PNB 3.00% July ,000,000 2H 2017 China Bank 3.50% July ,000,000 2H 2017 Metrobank 3.25% July ,000,000 2H 2017 Total 400,000,000 The P200 million revolving credit line from PNB that CLI incurred in July 2016 was used to augment working capital and to finance the development of Mivesa Garden Residences (Phase 1 and 2). CLI s loan line of P50 million from China Bank, available by way of short term promissory notes with interest, was incurred in July 2016 to finance additional working capital and operational cash requirements. General and Working Capital The balance of the proceeds, if any, shall be used by the Company for general corporate purposes, including but not limited to working capital purposes. General corporate purposes and working capital include cash provisions for operating expenses such as salaries and utilities, cash settlement of trade payables when due, and other miscellaneous expenses which are not capitalized. The Company s revolving fund for working capital is mainly funded by cash flows from operations such as its conversion of receivables into cash. Excess IPO proceeds, if any, are only meant to augment this fund. The priority for the use of IPO proceeds shall be for the Company s capital expenditure plans such as land acquisition, project construction and development, and investments in JVs to develop real estate projects. All the foregoing discussion represents a best estimate of the use of proceeds of the Offer based on the Company s current plans and anticipated expenditures, and the actual amount and timing of disbursement of the net proceeds from the Primary Offer will depend on various factors which include, among other factors, changing market conditions or new information regarding the cost or feasibility of the Company s expansion plans and projects. Actual allocation of net proceeds by the Company may vary from the foregoing discussion as the Company s management may find it necessary or advisable to reallocate the net proceeds within the categories described above or to use such net proceeds for other corporate purposes. Likewise, it is possible that the timeline for the implementation of the projects or otherwise the use of the proceeds as discussed above may be delayed. In the event that there is any change in the Company s development plan, including force majeure and circumstances, such as (i) failure to obtain requisite approvals (ii) changes in government policies that would render any of the above plans not commercially viable, and (iii) changes in economic or market conditions, the Company will carefully evaluate the situation and may reallocate the proceeds for future investments and/or hold such funds on short term deposit or other alternatives, whichever is better for the Company s and its shareholders collective interest. In such event, the Company will issue a public disclosure if there is any change in the above proposed use of proceeds and shall accordingly inform the SEC, the PSE and its shareholders at least 30 days prior to its implementation. 41

51 In the event that the actual expenses are more than the estimates, or the actual net proceeds are less than projected, the Company will utilize said net proceeds based on their order of priority and will use internally-generated funds and bank loans to finance the shortfall, or delay or abandon one or more of the components of its plans. In such an event, the Company shall inform the SEC, the PSE and its shareholders at least 30 days prior to its implementation. In the event of any significant deviation, material adjustment or reallocation in the planned use of proceeds, the Company will secure the approval of its Board of Directors for such deviation, adjustment or reallocation and promptly make the appropriate disclosures to the SEC and the PSE. The Company shall regularly disclose to the PSE, through the PSE Electronic Disclosure Generation Technology ( PSE EDGE ), any disbursements from the proceeds generated from the Offer. In addition, the Company shall likewise submit via the PSE EDGE the following disclosure to ensure transparency in the use of proceeds: 1. Any disbursements made in connection with the planned use of proceeds from the Offer; 2. Quarterly Progress Report on the application of the proceeds from the Offer on or before the first fifteen (15) days of the following quarter. The quarterly progress report should be certified by the Company s Chief Financial Officer or Treasurer and external auditor; 3. Annual Summary of the application of proceeds on or before January 31 of the year following the initial public offering. The annual summary report should be certified by the Company s Chief Financial Officer or Treasurer and external auditor; and 4. Approval by the Company s Board of Directors of any reallocation on the planned use of proceeds, or of any change in the work program. The actual disbursement or implementation of such reallocation will be disclosed by the Company at least thirty (30) days prior to the said actual disbursement or implementation. The quarterly and annual reports of the Company as required in items 2 and 3 above must include a detailed explanation for any material variances between the actual disbursements and the planned use of proceeds section. Such detailed explanation will state the approval of the Board of Directors as required in item 4 above. Except as otherwise disclosed in this Prospectus, none of the proceeds from the Primary Offer will be used to reimburse any officer, director, employee or shareholder of the Company for services, assets or money previously rendered, transferred, advanced or otherwise. Likewise, none of the proceeds from the Primary Offer will be used by the Company to prepay or repay any existing debt or liabilities of the Company to any of the Joint Lead Underwriters (save for fees and reimbursement of expenses relating to the Offer) or to banks which are under common control with such Joint Lead Underwriters. 42

52 SHARE CAPITAL INFORMATION DESCRIPTION OF THE SHARES The Company has an authorized capital stock of P2,500,000,000 consisting of 2,400,000,000 Common Shares with a par value of P1.00 per Common Share and 1,000,000,000 Preferred Shares with a par value of P0.10 per Preferred Share. This is pursuant to the Company s increase in authorized capital stock and change in par value from P1,000,000,000 divided into 9,000,000 Common Shares and 1,000,000 Preferred Shares with a par value of P per share, to P2,500,000,000 consisting of 2,400,000,000 Common Shares with a par value of P1.00 per Common Share and 1,000,000,000 Preferred Shares with a par value of P0.10 per Preferred Share, approved by the SEC on October 24, Out of such increase in authorized capital, P400,000,000 has been subscribed by AB Soberano. The subscribed and paid-up capital stock of the Company consisting of 1,284,000,000 Common Shares are fully paid. As of the date of this Prospectus, there are no outstanding Preferred Shares. The Common and Preferred Shares are not traded in any market nor are they subject to outstanding options or warrants to purchase, or securities convertible into shares of the Company. Prior to the Offer, there has been no public trading market for any of the Company s Common or Preferred Shares. OBJECTIVE AND PURPOSE The Company s primary purpose is to acquire by purchase, exchange, assignment, gift or otherwise, and to manage and hold, sell, assign, transfer, exchange, lease, let, develop, mortgage, pledge, traffic, deal in and with and otherwise operate, enjoy and dispose of, all real properties of every kind and description and wherever situated, and to the extent permitted by law, real estate whether improved or unimproved and any interest or rights therein, as well as buildings, tenements, factories, edifices and structures, and other improvements. RIGHTS RELATING TO THE OFFER SHARES Voting Rights Each Common Share entitles the holder to one vote at all shareholders meetings for each Common Share standing in his name on the books of the Company at the time or closing thereof for the purpose of the meeting. In determining the shareholders who are entitled to vote at any meeting of the stockholders, the Board may provide that the stock and transfer book be closed for a stated period not exceeding 20 days. The directors are elected by the shareholders at the annual shareholders meeting. Cumulative voting is allowed whereby a shareholder may cumulate his votes by giving one candidate as many votes as the number of directors to be elected multiplied by the number of his shares. Voting rights cannot be exercised with respect to shares declared delinquent, treasury shares, or if the shareholder has elected to exercise his appraisal rights. Fundamental Matters Requiring Stockholder Approval Corporate power and competence is lodged primarily with the Board of Directors. However, the Corporation Code considers certain matters as significant corporate acts that may be implemented only with the approval of shareholders, including those holding shares denominated as non-voting in the Articles of Incorporation. These acts, which require Board approval and the approval of shareholders representing at least two-thirds (2/3) of the issued and outstanding capital stock of the company in a meeting duly called for the purpose (except for the amendment of the By-Laws and the approval of management contracts in general, which require approval of shareholders representing a majority of the company s outstanding capital stock), include: Amendment of the Articles of Incorporation; Extension or shortening of corporate term; 43

53 Increase or decrease of capital stock and incurring, creating or increasing bonded indebtedness; Delegation to the Board the power to amend or repeal or to adopt new By-Laws; Sale, lease, exchange, mortgage, pledge or other disposition of all or a substantial part of the Company s assets; Merger or consolidation of the Company with another corporation or corporations; Investment of corporate funds in any other corporation or for a purpose other than the primary purpose for which the Company was organized; Dissolving the Company; Declaration or issuance of stock dividends; Ratification of a contract between the Company and a director or officer where the vote of such director or officer was necessary for approval; Entering into a management contract where (a) a majority of directors of the managing corporation constitutes the majority of the board of the managed company or (b) stockholders of both the managing and managed corporations represent the same interest and own or control more than one-third of the outstanding capital stock entitled to vote; Removal of directors; Ratification of an act of disloyalty by a director; and Ratification of contracts with corporations in which a director is also a member of the board, where the interest of the directors is substantial in one corporation and nominal in the other. Pre-emptive Rights The Corporation Code confers pre-emptive rights on shareholders of a Philippine corporation, which give the shareholders the right to subscribe to all issues or other disposition of shares of any class by the corporation in proportion to their respective shareholdings, subject to certain exceptions. A Philippine corporation may provide for the denial of the pre-emptive rights in its Articles of Incorporation. The Articles of Incorporation of the Company denies shareholders the pre-emptive right to subscribe to all issues or dispositions of shares of the present capital or on future/subsequent classes of shares and increases in the capital of the Company. Derivative Suits Philippine law recognizes the right of a shareholder to institute, under certain circumstances, proceedings on behalf of the corporation in a derivative action in circumstances where the corporation itself is unable or unwilling to institute the necessary proceedings to redress wrongs committed against the corporation or to vindicate corporate rights, as for example, where the directors themselves are the malefactors. Appraisal Rights The Corporation Code grants a shareholder a right of appraisal in certain circumstances where such shareholder has dissented and voted against a proposed corporate action, including: An amendment of the Articles of Incorporation which has the effect of adversely affecting the rights attached to such shareholder s shares or of authorizing preferences in any respect superior to those of outstanding shares of any class or of extending or shortening the term of corporate existence of the corporation; 44

54 The sale, lease, exchange, transfer, mortgage, pledge or other disposal of all or substantially all the assets of the corporation; The investment of corporate funds in another corporation or business or for any purpose other than the primary purpose for which the corporation was organized; and A merger or consolidation. In these circumstances, the dissenting shareholder may require the corporation to purchase his shares at a fair value which, in default, is determined by three disinterested persons, one of whom shall be named by the stockholder, one by the corporation, and the third by the two thus chosen. In the event of a dispute, the SEC will resolve any question relating to a dissenting shareholder s entitlement to exercise the appraisal rights. The dissenting shareholder will be paid if the corporate action in question is implemented and the corporation has unrestricted retained earnings sufficient to support the purchase of the shares of the dissenting shareholders. Right to Dividends Dividends will be declared only from the unrestricted retained earnings and will be payable at such time, in such manner and in such amounts as the Board will determine. Dividends will be paid in proportion to the outstanding stock held by the stockholders, and in accordance with law and applicable rules and regulations. In determining the shareholders who are entitled to receive payment of any dividend, the Board may provide that the stock and transfer book be closed for a stated period not exceeding 20 days. Please see discussion in section on Dividends and Dividends Policy on page [48] of this Prospectus. Right of Inspection and Disclosure Requirements Philippine stock corporations are required to file an annual general information sheet, which sets forth data on their management and capital structure, and copies of their annual financial statements with the SEC. Corporations must also submit their annual financial statements to the BIR. Corporations whose shares are listed on the PSE are also required to file current, quarterly and annual reports with the SEC and the PSE. Shareholders are entitled to require copies of the most recent financial statements of the corporation, which include a statement of financial position as of the end of the most recent tax year and a statement of income for that year. Shareholders are also entitled to inspect and examine the books and records which the corporation is required by law to maintain. Change in Control The Company s Articles of Incorporation provides that no transfer of stock or interest, which will reduce the ownership of Filipino citizens to less than the required percentage of the outstanding capital stock, shall be allowed or permitted to be recorded in the stock and transfer book. The Philippine Constitution and related statutes set forth restrictions on foreign ownership of companies engaged in certain activities. For more information relating to restrictions on the ownership of the Offer Shares, see the discussion under Risk Factors on foreign ownership limitations on page [38] of this Prospectus and Restriction on Foreign Ownership on page [18] of this Prospectus. RIGHTS RELATING TO THE PREFERRED SHARES The Preferred Shares have full voting rights, with each holder entitled to one vote at all shareholders meetings for each Preferred Share standing in his name on the books of the Company. The Preferred Shares are also entitled to non-cumulative cash dividend based on the rate of its par value. The Corporation Code provides that except as otherwise provided in the Articles of Incorporation and stated in the stock certificate, each share shall be equal in all respects to every other share. 45

55 MEETINGS OF THE SHAREHOLDERS Annual Meeting of Shareholders The annual meeting of the shareholders of the Company for the election of directors and the transaction of business is held every first Friday of July each year, unless such day falls on a holiday, in which case the meeting will be held on the next business day. Special Meetings of Shareholders Special meetings of the stockholders may be called by any of the following: (a) by resolution of the Board at its own instance, or at the written request of stockholders representing a majority of the capital stock, or (b) by order of the President. Notice of Meetings Notice of annual and special meetings of shareholders may be sent by personal delivery, by mail, telegraph, cable, facsimile, electronic mail or other electronic means to each stockholder of record entitled to vote at such meeting at the address and/or facsimile, telegraph number or electronic mail address last known to the Secretary or Assistant Secretary of the Corporation, at least 15 days before the date of the meeting. The notice shall state the date, time and place of the meeting and the agenda or purpose/s of the meeting. Notice of any meetings may be waived, expressly or impliedly, by any stockholder. Place of Meetings All meetings of the stockholder shall be held at the principal office of the Company, unless written notice of such meetings should fix another place within the same municipality or city where the said principal office is located. Proxy Stockholders, when entitled, may vote at all their meetings either in person or by proxy duly given in writing and presented to the Secretary or Assistant Secretary at least five business days before the meeting. A proxy need not be a stockholder and, unless otherwise provided in the proxy, it shall be valid only for the meeting at which it has been presented. Quorum No stockholders meeting shall be competent to decide any matter or transact any business, unless stockholders owning at least a majority of the outstanding capital stock is present or represented thereat, except where otherwise provided by law. Voting during Shareholders Meeting Voting upon all questions at all meetings of the stockholders shall be by number of shares held and not per capita. All elections and questions, except in cases specified by law or the Company s Articles of Incorporation, shall be decided by the majority vote of the stockholders present in person or by proxy, a quorum being present. Unless required by law or demanded by a stockholder present in person or by proxy at any meeting, the vote on any question need not be by ballot. On a vote by ballot, each ballot shall be signed by the stockholder voting, or in his name by his proxy if there be such proxy, and shall state the number of shares voted by them. BENEFICIAL OWNERSHIP DICLOSURE The Securities Regulation Code and the SRC Rules provide for disclosure of beneficial and legal ownership of shares in a reporting company, such as a public company. The term beneficial owner or beneficial ownership is defined under the SRC Rules. 46

56 Any person who acquires directly or indirectly the beneficial ownership of five percent (5%) or more of any class of equity securities of a public company shall within five (5) business days after such acquisition submit to the issuer, the exchange where the security is traded and to the SEC a sworn statement containing the information required by SEC Form 18-A. If the equity securities under the name of the legal owner are beneficially owned by another person/s, the legal owner and beneficial owner shall file individually or jointly. The regulations also provide that if any change occurs in the facts set forth in the statements, an amendment shall be transmitted to the issuer, the exchange and the SEC. Every person who is, directly or indirectly, the beneficial owner of ten percent (10%) or more of any class of any security of a public company, or who is a director or an officer of the issuer of such security, shall: (i) within ten (10) calendar days after the effective date of the registration statement for that security, or within ten (10) calendar days after he becomes such beneficial owner, director or officer, subsequent to the effective date of the registration statement, whichever is earlier, file a statement with the SEC, and with the exchange, if the security is listed on an exchange, on SEC Form 23-A indicating the amount of securities of such issuer of which he is the beneficial owner; (ii) within ten (10) calendar days after the close of each calendar month thereafter, if there has been any change in such ownership during the month, file a statement with the SEC and with the exchange, if the security is listed on an exchange, on SEC Form 23-B indicating his ownership at the close of the calendar month and such changes in his ownership as have occurred during that calendar month, and (iii) notify the SEC if his direct or indirect beneficial ownership of securities falls below ten percent (10%), or if he ceases to be an officer or director of the issuer. However, a newly appointed officer, who has no beneficial ownership over the shares of the company, shall notify the SEC of such fact within ten (10) calendar days from such appointment. If the security is listed on an exchange, the report shall be filed on that exchange in accordance with the rules of the exchange, but not more than five (5) calendar days after such person became beneficial owner. The filing with the exchange may be deemed as filing with the SEC pursuant to a Memorandum of Agreement between the exchange and the SEC; provided that the Memorandum of Agreement shall provide for the ability of the SEC to download and upload the same information made available to the exchange. The law and regulations contain a separate procedure and conditions by which the following entities may comply with the disclosure obligation: broker or dealer registered under the SRC, a bank authorized to operate as such by the BSP, an insurance company subject to the supervision of the Insurance Commission, an investment house registered under the Investment Houses Law, an investment company registered under the Investment Company Act, a pension plan subject to the regulation and supervision by the BIR and/or the Insurance Commission, or a group where all its members are persons specified above. MANDATORY TENDER OFFERS The rules on mandatory tender offers are provided in the Securities Regulation Code and the SRC Rules. Under the SRC Rules: Any person or group of persons acting in concert, who intends to acquire 15% of equity securities in a public company in one or more transactions within a period of 12 months, shall file a declaration to that effect with the SEC. Any person or group of persons acting in concert, who intends to acquire 35% of the outstanding voting shares or such outstanding voting shares that are sufficient to gain control of the board in a public company in one or more transactions within a period of 12 months, shall disclose such intention and contemporaneously make a tender offer for the percentage sought to all holders of such securities within the said period. Any person or group of persons acting in concert, who intends to acquire 35% of the outstanding voting shares or such outstanding voting shares that are sufficient to gain control of the board in a public company through the Exchange trading system shall not be required to make a tender offer even if such person or group of persons acting in concert acquire the remainder through a block sale if, after acquisition through the Exchange trading system, they fail to acquire their target of 35% or such outstanding voting shares that is sufficient to gain control of the board. 47

57 Any person or group of persons acting in concert, who intends to acquire 35% of the outstanding voting shares or such outstanding voting shares that are sufficient to gain control of the board in a public company directly from one or more stockholders shall be required to make a tender offer for all the outstanding voting shares. The sale of shares pursuant to the private transaction or block sale shall not be completed prior to the closing and completion of the tender offer. If any acquisition that would result in ownership of over 50% of the total outstanding equity securities of a public company, the acquirer shall be required to make a tender offer under the SRC Rules for all the outstanding equity securities to all remaining stockholders of said company at a price supported by a fairness opinion provided by an independent financial advisor or equivalent third party. The acquirer in such a tender offer shall be required to accept all securities tendered. RECENT SALE OF UNREGISTERED SECURITIES On July 1, 2016, the Board of Directors and the stockholders of CLI approved the increase in the authorized capital stock of the Company from P1,000,000, to P2,500,000, Out of such increase in authorized capital stock, AB Soberano was the sole subscriber, purchasing P400,000, worth of newly-issued Common Shares at a price equal to its par value of P1.00 per share. The application for increase in authorized capital stock was approved by the SEC on October 24, In 2014, the Company declared a total of 2,000,000 Common Shares as stock dividends to all stockholders of record as of November 30, Subsequently, in 2015, the Company declared a total of 3,000,000 Common Shares as stock dividends to all stockholders of record as of December 15, No underwriting discounts or commissions were incurred or paid for the foregoing issuances of shares. No request for confirmation of exemption was filed by the Company for the sale of securities relying upon exemptions under Sec. 10.1(d) and (i) of the SRC. 48

58 LIMITATIONS AND REQUIREMENTS DIVIDENDS AND DIVIDENDS POLICY Under Philippine law, a corporation can only declare dividends to the extent that it has unrestricted retained earnings. Unrestricted retained earnings represent the amount of accumulated profits and gains realized out of the normal and continuous operations of the company after deducting therefrom distributions to stockholders and transfers to capital stock or other accounts, and which is: (i) not appropriated by its Board for corporate expansion projects or programs: (ii) not covered by a restriction for dividend declaration under a loan agreement; or (iii) not required to be retained under special circumstances obtaining in the corporation such as when there is a need for a special reserve for probable contingencies. Thus, dividend declaration may be withheld by the Board of Directors when it is justified by definite corporate expansion, or when the Company is prohibited under any loan agreement with any financial institution or creditor, whether local or foreign, from declaring dividends without its consent, and such consent has not been secured, or when it can be clearly shown that the retention of earnings is necessary such as that specified in item (iii) above. A corporation may pay dividends in cash, by the distribution of property, or by the issuance of shares. Board approval suffices for the declaration of cash and property dividends. However, stock dividends may be paid and distributed only upon the approval of the shareholders representing not less than 2/3 of the outstanding capital stock at a regular or special meeting called for that purpose. The payment of stock dividends is subject to the approval of the SEC and PSE. Holders of Preferred Shares are entitled to non-cumulative cash dividend based on the rate of its par value. RECORD DATE AND PAYMENT DATE Under relevant regulations, cash dividends declared by the Company shall have a record date not less than 10 nor more than 30 days from the date of declaration. For stock dividends, the record date shall not be less than 10 nor more than 30 days from the date of the shareholders approval, provided however, that in the case of a listed company, the set record date shall not be less than 10 trading days from receipt by the PSE of the notice of declaration of stock dividend. In the event that a stock dividend is declared in connection with an increase in authorized capital stock, the corresponding record date is to be fixed by the SEC. Under the By-Laws of the Company, the Board may provide that the stock and transfer book be closed for a stated period not exceeding 20 days. For corporations the shares of which have been lodged with the PCD, all stock dividends and all cash dividends declared by the company shall be remitted to PCD for immediate distribution to its Participants no later than 18 trading days from record date (the Payment Date ) provided, that in case of stock dividends, the credit of the stock dividend shall be on the Payment Date which in no case shall be later than the stock dividends listing date. NO DIVIDEND POLICY The payment of dividends in the future will depend upon the earnings, cash flow and financial condition of the Company and other factors. Special cash dividends are declared depending on the availability of cash, taking into account the Company s capital expenditures and project requirements. There can be no guarantee that the Company will pay any dividends in the future. The Company has not adopted any dividend policy. DIVIDENDS DECLARED The Company has declared the following cash and stock dividends. Cash Dividends Year of Dividend Declaration Rate of Dividend Declared per Share (in P) Record Date Amount Paid (in P) 49

59 Stock Dividends November 3, ,000, February 28, ,000, June 15, ,000, October 15, ,000, December 15, ,000, March 31, ,000, August 31, ,943, September 15, ,150, September 30, ,000, November 21, ,000, December 1, ,000, December 1, ,000, Year Rate of Dividend Declared per Share (in P) Record Date November 30, ,000, December 15, ,000,000 No. of Shares No dividends have been declared by the Company s newly incorporated subsidiary, CLI Premier Hotels Intl., Inc., to date. 50

