STRICTLY CONFIDENTIAL

Megaworld Corporation
(incorporated under the laws of the Republic of the Philippines)

Primary and Secondary Offer of 3,923,166,000 Common Shares = Offer Price of P 1.38 per Offer Share
This International Offering Circular relates to the offer of 3,923,166,000 common shares (the ‘‘Firm Offer’’, and such shares, the ‘‘Firm Shares’’) of common shares, par value = 1.00 per share (the ‘‘Shares’’) of Megaworld Corporation, a P corporation organized under Philippine law (‘‘Megaworld’’ or the ‘‘Company’’). The Firm Shares will comprise (i) 3,500,000,000 new Shares to be issued and offered by Megaworld by way of a primary offer (the ‘‘Primary Offer’’, and such Shares, the ‘‘Primary Offer Shares’’) as further described below and (ii) 423,166,000 existing Shares offered by Colony-CB Richard Ellis MW, L.P. (the ‘‘Selling Shareholder’’) pursuant to a secondary offer (the ‘‘Secondary Offer, and such Shares, the ‘‘Secondary Offer Shares’’). The Company will not receive any of the proceeds from the sale of the Firm Shares being sold by the Selling Shareholder. The Firm Shares shall be offered at = 1.38 per Firm Share (the ‘‘Offer Price’’). P 3,727,008,000 of the Firm Shares (the ‘‘International Offer Shares’’) are being offered and sold outside the Philippines and the United States through the Lead Manager in reliance on Regulation S (‘‘Regulation S’’) under the United States Securities Act of 1933, as amended (the ‘‘U.S. Securities Act’’) (the ‘‘International Offer’’). 196,158,000 of the Firm Shares (the ‘‘Domestic Offer Shares’’) are being offered by the Selling Shareholder at the Offer Price to all of the trading participants of the PSE (the ‘‘PSE Brokers’’) in the Philippines (the ‘‘Domestic Offer’’). The Selling Shareholder, a non-Philippine National, will sell and The Andresons Group, Inc. (‘‘TAGI’’), a Philippine National, will purchase 300,000,000 Domestic Block Sale Shares (as defined herein) at the Offer Price on the Listing Date and on the same terms and conditions as the Firm Shares. The Domestic Block Sale will provide leeway for the ownership of Shares by nonPhilippine Nationals. The closings of the Domestic Offer, the Domestic Block Sale and the International Offer are conditional upon each other. The allocation of the Offer Shares between the Domestic Offer and the International Offer is subject to adjustment. In the event of an under-application in the International Offer and if there is a corresponding overapplication in the Domestic Offer, International Offer Shares may (at the option of the Domestic Underwriter) be reallocated from the International Offer (with the consent of the Lead Manager) to the Domestic Offer. The Firm Shares will be delivered in book-entry form against payment therefor to the Philippine Depository and Trust Corporation (‘‘PDTC’’) on or about April 24, 2006. See ‘‘Risk Factors’’ on page 15 and ‘‘Additional Risk Factors’’ on page W-15 to read about factors investors should consider before making an investment in the Offer Shares. The Company has granted UBS AG, the Stabilizing Agent, an option exercisable in whole or in part within 30 days from the date of listing and when trading of the Company’s Offer Shares commences on the PSE (the ‘‘Listing Date’’), to purchase up to an additional 588,475,000 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 International Offering Circular, solely to cover over-allotments, if any (the ‘‘Over-Allotment Option’’). The offer of the Firm Shares, including the Optional Shares, is referred to as the ‘‘Offer’’. The Optional Shares will be sold as part of the International Offer. See ‘‘Plan of Distribution’’. The Offer Shares have not been registered under the U.S. Securities Act and are being offered and sold within the United States only to persons outside the United States in reliance on Regulation S under the U.S. Securities Act. The Offer Shares offered hereby are not transferable except in accordance with the restrictions described under ‘‘International Plan of Distribution’’ and ‘‘Transfer Restrictions’’.

Sole International Underwriter and Sole Book Runner

The date of this International Offering Circular is April 6, 2006.

This International Offering Circular includes and incorporates the prospectus for the Domestic Offer of the Offer Shares in the Philippines (the ‘‘Philippine Prospectus’’) and references to the International Offering Circular are to this document together with the incorporated Philippine Prospectus. Investors should read the entire International Offering Circular, including the incorporated Philippine Prospectus, before making an investment decision with regard to the Offer Shares. IMPORTANT If investors are in any doubt about this International Offering Circular, they should consult their stockbroker, bank manager, legal counsel, professional accountant or other professional advisor. This International Offering Circular is confidential. Investors are authorized to use this International Offering Circular solely for the purpose of considering the purchase of the Offer Shares of the Company offered pursuant to this International Offering Circular. The Company has provided information contained in this International Offering Circular which also includes information from other identified sources which are believed to be reliable. This International Offering Circular does not purport to be all-inclusive or to necessarily contain all the information that an investor may desire in investigating the Company or necessary to make an informed investment decision regarding the Offer. The Lead Manager makes no representation or warranty, express or implied, as to the accuracy or completeness of such information, and nothing contained in this International Offering Circular is, or should be relied upon as, a promise or representation by the Lead Manager. Investors may not reproduce or distribute this International Offering Circular, in whole or in part, and may not disclose any contents of this International Offering Circular or use any information herein for any purpose other than considering an investment in the Offer Shares offered hereby. Investors hereby agree to the foregoing by accepting delivery of this International Offering Circular. The Offer Shares have not been registered under the U.S. Securities Act for offer or sale as part of their distribution and may not be offered or sold in the United States. The Offer Shares are not transferable except in accordance with the restrictions described herein. See ‘‘International Plan of Distribution’’ and ‘‘Transfer Restrictions’’. OFFERS AND SALES OF THE OFFER SHARES ARE SUBJECT TO RESTRICTIONS IN RELATION TO THE EUROPEAN ECONOMIC AREA, THE UNITED KINGDOM, SINGAPORE, THE HONG KONG SPECIAL ADMINISTRATIVE REGION, AUSTRALIA, CANADA, FRANCE, JAPAN, ITALY, SWEDEN, IRELAND, BELGIUM, LUXEMBOURG, FINLAND, NORWAY, THE UNITED ARAB EMIRATES AND DENMARK. DETAILS OF SUCH RESTRICTIONS ARE SET FORTH IN THE SECTION OF THIS INTERNATIONAL OFFERING CIRCULAR ENTITLED ‘‘INTERNATIONAL PLAN OF DISTRIBUTION’’. THE DISTRIBUTION OF THIS INTERNATIONAL OFFERING CIRCULAR AND THE OFFER OF THE OFFER SHARES IN CERTAIN OTHER JURISDICTIONS MAY ALSO BE RESTRICTED BY LAW. No person has been authorized to give any information or to make any representations other than those contained in this International Offering Circular and, if given or made, such information or representations must not be relied upon as having been authorized. This International Offering Circular does not constitute an offer to sell or the solicitation of an offer to buy any securities other than the securities to which it relates or an offer to sell or the solicitation of an offer to buy such securities by any person in any circumstances in which such offer or solicitation is unlawful. Neither the delivery of this International Offering Circular nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date hereof or that the information contained herein is correct as of any time subsequent to its date. THE INTERNATIONAL OFFER IS BEING MADE ON THE BASIS OF THIS INTERNATIONAL OFFERING CIRCULAR ONLY. ANY DECISION TO PURCHASE OFFER SHARES IN THE INTERNATIONAL OFFER MUST BE BASED ON THE INFORMATION CONTAINED HEREIN.
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The distribution of this International Offering Circular and the offering and sale of the Offer Shares in certain jurisdictions may be restricted by law. The Company and the Lead Manager require persons into whose possession this International Offering Circular comes to inform themselves about and observe any such restrictions. For a further description of certain restrictions on the International Offer and sale of the Offer Shares, see ‘‘International Plan of Distribution’’ and ‘‘Transfer Restrictions’’ contained in this International Offering Circular. Each subscriber of Offer Shares is deemed to instruct and authorize the Company and/or the Lead Manager (or their respective agents or nominees) to execute any transfer forms, contract notes or other documents on its behalf and to do on its behalf all things necessary to effect the registration of any Offer Shares allocated to it or the PDTC, as the case may be, as required by the Company’s Articles of Incorporation and otherwise to give effect to the arrangements described in this International Offering Circular. A registration statement relating to the Offer Shares has been filed with the Securities and Exchange Commission of the Philippines (the ‘‘Philippine SEC’’) in accordance with the Securities Regulation Code of the Philippines (Republic Act No. 8799) and such registration statement will become effective pursuant to an Order of Effectivity issued by the Philippine SEC. The issuance of such Order of Effectivity is permissive only and does not constitute a recommendation or endorsement of the securities to be offered for sale. The Philippine SEC has not approved these securities or determined if this International Offering Circular is accurate or complete. Any representation to the contrary is a criminal offense and should be immediately reported to the Philippine SEC. The listing of the Offer Shares is subject to the approval of the Board of Directors of the PSE and the Philippine SEC. The approval of the Board of Directors of the PSE was granted, subject to the fulfillment of certain listing conditions, on March 22, 2006. Such approvals for listing are permissive only and do not constitute a recommendation or endorsement by either the PSE or the Philippine SEC of the Offer Shares to be offered. In this International Offering Circular, unless otherwise specified or the context otherwise requires, all references to the ‘‘Philippines’’ are references to the Republic of the Philippines. All references to the ‘‘BSP’’ are references to Bangko Sentral ng Pilipinas, the central bank of the Philippines. All references to the ‘‘Government’’ herein are references to the government of the Republic of the Philippines. All references to ‘‘United States’’ or ‘‘U.S.’’ herein are to the United = States of America. All references to ‘‘Pesos’’ and ‘‘P ’’ herein are to the lawful currency of the Philippines, all references to ‘‘U.S. dollars’’ or ‘‘US$’’ herein are to the lawful currency of the United States and references to ‘‘Euro’’ or ‘‘ ’’ are to the lawful currency of the European Union. For convenience, certain U.S. dollar amounts have been translated into peso amounts, based on the = prevailing exchange rate on December 31, 2005 of P 53.067 = U.S.$1.00, being the average of buying and selling rates of exchange for peso against U.S. dollars quoted by the Philippine Dealing System (the ‘‘PDS Rate’’), and published in the major Philippine financial press on that date. Such translations should not be construed as representations that the Philippine peso or U.S. dollar amounts referred to could have been, or could be, converted into pesos or U.S. dollars, as the case may be, at that or any other rate or at all. For further information regarding rates of exchange between the peso and the U.S. dollar, see ‘‘Exchange Rates’’. Figures in this Offering Circular have been subject to rounding adjustments. Accordingly, figures shown for the same item of information may vary and figures which are totals may not be an arithmetic aggregate of their components. On = April 6, 2006, the PDS rate was P 50.997 = U.S.$1.00. Punongbayan & Araullo, a member practice of Grant Thornton International, independent certified public accountants, audited Megaworld’s financial statements without qualification as of and for the years ended December 31, 2003, 2004 and 2005, included in this International Offering Circular. The 2003, 2004 and 2005 financial information herein was prepared under Philippine Financial Reporting Standards (‘‘PFRS’’). Such financial statements are included in this International Offering Circular based on Punongbayan & Araullo’s authority as independent public accountants.

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Unless otherwise indicated, the description of Megaworld’s business activities in this International Offering Circular is presented on a consolidated basis. For further information on Megaworld’s corporate structure, see ‘‘Subsidiaries and Affiliates’’. IN CONNECTION WITH THE OFFER, UBS AG, THE STABILIZING AGENT, OR ANY PERSON ACTING FOR UBS AG MAY OVER-ALLOT 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 OF TIME AFTER THE TIME OF DELIVERY. HOWEVER, THERE MAY BE NO OBLIGATION ON UBS AG OR ANY AGENT OF UBS AG TO DO THIS. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME AND MUST BE BROUGHT TO AN END AFTER A LIMITED PERIOD. SEE ‘‘INTERNATIONAL PLAN OF DISTRIBUTION’’.

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. . . . . . . . .. . . . . . . . . . . . . . . . .. . . . . . . . . Summary . . . . . International Plan of Distribution . . . . . . . . . . . . . . . . . . . . . Selling Restrictions .. . . . . . . . . .. . . . . . . . . Determination of Offer Price . . . . . Dividends and Dividend Policy . . . . . . . . . . . . . . . . . . . . . Industry . . . . . . . . . Selected Consolidated Financial Information . .. Description of the Shares . . . . .. . . Summary . .. . . . . . . . . . . . . . . . . . . Plan of Distribution . . . . . . . Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . Related Party Transactions . . . . Transfer Restrictions . . Additional Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . W-19 W-20 W-21 W-24 W-29 W-30 W-31 Philippine Prospectus Glossary . . . . . . . . . . . .. . . . . . . . . . Forward-Looking Statements . . . . . . . . . . . . . . . . Summary of the Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 33 45 Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . Principal and Selling Shareholders . . . . . . . . . Use of Proceeds . . . . . . . . . .. . . . . . . . Regulatory and Environmental Matters Subsidiaries and Affiliates . . . Philippine Foreign Exchange Controls Legal Matters . . . . . . . Consolidated Financial Statements and Independent Auditors’ Reports . . 1 4 15 23 24 25 26 27 28 29 30 Business . . . . . . . Dilution . . . . . . . . . . . . . . .. W-6 W-7 W-8 W-10 W-12 W-15 W-18 Exchange Rate Information . . . . . Board of Directors and Senior Management . . . . . . Dividend Policy . . . Capitalization . . . . . . . . .. . . . . . Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . W-5 . . . . . . . . . .. Independent Public Accountants . . . . . . . . . . . . . . Market Price Information . . . . . . . . . . . . . . . . . . . . . Selected Consolidated Financial Information . . . . . . . . . . . . . . 59 83 87 89 96 97 100 108 113 114 118 121 122 F-1 Legal Matters . . . . . . Exchange Rates . . . .. . . . . . . . . . . . . . . . . . . . . . . . . .. . . . .TABLE OF CONTENTS Page International Offering Circular Enforceability of Civil Liabilities . . . . . Philippine Foreign Exchange Controls Philippine Taxation . . . . . . . . . . . . . . . The Philippine Stock Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

As a result. such order or judgment is contrary to good customs. or to enforce against them judgments obtained in courts or arbitral tribunals outside the Philippines predicated upon the laws of jurisdictions other than the Philippines. It may be difficult for investors to effect service of process outside of the Philippines upon the Company. substantially all of the directors and the officers of the Company are residents of the Philippines. All or a substantial portion of the Company’s assets are located in the Philippines. the Company did not have notice of the proceedings before the foreign court or such judgment was based upon a clear mistake of law or fact. it may be difficult for investors to enforce judgments against the Company outside the Philippines in any actions pertaining to the Offer Shares.ENFORCEABILITY OF CIVIL LIABILITIES The Company is organized under laws of the Republic of the Philippines. In addition. or public policy of the Philippines. it may be difficult for investors to effect service of process upon such persons. W-6 . public order. such foreign judgment or final order may be rejected in the following instances: such judgment was obtained by collusion or fraud. and all or a substantial portion of the assets of such persons are or may be located in the Philippines. However. Moreover. The Company has consented to service of process in England. The Philippines is not a party to any international treaty in relation to the recognition or enforcement of foreign judgments but is a signatory to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Judgments obtained against Megaworld in any foreign court may be recognized and enforced by the courts of the Philippines in an independent action brought in accordance with the relevant procedures set forth in the Rules of Court of the Philippines to enforce such judgment. the foreign court rendering such judgment did not have jurisdiction.

. or licensing in the Philippines. without limitation. inflation rates and the value of the peso against other currencies.FORWARD-LOOKING STATEMENTS This International Offering Circular contains forward-looking statements that are. performance or achievements to be materially different from any future results. the Company’s ability to successfully implement its strategy. subject to significant risks and uncertainties. the condition and changes in the Philippine. the Selling Shareholder and the Lead Manager expressly disclaims any obligation or undertaking to release. changes in interest rates. changes in Government regulations. assumptions or circumstances on which any statement is based. . performance or achievements to differ materially include. . those disclosed under ‘‘Risk Factors’’. . Additional factors that could cause Megaworld’s actual results. and performance or achievements expressed or implied by forward-looking statements. by their nature. and competition in the property industry in the Philippines. These forward-looking statements speak only as of the date of this International Offering Circular. . publicly or otherwise. W-7 . any updates or revisions to any forward-looking statement contained herein to reflect any change in the Company’s expectations with regard thereto or any change in events. . statements relating to: . among other things: . known and unknown risks. These forward-looking statements include. Among the important factors that could cause some or all of the assumptions not to occur or cause actual results. conditions. including tax laws. but are not limited to. uncertainties and other factors which may cause Megaworld’s actual results. future political instability in the Philippines. Each of the Company. Asian or global economies. Such forward-looking statements are based on numerous assumptions regarding the Company’s present and future business strategies and the environment in which Megaworld will operate in the future. performance or achievements to differ materially from those in the forward-looking statements include. .

subdivision lots and townhouses as well as office projects and retail space. Metro Manila. The Company’s current portfolio of projects comprises the following: . For a discussion of certain matters that should be considered in evaluating an investment in the Offer Shares. and Araneta Center. the Company introduced development plans for the Philippines’ first major mass transit-oriented residential community. The Company’s real estate portfolio includes residential condominium units. Founded in 1989.191. . the more detailed information (including financial information and the notes thereto) appearing elsewhere in this International Offering Circular. Metro Manila. Eastwood City.812. Metro Manila. a community township located on five hectares of land in Bonifacio Global City in Taguig. construction oversight and property management. 2004. OVERVIEW The Company is one of the leading property developers in the Philippines and is primarily engaged in the development in Metro Manila of large scale mixed-use planned communities. primarily for the middle-income market. or community townships. educational/training. The Company is developing Forbes Town Center.2 million for the year ended December 31. The Company’s total gross revenues for the year ended = = December 31.9 million compared to P 807. Eastwood City is the Company’s first community township. Quezon City. Beginning in 1996. in response to demand for the lifestyle convenience of having quality residences in close proximity to office and leisure facilities. The Company is developing Newport City. primarily to business process outsourcing (‘‘BPO’’) enterprises and retail space and (iii) management of hotel operations. the Company owns or has development rights to approximately 116 hectares of land situated primarily in Metro Manila for its current portfolio of five major projects. In aggregate. In 2005. the Company began to focus on the development of mixed-use communities. In addition. Most of the Company’s development rights were acquired through joint development agreements with the land owners while the remainder relate to land which the Company has purchased or leased. the Company initially established a reputation for building high quality residential condominiums and commercial properties located in convenient urban locations with easy access to offices as well as leisure and entertainment amenities in Metro Manila. 2005 was P 1. Capitalised terms not described in this summary are defined in the Glossary of this International Offering Circular. commercial. and is qualified in its entirety by. see ‘‘Risk Factors’’ on page 15 and ‘‘Additional Risk Factors’’ on page W-15. which is expected to consist of 17 residential condominium buildings on a four hectare site at the Araneta Center in Cubao.153.SUMMARY The following summary highlights information contained in. W-8 . 2005 were P 4.7 million for the year ended December 31. Pasay City. the Company engages in other propertyrelated activities such as project design. leisure and entertainment components. The Company’s net income (excluding minority = = interest) for the year ended December 31. Newport City. Real estate sales of residential developments accounted for 66% of the Company’s revenues in 2005 and 57% in 2004.2 million compared to P 4. Metro Manila. . Eastwood City is located on 15 hectares of land in Quezon City. The Company is developing McKinley Hill. . that integrate residential. Forbes Town Center. The Company has the following three primary business segments: (i) real estate sales of residential and office developments (ii) leasing of office space. 2004. McKinley Hill. . a community township located on 25 hectares of land in the Villamor Air Base. a community township located on 50 hectares of land in Fort Bonifacio in Taguig. by commencing the development of its Eastwood City project.

In addition. The Company also received the following awards for excellence from Euromoney: the Philippines’ Best in Corporate Governance in 2003. The information on the website is not incorporated by reference into this Prospectus. Sound financials with a stable earnings base and low gearing. and Sustain a diversified development portfolio. Its corporate website is www. Maintain a strong financial position. Puyat Avenue. Gil J. and was voted the Philippines’ Best in Investor Relations. Well-established brand name and reputation. Strategic landbank. was voted among Asia’s Best Managed Companies and the Philippines’ Best in Investor Relations by FinanceAsia Best-managed Asian Companies Awards. . and Strong residential marketing network. Established track record as a market innovator. . Maximize earnings through integrated community township developments. W-9 . Capitalize on brand and reputation. . among Asia’s Most Improved Companies in 2005. .STRENGTHS AND STRATEGIES The Company believes its competitive strengths consist of the following: . and among Asian Companies with the Most Convincing and Coherent Strategy in 2005. the Company received the Agora Awards for Marketing Company of the Year. 2004 and 2005.com. The World Centre. Megaworld intends to achieve its objective through the following principal strategies: . . the Company was voted among the Philippines’ Superbrands in the Superbrands Awards 2004/2005. COMPANY INFORMATION Megaworld is a Philippine corporation with its registered office located at 28th Floor.megaworldcorp. In 2004. specifically in the middle-income residential condominium market and the market for BPO-related office developments. The Company’s objective is to increase its profitability and maintain its leading position as a major property developer in the Philippines. 330 Sen. Megaworld’s telephone number is +63-2-867-8826. . Best Website and the Philippines’ Best in Clearest Corporate Strategy by Asia Money Polls. Makati City. . The Company was voted among Asia’s Best Property Companies by the Euromoney Best Asian Companies Awards for 2003. Philippines 1227.