60 DETERMINATION OF OFFER PRICE The Offer Price has been set at up to P[6.56] per Offer Share. The Offer Price will be determined and finally set through a book-building process and discussions between the Company, the Selling Shareholders and the Joint Lead Underwriters. Since the Company and the Offer Shares have not been listed on any stock exchange, there is no market information for the Offer Shares and there has been no market price for the Offer Shares derived from day-to-day trading. The factors considered in determining the Offer Price are, among others, the Company s ability to generate earnings and cash flow, its short and long-term prospects, the level of demand from institutional investors, overall market conditions at the time of the launch and the market price of listed comparable companies. The Offer Price may not have any correlation to the actual book value as of 31 December 2016 of the Offer Shares. 51

61 DILUTION The Offer Shares will be sold at the Offer Price, which will be substantially higher than the net tangible book value per share of the outstanding Common Shares and will result in an immediate material dilution of the new investors equity interest in the Company. As of [December 31, 2016], the net tangible book value of the Company is at P[1.538] billion or P[1.198] per share. Net tangible book value represents the amount of the Company s total tangible assets less its total liabilities. The Company s net tangible book value per share represents its net tangible book value divided by the number of Common Shares outstanding. After giving effect to the increase in the Company s net tangible book value to reflect its receipt of the net proceeds of the Primary Offer due to the Company estimated at up to P[2.660] billion and the addition of a total of up to 430,000,000 million new Common Shares subject of the Offer, the Company s pro-forma net tangible book value would approximately be up to P[2.449] per share. This represents an immediate increase of up to P[1.251] per Common Share to existing shareholders and dilution of up to P[4.111] per share to Offer investors. This dilution in net tangible book value per share represents the estimated difference between the Offer Price and the approximate pro-forma net tangible book value per share immediately following the receipt of the net Offer proceeds by the Company. The following table illustrates dilution on a per Common Share basis, based on the Offer Price per Offer Share: Offer Price Per Offer Share [P6.56] Net tangible book value per share as of December 31, 2016 [P1.198] Increase in book value per share attributable to the Offer [P1.251] Pro-forma book value per share after the Offer [P 2.449] Dilution per Common Share to Investors in the Offer [P4.111] The following table sets forth the shareholdings, and percentage of Common Shares outstanding, of existing and new shareholders of the Company immediately after completion of the Offer assuming full exercise of the Over-allotment Option: Number of Shares % Existing shareholders [1,134,000,000] [66.16] New investors [580,000,000] [33.84] Total [1,714,000,000] [100.00] The following table sets forth the shareholdings, and percentage of Common Shares outstanding, of existing and new shareholders of the Company immediately after completion of the Offer assuming the Over-allotment Option is not exercised: Number of Shares % Existing shareholders [1,209,000,000] [70.54] New investors [505,000,000] [29.46] Total [1,714,000,000] [100.00] See also Risk Factors Risks Relating to the Offer and the Offer Shares - Future sales of Common Shares in the public market could adversely affect the prevailing market price of the Common Shares and shareholders may experience dilution in their holdings and Investors in the Offer Shares will face immediate and substantial dilution in the net asset value per Offer Share and may experience future dilution on page [38] of this Prospectus. 52

62 PRINCIPAL AND SELLING SHAREHOLDERS SHAREHOLDERS As of the date of this Prospectus, the shareholdings in the Company are as follows: Shareholders Common Shares Immediately Preceding the Offer % Preferred Shares Total Voting Shares (Common Shares) AB Soberano Holdings Corp. 985,823, ,823, Jose R. Soberano III 134,125, ,125, Ma. Rosario B. Soberano 134,125, ,125, Jose P. Soberano, Jr. 7,481, ,481, Jose Franco B. Soberano 7,481, ,481, Joanna Marie B. Soberano 7,481, ,481, Janella Mae B. Soberano 7,481, ,481, Jesus N. Alcordo 1 nil 0 1 nil Rufino Luis Manotok 1 nil 0 1 nil Ma. Aurora D Geotina- Garcia 1 nil 0 1 nil Total 1,284,000, ,284,000, Of the aforementioned Common Shares held by the Selling Shareholders, the Secondary Offer Shares shall comprise of up to 150,000,000 shares owned by Jose R. Soberano III and Ma. Rosario B. Soberano with 75,000,000 shares forming part of the Firm Shares and the 75,000,000 as the Over-allotment Option Shares such that after the completion of the offering (assuming the Over-allotment Option is exercised in full), the resulting shareholdings in respect of the Common Shares of the Company shall be as follows: Before the Offer After the Offer Name of Shareholders Common Shares % Common Shares % AB Soberano Holdings Corp. 985,823, ,823, Jose R. Soberano III 134,125, ,125, Ma. Rosario B. Soberano 134,125, ,125, Jose P. Soberano, Jr. 7,481, ,481, Jose Franco B. Soberano 7,481, ,481, Joanna Marie B. Soberano 7,481, ,481, Janella Mae B. Soberano 7,481, ,481, Jesus N. Alcordo 1 nil 1 nil Rufino Luis Manotok 1 nil 1 nil Ma. Aurora D Geotina-Garcia 1 nil 1 nil IPO Investors ,000, Total 1,284,000, ,714,000, To date, and prior to listing of the Registrant with the PSE, no part of the Company s equity is currently listed in any trading market. SECURITY OWNERSHIP OF CERTAIN RECORD AND BENEFICIAL OWNERS AND MANAGEMENT % 53

63 The following are persons who are directly or indirectly the record and/or beneficial owner of more than five percent of any class of Company s voting securities: Class of Share Common Name and Address of Record Owner and Relationship with Issuer AB Soberano Holdings Corp. 2 nd Street, Villa San Lorenzo, Quijada Brgy. Guadalupe, Cebu City Name of Beneficial Owner and Relationship with Record Owner Soberano Family* Common Jose R. Soberano III Same individual Citizenship No. of Shares Held % of Total Outstanding Direct Indirect Shares (Direct and Indirect Ownership) Filipino 985,823, % Filipino 134,125, ,195, % Common Ma. Rosario B. Soberano Same individual Filipino 134,125, ,195, % *Soberano Family consists of Jose R. Soberano III, Ma. Rosario B. Soberano, Jose P. Soberano, Jr., Jose Franco B. Soberano, Joanna Marie B. Soberano and Janella Mae B. Soberano. SECURITY OWNERSHIP OF MANAGEMENT As of the date of this Prospectus, the following are the share ownership of directors and executive officers of the Company: Title of Class Name of Beneficial Owner Amount and Nature of Beneficial Ownership Direct Indirect Citizenship Percentage of Class (Direct and Indirect Ownership) Common Jose R. Soberano III 134,125, ,195,136 Filipino 47.30% Common Ma. Rosario B. Soberano 134,125, ,195,136 Filipino 47.30% Common Jose P. Soberano, Jr. 7,481,700 9,858,232 Filipino 1.35% Common Jose Franco B. Soberano 7,481,700 9,858,232 Filipino 1.35% Common Joanna Marie B. Soberano 7,481,700 9,858,232 Filipino 1.35% Common Janella Mae B. Soberano 7,481,700 9,858,232 Filipino 1.35% Except as disclosed above, none of the Company s other executive officers or department managers owns shares directly or indirectly in the Company. Ownership in the Company is limited to that indicated in the foregoing. VOTING TRUST HOLDERS The Company has no knowledge of any persons holding more than five percent of a class of shares of the Company under a voting trust or similar agreement as of the date of this Prospectus. CHANGES IN CONTROL The Company has no knowledge of any arrangements that may result in a change in control of the Company. SELLING SHAREHOLDERS Before the Offer The Offer After the Offer Name of Selling Shareholders and Position Common Shares % of Common Shares Outstanding before the Offer Maximum Number of Shares to be Sold in the Offer (including Over- Allotment Option Shares) Common Shares % of Common Shares Outstanding after the Offer 54

64 Before the Offer The Offer After the Offer Name of Selling Shareholders and Position Jose R. Soberano III Chairman of the Board of Directors, President and CEO Ma. Rosario B. Soberano Director, Treasurer and Executive Vice President Common Shares % of Common Shares Outstanding before the Offer Maximum Number of Shares to be Sold in the Offer (including Over- Allotment Option Shares) Common Shares % of Common Shares Outstanding after the Offer 134,125, % 75,000,000 59,125, % 134,125, % 75,000,000 59,125, % 55

65 PLAN OF DISTRIBUTION Approximately 70% of the Firm Shares, or up to [353,500,000] Firm Shares (the Institutional Firm Shares ) are being offered and sold to qualified buyers (the QIBs ) in the Philippines and to the general public by the Joint Lead Underwriters (the Institutional Offer ). Approximately 30% of the Firm Shares or up to [151,500,000] Firm Shares (the Trading Participants and Retail Firm Shares ) are being offered and sold by the Joint Lead Underwriters to (i) all Trading Participants of the PSE and (ii) LSIs under the Local Small Investors Program of the Philippines (the Trading Participants and Retail Offer ). The amount of Firm Shares to be made available to the PSE Trading Participants will be up to [101,000,000] and up to [50,500,000] Firm Shares to the LSIs, representing approximately 20% and 10% of the Firm Shares, respectively. The Company requested the PSE to waive the requirement to give Local Small Investors a 10% discount of the Offer Price (and accordingly to allow the Company to offer the Offer Shares to Local Small Investors at the full Offer Price), and to allow a maximum investment of P100,000 per Local Small Investor, instead of P25,000 only as required under pertinent regulations. The allocation of the Firm Shares between the Institutional Offer and the Trading Participants and Retail Offer is subject to adjustment as may be agreed between the Joint Lead Underwriters. The Joint Lead Underwriters shall underwrite, on a firm commitment basis, the entire Firm Shares. There is no arrangement for the Joint Lead Underwriters to return any unsold Firm Shares relating to the Institutional Offer or the Trading Participants and Retail Offer to the Company of the Selling Shareholders. The Firm Shares shall be lodged with the PDTC and shall be issued to the investors in scripless form. Investors may maintain ownership over the Firm Shares in scripless form or opt to have the stock certificates in the relevant investor s name after the Listing Date by requesting an upliftment of the relevant Firm Shares from the PDTC s electronic system. THE JOINT LEAD UNDERWRITERS AND BOOKRUNNERS To implement the Offer, the Company and the Selling Shareholders have appointed BDO Capital and BPI Capital to act as the Joint Lead Underwriters and Bookrunners. The Company, the Selling Shareholders, and the Joint Lead Underwriters shall enter into an Underwriting Agreement to be dated on or before [ ] (the Underwriting Agreement ), under the terms of which the Joint Lead Underwriters agree to underwrite, on a firm commitment basis, the Firm Shares, subject to agreement amongst themselves regarding any clawback, clawforward, or other such mechanism relating to the shares of the Institutional Offer and the Trading Participants and Retail Offer. BDO Capital is the wholly owned investment banking subsidiary of BDO. It obtained its license from the SEC to operate as an investment house in 1998 and is licensed by the SEC to engage in the underwriting and distribution of securities to the public. BDO Capital is primarily involved in equity management, underwriting and placement, debt management, underwriting and syndication, financial advisory services, project finance and securities trading. Its senior executives have extensive experience in the capital markets and performed lead roles in a substantial number of major equity and debt issues, both locally and internationally. Since 1998, BDO Capital has underwritten several public and private offerings of equity and debt in the Philippines. As of the date of this Prospectus, BDO Capital has an authorized capital stock of P400,000,000 and paid up capital stock of P300,000,000. In its eighteen (18) years of existence, BDO Capital has undertaken capital markets transactions for both the Government and the private sector. BPI Capital is a Philippine corporation organized in the Philippines as a wholly owned subsidiary of the Bank of the Philippine Islands. It obtained its license to operate as an investment house in 1994 and is licensed by the Philippine SEC to engage in underwriting and distribution of securities to the public. As of June 30, 2016, its total assets amounted to 5.7 billion and its capital base amounted to 5.6 billion. It has an authorized capital stock of 2.0 billion, of which approximately P506.0 million represents its paid-up capital. The Bank of the Philippine Islands is 49.74% owned by Ayala Corporation as of June 30, The Joint Lead Underwriters and their respective affiliates may have engaged or may be engaged in transactions with, and have performed various investment banking, commercial banking and other services for the Company, the Selling Shareholders and their respective subsidiaries and affiliates from time to time in the future. However, all services provided by the Joint Lead Underwriters, including in connection with 56

66 the Offer, have been provided as independent contractors and not as fiduciaries to the Company or the Selling Shareholders. The Joint Lead Underwriters do not have any right to designate or nominate a member of the Board, nor does it have any direct relationship with the Company in terms of share ownership and, other than as Joint Lead Underwriters for the Offer, do not have any material relationship with the Company. The Underwriting Agreement provides that the Joint Lead Underwriters may, under such terms and conditions not inconsistent with such agreement, enter into participating agreements with participating underwriters or co-managers for the sale and distribution to the public of the Offer Shares. THE INSTITUTIONAL OFFER Up to [353,500,000] Firm Shares, or 70% of the Firm Shares, will be offered for subscription or purchase to certain QIBs and the general public in the Philippines by the Joint Lead Underwriters. The allocation of the Firm Shares between the Institutional Offer and the Trading Participants and Retail Offer is subject to further adjustment as may be agreed between the Joint Lead Underwriters. In the event of an under-application in the Institutional Offer and a corresponding over-application in the Trading Participants and Retail Offer, Firm Shares in the Institutional Offer may be reallocated to the Trading Participants and Retail Offer. In the event of an under-application in the Trading Participants and Retail Offer, the Firm Shares in the Trading Participants and Retail Offer may be reallocated to the Institutional Offer. The reallocation shall not apply in the event of an over-application or under-application in both the Institutional Offer and the Trading Participants and Retail Offer. THE TRADING PARTICIPANTS OFFER AND THE LSI OFFER Pursuant to the rules of the PSE, the Trading Participants and Retail Firm Shares shall initially be offered by the Joint Lead Underwriters to all of the PSE Trading Participants and LSIs in the Philippines. The Joint Lead Underwriters shall allocate approximately [101,000,000] Firm Shares, or 20% of the Firm Shares, among the Trading Participants of the PSE. Each Trading Participant shall initially be allocated approximately [765,100] Firm Shares (computed by dividing 20% of the Firm Shares by 132 PSE Trading Participants) and subject to reallocation as may be determined by the Joint Lead Underwriters. The balance of 6,800 Firm Shares will be allocated by the Joint Lead Underwriters among the PSE Trading Participants. In addition, approximately up to [50,500,000] Firm Shares, or 10% of the Firm Shares, shall be allocated to the LSIs. The PSE Trading Participants may be allowed to subscribe or purchase for their dealer accounts or sell the Firm Shares to their clients during the Offer period at a price equal to the Offer Price. Likewise, the Trading Participants are prohibited from selling the Firm Shares during the Offer Period and up to the date prior to the Listing Date. On or before [ ], the PSE Trading Participants shall submit to the Receiving Agent their respective firm orders and commitments to purchase Firm Shares prior to the closing of the Trading Participants and Retail Offer. Any allocation of Trading Participants and Retail Firm Shares not taken up by the PSE Trading Participants and the LSIs shall be distributed by the Joint Lead Underwriters to be distributed to its clients or the general public in the Philippines or as otherwise agreed among the Joint Lead Underwriters. Trading Participants Firm Shares and LSI Firm Shares not taken up by the PSE Trading Participants, the LSIs, the clients of the Joint Lead Underwriters, or the general public shall be purchased by the Joint Lead Underwriters pursuant to the terms and conditions of the Underwriting Agreement. All applications to purchase or subscribe for the Firm Shares must be evidenced by a duly accomplished and completed application form. An application to purchase Firm Shares shall not be deemed as a duly accomplished and completed application unless submitted with all required relevant information and applicable supporting documents to the Receiving Agent, Joint Lead Underwriters or such other financial institutions that may be invited to participate in the Trading Participants and Retail Offer. Payment for the Firm Shares must be made upon submission of the duly completed application form. THE UNDERWRITING AGREEMENT 57

67 The Underwriting Agreement is subject to termination by the Joint Lead Underwriters if certain circumstances, including force majeure, a cancellation order from a Government authority, a change or an impending change of law that would materially and adversely affect the Company s profitability or financial condition, or any change in the political or economic conditions of the Philippines which would materially and adversely affect the Offer, occur on or before the Listing Date. The Underwriting Agreement shall provide that each of the Joint Lead Underwriters, have agreed, jointly and not solidarily, to underwrite, on a firm commitment basis, the respective number of Firm Shares indicated in the following table, at the Offer Price and in consideration for payment of certain fees and costs. Number of Firm Offer Shares Percentage of Firm Offer Shares BDO Capital [ ] [ ] BPI Capital [ ] [ ] Total [ ] [ ] The Joint Lead Underwriters shall receive from the Company and the Selling Shareholders a fee of [1.5%] of the gross proceeds of the Offer, inclusive of the amounts to be paid to the PSE Trading Participants. A Trading Participant is entitled to a selling fee of [1.0]%, inclusive of any applicable VAT, of the Trading Participants and Retail Firm Shares taken up and purchased by said Trading Participant. The selling fee, less a withholding tax of 10%, will be paid to the relevant Trading Participant within ten banking days following the Listing Date. THE OVERALLOTMENT OPTION Subject to the approval of the SEC, the Selling Shareholders have granted BDO Capital, in its role as Stabilizing Agent, an option exercisable in whole or in part from and including the Listing Date and when trading of the Shares commences on the PSE and ending on the date 30 calendar days from the Listing Date to purchase the Optional Shares on the terms and conditions approved by the SEC and provided in this Prospectus. In connection therewith, the Selling Shareholders [have entered/will enter] into a Greenshoe Agreement with the Stabilizing Agent. The Stabilizing Agent may purchase the Optional Shares in the exercise of its Over-allotment Option from the open market in the conduct of stabilization activities. Initial stabilizing action shall be below the initial Offer Price. The price for the subsequent stabilization activities shall be as follows: i. after the initial stabilization action, and if there has not been an independent trade in the market at a higher price than the initial stabilization trade, the subsequent trade shall be below the initial stabilizing price; and ii. after the initial stabilizing action, and if there has been an independent trade in the market at a higher price than the initial stabilization trade, the subsequent trade shall be at the lower of the stabilizing action price or the independent trade price. For this purpose, independent trade shall mean any trade made by any person other than the Stabilizing Agent. Such activities may stabilize, maintain or otherwise affect the market price of the Common Shares, which may have the effect of preventing a decline in the market price of the Common Shares and may also cause the price of the Common Shares to be higher than the price that otherwise would exist in the open market in the absence of these transactions. If the Stabilizing Agent commences any of these transactions, it may discontinue them at any time. Once the Over-allotment Option has been exercised and payment has been made to the Selling Shareholders for the shares sold by the Stabilizing Agent, it will no longer be allowed to purchase Common Shares in the open market for the conduct of stabilization activities. Any decision to terminate the stabilization activities (and accordingly return shares and/or cash to the Selling Shareholders) before the end of the 30-day stabilization period shall be subject to the mutual agreement among the Stabilizing Agent, the Lead Underwriters, and the Company on behalf of the Selling Shareholders. The Overallotment Option, to the extent not fully exercised by the Stabilizing Agent, shall be deemed cancelled and the relevant Optional Shares shall be re-delivered to the Selling Shareholders. 58

68 As the Stabilizing Agent, BDO Capital is authorized to conduct stabilization activities in connection with the Offer and to perform such stabilization activities pursuant to the Greenshoe Agreement between the Selling Shareholders and the Stabilizing Agent. LOCK-UP/ESCROW Existing shareholders who own an equivalent of at least 10% of the issued and outstanding shares of the Company prior to the Offer are required under the Revised Listing Rules of the PSE applicable to companies applying for listing on the PSE Main Board, not to sell, assign or otherwise dispose of their shares for a minimum period of 180 days after the Listing Date. The Revised Listing Rules of the PSE also require that if there is any issuance or transfer of shares or securities (i.e., private placements, asset for shares swap or a similar transaction) or instruments which lead to issuance of shares or securities (i.e., convertible bonds, warrants or a similar instrument) done and fully paid for within 180 days prior to the start of the offering period, and the transaction price is lower than that of the Offer Price in the initial public offering, all shares or securities availed of shall be subject to a lockup period of at least one year from listing of the shares or securities. In accordance with the foregoing, the Common Shares held by the following shareholders will be subject to the lock-up periods specified below, each reckoned from the Listing Date: Shareholder AB Soberano Holdings Corp. No. of Common Shares Held before the Offer % Total of Shareholdin g before the Offer % Total of Shareholding after the Firm Offer % Total of Shareholding Assuming Full Exercise of the Overallotment Option Period of Lock-up (in days) 135,823, % 76.78% 57.52% ,000, Jose R. Soberano III 134,125, % [5.64%] 3.45% 180 Ma. Rosario B. Soberano 134,125, % [5.64%] 3.45% 180 Jesus N. Alcordo 1 nil nil nil 365 Rufino Luis Manotok 1 nil nil nil 365 Ma. Aurora D Geotina- Garcia 1 nil nil nil 365 To implement this lock-up requirement, the PSE requires, among others, to lodge the shares with the PDTC through a participant of the PDTC system for the electronic lock-up of the shares or to enter into an escrow agreement with the trust department or custodian unit of an independent and reputable financial institution. The Company, the Selling Shareholders and the shareholders listed above, being subject to the lock-up requirement, will enter into an escrow agreement with BDO Trust as the escrow agent thereunder. 59

69 CAPITALIZATION AND INDEBTEDNESS The following table sets forth the balances of liabilities and shareholders equity of the Company as of December 31, This table should be read in conjunction with the Company s audited financial statements, including the notes thereto, included elsewhere in this Prospectus. (All amounts in thousands Philippine Peso) As of December 31, 2016 As of December 31, 2016 as adjusted after giving effect to the Offer Current liabilities P 2,059,632 P 2,059,632 Non-current liabilities P 1,749,041 P 1,749,041 Total liabilities P 3,808,673 P 3,808,673 Equity Share capital Common Shares Share premium Revaluation reserves Retained earnings Total equity P 1,284,000 P 1,714,000 P 0 P 2,230,000 (P 625) (P 625) P 254,864 P 254,864 P 1,538,239 P 4,198,239 Total liabilities and equity P 5,346,912 P 8,006,912 60