. . . . In the event of an underapplication in the International Offer and if there is a corresponding over-application in the Domestic Offer. Offer Price . . on the Listing Date. . . . the Domestic Underwriter shall distribute to its clients or the general public the Domestic Offer Shares which have not been taken up. . . Securities Act as part of the International Offer and 196. . .923. .000 Domestic Block Sale Shares at the Offer Price to TAGI. a non-Philippine National. . to purchase up to 588. Domestic Offer Period .000 new Shares to be issued and offered by Megaworld and 423. unless shortened or extended by agreement between the Company and the Lead Manager. . W-10 .000 Optional Shares at the Offer Price. .SUMMARY OF THE OFFERING Issuer .000 of the Firm Shares are being offered and sold by the Selling Shareholder at the Offer Price to all of the PSE Brokers as part of the Domestic Offer in the Philippines. . . . = The Offer Price is P 1.008. The closings of the Domestic Block Sale and the Offer are conditional upon each other. shall sell 300. a Philippine National. .P. .727. Megaworld Corporation. Colony-CB Richard Ellis. . on the same terms and conditions as the Firm Shares as set out in this Prospectus. The Offer . If the PSE Brokers do not take up all of the Domestic Offer Shares in the Domestic Offer.38 per Offer Share. Reallocation . L. The Domestic Offer is expected to commence on April 10. The Selling Shareholder. a corporation organized under the laws of the Republic of the Philippines. The Offer Shares are being offered and sold outside the United States in reliance on Regulation S. . The Offer Shares have not been and will not be registered under the U. subject to the approval of the Philippine SEC and the PSE.158. .500. . . See ‘‘International Plan of Distribution’’.000. Offer of 3. . BDO Capital will act as the Domestic Underwriter. .000 existing Shares to be offered by the Selling Shareholder. .S. solely to cover over-allotments. . Selling Shareholder . .000. . 2006 and end on April 18. International Offer Shares may (at the option of the Domestic Underwriter) be reallocated from the International Offer (with the consent of the Lead Manager) to the Domestic Offer.S.166. . 3. . . Over-allotment Option . . if any.000 Firm Shares. . . . exercisable in whole or in part within 30 days from and including the Listing Date.475. Use of Proceeds . consisting of 3. Securities Act and may not be offered or sold within the United States. . . 2006. Transfer Restrictions. The Company has granted the Stabilizing Agent an option. . The Domestic Block Sale will provide leeway for the ownership of Shares by non-Philippine Nationals.000 of the Firm Shares are being offered and sold outside the United States in reliance on Regulation S under the U. on the same terms and conditions as the Firm Shares as set forth in this International Offering Circular. . . . The allocation of the Offer Shares between the Domestic Offer and the International Offer is subject to adjustment. MW.166. Domestic Block Sale . . See the section headed ‘‘Use of Proceeds’’ for details of how the total net proceeds from the Offer will be applied. See ‘‘Transfer Restrictions’’ and ‘‘International Plan of Distribution’’.

Dividends . . sell. for a period of 180 days after the First Closing Date. . limiting land ownership to Philippine Nationals. . The Offer Shares are expected to be listed on the PSE on April 24. . . The Company intends to maintain an annual cash dividend payment ratio of 20% of its net income from the preceding year. subject to the requirements of applicable laws and regulations and the absence of circumstances that may restrict the payment of such dividends. . as discussed in the sections headed ‘‘Risk Factors’’ on page 15 and ‘‘Additional Risk Factors’’ on page W-15. . . The registration with the BSP of all foreign investments in the Offer Shares shall be the responsibility of the foreign investor. . . Yujuico to purchase 147 million shares of the Company owned by TAGI (the ‘‘TAGI Option’’). at any time. 2006. without the prior written consent of the Lead Manager issue. . The Shares. W-11 . Foreign Investment Registration . . . . contract to sell. The Company owns certain real estate and. . . sale or disposal of) any Shares or securities convertible or exchangeable into or exercisable for Shares or warrants or other rights to purchase Shares or any security or financial product whose value is determined directly or indirectly by reference to the price of the underlying securities. forward sales and options. . . modify its dividend payout ratio depending upon the results of operations and future projects and plans of the Company. . See ‘‘Dividends and Dividend Policy’’. . Lock-up . . it is subject to nationality restrictions found under the Philippine Constitution and other laws. Approval has been obtained to list the newly issued Offer Shares on the PSE. including the Offer Shares being sold by the Selling Shareholder. . neither it nor any person acting on its behalf will. The term ‘‘Philippine National’’ includes 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 by corporations that are at least 60% owned by citizens of the Philippines. . . Trading is expected to commence on the same date. including equity swaps. The Company is thus constrained to keep its foreign equity interest below the 40% threshold and any sale or transfer of shares in excess of this threshold shall not be recorded in the stock and transfer book of the Company. The Company. Benedicto V. offer. pledge or otherwise dispose of (or publicly announce any such issuance. offer. other than in connection with the Over-Allotment Option and the option granted to Mr. . . such as where the Company undertakes major projects and developments. . . as such. See ‘‘Description of the Shares’’. . . . 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 domestic banking system. Andrew Tan have each agreed with the Lead Manager that. Risk Factors . Megaworld’s Board may. See ‘‘Philippine Foreign Exchange Controls’’. . TAGI. are listed on the PSE under the symbol ‘‘MEG’’.Nationality Restrictions . New Town Land and Mr. Listing and Trading . Prospective investors should carefully consider certain risks connected with an investment in the Offer Shares.

.153. . Income Statement Data 2003 2004 2005 = = = P P P (in millions.1 2.9 19.4 34. .S.652.6 872.2 21. . . . . .506.8 1. Cost of real estate sales .6 (386. The information below is not necessarily indicative of the results of future operations.158. . . . . . .7) 406. . . .9 0. . . . . . . . . . . . . . . . .067 to US$1. . .3 454. . . .4 547. . . . .0 (367. . .8 (381.5 10. .9 (7. . .6) 719.151. .2 (2. . . . . . . . . . . Realized gross profit Realized gross profit Rental income . . . . . . . . Notes: (1) Other revenues consist of interest income. . . Deferred gross profit .7 506. .9) 11. . .9 146.9) 701. . . . Other (charges) . . . . . .5 180. . Operating profit . . . .3 1. . .7 1.1 1. .8 0.02 2. . . . . . Earnings per Share . .3) 625. . . . . . . .251. current year’s sales prior years’ sales . .9 265. For the years ended December 31.4) 424. .8 (524. . . Gross profit. . . . .7 4. . For readers’ convenience only.11 59. . Income before tax and minority interest . . . .1 976. . . The summary financial information presented below for the years ended December 31. . .8 0. . . . .9 1. . 2004 and 2005 financial information included in this Prospectus has been prepared in accordance with PFRS. .1 (7.4 (40. . . .3) 1.816. . . except per Share figures) 2005 US$ Realized gross profit from real estate sales: Real estate sales .9 241. Net income attributable to minority interest . . . . . . 2004 and 2005 was derived from the consolidated financial statements of Megaworld. W-12 .2 (294. .793. . . . . . . .3) 982. on on .2) 993. . . . . a member practice of Grant Thornton International.00. . 2005 of P 53. . . . . . . . . .694.8 627. .7 (1. . Tax expense . Hotel income — net . . .521.4) 26.0 2. . . .4 73.5 807.9) 319. . . audited by Punongbayan & Araullo. . . . Net income (after minority interest) .0 52. . . . . . . .SELECTED CONSOLIDATED FINANCIAL INFORMATION The following tables present summary selected consolidated financial information for Megaworld and should be read in conjunction with the auditors’ reports and with Megaworld’s consolidated financial statements and notes thereto contained in this Prospectus and the section entitled ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’. .7) 18. dollars using the PDS month= end closing rate as of December 31. . . .8 101.0 (13. . .425. .396. . . Operating expenses . . .379.2 (390. 2003. . .1 793.371. . . . .7 0. . . . . Other revenues (1) . . . . . . The 2003. .7 88. . . . .1) 1. .7 728. . .9 259. .5 18. . .2) 252. dividend income. .8 9. .8 (1.8 1. . . . amounts in Pesos were converted to U. .8 153. . . foreign currency gain and miscellaneous items.012.7 (6.3 5. . .6 — Revenue . . . . . . . . . . . . . . . . . . .08 3. . . . 2. .

552. . . .7 246.1 1. . .4 5.518.623. .9 30. .979. Balance Sheet Data 2003 = P 2004 = P (in millions) 2005 = P 2005 US$ Cash and cash equivalents (1) . .193. .265. . Trade and other receivables .0 280. . . Property and equipment. . . .3 226. customers’ deposits. .5 1.8 12. .4 137. . . . .5 8. . . .025.2 2. .0 4.386.8 617. . . . . . . income tax payable and deferred income on real estate sales.6 14.9 16.6 3. . . . .5 1. . . . . . . . .874. .7 32.8 66. . .9 Total assets . .7 51. . 15. Other assets (2) .6 15. . . . .8 336. . .010.3 1. . . . .6 696.119.3 1. . .141.7 2.5 593.6 14. goodwill and other items. . . . . .8 155.784.868. . . . .243. . . . .8 8. .5 33. . . . . trade and other payables.9 240. . W-13 .2 1. .851. Prepayments and other current assets — net . .1 31.5 9. . . Current liabilities Reserve for property development Other current liabilities (3) .8 788.9 641.1 108. . . . . .782.908.2 4. . .3 3. . .6 785. 2. .3 32. . .6 32. .6 1.1 4. . Total Current Assets . . . . . .032. . .021. .As of December 31. . .0 16.3 2. .051. . . . . .5 17. . . .636. . . . . Minority Interest . .8 4. Current portion of trade and other receivables Marketable securities . .518.065. (2) Other non-current assets consist of long-term placements of the non-current portion of trade and other receivables.1 3. . .652.3 377.2 619. .850. . . .0 1.688.652. . .2 Notes: (1) Cash and cash equivalents consist of cash on hand and in banks and short-term investments.1 14. Advances to landowners and joint Land for future development .954.0 4. . . . . .9 4. advances from associates and other related parties and net deferred tax liabilities. . deferred tax assets.1 1.4 1. . . . .770. . . . . 31.748. customers’ deposits.754.9 14.3 11.2 53.382.1 2. Non-current liabilities Reserve for property development Other non-current liabilities (4) . (4) Other non-current liabilities include interest-bearing loans and borrowings.8 282.3 35. . deferred income on real estate sales. Investment property . .9 32.619. . . . . . . . . . . . .028.1 17.8 Total Liabilities and Equity . . . .708.6 733.2 451. . .606.318. .172.4 710. . . . . . .3 3.9 617. . . . .5 15. .4 4. . .858. .278. .0 1. . Residential and condominium units for sale .782. . .6 9. . . . .753. . . Total Liabilities.751.9 323.0 3. . Equity: Equity attributable to parent company’s shareholders . . . . .552.3 705.138. .8 67. .4 219.274. . . . . . . .2 7. . . .673. .452. . .9 2. .269. . .832.967. . . investments in and advances to subsidiaries and other related parties. . . . .3 2. . . . . . . .6 91. . . . ventures . .618. (3) Other current liabilities include interest-bearing loans and borrowings. cash. . . .1 13. . . .2 10. guarantee deposits. . .4 23. . . Property development costs . .599. .5 16. . .7 14.

. . EBITDA ratios and related computations involving net earnings and equity figures were computed using the figures attributable only to the parent company’s shareholders. . . interest expense. Gross margin (%) (2) . . . . . investing and financing activities as a measure of liquidity. . depreciation and amortization. . .797. . . W-14 .5 Notes: (1) EBITDA as used in this prospectus consists of earnings before interest income. . . . . . . . (2) Represents gross profit as a percentage of net sales. . . .694. . or any other measures of performance under PFRS.7 2. including PFRS and investors should not consider EBITDA in isolation or as an alternative to operating income or net income as an indicator of the Company’s operating performance or to cash flow from operating. . . except percentages) 2005 US$ EBITDA (1) . . .4 (1. .2) 1.3 (24.3 29 2.5 (2. . . . .526.311. Net cash from operating activities . .3 (1. . .3 2.8 810.562. . .6 35.3) (164. income tax. Other Financial Data 2003 = P 2004 2005 = = P P (in millions. 609. .519.7) 12.0) 400. . Net cash used in investing activities . .3 15. . Capital expenditures . . . Because there are various EBITDA calculation methods. . . EBITDA is presented to provide a better understanding of the Company’s consolidated operating results. . . . . . . . . . .For the years ended December 31. . .360. Net cash from (used in) financing activities . .154. .3 68. .5) 662. EBITDA is not a measure of financial performance under generally accepted accounting standards. .626.874. . . . .3 1.5 30 3. .5 32 3. . the Company’s presentation of EBITDA may not be comparable to similarly titled measures used by other companies.

Moreover. than is regularly made available by public companies in the U. the financial statements of the Company have been prepared in accordance with PFRS.S. rules and policies against self-dealing and regarding the preservation of shareholder interests may be less well-defined and enforced in the Philippines than elsewhere. lack of notice to the party against whom enforcement is sought. The Philippine Rules of Civil Procedure provide that a judgment or final order of a foreign court are enforceable in the Philippines. The Philippines is a party to the United Nations Convention on the Enforcement and Recognition of Arbitral Awards but not to any international treaty relating to the recognition or enforcement of foreign judgments.ADDITIONAL RISK FACTORS This International Offer involves certain special risks associated with investing in the Company. there may be less publicly available information about Philippine public companies. Many other jurisdictions may require more independent directors. Certain risks not presently known to the Company may also affect the Company’s business operations. Furthermore. whichever is the lower number. it may be difficult for investors to enforce outside the Philippines judgments against the Company obtained elsewhere in any actions pertaining to the Offer Shares. and all or a substantial portion of the assets of such persons are located in the Philippines. fraud. While a principal objective of Philippine securities laws and PSE listing rules is to promote full and fair disclosure of material corporate information. It may be difficult for investors to effect service of process outside the Philippines upon the Company with respect to other claims pertaining to the Offer Shares. in addition to the risks set out below. The Company is organized under laws of the Republic of the Philippines. In addition. The Company’s corporate affairs are governed by its Articles of Incorporation and By-Laws and the Philippine corporation law. although the Company complies with the requirements of the Philippine SEC with respect to corporate governance standards. substantially all of the directors and the officers of the Company are residents of the Philippines. The Company currently has three independent directors. and other countries. such as the Company. unless there is evidence of lack of jurisdiction of the foreign court. In addition. collusion. or to enforce against them judgments obtained in courts or arbitral tribunals outside the Philippines predicated upon the laws of jurisdictions other than the Philippines. RISKS RELATING TO THE PHILIPPINES Corporate governance and disclosure standards in the Philippines may differ from those in more developed countries. Investors may face difficulties enforcing judgments against the Company. For example. W-15 . which differ from the legal principles that would apply if the Company were incorporated in a jurisdiction outside the Philippines. the risks set out under ‘‘Risk Factors’’ beginning on page 15 before investing in the Offer Shares. the SRC requires the Company to have at least two independent directors or such number of independent directors as is equal to 20% of the Board. Prospective investors should carefully consider. In addition. putting holders of the Shares at a potential disadvantage. Investors may face difficulties in protecting their interests as a shareholder because the Company is subject to Philippine corporate rules and regulations which provide significantly fewer shareholder protections than other jurisdictions. investors’ rights or the rights of holders of the Shares under the Philippine corporation law to protect their interests relative to actions by the Company’s Board of Directors may be fewer and less-defined than under the laws of those other jurisdictions. A substantial portion of the Company’s assets are located in the Philippines. As a result. it may be difficult for investors to effect service of process upon such persons. these standards may differ from those applicable in other jurisdictions. which differ in certain material respects from International Financial Reporting Standards (‘‘IFRS’’). Although insider trading and price manipulation are crimes under Philippine law. the Philippine securities markets are not as highly regulated and supervised as markets in certain other jurisdictions. In addition. clear mistake of law or fact.

Accordingly. Accordingly. foreign ownership in the Company is limited to a maximum of 40% of the Company’s issued and outstanding capital stock. RISKS RELATING TO THE OFFER SHARES The Company’s shares are subject to Philippine foreign ownership limitations. as long as the Company owns land. there are practical. geographic and logistical limitations upon the ability of foreign holders to timely receive notice of regular or special meetings of the Company’s shareholders. notices of stockholder meetings must be sent to all shareholders of record at least one week prior to the date of the meeting. Notices of shareholder meetings may be sent by personal delivery. as those available in other jurisdictions or sufficient to protect the interests of minority shareholders. The term ‘‘Philippine National’’ as defined under the Republic Act No. or a corporation organized under the laws of the Philippines of which at least sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines. as amended. or a domestic partnership or association wholly owned by citizens of the Philippines.’’ Derivative actions are rarely brought on behalf of companies in the Philippines. ‘‘See Description of the Shares — Rights Relating to Shares — Appraisal Rights. the Implementing Rules and Regulations of the Securities Regulation Code require the Company to distribute to all shareholders of record an information statement and proxy form (in case of proxy solicitation) relating to a shareholders’ meeting at least 15 business days before the shareholders’ meeting. The Philippine Corporation Code. however. shall mean a citizen of the Philippines. All shareholders of record may attend the Company’s shareholder meetings in person or by proxy. telegraph or cable to a shareholder’s last known postal address. minority shareholders may not be able to protect their interests under current Philippine law to the same extent as in certain other countries. there can be no assurance that legal rights or remedies of minority shareholders will be the same. There are no provisions under Philippine law or under the Company’s By-laws.ADDITIONAL RISK FACTORS Investors may find it more difficult than Philippine shareholders to exercise their voting rights at the Company’s shareholders’ meetings. However. mail. These restrictions may adversely affect the liquidity and market price of the Shares to the extent international investors are not permitted to purchase Common Shares in normal secondary transactions. The Philippine Corporation Code also grants shareholders an appraisal right allowing a dissenting shareholder to require the corporation to purchase his shares in certain instances. Consequently. Considering the foregoing. as amended. the Company owns private land in the Philippines. However. The Philippine Constitution and related statutes restrict land ownership to Philippine Nationals. provides for minimum minority shareholders protection in certain instances wherein a vote by the shareholders representing at least twothirds of the Company’s outstanding capital stock is required. or by publication in a Philippine newspaper of general circulation. the Company cannot allow the issuance or the transfer of shares to persons other than Philippine Nationals and cannot record transfers in the books of the Company if such issuance or transfer would result in the Company ceasing to be a Philippine National for purposes of complying with the restrictions on foreign land ownership discussed above. Shareholders may be subject to limitations on minority shareholders rights. W-16 . where the trustee is a Philippine national and at least sixty percent (60%) of the fund will accrue to the benefit of Philippine Nationals. As of the date of this Offering Circular. 7042. or a corporation organized abroad and registered to do business in the Philippines under the Corporation Code of the Philippines of which one hundred percent (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. that limit the exercise by foreign holders of their voting rights through the Common Shares. Under the Company’s By-laws. or as extensive. as amended. ‘‘See Description of the Shares — Fundamental Matters’’. The obligation under Philippine law of majority shareholders and directors with respect to minority shareholders may be more limited than those in certain other countries such as the United States or United Kingdom.

Megaworld is not aware of any pending proposals by the Government regarding such restrictions. The Philippine Monetary Board. to suspend temporarily or restrict sales of foreign exchange. The Government has. The Government has from time to time made public pronouncements of a policy not to impose restrictions on foreign exchange. profits and earnings which accrue thereon shall be sourced from the Philippine banking system. Shareholders of the Company are not entitled to pre-emptive rights. a foreign investment must be registered with the BSP if foreign exchange needed to service the repatriation of capital and the remittance of dividends. during a foreign exchange crisis or in times of national emergency. W-17 . Any restrictions imposed in the future pursuant to such statutory authority could adversely affect the ability of investors to repatriate foreign currency upon sale of the Shares or dividends or distributions relating to them. Under BSP regulations. See ‘‘Philippine Foreign Exchange Controls’’. freely dispose of their foreign exchange receipts and foreign exchange may be freely sold and purchased outside the Philippine banking system. Restrictions exist on the sale and purchase of foreign exchange within the Philippine banking system. in the past. with the approval of the President of the Philippines. has statutory authority. require licensing of foreign exchange transactions or require delivery of foreign exchange to the BSP or its designee. in general. Philippine residents may. In particular.ADDITIONAL RISK FACTORS Overseas shareholders may not be able to participate in the Company’s future rights offerings or certain other equity issues. such rights having been denied in the Company’s Articles of Incorporation. the Company will have discretion as to the procedure to be followed in making such rights available to holders of the Common Shares or in disposing of such rights for the benefit of such holders and making the net proceeds available to such holders. Repatriation of dividends denominated in currencies other than Philippine pesos may be subject to certain restrictions. instituted restrictions on the conversion of pesos into foreign currencies. If the Company offers or causes to be offered to holders of the Common Shares rights to subscribe for additional Common Shares or any right of any other nature.

W-18 . The Corporation Code prohibits stock corporations from retaining surplus profits in excess of 100% of their paid-in capital stock. at any time. will depend upon the Company’s earnings. subject to the requirements of applicable laws and regulations and the absence of circumstances that may restrict the payment of such dividends. Dividends paid in the form of additional shares are subject to approval by both the Board of Directors and at least two-thirds of the outstanding capital stock of the shareholders at a shareholders’ meeting called for such purpose. For more information. 2004 or 2005. 2006. Megaworld declares cash dividends to shareholders of record usually in the first half of each year. with its capital unimpaired. such as where the Company undertakes major projects and developments. or when the corporation is prohibited under any loan agreement with any financial institution or creditor from declaring dividends without its consent. These represent the net accumulated earnings of the Company. 2006. by the distribution of property. 2006 to shareholders on record as of March 15. or when it can be clearly shown that such retention is necessary under special circumstances obtaining in the corporation.02 per Share. The Company intends to maintain an annual cash dividend payment ratio of 20% of its net income from the preceding year. which are not appropriated for any other purpose. Dividends paid in cash are subject to the approval by the Board of Directors. payable on April 10. The Company may pay dividends in cash. On February 28. the Board approved a cash = dividend of P 0. Megaworld’s Board may. These dividends are paid from unrestricted retained earnings. see ‘‘Dividends and Dividend Policy’’ and ‘‘Description of the Shares — Rights Relating to Shares’’ elsewhere in this International Offering Circular. either in the form of cash or stock. modify its dividend payout ratio depending upon the results of operations and future projects and plans of the Company. except when justified by definite corporate expansion projects or programs approved by the Board of Directors. cash flow and financial condition. No cash dividends were declared on the Company’s common shares for 2003. The Company may declare dividends only out of its unrestricted retained earnings. and such consent has not yet been secured.DIVIDEND POLICY The payment of dividends. among other factors. or by the issue of shares of stock.