70 MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND FINANCIAL PERFORMANCE The following management s discussion and analysis of the Company s financial position and results of operations should be read in conjunction with the Company s audited financial statements, including the related notes, contained in this Prospectus. This Prospectus contains forward-looking statements that involve risks and uncertainties. The Company cautions investors that its business and financial performance is subject to substantive risks and uncertainties. The Company s actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including, without limitation, those set out in Risk Factors on page [24] of this Prospectus. In evaluating the Company s business, investors should carefully consider all of the information contained in Risk Factors on page [24] of this Prospectus. FINANCIAL POSITION The Company s total assets stood at P5.347 billion as of December 31, 2016, higher by 46.45% than the total assets of P3.651 billion as of December 31, 2015, which was in turn higher by 29.22% than the total assets of P2.825 billion as of December 31, Total receivables stood at P2, million as of December 31, 2016, higher by 78.53% than the total receivables of P1, million as of December 31, 2015, which was in turn higher by 58.71% than the total receivables of P million as of December 31, Most receivables are contracts receivables resulting from the Company s operations. The increase was due to sales recognition of completed projects such as Velmiro Heights, Mivesa Garden Residences Phase 2, Casa Mira Linao in 2016 and Midori Plains, Midori Residences, Park Centrale Tower, and Mivesa Garden Residences Phase 2 in Real estate inventory stood at P1.831 billion as of December 31, 2016, higher by 27.20% than the total real estate inventory of P1.440 billion as of December 31, 2015, which was in turn lower by 2.30% than the total real estate inventory of P1.474 billion as of December 31, The increase was due to construction of on-going condominium and housing projects and land development costs during the respective periods. Deposits on land for future development stood at P million as of December 31, 2016, higher by % than the total deposits on land for future development of P77.56 million as of December 31, 2015, which were in turn higher by 72.36% than the total deposits on land for future development of P45 million as of December 31, The amounts pertain to the Company s advance payments for certain land acquisitions consummated or are expected to be consummated in the following fiscal reporting year. Prepayment and other current assets were P million as of December 31, 2016, higher by 4.45% than the total prepayment and other current assets of P98.26 million as of December 31, 2015, which were in turn higher by 44.86% than the total prepayment and other current assets of P67.83 million as of December 31, These are mainly made up of input VAT, prepaid income taxes, and prepaid expenses. Investment in associates and joint ventures stood at P million as of December 31, 2016, and P12.68 million as of December 31, The Company has invested in its associates El Camino Developers Cebu, Inc., Magspeak Nature Park, Inc., and Ming-mori Development Corporation. The Company has invested in joint ventures BL CBP Ventures, Inc. and Yuson Excellence Soberano, Inc. Property and equipment was P million as of December 31, 2016, higher by % than the total property and equipment of P75.26 million as of December 31, 2015, which was in turn was higher by % than the total property and equipment of P24.57 million as of December 31, Amounts are net of depreciation. The increase was mainly due to additional building property and office equipment built or acquired by the Company. The Company also invested P30 million for the procurement of a new enterprise resource planning, SAP, to improve and streamline its finance and accounting functions and better manage its business processes. Investment properties were P million as of December 31, 2016, lower by 9.16% than the total investment properties of P million as of December 31, 2015, which were in turn higher by % than the total investment properties of P66.55 million as of December 31, The increase in 2015 was due to the Company retaining more condominium units for their leasing business while the decrease in 2016 was due to disposals and depreciation. 61

71 Total liabilities were P3.809 billion as of December 31, 2016, higher by 58.21% than the total liabilities of P2.407 billion as of December 31, 2015, which were in turn higher by 25.76% than the total liabilities of P1.914 billion as of December 31, Interest bearing loans stood at P2.392 billion as of December 31, 2016, higher by 79.26% than the total interest bearing loans of P1.334 billion as of December 31, 2015, which were in turn higher by 33.45% than the total interest bearing loans of P million as of December 31, The increase corresponded to the growth of the company s operations and the need to finance its construction and development of new projects. Trade and other payables stood at P million as of December 31, 2016, higher by 33.14% than the total trade and other payables of P million as of December 31, 2015, which were in turn lower by 10.91% than the total trade & other payables of P million as of December 31, Customers deposits stood at P million as of December 31, 2016, higher by 7.86% than the total customers deposits of P million as of December 31, 2015, which were in turn higher by 38.40% than the total customers deposits of P million as of December 31, The increase was due to more projects attracting buyers who are required to make initial payments but the contract price revenues are not yet recognized because the criteria for revenue recognition are yet to be met. Reserve for property development stood at P million as of December 31, 2016, higher by 59.15% than the total reserve for property development of P million as of December 31, 2015, which was in turn higher by 30.73% than the total reserve for property development of P million as of December 31, The increase was due to more projects already meeting revenue recognition criteria but has yet to be fully completed. Total equity stood at P1.538 billion as of December 31, 2016, higher by 23.69% than the total equity of P1.244 billion as of December 31, 2015, which was in turn higher by 36.50% than the total equity of P million as of December 31, Capital stock was at P1.284 billion as of December 31, 2016, higher by 53.28% than the total capital stock of P million as of December 31, 2015, which was in turn higher by 55.79% than the total capital stock of P million as of December 31, The increase in 2016 was due to the Company increasing its authorized capital stock from P1 billion to P2.5 billion with its main shareholder, AB Soberano, subscribing to and paying P400 million worth of capital stock of the Company. Subscription receivables were also settled by the shareholders in The increase in 2015 was due to a stock dividend to shareholders of P300 million. RESULTS OF OPERATION Net income for 2016 was P million, an increase of 30.75% from Net income for 2015 was P million, an increase of 23.90% from Net income for 2014 was P million. In 2016, the Company s total revenues were P2.178 billion, an increase of 40.95% from 2015 total revenues of P1.545 billion. In 2016, revenues from real estate sales were P2.139 billion, and revenues from rentals were P38.87 million. Real estate sales from the following projects contributed to the majority of the total real estate sales in 2016: Velmiro Heights, Mivesa Garden Residences (Phase 2), and Casa Mira Linao. In 2015, the Company s total revenues were P1.545 billion, an increase of 20.40% from 2014 total revenues of P1.284 billion. In 2015, revenues from real estate sales were P1.533 billion, and revenues from rentals were P12.56 million. Real estate sales from the following projects contributed to the majority of the total real estate sales in 2015: Mivesa Garden Residences (Phase 1 & 2), Midori Plains, Velmiro Heights and Midori Residences. In 2014, the Company s total revenues were P1.284 billion, of which revenues from real estate sales were P1.279 billion, and revenues from rentals were P4.22 million. Real estate sales from the following projects contributed to the majority of the total real estate sales in 2014: Midori Plains, Park Centrale Tower, and Midori Residences. 62

72 Corresponding to the increase in revenues, cost of sales and rental grew to P1.01 billion in 2016, from P million in 2015 and P million in The Company s operating expenses for 2016 totals P million, an increase of 25.08% of the prior year s operating expenses of P million. For trends, events or uncertainties that have had or are reasonably expected to have an impact on sales or revenues, see discussions under Risk Factors. There are no elements of income or loss that did not arise from the Company s continuing operations. Key Performance Indicators Gross Profit Margin 55% 57% 54% 2 Net Income Margin 34% 35% 32% 3 EBITDA P million P million P million 4 EBITDA Margin 39% 41% 40% 5 Return on Assets 15% 15% 13% 6 Return on Average Equity 50% 50% 7 Current Ratio Debt to Equity Ratio Interest Coverage Ratio Gross Profit Margin is gross profit as a percentage of revenues. Net Income Margin is net income as a percentage of revenues. EBITDA is defined as earnings before interest, tax, depreciation and amortization from continuing operations and before exceptional items. EBITDA margin is EBITDA as a percentage of revenues. Return on Assets is net income as a percentage of assets. Return on Average Equity is net income as a percentage of the average of the equity as at year-end and equity as at end of the immediately preceding year. Current Ratio is current assets divided by current liabilities. Debt to Equity Ratio is interest bearing debt over total equity. Interest Coverage ratio is EBITDA divided by interest expense. 63

73 BUSINESS OVERVIEW OVERVIEW CLI is the leading homegrown developer in Cebu. In just 12 years since it started operations, it has become one of the top real estate players in the region with its growing mix of residential, commercial, hospitality, industrial and mixed-use product offerings. CLI is the number one local condominium developer in Cebu and among the top three players in the local housing market 9. CLI takes pride in its top-quality, awardwinning and innovative developments, strong market demand and absorption, fast-selling projects, timely construction and delivery, and its hands-on and personalized approach which allows itself to respond effectively to its clients and industry partners. Compared with other homegrown developers in Visayas and Mindanao, CLI s proven track record covers a more diverse range of real estate product offerings. It caters to the high-end, mid-market, economic and socialized housing segments of the market. This ability to tailor-fit its projects to the best use of each site has enabled it to maximize the favorable supply and demand indicators in Cebu, CDO, Davao, Dumaguete and soon in Bacolod and Iloilo. CLI s real estate offerings have consistently enjoyed strong market demand and absorption. CLI commands an 11% market share in terms of the total supply of condominium units in Metro Cebu, second to Ayala Land, Inc. (17%) and followed by Filinvest Land Inc. (8%) 10. In terms of the number of condominium units sold, the Company has a 9% market share, second to Ayala Land, Inc. (17%) and tied with Filinvest Land Inc. (9%) 11. This makes CLI the number one local condominium developer in Cebu. For the current housing market, CLI ranks among the top three Cebu players with a 10% market share. 12 CLI believes that its market share is bound to grow even higher with its newly launched 3,000-unit Casa Mira project in the south of Cebu. Even as CLI has diversified into high-rise residential, commercial and mixed-use developments, it remains committed to its roots as a home developer, where its expertise has been sharpened. CLI s projects are usually sold-out at a higher selling velocity than competitors 13. Among its completed projects, 96% of the inventory has been sold out. CLI s notable projects include its mid-rise residential condominium format, Mivesa Garden Residences, and its economic housing brand, Casa Mira, both of which have sold out in less than three months on average. The strong market demand for the Company s projects as evidenced by the fast absorption rate of its projects translates into faster cash flows, and demonstrates CLI s ability to deplete its inventory at a faster rate. Moreover, CLI takes utmost pride in its timely construction and delivery of projects, and it has even outperformed national players in Cebu in that aspect. On the average, the Company can convert raw land into a completed project in less than two to three years depending on the project size. CLI s condominium developments Base Line Residences, Park Centrale Tower, Mivesa Garden Residences (Phase 1), and Midori Residences were delivered to the buyers in two years, as committed by the Company in its marketing materials. Across its 28 completed ongoing and newly launched developments as of the date of the Prospectus, CLI has over 11,000 units in various stages of construction. These units have an equivalent sales value of P30 billion. These are spread out among its growing number of commercial and high-end residential, midmarket, economic and socialized housing projects. For the three years ended December 31, 2014, 2015 and 2016, CLI s revenues amounted to billion billion and billion, respectively. CLI has grown steadily in recent years, with net income increasing from million in 2014 to million in 2016, representing a CAGR of 27.28% during that period. 9 Santos Knight Frank Market Study, September 16, 2016, p Id., p Id., p Id, p Id., p

74 The Company aspires to be the leading and most preferred local developer in the Visayas and Mindanao by Real estate development overview The Company s project mix, which includes projects in various stages of development, is composed of 80% residential projects, 18% commercial/office developments and 3% hotel projects, measured in terms of total sales value. To date, CLI has 13 completed developments, 15 projects in various stages of development, and eight possible future projects where final definitive agreements are yet to be finalized and signed. Completed projects The Company s 13 completed developments are a mix of vertical and horizontal residential projects and its first commercial office development. Majority of the projects are fully sold out, showing that CLI is a trusted brand in the local housing market in Cebu. Below is a list of the Company s completed projects to date. The completed projects are located in Cebu City and the Province of Cebu. Project 1 San Jose Maria Village Balamban 2 San Jose Maria Village - Minglanilla 3 San Jose Maria Village Talisay 4 San Jose Maria Village Toledo Location Type Use Balamban, Cebu Horizontal Mid-Market Housing Minglanilla, Cebu Horizontal Mid-Market Housing Talisay City, Cebu Horizontal Mid-Market Housing Toledo City, Cebu Horizontal Mid-Market Housing No. of Units Sold Units Villa Casita Balamban, Cebu Horizontal Socialized Housing Midori Plains Minglanilla, Cebu Horizontal Mid-Market Housing 7 Asia Premier Residences Cebu City Vertical Residential Condo Base Line Residences Cebu City Vertical Residential Condo

75 9 Midori Residences Mandaue City, Cebu Vertical Residential Condo Park Centrale Tower Cebu City Vertical Office Condo/BPO Mivesa Garden Residences (Phase 1) Cebu City Vertical Residential Condo Velmiro Heights (Phase 1) Minglanilla, Cebu Horizontal Mid-Market Housing 13 Casa Mira Linao Minglanilla, Cebu Horizontal Economic Housing Ongoing projects (under construction) CLI has the following ongoing projects in various stages of construction. The projects are all located in Metro Cebu, except for MesaVerte Residences which forms part of the Company s expansion in CDO. Project Location Type Use No. of Units 1. Base Line Center* Vertical Mixed-Use - Sold Units Percentage of Completion a. Base Line Premier Cebu City Vertical Residential % Condo b. Base Line HQ Cebu City Vertical Office % Condo/BPO c. Citadines Cebu City Cebu City Vertical Hotel % 2. Casa Mira Towers Labangon a. Tower 1 b. Tower 2 3. MesaVerte Residences (Phase 1) CDO a. Tower 1 b. Tower 2 Cebu City Vertical Residential Condo CDO Vertical Residential Condo % 12% 33% 27% 66

76 4. Mivesa Garden Residences (Phase 2)** Cebu City Vertical Residential Condo % *Base Line Center is a mixed-use development which includes Base Line Premier, Base Line HQ and Citadines Cebu City. **Mivesa Garden Residences (Phase 2) is expected to be completed and turned over to buyers by Q Other ongoing projects In addition to its projects under construction, CLI has in its portfolio a mix of horizontal and vertical housing projects in various stages of development. CLI has completed land development for MesaVerte Residences (Phase 2) in CDO and is currently pre-selling the project. The Company is set to commence land development and marketing efforts for the other Cebu-based projects in the table below. Project Location Type Use No. of Units Sold Units Percentage of Completion 1. MesaVerte Residences CDO Vertical Residential Condo % (Phase 2) Tower 3 CDO 2. Casa Mira South (Phase 1) Naga City Horizontal Economic Housing 1, % 3. Casa Mira South (Phase 2) and San Fernando, Horizontal Economic Housing 962-0% 4. Casa Mira South (Phase 3) Cebu Horizontal Economic Housing 1,273-0% 5. Mivesa Garden Residences Cebu City Vertical Residential Condo 502-0% (6-7) (Phase 3) 6. Velmiro Heights (Phase 2) Minglanilla, Cebu Horizontal Mid-Market Housing 81-92% Newly-launched projects 67

77 The Company has launched a roster of vertical mixed-use and residential developments in the last quarter of 2016 to the first quarter of 2017 in Metro Cebu and Davao. Shortly after launching these latest projects, CLI has started site preparations for Latitude Corporate Center and 38 Park Avenue at the Cebu IT Park, and is now pre-selling both projects. Once the necessary permits are secured, CLI will commence the development of its flagship project in Davao, MesaTierra Garden Residences. CLI s newly-launched projects are the result of the Company s strategic collaboration with its joint venture partners, which enabled the Company to position itself in strategic locations and obtain the necessary funding for prime property acquisitions, without straining its finances and limiting its capability to continue its existing projects. Latitude Corporate Center is a project of BL CBP Ventures, Inc., a joint venture between CLI and Borromeo Bros. Estate Inc. Meanwhile, 38 Park Avenue at the Cebu IT Park is a project of El Camino Developers Cebu, Inc. ( El Camino ), a joint venture between the Company and several individual partners. Lastly, MesaTierra Garden Residences Davao is a project of Yuson Excellence Soberano, Inc., a joint venture between CLI and Yuson Comm. Investments, Inc. ( Yuson ). In all these JV projects, CLI has been appointed as the project developer and manager and is entitled to receive management fees. Project Location Type Use No. Of Sold Units Units 1. Latitude Corporate Center, Cebu Business Park Cebu City Vertical Office Condo/BPO Park Avenue at the Cebu IT Park Cebu City Vertical Residential/Retail MesaTierra Garden Residences Davao Pipeline projects Davao Vertical Residential Condo 650 In 2017, CLI is set to launch several projects in Metro Cebu such as the AS Fortuna Center Mandaue, a mixed-use project along A.S. Fortuna Avenue, a bustling business and residential corridor located in Mandaue City, Cebu. The Company intends to develop this 9,989-sq.m. property with its joint venture partners as a boutique mall with a residential, office and commercial component. The Company will also launch Base Line Center (Phase 2) and Casa Mira Towers Guadalupe this year. It has also positioned itself in the next two years with key pipeline projects in VisMin such as Casa Mira Coast in Dumaguete, Velmiro Heights in CDO and Casa Mira Bacolod. Project Type Use Location 1. AS Fortuna Center Mandaue Vertical Mixed-use Mandaue, Cebu 2. Casa Mira Coast Horizontal Residential Sibulan, Dumaguete 3. Base Line Center (Phase 2) Vertical Residential Cebu City 4. Velmiro Heights CDO Horizontal Residential CDO 5. Casa Mira Towers - Guadalupe Vertical Residential Cebu City 6. Casa Mira Bacolod Vertical Residential Bacolod City Prospects The Company is also looking into possible future projects with its existing JV partners and associates. While the definitive agreements for these projects have yet to be finalized and signed, the Company is either firming up negotiations with landowners, or is intending to sign an agreement with its JV partner or associate for CLI to be the project developer and manager. Among the projects that CLI is looking into is its public-private partnership with the Municipality of Minglanilla through its affiliate Ming-Mori Development Corporation. CLI has subscribed to shares equivalent to 19.87% of Ming-Mori, the issuance of which is subject to the approval by the SEC of Ming- Mori s increase in authorized capital stock. The Company intends to diversify into industrial development through Ming-Mori s proposal to finance, design and undertake the Ming-Mori Reclamation Project which 68

78 was accepted and endorsed by the municipal council of the Municipality of Minglanilla in May The Municipality of Minglanilla has submitted to the PRA a letter of intent to undertake the reclamation and land development of the proposed project, and in December 2016, the Municipality entered into a Memorandum of Understanding with the PRA setting out requirements and timeline for the review and evaluation of the project. Should the Minglanilla Reclamation Project materialize and be awarded to Ming-Mori after completing public bidding and Swiss challenge requirements, as applicable, Ming-Mori plans to enter into an agreement where CLI will be appointed as the project developer and manager, and for which CLI will be paid a management fee as may be agreed by the parties. Once the reclamation is complete, CLI will develop and manage the proposed Minglanilla TechnoBusiness Hub, a 100-hectare techno-business park in the progressive town of Minglanilla, a mere 30 minutes away from Cebu City. With Cebu s scarce supply of industrial properties that are in close proximity to highly urbanized areas, this project is expected to generate over 75,000 jobs. On the other hand, the Company s associate, Magspeak Nature Park, Inc. 14 ( Magspeak ) plans to develop a 30-hectare outdoor leisure park and conference center to be launched in 2017 in Mt. Manunggal, the highest mountain in Cebu. The Company is also completing the acquisition of the land where Casa Mira Towers Guadalupe will be constructed. The Company also plans to construct a Grade A office building on its 1.17-hectare property inside the Cebu IT Park to be named the Park Avenue Corporate Center. Lastly, the Company is in talks with several landowners for its planned Mactan Hotel Project. Meanwhile, the two Davao mixed-use developments are intended as future projects of the Company and Yuson, subject to the final agreement between the parties. In Iloilo, the Company is finalizing the acquisition of a property as it is targeting to launch Casa Mira Iloilo by Q CLI will also position itself in the booming tourism hub of Bohol, eyeing to bring its economic housing brand, Casa Mira, which will suit locals benefiting from the growing economic activity and Bohol OFWs. Project Type Use Location 1. Minglanilla TechnoBusiness Hub Horizontal Mixed-use Cebu 2. Magspeak Leisure Park Horizontal Recreational Cebu 3. Casa Mira Towers - Guadalupe Vertical Residential Cebu 4. Park Avenue Corporate Center Vertical Office Condo/BPO Cebu 5. Mactan Hotel Project Vertical Hotel Cebu 6. Davao Mixed Use - Riverside Vertical Mixed-use Davao 7. Davao Mixed Use - Times Beach Vertical Mixed-use Davao 8. Casa Mira Iloilo Horizontal Residential Iloilo 9. Casa Mira Bohol Horizontal Residential Bohol 14 As of the date of the Prospectus, Mr. Jose R. Soberano, III has executed a Deed of Assignment in favor of CLI for his shares in Magspeak, but the BIR Certificate of Registration of the shares is still being processed. 69

79 Residential development CLI s initial forte is in residential development. It created a niche when it started developing low to middle cost subdivisions in the south of Cebu, with house and lot packages ranging from P2 million to P5 million. Today, CLI is one of the leading horizontal and vertical residential players in Cebu. More importantly, CLI has diversified its residential offerings to cater to the four major market segments socialized, economic, mid-market and high-end. High-end residential developments have a price of more than P4 million per unit, while mid-market housing projects are priced at P3 million to P4 million per unit. Economic housing should be priced within the range of P450,000 to P3 million. Meanwhile, to qualify as socialized housing, the housing units must be sold at a price not exceeding P450,000. The list below categorizes the projects according to market segments: Horizontal (Subdivision) Projects: Socialized: Economic: Mid-Market: Villa Casita, Guadalupe Pinamalayan Socialized Housing Project Casa Mira Linao, Casa Mira South San Jose Maria Villages, Midori Plains, Velmiro Heights Vertical (Condominium) Projects: Economic: Casa Mira Towers Labangon, Casa Mira Towers Guadalupe (2017) Mid-Market: Midori Residences, Mivesa Garden Residences, MesaVerte Residences CDO High-End: Asia Premier Residences, Base Line Residences, Base Line Premier Residential development projects Horizontal (Subdivision) Projects Villa Casita Launched in 2014, this is CLI s first socialized housing development and is located in Buanoy, Balamban, Cebu. With an area of 8,128 sq.m., it consists of 101 row house units, with each unit having a lot area of 36 70