. .$1.S.S. . . . .963 Note: (1) The average of the monthly average exchange rates during the relevant period. . . dollars or other foreign currencies of the peso price of the Shares on the PSE. . . . dollar exchange rate Year Period end Average (1) High Low 2001 2002 2003 2004 2005 2006 .443 56. . . .841 55.S. .142 52. . . . .267 53. . .00. . . . . .067 = = U.$1. . . . through which the members of Bankers Association of the Philippines effect spot and forward currency exchange transactions. .S. expressed in pesos per U.203 56. . . .S. . . On December 31. . 5. .013 53. . 2006. .S. The following table sets out certain information concerning the PDS Rate between the peso and the U. . . .062 47. . The PDS Rate is the closing spot rate for the purchase of U. . . . . .404 53. Fluctuations in such exchange rates will also affect the peso value of Megaworld’s assets and liabilities which are denominated in currencies other than pesos. . dollar and other foreign currencies will affect the equivalent in U.997 50. On April 6.096 55.S. . dollars with pesos which is quoted by PDS and published in BSP’s Reference Exchange Rate Bulletin and the major Philippine = financial press on the following business day. . the PDS Rate was P 50. . . . . . . . . . .S. . . . if any.767 56. . .684 55.EXCHANGE RATE INFORMATION Fluctuations in the exchange rates between the peso and the U. . . . . if any. . . . .355 53. the PDS Rate was P 53. .569 56. . . . . . . and of the peso proceeds received by investors on a sale of the Shares on the PSE. . . .$1. of dividends distributed in pesos by Megaworld. . . . . . Treasury Department of the BSP W-19 . . . . . (through April . . . . . .993 51. . . . a computer network supervised by the BSP.085 51. . . . 2006) .021 55.00 : peso/U.336 52. . .604 54. . . . . . . . . The PDS.997 = U. . .067 50. .995 50. . . . . Source: Reference Exchange Rate Bulletin. . 2005.00. . was introduced in 1992.040 55. . . dollar for the periods and dates indicated. . .550 49. . . . The PDS was adopted by the BSP as a means to monitor foreign exchange rates. . . . . . . . 51. .

it (or such customer) will not offer. its customer has confirmed to it that such customer acknowledges) that such Offer Shares have not been and will not be registered under the Securities Act. or for the account or benefit of. or at the time the Offer Shares are purchased will be.S. The Offer is being made in accordance with Regulation S under the U. Terms used in these ‘‘Transfer Restrictions’’ that are defined in Regulation S under the U. U. pledge or other transfer of the Offer Shares offered hereby. sell. Securities Act and may not be offered. It acknowledges (or if it is a broker-dealer acting on behalf of a customer. the beneficial owner of the Offer Shares. It certifies that either (A) it is. Securities Act.TRANSFER RESTRICTIONS As a result of the following restrictions.S.S. (2) (3) (4) W-20 . Securities Act is available. Securities Act or an exemption from the registration requirements of the U. or at the time the Offer Shares are purchased will be.S. pledged or otherwise transferred or delivered within the United States or to. pledge or otherwise transfer such Offer Shares except (A) (i) in an offshore transaction complying with Regulation S. Securities Act or with a securities regulatory authority of any state or other jurisdiction outside the Philippines and. in each case in accordance with all applicable securities laws of the states of the United States. may not be offered.S. sold.S.S. accordingly. agreed and acknowledged that: (1) It is authorized to consummate the purchase of the Offer Shares in compliance with all applicable laws and regulations. or for the account or benefit of. Securities Act are used herein as defined therein. sold or delivered in the United States or to.S. The Offer Shares have not been registered under the U. investors are advised to consult legal counsel prior to making any offer. unless the Offer Shares are registered under the U. person. It agrees (or if it is a broker-dealer acting on behalf of a customer. resale. (ii) pursuant to any other available exemption from registration under the Securities Act or (iii) pursuant to an effective registration statement under the Securities Act and (B) in accordance with all applicable securities laws of the United States and any other jurisdiction. OFFER SHARES OFFERED OUTSIDE THE UNITED STATES The Offer Shares have not been registered under the U. its customer has confirmed to it that such customer agrees) that prior to the expiration of 40 days after the later of the commencement of the Combined Offer and the latest closing date. including the Philippines. any U. persons (as defined in Regulation S) except to persons outside the United States in accordance with Regulation S. the beneficial owner of the Offer Shares and it is located outside the United States (within the meaning of Regulation S) or (B) it is a broker-dealer acting on behalf of its customer and its customer has confirmed to it that (i) such customer is. and (ii) such customer is located outside the United States (within the meaning of Regulation S). Each purchaser of the Offer Shares offered outside the United States pursuant to Regulation S under the Securities Act (other than in connection with the Domestic Offer) will be deemed to have represented.

The Selling Shareholder.008. including in connection with the Offer. Under the terms and conditions of the International Underwriting Agreement. will sell and TAGI. a Philippine National. occur on or before the Offer Shares are listed on the PSE.INTERNATIONAL PLAN OF DISTRIBUTION 3. The Lead Manager and its affiliates have engaged in transactions with and performed various investment banking. The Lead Manager and the Domestic Underwriter will enter into an orderly marketing agreement providing for the concurrent offer and sale of the Offer Shares in the International Offer and the Domestic Offer.727.158. have been provided as an independent contractor and not as a fiduciary to the Company or the Selling Shareholder. the Selling Shareholder and the Domestic Underwriter will enter into a domestic underwriting agreement (the ‘‘Domestic Underwriting Agreement’’) with respect to the Offer Shares being offered in the Domestic Offer. all services provided by the Lead Manager. The allocation of the Offer Shares between the Domestic Offer and the International Offer is subject to adjustment.000 Firm Shares (excluding the Over-Allotment Option described below) in the International Offer outside the Philippines and the United States in reliance on Regulation S under the U. The closings of the International Offer. The Lead Manager does not have any right to designate or nominate a member of the Company’s Board. will purchase 300.000 of the Firm Shares are being offered by the Company and the Selling Shareholder as part of the International Offer and 196. However. The Lead Manager has no direct relations with the Company in terms of share ownership and other than as Lead Manager for the Offer. including force majeure. THE INTERNATIONAL OFFER The Company and the Selling Shareholder. If there is an under-application in the International Offer and a corresponding over-application in the Domestic Offer.000. commercial banking and other services for Megaworld and its subsidiaries and affiliates in the past and may do so from time to time in the future.000 Domestic Block Sale Shares. it does not have any material relationship with the Company. The Company. The underwriting agreement entered into between the Company. Securities Act.000 of the Firm Shares are being offered by the Selling Shareholder at the Offer Price to the PSE Brokers. a non-Philippine National.727. W-21 . through the Lead Manager. the Lead Manager is committed to purchase or procure purchasers for all of the Offer Shares to be offered in the International Offer.S. the Selling Shareholder and the Lead Manager (the ‘‘International Underwriting Agreement’’) is subject to certain conditions and may be subject to termination by the Lead Manager if certain circumstances.008. Offer Shares in the International Offer Shares may (at the option of the Domestic Underwriter) be reallocated from the International Offer (with the consent of the Lead Manager) to the Domestic Offer. The Lead Manager will enter into a share purchase agreement (the ‘‘Share Purchase Agreement’’) with the Selling Shareholder in connection with the Domestic Block Sale. the Domestic Offer and the Domestic Block Sale are conditional upon each other and will occur concurrently. are offering 3.

The Domestic Block Sale will provide leeway for the ownership of Shares by non-Philippine Nationals. a brokerage fee of 1. in addition to the Offer Price.38 per Offer Share. it will no longer be allowed to purchase Shares in the open market for the conduct of stabilization activities. Any Shares of the Company that may be borrowed by the Stabilizing Agent under the stock borrowing agreement will be returned to the Company either through the purchase of Shares in the open market by the Stabilizing Agent in the conduct of stabilization activities or through the exercise of the Over-Allotment Option by the Stabilizing Agent. will sell to TAGI.50% of the gross proceeds of the International Offer. Such activities may stabilize. a non-Philippine National. maintain or otherwise affect the market price of the Shares which may have the effect of preventing a decline in the market price of the Shares and may also cause the price of the Shares to be higher than the price that otherwise would exist in the open market in the absence of these transactions.000. Approval has been obtained for the listing of the Primary Offer Shares on the PSE. the Lead Manager and TAGI is subject to certain conditions and may be subject to termination by TAGI if certain circumstances. The Share Purchase Agreement entered into between the Selling Shareholder. a Philippine National 300. the Company has granted the Stabilizing Agent an Over-Allotment Option. Investors in the International Offer (but not the Domestic Offer) will be required to pay.0% of the Offer Price. Under the terms and conditions of the Share Purchase Agreement. In connection therewith.000 Domestic Block Sale Shares on the Listing Date at the Offer Price and on the same terms and conditions as the Firm Shares as set forth herein.475.000 Shares on the same terms and conditions as the Firm Shares as set forth herein.475. Up to 588. which is exercisable in whole or in part for 30 days from the commencement of the trading of the Company’s Offer Shares on the PSE to purchase up to 588. it may discontinue them at any time. Indemnity The International Underwriting Agreement provides that the Company and the Selling Shareholder will indemnify the Lead Manager against certain liabilities. If the Stabilizing Agent commences any of these transactions. including force majeure.INTERNATIONAL PLAN OF DISTRIBUTION The Lead Manager will receive from the Company and the Selling Shareholder a combined transaction fee of 3.475. The Stabilizing Agent may purchase Shares in the open market only if the market price of the Shares falls below the Offer Price. the Stabilizing Agent has entered into a stock borrowing agreement with the Company to borrow up to an additional 588. OVER-ALLOTMENT In connection with the Offer.000 Optional Shares may be over-allotted and the Stabilizing Agent may effect price stabilization transactions for a period which shall not exceed 30 days from the Listing Date. W-22 .000 Shares to cover over-allocations under the International Offer. Once the Over. occur on or before the Offer Shares are listed on the PSE.Allotment Option has been exercised by the Stabilizing Agent. DOMESTIC BLOCK SALE The Selling Shareholder. TAGI is committed to purchase all of the Domestic Block Sale Shares. There can be no assurance that the Offer Shares will trade in the public market subsequent to this Offer at or above the Offer Price. The Offer Price = is P 1.

other than in connection with the Over-Allotment Option or the TAGI Option. offer. New Town Land and Mr. for a period of 180 days after the First Closing Date. contract to sell. including equity swaps. Andrew Tan have each agreed with the Lead Manager that. forward sales and options. sell. TAGI. neither it nor any person acting on its behalf will. pledge or otherwise dispose of (or publicly announce any such issuance. without the prior written consent of the Lead Manager. W-23 .INTERNATIONAL PLAN OF DISTRIBUTION LOCK-UP The Company. sale or disposal of) any Shares or securities convertible or exchangeable into or exercisable for any Shares or warrants or other rights to purchase Shares or any security or financial product whose value is determined directly or indirectly by reference to the price of the underlying securities. offer. issue.

from or otherwise involving the United Kingdom. In addition. or not subject to. a ‘‘Relevant Member State’’) an offer to the public of any shares which are the subject of the offering contemplated by this International Offering Circular (the ‘‘Shares’’) may not be made in that Relevant Member State except that an offer to the public in that Relevant Member State of any Shares may be made at any time under the following exemptions under the Prospectus Directive. Securities Act. whose corporate purpose is solely to invest in securities. W-24 .S. and may not be offered or sold within the United States except in transactions exempt from.000. (2) a total balance sheet of more than 43. Securities Act. UNITED KINGDOM The Lead Manager has represented. as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression ‘‘Prospectus Directive’’ means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State. the expression an ‘‘offer to the public’’ in relation to any Shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any Shares to be offered so as to enable an investor to decide to purchase any Shares.S. (2) EUROPEAN ECONOMIC AREA In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each. Securities Act. the registration requirements of the U.S. (c) by the Managers to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the Lead Manager for any such offer. if not so authorised or regulated. as shown in its last annual or consolidated accounts. or (d) in any other circumstances falling within Article 3(2) of the Prospectus Directive. until 40 days after the commencement of the Offer. and it has complied and will comply with all applicable provisions of FSMA with respect to anything done by it in relation to the Offer Shares in.000.000 and (3) an annual net turnover of more than 50. Securities Act.000. Terms used in this paragraph have the meanings given to them by Regulation S under the U. if they have been implemented in that Relevant Member State: (a) to legal entities which are authorised or regulated to operate in the financial markets or. provided that no such offer of Shares shall result in a requirement for the publication by Megaworld or any Manager of a prospectus pursuant to Article 3 of the Prospectus Directive. an offer or sale of Offer Shares within the United States by a dealer that is not participating in the Offer may violate the registration requirements of the U. For the purposes of this provision. (b) to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year.S. warranted and agreed that: (1) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000 (FSMA)) to persons who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 or in circumstances in which section 21 of FSMA does not apply to Megaworld.SELLING RESTRICTIONS UNITED STATES The Offer Shares have not been and will not be registered under the U.

32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance W-25 . specified in Section 275 of the SFA or (iii) otherwise pursuant to. by means of any document. each of whom is an accredited investor. this Offering Circular or any other document or material in connection with the offer or sale. (2) (3) HONG KONG The Lead Manager has represented and agreed that (i) it has not offered or sold and will not offer or sell in Hong Kong. except pursuant to an exemption from the registration requirements of. directly or indirectly. directly or indirectly. in Japan or to a resident of Japan. whether such amount is to be paid for in cash or by exchange of securities or other assets. namely a person which is: (a) a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals. or by operation of law. warranted and agreed that it has not offered or sold any Offer Shares or caused such Offer Shares to be made the subject of an invitation for subscription or purchase and will not offer or sell such Offer Shares or cause such Offer Shares to be made the subject of an invitation for subscription or purchase. (b) that shares. Accordingly. of such Offer Shares. and in accordance with the conditions of. or otherwise in compliance with. SINGAPORE The Lead Manager has acknowledged that this Offering Circular has not been registered as a Offering Circular with the Monetary Authority of Singapore. nor will it circulate or distribute. or invitation for subscription or purchase. None of the Offer Shares may be offered or sold.SELLING RESTRICTIONS JAPAN The Offer Shares have not been and will not be registered under the Securities and Exchange Law of Japan. any other applicable provisions of the SFA. or any person pursuant to Section 275(1A). the Lead Manager has represented.000 (or its equivalent in a foreign currency) for each transaction. the Securities and Exchange Law of Japan and in compliance with any other applicable laws and regulations of Japan. or to any person pursuant to an offer that is made on terms that such rights or interest are acquired at a consideration of not less than S$200. or a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor. or to others for re-offering or resale. including any corporation or other entity organized under the laws of Japan). in Japan or to. whether directly or indirectly. (ii) to a relevant person. to persons in Singapore other than (i) to an institutional investor specified in Section 274 of the Securities and Futures Act. any resident of Japan (which term means any person resident in Japan. or for the benefit of. Chapter 289 of Singapore (the ‘‘SFA’’). and has not circulated or distributed. where no consideration is given for the transfer. any Offer Shares other than (a) to a ‘‘professional investor’’ as defined in the Securities and Futures Ordinance (Cap. and in accordance with the conditions. The Lead Manager has further represented and agreed to notify and hereby notifies each of the following relevant persons specified in Section 275 of the SFA which has subscribed or purchased the Offer Shares from or through the Lead Manager. 571) of Hong Kong and any rules made under that Ordinance or (b) in other circumstances which do not result in the document being a ‘‘Offering Circular’’ as defined in the Companies Ordinance (Cap. debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest in that trust shall not be transferable for six months after that corporation or that trust has acquired the Offer Shares under Section 275 except: (1) to an institutional investor or to a relevant person.

sell or market in Belgium such Offer Shares by means of a public offer within the meaning of the Law of April 22. advertisement or other offering material relating to the Offer Shares in Australia (b) unless (1) the aggregate consideration payable by each offeree or invitee is at least AUD 500. but disregarding moneys lent by the offeror or its associates) or the offer or invitation otherwise does not require disclosure to investors in accordance with Part 6D. regulations and directives. any advertisement. W-26 . DENMARK This Offering Circular has not been filed with or approved by the Danish Securities Council or any other regulatory authority or stock exchange in Denmark.7 of the Belgian law of July 14. and will not issue or have in its possession for the purposes of issue.000 (or its equivalent in other currencies. 2003 on the public offer of securities. or (b) sell Offer Shares to any person qualifying as a consumer within the meaning of Article 1. and has not distributed or published. sale or purchase of the Offer Shares in Australia (including an offer or invitation which is received by a person in Australia). The Lead Manager has represented and agreed that it: (a) has not offered or invited applications. The Offer Shares have not been offered or sold and may not be offered. preliminary or definitive offering memorandum. 571) of Hong Kong and any rules made under that Ordinance. or the contents of which are likely to be accessed or read by. unless in compliance with the Danish Securities Trading Act and the Danish Executive Orders no. and will not distribute or publish. which is directed at. it will only offer and sell the Offer Shares in Canada or to residents of Canada (i) through an appropriately registered securities dealer or in accordance with an available exemption from the applicable registered securities dealer requirements under Canadian Securities Laws and (ii) pursuant to an exemption from the Offering Circular requirements under Canadian Securities Laws.2 of the Corporations Act. invitation or document relating to the Offer Shares. CANADA The Lead Manager has represented and agreed that it has not sold or offered to sell the Offer Shares in Canada or to residents of Canada otherwise than in accordance with applicable Canadian securities laws (‘‘Canadian Securities Laws’’). 306 and 307 of April 28. The Lead Manager has represented and agreed that it will not: (a) offer for sale.SELLING RESTRICTIONS and (ii) it has not issued or had in its possession for the purposes of issue. 2005 on Offering Circular in connection with public offers as amended from time to time. (2) such action complies with all applicable laws. and (3) does not require any document to be lodged with ASIC. The Belgian Commission for Banking. any draft. BELGIUM This Offering Circular and related documents are not intended to constitute a public offer in Belgium and may not be distributed to the Belgian public. for the issue. Finance and Insurance has not reviewed nor approved this document or commented as to its accuracy or adequacy or recommended or endorsed the purchase of Offer Shares. AUSTRALIA No Offering Circular or other disclosure document (as defined in the Corporations Act 2001 of Australia) in relation to the Offer Shares has been lodged with the Australian Securities and Investments Commission (‘‘ASIC’’). the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to Offer Shares which are or are intended to be disposed of only to persons outside Hong Kong or only to ‘‘professional investors’’ as defined in the Securities and Futures Ordinance (Cap. and will not offer or invite applications. Without limiting the foregoing. 1991 on consumer protection and trade practices unless such sale is made in compliance with this law and its implementing regulation. sold or delivered directly or indirectly in Denmark by way of a public offering. whether in Hong Kong or elsewhere.

and (ii) in circumstances which are exempt from the rules on solicitation of investments pursuant to Article 100 of Legislative Decree no. sale or delivery of the Offer Shares or distribution of copies of this document or any other document relating to the Offer Shares in the Republic of Italy under (i) or (ii) above must be: (a) made by an investment firm. directly or indirectly. it has complied and will comply with all applicable provisions of the Investment Intermediaries Acts. bank or financial intermediary permitted to conduct such activities in the Republic of Italy in accordance with the Financial Services Act and Legislative Decree No. and (b) in compliance with any other applicable laws and regulations. of CONSOB Regulation No. other than to those investors to whom offers and sales of the Offer Shares may be made as described above.411-1 of the French Code mone ´taire et financier. and (ii) offers and sales of Offer Shares will be made in the Republic of France only to (A) portfolio managers providing the investment service of portfolio management for the account of their customers and (B) qualified investors acting for their own account as defined in and in accordance with Articles L. IRELAND The Lead Manager has represented and agreed that: (a) in respect of a local offer (within the meaning of section 38(1) of the Investment Funds. accordingly. Companies and Miscellaneous Provisions Act 2005 of Ireland) of Offer Shares in Ireland.411-2 and D. any Offer Shares to the public in the Republic of France.1989/495). FRANCE The Lead Manager has severally represented. directly or indirectly. in connection with its initial distribution (i) it has not offered or sold and will not offer or sell.411-1. 11971 of May 14. no Offer Shares may be offered. 1993. This document has thus not been submitted to the AMF for prior approval and clearance procedure in accordance with Articles L. or otherwise involving. neither this document nor any offering material relating to the Company’s Offer Shares has been distributed or caused to be distributed and will be distributed or caused to be distributed in the Republic of France. as defined in Article 31. 1998.621-8 et seq. nor may copies of this document or of any other document relating to the Offer Shares be distributed in the Republic of Italy except: (i) to professional investors (operatori qualificati).412-1 and ´ ´s L. second paragraph of CONSOB Regulation No. as amended. warranted and agreed that. except that it may make an offer of Offer Shares to the public in France in the period beginning on the date of publication of a Offering Circular which has been approved by a Member State of the European Economic Area (other than France) which has implemented the EU Offering Circular Directive 2003/71/EC on the date of notification to the Autorite des marche financiers (‘‘AMF’’) in France. as amended.621-8 of the French Code mone ´taire et financier and Article 212-3 of the Re glement ge ´ral of ` ´ne the AMF and ending at the latest on the date which is 12 months after the date of such publication. 385 of September 1. L. Any offer. Companies and Miscellaneous Provisions Act 2005 of Ireland. sold or delivered. first paragraph. 1999. offer or sell in Finland any Offer Shares other than in circumstances which do not constitute an offer to the public within the meaning of the Finnish Securities Market Act (26. it has complied and will comply with section 49 of the Investment Funds. directly or indirectly. ITALY The offering of the Offer Shares has not been cleared by CONSOB (the Italian Securities Exchange Commission) pursuant to Italian securities legislation and.5. as amended (the ‘‘Financial Services Act’’) and Article 33. in the case of a Manager acting under and within the terms of an authorization to do so for the W-27 (b) . 1995 to 2000 of Ireland (as amended) with respect to anything done by it in relation to the Offer Shares or operating in. 1998. offered or sold and will not. in accordance with Articles L. Ireland and. In addition. as amended.SELLING RESTRICTIONS FINLAND The Lead Manager has represented and agreed that it has not. 11522 of July 1. of the French Code mone ´taire et financier.412-1 and L. 58 of February 24. as amended.

or otherwise made available in Switzerland on a private placement basis to a limited number of investors without any public offering. Neither the Swedish Financial Supervisory Authority nor any other Swedish public body has examined.SELLING RESTRICTIONS purposes of EU Council Directive 93/22/EEC of May 10. W-28 . 1156 of the Swiss Federal Code of Obligations or Art. and (c) in connection with offers or sales of Offer Shares. SWEDEN This document is not a Offering Circular and has not been prepared in accordance with the Offering Circular requirements provided for in the Swedish Financial Instruments Trading Act (‘‘Lag (1991 : 980) om handel med finansiella instrument’’) nor any other Swedish enactment. and will only issue or pass on. any document received by it in connection with the issue of such Offer Shares to persons who are persons to whom the documents may otherwise lawfully be issued or passed on. SWITZERLAND The Offer Shares may not be publicly offered or sold in or from Switzerland. in Ireland. 32 et seq. The Offering Circular does not constitute a Offering Circular in the sense of Art. it has complied with any codes of conduct or practice made under Section 117(1) of the Central Bank Act. it has only issued or passed on. 1993 (as amended or extended). in the case of a Manager acting within the terms of an authorization granted to it for the purposes of EU Council Directive 2000/12/EC of March 20. approved or registered this document. No services relating to the Offering Circular will be rendered in the UAE. 2000 (as amended or extended). The Offer Shares may only be offered or sold and the Offering Circular may only be distributed. and neither the Offering Circular nor any other offering material relating to the Offer Shares may be distributed or otherwise made available in connection with any such offering or sale. 1989 of Ireland (as amended). of the Listing Rules of the SWX Swiss Exchange. 1995 to 2000 of Ireland (as amended) and. it has complied with any codes of conduct made under the Investment Intermediaries Acts. UNITED ARAB EMIRATES This Offering Circular has not been approved by the United Arab Emirates (‘‘UAE’’) Central Bank and the Company has not received any authorization from the UAE Central Bank to market or sell the Offer Shares within the UAE.