80 sq.m. and a floor area of sq.m. Pre-sold units were priced at about P400,000. It is fully developed, completed and sold out. Guadalupe Pinamalayan Socialized Housing Project Launched in 2015, this socialized housing project is developed in cooperation with Habitat for Humanity and is located in Pinamalayan, Oriental Mindoro. The 38,639-sq.m. project consists of 337 single-floor and detached units, 77 of which have been allocated to Habitat for Humanity beneficiaries. Casa Mira Linao Launched in 2015, this is CLI s first foray into economic housing development. The project is located in the hills of Linao-Lipata, Minglanilla, Cebu on a 7.8-hectare property. It is composed of 725 townhouse units with floor areas ranging from 37 to 62 sq.m. and lot areas ranging from about 42 sq.m. to more than 52 sq.m. per unit. Average selling price starts at P900,000 for the smallest unit and up to about P1.4 million for the largest unit. It is fully developed, completed and sold out. Casa Mira South Launched in 2016, this economic housing development is located in the Naga City and the Municipality of San Fernando, both in Cebu. This 31-hectare community is divided into three phases consisting of 3,242 townhouse units, with each unit having floor areas ranging from 36 to 59 sq.m. and lot areas ranging from 42 sq.m. to more than 68 sq.m. Average pre-selling price ranges from P1.07 million to P1.6 million. Land development will start in 2017 and will cover a period of two years. San Jose Maria Villages ( SJMV ) This series of villages located in the south and southwest of Cebu City paved the way for CLI in providing affordable mid-cost quality homes to the middle market segment. SJMV offered a mix of single-detached, semi-attached townhouses and lot-only choices to the buyers. SJMV-Balamban is a three-hectare development with 231 units launched in SJMV-Minglanilla is a 2.9-hectare development with 145 units launched in SJMV-Toledo is a 3-hectare development with 144 units launched in SJMV- Talisay is a 1.9-hectare development with 96 units launched in Lots were pre-sold at P7,000 per sq.m., while house and lot units averaged at P1.4 million to P3.6 million. All SJMV projects are fully developed and completed, with both SJMV-Minglanilla and SJMV-Talisay sold out. Midori Plains Launched in 2011, this mid-market development is located in Municipality of Minglanilla, Cebu. This eight-hectare Asian-inspired subdivision south of Cebu City has 370 residential units ranging from townhouse units with 40-sq.m. floor areas to single-detached units with an area of 77 sq.m. each. It is fully developed, completed and almost sold-out, with only one of the 370 units remaining unsold. Velmiro Heights This mid-market development was launched in 2013 and is located on an 8.8-hectare property in Tunghaan, Minglanilla, Cebu. This 428-unit development offers 11 different house models, ranging from townhouses to single-detached, two-storey units. Townhouses have 60-sq.m. floor areas, while the largest unit contained 131 sq.m. of living space. Townhouses were pre-sold at an average price of P1.7 million while the largest single-detached unit is about P5.3 million. Site development for Phases 1 and 2 of the project is already completed. Of the 428 units for Phase 1, only five units remain unsold, while the 81 units belonging to Phase 2 are still being marketed. Vertical (Condominium) Projects Casa Mira Towers Labangon Launched in 2016, this is CLI s first foray in the economic segment of residential condominiums. It is located in Labangon, Cebu City on a 3,681-sq.m. property that used to be the location of the old CLI headquarters. It has two towers on top of a commercial podium and a total of 686 residential units. It offers 71

81 20-sq.m. studio units and 1-bedroom units averaging 37 sq.m. units were pre-sold at P1.25 million to P1.43 million. Development started in June 2016 and is expected to be finished by the middle of Only 270 units remain unsold of the 686 units being offered. Casa Mira Towers Guadalupe This development is slated for launch in late To be located in Barangay Guadalupe, Cebu City, this will be the second residential condominium development of CLI targeting the economic segment of the market. Midori Residences This zen-inspired mid-market residential condominium development is located in Banilad, Mandaue City, Cebu. This twin-vertical development is the first of its kind in the city. Its 22-sq.m. studio and 40-sq.m. 1- bedroom units were pre-sold at an average of P1.3 million to P2.6 million. It is fully developed, completed and almost sold out, with a total of 388 units sold from the 396 units offered. Mivesa Garden Residences Located in Lahug, Cebu City and launched in 2013, this 1.8-hectare development will be home to seven mid-rise, mid-market residential buildings, and is designed as a garden-inspired community which has 60% open spaces within the prime property. This is a three-phase project with the first two phases covering the first five buildings. The first two phases offers 938 units consisting of studio, 1-bedroom and 2-bedroom units. Pre-selling starts at P1.2 million for a 20-sq.m. studio unit, and up to P2.9 million for a 2-bedroom 48-sq.m. unit. Phase 1 and 2 are almost sold out with 908 out of the 938 units sold. Land development is completed and Buildings 1, 2 and 3 of Phase 1 being operational. Buildings 4 and 5 of Phase 2 will be operational by Q Buildings 6 and 7 of Phase 3, with a total of 502 units, will start construction by Q MesaVerte Residences Launched in 2015, this is CLI s first entry into the Mindanao market. It is located on an 8,740-sq.m. property in downtown CDO, Misamis Oriental, and 60% of the property is dedicated to open spaces. The project is divided into two phases, with Phase 1 having two towers composed of 504 units, and Phase 2 having one tower with 294 units. Both phases offer 20-sq.m. studio and 39 sq.m. 1-bedroom units. Phase 1 pre-sold at P1.47 million for studio units and P2.88 million for 1-bedroom units. Phase 1 development started July 2016 and is expected to be completed by July A total of 422 out of the 504 units have been sold for Phase 1. Phase 2 will start development in April 2017 with an estimated completion time of 24 months. Asia Premier Residences Launched in 2010, this is CLI s first vertical high-end residential condominium project. It is located at the Cebu IT Park and is also the first residential development in the area. The units ranged from studio units sized at 28 sq.m. and 3-bedroom units measuring 109 sq.m. It is fully developed and completed and has since sold out its 88 units. Base Line Residences This 201-unit residential condominium project is located in uptown Cebu City on Juan Osmeña Street. The project offered 23-sq.m. studio units at a pre-selling price of P1.59 million, while its 41-sq.m. 1-bedroom unit pre-sold at P3.15 million. The project was launched in 2011, and is fully developed and completed, with its 201 units having been sold out. Base Line Premier This development was launched in 2015 as the residential component of Base Line Center, a one-hectare mixed-use development located along Juan Osmeña Street, Cebu City and right beside another CLI project, Base Line Residences. It has 379 units consisting of 24-sq.m. studio and 45-sq.m. 1-bedroom units. Studio 72

82 units pre-sold at P2.22 million, while 1-bedroom units pre-sold at P4.16 million. Construction started in March 2016 and is expected to be completed in December Commercial development CLI capitalized on the growth of the BPO sector in Cebu when it launched its first commercial office project, Park Centrale Tower, in 2013 at the Cebu IT Park. This is also part of CLI s strategy of significantly growing its recurring income properties. It has also launched two more office developments in prime Cebu City locations, namely Base Line HQ and Latitude Corporate Center. Base Line HQ will be part of the Base Line Center mixed-use development and will be completed in Q In November 2016, CLI launched Latitude Corporate Center, a Grade A office tower at the Cebu Business Park with a GFA of 35,000 sq.m. Office Buildings: Park Centrale Tower, Base Line HQ, Latitude Corporate Center, Park Avenue Corporate Tower Commercial development projects Park Centrale Tower Park Centrale Tower is CLI s first office development. Located at the Cebu IT Park, the 19-storey Grade A office tower was launched in 2013 with a total construction floor area of 17,500 sq.m., and total GFA of 11,920 sq.m., and was completed in only two years of construction. The project was positioned to cater to both BPOs and executive offices. Thus, 60% of the office spaces were offered for lease, while 40% were sold as office condo units and were fully sold-out. In 2014, the project was awarded as the Best Commercial Development (Cebu) at the 2014 Philippines Property Awards. Base Line HQ This is the office component of the Base Line Center, a major mixed-used project of CLI. Similar to its successful Park Centrale Tower, this also caters to both BPOs and executive offices. CLI offers for sale 60% of the floors as office condos, while the Company will retain 40% for its growing leasing business. With its location near Osmeña Boulevard/Mango Avenue, this will emerge as a very strategic business address for those in the medical, legal, government and outsourcing services. There are a total of 74 office units with areas ranging from 33 sq.m. to 142 sq.m. Latitude Corporate Center This is a green building project registered with BERDE, the nationally accepted green building rating system used to measure, verify and monitor the environmental performance of buildings that exceed existing mandatory regulations and standards in the Philippines. This 34,000-sq.m. development is a project of BL CBP Ventures, Inc., a joint venture company of CLI and Borromeo Bros, Inc. At 24-storeys, this will be the tallest office development at the Cebu Business Park. As the project s developer and manager, CLI uniquely positioned this project as a three-product office development with BPO, enterprise and executive office offerings. With its iconic design and green building features, the project is aiming for a 3-star BERDE certification. Park Avenue Corporate Tower This Grade A office building with over 20,000 sq.m. of leasable area is one of the Company s future projects in the recently acquired 1.17-hectare property inside the Cebu IT Park. The development will cater to BPO and other commercial offices and retail establishments. Mixed-use development With its growing brand, experience and portfolio, CLI pursued larger scale developments in prime urban locations. CLI s first major mixed-use development is the Base Line Center, a 1.6-hectare modern redevelopment in the heart of midtown Cebu. The Company removed the existing structures in the old Base Line, a well-known favorite gathering place of Cebuano families, and built a mixed-use development. 73

83 Phase 1 of Base Line Center will be completed in Q It will house a retail center, residential condominium units, offices and the first Ascott-managed property outside Manila, the Citadines Cebu City. This 2017, CLI is set to launch another major mixed-used development, the AS Fortuna Center, in the bustling AS Fortuna Mandaue area, a growing commercial district and the major thoroughfare that connects Cebu and Mandaue. This medium-density project will house a hotel, residential, office and boutique mall. CLI, through its joint venture, El Camino, also recently acquired a 1.17-hectare property inside the Cebu IT Park, the largest remaining private property inside the prestigious address. This property called 38 Park Avenue at the Cebu IT Park, will be transformed into a mixed-use urban park with a 38-storey residential tower, BPO office and retail boulevard. Mixed-Use Developments: Base Line Center, AS Fortuna Center Mandaue, 38 Park Avenue at the Cebu IT Park Hotel and recreational development Aside from residential and commercial developments, CLI has recently entered the hospitality business after sealing a partnership with Scotts Philippines, Inc., a wholly-owned subsidiary of The Ascott Limited ( Ascott ), the world s largest serviced residence operator. CLI will develop Citadines Cebu City, with Ascott as the hotel operator. Citadines Cebu City will house over 180 rooms, of which 92 condotel units were offered for sale and 88 units will be retained by the Company As of the date of this Prospectus, 76 condotel units were already sold. As part of the upcoming AS Fortuna Center, CLI will add a second hotel property to its portfolio. As of Q1 2017, the Company is still evaluating potential global management brands that will run the hotel. A third hotel, the Mactan Hotel Project, is part of the Company s future prospects as the Company is currently negotiating with property owners of key sites in Cebu s resort haven, Mactan Island. Meanwhile, the Company s associate, Magspeak plans to develop the Magspeak Leisure Park, a 30-hectare outdoor leisure park and conference center in Mt. Manunggal to be launched in Hotel and Recreational Development: Citadines Cebu City, AS Fortuna Center Hotel Project, Mactan Hotel Project, Magspeak Leisure Park Industrial development CLI intends to diversify into industrial development through its associate, Ming Mori, which has proposed to finance, design and undertake the Ming-Mori Reclamation Project through private-public partnership with the Municipality of Minglanilla. The proposal of Ming-Mori was accepted and endorsed by the municipal council of the Municipality of Minglanilla in May 2013 and since then, the Municipality of Minglanilla has submitted to the PRA a letter of intent to undertake the reclamation and land development of the proposed project. In December 2016, the Municipality entered into a Memorandum of Understanding with the PRA setting out requirements and timeline for the review and evaluation of the project, and as of the date of this Prospectus, CLI has subscribed to shares equivalent to 19.87% of Ming-Mori, the issuance of which is subject to the approval by the SEC of Ming-Mori s increase in authorized capital stock. This project is intended to be the Company s initial foray into the industrial property segment. See Business Overview Prospects on page [66] of this Prospectus. Industrial: Minglanilla TechnoBusiness Hub Regional expansion For the completion of the following regional expansion projects, the Company will use part of the proceeds of the Offer, internally generated funds or bank financing, as may be necessary. For a more detailed 74

84 discussion of the allocation of the proceeds of the Offer for new projects in the VisMin region, please refer to the section on Use of Proceeds. CDO After 20 developments in Cebu, CLI debuted its first regional expansion when it launched its MesaVerte Residences in CDO. MesaVerte Residences is a three-tower condominium complex in the heart of downtown CDO and is expected to be completed by Q A second project in CDO is in the pipeline this 2017 as CLI will be launching Velmiro Heights CDO, a mid-market housing project in the Pueblo De Oro area. Davao CLI has recently positioned itself in Davao, where it introduced its highly successful mid-market condominium format. The Company launched in Q MesaTierra Garden Residences, a 21-storey residential condominium with over 694 units, located on E. Jacinto St., Davao, which is targeted for completion by Q The Company is also firming up its plans to develop two mixed-use projects in Davao, (1) a 1.9-hectare riverside mixed-use project along McArthur Highway, and (2) another major mixed-use lifestyle project in a four-hectare property in Times Beach, Matina. Dumaguete The Company has recently completed the acquisition of a six-hectare property in Sibulan, Dumaguete. This will be the site of another Casa Mira economic housing development. Situated near the coastline, the project will be called Casa Mira Coast. Bacolod Going further into other areas in the Visayas to roll out its economic housing brand Casa Mira, CLI has completed the acquisition of a one-hectare property in Bacolod. The Company intends to launch Casa Mira Bacolod by Q Iloilo The Company is finalizing the acquisition of a property in Iloilo as the Company is set to launch Casa Mira Iloilo in Q Bohol CLI will also position itself in the booming tourism hub of Bohol. With the ongoing development of the Panglao International airport set to open within 2017, the Company is anticipating a substantial increase in local economic activity. Thus, the Company is eyeing to bring its economic housing brand, Casa Mira, which will suit locals benefiting from the growing economic activity and Bohol OFWs. With its diverse portfolio, CLI is able to tailor-fit its various product offerings to address the right supply and demand indicators and maximize the full potential of a property. Regional Developments: CDO: MesaVerte Residences, Velmiro Heights CDO (2017) Davao City: MesaTierra Garden Residences (2017), Mixed-Use (McArthur / Matina Dumaguete: Casa Mira Coast (2017) Iloilo: Casa Mira Iloilo (2017) Bacolod: Casa Mira Bacolod (2017) Bohol: Casa Mira Bohol (2017) COMPETITIVE STRENGTHS 75

85 Leading property developer in Cebu with a distinguished brand and reliable track record of project execution CLI is the leading homegrown property developer in Cebu with extensive knowledge and experience of the local market, a strong relationship with the local broker community, a trusted brand by its buyers and endusers, and a preferred partner of landowners as demonstrated by its successful JV partnerships. CLI commands an 11% market share in terms of the total supply of condominium units in Metro Cebu, second to Ayala Land, Inc. (17%) and followed by Filinvest Land Inc. (8%) 15. In terms of the number of condominium units sold, the Company has a 9% market share, second to Ayala Land, Inc. (17%) and tied with Filinvest Land Inc. (9%) 16. This makes CLI the number one local condominium developer in Cebu. For the current housing market, CLI ranks among the top three Cebu players with a 10% market share. 17 CLI has been fast to respond to market demand, outpacing national developers in finishing construction and delivering completed units to its customers. On the average, CLI can convert raw land to a turned-over project in less than two to three years depending on the project size. CLI s condominium developments Base Line Residences, Park Centrale Tower, Mivesa Garden Residences (Phase 1), and Midori Residences were delivered to the buyers in two years, as committed by the Company in its marketing materials. The Company adopted a rigorous project management team approach, wherein key personnel from each business unit are given a regular platform to monitor project milestones and discuss important synergies and shared deliverables among business units. Strategic location selection to provide value-for-money proposition to customers CLI has stringent location selection criteria. The Company consistently seeks locations with high-value appreciation potential. Whether for a high-end condominium project or an economic housing project, CLI s location selection has always been a driver for its outstanding sales performance. In Cebu City alone, CLI has projects in the most valuable real estate locations Cebu IT Park, Cebu Business Park, Salinas Drive (Lahug), AS Fortuna (Mandaue), Base Line (midtown Cebu). For its mid-market and economic housing projects, the Company targets sites within a two-kilometer distance from the nearest highway. The Company has improved the neighborhood infrastructure around several of its housing projects. This has always proven to result in a win-win situation for both the residents and the neighboring community. As a homegrown developer, CLI s familiarity with the area and its communities enables the Company to choose the best locations for its developments and to address the needs and preferences of the market. CLI s first development, San Jose Maria Village - Balamban, came about because the founder, Mr. Jose R. Soberano, III knew that there was a ready market composed of employees of the industrial companies in Balamban for affordable housing. Because of CLI s proven track record and the fact that it is a local developer, landowners who wish to sell or develop their properties find it easier to approach and trust the Company than other national players. 15 Id., p Id., p Id, p

86 This is demonstrated by the number of proposals from landowners regularly received by the Company for CLI to buy or develop their properties. CLI gives its clients more value for their investment. Its competitive pricing is accompanied by quality locations, award-winning planning and design, generous amenities, timely and quality construction, and industry-best customer care, after-sales and property management support. As the CLI has inventory in various affordability levels, it has a strong grasp of its target pricing levels. As a success criterion and as practiced, CLI has always projected its initial pre-selling prices to appreciate by at least 20-25% by the time the construction is completed. As an indication of the warm market response, several of its projects have set selling records in Cebu 18. Among its completed projects, 96% of the inventory has been sold out. CLI s Mivesa Garden Residences and Casa Mira have sold out in less than three months on average. Casa Mira Linao which has 725 units sold out in just three weeks. Diversified portfolio of projects and socio-economic markets CLI caters to several real estate categories such as residential, commercial/offices and hospitality. The Company s current project mix, which includes projects in various stages of development, is composed of 80% residential projects, 18% commercial/office developments and 3% hotel projects, measured in terms of total sales value. CLI s biggest project development is economic housing through the Casa Mira brand comprising 44% of the Company s total revenues from its residential projects. This is followed by mid-market developments at 38% and high-end residential developments at 16%. Socialized housing comprises only 2% of the Company s residential projects, with two projects to date. Because of the Company s diverse portfolio of projects addressing the needs of customers from all socioeconomic classes, the Company should be less affected by negative economic trends that impact a certain segment of the market. The Company is also able to harness the full potential of the market with its capability to supply whatever the market demands. Experienced management team and organizational culture The management team s efforts to professionalize the company over the last 12 years, where the company has grown from two employees to a dynamic team of 162 executives, managers, officers and staff, have built the Company s professional work ethics and strong corporate values. CLI s customer-first attitude and family-oriented team enabled the Company to achieve high stakeholder satisfaction and establish strong brand equity. CLI is led by a family of real estate professionals. Its founder, Chairman of the Board of Directors, President and CEO Jose R. Soberano III, was a former executive at Ayala Land where he played an integral role in the development of Cebu Business Park and Cebu IT Park, the two most valuable commercial districts in Cebu City up to this day. CLI has grown its talent pool with the addition of the best accounting, finance, sales, marketing, legal and engineering professionals with extensive experience and success in their respective professional careers. Several of the CLI s key executives have had prior experience in reputable companies from related industries such as real estate development, construction, power, banking, business process outsourcing, consulting and others. CLI has recently relaunched its brand with the tagline We Build With You in Mind. This captures the customer-centric focus the Company has adopted since its incorporation in 2003 and shows how CLI personnel perform in every phase of the development cycle. CLI s customer-centric initiatives include the creation of a separate customer care department that facilitates unit turnover. Moreover, the customer care department extends its service post-turnover by helping the buyers process titles to the property and ensure the payment of real property taxes on the unit. Socially responsible development 18 Id., p

87 CLI believes in responsible planning and development. Wherever the Company develops, community and infrastructure improvements are an integral part of the development plans. CLI has partnerships with various barangays, LGUs and institutions including Habitat for Humanity. For partnerships with barangays, a fine example is the community improvements done in Barangay Lahug, Cebu City as part of its Mivesa Garden Residences project. As its gesture of goodwill for the barangay and its constituents, the Company upgraded various barangay infrastructures including the widening of the Salvador Ext. barangay road, installation of new drainage lines, and the construction of a three-storey public market in The previous market was located along the sidewalk, so the developer provided a more permanent, hygienic and secure facility. This was received well by the local community, and serves as a testament that private development can also generate good social impact. For its partnership with Habitat for Humanity ( Habitat ), CLI has partnered with Habitat for the Guadalupe Habitat Pinamalayan Socialized Housing Project where CLI served as the developer of over 337 socialized housing units. Aside from this, CLI has generously contributed to the Habitat Bohol Rebuild Program in 2015, a program that aimed to rebuild over 8,000 homes affected by the October 2013 earthquake. For its partnership with PBSP, CLI s current tree planting program with Philippine Business for Social Progress ( PBSB ) includes over 108,000 seedlings encompassing over 43 hectares. CLI continues to partner with PBSP as part of its responsible compliance to ECC requirements for its growing number of projects. CLI is also an advocate of green building standards, and several of its projects incorporate important green building and environmentally friendly features. Recently, its Latitude Corporate Center office project was registered under BERDE, the Philippine s green building rating system that aims to promote sustainable design and operations. Strategic joint venture partnerships CLI takes pride in its ability to collaborate with its joint venture partners. CLI is the project manager and developer in all its joint ventures. These joint ventures have enabled the Company to position itself in strategic locations like Cebu Business Park through BL CBP Ventures, Inc., and Cebu IT Park through El Camino Developers Cebu, Inc. Collaborating with a joint venture partner also enabled the Company to enter into new markets such as Davao. In partnership with Yuson, the Company newly-launched its MesaTierra Garden Residences project and added two projects in Davao to the Company s pipeline. The Company s successful JV partnerships in its past and present projects show that CLI is a preferred JV partner because of the priority it gives to its partners, transparency in terms of project planning and accounting, and its quick execution and delivery of the project. For example, the Company was able to progress its 38 Park Avenue at the Cebu IT Park which is a joint venture with El Camino, from acquisition to pre-selling in just six months. This fast business development cycle makes the Company attractive to its current and future JV partners. Financial strength: strong profitability and healthy margins The Company has consistently demonstrated strong profitability throughout the years. CLI s gross profits and net income are steadily increasing year on year at healthy margins, showing that it has strong fundamentals and that the quality of its earnings is above par. For the three years ended December 31, 2014, 2015 and 2016, CLI s revenues amounted to billion billion and billion, respectively. CLI has grown steadily in recent years, with net income increasing from million in 2014 to million in 2016, representing a CAGR of 27.28% during that period. The Company s EBITDA for the three years ended December 31, 2014, 2015 and 2016 stood at million, million, and million, respectively, with EBITDA margins at 39%, 41% and 40%, respectively. Net income for 2016 was P million, an increase of 30.75% from Net income for 2015 was P million, an increase of 23.90% from Net income for 2014 was P million. 78

88 The Company also prides itself in its cost discipline. While CLI hires contractors for its projects, it purchases its own raw materials to ensure that the quality and cost are according to the Company s specifications. Moreover, among its key business processes, CLI has one of the most disciplined and responsive accounts receivable monitoring teams in the industry. Its delinquency rate averages at a low 1.5% to 3% and this can be attributed to CLI s proactive approach in managing its accounts receivable. Of delinquent accounts, only less than 1% ends up in cancellations, as the Company s accounts receivable team works closely with the sales and marketing team to ensure that the Company s customers accounts get updated. Operational excellence CLI has a fully-integrated real estate set-up encompassing different areas, namely, acquisitions, business development, technical planning, engineering and project management, sales and marketing, documentation and licensing, legal, customer care and property management. The Company prides itself on its hands-on and personalized approach, which allows itself to respond effectively to its clients and industry partners. Construction For each horizontal and vertical development, CLI engages various general and specialty contractors with both local and national experience. With over 50 engineers in its roster, CLI handles the project and construction management aspect of every project, and manages the various contractors and sub-contractors that are utilized. By serving as the project manager of its projects, CLI is able to meticulously strive to deliver its projects on-time and with utmost quality and professionalism. To date, CLI does not engage in in-house construction, but the Company recognizes this as a potential growth area as it continues to expand its portfolio. Sales CLI has one of the industry-leading sales support teams. With over 30 sales support personnel, this team collaborates, coordinates and supports the over 5,000-strong accredited broker/agent network of CLI. This is CLI s strategy in working harmoniously with the seller community by assisting the brokers 24/7 from sales origination to closing. CLI then works alongside brokers in addressing the client inquiries until closing. KEY STRATEGIES Expansion to key cities in the Visayas and Mindanao In 2015, CLI embarked on its regional expansion when it launched MesaVerte Residences in CDO. This is the mid-market condominium offering of CLI with three 15-storey residential towers having a total of 686 units. In less than a year of pre-selling, Phase 1 of the project was already 90% sold. This mid-market format of CLI proved to be very successful in Cebu with its sold-out Midori Residences project and Mivesa Garden Residences project. The latter is widely recognized as the fastest selling condominium project in Cebu when its Phase 1 sold out in just three months. With its hub in Cebu, CLI envisions to have the most responsive development set-up in the VisMin. CLI s key to success in Cebu is its very personalized approach, thus, the Company endeavors to maintain this agility even as it ventures into new cities. In CDO, the Company has already set-up separate sales, administrative and engineering office. The Company finds a unique advantage in being homegrown, as it can distinguish itself further in these new regional markets with similar local dynamics as Cebu. In September 2016, CLI successfully announced its arrival in Davao. With Yuson, its joint venture partner in Davao, three projects were added to the Company s pipeline. The projects include CLI s popular midmarket condominium format, the Davao version of which will feature a 22-storey residential condominium on E. Jacinto Street, near the Central Bank of the Philippines - Davao office. It will be followed by a 1.9- hectare riverside mixed-use project along McArthur Highway and another major mixed-use lifestyle project in a four-hectare property in Times Beach, Matina. 79

89 CLI intends to capitalize further on its mid-market residential condominium and economic housing formats in other locations in the VisMin. The Company has recently acquired a six-hectare property in Sibulan, Dumaguete where it will build its economic housing development, Casa Mira Coast. CLI is now positioning in Bacolod and Iloilo as it prepares to roll out its Casa Mira brands in those areas. Building recurring income developments As CLI sets its sights on a long-term growth trajectory, the Company is committed to growing its recurring income portfolio. In 2013, CLI launched its first office building in Cebu IT Park. The project, Park Centrale Tower, was designed to host both BPO and executive offices (office condominium units). With its Grade A design and features, Park Centrale Tower was awarded as the Best Commercial Development in Cebu in the 2014 Philippines Property Awards. In October 2015, CLI made another significant step in growing its recurring income portfolio when it launched phase 1 of Base Line Center, a redevelopment of one of the largest remaining properties in the prime midtown Cebu area. CLI s current recurring income assets include BPO floor space, executive office space, residential units, and various commercial and retail units in its condominium projects. These assets are now delivering an annual lease income to CLI of close to P50 million with their combined net leasable area of 6,200 sq.m. With the completion in 2019 of its Base Line Center (Phase 1), a mixed-use development that which will feature Citadines Cebu City, prime office floors and commercial spaces, and CLI s newly launched Latitude Corporate Center, a Grade A office tower with a GFA of 35,000 sq.m., the Company expects to increase its annual recurring income to an estimated P120 million by This will be boosted by its robust commercial developments in the pipeline, which includes over 3,000 sq.m. of prime retail space in its Cebu IT Park mixed-use development. Aside from 38 Park Avenue at the Cebu IT Park, a 38-storey high-end residential condominium, this 1.17-hectare site will also feature Park Avenue Corporate Center, a Grade A office building with over 20,000 sq.m. of leasable area. This will be closely followed by the launch of its mixed-use project, AS Fortuna Center Mandaue, a one-hectare site that will include a boutique mall, hotel, office and residential tower. This will add over 30,000 sq.m. of gross leasable area to the Company. Vertical integration property management and construction CLI is preparing to set-up its own property management company for both its vertical and horizontal projects. Currently, the Company serves as property manager for its horizontal projects. On the other hand, its vertical projects are managed by third party providers, Colliers International Philippines and CBRE. It is the Company s goal to have its own property management affiliate by the end of The goal is for this affiliate to become a self-sustaining and revenue generating business unit. In the medium-term, the Company is also studying the potential of setting-up an in-house construction arm. CLI takes pride in its growing project and construction management team, which manages the various contractors that the Company employs. Nevertheless, CLI may need to reinforce its expansion plans with an in-house construction arm in order to better manage time, cost and manpower. Growth of economic housing brand (Casa Mira) As of December 2016, CLI has four Casa Mira projects under development and in the pipeline: (1) Casa Mira Linao, (2) Casa Mira Towers Labangon, (3) Casa Mira South, and (4) Casa Mira Coast. Two more Casa Mira projects, Casa Mira Bacolod and Iloilo will be added to the list in The Company intends to grow Casa Mira as its economic housing brand as an answer to the unserved demand in the economic housing sector, where unit prices range from P800,000 to P1.7 million. Correspondingly, the monthly amortizations range from as low as P6,000 to as high as P10,000. Thus, this caters to households with monthly incomes of P15,000 to P30,000. The Company sees this as a great opportunity to tap into the class B, C and D markets where a majority of the working population belongs. With the Philippines young and growing workforce, the need for affordable permanent housing options will continue to escalate. 80

90 For CLI, it has differentiated its economic housing approach further by locating its economic projects in well-planned and desirable sites. While economic housing is normally associated with projects that lack access to major roads or decent amenities, CLI takes a more customer-driven approach by developing economic projects in better locations, with generous amenities and greater potential for value appreciation. Capitalizing on pipeline projects CLI has positioned itself for the next two years with key pipeline projects in Metro Cebu, and select locations in VisMin. CLI intends to grow its current product offerings with new vertical residential and mixed-use developments in Metro Cebu which are expected to generate revenues and recurring income for the Company. CLI targets to replicate its success in Cebu as it introduces its economic housing format in Dumaguete, Bacolod and Iloilo and its mixed-use developments in Davao. Establish and leverage strategic partnerships, alliances joint ventures and cooperation CLI will also continue to pursue local partnerships that will coincide with its expansion plans. The Company has proven that strategic alliances can provide a winning formula for securing strategic locations and entering new markets for as long as the joint ventures are executed using best practices. With its existing joint venture and associate companies such as BL CBP Ventures, Inc., El Camino Developers Cebu, Inc., Yuson Excellence Soberano, Inc., CLI has both the expertise and experience to take on more local partnerships as it expands across VisMin. HISTORY CLI was established in 2003 in Cebu City by a Cebuano entrepreneur, Jose R. Soberano III. Guided by sincere family values, genuine real estate passion and unrelenting faith, Jose R. Soberano III has steered the Company to become highly committed to its customers and community This was the year when the Company was incorporated from humble beginnings by founder Jose R. Soberano III. The initial motivation for its establishment was to provide for the housing needs of his employees and the middle-income earners of other small to medium companies. CLI s first residential subdivision, San Josemaria Village in Balamban, Cebu was born. He started with two employees including himself, with him doing the hands-on selling to the employees of industrial companies in the town of Balamban CLI grew and developed a second San Josemaria Village in Minglanilla, Cebu offering the same affordable mid-cost quality homes The third San Josemaria Village was developed in the prospering town of Toledo, Cebu bringing affordability and quality living closer to the needs of OFW families CLI continued to prosper and launched its fourth San Josemaria Village in Talisay City giving the city dwellers the chance to own and experience the Company s unique brand CLI embarked on its first vertical project at the booming Cebu IT Park by launching its first residential condominium, Asia Premier Residences. It is a significant milestone which enabled the company to develop its vertical development expertise. The success of Asia Premier Residences, as the first residential condominium at the Cebu IT Park, paved the way for more vertical projects of CLI Another feature property, the Base Line Residences, was built in one of Cebu s landmark district, Base Line Complex In the same year another residential subdivision, Midori Plains, was launched in the southern town of Minglanilla, Cebu with over 370 house and lot units Following the success of Midori Plains, the twin-tower Midori Residences was launched in the prime area of AS Fortuna, bridging the two cities of Cebu and Mandaue. A total of 396 condo units were developed. 81

91 2013 Park Centrale Tower was launched in one of Cebu s prime lifestyle district, the Cebu IT Park. This marked CLI s first venture into the office-condominium development as well as having its second property development within the Cebu IT Park Mivesa Garden Residences was launched. It is CLI s fifth mid-rise condominium development and its sixth to 13th tower CLI celebrated its ten year milestone with ten projects to date providing quality living communities for Cebu s mid-market The 8.8-hectare Velmiro Heights was launched. This is another horizontal residential development which is a step higher than previous projects, as it caters to the middle to upper-mid markets offering high-end amenities and generous living spaces Villa Casita, CLI s socialized housing brand, was launched in the western town of Balamban, Cebu to cater to the low cost housing needs of the low-income market Park Centrale Tower bagged the coveted Philippines Property Awards Best Commercial Development Cebu. The award marked a significant milestone for the real estate industry in Cebu and among the homegrown companies as CLI was the first Cebu-based developer to win in the PPA A major mixed-used development in the heart of midtown Cebu, Base Line Center, was launched. This project will have over 100,000 GFA. The first phase includes the 180- room hotel, Citadines Cebu City, which will be managed by Ascott, the world s largest serviced residence operator. Base Line Center will also include an upscale condominium called the Base Line Premier, with prime office spaces housed inside the Base Line HQ, and retail spaces CLI celebrated another major milestone by launching its first project outside Cebu in the booming CDO. The three-tower residential condominium complex, MesaVerte Residences, was launched CLI responded to the growing demand for economic housing by launching its economic housing brand, Casa Mira. Casa Mira Linao, a 725-housing unit subdivision broke ground at the start of CLI launched the vertical counterpart of its economic brand with the introduction of Casa Mira Towers in Labangon. This economic condominium will have 686 residential units and will rise on the site of CLI s old office CLI moved its corporate headquarters to its award-winning office development, Park Centrale Tower at the prestigious Cebu IT Park Due to the growing demand for its Casa Mira brand, CLI embarked on its largest residential project to date by launching Casa Mira South, a 30-hectare economic housing community in Naga City and San Fernando, both in Cebu. With its campaign to provide More for the Filipino Family, Casa Mira provides economic housing packages with high-end amenities. Remaining true to its core values and faithful to its humble roots, CLI continues to grow exponentially by building quality communities in strategic locations throughout Cebu with plans for more feature projects within Cebu City and in the other regions. CORPORATE REORGANIZATION CLI undertook a general corporate reorganization in preparation for this Offer. 82

92 ABSOBERANO HOLDINGS CORP. (76.78%) Prior to July 1, 2016, the Company s authorized capital stock was P1 billion divided into nine million Common Shares and one million Preferred Shares, both with a par value of P100 each. On July 1, 2016, for purposes of expansion and in order to meet the funding requirements of several new projects and developments undertaken by the Company, the Board of Directors and the stockholders approved the increase in the authorized capital stock of the Company from P1 billion divided into nine million Common Shares and one million Preferred Shares with a par value of P100 per share, to P2.5 billion consisting of 2.4 billion Common Shares with a par value of P1 per Common Share and one billion Preferred Shares with a par value of P0.10 per Preferred Share. The Company effectively decreased the par value of its Common and Preferred Shares, both from P100 per share, to P1 per Common Share and to P0.10 per Preferred Share. Out of such increase in the authorized capital stock, AB Soberano subscribed to 400 million newly-issued Common Shares. Accordingly, the increase in the authorized capital stock resulted in a net infusion of fresh and additional capital in the amount of P400 million. On October 18, 2016, the Company filed an application with the SEC for such increase in its authorized capital stock as described above, which was approved by the SEC on October 24, On November 22, 2016, AB Soberano purchased 225 million Common Shares from each of Ma. Rosario B. Soberano and Jose R. Soberano III, bringing its total shareholdings to 985,823,200 Common Shares or a 76.78% stake in the Company. AB Soberano then transferred one share each to independent directors Messrs. Jesus N. Alcordo and Rufino Luis Manotok, and Ms. Ma. Aurora D. Geotina-Garcia. As a result of the above-described transactions, CLI s corporate structure as of the date of this Prospectus is as follows: Subsidiary CLI Premier Hotels Intl, Inc. (100%) Joint Ventures BL CBP Ventures, Inc. (50%) CEBU LANDMASTERS, INC. Yuson Excellence Soberano, Inc. (50%) Ming-Mori Development Corporation (19.87%) Magspeak EcoTourism (25%) 1 Associates El Camino Developers Cebu, Inc. (35%) A.S. Fortuna Property Ventures, Inc. (40%) Mivesa Garden Residences, Inc. (45%) 1 As of the date of the Prospectus, Mr. Jose R. Soberano, III has executed a Deed of Assignment in favor of CLI for his shares in Magspeak, but the BIR Certificate of Registration of the shares is still being processed. 83

93 SUBSIDIARIES The Company s newly incorporated subsidiary, CLI Premier Hotels Intl., Inc., is not yet operational and has no revenue contribution as of date. CLI Premier Hotels Intl., Inc. CLI Premier Hotels Intl., Inc., a wholly-owned subsidiary of the Company, was incorporated on August 26, 2016 to take charge of Citadines Cebu City and the Company s future hotel developments. Its principal office address is at 10 th Floor, Park Centrale Tower, J.M. Del Mar St., Cebu IT Park, Brgy. Apas, Cebu City. JOINT VENTURES BL CBP Ventures, Inc. BL CBP Ventures, Inc. was incorporated on February 3, 2016 to develop Latitude Corporate Center, a 24- storey office development at the Cebu Business Park. BL CBP Ventures, Inc. was a joint venture of the Company and Borromeo Bros, Inc. Its principal office address is at AB Soberano Bldg., Salvador Ext., Labangon, Cebu City. Yuson Excellence Soberano, Inc. Yuson Excellence Soberano, Inc. was incorporated on December 15, 2016 to mark the Company s entry into the Davao market. It is a joint venture between the Company and Yuson Comm. Investments Inc. to undertake the development of MesaTierra Garden Residences, a 21-storey residential condominium, and two other mixed-use projects in Davao City. It will also engage in real estate brokering to facilitate the marketing and sale of the joint ventures developments in Davao. Its principal office address is at Suite A, 204 Plaza De Luisa Complex, 140 R. Magsaysay Ave., Brgy. 30-C, 8000 Davao City. ASSOCIATES A.S. Fortuna Property Ventures, Inc. A.S. Fortuna Property Ventures, Inc. was incorporated on March 9, 2017 to facilitate the acquisition of a 9,989-sq.m. property along AS Fortuna Avenue for the development of the AS Fortuna Center Mandaue, a mixed-use development in the AS Fortuna Mandaue area that will house a hotel, residential and office development and a boutique mall. Its principal office is located 10 th Floor, Park Centrale Tower, Josemaria del Mar St., Cebu IT Park, Brgy. Apas, Cebu City. CLI holds a 40% stake in the company. EL Camino Developers Cebu, Inc. EL Camino Developers Cebu, Inc. was incorporated on August 15, 2016 to acquire a 1.17-hectare property inside the Cebu IT Park, and to develop (1) 38 Park Avenue at the Cebu IT Park, a 38-storey high-end residential condominium, and (2) Park Avenue Corporate Center, a Grade A office building with over 20,000 sq.m. of leasable area. Its principal office address is at Base Line Center, Juana Osmeña St., Brgy. Kamputhaw, Cebu City. The Company has a 35% stake in El Camino Developers Cebu, Inc. Magspeak Nature Park, Inc. Magspeak Nature Park, Inc. was incorporated on October 21, 2011 to acquire, lease and develop lands into nature and eco-tourism parks, and to manage and operate the same. Magspeak plans to develop a 30- hectare outdoor leisure park and conference center to be launched in 2017 in Mt. Manunggal, the highest mountain in Cebu. CLI holds a [25%] 19 stake in Magspeak. 19 As of the date of the Prospectus, Mr. Jose R. Soberano, III has executed a Deed of Assignment in favor of CLI for his shares in Magspeak, but the BIR Certificate of Registration of the shares is still being processed. 84

94 Ming-Mori Development Corporation Ming-Mori Development Corporation was incorporated on August 1, 2013 to undertake and execute land reclamation projects, submit bids and accept awards for reclamation projects, and manage, hold and sell reclaimed land and other real property. Ming-Mori Development Corporation is the private consortium that has proposed to undertake the Ming-Mori Reclamation Project of the Municipality of Minglanilla, which involves the development of the Minglanilla TechnoBusiness Hub, a 100-hectare techno-business park in the progressive town of Minglanilla, a mere 30 minutes away from Cebu City. The Company has subscribed to 19.87% in Ming-Mori Development Corporation, which is pending before the SEC. Mivesa Garden Residences, Inc. Mivesa Garden Residences, Inc. was incorporated on March 13, 2017 to develop Towers 6 and 7 (Phase 3) of Mivesa Garden Residences, a real property development project located on a 3,000-sq.m. property to be registered in the company s name. Its principal office is located 10 th Floor, Park Centrale Tower, Josemaria del Mar St., Cebu IT Park, Brgy. Apas, Cebu City. CLI holds a 45% stake in the company. DISTRIBUTION METHODS OF PRODUCTS AND SERVICES Development activities The Company designs and develops its products on a per project basis. Each project design is unique, depending on the type of development, location, soil conditions, size and other factors. The amount spent on such development activities are accounted for under cost of sales and rental of the Company's financial statements. See discussions under Summary of Financial and Operating Information. Development costs accounted for P578.3 million (45%), P million (43%), and P1.01 billion (47%) of the Company s revenues in 2014, 2015 and 2016, respectively. Marketing and sales CLI has one of the industry-leading sales support teams in VisMin. The Company s over 30 sales support personnel collaborate, coordinate and support CLI s more than 5,000-strong accredited broker/agent network. This is CLI s strategy of working harmoniously with the seller community by assisting the brokers 24/7, from sales origination to closing. CLI works alongside brokers in facilitating client inquiries until sales closing, documentation, monitoring and turnover. The Company has also pioneered various incentive programs for its sellers. This has paved the way for multiple and repeat selling efforts from individual sellers and brokerages. CLI consistently rewards its broker partners as a way of maintaining a steadfast partnership with them. CLI s sales support team is based in the corporate headquarters, but are able to reach the Company s broker partners by conducting regular trainings and workshops for the broker partners in the CLI office or in the offices of the accredited brokerages. CLI exerts all marketing efforts to reach its target clientele, with marketing activities like launches, exhibits, promos, open houses, and regional and international roadshows. The Company has been successful in several pre-launches, as it is able to move from acquisition, design and marketing in a very timely fashion. Several of its pre-selling launches have gotten tremendous sales performance. Several of its projects have sold-out even without a showroom due to the win-win packaging it offers to both buyers and sellers. These sold-out projects include Asia Premier Residences, Base Line Residences, Casa Mira Linao and Velmiro Heights (Phase 1). CLI has also relaunched its corporate brand in 2016 with its tagline We Build with You in Mind. The new tagline communicates the hands-on nature of CLI s entire team, with special attention given to all new and existing buyers throughout the sales cycle. Credit and collection 85

95 Credit and collection functions are assigned to the A/R Section and Treasury Section under Accounting and Finance Department of the Company. This group is responsible for collecting equity payments, move-in fees, management fees and rental income payments. The Company s equity payment terms vary from one project to another, but usually have a minimum payment period of 24 months. Buyers are required to pay a reservation fee ranging from P10,000 to P50,000 upon signing the Reservation Agreement Form which is non-refundable. The first monthly equity payment immediately starts 30 days after making the reservation. All equity payments are covered by postdated checks. For buyers who opt to pay spot cash, a discount ranging from 5% to 8% is granted. The Company does not perform prior investigation on the credit-worthiness of buyers before the latter sign up the Reservation Agreement Form. CLI, however, has a Documentation Department responsible for helping buyers obtain bank and Pag-IBIG financing for the 80%-85% balance on their units. To ensure approval of their loans, the Documentation Department assists buyers in complying with the required documents for approval such as pay slips, income tax returns, financial statements, employment contracts, and civil registry records. As an added service, the team also scouts for the best available bank rates and, when necessary, advises buyers to update and/or upgrade their contributions to qualify for Pag-IBIG housing loan. Almost all CLI buyers obtain financing through the assistance of the Documentation Department. For those who do not or are approved for less than their 80-85% outstanding balance, the Company typically gives buyers an extension of three to six months to settle their outstanding balances. Where a buyer defaults in paying their outstanding balance within 15 days from the due date, the Company sends the buyer a first notice or reminder letter to settle their account. After which, the Company follows the procedure in the Maceda Law, and furnishes the buyer with a second notice, advising them that they have 60 days to update their account. If the account remains unpaid after the lapse of the 60 day period, a third and final notice is sent to the buyer advising them that they have 30 days from receipt of notarial cancellation to pay off their balance should they still desire to save their purchase. The same procedure is followed for buyers who default on their equity payments. After the lapse of the above period, CLI resells the units to other buyers. Upon full collection of the total contract price, the A/R Section bills move-in fees and only upon its full payment does it issue an Authority to Move-In. CLI also bills rental income and management fees and collects the same usually within 30 days from billing. The Company s default or delinquency rate averages at a low 1.5% to 3% and this can be attributed to CLI s proactive approach in managing its accounts receivable. Of delinquent accounts, only less than 1% ends up in cancellations, as the Company s accounts receivable team works closely with the sales and marketing team to ensure that the customers accounts become current and are updated within a month of default. Accounts are considered delinquent when the buyer fails to pay on due date, and the procedure as described above, is observed by the Company. The Company has historically less than 1% cancellation rate based on the provisions for bad debts in its financial statements. To prevent cancellations, the Company ensures value for its customers money with its competitive pricing, quality locations, planning and design, generous amenities, timely and quality construction, well-established customer care, and after-sales and property management support. Furthermore, to minimize the risk of cancellations, the Company targets a prudent mix of clients, the bulk of which are OFWs and employed professionals and employees. Additionally, the Company markets its brand across several markets in several regions of the world and OFWs comprise 39% of its buyers. SUPPLIERS CLI sources construction materials and services from third party suppliers and service providers both in the local and national level who meet the Company s strict quality standards through a pre-qualification and a bidding process. There is no shortage of raw materials or services that the Company needs for its day-today business as these are readily available in the market. Hence, the CLI is not dependent on any single supplier or service provider. Through its purchasing team, evaluates suppliers who can provide the best value at the highest quality with the least cost, can guarantee safe and on time deliveries, and have the capacity to improve and innovate to 86