PHILIPPINE FOREIGN EXCHANGE CONTROLS Under current BSP regulations. an investment in listed Philippine securities (such as the Shares) must be registered with the BSP if the foreign exchange needed to service the repatriation of capital and the remittance of dividends. W-29 . (ii) credit advice or bank certificate showing the amount of foreign currency inwardly remitted and converted into pesos. with the approval of the President of the Philippines. of registered investments are repatriable or remittable immediately and in full through the Philippine commercial banking system. Upon registration of the investment. as well as dividends of registered investments. The foregoing is subject to the power of BSP. at the exchange rate applicable on the date of actual remittance. and represent the investor in all necessary actions in connection with his investments in the Philippines. A custodian bank may be a commercial bank or an offshore banking unit registered with the BSP to act as such and appointed by the investor to register the investment. as the case may be. may be lodged temporarily in interest-bearing deposit accounts. net of applicable tax. hold shares for the investor. divestment proceeds. Interest earned thereon. Remittance of divestment proceeds or dividends of registered investments may be reinvested in the Philippines if the investments are registered with the BSP or the investor’s custodian bank. The application for registration may be done directly with the BSP or through a custodian bank duly designated by the foreign investor. may also be remitted in full. to restrict the availability of foreign exchange during an exchange crisis. Applications for registration must be accompanied by: (i) purchase invoice. without need of BSP approval. net of taxes. Remittance is permitted upon presentation of the BSP registration document. profits and earnings derived from such Shares is to be sourced from the Philippine banking system. when an exchange crisis is imminent or in times of national emergency. subscription agreement and proof of listing on the PSE (either or both). proceeds of divestments. and (iii) transfer instructions from the stockbroker or dealer. Pending registration or reinvestment. or dividends.

Manila.LEGAL MATTERS Certain legal matters Philippine law relating to the Offer will be passed upon for the Company by Picazo Buyco Tan Fider & Santos Law Office. Certain legal matters as to English law and United States federal law will be passed upon for the Lead Manager by Allen & Overy. W-30 . Philippines and for the Lead Manager by Romulo Mabanta Buenaventura Sayoc & de los Angeles. Philippines. Manila.

2004 and 2005 financial information included in this International Offering Circular has been prepared under PFRS. independent certified public accountants.INDEPENDENT PUBLIC ACCOUNTANTS Punongbayan & Araullo. 2003. Punongbayan & Araullo gave its consent to the inclusion of its reports in this International Offering Circular. 2004 and 2005. audited Megaworld’s financial statements without qualification as of and for the years ended December 31. W-31 . Such financial statements are included in this International Offering Circular based on Punongbayan & Araullo’s authority as independent public accountants. The 2003. included in this International Offering Circular. a member practice of Grant Thornton International.

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2006 Megaworld Corporation Primary and Secondary Offer of 3.000 Common Shares = Offer Price of P 1.923. . ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE AND SHOULD BE REPORTED IMMEDIATELY TO THE PHILIPPINE SECURITIES AND EXCHANGE COMMISSION.38 per Offer Share Sole International Underwriter and Sole Book Runner UBS Investment Bank Sole Domestic Underwriter and Book Runner BDO Capital & Investment Corporation THE PHILIPPINE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE.166.Prospectus April 6.

a Philippine National. and such Shares.38 per Offer Share based on the 10-day volume weighted average market price (‘‘VWAP’’) of the Shares on the Philippine Stock Exchange. Dividends may be declared only from the Company’s unrestricted retained earnings.000 of the Firm Shares (the ‘‘Domestic Offer Shares’’) are being offered by the Selling Shareholder at the Offer Price to all of the trading participants of the PSE (the ‘‘PSE Brokers’’) in the Philippines (the ‘‘Domestic Offer’’).172. Puyat Avenue Makati City Philippines 1227 Telephone Number: (632) 867 8826 This Prospectus relates to the offer and sale of 3.000 common shares (the ‘‘Firm Offer’’. ii .166. The Philippine Corporation Code has defined ‘‘outstanding capital stock’’ as the total shares of stock issued.139. the Domestic Underwriter shall distribute to its clients or the general public the Domestic Offer Shares which have not been taken up. The Firm Shares shall be offered at P 1. The Company estimates that the total proceeds to be raised by Megaworld and the Selling Shareholder from the sale of Firm Shares shall be = 5. of which the estimated net proceeds will be approximately P 5.S. and such Shares. a corporation organized under Philippine law (‘‘Megaworld’’ or the ‘‘Company’’). Details regarding the commission to be received by UBS AG (the ‘‘Lead Manager’’) can be found under ‘‘Plan of Distribution’’ on page 118 of this Prospectus. as amended (the ‘‘U. the ‘‘Firm Shares’’).166. A total of 14. In the event of an underapplication in the International Offer and if there is a corresponding over-application in the Domestic Offer.000 of the Firm Shares (the ‘‘International Offer Shares’’) are being offered and sold outside the United States through the Lead Manager in reliance on Regulation S (‘‘Regulation S’’) under the United States Securities Act of 1933. BDO Capital & Investment Corporation (‘‘BDO Capital’’) will act as the domestic underwriter of the Domestic Offer (the ‘‘Domestic Underwriter’’).558. Inc. Inc. the ‘‘Primary Offer Shares’’) as further described below and (ii) 423.500. The World Centre 330 Sen.080. except treasury shares. 196. The Company will not receive any of the proceeds from the sale of = the Firm Shares being sold by the Selling Shareholder. whether paid in full or not. If the PSE Brokers do not purchase all of the Domestic Offer Shares in the Domestic Offer.450. (the ‘‘PSE’’) on April 6.969.000.413. See ‘‘Dividends and Dividend Policy’’ on page 24 of this Prospectus. Gil J. of Megaworld P Corporation.155. The Firm Shares will comprise (i) 3.000 Domestic Block Sale Shares (as defined herein) at the Offer Price on the Listing Date. (‘‘TAGI’’). Please see a more detailed discussion on proceeds from the Firm Offer and use of proceeds under ‘‘Use of Proceeds’’ on page 23 of this Prospectus.Megaworld Corporation 28th Floor.008. provided that any stock dividends declaration requires the approval of shareholders holding at least two-thirds of the Company’s total outstanding capital stock.38 per Firm Share (the ‘‘Offer Price’’).158. Securities Act’’) (the ‘‘International Offer’’). on the same terms and conditions as the Firm Shares.00 per share (the ‘‘Shares’’). the ‘‘Secondary Offer Shares’’).000. subject to a discount of 9%.727.923. par value = 1. 3. The Selling Shareholder. The allocation of the Offer Shares between the Domestic Offer and the International Offer is subject to adjustment. 2006. which price has been set at P 1.000 new Shares to be issued and offered by Megaworld by way of a primary offer (the ‘‘Primary Offer’’. a non-Philippine National. and such shares.501 Shares shall be outstanding after the Firm Offer. International Offer Shares may (at the option of the Domestic Underwriter) be reallocated from the International Offer (with the consent of the Lead Manager) to the Domestic Offer. shall sell and The Andresons Group. The determination of the Offer Price is further discussed on = page 27 of this Prospectus. Each holder of Shares will be entitled to such dividends as may be declared by the Company’s Board of Directors.000 existing Shares offered by Colony-CB (the ‘‘Selling Shareholder’’) pursuant to a secondary offer (the ‘‘Secondary Offer. shall purchase 300. The Domestic Block Sale will provide leeway for the ownership of Shares by non-Philippine Nationals.

56 per Share. on the same terms and conditions as the Firm Shares as set forth in this Prospectus. NO OFFER TO BUY THE OFFER SHARES CAN BE ACCEPTED AND NO PART OF THE PURCHASE PRICE CAN BE ACCEPTED OR RECEIVED UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE. 2006. It is expected that the Offer Shares will be delivered in book-entry form against payment therefor to the Philippine Depository and Trust Corporation (the ‘‘PDTC’’) on or about April 24.000 Shares at the Offer Price (the ‘‘Optional Shares’’. the ‘‘Offer Shares’’). if any (the ‘‘Over-Allotment Option’’). ALL REGISTRATION REQUIREMENTS HAVE BEEN MET AND ALL INFORMATION CONTAINED HEREIN IS TRUE AND CORRECT. solely to cover over-allotments. A registration statement relating to the Offer Shares has been filed with the Philippine SEC under the provisions of the Securities Regulations Code of the Philippines (Republic Act No. On April 6. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE AND SHOULD BE REPORTED IMMEDIATELY TO THE PHILIPPINE SEC. THE PHILIPPINE SEC HAS NOT APPROVED THE OFFER SHARES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. The Company has granted UBS AG. Tan Chairman and President iii . the Stabilizing Agent. A REGISTRATION STATEMENT RELATING TO THE OFFER SHARES HAS BEEN FILED WITH THE PHILIPPINE SEC BUT HAS NOT YET BEEN DECLARED EFFECTIVE.475. Andrew L. including the Optional Shares. AND ANY SUCH OFFER MAY BE WITHDRAWN OR REVOKED. Approval has P been obtained to list the Primary Offer Shares on the PSE.The Shares being sold by the Selling Shareholder are listed on the PSE under the symbol ‘‘MEG’’. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY OFFER SHARES. to purchase up to an additional 588. 2006. the closing price of the Shares on the PSE was = 1. AN INDICATION OF INTEREST IN RESPONSE HERETO INVOLVES NO OBLIGATION OR COMMITMENT OF ANY KIND. WITHOUT OBLIGATION OR COMMITMENT OF ANY KIND. See ‘‘Plan of Distribution’’. Such an approval for listing is permissive only and does not constitute a recommendation or endorsement by the PSE or the Philippine Securities and Exchange Commission (the ‘‘Philippine SEC’’) of the new Shares. The Offer Shares are offered subject to receipt and acceptance of any order by it and subject to its right to reject any order in whole or in part. is referred to as the ‘‘Offer’’. and together with the Firm Shares. an option exercisable in whole or in part within 30 days from the date of listing and when trading of the Company’s Offer Shares commences on the PSE (the ‘‘Listing Date’’). The offer of the Firm Shares. 8799) (the ‘‘SRC’’). AT ANY TIME PRIOR TO NOTICE OF ITS ACCEPTANCE GIVEN AFTER THE EFFECTIVE DATE. The Optional Shares will be sold as part of the International Offer.

All references to the ‘‘Government’’ herein are references to the Government of the Philippines.S. certain U. at that or any other rate or at all.S. dollars for pesos which is quoted by the Philippine Dealing System (the ‘‘PDS Rate’’). the Stabilizing Agent may. All references to the ‘‘BSP’’ are references to Bangko Sentral ng Pilipinas.S. All references to ‘‘United Kingdom’’ herein are to the United Kingdom of Great Britain and Northern Ireland.S.067 = U. figures shown for the same item of information may vary and figures which are totals may not be an = arithmetic aggregate of their components. is made by the Lead Manager as to the accuracy or completeness of such information. All references to ‘‘peso’’ and ‘‘herein are to the lawful currency of the Philippines. the Selling Shareholder or the Offer Shares not contained in this Prospectus and any information or representation not so contained herein must not be relied upon as having been authorized by Megaworld. in whole or in part. dollar amounts referred to could have been. 2005 of P 53. Market data used throughout this Prospectus has been obtained from market research.No representation or warranty.S. iv . In connection with the Offer. industry forecasts and market research. 2006. and nothing contained in this Prospectus is. This may have the effect of preventing a decline in the market price of the Shares and may also cause the price of the Shares to be higher than the price that otherwise would exist in the open market in the absence of these transactions.$1.S. it may discontinue them at any time. and none of Megaworld. publicly available information and industry publications. On April 6. or could be. in accordance with the Philippine SEC approval. while believed to be reliable.S. have not been independently verified.00. Similarly. as the case may be.’’ herein are to the United States of America.S. converted into pesos or U. the Selling Shareholder or the Lead Manager. all references to ‘‘U.00.997 = U. express or implied. The Stabilizing Agent is required by the Philippine SEC to disclose any of the foregoing price stabilization transactions. being the closing spot rate on that date for the purchase of U. No person has been or is authorized to give any information or to make any representation concerning Megaworld or its subsidiaries or its affiliates. and any disclosure of its contents or use of any information herein for any purpose other than considering an investment in the Offer Shares is prohibited. If the Stabilizing Agent commences any of these transactions. Figures in this Prospectus have been subject to rounding adjustments.$’’ herein are to the lawful currency of the United States and all references to ‘‘Euro’’ or are to the lawful currency of the European Union.S. the PDS Rate was P 50. the Central Bank of the Philippines. Each offeree of the Offer Shares. by accepting delivery of this Prospectus.S. based on the = prevailing exchange rate on December 31. dollar amounts have been translated into peso amounts. Accordingly. a promise or representation by the Lead Manager. CONVENTIONS WHICH APPLY TO THIS PROSPECTUS In this Prospectus. For further information regarding rates of exchange between the peso and the U. see ‘‘Exchange Rates’’. For convenience. The Stabilizing Agent may purchase Shares in the open market only if the market price of the Shares falls below the Offer Price. Any reproduction or distribution of this Prospectus. Neither the delivery of this Prospectus nor any offer. dollar. Such translations should not be construed as representations that the Philippine peso or U. agrees to the foregoing. Industry publications generally state that the information that they contain has been obtained from sources believed to be reliable but that the accuracy and completeness of that information is not guaranteed. dollars. sale or delivery made in connection with the Offer shall at any time or in any circumstances imply that the information contained herein is correct as at any time subsequent to its date or constitute a representation that there has been no change or development reasonably likely to involve a material adverse change in the affairs of Megaworld since the date hereof. or shall be relied upon as. unless otherwise specified or the context otherwise requires.$1. All references to ‘‘United States’’ or ‘‘U. effect price stabilization transactions for a period which shall not exceed 30 days from the Listing Date. all references to the ‘‘Philippines’’ are references to the Republic of the Philippines. the Selling Shareholder nor the Lead Manager makes any representation as to the accuracy of that information. dollars’’ or ‘‘U.

For further information on Megaworld’s corporate structure. all financial information relating to Megaworld contained herein is stated on a consolidated basis in accordance with Philippine Financial Reporting Standards (‘‘PFRS’’). v .Unless otherwise stated. see ‘‘Subsidiaries and Affiliates’’. the description of Megaworld’s business activities in this Prospectus is presented on a consolidated basis. Unless otherwise indicated.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Philippine Stock Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 4 15 23 24 25 26 27 28 29 30 33 45 59 83 87 89 96 97 100 108 113 114 118 121 122 F-1 vi . . . . . . . . . . . . . . . . . . Principal and Selling Shareholders . . Description of the Shares . Philippine Foreign Exchange Controls . . Philippine Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Index to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . Legal Matters . . . . . . . . . . . . . .TABLE OF CONTENTS Page Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Market Price Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Use of Proceeds . . . . . . . . . . . . . Board of Directors and Senior Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Determination of Offer Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . Exchange Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends and Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capitalization . . . . . . . . . . . . . . . . . . . Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selected Consolidated Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Subsidiaries and Affiliates . . . . . . . . . . . . . . . . . . . . Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Regulatory and Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Independent Public Accountants . . . . . . . . . . . . . . . . .

. . . . . . .158. . Araneta Center. . . . . . . . . . . Firm Shares . . . . . . . . ASC . . . L. . . . . the Philippine Central Bank Bonifacio West Development Corporation Central Clearing and Settlement System Colony-CB Richard Ellis. . . . . Corporation Code . . . . . . . . . . . . . . . . . . . . Inc. . GFA . . . . . . . . . . . . . Crossing Broker . . . . . Philippine Accounting Standards Council Bases Conversion Development Authority the board of directors of Megaworld Business Process Outsourcing Bangko Sentral ng Pilipinas. . . . . . . 1 . . the terms and conditions stated herein the Domestic Offer Shares and the International Offer Shares. . . . . . . . . . . . . . . . Board . . . . . DENR . . . . . . Inc. . . Araneta . . Batas Pambansa Blg. . . . .GLOSSARY In this Prospectus. . . . First Closing Date . . and not including Optional Shares delivery of the Firm Shares. . . . which is expected to occur in Manila on April 24. . . . . Alliance. . . . . Domestic Underwriter . Firm Offer . . . . . and subject to. .000 common shares of the Company by the Selling Shareholder to TAGI the offer for sale of the Domestic Offer Shares to be made in the Philippines by BDO Capital & Investment Corporation 196. Alliance Global Group. . . . . . . . . . . . Corporation Code of the Philippines. Colony-CB . BWDC . . . Domestic Offer . . the following terms shall have the meanings set out below. . . . . . . . . . unless the context otherwise requires. . . . . . . . BSP . . . . . GDP . . . . Domestic Block Sale Shares . . . . . . . BCDA .000. .000 of the Firm Shares being offered by BDO Capital & Investment Corporation pursuant to the Domestic Offer (not including Optional Shares) BDO Capital & Investment Corporation the offering for sale of the Firm Shares on. Domestic Offer Shares . . . . . CCSS . . . MW. .P. . 2006 or such other date as the Lead Manager and the Company shall agree in writing Gross Domestic Product Gross Floor Area DAR . . . . . . . . . BPO . . 68 a PSE licensed broker responsible for crossing the number of Domestic Offer Shares specified in the form to the appropriate PSE Broker on the closing of the Domestic Offer Department of Agrarian Reform Philippine Department of Environment and Natural Resources the sale of 300. . .

000 additional Shares Philippine Accounting Standards Philippine Central Depository Moody’s .727. . . Paranaque. . . . . . . . . . . . International Offer Shares . . . . . Las Pin as. . . . . . . . . . . . . . . . . . HLURB . to require the Company to sell up to an aggregate of up to 588. IAS . . Group. ISO . . and subject to. . . . New Town Land . . . Government . . . . . . . . . Metro Manila . . . ˜ Makati. 2 . . . . . . Ninoy Aquino International Airport New Town Land Partners. . .008. Optional Shares. . which together comprise the National Capital Region and are commonly referred to as Metropolitan Manila Moody’s Investors Services. . . . . . . . expected to be on or about April 24. . . . . 2006 the metropolitan area comprising the cities of Kalookan. . . . .000 of the Firm Shares being offered for sale pursuant to the International Offer (not including Optional Shares and further subject to reallocation from Domestic Offer Shares) International Organization for Standardization a new warrant or stock certificate covering all the warrants or shares lodged with the PDTC and issued in the name of the PCD Nominee UBS AG the date on which trading of the Offer Shares on the PSE begins. . . . . San Juan and Taguig. . . . . . . Malabon. . . . . . . . . . . the price per Offer Share at which the Offer Shares are to be subscribed pursuant to the Offer the Firm Shares and Optional Shares the Shares to be sold upon exercise of the Over-Allotment Option the option to be granted by the Company to the Stabilizing Agent within 30 days after the date on which dealings in the Shares commence on the PSE. . . Inc. . . . . Offer Price . . Muntinlupa. NAIA . . . Pateros. Gross National Product the Government of the Republic of the Philippines Megaworld and its subsidiaries and affiliate Housing and Land Use Regulatory Board International Accounting Standards Information technology the offer for sale of the International Offer Shares outside of the US in reliance on Regulation S 3. . . . Pasig. . . . . . . . . Offer . Lead Manager. . . . . PCD . . . Pasay. Mandaluyong. . . . . . . . . the terms and conditions stated herein = P 1. . . . the offering for sale of the Offer Shares pursuant to the Domestic Offer and the International Offer on. . . .38. . . . . Over-Allotment Option . . . . . . . . . Marikina. . . . . . . . Manila. International Offer . . Offer Shares . IT . . . . . . . . Inc. . . . .475. . . . . . . . . PAS . . Listing Date . . . . . . . . . .GNP. . Jumbo Certificate . . . . . Quezon and Valenzuela and the four municipalities of Navotas. . .

. . . . . . . . . . 3 . . . expected to be on or about April 24. Settlement Date . PDS Rate . . . . . . . . . . . PSE Brokers . . . . . securities listed and traded on the PSE Philippine Economic Zone Authority Philippine Financial Reporting Standards Generally Accepted Accounting Principles in the Philippines as defined under the Republic Act 7042 the Philippine Securities and Exchange Commission 3. . . Philippine GAAP . . . . U. . . . . . .000 new Shares to be issued and offered by the Company the Philippine Stock Exchange. . . . . . . . . . . . PDTC . . . . . . . . . . . 8799) and its implementing rules. 2006 Statements of Financial Accounting Standards the common shares of par value = 1. . . VAT . in its role as stabilization agent.S. . . . among others. . . . . . . . Philippine SEC . . .000 existing Shares offered by the Selling Shareholder Colony-CB the date on which final allocation of the Offer Shares is to be made. . . . . . . Secondary Offer .. Selling Shareholder . . . Securities Act . . . . . . . PSE . . . .S. . . Philippine National . . . PCD Nominee Corporation. PEZA . . . . . . . . . . Inc. .000. Primary Offer . . . . SRC . . . . . . PDS . . . . . the United States Securities Act of 1933. . . . . . . . . . . . . . the central securities depositary of. . . . . . SFAS . . . . Inc. . as amended Self-Regulatory Organization UBS. . whereby it may engage in stabilization activities relating to any over-allotment of Shares from the Company within a period of up to 30 calendar days from and including the Listing Date The Andresons Group. . . . . . . . . . . . . . . . . . . SCCP . . . . . . . PFRS . . . trading participants of the PSE Regulation S under the U. . . . . dollars quoted by the Philippine Dealing System the Philippine Depository and Trust Corp. . Stabilizing Agent . . . . . . . . . . . . . . . . . Shares . . . . as amended value-added tax TAGI .00 each of Megaworld P Securities Regulations Code of the Philippines (Republic Act No.S. . . .166. . . SRO . . . . Regulation S. . . . . a corporation wholly owned by the PDTC the Philippine Dealing System the average of buying and selling rates of exchange for peso against U. . . . Securities Act Standard & Poor’s Rating Services Securities Clearing Corporation of the Philippines 423. . .PCD Nominee . . . . . . .500. . S&P . . .

including Megaworld’s consolidated financial statements and related notes. Real estate sales of residential developments accounted for 66% of the Company’s revenues in 2005 and 57% in 2004. One office tower and a number of high-rise residential towers.2 million compared to P 4. The Company’s net income (after minority = = interest) for the year ended December 31. Development of the community township has occurred in stages. The first residential tower was launched in the second quarter of 2003 and construction of this tower is expected to be completed in the fourth quarter of 2006. educational/training. and 17 high-rise residential developments.191. including notes thereto. Metro Manila and comprises: Eastwood City Cyberpark. Complementing the offices are leisure and entertainment hubs which include restaurants and a cinema complex.7 million for the year ended December 31.153.2 million for the year ended December 31. the Company engages in other propertyrelated activities such as project design.812. leisure and entertainment components. Eastwood City Cyberpark contains offices that are capable of supporting ITbased operations such as high-speed telecommunications and 24-hour uninterrupted power supply. 2005 were P 4. in response to demand for the lifestyle convenience of having quality residences in close proximity to office and leisure facilities. For a discussion of certain matters that should be considered in evaluating an investment in the Offer Shares. see ‘‘Risk Factors. including a hotel. the Company began to focus on the development of mixed-use communities. the Philippines’ most exclusive golf club. This summary is qualified in its entirety by more detailed information and financial statements. Metro Manila. by commencing the development of its Eastwood City project. Eastwood City is the Company’s first community township development. The Company’s current portfolio of projects comprises the following: . primarily to business process outsourcing (‘‘BPO’’) enterprises and retail space and (iii) management of hotel operations. leisure and entertainment centers. The Company’s real estate portfolio includes residential condominium units. . Forbes Town Center is comprised of residential high-rise towers and retail and entertainment centers. Beginning in 1996. The Company is developing Forbes Town Center. the Company initially established a reputation for building high quality residential condominiums and commercial properties located in convenient urban locations with easy access to offices as well as leisure and entertainment amenities in Metro Manila. appearing elsewhere in this Prospectus.’’ Investors are recommended to read this entire Prospectus carefully. The Company has the following three primary business segments: (i) real estate sales of residential and office developments (ii) leasing of office space. 2004. primarily for the middle-income market.SUMMARY This summary highlights information contained elsewhere in this Prospectus. 4 . or community townships. The Company’s total gross revenues for the year ended = = December 31. OVERVIEW The Company is one of the leading property developers in the Philippines and is primarily engaged in the development in Metro Manila of large scale mixed-use planned communities. Founded in 1989. the Philippines’ first IT-based special economic zone. 2005 was P 1. The property is adjacent to the Manila Golf and Country Club. Forbes Town Center. Eastwood City is located on 15 hectares of land in Quezon City.9 million compared to P 807. commercial. are currently under development. construction oversight and property management. 2004. an IT training center. subdivision lots and townhouses as well as office projects and retail space. In addition. that integrate residential. a mixed-use development located on five hectares of land in Bonifacio Global City in Taguig. Eastwood City.