96 meet the Company's requirements. At the same time, the Company has the necessary internal controls, organizational structure and financial viability to assure the continuous delivery of the raw materials by the supplier. The Company engages contractors to undertake land development and construction on a per project basis. While the Company mostly outsources architectural and engineering services for its projects, this year, CLI has started doing engineering and design in-house. The following are the Company s top five suppliers: Supplier Dakay Construction & Development Corp. Kevlar Development Corporation UKC Builders, Inc. Vic Enterprises J.E. Abraham C. Lee Construction Product / Service General contractor General contractor General contractor Cement and rebars General contractor In the next 12 months, the Company will consider opportunities for improvement to strengthen vendor management such as accreditation of quality suppliers and improved procurement practices. CUSTOMERS CLI caters to several real estate categories residential, commercial/offices and hospitality. Among the three categories, the Company s experience in the industry has been primarily focused on residential development which comprises 80% of total current projects. Of the Company s residential developments, 38% of CLI s horizontal and vertical projects serve the need of the mid-market. Fast-selling projects like Midori Residences, Midori Plains, Velmiro Heights, Mivesa Residences, and MesaVerte Garden Residences show the growing demand of the mid-market for new, well-built, well-planned and strategically located homes. CLI s mid-market clients are those who can afford a monthly equity payment of P5,000 to P10,000 and an annual income of P300,000 to P800,000. The Company also caters to a small portion belonging to the upper-mid market segment who can afford a monthly equity of P10,000 to P15,000 and earning P1 million to P3 million annually. These mid-market segments prefer units at a price range of P900,000 to P3 million. CLI s biggest product offering is economic housing through the Casa Mira brand comprising 44% of the Company s total revenues from its residential projects. High-end residential developments are at 16%, with successful projects such as Asia Premier Residences, Base Line Residences, Base Line Premier and 38 Park Avenue at the Cebu IT Park. Socialized housing comprises only 2% of the Company s residential projects, with two projects to date. OFWs comprise a substantial segment of the Company s customers for its horizontal residential units with 60-70% of the Company s sales coming from OFWs. As of the date of the prospectus, the following table summarizes the Company s customer demographics. EMPLOYMENT MARITAL % CITIZENSHIP % % PROFILE STATUS Local 42% Filipino 95% Married 60% OFW 39%* Foreigner 5.0% Single 39% Self-employed 10% Other 1% Entrepreneur 5% Others 4% *The percentage is based on total customer demographics as compared to the 60-70% figure above which is based on horizontal residential units sold. 87

97 For its leasing business, the Company s top lessees include a BPO company, a service provider and food establishments. CLI is committed to continuously address the growing needs and demand of the market in each segment the Company caters to. CLI aims to constantly innovate, and remain consistent with the quality of the developments, the selection of location and the hands-on service that goes along with it. Customer service and warranties CLI commits to provide customers products and services that conform exactly to stated or agreed specifications, and also meet the needs and expectations of those customers. Prior to unit turnover, the Company ensures that quality control check is performed to establish the fact of its readiness and defectfree condition. In cases where there are issues arising after turnover, CLI responds to the customer concerns or complaints and facilitates a resolution that is done expeditiously by the concerned department. Aside from the warranties provided under the law, the Company s contractors provide a one-year warranty for construction and related defects which covers flaws in workmanship, materials and quality. Between the Company and its buyers, the Company gives a one-year workmanship warranty which covers any architectural, engineering, finishing flaws or defects in the materials used. The Company also requires and assists buyers to adopt regular maintenance measures such as periodic check-ups of electrical system and other similar measures which may be necessary to preserve the integrity of their units. COMPETITION CLI is within the playing field of top national players and local developers across its product range. The Company goes head to head with national players such as Amaia Land Corporation, Avida Land Corporation, and Alveo Land Corporation, all of which are subsidiaries of Ayala Land, Inc., Filinvest Land Inc., Megaworld Corporation, Rockwell Land Corporation, 8990 Holdings, and Hongkong Land which is in partnership with the local developer, Taft Properties. The Company also competes with established local developers in Cebu, and other parts of VisMin, like Primary Group of Builders which has 25 years of experience in the industry, AboitizLand with 22 years, Johndorf with over 30 years, and Taft Properties with 20 years. In Cebu, the Company s direct competitor is Primary Group which also offers the same product range in terms of house and lot offerings, condominium units, offices and commercial spaces in Cebu, Dumaguete and Bohol. CLI commands an 11% market share in terms of the total supply of condominium units in Metro Cebu, second to Ayala Land, Inc. (17%) and followed by Filinvest Land Inc. (8%) 20. In terms of the number of condominium units sold, the Company has a 9% market share, second to Ayala Land, Inc. (17%) and tied with Filinvest Land Inc. (9%) 21. For the current housing market, CLI ranks among the top three Cebu players with a 10% market share. 22 Among Cebu-based local developers, CLI is already the number one local housing developer in Metro Cebu just in a span of 12 years. To leverage itself against competition, CLI draws its advantage on its core strengths its hands-on personalized service, local (i.e., Visayas and Mindanao) real estate expertise, stringent location selection, and responsible development as well as in its aggressiveness, speed to market and best value projects. PROPERTY AND EQUIPMENT Landbank and other properties 20 Id., p Id., p Id, p

98 The Company s landholdings are strategically maintained to ensure that it has sufficient land to cover its current and future development requirements. The Company has invested in properties situated in prime locations in the Visayas and Mindanao for its existing vertical and horizontal projects and those in the pipeline for the next five years. Most of these projects are strategically located to enjoy easy access to major public roads and other infrastructures. As of December 31, 2016, the Company has a land inventory of approximately [630,824 sq.m.] for the development of its various residential, commercial and mixed-used projects. Aside from land, the Company also owns buildings, office equipment, transportation equipment, furniture and fixtures and leasehold improvements that are not intended for sale or are held as investment property. For a detailed discussion of the Company s land inventory and other real and personal properties, please see the section on Description of Properties. EMPLOYEES As of the date of this Prospectus, the Company has a total of 166 employees, broken down per department as follows: Number of Department Employees Sales and Customer Care 26 Marketing 7 HR and Admin 11 Accounting and Finance 30 Business Development 9 Documentation, Legal, Permits and Licenses 23 Purchasing 9 Property Management 8 Engineering 39 Internal Auditor 1 Top Management 3 Total 166 Subject to any changing needs of the business, the Company anticipates hiring a small number of additional employees within the next 12 months. Furthermore, the employees of the Company are not covered by any collective bargaining agreement between the Company and its employees nor part of any labor union. The Company complies with occupational requirements such as minimum compensation and benefits standards, child-free labor and other employment practices. INTELLECTUAL PROPERTY The Company s business is not dependent on any copyright, patent, trademark, license, franchise, concession or royalty agreement. However, CLI believes that the registration of the Company s trademarks, tradenames and brands will help establish name recall and recognition in the market and build brand equity, which will eventually contribute to the success of CLI s projects and those of its affiliates. CLI has filed applications to register the following trademarks: Name of Trademark Illustration Registration Expiry Date Cebu Landmasters Application Number: Application Date: July 27, 2016 Pending application approval 89

99 Casa Mira Base Line Center Latitude Corporate Center Application Number: Application Date: July 27, 2016 Application Number: Application Date: July 27, 2016 Application Number: Application Date: October 5, 2016 Pending application approval Pending application approval Pending application approval HEALTH AND SAFETY CLI is compliant with all applicable national and local health and safety laws and regulations such as those imposed by the Department of Labor and Employment and the local government units where the Company is operating. CLI also imposes the same level of compliance on the contractors of its projects. The Company has a Crisis Management Plan that outlines preventive measures and recovery systems during a crisis or emergency, and mandates the creation of Crisis Management Team ( CMT ) composed of senior managers appointed by the Chief Executive Officer. The CMT is tasked to closely coordinate with management to ensure timely and appropriate responses and actions to mitigate or eliminate catastrophic consequences during crisis. As of the date of this Prospectus, CLI is not aware of any penalties imposed on the Company for any breach of any existing health and safety laws or regulations. ENVIRONMENTAL COMPLIANCE AND PROTECTION CLI is subject to Philippine national and local environmental laws and regulations governing air pollution, noise emissions, hazardous substances, water and waste discharge and other environmental matters issued by national, provincial and municipal government and authorities. For its property developments, the Company is required to carry out environmental assessments and submit environmental impact assessment documents to the relevant government authorities for approval before any land development or construction is commenced. CLI has consistently obtained the relevant government approvals and submitted the necessary environmental impact assessment documents for its projects. The Company s green building project, Latitude Corporate Center, is registered with BERDE and aims for a three-star BERDE certification. 90

100 MATERIAL AGREEMENTS The Company has entered into the following contracts which may be considered material. Joint ventures The Company has entered into a joint venture partnership with R D A K Land, Inc., Triple K Holdings, Inc. and RKD Property Holdings, Inc. for the incorporation of Mivesa Garden Residences, Inc., the entity intended to develop Mivesa Garden Residences Towers 6 and 7 (Phase 3), a real property development project on CLI s 3,000 sq.m. parcel of land in Salinas, Lahug, Cebu City. The Company has also entered into a separate joint venture partnership with R D A K Land, Inc., Triple K Holdings, Inc., RKD Property Holdings, Inc. and J R Young Holdings Inc. for the incorporation of A.S. Fortuna Property Ventures, Inc., the entity intended to develop the 9,989 sq.m. property along AS Fortuna Avenue, a bustling business and residential corridor located in Mandaue City, Cebu, as a mixed use project with a boutique mall, residential, office, and commercial component. The Company also has agreements involving BL CBP Ventures, Inc. with Borromeo Bros. Estate Inc. for the Latitude Corporate Center, Yuson Excellence Soberano, Inc. (with Yuson Comm. Investments, Inc.) for the MesaTierra Residences, El Camino Developers Cebu, Inc. for 38 Park Avenue at the Cebu IT Park. Construction Contracts The Company entered into a construction contract dated July 8, 2016 with JE Abraham Lee Construction and Development (ACLI), Inc., as contractor, for the general construction works in Casa Mira Towers (Towers 1 and 2) located at Salvador Extension, Labangon, Cebu City. The contract price is P264 million with 15% of the purchase price or P36.6 million as downpayment, with the remaining balance to be billed on progress billing with 10% retention. The contractor agrees to perform and complete all works set in the contract for a period of 24 months with an additional two calendar months for punch-listing and rectification works. The general construction works in MesaVerte Residences (Towers 1 and 2) located at Corrales and Osmena Streets, CDO is covered by a construction contract dated July 11, 2016 with Dakay Construction and Development Corporation, as contractor, thereof. The contract price is P169.8 million with a downpayment of 15% of the purchase price or P25.47 million, with remaining balance to be billed on progress billing with 10% retention. The construction should last for 18 calendar months, with additional calendar months for punch-listing and rectification works. CLI also entered into a construction contract with Kevlar Development Corporation, as contractor, to implement the building of 100 houses in Velmiro Heights located at Tunghaan, Minglanilla, Cebu City. The amount of the contract is P50.6 million with a downpayment of 20% of the purchase price equivalent to P10.12 million. Under the contract, the construction commenced on July 22, 2015 with a target completion on February 22, Lease Contracts Various units in Park Centrale Tower building are leased by the Company for various uses such as office space, convenience store outlets or restaurants. The terms of the lease contract range from three to six years, subject to renewal upon mutual consent of the parties. The Company is also leasing out residential units in Midori Residences and Base Line Residences. The term is usually one year each for Midori Residences and six months for Base Line Residences, unless extended or renewed. CLI also rented out retail spaces at Mivesa Garden Residences Building 1 for a term of three to five years unless extended by mutual consent of the parties. The Company also rented out units in Asia Premier Residences for commercial and residential use for terms of six months, one year or five years. These lease contracts usually have an escalation clause of five percent to seven percent beginning on the second or third year of the lease agreement. 91

101 The Company also leased out parking slots in Park Centrale Tower, Asia Premier Residences and Midori Residences. The term for the lease of parking slots is generally for one year, unless renewed or extended by mutual consent of the parties. Financing Agreements The Company entered into various loan agreements with BPI, China Bank, PNB, BDO and Metrobank in order to finance construction projects and refinance existing loans. CLI has real estate mortgages covering two credit facilities with BPI in the amounts of P550 million and P14 million. These real estate mortgages may be foreclosed upon failure to pay the indebtedness and failure to perform the conditions therein. CLI also executed loan agreements with BPI on December 9, 2014 and July 14, 2015 in the amount of P1 billion for a term of ten years and payable in quarterly installments, and P200 million for a term of four years and payable in eight quarterly installments. As part of the loan covenants, CLI cannot declare cash dividends if there is an event of default, or if the payment of such dividends would affect the company s financial condition. The Company has a loan line for P50 million available by way of short term promissory notes with interest at prevailing market rates, and a domestic bills purchased line for P10 million with China Bank, effective until July 31, These facilities are secured by a mix real estate mortgages on properties and improvements along Salinas Drive Extension, Lahug, Cebu City, and surety agreements with Spouses Jose R. Soberano III and Ma. Rosario Soberano as sureties. CLI also executed a loan agreement on December 16, 2013 for the principal amount of P300 million for a term of seven years to partially finance the three of the seven condominium buildings of Mivesa Garden Residences in Lahug, Cebu City. This loan is secured by way of real estate mortgages, one of which also secures a loan agreement dated September 23, 2014 with the principal amount of P200 million for a term of five years. Another lot also secures the loan to the extent of P150 million. There is also a surety agreement to the extent of P560 million executed by the Company as principal with Spouses Jose R. Soberano III and Ma. Rosario Soberano as sureties. The Company also has a loan agreement with Metrobank for P300 million to partially finance the construction of an 18-storey condominium and commercial building located at Cebu IT Park. The loan has a term of 10 years, payable on every interest payment date. It is secured by a real estate mortgage over a parcel of land along JM Del Mar Street and Road 8 Cebu IT Park, Barangay Apas, Cebu City. Under this loan agreement, CLI cannot declare or pay dividends to stockholders (other than the dividends payable solely in share of capital stock) if payment of any sum due the bank is in arrears. CLI also executed real estate mortgages in favor of Metrobank to secure the credit facilities in the amount of P300 million and P50 million in January 3, PNB also agreed to grant the Company a revolving credit line for additional working capital and to finance the development of Mivesa Garden Residences (Phase 1 and 2) in the amount of P200 million for a term of one year, or until July 31, The Company also has a domestic purchase line for the same term in the amount of P30 million. These credit facilities are both secured by suretyship whereby Spouses Jose R. Soberano III and Ma. Rosario B. Soberano bound themselves to be solidary obligors of the company. BDO likewise granted the Company various credit facilities to finance additional working capital requirements consisting of a domestic bills purchase line of P10 million, an omnibus line of P100 million, and a credit line of P2 million. The Company also availed of a short-term loan of P200 million from BDO, which is secured by real estate mortgages over properties purchased by the Company situated in Naga City, and San Fernando, Cebu. Insurance The Company has insured three units in Asia Premier Residence, IT Park, Lahug, Cebu City with MAPFRE Insular for a term of one year, from May 28, 2016 to May 28, For more information on the insurance coverage of the Company, please refer to Description of Properties Insurance on page [98] of the Prospectus. Other Material Agreements 92

102 CLI also entered into various deeds of absolute sales for the purchase of parcels of land in the Municipality of San Fernando, Naga City in Cebu. Depending on the size of the lands purchased, the purchase price ranges from around P2.8 million to around P42 million. The Company has also entered into a Serviced Residence Management Agreement with Scott Philippines, Inc. whereby the latter acts as the sole and exclusive manager to operate, manage, promote, market and maintain Citadines Cebu City for and on behalf of the Company. Under this agreement, Scott Philippines, Inc. was granted the right to assign or transfer any rights, benefits or obligations to any of its affiliates to be the party and/or to perform the services under the agreement. The Company also engaged Ascott International Management Pte. Ltd. as technical advisor whereby the latter is paid USD200,000 for the services rendered. MATERIAL PERMITS AND LICENSES Set out below are all of the major permits and licenses of the Company necessary to operate its business as currently conducted, the failure to possess any of which would have a material adverse effect on the business and operations of the Company 23. The permits and licenses enumerated below include those for the Company s projects that are under construction or for construction, while those for completed projects are excluded from the list. Based on the opinion issued by an independent counsel, Atty. Rene C. Abcede, Jr., and unless otherwise indicated below, the material permits and licenses required for the Company s operations are valid and subsisting. General Permits Head Office [and Branches] Name of Permit Certificate of Incorporation Certificate of Registration Issuing Agency Securities and Exchange Commission Bureau of Internal Revenue License/ Permit No. CS RC Issue Date September 26, 2003 September 12, 2003 Business Permit (2017) Local Government Unit (Renewal is currently being processed.) Employer Data Form Home Development Mutual Fund n.a. Certificate of Registration Social Security System n.a. Expiry Date 50 years from date of incorporation n.a. PhilHealth Certificate of Registration PEZA Certificate of Registration DOLE Certificate of Compliance on Occupational Safety & Health Standards Philippine Health Insurance Corporation n.a. PEZA No March 18, 2013 DOLE TCFO-OSHS-074 December 22, (Renewal is 2014 currently being addressed.) December 22, 2016 Permits per project 23 As the Company is a going concern, certain permits and licenses will be added to the list below as they are secured in the ordinary course of business. 93

103 The list only enumerates the permits and licenses presently held by the Company for its ongoing projects and excludes the Company s permits and licenses for its completed projects. Mivesa Garden Residences Phase 2 Name of Permit Issuing Agency License/ Permit No. Issue Date BOI Certificate of DTI No November 29, n.a. Registration 2013 ECC DENR ECC-R August 22, 2013 n.a. Expiry Date Certificate of Registration HLURB No March 3, 2015 n.a. License to Sell HLURB No March 3, 2015 n.a. Development Permit HLURB DP No. CVR October 9, 2013 n.a. Business Permit 2016 (Lessor) Office of the Mayor, Cebu No C July 8, 2016 December 31, 2016 Business Permit 2017 (Lessor) Office of the Mayor, Cebu No C For renewal Building Permit (Building 4) Office of the City Mayor BOI August 5, 2014 n.a. Certificate of Occupancy* (Building 4) Office of the Building Official n.a. n.a. n.a. Building Permit (Building 5) Office of the City Mayor BOI August 5, 2014 n.a. Certificate of Occupancy (Building 5) Office of the Building Official n.a. n.a. n.a. * Occupancy permits are only issued once the building is finished and livable (i.e. with running water, working fire suppression systems, etc.). As of the date of the Prospectus, both Buildings 4 and 5 are still under construction. Base Line Center Base Line Center is a mixed-use development which includes three projects: Base Line Premier, Base Line HQ and Citadines Cebu City. Since these three projects will be built on a single structure, certain permits are common to the three projects. Name of Permit Issuing Agency License/ Permit No. Issue Date ECC DENR ECC-R August 17, 2015 n.a. Expiry Date Development Permit HLURB DP No. CVR April 28, 2015 n.a. Building Permit Office of the City Mayor, Cebu No. B April 7, 2016 n.a. Certificate of Registration (Base Line HQ) License to Sell (Base Line HQ and Citadines) Certificate of Registration (Base Line Premier) HLURB No July 4, 2016 n.a. HLURB No July 4, 2016 n.a. HLURB No July 4, 2016 n.a. 94

104 License to Sell (Base Line Premier) HLURB No July 4, 2016 n.a. Casa Mira Towers Labangon Name of Permit Issuing Agency License/ Permit No. Issue Date BOI Certificate of DTI No July 8, 2016 Registration ECC DENR ECC-OL-R January 5, 2016 Certificate of Registration HLURB COR No December 22, 2016 License to Sell (Tower 1) HLURB LTS. No December 22, 2016 License to Sell ( Tower 2) HLURB LTS. No December 22, 2016 Development Permit HLURB DP No. CVR October 26, 2015 n.a. n.a. n.a. n.a. n.a. Expiry Date Building Permit (Towers 1 & 2) DPWH No. BOI November 17, 2016 n.a. MesaVerte Residences (Phase 1 Tower 1 & 2) Name of Permit Issuing Agency License/ Permit No. Issue Date Expiry Date BOI Certificate of DTI No July 8, 2016 n.a. Registration ECC DENR ECC-R July 3, 2015 n.a. Certificate of Registration HLURB No April 1, 2016 n.a. License to Sell HLURB No April 1, 2016 n.a. Development Permit HLURB DP No. REM-Condo (NMR 10) July 23, 2015 n.a. Clearance to Mortgage HLURB n.a. April 5, 2016 n.a. Business Permit 2016 Office of the City Mayor, CDO No February 24, 2016 December 31, 2016 Business Permit 2017 Office of the City Mayor, CDO January 11, 2017 December 31, 2017 Building Permit (Tower 1) Office of the City Building Official, CDO CLI-26-EI March 2, 2016 n.a. Building Permit (Tower 2) Office of the City Building Official, CDO CLI-26&22- E1 March 3, 2016 n.a. MesaVerte Residences (Phase 2 Tower 3) Name of Permit Issuing Agency License/ Permit No. Issue Date Expiry Date 95

105 ECC DENR ECC-R July 3, 2015 n.a. License to Sell HLURB Temporary LTS : REM TLS December 19, 2016 June 19, 2017 Business Permit 2016 Office of the City Mayor, CDO No February 24, 2016 December 31, 2016 Business Permit 2017 Office of the City Mayor, CDO January 11, 2017 December 31, 2017 Development Permit HLURB DP No. REM-Condo (NMR 10) August 5, 2015 n.a. Casa Mira South (Phase 1) Name of Permit Issuing Agency License/ Permit No. Issue Date Expiry Date ECC DENR ECC-RO December 9, 2016 n.a. Casa Mira South (Phase 2) ECC/CNC DENR ECC-RO December 9, 2016 n.a. Casa Mira South (Phase 3) ECC/CNC DENR ECC-RO December 9, 2016 n.a. Mivesa Garden Residences (6 7) (Phase 3) ECC/CNC DENR ECC-R August 22, 2013 n.a. CBP Latitude Tower Development Permit HLURB D.P. No. CVR November 17, 2016 n.a. License to Sell HLURB Temporary LTS No Regular LTS- Ongoing application January 23, 2017 n.a. 38 Park Avenue at the Cebu IT Park Development Permit HLURB CVR February 2, 2017 n.a. License to Sell HLURB Regular LTS- Ongoing application n.a. BOI Registration The Company also has accredited a number of its projects with the BOI, which has allowed such projects to generally enjoy certain tax incentives, subject to compliance with certain conditions. These tax incentives include income tax holiday for three years (or four years for certain projects) from the actual start of commercial operations or date of registration of the project, and zero duty importation of capital equipment, spare parts and accessories for a period of five years from the date of registration of the project. The BOI-registered projects include: Midori Plains, Midori Residences, Mivesa Garden Residences (Phase 1), Mivesa Garden Residences (Phase 2), Casa Mira Linao, Casa Mira Towers, and MesaVerte Residences (Phase 1, Towers 1 and 2). 96