Metro Manila. McKinley Hill. a community township located on 25 hectares of land in the Villamor Air Base. is expected to include medium-rise residential towers. providing residents with access to amenities and offices throughout Metro Manila. the Company’s principal shareholders. a retail. The first phase of the project is expected to be launched in the third quarter of 2006. As a result. of the Company’s share capital. (‘‘New Town Land’’) will hold 27% and 16%. The first office building commenced construction in the fourth quarter of 2005 and construction of this phase is expected to be completed in the fourth quarter of 2007. with its current portfolio of five major projects accounting for approximately 80% of its landbank. The Company leases the balance of 16 hectares on a long-term basis. The Company’s common stock was first listed on the PSE on June 15. The Company believes it has anticipated market trends faster than other companies in the Philippine property development industry. Although the Company initially focused on the high-end residential property market. This is the Company’s first community township incorporating educational institutions into the live-work-play concept. lowrise residential garden villas. Newport City.000 units. retail and commercial areas. The development is expected to consist of 17 residential condominium buildings. 2005. Established track record as a market innovator. it was among the first in the Philippines to identify the growing demand for community township developments. Sixty-two hectares of land for which the Company has development rights were acquired through joint development agreements with the land owners while 38 hectares of land were purchased by the Company. and to introduce flexible design options and payment plans. particularly for middle-income purchasers. . The Company is developing McKinley Hill. In aggregate. which is adjacent to Villamor golf course. a business and technology park. a five-star hotel to be managed by an international chain. develop its key corporate and retail relationships. The first phase of residential condominiums was launched in the fourth quarter of 2005 and is expected to be completed by the end of 2008. across from the newly built NAIA Terminal 3. The community township. on a four hectare site at the Araneta Center.. Araneta Center. The community township is being designed to include the McKinley Hill Cyberpark which will be a PEZA-designated IT special economic zone. . respectively. a leisure and entertainment area and an institutional area which is expected to include an embassy and educational institutions. Quezon City. comprising 6. with connections to the MRT-3 and LRT-2 mass transit lines and a land transportation hub. the Company owns or has development rights to approximately 116 hectares of land situated primarily in Metro Manila. The residential lots for single-detached homes were officially launched in the fourth quarter of 2004 and approximately 70% of the lots were sold as of December 31. Pasay City. the Company developed the Eastwood City CyberPark and was instrumental in working with the 5 . enhance its rental revenue and diversify its business mix. business and entertainment complex in Cubao. the Company introduced development plans for the Philippines’ first major mass transit-oriented residential community. The Company is developing Newport City. In 1996. 1994 and following the offering and the Domestic Block Sale. Inc. and leisure and tourism components. TAGI and New Town Land Partners. including two international schools. assuming the Over-Allotment Option and the TAGI Option (as defined below) are not exercised. the Company was also the first to develop offices with the infrastructure capable of supporting expanding IT and BPO businesses. COMPETITIVE STRENGTHS The Company believes its competitive strengths consist of the following: . In 2005. a community township located on 50 hectares of land in Fort Bonifacio in Taguig. a low density residential subdivision for single detached homes. The Company’s objective is to increase its profitability and maintain its leading position as a major property developer in the Philippines by continuing to capitalize on the Megaworld brand name and reputation.

. The proximity of BPO tenants to retail and entertainment properties within the community township allows the Company to benefit from the complementary revenue stream from its retail and commercial leases. In 2005. Since pre-selling is an industry practice. The Company’s community township portfolio includes a stable revenue base of long term leases from major international BPO tenants as well as retail tenants. the Company introduced development plans for the first major mass transit-oriented residential community in the Philippines. the Company expects to benefit from existing long-term BPO lease arrangements while attracting new BPO tenants. The Company has completed a number of high-quality residential condominium projects. including its planning.18 : 1 (after minority interest) as of December 31. in 2005 sales to overseas Filipinos constituted approximately 20% of its residential sales. The Company’s property portfolio includes a balance between income from residential sales and recurring income earned from commercial and office developments. According to Company estimates. The Company either owns or has development rights to approximately 116 hectares of land located primarily in strategic locations in Metro Manila. which covers all aspects of the Company’s operations. levels of supply and to plan and design its property developments accordingly. when a number of highly leveraged property development companies went bankrupt. the Company finances a portion of project development costs through pre-sales of units. The Company has been named by Superbrands. As with other property developers in the Philippines. The Company believes it is currently in sound financial condition with a debt to equity ratio of 0. the Company was the first Philippine property development company to develop an international sales network targeting overseas Filipinos for residential sales. Strategic landbank. 6 . and that its financial strength enhances its ability to invest in new projects while continuing to develop existing projects. as one of the Philippines’ top brands. with inter-connections to two main mass transit systems and a land transportation hub. Although the Company continues to consider strategic landbanking either through additional joint development agreements or property purchases. . Well-established brand name and reputation. Sound financials with a stable earnings base and low gearing.Government to obtain the first PEZA-designated economic zone specifically for technology and BPO-based companies. office projects and leisure and commercial developments throughout Metro Manila. the Company believes that its current landbank is capable of sustaining the development of its current portfolio of projects for at least the next 15 years. With projected growth in the BPO business in the Philippines. . townhouse projects. The Company is currently the largest developer and owner of office buildings targeting BPO enterprises in the Philippines in terms of leased space. particularly during the Asian financial crisis. the Company has been able to keep its debt to equity ratio low. The Company has also received ISO 9001 : 2000 series certification. it has entered into joint development agreements with the land owners to develop their land in exchange for a percentage of the revenue from sales or leases of the completed units. The Company’s diverse project portfolio is designed to both limit earnings volatility from potential property market fluctuations and to allow it to enjoy growth upside. In connection with Eastwood City. design. As a result. The Company’s ability to anticipate market trends and understand the needs of real estate consumers continue to assist it in its efforts to accurately predict trends in market demand. an independent organization which identifies and recognizes the most-highly acclaimed brands throughout the world. Where the Company does not own or lease the land. for quality control and systems management. 2005. In 1996. project management and customer service operations. The Company believes that its identification of areas of growth in the property market was instrumental to its continued financial success during the Asian financial crisis when most sectors of the property market contracted. the Company was the first Philippine company to focus on community township development. the Company has developed a strong brand name and reputation as one of the Philippines’ leading property developers with the credibility of delivering high-quality developments. As a result of stable earnings from rental investments in the BPO market and residential sales. facilitating convenient access to offices and amenities throughout Metro Manila. Joint development agreements are a cost effective way for the Company to acquire land development rights in desirable areas of Metro Manila at a fixed cost.

tenants and joint development partners. 7 . . and sales to this group have increased each succeeding year. office and retail properties in the community township. The Company typically does not begin construction of its residential buildings until it has sold approximately 70% of the units. Since pre-selling is an industry practice in the Philippines. The Company believes it is able to maximize earnings by integrating residential. business and residential properties within proximity to each other enhances the attractiveness. The complementary nature of having retail. tenants and joint development partners. business and retail property components in an integrated master-plan approach. The Company believes that its strong brand name and reputation are key to its continued success. The Company’s gearing ratio is presently low. Strong residential marketing network. the Company was the first Philippine property company to create an international marketing and sales division specifically targeted at overseas Filipinos. In addition. This allows the Company to capitalize on the live-work-play-learn concept to maximize its earnings from each sector. The Company maintains an in-house marketing and sales division staffed by a trained group of property consultants who sell residential properties exclusively for the Company. By securing post-dated checks and providing a variety of financing options to buyers.buyers place great importance on the track record and reputation of developers to reduce the completion risk relating to their properties. The Company is able to control development costs by generating a significant portion of its project financing from pre-sales of residential units. saleability and lease potential of the residential. Maintain a strong financial position. specifically in the middle-income residential condominium market and the market for BPO-related office developments. Megaworld intends to achieve its objective through the following principal strategies: . All property consultants undergo intensive training prior to embarking on any sales activity and the Company provides an on-the-job skills enhancement program for its marketing and sales professionals to further develop their skills. which is a cost-effective means of obtaining rights to develop land as initial costs are fixed and future payments are a fixed percentage of revenue from sales and leasing activity. The Company also controls development costs by entering into joint development agreements with landowners. The Company intends to continue using its brand name and reputation to attract purchasers. The Company continues to enhance its reputation by employing and training a dedicated marketing staff and extensive sales network for its residential sales businesses who market the Megaworld brand. The Company’s leadership position in crafting and delivering community township developments has strengthened over the years and continues to be its key strategy in bringing new projects to the market and in entering into new joint venture developments. . The Company intends to maintain its strong financial position by controlling costs and increasing its gearing ratio only when necessary. the Company is strategically involved in the aftersales market for the properties it develops by providing building management and other aftersales services such as interior design services. the Company limits its cash outlays prior to obtaining project funds. the Company believes that its reputation as a reliable property developer is particularly important in the Philippines to both attract and maintain quality buyers. In 1997. As a result. Capitalize on brand and reputation. Seventy percent of the Company’s residential units are typically pre-sold within one year of project launch and over 90% are typically pre-sold prior to completion of construction. The Company’s extensive residential marketing network enhances the Company’s brand recognition and its ability to pre-sell residential units. STRATEGY The Company’s objective is to increase its profitability and maintain its leading position as a major property developer in the Philippines. buyers place great importance on the track record and reputation of developers to reduce the completion risk relating to their properties. Maximize earnings through integrated community township developments. The Company’s international marketing and sales division is comprised of 23 offices worldwide. .

. retail. Makati City. 2004 and 2005. In addition. leisure and entertainment properties within close proximity to each other. the Company received the Agora Awards for Marketing Company of the Year. Philippines 1227. and among Asian Companies with the Most Convincing and Coherent Strategy in 2005. was voted among Asia’s Best Managed Companies and the Philippines’ Best in Investor Relations by FinanceAsia Best-managed Asian Companies Awards. while maintaining a well-diversified earnings base. among Asia’s Most Improved Companies in 2005. the Company was voted among the Philippines’ Superbrands in the Superbrands Awards 2004/2005. In addition. the community township developments enable the Company to generate profits from selling residential projects as well as invest in office and retail assets retained by the Company to generate recurring income and long-term capital gains. middle-income residential. Puyat Avenue. Gil J. COMPANY INFORMATION Megaworld is a Philippine corporation with its registered office located at 28th Floor. Because the Company’s community townships include a mix of BPO offices. the Company is able to capitalize on the complementary nature of such properties. Sustain a diversified development portfolio. The Company was voted among Asia’s Best Property Companies by the Euromoney Best Asian Companies Awards for 2003. The Company intends to continue to pursue revenue and property diversification as it develops community townships with the live-work-play-learn concept in various stages throughout Metro Manila. The Company also received the following awards for excellence from Euromoney: the Philippines’ Best in Corporate Governance in 2003. educational/training facilities. The Company also intends to continue pursuing innovative product lines that may complement its existing developments.com.megaworldcorp. 330 Sen. The World Centre. Megaworld’s telephone number is +63-2-867-8826. The information on the website is not incorporated by reference into this Prospectus. Its corporate website is www. and was voted the Philippines’ Best in Investor Relations. Best Website and the Philippines’ Best in Clearest Corporate Strategy by Asia Money Polls. In 2004. An important part of the Company’s long-term business strategy is to continue to maintain a diversified earnings base. 8 .

The allocation of the Offer Shares between the Domestic Offer and the International Offer is subject to adjustment. .P. . exercisable in whole or in part within 30 days from and including the Listing Date. on the same terms and conditions as the Firm Shares as set forth in this Prospectus. . .008. . a corporation organized under the laws of the Republic of the Philippines.158. . . See ‘‘Plan of Distribution’’. . BDO Capital will act as the Domestic Underwriter. . The Domestic Block Sale will provide leeway for the ownership of Shares by Non-Philippine Nationals. = The Offer Price is P 1. . Securities Act as part of the International Offer and 196. Offer of 3. The Company is thus constrained to keep its foreign equity interest below the 40% threshold and any sale or transfer of shares in excess of this threshold shall not be recorded in the stock and transfer book of the Company. . . . . .000. Selling Shareholder . . Reallocation . . . as such. If the PSE Brokers do not take up all of the Domestic Offer Shares in the Domestic Offer. Nationality Restrictions .38 per Offer Share. shall sell 300.000 of the Firm Shares are being offered and sold outside the United States in reliance on Regulation S under the U. on the same terms and conditions as the Firm Shares as set out in this Prospectus. if any. . International Offer Shares may (at the option of the Domestic Underwriter) be reallocated from the International Offer (with the consent of the Lead Manager) to the Domestic Offer.000 of the Firm Shares are being offered and sold by the Selling Shareholder at the Offer Price to all of the PSE Brokers as part of the Domestic Offer in the Philippines. .000.000 existing Shares to be offered by the Selling Shareholder. 3. . a non-Philippine National.000 Firm Shares. . on the Listing Date. The term ‘‘Philippine National’’ includes 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 by corporations that are at least 60% owned by citizens of the Philippines.166. .SUMMARY OF THE OFFERING Issuer . Colony-CB Richard Ellis. to purchase up to 588. Offer Price . .000 Optional Shares at the Offer Price.000 new Shares to be issued and offered by Megaworld and 423. . a Philippine National. consisting of 3. L.923. . Megaworld Corporation. . . The Company owns certain real estate and. .S. . The Company has granted the Stabilizing Agent an option.000 Domestic Block Sale Shares at the Offer Price to TAGI. it is subject to nationality restrictions found under the Philippine Constitution and other laws limiting land ownership to Philippine Nationals. .500. . . . solely to cover over-allotments. The Offer . .727. . In the event of an underapplication in the International Offer and if there is a corresponding over-application in the Domestic Offer. . Domestic Block Sale . the Domestic Underwriter shall distribute to its clients or the general public the Domestic Offer Shares which have not been taken up. MW.166. 9 . The closings of the Domestic Block Sale and the Offer are conditional upon each other. . Over-Allotment Option . .475. The Selling Shareholder.

. . . New Town Land and Mr. neither it nor any person acting on its behalf will. The Offer Shares have not been and will not be registered under the U. Tax Considerations . Megaworld’s Board may. . pledge or otherwise dispose of (or publicly announce any such issuance. Trading is expected to commence on the same date. are listed on the PSE under the symbol ‘‘MEG’’. ownership and disposition of the Offer Shares. The Shares. . offer. . Benedicto V. . for a period of 180 days after the First Closing Date. . Use of Proceeds . . . Securities Act and. Yujuico to purchase 147 million shares of the Company owned by TAGI (the ‘‘TAGI Option’’). . contract to sell. sale or disposal of) any Shares or securities convertible or exchangeable into or exercisable for Shares or warrants or other rights to purchase Shares or any security or financial product whose value is determined directly or indirectly by reference to the price of the underlying securities. forward sales and options. . such as where the Company undertakes major projects and developments. See ‘‘Plan of Distribution’’.Transfer Restrictions. The Offer Shares are initially being offered and sold outside the United States in reliance on Regulation S. . . See ‘‘Taxation’’ for further information on the tax consequences of the purchase. . . may not be offered or sold within the United States.S. The Company intends to maintain an annual cash dividend payment ratio of 20% of its net income from the preceding year. . . at any time. See the section titled ‘‘Use of Proceeds’’ for details of how the total net proceeds from the Offer will be applied. . Listing and Trading . See ‘‘Dividends and Dividend Policy’’. See ‘‘Description of the Shares’’. The Offer Shares are expected to be listed on the PSE on April 24. Lock-up . The Company. . including equity swaps. Approval has been obtained to list the newly issued Offer Shares on the PSE. TAGI. Dividends . Andrew Tan have each agreed with the Lead Manager that. sell. . 10 . subject to the requirements of applicable laws and regulations and the absence of circumstances that may restrict the payment of such dividends. modify its dividend payout ratio depending upon the results of operations and future projects and plans of the Company. . . subject to certain exceptions. . . 2006. . offer. . . without the prior written consent of the Lead Manager issue. including the Offer Shares being sold by the Selling Shareholder. other than in connection with the Over-Allotment Option and the option granted to Mr.

. . . . . . . . while not intended to be an exhaustive enumeration of all risks. . . . . . . . . .Expected Timetable . . . . risks relating to the Company’s business. . . . 2006 Start of Domestic Offer Period . April 6. . . . April 24. . . . . . . . . . . . . . . . . . The timetable of the Offer is expected to be as follows: Pricing and allocation of the International Offer Shares . . These risks include: . . . . . . . . . . . . April 24. . . April 10. . . . . 2006 End of Domestic Offer Period . . . . . . . . . . . . . . . 11 . must be considered in connection with a purchase of the Offer Shares. which. . . 2006 although the dates included above are subject to market and other conditions and may be changed. . . . . . . Please refer to the section entitled ‘‘Risk Factors’’ beginning on page 15 of this Prospectus. 2006 Settlement Date . Risks of Investing . . . . . . . . . 2006 Listing Date and Commencement of Trading on the PSE . . . . . . . . . . . . and risks relating to the Offer. risks relating to the Philippines. . Before making any investment decision. . . . . . . . . . . April 18. . . investors should carefully consider the risks associated with an investment in the Offer Shares. . . . . .

. . .4) 424. For readers’ convenience only.9) 11. . Note: (1) Other revenues consist of interest income. . . . dollars using the PDS month= end closing rate as of December 31. .7 4. For the years ended December 31. . .7 1. .3 5. foreign currency gain and miscellaneous items. . .6 — Revenue . Income before tax and minority interest .7 506. Cost of real estate sales . . . . . . . . . . . . .396.506.012.9 19. . . . . . . . . . . . Realized gross profit Realized gross profit Rental income . . . . . .0 (367. . .8 (524. . .8 627. . . . . .4) 26. .1) 1. . . . . . .0 (13. 12 .251. .1 2. . . .9 0. .4 (40.02 2. .793. . . . Net income attributable to minority interest . . .8 1. . . 2004 and 2005 financial information included in this Prospectus has been prepared in accordance with PFRS. . . . Deferred gross profit . . . . 2. . .9 241. . .2) 252. Operating profit . . .0 52.0 2. . .3) 625. .153.9) 701. . .371.2 (294. .5 180. . . .8 (1.4 34. .5 807. .8 9. . . . . Net income (after minority interest) . . The summary financial information presented below for the years ended December 31. . . .067 to US$1. . . . . .1 793. . . . .652. Gross profit.4 73. . . . . . . . dividend income. .4 547.7) 18.6) 719. .9 (7. . . . .521. .158. .7 0. . Tax expense . . . . Other revenues (1) . 2004 and 2005 was derived from the consolidated financial statements of Megaworld.00.9 146. .6 (386. .3) 982. .5 18. on on .2 (2.3 454.3 1. . . .6 872. audited by Punongbayan & Araullo. . . . .8 (381. . .1 (7.2) 993.S. . .08 3. . .1 976. . .9 265. . The information below is not necessarily indicative of the results of future operations. .9) 319. . . .9 1.816. . .379. . 2003. Other (charges) . . . . . . . . . . . . .425.11 59. . . .7) 406. .7 (6.694. . . .8 153.5 10. . . Hotel income — net . . Income Statement Data 2003 2004 2005 = = = P P P (in millions. . . .8 101. The 2003. except per Share figures) 2005 US$ Realized gross profit from real estate sales: Real estate sales . . . . . . .1 1. .2 21. . .8 1. . .7 (1. . Operating expenses . . .2 (390. .8 0. Earnings per Share . a member practice of Grant Thornton International.8 0. . . . . . . . . . . . .9 259. . . . . current year’s sales prior years’ sales . . . .151. . . . . .7 728. . . .3) 1.SUMMARY CONSOLIDATED FINANCIAL INFORMATION The following tables present summary selected consolidated financial information for Megaworld and should be read in conjunction with the auditors’ reports and with Megaworld’s consolidated financial statements and notes thereto contained in this Prospectus and the section entitled ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’. . . . amounts in Pesos were converted to U. . . . . . . . 2005 of P 53. . . . . .7 88. . . . .