106 The Company s sales of low cost subdivision lots and housing units, with unit price between 450,000 and 3 million are currently not subject to corporate income tax. As discussed however in the section on Risk Factors on page [24], there is no guarantee that the Company s future development projects will be able to benefit from the income tax holiday benefits under the BOI, or that accreditation to receive such benefit will not be delayed. The delay or absence of this income tax holiday on any of the Company s future development projects could have an adverse effect on the Company s results of operations. 97

107 DESCRIPTION OF PROPERTIES LAND INVENTORY Using its location selection criteria, the Company, its joint ventures and associates ( Company and its Related Entities ) have invested in properties located in strategic areas in VisMin which the Company and its Related Entities believe to have high future appreciation potential for its existing and future development projects. The table below enumerates the parcels of land owned by the Company and its Related Entities, as of the date of this Prospectus. The list includes those parcels of land which have been conveyed to the Company and its Related Entities by virtue of definitive agreements, the titles of which have not been transferred in the name of the Company and its Related Entities until full payment of the purchase price. Please refer to the section on Intended Acquisitions for details on the properties that the Company plans to acquire in the next 12 months. Location Total Area (in sq.m.) Primary Land Use Registration of Title/ Ownership 1 AS Fortuna, Mandaue City 9,989 Mixed-Use (Residential/ Commercial) To be registered under A.S. Fortuna Property Ventures, Inc. (40%-owned by CLI) 2 Cebu IT Park, Apas, Lahug, Cebu City 11,798 Mixed-Use (Residential/ Commercial) Title to be registered in the name of El Camino Developers, Inc. (35%- owned by CLI) 3 Cebu Business Park, Ayala, Cebu City 3,020 Commercial BL CBP Ventures, Inc. (50%-owned by CLI) 4 Guadalupe, Cebu City 4,494 Mixed-Use (Residential/ Commercial) To be registered under the Company s name 5 Casa Mira South, Naga-San Fernando, Cebu 278,844 Residential 161,747 sq.m. already registered under Company s name Remaining area to be registered under Company s name 6 Base Line Center (Phase 1) 5,102 Condotel Company 7 Base Line Center (Phase 2) 5,074 Mixed-Use (Residential/ Commercial) Company 8 Casa Mira Subdivision, Linao, Minglanilla, Cebu 9 Casa Mira Towers, Labangon, Cebu City 10 MesaVerte Residences, Cagayan de Oro City 11 Mivesa Garden Residences, Lahug, Cebu City 12 Upper Canitoan, Cagayan de Oro City 13 Sibulan Bouffard Lot - Dumaguete 14 E. Jacinto, Brgy. 11, Poblacion, Davao City 78,290 Mixed-Use (Residential/ Commertial) 98 Company 3,681 Residential Company 10,440 Residential Company 18,270 Residential Lot where Buildings 1 to 5 are located comprising of 15,270 sq.m. is already registered under the Company s name Lot where Buildings 6 to 7 are located measuring 3,000 sq.m.: Mivesa Garden Residences, Inc. together with Item No. 1 (45%-owned by CLI) 66,515 Residential To be registered under the Company s name 60,528 Residential To be registered under the 5,094 (out of 5,273 sq.m.) Residential 17 Velmiro Heights, Tunghaan, 69,685 Residential Company Minglanilla, Cebu Total 630,824 Company s name To be registered under Yuson Excellence Soberano, Inc. (50%- owned by CLI)

108 OTHER REAL PROPERTIES In addition to its land inventory, the Company owns several other real properties, including available commercial and retail spaces in its completed projects, which are currently used by the Company, or leased out to third parties to generate recurring income. The details of these properties are set out below. Among the projects with commercial spaces leased out to tenants are: Project Location Type Total Area Available for Lease (in sq.m.) Asia Premier Residences Cebu IT Park, Apas, Lahug, Cebu City Commercial Base Line Residences 1 Juana Osmeña St., Brgy. Kamputhaw, Cebu Commercial City Midori Residences AS. Fortuna-Banilad, Mandaue City Commercial Mivesa Garden Residences Lahug, Cebu City Commercial Park Centrale Tower Cebu IT Park, Apas, Lahug, Cebu City Commercial 4, TOTAL 5, In addition, the Company also generates recurring income from its residential projects through lease of parking spaces and company-owned residential units. The Company has available for lease a total of sq.m. of parking space, and a total of sq.m of residential space. As of the date of this Prospectus, the Company leases sq.m of parking space, with a total annual lease of P248,340, and a sq.m of residential space, with a total annual lease of P4.53 million. The Company s residential leases have an average term of one year, while the Company s commercial leases have an average term of three to five years, both renewable upon mutual agreement of parties. Sixty days notice is required from tenants for the extension or pre-termination of their leases, and a two-month security deposit is paid at the commencement of the lease. The Company charges rent as either a fixed rent per sq. m., which may be subject to an escalation clause. In its leases with its Related Entities, the Company observes arm s length commercial terms and considers the current rentals payable by tenants of the condominium units and parking slots that are operational at present reflect prevailing market rents. As of December 31, 2016, the Company s recurring income properties such as those used for leasing have a total cost of P318 million with a book value of P million. Based on the appraisal reports of Colliers International Philippines, Inc. dated October 17, 2016, the total fair value of the Company s recurring income properties for 2016 is at P881 million. OTHER ASSETS Other properties of the Company comprise of the following: Property and Equipment Cost (in ) Accumulated Depreciation (in ) Book Value as of Dec. 31, 2016 (Unaudited) (in ) Leasehold Improvement 2,305, , ,663, Transportation Equipment 30,222, ,294, ,928, Furniture and Fixtures 16,398, ,983, ,415, Office Equipment 40,368, ,788, ,579, Office Building 114,633, ,053, ,579, Total Property and Equipment 203,929, ,762, ,166, Computer Software 3,944, ,690, ,254, TOTAL 207,873, ,452, ,420,

109 LEASED PROPERTIES As of the date of this Prospectus, the Company has leased properties for use as office space and staff houses of its employees with the details set out below: Leased Property Description/Use Annual Lease (in ) Expiration of Lease Cagayan De Oro Staff House of CLI 242,000 February 20, 2016 City (Apartment C) Employees to January 19, 2017 Cagayan De Oro City (Apartment G) Staff House of CLI Employees TOTAL 410, ,000 September 25, 2016 to September 24, 2017 Renewal Option Renewable at lessor s option with increased rate of 7% Renewable at lessor s option with increased rate of 7% The Company does not lease any land for development nor does it lease any land for its operations.] Purpose Leased MORTGAGE, LIENS AND ENCUMBRANCES In pursuit of its business, the Company has entered into various mortgage agreements covering certain parcels of land and improvements for the purposes of securing development loans or credit facilities extended by financial institutions. The properties which are subject to real estate mortgages are: Property Mortgagee Location Area (in sq.m.) Barangay Kamputhaw, City of Cebu 3,215 BPI Along J.M. Del Mar Street and Road Lot 8, Cebu 1,490 Metrobank I.T. Park, Brgy. Apas, Cebu City Salinas Drive Extension, Lahug, Cebu City 15,451 China Bank Brgy. Tunghaan, Minglanilla, Cebu 69,684 BPI Brgy. Labangon, Cebu City 3,681 BPI Park Centrale Tower certain condominium units 5, Metrobank Sergio Osmena Ext., Brgy. 22, CDO 8,605 Chinabank Naga City and San Fernando, Cebu 174,416 BDO Under Section 18 of Presidential Decree No. 57, no mortgage on any unit or lot shall be made by the owner or developer without prior written approval of the HLURB. Accordingly, before the Company can mortgage properties being used for its condominium or subdivision projects, it should ensure compliance with the said law and its implementing regulations. Properties of the Company and its Related Entities in which particular projects have been developed are also subject to restrictions arising from the nature of such projects. For instance, certain properties over which a condominium building project has been constructed would have restrictions annotated on the title of such property arising from the Master Deed restrictions on the use of the property for condominium use. Likewise, properties being leased by the Company are subject to typical lease-related limitations on usage, e.g., for office use only. For a discussion on the loan obligations of the Company, please refer to Material Agreements on page [88] of the Prospectus. INTENDED ACQUISITIONS The Company has intentions to acquire properties in the next 12 months in key locations in VisMin. Actual acquisition is dependent on the outcome of negotiation with prospective sellers. These acquisitions are expected to require additional capital expenditures, but the Company believes that it will have sufficient financial resources for these requirements as it expects to use the proceeds from the Offer, [available loan lines and partner-investors contributions] as a source of financing. 100

110 CLI intends to use approximately P[1.05] billion from the IPO proceeds to acquire and partially fund development costs of the following VisMin projects: Land Acquisition & Development VisMin Intended Use Estimated Allocation (in ) Estimated Timing of Disbursement Status Davao City Residential [120,000,000] 2H 2017 Completed negotiation but no payments made Davao City Mixed-Use [300,000,000] 1H 2018 Completed negotiation but no payments made Bacolod City Mixed-Use [150,000,000] 2H 2017 Completed negotiation but no payments made Bacolod City Residential [120,000,000] 2H 2017 Under negotiation Jaro, Iloilo Residential [60,000,000] 2H 2017 Under negotiation Dumaguete City Residential [50,000,000] 2H 2017 Completed negotiation with downpayment Cagayan de Oro Residential [150,000,000] 2H 2017 Completed negotiation with downpayment Bohol Residential [100,000,000] 1H 2018 Ongoing site evaluation Total [1,050,000,000] CLI intends to use approximately P[910] million from the IPO proceeds to acquire and partially fund development costs of the following Cebu projects: Land Acquisition & Development - Cebu Intended Use Estimated Allocation (in ) Estimated Timing of Disbursement Status Guadalupe, Cebu Residential [180,000,000] 2H 2017 Completed negotiation with downpayment Mactan, Cebu Hotel/Residential [400,000,000] 2H 2017 Ongoing site evaluation Bogo City, Cebu Residential [30,000,000] 2H 2017 Under negotiation Minglanilla/Talisay [300,000,000] 1H 2018 Ongoing site evaluation Total [910,000,000] INSURANCE CLI procures insurance coverage required by relevant laws and regulations for its real and personal properties and requires contractors to submit performance bonds, marine insurance policies, and other sureties for its covered activities. Throughout the construction stage, the Company also maintains Contractor s All-risk Insurance for each of its projects, subject to customary deductibles and exclusions. For completed projects, CLI also requires homeowners associations and condominium corporations to obtain fire and allied risks insurance as part of the master deed for these projects. 101

111 LEGAL PROCEEDINGS As of date of this Prospectus, the Company and its subsidiary are not a party to, nor any of the Company s properties are the subject of any pending material litigation, arbitration or other legal proceeding, and no litigation or claim of material importance is known to the management and the directors to be threatened against the Company, its subsidiary or any of its properties. 102

112 INDUSTRY OVERVIEW This section (as well as other sections of this Prospectus) contain information extracted from a commissioned report prepared by Santos Knight Frank on the real estate market in Cebu and certain key locations in Visayas and Mindanao for inclusion in this Prospectus and such information reflects estimates of market conditions based on publicly available sources and trade opinion surveys. For more details, please see the Real Estate Industry Study dated September 16, 2016 annexed to this Prospectus. The extract below and the detailed study conducted by Santos Knight Frank has not been independently verified by the Company, the Joint Lead Underwriters or any other party involved in the Offer, and neither they nor Santos Knight Frank give any representations as to its accuracy, among other matters, and the information should not be relied upon in making, or refraining from making, any investment decision. The information set out in this section does not purport to project the results of operations of the Company at present and for any future period or date. Philippine macroeconomic indicators overview The Philippine economy has performed well since the early 2000s, on the back of remittances from Overseas Filipino Workers ( OFW ) and the booming Business Processing Outsourcing ( BPO ) industry, both of which have a significant impact on consumer spending which accounts for about twothirds of Gross Domestic Product ( GDP ). The country has one of the fastest growing economies in the world, growing 7.6% in 2010, 7.2% in 2013, remained above 6% in the last four years and the economic outlook is positive. Election spending propped up the economy s performance in Q as the country registered the fastest GDP among Southeast Asian countries. The Philippines GDP grew 6.9% during the period and was above market expectation. The biggest contributor to GDP growth was the services sector with 4.4 percentage points. In terms of industrial origin, the services sector has remained the highest contributor to GDP growth. In fact, the services sector recorded growth rates above 5% in the last six years. The low interest rate environment empowered more consumers through bank loans which has given them additional purchasing power. The spending has helped shore revenues for companies in car manufacturing/dealing, consumer products and the real estate industry. Table 1. Philippine Macro Economic Indicators ECONOMIC INDICATORS F Real GDP (% YoY) Household consumption (%YoY) Government consumption (%YoY) Investment (%YoY) Nominal GDP (PHP bn) 9, , , , , ,324.2 Nominal GDP (USD bn) GDP per capita (USD) 2, , , , , ,039.9 Population (mn) Unemployment (% end-year) CPI (avg %YoY) CPI (end-year %YoY) Current Account (USD bn) Net FDI (USD bn) Current Account (%/GDP) Net FDI (%/GDP) Central bank policy rate (end-year %) Exchange rate end-year (USD/PHP)

113 Exchange rate average (USD/PHP) Exchange rate end-year (EUR/PHP) Exchange rate average (EUR/PHP) Average bank lending rate (average %) days T-bill rates (average %) days T-bill rates (average %) days T-bill rates (average %) year T-bond rate (end-year %) year T-bond rate (end-year%) PSEi (end-year) 4, , , , , ,300.0 Tourist Arrivals (%YoY) OFW Remittances (USD bn) Source: Santos Knight Frank citing Bangko Sentral ng Pilipinas, Philippine Statistics Authority, Oxford Economics Real estate industry overview One of the growth drivers of the Philippine economy over the past few years has been the real estate sector. The current state of the real estate sector is probably the strongest it has ever been in the history of the country. The growth in the sector is across all the segments be it office, industrial, residential, hospitality and retail. Each of these segments is driven by specific growth drivers which in effect are the same growth drivers of the Philippine economy as a whole. CEBU With the booming real estate market of Cebu City, different development options have been opened for engagement and investment. A. Residential market The residential market has gone through the upswing stage with the demand fueled by three growth areas: the secular growth, economic growth and global growth. Secular growth refers to the growing population of OFWs and Filipino residing abroad. Economic growth refers to the fiscal discipline currently being displayed by the Philippines. Global growth refers to the increase of multinational corporations mostly by way of the BPO sector. Local Cebuano developers have already caught the attention of both national and foreign real estate players and buyers due to the quality and neoteric concepts of their residential condominium developments. In this regard, the need for innovation is imperative as demand for housing increases as of the first half of Supply condominium projects Analyzing the last eight years of the residential segment in Metro Cebu, it can be noted that for 2006 to 2009, the growth of condominium projects was modest only one to two projects were being launched per year. By the year 2010, however, a sudden growth was seen with the introduction of 13 residential towers. This momentum was sustained for the following years as the residential segment taps into Cebu s market potential brought about by the progression of the services sector. In 2012, 28 projects were launched equating to 7,715 units, the highest in Metro Cebu for the eight-year period. It was during this year when the country exhibited strong macroeconomic growth concurrent with the robust expansion of the office, tourism and industrial sector. National players have also started entering and expanding in Cebu during the year. Notable developments were Sanremo Oasis by Filinvest Land, One Pacific & One Manchester by Megaworld and Park Point Residences by Ayala Land Premier. 104

114 From years 2013 to 2016, the growth of the supply of residential condominiums stabilized between 3,100 to 3,600 units being added every year. Figure 1. Historical Condominium Launches Source: Santos Knight Frank In terms of allocation, mid-market projects continue to dominate the residential market in Metro Cebu with 55% of the total market share. Meanwhile, high-end and affordable condominiums occupy 28% and 17% of the total stock, respectively. Majority of the developers are local ones but national players such as Ayala Land, Megaworld, Filinvest and Robinsons Land are continuously increasing their presence in the hottest residential market in the country next to Metro Manila. Overall supply by developer In terms of the total supply of residential units, the Company ranks second with total condominium units of 3,150 in Metro Cebu and 11% market share compared with the other developers. Ayala Land Incorporated has the highest market share with 17%, which covers Amaia Land, Avida Land, Alveo Land and Ayala Land Premier projects offering affordable to high-end condominium units with a total of 4,935 units. Filinvest ranks third with 8% market share and a total number of 2,360 units. Figure 2. Market Share of Units Float per Developer in Metro Cebu (in Units) 105

115 Source: Santos Knight Frank Meanwhile, in terms of supply in peso value, the Company posted a 7.45% market share, slightly higher than Filinvest Land Incorporated s 7.31%. Ayala Land Incorporated still remained number one in terms of peso value due to the number of units floated that covers all market classifications, from affordable to highend in Metro Cebu. The market shares of other major developers are as follows: Taft Properties (6%), Federal Land (6%), and Primary Homes (5%). Figure 3. Market Share of Units Float per Developer in Metro Cebu (in Peso) Source: Santos Knight Frank There are a total of 23 identified condominium developers in Metro Cebu. In terms of the most number of units, Ayala Land claims the top spot through the ten condominium towers that it commands throughout Metro Cebu. The Company (2,861 units) and Federal Land (1,251 units) are positioned in the second and third spot, respectively. Developers Table 2. Residential Units per Developer Number of Towers Number of Residential Units Ayala Land Inc 10 4,264 Cebu Landmasters 11 2,861 Taft Properties 2 1,251 Federal Land 3 1,043 Hongkong Land / Taft Properties Aboitiz Land Filinvest Land, Inc Grand Land Apple One Properties Land Traders World Properties Corp Robinsons Land Corp Gold Peach Properties SunKai Land

116 Selling Price Fuente Triangle Realty Dev't Contempo Property Holdings Primary Homes Rockwell Properties Wei Kiat Construction Pte Ltd Worldwide Central Properties Inc Cebu Green Peaks Dev't Inc Acropolis Land RCAB Properties Inc Cebu Korona Dev't Corp Source: Santos Knight Frank Residential condominiums are generally classified as affordable, mid-market, high- end or luxury. The classification is based primarily on price. In this study, classifications of the developments are limited only to affordable, mid-end and high-end condominium. Table 3. Types of Residential Condominiums Category Selling Price (P/sqm) Luxury More than P170,000 High-end More than P110,000 Mid-end P76,000 to P110,000 Affordable Less than P76,000 Source: Santos Knight Frank As of July 2016, values for residential condominiums range from P63,000 to as high as P146,000 per square meter. Figure 4. Average Price per Square Meter (by Unit Type) Source: Santos Knight Frank 107

117 The strategic component of Cebu City is its proximity to central business districts ( CBDs ) such as Cebu Business park and Cebu IT Park as well as to nearby retail areas. This justifies its sustained status as the most expensive in terms of condominium units being offered at an average price per sq. m. of approximately P104,000. Lapu-Lapu City remains second with P102,000 per sq. m., and lastly is Mandaue City with P87,000 per sq. m. Prices can be attributed not only to the province s tactical location but also to its urban-resort come-on element. Demand condominium projects The strong economic performance of both the country and Cebu bodes well to the demand of residential properties in the province. Sustained demand for condominium units were registered throughout the recent years. The residential developments have been successful in capturing the demand from their respective target market. The growth in demand is not only coming from end-users, but from the investors as well. Given the strong business climate in Metro Cebu, individual investors perceive the residential market to be highly profitable. Figure 5. Absorption Rate of Condominiums per Classification Source: Santos Knight Frank Majority of the projects being currently marketed already has an absorption rate of over 60%. However, projects which have low absorption rates are relatively new to the market and are still trying to penetrate the booming sector. On average, 395 condominium units are sold every month in Metro Cebu. This is based from the collective monthly take-ups of each project. This also translates to an average of seven units being sold per month for every residential project. Table 4. Demand for Residential Condominiums (Sample) Project Name Take-Up Rate Absorption Rate Inventory Mivesa Garden Residences Building % 360 Midori Residences Building % 198 Apple One Banawa Heights Tower % 137 Avida Towers Riala Tower % 621 Sanremo Oasis Building % 169 Apple One Banawa Heights Villa 1 to % 276 Apple One Banawa Heights Tower % 137 Cebu Grand Residences East Tower % 247 Sanremo Oasis Building % 159 Source: Santos Knight Frank Total demand by developer 1016 Residences %

118 Ayala Land Incorporated has the highest units sold in Metro Cebu with a market share of 17%, followed by the Company and Filinvest Land Incorporated both with 9%. Eleven developers has a fair market share ranging from 3% to 8% that offers affordable to mid-end class of condominiums. There are 15 smaller developers with below 2% market share, which as a group has a total market share of 15%. Figure 6. Market Share of Units Sold per Developer in Metro Cebu (in Units) Source: Santos Knight Frank Supply horizontal subdivisions The residential housing in Metro Cebu has eased over the years. This is mainly an effect of the scarcity in the total land supply which translates to a rise in the land values. For the past three years, there has not been much change in the overall supply for the horizontal subdivisions. Nevertheless, it is evident in the figure presented below that the scarcity of land has made a great effect to the supply since most of the developers changed their focus in developing different real estate projects. In 2013, the most number of supplies was floated in the residential market while 2015 recorded the least number of units. Figure 7. Historical Supply of Horizontal Subdivision (House & Lot and Lots Only) 7,656 6,817 4,

119 5,021 4,782 4,605 Source: Santos Knight Frank The residential supply in Cebu has been very dramatic since the entrance of national real estate players. A consistent increase in supply is seen as both local and national real estate developers unite to give assurance that there will be adequate supply to meet the increase in demand. The North and South Cebu are the targets for growth in the succeeding years. They are expected to address the supply deficit in areas such as Mactan and Cebu City specifically in the lower segments. In aggregate, the supply of house and lot projects is dominated by Primary Homes. They were able to take hold of the largest supply share in the house and lot residential market with 12% of the total. Not at far, second is the Company which commands a 10% of the market share by launching four new house and lot projects. Figure 8. Market Supply Share per Developer Source: Santos Knight Frank Different house and lot classifications have showed different movements when it comes to supply floated. Renowned real estate players catering to the mid-end market (such as Vista Land and Lifescapes) has influenced the domination of medium cost houses in the skyline of Cebu. Likewise, local and smaller property firms tend to venture in this category due to the high price of lots in the city. It is showed in the figure below that middle cost market has the most number of units floated through the years. In 2014, middle cost housing was able to gain its maximum production by releasing 4,187 units (inventory includes remaining units from previous year plus new supply) in the market. On the other hand, open market holds the smallest number of units due to the market s incapability to buy their product offerings. 110