618. .5 9. .141. 2. . . .8 788. 13 .1 31. . . .274.9 240. . .673.9 14. . . . . .6 9.0 4. Total Liabilities. . .636. . . . . . .784. . . .7 14.7 32.028.979.832. .6 1. Property development costs .754.782. Trade and other receivables . income tax payable and deferred income on real estate sales.6 14. . . 15. . . . . .051. Investment property . . .0 16. .0 1. . .1 13. deferred tax assets.2 619.748. . . . . . .3 377. . .2 10.2 Notes: (1) Cash and cash equivalents consist of cash on hand and in banks and short-term investments. Other assets (2) . .5 593. . .032.688. . . Current portion of trade and other receivables Marketable securities . .9 Total assets . . .3 32. . . . . . . .9 2. . .193. guarantee deposits. . .850.9 30. .2 7.7 246.908. Total Current Assets . . . . . . . .6 696. . . . . . . . Non-current liabilities Reserve for property development Other non-current liabilities (4) . . . . . .4 4. . customers’ deposits. . . . .382. . . . . .8 Total Liabilities and Equity .318.7 51. . . deferred income on real estate sales. . .065. .3 3.4 5. . .025. investments in and advances to subsidiaries and other related parties. . .9 617. . advances from associates and other related parties and net deferred tax liabilities.708.3 11. . .8 336.619. .954.606. . (4) Other non-current liabilities include interest-bearing loans and borrowings. . (3) Other current liabilities include interest-bearing loans and borrowings.851.6 32.4 23. .3 35. .623.3 705.1 2.4 219.6 785.2 451. . (2) Other non-current assets consist of long-term placements of the non-current portion of trade and other receivables. trade and other payables. . . .1 1. .8 12.3 1.2 53. . . .0 3.9 4. .3 2. . . . . . .8 617. . . .3 1. . .8 155. .6 733. . . . . . . Balance Sheet Data 2003 = P 2004 = P (in millions) 2005 = P 2005 US$ Cash and cash equivalents (1) .6 15.9 641.1 108. .1 1.243.0 4.9 323.5 8.8 67. . .6 14.6 3. . . . . . . . . .3 226. . . .9 16. . . . . .5 17. . .782.5 33.010. . .0 280.5 15.3 3. . . . Current liabilities Reserve for property development Other current liabilities (3) .652. Property and equipment.599. . . . . . .4 1. . . . . .2 2.278. customers’ deposits. Advances to landowners and joint Land for future development . . 31.8 8.2 1. . .652. .1 17. . . . . . . . .858. .5 1.770.1 3. cash. .021. . Prepayments and other current assets — net .8 4. Residential and condominium units for sale . .9 32. . .5 1.4 710. Minority Interest .518. .0 1.552. .172.967. . .751. . . . . . . . ventures .6 91. . .552. . . goodwill and other items. . . .452.119. .As of December 31. .4 137. .5 16.8 282.1 14. .868. . .7 2.269. Equity: Equity attributable to parent company’s shareholders . . . .265. . . .8 66. . .518. . .874. . .1 4. . . . .2 4.753.386. . .3 2.138. . . . .

Capital expenditures . depreciation and amortization. . . Net cash used in investing activities . .8 810. . or any other measures of performance under PFRS. .5 30 3. Net cash from (used in) financing activities .5 Notes: (1) EBITDA as used in this prospectus consists of earnings before interest income. .For the years ended December 31. .6 35. Gross margin (%) (2) . .694. .3 (24. . . . Net cash from operating activities . .519.7) 12. 609. . . income tax. . interest expense. . . . . (2) Represents gross profit as a percentage of net sales.3 1.3 15. . . .7 2. .5) 662. . . the Company’s presentation of EBITDA may not be comparable to similarly titled measures used by other companies. . . . EBITDA is presented to provide a better understanding of the Company’s consolidated operating results. .3 (1. . . . except percentages) 2005 US$ EBITDA (1) . .360. .4 (1. investing and financing activities as a measure of liquidity. . . . . Because there are various EBITDA calculation methods. . . .3 2.3) (164. . .2) 1.526. .311.562. . including PFRS and investors should not consider EBITDA in isolation or as an alternative to operating income or net income as an indicator of the Company’s operating performance or to cash flow from operating. . . . Other Financial Data 2003 = P 2004 2005 = = P P (in millions. 14 . . EBITDA is not a measure of financial performance under generally accepted accounting standards.3 29 2.5 (2. . . . . .154. EBITDA ratios and related computations involving net earnings and equity figures were computed using the figures attributable only to the parent company’s shareholders.797. . . . . . . .0) 400. .3 68.626. . .5 32 3. . . .874.

As the Company and its competitors attempt to locate sites for development. The means by which Megaworld plans to address the risk factors discussed herein are principally presented in this section and under the captions ‘‘Business — Competitive Strengths’’ on pages 61 to 62 and ‘‘Business — Strategy’’ on page 63. and any individual security may experience upward or downward movements. The price of securities can and does fluctuate. Due to the concentration of the Company’s property portfolio in Metro Manila. Historically. before deciding to invest in the Offer Shares. The Philippine property market went through a downturn brought about by the effects of the Asian financial crisis and the slow economic recovery that followed. Property located in Metro Manila. The Company’s business is dependent. All or part of an investment in the Offer Shares could be lost. The Company may be unable to acquire land for future development. and may even become valueless. financial condition and results of operations and cause the market price of the Offer Shares to decline. Further. particularly residential condominium and commercial properties. accounts for substantially all of the appraised value of the Company’s assets. This risk disclosure does not purport to disclose all of the risks and other significant aspects of investing in these securities. the Philippine property market has been cyclical and property values have been affected by supply and demand of comparable properties. the Company’s current projects are all located within a relatively short distance from the Makati City central business district or the Ortigas business district. in large part. and there may be a large difference between the buying price and the selling price of these securities. on the availability of large tracts of land suitable for development by the Company. the rate of economic growth in the Philippines and political developments. Investors should carefully consider all the information contained in this Prospectus. Investors should seek professional advice regarding any aspect of the securities such as the nature of risks involved in the trading of securities. Investors may request publicly available information on the Shares and the Company from the Philippine SEC. Investors should undertake independent research and study the trading of securities before commencing any trading activity. In addition. The occurrence of any of the following events could have a material adverse effect on Megaworld’s business.RISK FACTORS An investment in the Offer Shares involves a number of risks. High-rise office and residential condominium buildings rose at a brisk pace and construction of housing developments were undertaken simultaneously. Megaworld derives substantially all of its revenue and operating profits from its property investment activities in the Philippines and is consequently dependent on the state of the Philippine property market. There is an inherent risk that losses may be incurred rather than profit made as a result of buying and selling securities. The abrupt drop in demand following the Asian financial crisis resulted in a glut in the property market and depressed property prices. Past performance is not a guide to future performance. and specifically those of high risk securities. A reduction in demand could materially adversely affect Megaworld’s profitability. it may become more difficult to locate parcels of suitable size in locations 15 . the property market is susceptible to changes in interest rates. including the risk factors described below. The Company is exposed to portfolio concentration risks. a decrease in property values in Metro Manila would have a material adverse effect on the business and results of operations of the Company. An increase in interest rates in the Philippines could reduce the demand for the residential properties the Company builds. RISKS RELATED TO THE COMPANY’S BUSINESS The Company’s properties are all in the Philippines and the Company is exposed to risks inherent in the Philippine property market. the premier commercial capital of the Philippines.

work stoppages. its business and results of operations could be adversely affected. In particular. Megaworld operates in a highly competitive industry. The Company is exposed to risks associated with real estate development. cannot generally be reduced if changes in the Philippine property market or the Philippine economy cause a decrease in revenues from the Company’s properties. resources for development and prospective purchasers and tenants. or the venture partner could experience financial difficulties. For example. the Company relies on the growth of the BPO business as a continued source of revenue from the rental properties in its community township developments. in a timely manner or otherwise at satisfactory rents. inability to renew leases or re-let space as existing leases expire.RISK FACTORS and at prices acceptable to the Company. maintenance costs and debt payments. inability to collect rent from tenants due to bankruptcy or insolvency of tenants or otherwise. changes in market rents. some with greater financial and other resources and more attractive locations. If the BPO business does not grow as the Company expects or if the Company is not able to continue to attract BPO-based tenants. interruptions resulting from inclement weather. the venture partner at any time may have economic or business interests or goals that are inconsistent with those of the Company. Considerable economic and political uncertainties currently exist that could have adverse effects on consumer buying habits. which could have a material adverse effect on the Company’s operations and financial condition. the risks that financing for development may not be available on favorable terms. construction costs. repair and re-let space periodically and to pay the associated costs. The Company’s ability to generate revenues is directly related to the real estate market in Metro Manila. compete with Megaworld in seeking properties for acquisition. or contrary to the Company’s policies or objectives with respect to the real estate investments. The Company is subject to risk incidental to the ownership and operation of office and related retail properties including. In particular. and to the Philippine economy in general. and that developed properties may not be leased or sold on profitable terms and the risk of purchaser and/or tenant defaults. material and labor. availability of labor and materials and other factors affecting the Company and the real estate industry in general. The Company is exposed to risks that it will be unable to lease its properties in a timely manner or collect rent at profitable rates or at all. A number of residential and commercial developers and real estate services companies. that development may be affected by governmental regulations (including changes in building and planning regulations and delays or failure to obtain the requisite construction and occupancy approvals). The Company obtains a significant portion of its land bank through joint development agreements with landowners and may initiate future joint development agreements as part of its overall development strategy. unforeseen engineering. The Company’s joint venture partners may have interests that differ from Megaworld’s interests and may take actions that adversely affect the Company. environmental and geological problems and unanticipated cost increases). the venture partner may take actions contrary to the Company’s instructions or requests. increased operating costs and the need to renovate. that construction may not be completed on schedule or within budget (for reasons including shortages of equipment. if the growth rate for the Philippine economy declines or if a recession in the Philippine economy occurs. such as real estate taxes. land for the development of 16 . To the extent that the Company is unable to acquire such tracts of land at acceptable prices. among other things. A joint venture involves special risks where Megaworld may not have full control over the joint venture or the property development plans. A downturn in economic conditions could adversely affect the Company’s business. the Company’s profitability could be materially adversely affected. its retail space. competition for tenants. Such risks include. Significant competition in the Philippine real estate industry could have an adverse effect on the Company’s business. it may not be able to lease its office space or as a consequence. Significant expenditures associated with investment in real estate. among other things. The Company is subject to risks inherent in property development.

as amended. The Company operates its businesses in a regulated environment. The Company retains a 45. Further. commercial. the length of the housing blocks and house construction. Alterations of approved plans that affect significant areas of the project. The market value of Empire East Land Holdings. There can be no assurance that the Company. sewage disposal systems. completion of the acquisition of the project site and the developer’s financial. the Company may be required to provide additional capital in excess of the contractor’s bid to complete a property development. 957 covers subdivision projects for residential. Because the market value of the Company’s stake in EELH is lower than the value of EELH recorded in the Company’s financial statements. is the principal statute which regulates the development and sale of real property as part of a condominium project or subdivision. permits or licenses or that such permits. approvals or licenses will not be cancelled or suspended. water supply. industrial or recreational purposes and condominium projects for residential or commercial purposes. electricity supply. Regulations applicable to the Company’s operations include standards regarding the suitability of the site. its subsidiaries.. Presidential Decree No. such as infrastructure and public facilities.670. also require the prior approval of the relevant government unit.RISK FACTORS business areas is being offered by the city governments of Quezon. technical and administrative capabilities. financial condition and results of operations. an associate of the Company. Although the Company invites contractors to tender bids according to their reputation for quality and track record. an associate of the Company. The HLURB is the administrative agency of the Government of the Philippines which. owners or dealers of real estate projects are required to obtain licenses to sell before making sales or other disposition of lots or real estate projects. the market value of the = Company’s stake in EELH based on EELH’s share price as of March 23. and although once a contract is awarded the Company supervises the construction progress. open spaces. piling and foundation. Inc. associates or partners will in all circumstances. canceled or revoked by the HLURB by itself or upon complaint from an interested party and there can be no assurance that Megaworld. Inc. the completion of certain property developments may be delayed. necessary community facilities.4 million. enforces this decree and has jurisdiction to regulate the real estate trade and business. and the Company may incur additional costs. together with local government units. 2005. due to a contractors’ financial or other difficulties. building and property fitting-out works and installation of elevators. There 17 .22% interest in Empire East Land Holdings. a sale or disposition of the Company’s interest in EELH at its market value would be recorded as a loss in the Company’s income statement. lot sizes. Presidential Decree No. such approvals will not be revoked. 2006 is P 1. The Company selects independent contractors by conducting open tenders. is significantly lower than its book value as recorded in the Company’s financial statements. particularly to the developers targeting the BPO industry and who may compete with the Company’s current development projects. Competition from other real estate developers and real estate services companies may adversely affect Megaworld’s ability to sell its properties or attract and retain tenants. Approval of such plans is conditioned on. Pasay and Manila. Megaworld operates in a regulated environment and its businesses are affected by the development and application of regulations in the Philippines. Project permits and any license to sell may be suspended. Services rendered by independent contractors may not always match the Company’s requirements for quality or be available within its budget. 957. including construction. while condominium project plans are required to be filed with and approved by the HLURB. However.791.8 million. All subdivision plans are required to be filed with and approved by the local government unit concerned. receive the requisite approvals. there can be no assurance that the services rendered by any of its independent contractors will always be satisfactory or match the Company’s requirements for quality. In addition. road access. its subsidiaries or associates or partners will be able to obtain governmental approvals for its projects or that when given. As of December 31. In addition. the acquisition cost of the Company’s stake in EELH = in the Company’s financial statements is P 3. Any of these factors could have a material adverse effect on the Company’s business. (EELH). The Company engages independent contractors to provide various services. among other things.

withdrawal of support of the military and his resignation from office. fires or other natural disasters or similar events. Should an uninsured loss or a loss in excess of insured limits occur. The Vice President. 2005. The Philippines has from time to time experienced political and military instability. Megaworld cannot predict what environmental legislation or regulations will be amended or enacted in the future. severe storms. the Company could lose all or a portion of the capital invested in a property. See ‘‘Regulatory and Environmental Matters’’. Jr. Poe petitioned the Philippine Supreme Court. 2003. developers of residential subdivisions are required to submit project descriptions to regional offices of the DENR. Nevertheless. earthquakes. administered or interpreted. A sale or disposition of EELH may adversely impact the Company’s financial condition and results of operations. as well as the anticipated future turnover from the property. the then President of the Philippines. Mr. financial condition or results of operations. including defeated presidential candidate Fernando Poe. financial condition or results of operations. the Supreme Court unanimously dismissed the petition on the grounds that no real party in interest had filed a case to intervene or 18 . questioned the election results. Environmental laws applicable to Megaworld’s business could have a material adverse effect on its business. However certain opposition candidates. mass public protests in Manila. alleging fraud and disenfranchisement of voters. In May 2004. Navy and Air Force attempted a coup d’e ´tat against the Macapagal-Arroyo administration which ended after 20 hours of negotiation between the group and the Government. including Senator Gregorio Honasan. to order a recount of approximately 60% of votes cast nationwide. President Macapagal-Arroyo was elected for a second six-year term. Joseph Estrada. Although the Company carries insurance on its property developments with respect to specified catastrophic events. Mr. a group of 70 officers and over 200 soldiers from the Philippine Army. In general. was subject to allegations of corruption. laws and regulations applicable to Megaworld’s business could have a material adverse effect on its business. On July 27. floods. 2001. or the amount of future expenditures that may be required to comply with these environmental laws or regulations or to respond to environmental claims. have been implicated as supporters of the failed coup d’e ´tat. Political instability in the Philippines occurred in the late 1980’s when Presidents Ferdinand Marcos and Corazon Aquino held office. 2004. On July 23. RISKS RELATING TO THE PHILIPPINES Any political instability in the Philippines may adversely affect Megaworld. was sworn in as President on January 20. after suffering a stroke. a detailed Environmental Impact Assessment may be required and the developer will be required to obtain an Environmental Compliance Certificate to certify that the project will not cause an unacceptable environmental impact. In 2000. In addition. Gloria Macapagal-Arroyo. On March 28. Any material uninsured loss could materially and adversely affect the Company’s business. There can be no assurance that current environmental laws and regulations applicable to the Company will not increase the costs of operating its facilities above currently projected levels or require future capital expenditures. Poe died on December 14. The introduction or inconsistent application of. there are losses for which the Company cannot obtain insurance at a reasonable cost or at all.. of types and in amounts and with deductibles that the Company believes are in line with coverage customarily obtained by owners of similar properties in the Philippines. The Company’s property developments and its business may be adversely affected due to the occurrence of typhoons. acting in its capacity as the Presidential Electoral Tribunal. the Philippines held presidential elections as well as elections for the Senate and the House of Representatives. the Company might remain liable for any project construction costs or other financial obligations related to the property. culminating in impeachment proceedings. 2004.RISK FACTORS can be no assurance that the Company will retain its interest in EELH or that it will be able to sell EELH at a level higher than its current market value. or changes in. financial condition and results of operations. In response. how existing or future laws or regulations will be enforced. The Company may suffer losses that are not covered by insurance. Certain individuals identified with the administration of former President Estrada. In environmentally critical projects or at the discretion of the regional office of the DENR. President Arroyo asked the tribunal to dismiss the petition for lack of merit.

On September 6. President Arroyo ended the state of national emergency. All public rallies. several opposition members were arrested or threatened to be arrested including five party list members of the House of Representatives. President Arroyo issued Proclamation 1017 which declared a state of national emergency in response to reports of an attempted coup d’e ´tat. On August 31. to a significant extent. 2005. President Arroyo has admitted to speaking with an election official. to a significant degree by the general state of the Philippine economy. including former members of the military. A petition has been filed with the Supreme Court questioning the constitutionality of Executive Order 464. were referred by the Speaker of the House to the Committee on Justice. mainly in the southern cities. 2005. continue to call for President Arroyo’s resignation. based on the allegations of culpable violation of the Constitution. President Arroyo issued Executive Order 464 which requires certain officials of the Government and the uniformed services to obtain the President’s clearance before appearing before the Senate or House of Representatives. results of operations have been influenced. the marines disbanded peacefully and reiterated their support for the chain of command of the Armed Forces of the Philippines. high inflation. Poe. On February 26. but insists that she did not participate in fraud or induce the Commission on Elections to tamper with the election. Megaworld’s income and results of operations depend. therefore. The House vote was 158 for and 51 against. In 2005. 2006. however. significant devaluation of the peso and the imposition of exchange controls. a slowdown in economic growth in the Philippines could adversely affect Megaworld. Although no one has claimed responsibility for these attacks. There have also been recent media reports of military plots to remove President Arroyo from office. In connection with the proclamation. As a result of these controversies. Historically. Megaworld’s operations in the Philippines accounted for 100% of its net sales. it is believed that the attacks are the work of various separatist groups. several members of the Arroyo cabinet resigned from their posts. the Philippines has experienced periods of slow or negative growth. the Philippines has been subject to a number of terrorist attacks in the past three years. No assurance can be given that the political environment in the Philippines will stabilize and any political instability in the future may have an adverse effect on Megaworld’s business. several members of the Philippine marines called on the people to protest the abrupt resignation of the head of the marine corps. The Philippine army has been in conflict with the Abu Sayyaf organization which has been identified as being responsible for kidnapping and terrorist activities in the Philippines. the House of Representatives voted to uphold a decision of the House Committee on Justice to reject the pending impeachment complaints against President Arroyo. In the past.RISK FACTORS to be a substitute for Mr. Europe. the House Committee on Justice voted in effect to dismiss all impeachment complaints previously filed. 2006. including possibly the Abu Sayyaf organization. On March 3. with six abstentions. were discouraged. and will continue to be influenced. In September 2005. There have been bombing incidents in the Philippines. Allegations of fraud committed during the May 2004 election have intensified since early June 2005 in light of revelations that President Arroyo had spoken with an official from the Independent Commission on Elections during the counting of votes. Several Constitutional challenges to President Arroyo’s Proclamation 1017 have since been filed with the Philippine Supreme Court. on the performance of the Philippine economy. After meeting for several hours. The substantial majority of Megaworld’s income is derived from the Philippines and. 80% of net sales were derived from the Philippines and the remainder were from sales in the United States. Members of the opposition. 19 . 2005. 2006. On July 25. which has ties to the al-Qaeda terrorist network. including planned demonstrations to mark the twentieth anniversary of the EDSA people power revolution that ended the presidency of former President Marcos. the impeachment complaints that were filed by several citizens and opposition lawmakers in the House of Representatives against President Arroyo. the impeachment complaints could have still proceeded to the Senate for trial if at least 79 representatives from the 236-member House of Representatives voted against the House Committee’s decision. There can be no assurance that the Philippines will not be subject to further acts of terrorism in the future. the Middle East and Asia. results of operations and financial condition. graft and corruption and betrayal of the public trust. Furthermore. On February 24.

S&P’s outlook is currently stable. Standard & Poor’s Ratings Services (‘‘S&P’’). 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. after raising its outlook from ‘‘negative’’ on February 9. High oil and consumer prices and weak external trade contributed to a slowdown in GDP growth in 2005. On January 17.RISK FACTORS From mid-1997 to 1999. lowered its long-term foreign currency sovereign credit rating for the Philippines from Ba2 to B1. causing a significant depreciation of the peso. 2006.S. Considering the foregoing. As of the date of this Prospectus. increases in interest rates. citing little progress on the Government’s attempts to raise tax revenue and the Government’s dependence on foreign debt. it continues to face a significant budget deficit. increased volatility and the downgrading of the Philippine local currency rating and the ratings outlook for the Philippine banking sector. the significant depreciation of the peso made it difficult for many Philippine companies with peso revenue streams and significant U. Fitch Ratings (‘‘Fitch’’) raised its outlook from ‘‘negative’’ to ‘‘stable’’. On February 13.. On January 27. the economic crisis in Asia adversely affected the Philippine economy. There can be no assurance that current or future Governments will adopt economic policies conducive to sustaining economic growth. dollar or other foreign currency-denominated loans or costs to meet their repayment obligations. Accordingly. The term ‘‘Philippine National’’ as defined under Republic Act No. compared to growth of 6. a volatile peso exchange rate and a relatively weak banking sector. 2006. means a citizen of the Philippines. Prospects for future growth therefore remain uncertain and the Government may be required to increase borrowings in order to meet its operational needs. This restriction may adversely affect the liquidity and market price of the Shares to the extent international investors are not permitted to purchase Shares in normal secondary transactions.5% in the third quarter of 2004. Moody’s Investors Services. 7042. Inc. In particular.’’ S&P also lowered its short-term local currency sovereign credit rating on the Government to ‘‘B’’ from ‘‘A-3. Any deterioration in the economic conditions in the Philippines may adversely affect consumer sentiment and lead to a reduction in demand for Megaworld’s properties. the Company owns private land in the Philippines. and GNP growth decelerated to 5.’’ and its long-term local currency sovereign credit rating for the Philippines to ‘‘BB+’’ from ‘‘BBB-.6%. as amended. where the trustee is a Philippine national and at least 60% of the fund will accrue to the benefit of Philippine Nationals. The Philippine Constitution and related statutes restrict land ownership to Philippine Nationals. The Company’s Shares are subject to Philippine foreign ownership limitations. S&P’s outlook is currently ‘‘stable’’. While the Philippine economy registered positive economic growth in the period from 1999 to 2001 as it recovered from the Asian economic crisis. 2005. 2005. or a domestic partnership or association wholly owned by citizens of the Philippines. Fitch’s long term issuer default rating for the Government is ‘‘BB’’. 20 . foreign ownership in the Company is limited to a maximum of 40% of the Company’s issued and outstanding capital stock. lowered its long-term foreign currency sovereign credit rating for the Philippines to ‘‘BB-’’ from ‘‘BB.3% in the third quarter of 2004. GDP growth decelerated to 4. (‘‘Moody’s’’). or a corporation organized abroad and registered to do business in the Philippines under the Corporation Code of the Philippines 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. as long as the Company owns land. The low credit ratings of the Government may adversely affect Megaworld’s business. Moody’s outlook is currently ‘‘negative’’. the Company cannot allow the issuance or the transfer of shares to persons other than Philippine Nationals and cannot record transfers in the books of the Company if such issuance or transfer would result in the Company ceasing to be a Philippine National for purposes of complying with the restrictions on foreign land ownership discussed above. S&P noted that its downgrades reflected the Government’s inadequate response to its fiscal problems.’’ and affirmed its short-term ‘‘B’’ foreign currency sovereign credit rating. In the third quarter of 2005. These factors had a material adverse impact on the ability of many Philippine companies to meet their debt-servicing obligations.4% in the third quarter of 2005 from 6. limited foreign currency reserves.

As of December 31. therefore. the market for the Offer Shares will be illiquid and shareholders may not be able to trade the Offer Shares. There has been a limited prior market for the Shares. as Megaworld’s controlling shareholders. The Shares are listed on the PSE. No assurance can be given that Moody’s. S&P. there can be no guarantee that listing will occur on the anticipated Listing Date or at all. Mr. As of December 31. If the PSE does not admit the Offer Shares onto the PSE. either individually or collectively have controlled the Company since its inception and have private interests in a number of companies either alone or together with other family members. including Megaworld. and there can be no assurance that the Tan family. Members of the Tan family. Delays in the admission and the commencement of trading in shares on the PSE have occurred in the past. and Mrs. certain Tan-controlled companies may have significant commercial transactions with the Company. Through its beneficial ownership of shares in TAGI and New Town Land in addition to approximately 7% of the issued share capital of the Company directly held by Andrew Tan. because the Listing Date is scheduled to occur after the Settlement Date. may differ significantly from Megaworld’s interests or the interests of other shareholders. The Offer Price will be determined after taking into consideration a number of factors including. 2006. The interests of the Tan family. 21 . However. The respective businesses or activities of other Tan-related companies currently do not compete with Megaworld’s businesses or activities. affect Philippine companies.RISK FACTORS The low sovereign ratings of the Government directly adversely affect companies resident in the Philippines as international credit rating agencies issue credit ratings by reference to that of the sovereign. there can be no assurance that an active market for the Offer Shares will develop following the Offer or. the ability of the Government and Philippine companies. This may materially and adversely affect the value of the Offer Shares. The price at which the Shares will trade on the PSE at any point in time after the Offer may vary significantly from the Offer Price. to raise additional financing and the interest rates and other commercial terms at which such additional financing is available. but not limited to. 2005. Tan is also the President and Chairman. RISKS RELATING TO THE OFFER The Company is effectively controlled by the Tan family and their interests may differ significantly from interests of other shareholders. Although the PSE has approved Megaworld’s application to list the new Offer Shares. Andrew Tan also serve on the Company’s Board and Mr. but they may do so in the future. See ‘‘Related Party Transactions’’. the Tan family effectively controls the Company. including Megaworld. that such market will be sustained. if developed. TAGI and New Town Land will exercise influence over the Company in a manner that is in the best interests of Megaworld’s other shareholders. There can be no guarantee that the Offer Shares will be listed on the PSE. the Tan family beneficially owned 99. the market prices for shares of companies engaged in related businesses similar to that of Megaworld and prevailing market conditions. TAGI and New Town Land. Trading volumes on the PSE have historically been significantly smaller than on major securities markets in more developed countries and have also been highly volatile. 2005.99% of the issued share capital of TAGI and a controlling interest in New Town Land. they would be able to sell their Shares by negotiated sale. Purchasers of Offer Shares will be required to pay for such Offer Shares on the Settlement Date which is expected to be on or about April 24. Megaworld’s prospects. so there may be no liquidity in the market for the Offer Shares and the price of the Offer Shares may fall. In addition. As there has been little historical liquidity in the Shares. Any such downgrade could have an adverse impact on the liquidity in the Philippine financial markets. These transactions have generally been entered into on arm’s length commercial terms. TAGI and New Town Land. Fitch or any other international credit rating agency will not further downgrade the credit ratings of the Government and. together beneficially owned 53% of the issued share capital of the Company.

This could also materially and adversely affect the prevailing market price of the Shares or Megaworld’s ability to raise capital in the future at a time and at a price it deems appropriate. Future changes in the value of the Philippine peso against the U. dollar or other currencies will affect the foreign currency equivalent of the value of the Shares and any dividends. for a period of 180 days after the First Closing Date. other than in connection with the Over-Allotment Option and the TAGI Option. pledge or otherwise dispose of (or publicly announce any such issuance. forwards.S. offer. and there can be no assurance that Megaworld will not issue Shares or that such shareholders will not dispose of. the Shares. TAGI. the prior written consent of the Lead Manager. transfers or issuances may occur. their Shares. sales and options without. Mr. in each case. encumber or pledge. or the perception that such sales. encumber or pledge. sell. there is no restriction on Megaworld’s ability to issue Shares or the ability of any of its shareholders to dispose of. including equity swaps. their Shares. sale or disposal of) any Shares or securities convertible or exchangeable into or exercisable for Shares or warrants or other rights to purchase Shares or any security or financial product whose value is determined directly or indirectly by reference to the price of the underlying securities. The Company. Andrew Tan and New Town Land have each agreed with the Lead Manager that. Such fluctuations will also affect the amount in foreign currency received upon conversion of cash dividends or other distributions paid in peso by Megaworld on. Except for such restrictions. The market price of the Shares could decline as a result of future sales of substantial amounts of the Shares in the public market or the issuance of new Shares. neither it nor any person acting on its behalf will issue. offer. Fluctuations in the exchange rate between the Philippine peso and other currencies will affect the foreign currency equivalent of the peso price of the Shares on the PSE.RISK FACTORS Future sales of Shares in the public market could adversely affect the prevailing market price of the Shares and shareholders may experience dilution in their holdings. 22 . contract to sell. and the peso proceeds received from any sales of.

.403 2. . . . . . . . The use of proceeds = calculations are based on the Offer Price of P 1. . .764 after deducting the applicable underwriting discounts and commissions and expenses for the Offer payable by the Selling Shareholder. . . . . . . .789 2. . . . . underwriting and selling fees and other fees and expenses pertaining to the Secondary Offer will be paid by the Selling Shareholder. . . . . . .38 per Offer Share. 23 . . . . . . . .048. . . . . . . . . . . . . . .211 5. . . . . .316. . . . . . . . . . . . .USE OF PROCEEDS Megaworld estimates that its net proceeds from the Primary Offer will be approximately = P 4. . . Actual allocation of net proceeds by Megaworld may vary from the foregoing discussion as 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. . . . Philippine SEC filing and legal research fee . . . . . . . Taxes. . . . . . . . . . . . . . .000 million for the 1800 and 1880 Eastwood offices (Phases I and II) and Eastwood Mall. . . . . . PSE Brokers’ commission and block sale costs . . . . and = P 2. . consisting of: P Underwriting and selling fees for Offer Shares being sold by Megaworld Taxes to be paid by Megaworld . . Estimated other expenses . . . . . . . . . . . . . . . . . = P 2. . . . Philippine SEC filing and legal research fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22. .788.238. . . .375. . . Megaworld intends to use its net proceeds from the Offer to finance its capital and project expenditures for 2006 and 2007 for the following projects: .800 11. . . . . discounts. .919. . . . . . . . . . . . . . . . . . . . . . . . .625. . . . . . . . . . . . . . . . . . . . Estimated professional fees .239. . . . . . . . . . . . . .000 17. . A portion of the net proceeds will also be used by Megaworld for general corporate purposes. . including but not limited to working capital and investments.845 350. . . . . . . . . . . 169. . The foregoing discussion represents an estimate of Megaworld’s net proceeds from the Offer based on Megaworld’s current plans and anticipated expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .730. . . . PSE listing and processing fee . . .207. .060 2. Megaworld estimates that its total costs and expenses for the Offer (assuming no exercise of the Over-Allotment Option) will be approximately = 210. . . issue management. . . .500. . . . . . . . . . .730. . . . .050. . . .211. . . . Megaworld intends to pay the costs and expenses of the Offer other than the underwriting commissions. . . . . . . . .316 P Total . . . . . . . . . . . . .983.644. . . . . . . . . . . . . .978 964. . . . . . . Megaworld will not receive any proceeds from the sale of Offer Shares by the Selling Shareholder. . . . . . consisting of: Underwriting and selling fees for Offer Shares being sold by the Stock transaction tax to be paid by the Selling Shareholder . . . . . . .241 = 30. . . Estimated other expenses . . . . . . . . . . . .559 = P 210. . .500 million for the development and construction of McKinley Hill Cyberpark and McKinley Hill Town Center. taxes and other expenses applicable to the Offer Shares being sold by the Selling Shareholder. . . . . . . Selling Shareholder. . . . . . . . . . . . . . . Megaworld estimates the net proceeds to be received by the Selling Shareholder from the Offer will = be approximately P 553. . . . . . . . . . . . after deducting the applicable underwriting discounts and commissions and expenses for the Offer payable by Megaworld. Estimated professional fees .584. . . . . . .000 1. .788. . . . . . . . . .026. . . . . . . . . . . . . . . . . .055 5. . . . . . . . . . . . . . . . .625 Total . . . . The costs and expenses to be incurred by the Selling Shareholder will be approximately = P 30. .619. .

which are not appropriated for any other purpose. 24 . by the distribution of property. except when justified by definite corporate expansion projects or programs approved by the Board of Directors.02 per Share. the Board approved a cash = dividend of P 0. Dividends paid in the form of additional shares are subject to approval by both the Board of Directors and at least two-thirds of the outstanding capital stock of the shareholders at a shareholders’ meeting called for such purpose. On February 28. 2006. subject to the requirements of applicable laws and regulations and the absence of circumstances that may restrict the payment of such dividends. These dividends are paid from unrestricted retained earnings. will depend upon the Company’s earnings. among other factors. or when it can be clearly shown that such retention is necessary under special circumstances obtaining in the corporation. and such consent has not yet been secured. 2006. such as where the Company undertakes major projects and developments. either in the form of cash or stock. The Company intends to maintain an annual cash dividend payment ratio of 20% of its net income from the preceding year. Megaworld’s Board may. Dividends paid in cash are subject to the approval by the Board of Directors. 2006 to shareholders on record as of March 15. or by the issue of shares of stock. The Company may declare dividends only out of its unrestricted retained earnings. at any time. payable on April 10. 2004 or 2005. Megaworld declares cash dividends to shareholders of record usually in the first half of each year. cash flow and financial condition. or when the corporation is prohibited under any loan agreement with any financial institution or creditor from declaring dividends without its consent. No cash dividends were declared on the Company’s common shares for 2003. modify its dividend payout ratio depending upon the results of operations and future projects and plans of the Company. The Corporation Code prohibits stock corporations from retaining surplus profits in excess of 100% of their paid-in capital stock. The Company may pay dividends in cash.DIVIDENDS AND DIVIDEND POLICY The payment of dividends. These represent the net accumulated earnings of the Company. with its capital unimpaired.

569 56. . the PDS Rate was P 50.997 50. . . . . . . 2006) . Source: Reference Exchange Rate Bulletin.067 = = U. . . . was introduced in 1992.336 52. .550 49. . .067 50. dollar exchange rate Year Period end Average (1) High Low 2001 2002 2003 2004 2005 2006 .$1. . . . . a computer network supervised by the BSP.203 56. The PDS Rate is the closing spot rate for the purchase of U. . . .355 53. . .040 55. . .S. The PDS. . .062 47. . . The PDS was adopted by the BSP as a means to monitor foreign exchange rates.443 56. . . . . . . . . . if any. . On April 6. . . 6. . . . . dollars or other foreign currencies of the peso price of the Shares on the PSE. of dividends distributed in pesos by Megaworld. . . . .00 : peso/U. .S.S.963 Note: (1) The average of the monthly average PDS Rates during the relevant period.013 53. . . . . . . . . Treasury Department of the BSP 25 . .841 55. . . 2006. expressed in pesos per U. . . . .021 55. . . . . .S. .085 51. 2005. . .995 50. . . . .S. . dollar and other foreign currencies will affect the equivalent in U. . . . . dollars with pesos which is quoted by PDS and published in BSP’s Reference Exchange Rate Bulletin and the major Philippine = financial press on the following business day. .267 53. . . . .993 51. . . . . and of the peso proceeds received by investors on a sale of the Shares on the PSE. if any. . .096 55. .$1. . . 51.00. The following table sets out certain information concerning the PDS Rate between the peso and the U. . .S. .767 56. .679 55. . . (through April . Fluctuations in such exchange rates will also affect the peso value of Megaworld’s assets and liabilities which are denominated in currencies other than pesos. . . . . . . . . . . .00. . . . dollar for the periods and dates indicated. the PDS Rate was P 53. .S. .S. . through which the members of Bankers Association of the Philippines effect spot and forward currency exchange transactions. . . . . . .EXCHANGE RATES Fluctuations in the exchange rates between the peso and the U.142 52. . . .404 53.604 54. . On December 31. .$1. .997 = U. . . . . . . . .

.185 2. .04 2. . . .92 Source: In addition. .60 1. .532 6. .46 0. . . . .10 2. . . .669.22 4. . . . . . . . .388. . July 1. . 2006. .00 1. .450. . . . . July 1. . . . 26 .78 999. . .18 1. . 1994. 2005 to March 31. . . 2005 2004 January 1. property sector. . . 2005 . . . 1994.03 0. The PSE composite index is composed of 34 company stocks representative of the financial sector. . . . .92 1. . . . and mining and oil sector of the PSE. . . . . . . . Trading is expected to commence on the same date. .46 1.56 per Share and the closing PSE composite index was 2. .224 10. 2004 to March 31.60 2. 0. . . 2004 . . .166. . . .156. . . . services sector. . 2006. . Average daily trading volume of the Shares Price per Share of the Shares High in pesos Low PSE composite index High Low Year 2001 2002 2003 2004 2005 2006 . . . As of December 31. . . . .92 1. . . 2006. . . for the periods indicated: . .02 1. . . . .28 1. . . .729 3. .MARKET PRICE INFORMATION The Shares are traded on the PSE under the symbol MEG. . . . . October 1. . .145 1. . April 1. .06 1.220. . . The PSE announced that. . . . .47 0. 2005 to September 30. .34 1.07 1. . .220. . 2005 to June 30. . . . . . . . . . . . . October 1. . .21 as of December 31. . industrial sector. . . . . . . . . . . .70 1. . Megaworld is currently included in the PSE composite index.22 1.83 0. . and the high and lows of the PSE composite index. . . .60 1. . . . 2004 to June 30. .34 1. . . .813. These Shares are expected to be listed on the PSE on April 24. . . . the high and low sales prices for the Shares as reported on the PSE for each quarter in 2005 and 2004 were as follows: High Low 2005 January 1. it would reclassify its benchmark by using ‘‘free-float market capitalization’’ to compute the index. . . . . . . . . . . . .564. . .99 1. . the high and low sales price for the Shares as reported on the PSE. . 2004 . . . . . . . . holding firms sector.18 = On April 6. . . .124. . . . . 2006) .22 1. effective April 1. . . . . The following table sets out. . April 1. . . . . . . Megaworld had 3. 2005. . . .47 0. . . . .92 1. The Shares were listed on the PSE in June 15.060. . . . . 2004 . . the closing price of the Shares on the PSE was P 1. . see ‘‘The Philippine Stock Market’’. . . . . . . .357. . . . . . . . . . . . .469. 2005 to December 31. the average daily trading volume of the Shares. .463 3.06 1. . . . 1. .34 997. . . as well as to determine which companies will compose the index. . . . . 2004 to December 31. . . .44 0. . . . . . . . .712. Bloomberg . . . . . . . .36 1. Approval has been obtained to list the Primary Offer Shares on the PSE.742 shareholders of record worldwide. . 2005 . . . .15 1.851. . . . 1. . . . . .88 0. 2004 . . . 2004 to September 30. . 2005 . . For a description of the PSE. . . . . . . . .37. .555.75 0. . The index had a base value of 2. . .12 . .922. . .37 979. . (through April 6. . . .58 0.

2006 was P 1. 27 . The Offer Price for the Offer Shares was determined through a book-building process and discussions between the Company. the Selling Shareholder and the Lead Manager.38 per Offer Share based on the 10-day volume weighted average market price (‘‘VWAP’’) of the Shares on the PSE on April 6. subject to a discount = of 9%.DETERMINATION OF OFFER PRICE = The Offer Price has been set at P 1.5171 per Share. The 10-day VWAP of the Shares on April 6. 2006.

9 (295. . . . . .8 71. Shareholders’ equity Common shares . . .2(1) 40.516. . .6) 4. .9 Notes: (1) The translations from pesos to U. . . . .6 2.3 (5. . .5 (295.668. Minority interest . .6 2. .132.0 428. .132. . .0 323. .CAPITALIZATION The following table sets out.067 = U. Treasury shares . .0 (5. . . .5 500. . .S. . . . . . .4 10. . . The table should be read in conjunction with Megaworld’s consolidated financial statements. .7 US$18.6) (114. . Additional paid-in capital . Total short-term debt and capitalization . . . 28 . 2005. .6) 4. . . . . . . including the notes thereto.6 733. .6) 88. . . . . . . . Long-term debt: Long-term loans (2) — net of current portion .7 20. . . Equity before minority interests in subsidiaries . . . Total shareholders’ equity . . . . .3 17. . 2005 of = P 53. .8 336. .141. . .$1.668.8 395. . .227. Other than as described below. . .0 13.8 442. . .8 42. As of December 31. . .0 3. 2005 Actual (in millions) As Adjusted Short-term debt: Current portion of long-term debt . Megaworld’s consolidated capitalization as of December 31. . .2 277.2(1) 40. . Accumulated translation adjustments. in accordance with PFRS. .6) 88. 2005 and as adjusted to reflect the sale of the new Offer Shares.6 2. . .1 23. . there has been no material change in Megaworld’s capitalization since December 31.970. . .2 = P 963. . . . . . . .6) (114. . .744. . .612. . dollars have been made on the basis of the PDS Rate on December 31. . Retained earnings . . . . . . . . .7 US$18.655. .1 17. . . . .8) (2. 2005.7 13. . .783.3 22. included in this Prospectus.7 26. .781. . . (2) There has not been any material change in Megaworld’s indebtedness or contingent liabilities since December 31. .6 733. .4 14. . .2 200. .00. = P 963. .874. .8) (2. .S. .

. . . . . . . .57 P = 0. . . .000 14. . . . . . . .155. . . . 10. . Pro forma net tangible book value per Share after the Offer. .52 P = 0.38 = 1. . . . . . . .05 per Share to existing shareholders. . . . . . Total . . . . After giving effect to the sale of the Offer Shares (at an Offer Price of P 1. . . . . . . . .38 per Offer Share). . . . . . . . .3 27. . . . . . . .14 P The following table sets out the shareholdings. . . . . 2005. This represents = an immediate decrease in net tangible book value of P 0. .52 per Offer Share. . . . . . . . and percentage of Shares outstanding. . . . . . . . . . New investors .38 per Offer Share: Offer Price per Offer Share . .501 3. . . . . . . . . . . . . . . . Net tangible book value per Share as of December 31. . .166. . . . . . . . .232. .14 per Offer Share to purchasers of Offer Shares at the Offer Price. . . . . .7 100 29 . . . and = an immediate increase of P 0. . . . . . . . . . . . . . . . . . . . . . . . . . . .923. . . . . . . . . . .57. . Megaworld’s net tangible book value per Share was P 1. . . . . . the net tangible book value per Share would be P 1. . .DILUTION = As of December 31. . . . . . . . . after deducting estimated discounts. . . . . . 2005 Decrease per Share attributable to the Offer Shares . . commissions. . . . . . . . . . . . . .501 72. Net tangible book value per Share represents tangible assets minus total liabilities divided by the total number = of Shares outstanding. . . . . . . . . . . of existing and new shareholders of the Company immediately after completion of the Offer (excluding the Domestic Block Sale and assuming no exercise of the Over-allotment Option): Shares Number Percent Existing shareholders . . . .05 P = 1. . . .392. . . estimated fees and expenses of = the Offer. . . . . . . = The following table illustrates dilution on a per Share basis based on the Offer Price of P 1. . . . . . . . .558. = P 1. . . . Increase per Share to investors in the Offer Shares . . . . . . . . . . . .

. .8 (1. . The 2003.3 5. . Gross profit. . The summary financial information presented below for the years ended December 31. . Hotel income — net . . Cost of real estate sales . .7 506. .9 241.4) 424. 2004 and 2005 was derived from the consolidated financial statements of Megaworld. .9 259. . Net income attributable to minority interest . . 2. . . . . . audited by Punongbayan & Araullo. .7 0.2 21.8 101. .6 — Revenue . .153.8 1.151.8 0. . .8 (524. . . . .0 (13. Realized gross profit Realized gross profit Rental income .3) 982. . .9 (7.5 10. . . . . . . . The information below is not necessarily indicative of the results of future operations. . . Net income (after minority interest) . .8 0. .3 1. Operating profit .7 4. . . .1 2.3 454. . . . . . . current year’s sales prior years’ sales .6 (386. . amounts in Pesos were converted to U.379. . .3) 1. dollars using the Philippine = Dealing System month-end closing rate only as of December 31. . . Income before tax and minority interest . .9) 319. . . .2 (2.9 146.6) 719. . .1 (7. .6 872. . . . . . . . . . . . . . .0 2.652. . .4) 26. .1 976. . . . . Operating expenses . . . . Deferred gross profit . . .371. . . . . . . . . . 30 . . . .02 2.0 (367. . 2005 of P 53.9 0. . .4 (40. . Other (charges) .5 180. .506.11 59. . .8 627. .08 3. . . .012. .158. . . . . . . . .2 (390. . . . .067 to US$1. .8 1. . 2004 and 2005 financial information included in this Prospectus has been prepared in accordance with PFRS. . . . Tax expense .7 (1.694.4 547. . .793. . . .8 9. . .5 18. . . Income Statement Data 2003 2004 2005 = = = P P P (in millions. . . . . . . . . . . . .2) 993. For readers’ convenience only. . . . .1 793. . . .00. . . . . . .9) 701.4 73. . a member practice of Grant Thornton International. . . . . .0 52. . . . . . .7 88. . . . .2) 252.5 807.7 1. . . . .7) 18. . . . . . . . . . . Note: (1) Other revenues consist of interest income.425. 2003. .2 (294. .8 153. . . . .3) 625. . . . .521.396.7 (6. . . . .9 19.9 1. . .1) 1. . . . . except per Share figures) 2005 US$ (1) Realized gross profit from real estate sales: Real estate sales . .9 265. . . . . on on . For the years ended December 31.816. .251. . .4 34. . .7 728. . .7) 406.1 1. . . . . . .S. foreign currency gain and miscellaneous items. . .9) 11. . Earnings per Share . . . Other revenues (1) . . . . . . . .8 (381.SELECTED CONSOLIDATED FINANCIAL INFORMATION The following tables present summary selected consolidated financial information for Megaworld and should be read in conjunction with the auditors’ reports and with Megaworld’s consolidated financial statements and notes thereto contained in this Prospectus and the section entitled ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’. dividend income.