120 Figure 9. Historical Inventory of House & Lot Projects per Classification Source: Santos Knight Frank With respect to the developers in Cebu, below is the profile of the key real estate developers. Primary Homes has the most number of developments in the trade area with nine residential subdivisions. At near second with the most number of residential developments is Vista Land and Lifescapes, with Camella Homes as its most common structure Development Corporation has only two developments in the trade area, one of which is Decahomes Baywal which holds 882 total units floated. Table 5. Profile of Key Developers in the Trade Area Developer No. of Market Developments Primary Homes 9 Middle Cost & High-end Vista Land and Lifescapes 6 Economic, Middle Cost & High-end Cebu Landmasters 4 Economic & Middle Cost Aboitiz Land 3 Middle Cost & High-end 8990 Development 2 Economic Source: Santos Knight Frank Demand horizontal subdivisions Generally, one of the factors that affect price for residential development is their location. Residential projects which are located in close proximity to major establishments or institutions and are highly accessible command higher price. Based from the table below, as the supply decreases through the years the demand also decreases. It can be inferred that the supply in the lots only segment affects the demand. In 2015, only 576 units are sold out of 2,415. We can conclude that developers and also the buyers have switched interest to other residential development classification (e.g. residential condominium). Absorption rate and take-up are varied depending on the project s target market, house models and amenities, including their brand and marketing strategies. For instance, some developers may bank on the numerous and unique amenities in order to boost their sales. Figure 10. Historical Demand of Lots Only Projects per Classification 111

121 Source: Santos Knight Frank In the trade area, it is evident that most of the housing players are aggressive in terms of their competitiveness. They were able to wear out more than half of their total inventory. It can be inferred from the figure above that the Cebu market has developed an interest in investing in residential housing in the years later. Improvements on income made the market move up to the next price bracket which makes the trading area a mature market. Figure 11. Historical Demand of Lots Only Projects Source: Santos Knight Frank Based from the table above, as the supply decreases through the years the demand also decreases. It can be inferred that the supply of lots only segment affects the demand. In 2015, only 576 units are sold out of 2,415. We can conclude that developers and buyers have switched interest to other residential development classification (e.g. residential condominium). Market Outlook Residential Blessed with robust economic growth, a vibrant and flourishing outlook for the residential sector in Metro Cebu continues to be predictable. The residential condominium market in Cebu City has greatly benefited 112

122 from foreign investments particularly in the manufacturing and BPO sector. The bullish expansion of BPO/IT offices in Cebu Business District has increased the demand for residential dwellings proximate to work places such as the Cebu Business Park and Cebu IT Park. Executives and expatriates residential requirements also went up along with the entry and operation of more foreign companies. Local developers have begun to step out of their comfort zone and level-up their A game now that foreign players are eyeing the province. Though some have already partnered and conducted joint ventures with international developers such as Mandani Bay Suites developed together by Hongkong Land and Taft Properties. Another one is Iron Wood Property Ventures Corp. (IWPC) founded by local entrepreneurs and foreign investors. IWPC launched its North Star Condominium project located in Mandaue City which is a mid-rise residential development consisting of 186 units in total but with 47 available units left as of date. It features studio units of sq. m, and 1- to 3-bedroom units ranging from sq. m, and loft types from sq. m. Based on the velocity of take-up of residential units in Cebu Business Park, the supply is expected to be depleted within the next two (2) years across all segments. Majority of the residential condominiums in Cebu Business Park posted above 75% absorption rate. Hence, this trend shows the growing opportunity to enter the market in the following years. B. Retail Market The retail sector in Cebu City surges along with the other sectors due to the influx of investments in the area. A number of retail establishments ranging from malls to commercial strips have been constructed in Cebu City at an unprecedented pace. This is a clear manifestation of the confidence of developers on the spending capacity of the local market. The change in consumption behavior of dwellers in Cebu City is brought about by the increase in spending power of those living and working in the area. The growth can be attributed to the remittances of OFWs, BPO companies and tourism. As a result of this consumption pattern, retail tenants have continuously taken up the available spaces in the market. With rental rates ranging from P800 to P1,200 per sq.m., established retail projects are significantly taken up by new players. Likewise, absorption of Robinsons Galleria and SM Seaside City s retail spaces is already gaining ground. Moreover, the proliferation of commercial strips has proven advantageous for consumers and retail locators alike as consumers are given more alternatives. On the other hand, locators in these developments also reap benefits as they are offered lower lease rates as compared to the traditional mall. Table 6. Rental Rates of Commercial Strips Commercial Strip Lease Rate Occupancy Rate Available Space One Mango Avenue % 0.00 Two Mango Avenue % 0.00 Crossroads % 0.00 Vibo Place % 2, Capitol Square % Escario Central % 0.00 Banilad Town Center % North Agora % Source: Santos Knight Frank Rental rates of these developments have been steadily increasing due to the strong demand for these spaces. Being pegged at P550 to P850 per sq.m. per month, most of these projects have continuously boasted ease of accessibility to consumers and suitability for late night operations. The only outlier in the sample is North Agora which is located far north and has a lesser consumer base. Market Outlook Retail In general, the retail market of Cebu remains positive and will continue to grow in the succeeding years. Large developers keep up with the Cebuano lifestyle as new developments have become accessible to the 113

123 people and more retail brands continue to occupy spaces in malls and shopping centers. Commercial retail components inside upcoming residential developments, the same with mixed-use developments, have been a trend in Cebu which will cater well-known brands as these provide convenience and spur more demand in the market. Moreover, with the continuous expansion in the office, hospitality and residential segments in the Cebu real estate market, the retail industry is expected to flourish and will continue to grow as more international brands enter the market. Infrastructure efforts, likewise, will ease investments in Metro Cebu s major business districts as road network access and traffic management are contemplated by both public and private parties. More business participation is established as businesses become more confident in the market fostered by high consumption and steady increase in tourist arrival and retail earnings. C. Hotel Accommodation Market The tourism industry continues to flourish as business demand in Metro Cebu is sustained by the increasing inflow of investments in the office sector and the declining costs of travel and accommodation. The expansion in the outsourcing and traditional industries is anticipated to further increase the market of business hotels since heightened investment levels promote the influx of corporate executives. However, in spite of this intensified demand, spurring hotel developments has continuously cannibalized each other s market share. Currently, there are almost 80 hotel projects in the skyline of Cebu, and several more are upcoming. As such, foraying in the hospitality segment would be cumbersome in light of the heightened competition in the area. Supply Presently in Cebu City, 74 hotels have been identified translating to 7,668 rooms in total. This is, however, expected to increase as some hotels are expected to expand and new hotels are to penetrate the market soon. It has also been observed that the number of hotel rooms have been growing at 8.75% rate on the average at least for the past four years. Taking into account the last ten years, the supply of hotel rooms grew by an average of 10.22% compounded annually. This would translate to an average of 377 hotel rooms being added to the market at an annual basis. This signifies that developers are bullish towards the active tourism industry in the trade area. The first half of 2016 was marked by a robust arrival of tourists in the country emanating from the combined efforts of the private sector and the government which further bolstered the industry. Latest data from the Department of Tourism recorded a 7.61% increase from 413,937 to 445,449 total visitor count as of May For Cebu, the province continues to enjoy the chunk in visitor arrival entrants via air comprising 16.94% or 75,449 in total next to Metro Manila. Korea prevails as the top visitor and spending market growing at 22.88%, followed by USA and China with growth rates at 15% and 11.33%, respectively. 114

124 Figure 12. Total Visitor Arrivals in Cebu Source: Santos Knight Frank For the past four years, the tourism industry of the trade area has been growing by an average of 11.58%. Out of the total tourist arrivals, foreign nationals accounted only less than 3%. Same with the retail sector, the hospitality sector is being fueled by the domestic consumption of local tourists. Demand In Metro Cebu, demand for accommodation has been observed to be highly seasonal. Although there is a constant demand coming from businessmen and from the continuous influx of tourists, spike in occupancy rates highly occur during certain periods. As stated earlier, the Sinulog Festival is a known driver of the hospitality industry in the city. This nationwide renowned festivity causes major influx of domestic and international visitors. Stable demand for hospitality services has been witnessed in the recent years as occupancy rates of hotels were recorded to steadily fluctuate in the 50-65% territory. From this, it can also be deemed that the movement of demand for accommodation is concurrent with the movement of hotel room supply. The supportable supply still exceeds actual supply of rooms for all upcoming years. Aside from the noted upcoming hotels in the pipeline (i.e. Seda Hotel and Taft East Gate Hotel), more than 50 rooms is assumed further to be added in the market every year coming from small developers. Therefore, a total of only 168 rooms can be supplied on year Penetrating the market at the soonest time possible, occupancy levels are projected to progress overtime to make way for the upcoming competitors. Market Outlook Hotel/Accommodation Cebu s hospitality sector has a lot of potential. With the effective marketing of both private and government units, sustained industry competitiveness can be expected in the coming years, and this will operate as a beacon not only for increased visitor arrivals but also for tourism players to further pursue business undertakings. As a result of these heightened tourism activities, hotel operations were seen to be more profitable during the year. Current hotel developers were keen on expanding their business operations while national and global players are anticipated to construct their own projects in the trade area. The bullish growth of Cebu s tourism industry keeps on attracting airline carriers to construct new routes to access the Metro. As the province continues its pursuit as a top travel destination for tourists and a premier hub for international investors, infrastructure development remains a key success and competitive factor. 115

125 To date, several projects have already been lined-up in Central Visayas such as the Cebu-Cordovan Bridge, Cebu-Negros Oriental Bridge, and a PhP35-billion urban automated guideway transit (AGT) type rail system. Recently completed projects within the first half of 2016 include Cebu South Road and Cebu Toledo Wharf Road. D. Office Market In the Metro Cebu office segment, the main driver has been the BPO industry. The Philippines has been identified as the preferred BPO/IT destination globally and one of the cost effective areas for which to outsource these requirements for two main reasons. The first is the availability of a large talented labor pool that could handle outsourcing requirements at a fraction of the cost compared to their point of origin. Second is the availability of office space suited to address outsourcing requirements that comes at an affordable and cost effective rate. In terms of office space lease rates, the Philippines in general have the lowest across all of Asia around US$26 to US$32 per square foot per annum. Cebu City is now experiencing strong influx of outsourcing investments. Tholons, an international advisory firm, has placed the city as the top seven investment choices for BPO businesses. This paved way to the development of several buildings which were built to suit the requirements of BPO offices. This trend deviated from the traditional office buildings which were predominant within the major business park of Cebu City. Multinational and large outsourcing companies started setting up shop in the area. This led to the spurring offices of Aegis People Support, JP Morgan and Chase, Convergys, Teleperformance and Teletech in the growth areas of the city. Supply The office buildings in Cebu City are proliferating in two major growth areas: Cebu Business Park and Cebu IT Park. However, there are also several office buildings scattered throughout the three major cities of Metro Cebu. This is especially due to more property players vying to develop their own IT and business parks. New mixed- use projects such as Megaworld s Mactan Newtown in Lapu-Lapu City and Norkis Cyberpark in Mandaue City are anticipated to keep on stimulating the office setting of the area. For this study, the buildings scattered throughout the three cities will be classified under the buildings in the Fringe Areas. Figure 13. Historical Office Supply in Metro Cebu Source: Santos Knight Frank Gradual growth of office supply was witnessed within the skyline of Cebu as new buildings are introduced on a yearly basis. Among the three growth areas, the offices in the fringe areas are the highest contributor to the aggregate supply with a combined leasable area of 236,061 sq.m. Offices in these areas usually locate close to dense residential areas to tap into the strong yet cheap labor force of Metro Cebu. This is followed by Cebu IT Park which takes advantage of the steadfast growth of the IT-BPO industry. Cebu 116

126 Business Park, which is a home to several traditional office buildings, is joining the bandwagon as it started introducing built- to-suit offices in the recent years. Currently, there are about 56 online office buildings in Metro Cebu. As stated earlier, Cebu Business Park has the highest number of traditional office buildings. On the other hand, all of the office buildings in Cebu IT Park are classified as BPO buildings. The office spaces in these structures usually commands larger cuts and less partitions to suit the operations of the company. In total, Cebu IT Park has leasable space equal to 207,347 sq.m. Supply - market share per developer Ayala Land Inc. offered the most number of gross leasable area in Metro Cebu with a total of 107,974 sq.m. or a 16% market share. Second is Primary Structures Corporation with 64, sq.m. of leasable area with a market share of 10%. This is followed by Skyrise Realty and Development Corporation with 9%, Megaworld Inc. with 7%, and Filinvest Land Inc. with 4% among other office developer. There are 22 other office developers that has a leasable area of market share below 3%. The Company has 1% of the market share with a gross leasable area of 7, of Park Centrale Tower. Figure 14. Market Share of Gross Leasable Area in Metro Cebu (in sq.m.) Source: Santos Knight Frank 117

127 Lease Rates Lease rates of office buildings in Metro Cebu are significantly lower than those of the business districts in Metro Manila. Coupled with the lower cost of skilled labor, this has induced more investors to set up shop in Metro Cebu. In Metro Manila, lease rates for office spaces can go up to as high as P1,500 per square meter. Metro Cebu s lease rate is significantly lower since the highest recorded asking rate in the area is at P1,300 per sq.m. Demand Table 7. Range of Lease Rates per Area Area Lease Rates Cebu Business Park PhP450 PhP1,300 Cebu IT Park PhP450 PhP750 Fringe Area PhP350 - PhP675 Source: Santos Knight Frank With Cebu City being recognized worldwide as a top outsourcing destination, continuous demand has been evident in its office landscape. Likewise, spillover effects have been benefitting the cities of Mandaue and Lapu-Lapu as they are highly proximate to the former yet command relatively lower lease rates. This demand was witnessed during the recent years through the proliferation of BPO locators driving the occupancy levels down. As of July 2016, overall occupancy rate in Metro Cebu is at 81.46%. Among the three growth areas, Cebu IT Park registered the highest occupancy level which is about 95%. On the other hand, the introduction of new buildings in the fringe areas pushed the aggregate vacancy rating upward as compared last year. Collectively, out of the 56 office buildings in the sample observed, 26 are fully leased out. Most of the remaining buildings, however, are experiencing more than 75% occupancy rate. Figure 15. Lease Rates and Occupancy Rates Source: Santos Knight Frank Evidently, most of the office buildings that have high vacancy levels are those which are situated in the fringe areas. Despite commanding lower lease rates, office locators maintain their preference in both Cebu Business Park and Cebu IT Park. Aside from the fact that both areas are PEZA-registered, the ease of accessibility and presence of infrastructures which can support office operations are swaying factors for prospective locators. Demand market share by developer 118

128 Offering the most number of gross leasable office space in the market, Ayala Land Inc. subsequently posted the highest market share of 17% in terms of leased units. Skyrise Realty & Development Corporation and Primary Structures Corporation tied up at second with 11% share of the total units leased. Figure 16. Market Share of Occupied Leasable Area in Metro Cebu (in sq.m.) Source: Santos Knight Frank Market Outlook Office Projection for Metro Cebu market remains positive as labor cost is relatively cheaper compared to Metro Manila. Metro Cebu and its nearby provinces are also able to supply the right amount of highly skilled workers that could further support the needs of the IT-BPO industry. Over 1.3 million people are employed under the outsourcing industry of the Philippines and approximately 130,000 full-time employees are under the Metro Cebu. Strong operations of office buildings in Metro Cebu were consistently registered in the previous years as a result of the booming IT-BPO industry. It is even foreseen that this trend will be sustained in the coming years as the expansion of the industry will keep its upward growth trajectory. Currently, supply of office space is at 509,000 square meters which will be progressing in the coming years as more developers construct office buildings. On the other hand, based on the data from the IT and Business Process Association of the Philippines, average growth of BPO employment is almost at 17% per annum. Assuming that this rate of growth holds in the coming years, demand is slated to eclipse supply by the year

129 Figure 17. Projected Demand and Supply of Office Space Source: Santos Knight Frank Although the optimal year of entry in the office segment is by 2018, this does not signify that foraying in the said segment immediately would result to losses. This was evidenced by the operations of some comparable office establishments which are highly proximate to the subject property. E. Industrial Market The Philippines continue to be one of the most competitive among South East Asian countries as evidenced by the Philippine gross domestic product (GDP) which is recorded at 6.9%. The market s attractiveness to foreign direct investment is sustained as the business outlook in the industry sector remains positive. Investors have been showing interest in the Cebu industrial sector backed by the strong demand for investments and the rapid development in the area. The manufacturing sector is able to maintain its momentum with a growth registered at 8.1% which is significantly higher compared to the previous year. Electronics and communication equipment and apparatus were the major drivers of this growth. Demand for manufacturing continues to grow as the country lures in more investments coming from major companies and corporations. With the tight supply of building spaces in industrial locations, this urged the need for expansion in Cebu economic zones. The Mactan Economic Zone has approximately 9,300 sq.m.of available building space for manufacturing and 2,600 sq.m. for warehouses. Mactan Economic Zone II has 13,900 square meters of available space for manufacturers and Cebu Light Industrial Park has more than 3,000 square meters of available building space for manufacturing and warehouse use, respectively. Moreover, Naga Valley Industrial Park s available lot area of 36 hectares is already reserved to be an assembly plant for Spanners Group of Companies. The Singaporean company has seen the country s commitment to agricultural development therefore supporting farmers with modern farming equipments and efficient farming practices to maximize agricultural productivity. This will spur employment and economic activity in the area and will help boost agriculture export trade in the country. Market Outlook Industrial Cebu has been recognized to be one of the major prime locations for industrial investors as economic zones make room for more expansion backed by the area s accessibility to network distribution, infrastructure developments and its overall strategic location. One of the firms that expressed their intentions of expanding in Cebu was Steel Asia with a new plant located at Compostela. Visayan Electric Company Inc., a subsidiary of Aboitiz Power Corporation, will also increase industrial activity as the company will venture on utility structures and a joint venture with Ayala Land for a 17.5 hectare mixed-use development 120

130 called Gatewalk Central located in Mandaue City. Lastly, MRC Allied Inc. will also have its solar farm in Naga City known as New Cebu Township One which is a 60 hectare industrial estate. DAVAO Davao City is one of the emerging cities outside Metro Manila. According to a study conducted by National Competitiveness Council Philippines, Davao City ranked fifth among all cities when it comes to overall competitiveness. It has already captured the attention of different types of investors both local and foreign and it is evident that Davao City is ready to accommodate them. With the recent victory of former Davao City mayor Rodrigo Duterte in presidency, we can expect a major boost in the economic performance of the area especially in the real estate industry. Key drivers for growth will be the one to push the upward movement in real estate industry in Davao be it retail, office, residential, industrial and hospitality. A. Residential Market Davao City s residential segment at present is being defined by the increase in both vertical and horizontal settlements. Local and national developers have been very enthusiastic in constructing projects due to the potential they see from the market. Foreign individuals, OFW remittances, BPO employees and locals from Davao City are the primary demand drivers in these types of real estate developments. The rise in the office segment also translates to growth in the residential scene since most of the high paying individuals prefer to invest in new and comfortable locations. Normally, the residential dwellings are scattered within a specific trade area specifically in the areas of growth. More often, subdivisions located in growth centers exhaust their supply especially those which products are consumer friendly. Supply The robust expansion in Davao City s residential market is very evident. Currently, there are 49 actively marketed horizontal and vertical subdivisions in the residential scene, and two upcoming subdivisions. Of the 49, 21 are house are lot subdivisions, nine are lots-only subdivision while the remaining 19 are residential condominiums. This competitive sample is summing up to a total of 69,926 units. Notable players in the sample are Kisan Lu, Megaworld, Sta. Lucia Land and Ayala Land for floating the most number of units in each of the respective housing segments. Figure 18. Supply of House & Lot Subdivision Source: Santos Knight Frank The house and lot segment supply is dominated by Vista Land and Lifescapes Inc. through Camella projects. Camella Davao holds the most number of residential units with 1,682 units. Second would be Deca Homes Resort and Residences by 8990 Housing Development Corporation with 1,406 units. This 121

131 development has developed a mini water park just across the subdivision frontage not only to provide entertainment to its residents but also to lure more investors. On the other hand, Mountain Haven Development Inc., a local developer from Davao, holds the least number of units with only 126 units floated. Residential condominium The vertical subdivision today belongs to the residential mix of Davao City. This type of development was easily adopted by Davao City locals and other types of investors. One Lakeshore Drive by Megaworld and Suntrust took the largest share in the residential condominium market at 17% by floating 1,420 units. Next is Avida Towers by Avida Land with 13% market share at 1,061 units. However, Damosa Land and Lanang Realty Development Corporation, both local developers, take hold of the same percentage in the market with 2%. Siam 8000, which is developed by Lanang Realty Development Corporation is managed by Dusit Thani has 166 units. The development is a condotel where in only a certain part of the project is offered as condominium units while the rest are for hotel accommodation. Figure 19. Developer Percentage Share Selling Price Source: Santos Knight Frank For residential subdivisions, they are categorized according to their total contract price. At present, the total contract price for house and lot units ranges from P950,000 up to P8,378,974. House and lot packages for residential subdivision has a selling price per square meter that ranges from P18,000 to P76,000 per square meter. Middle cost housing dominated the residential market in Davao City having an average price per square meter of P31,000 to P72,000 per square meter. On the other hand, economic housing projects have the lowest average selling price per square meter which ranges from P24,000 to P60,000 per square meter. Meanwhile, the open market housing subdivisions have relatively the same price per sq.m. as middle cost housing with P30,000 to P76,000 per sq.m., but since these developments have larger lot cuts, total contract prices of these house and lot packages are more expensive as compared to other housing types. Table 8. Types of Residential Condominiums Category Selling Price (P/sq.m.) Luxury More than P170,000 High-end More than P110,000 Mid-end P70,000 to P110,000 Affordable Less than P70,000 Source: Santos Knight Frank 122

132 Residential condominiums, on the other hand, are generally classified as affordable, mid- market, high-end or luxury. The classification is based primarily on price. In this study, classifications of the developments are limited only to affordable, mid-end and high-end condominium. As of July 2016, average selling price per square meter for residential condominiums range from P58,000 to as high as P per sq.m. Mid-end type dominated the condominium market in the trade area with an average price per sq.m. ranging from P80,000 to P100,000 price per sq.m. while affordable type posted the lowest average price per sq.m. ranging from P57,000 to P68,000 price per sq.m. Generally, Verdon Parc by DMCI Homes posted the lowest price across all residential condominiums. On the other hand, the project offering the most expensive unit is Siam 8000 Residences. Demand Residential The projects in the residential subdivision has compounded absorption rate of 85%. Economic housing holds the largest share in the market with 45% with only a slight difference from middle cost at 44%. Despite having the most number of units in the market, economic housing still managed to have the highest rate of absorption at 96.16%. Middle cost already exhausted 77.04% of its units while open market recorded 84.69% rate of absorption. Figure 20. Absorption Rate of Subdivision per Classification Source: Santos Knight Frank Most of the projects currently marketed possess an absorption rate of 65%. However, projects which have low absorption rates are relatively new to the market and are still trying to penetrate the upward movement of the sector. On an average, 84 condominium units are sold monthly in the City of Davao. This number is based from the collective monthly take-ups of each condominium project in the trade area. Figure 21. Absorption Rate of Condominiums per Classification Source: Santos Knight Frank 123