2 2. .754.908. . .606. . .6 14. .518.7 14. . .832. . . Current liabilities Reserve for property development Other current liabilities (4) .8 155.3 1. . 2005 of P 53. .5 593.868.274. .0 280. . Trade and other receivables . ventures . . . .065. . . . . . .452.0 1.3 2. . . .652.1 4. .3 2.9 14. .3 1.782. . Residential and condominium units for sale . . . . . . . . .2 451. . . .751. . . .278. . goodwill and other items. . .7 51.3 11. . 15. . . . . . . .967. . .599. Equity: Equity attributable to parent company’s shareholders . cash. . .9 240. . . . . . .9 32. .172. . . . . .753.5 8. . .8 8. . .0 16. . . (3) Other non-current assets consist of long-term placements of the non-current portion of trade and other receivables.7 246. .0 4. Total Current Assets .6 696. . . . .6 3.9 16.6 32. .4 710.00. .2 Notes: (1) For readers’ convenience.770. customers’ deposits.4 4. . . . . .2 10. . .265. . amounts in Pesos were converted to U.552. . 2.0 4.851.010.119.782. . .623. .1 1.386. . .7 2. (2) Cash and cash equivalents consist of cash on hand and in banks and short-term investments. .6 785. . .1 17.4 137.2 619.1 1. . Total Liabilities.SELECTED CONSOLIDATED FINANCIAL INFORMATION As of December 31. . . . . deferred income on real estate sales. advances from associates and other related parties and net deferred tax liabilities.6 733. . .025. . .8 617. (5) Other non-current liabilities include interest-bearing loans and borrowings. . . . deferred tax assets.051. .618. .673.5 1. .1 14. . . .269. . .6 91. .9 30. .382. Property and equipment. . .8 788.3 3.8 336. . .5 1. . . .032. . . . . .4 23. .243. .6 9. .067 to US$1. .9 323.8 12.5 16.7 32. .784. .9 Total assets . . . . .4 219. . .858.9 617. .0 1. .3 3. .652. . . Prepayments and other current assets — net . .9 4. . . . .979. . income tax payable and deferred income on real estate sales. . .8 282.954.1 2.850.2 4.1 108.636. investments in and advances to subsidiaries and other related parties. . . .1 3. . .3 35.2 7.1 13. customers’ deposits.6 14. .2 53. .8 67. . .S. . Other assets (3) . dollars using the Philippine Dealing System month = end closing rate as of December 31. Minority Interest . . . Balance Sheet Data 2003 = P 2004 = P (in millions) 2005 = P 2005 US$ (1) Cash and cash equivalents (2) . . .3 377. . . . . 31. . . . .6 1. . . .4 1. . . . . . . . . . . . .2 1.5 17. .141. . . .4 5. .8 Total Liabilities and Equity . .9 2.3 705. .318. . . . Investment property . .193.021. 31 . . .138. .1 31. . . (4) Other current liabilities include interest-bearing loans and borrowings. .5 33. . . Current portion of trade and other receivables Marketable securities . . . . . . trade and other payables. .3 32. Advances to landowners and joint Land for future development . .708. .552.8 4. . guarantee deposits. .9 641.3 226.5 9.688.518. . . . . . . .874. Property development costs .748. Non-current liabilities Reserve for property development Other non-current liabilities (5) .6 15. . .8 66. .619. .0 3.5 15.028. . . . . . .

. . Net cash from operating activities . including PFRS and investors should not consider EBITDA in isolation or as an alternative to operating income or net income as an indicator of the Company’s operating performance or to cash flow from operating. .2) 1. . . . depreciation and amortization. except percentages) 2005 US$ EBITDA (1) .4 (1. Capital expenditures . Because there are various EBITDA calculation methods. . Gross margin (%) (2) . . Net cash used in investing activities . 609.7) 12.797. .154. .311.8 810. . . . .3 15.7 2. .5 (2. . income tax. investing and financing activities as a measure of liquidity. . . .5 32 3.3 29 2. Net cash from (used in) financing activities . . . . . . . EBITDA is not a measure of financial performance under generally accepted accounting standards. . . . . . .3 2. . .3 1. . . .526.5 30 3.360. . . .3 (24. . .SELECTED CONSOLIDATED FINANCIAL INFORMATION For the years ended December 31. . EBITDA is presented to provide a better understanding of the Company’s consolidated operating results. the Company’s presentation of EBITDA may not be comparable to similarly titled measures used by other companies.6 35.519.5) 662. . .694. (2) Represents gross profit as a percentage of net sales.0) 400. 32 .562.3 (1. Other Financial Data 2003 = P 2004 2005 = = P P (in millions. . . interest expense. . . . . EBITDA ratios and related computations involving net earnings and equity figures were computed using the figures attributable only to the parent company’s shareholders.3) (164. . . .3 68.874. . . or any other measures of performance under PFRS. .626. . . . . . . . . . .5 Notes: (1) EBITDA as used in this prospectus consists of earnings before interest income. . .

and Araneta Center. primarily for the middle-income market. The Company is developing Newport City. The Company has the following three primary business segments: (i) real estate sales of residential and office developments (ii) leasing of office space. a community township located on five hectares of land in Bonifacio Global City in Taguig. the Company engages in other propertyrelated activities such as project design. In addition. commercial. construction oversight and property management. 33 . Megaworld cautions investors that its business and financial performance is subject to substantive risks and uncertainties. contained in this Prospectus. including. In 2005. . Metro Manila. Newport City. Metro Manila. the Company initially established a reputation for building high quality residential condominiums and commercial properties located in convenient urban locations with easy access to offices as well as leisure and entertainment amenities in Metro Manila. the Company owns or has development rights to approximately 116 hectares of land situated primarily in Metro Manila for its current portfolio of five major projects. Pasay City. In aggregate. The Company’s real estate portfolio includes residential condominium units. Eastwood City. or community townships. in response to demand for the lifestyle convenience of having quality residences in close proximity to office and leisure facilities. investors should carefully consider all of the information contained in ‘‘Risk Factors’’. Eastwood City is located on 15 hectares of land in Quezon City. leisure and entertainment components. by commencing the development of its Eastwood City project. The Company’s current portfolio of projects comprises the following: . . a community township located on 50 hectares of land in Fort Bonifacio in Taguig. Quezon City.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following management’s discussion and analysis of Megaworld’s financial condition and results of operations should be read in conjunction with Megaworld’s consolidated financial statements. . INTRODUCTION The Company is one of the leading property developers in the Philippines and is primarily engaged in the development in Metro Manila of large scale mixed-use planned communities. . a community township located on 25 hectares of land in the Villamor Air Base. Most of the Company’s development rights were acquired through joint development agreements with the land owners while the remainder relate to land which the Company has purchased or leased. Megaworld’s actual results may differ materially from those discussed in the forward-looking statements as a result of various factors. the Company introduced development plans for the Philippines’ first major mass transit-oriented residential community. including the related notes. educational/training. In evaluating Megaworld’s business. Beginning in 1996. without limitation. McKinley Hill. which is expected to consist of 17 residential condominium buildings on a four hectare site at the Araneta Center in Cubao. Metro Manila. Founded in 1989. Forbes Town Center. that integrate residential. The Company is developing McKinley Hill. the Company began to focus on the development of mixed-use communities. The Company is developing Forbes Town Center. subdivision lots and townhouses as well as office projects and retail space. primarily to BPO enterprises and retail space and (iii) management of hotel operations. Eastwood City is the Company’s first community township. This Prospectus contains forward-looking statements that involve risks and uncertainties. those set out in ‘‘Risk Factors’’. Metro Manila.

7 2004 Average GFA Sale Price = P /sq.947 56.0 — Residential .63% of the Company’s total sales is derived from sales in the United States. .410. . .6 454. . . 2004 and 2005. .7 454. . . Other 1 .012. . .396. The Company derives 2. . . . = 38.m. . .813 51. . . . . . .83% is from the Middle East. Foreign sales contributed approximately 20% to the Company’s consolidated sales and revenues for the years 2003. . . except percentages) 2005 Real Estate Sales Rental Income. . . . Rental Income The table below sets out information on rental income received from the Company’s investment properties in 2003. .4 73. . .2 547.0 54. . . . . general and corporate income and expense items. . . . .323 43. . .371. . .4 P 203. . . .2 66% 11 2 21 100 Note: (1) Other income comprises marketing services. . 2003 2004 (in millions.955 1.812.0 54. .124. .049 55. . . excluding the Philippines. Property 2003 2004 (in millions. .7 P 72. . . .324. . . . . .396.0 — Revenue (millions) = 2. . .111 54. Hotel Income . . .0 2. . .1 4. . . .1 1.0 179. . . . . . .0 4. . 42. . Year ended December 31.625 1.6 60% 40 100 = 344. .5 16% 84 100 = P 275. Approximately 8. . P 49. . .78% is derived from Europe and 3. .314. .8 P 241. .151. . . .8 3. . . .270. . . . . .8 101. .768 58. = 2. .m. . . .410 — Revenue (millions) = 3. Total . . .1 241. . .2 547. .1 57% 11 2 30 100 3. . 4. . .6 P 203. . . . .7 88. . . . except percentages) 2005 Office . . . . . . Commercial/leisure . . . Year ended December 31.275.6 96. .282 1. . . . .8 Average GFA Sale Price = P /sq. . . . .5 P 98.76% of its sales from Asia. . . Real Estate Sales The table below sets out information on the revenue. . Total . . . . 2004 and 2005. . Year ended December 31. .8 627. Office .251. .8 63% 37 100 34 . . 2003 Property Revenue (millions) = P 2. .371. .410. . .m.052.7 3. . GFA and average sale price from real estate sales in 2003.767 43. 2004 and 2005.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Revenue The following table sets out a breakdown of the Group’s revenue by business segment for the periods indicated.2 2005 Average GFA Sale Price = /sq.151. 41.2 2.191.7 1. . .8 72% 7 2 19 100 = P 2.

1 million in 2005 and 2004. Eastwood CyberOne and Eastwood Parkview in Eastwood City. Gross margins may vary depending on product mix. Among product groupings. Gross profit was P 993.9 million which is 43% higher than the previous year’s net P = = income of = 807.6 million and = 207.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion is required by the Philippine SEC.9 million due to the decline in market value of the investment as of December 31. P = condominium and office units in 2005 amounting to a 31% increase from P 2. There are no significant elements of income or loss that did not arise from the Group’s continuing operations. respectively. Realization of gross profit is recognized under the percentage of completion method wherein revenue is recognized by reference to the stage of development of the properties.9 million.1 million in 2005. = = = which amounted to P 2. The Group’s registered sales came from the following projects: Grand Eastwood Palazzo. Operating expenses as a percentage of real estate sales was 31% and 36% in 2005 and 2004. a 20% increase. from a loss of P 5. representing an = P increase of approximately 44%. there were no seasonal aspects that had a material effect on the financial condition or results of operations of the Group.8 million compared to = 454. Realized gross profit on current year’s sales increased by 96% while realized gross profit on prior year’s sales increased by 91%. 2005. events or uncertainties that have had or that are reasonably expected to have a material impact on net sales or revenues or income from continuing operations. For the year 2005. Other revenues for 2005 amounted to P 1.5 million in 2004 to income of P 13. = 3.7 million in 2004. The other components of consolidated revenues were distributed among leasing and hotel = operations.3 million in 2004 due to higher taxable income.3 million in 2004 to = 280. the consolidated net income (after minority interest) of the Company and its Subsidiaries (the ‘‘Group’’) was = 1.1 million to revenues in 2005 from P 88. The 19% decrease from P 1. = In general.2 million in 2005 compared to P 4. P P respectively.0 = million for the year ended December 31. The 60% decrease in P = = fair value (losses) of a subsidiary in 2005 and 2004 amounted to P 44.1 million in 2004 was due to a decline in miscellaneous income. One Orchard Road. Cost of sales as a percentage of real estate sales was 68% in 2005 compared to 71% in 2004.2 million of revenues came from the sale of residential lots.694.812. Results of Operations Review of 2005 versus 2004 For the year 2005. The loss was due to lower income of an associate. dividend income.8 million for the same period in 2004. respectively. respectively. the growth in operating expenses by 12% from = 872.151.012. while the 340% increase in net = = earnings applicable to minority interest. Payment of interest expenses on bank loans increased = finance cost by 37% from P 205. Greenbelt Radissons and Greenbelt Parkplace in Makati City. and Paseo Parkview. or 32% and 29% of real estate sales. The Group is not aware of events that will cause a material change in the relationship between its costs and revenues. 2005 and P 701.7 million.2 million and P 1. foreign exchange gain and = miscellaneous income. Total revenues were P 4. Equity in net losses of associates amounted to = 64.7 million in the previous year.2 P million in 2004. and other revenue.8 million in 2005.191.9 P million in 2005 was due mainly to the increase in marketing and selling expenses. The Group’s hotel operations contributed = 101.1 million which consist of interest income.251. due to the completion of additional rental P = property. Eastwood Excelsior.0 million in 2005 and P 180. 35 . Rental income for the year 2005 amounted to P 547. Olympic Heights.158.153. a 15% increase. Forbeswood Heights in Fort Bonifacio.8 million in 2004 to P 976. was due to higher earnings earned by a subsidiary. Income tax expenses were = 259.8 million from P 111.396. Neither were there any trends. particularly commission expenses resulting from aggressive marketing activities as well as other administrative and corporate overhead expenses.7 P = million in 2004 or a 14% increase from 2004.

119. Total equity (including minority interest) increased to = 17. 2005 from = P 1. 2005 and 2004. amounted to P 3. 2004 due to the acquisition of land for development. that have useful lives significantly different from the useful life of the building are identified as separate components and depreciated separately in accordance with PFRS. representing a 32% decrease.2 P million in 2005 due to the cost of new projects at Fort Bonifacio and Newport City.691.784.193. Other non-current = = assets as of December 31.1 million as of December 31.096. respectively. representing an 69% decrease due to a reclassification from non-current to = current.5 million as of December 31. = Land for future development increased by 15% to P 1. 2004.770. 2005 amounted to P 661. = = Cash and cash equivalents increased by 6% from P 2. 2005 amounted to P 2. Current and non-current trade and other receivables increased by more 15% due to higher sales. The increase of 27% was due to an increase in non trade-payables.858.599.7 million as of December 31. As of December 31.5 million as of = December 31.2 million as of P December 31. 2005 were P 32.5 = million in 2004 to P 3.4 million. Prepayments = and other current assets significantly increased by 64% from P 377. marketable = = securities.589. respectively. presented at fair values.3 million in 2005 and the reclassification of a subsidiary to investment = property.552.6 million as of December 31. 2004 arising from the timing difference in recognizing depreciation of buildings by their components.0 million in 2004 to P 2.3 million as of December 31. 2005 and 2004. Property development cost increased by 35% from P 1.782. The adoption of PFRS resulted in the recognition of additional depreciation expense. 2005 and 2004. or a P 264. 2005 and 2004.518.6 million from P 740. representing a 13% decrease. respectively.9 million as of December 31.1 million and = 1. the Group did not recognize a timing difference in the depreciation of buildings by their components.138.791. Net property and equipment amounted to P 785.5 million compared to P 2.8 million as of December 31. The increase of 14% was due to additional costs to be paid to contractors and suppliers for new projects.850. 2005 compared to P = P 983.6 million as of December 31.2 million in 2004 to = 1.5 million and P 696. The 46% P increase or = 566.6 million in 2004 to P 4.7 million as of December 31. = 2004 to P 619.3 million as of December 31. 2004. 2005 = amounted to = 1.3 million and P 1. 2005 P = from P 16. The 13% increase was due to additional acquisition costs of fixed assets.689.4 million increase.9 million as of December 31.2 million compared to P 1.051.552. 2004 due to the Group’s continuous profitability. respectively. Components of the Group’s buildings. Aggressive selling of various projects resulted in the = decrease in the number of residential and condominium units for sale by 12% from P 4.0 million and P = P 4.6 million and P 4. = = Trade and other payables amounted to P 1. Current customers’ deposits as of December 31. = = Other non-current liabilities amounted to P 941. 2005 and 2004. 2005 due to cost attributable to new projects for development and reclassification of account to property development cost in relation to the purchase of land for development. such as elevators. = Deferred tax assets as of December 31. 2004.8 million was due largely to aggressive marketing and pre-selling of various P projects. Interest-bearing loans and borrowings current and non-current amounted to = 3. The combined effect of current and non-current deferred income on real estate sales decreased by 14% which amounted to = 844.486.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financial Condition = = Total assets as of December 31.874.6 P million in 2005 was due to reclassification of accounts from residential condominium units for sale = = of a subsidiary.606.9 million compared to P 32.138. The 18% increase in net investment property from = 4.224.7 million as of December 31. 2004.0 million as of December 31.3 million as of December 31. respectively. 36 . Under previous Philippine GAAP.3 million in 2005 due to efficient collection systems.

. the ratio will be = = P 0. . . . . . Debt to Equity Ratio (3)(6) Return on Assets (4)(6) . .7 million as of December 31. . .29 : 1 2. . . . .21 : 1 0. . .06 : 1 in 2004) (4) — Net Income/Total Assets (5) — Net Income/Equity (6) — computed using figures attributable only to parent company shareholders With its strong financial position. . . . . . 2005 due to costs attributable to new development projects and reclassification of account to property development cost in relation to the purchase of land for development. 2004 to = 4. . . . 2005 primarily due to an P increase in sales. . . maintaining established markets and tapping business opportunities. . . Material Changes to the Group’s Balance Sheet as of December 31. . . . . . . . . .000.784. . . . .2 million as of December 31. . . . . = The Group’s residential and condominium units for sale decreased by 12% from P 4. . . . . . . . the Group will continue investing in and pursuing expansion activities as it focuses on identifying new markets. Sustaining a high level of development activity. . the Group sufficiently met capital requirements for the year in 2005. . .45 : 1 0. . . . . . . . .3 million as of December 31. 2005 due to aggressive selling of various projects. . . .5 million = as of December 31. . . . .73% 3. . .051. 2004 to P 619. .193.8 million as of December 31. . . .552. . . 2004 (increase/decrease of 5% or more) = The Group’s cash and cash equivalents increased by 6% from P 2.4 million as of December 31. .9 million as of December 31. . Return on Equity (5)(6) .9 million as of = December 31. . . . . .0 million as of December 31. . 2005 mainly due to the acquisition of land for P development. . . . .18 : 1 3.606.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Considered as the top five key performance indicators of the Group are shown below: 2005 2004 Current Ratio (1) . . . . . . . .2 million as of December 31.6 million as of December 31. . . .52% 6. . .689. 2004 to P 3. . . . . . . . Certain accounts of the 2004 and 2003 financial statements were reclassified to conform to the 2005 PFRS financial statements presentation. 2004 to = 1.0 million as of December 31.48% 5. . . .03% Notes: (1) — Current Assets/Current Liabilities (2) — Cash and Cash Equivalents/Current Liabilities (3) — Bank Loans/Equity (If the ratio excludes the peso loan obtained against proceeds of the dollar loan. . . . . 37 . .58 : 1 0.07 : 1 in 2005 and P 0. .599. . . . . = The Group’s land for future development increased by 15% from P 1. . . . . = The Group’s current and non-current trade and other receivables increased by 15% from P 4. . . The Group has sufficient resources from internally generated funds and expects an increase in earnings. . = 2004 to P 2. .2 million as of December 31. . . . . .620. 2005 mainly due to more efficient collection systems. 2005 compared to December 31. .552. . Quick Ratio (2) . . = The Group’s marketable securities decreased by 13% from P 4. . . 2. = The Group’s property development costs increased by 35% from P 1. . . . . 2005 mainly due to the cost for new development P projects.850.138. 2005 primarily due to maturity of certain P investments. . = The Group’s prepayments and other current assets increased by 64% from P 377. . 2004 to = 1. 2004 to = 3. . .34 : 1 0.3 million as of December 31. . .

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

= The Group’s net investment property increased by 18% from P 4,119.6 million as of December 31, = 2004 to P 4,858.6 million as of December 31, 2005 primarily due to the reclassification of accounts from residential units for sales of a subsidiary. = The Group’s net property and equipment increased by 13% from P 696.6 million as of December 31, 2004 to = 785.5 million as of December 31, 2005 due to the additional acquisition cost of fixed P assets. = The Group’s deferred tax assets increased by 73% from P 1.2 million as of December 31, 2004 to = P 2.1 million as of December 31, 2005 primarily due to net operating loss carried over (NOLCO) by subsidiaries. = The Group’s other non-current assets decreased by 69% from P 2,138.3 million as of December 31, 2004 to = 661.5 as of December 31, 2005 largely due to the reclassification of accounts to current P from non-current. The Group’s current and non-current interest-bearing loans and borrowings decreased by 32% = = from P 4,589.5 as of December 31, 2004 to P 3,096.0 as of December 31, 2005 due to subsidiaries’ payments to certain banks. The Group’s trade and other payables increased by 14% from = 1,486.6 million as of December 31, P = 2004 to P 1,691.3 million as of December 31, 2005 mainly to additional costs to be paid to contractors and suppliers for new projects. = The Group’s current and non-current customers’ deposits increased by 10% from P 3,837.7 million = as of December 31, 2004 to P 4,240.3 million as of December 31, 2005 mainly due to aggressive marketing and pre-selling of various projects. The Group’s current and non-current deferred income on real estate sales decreased by 14% from = P 983.7 million as of December 31, 2004 to = 844.3 million as of December 31, 2005 represents P decrease in unearned revenue. = The Group’s other non-current liabilities increased by 27% from P 740.1 million as of December 31, 2004 to = 941.6 million as of December 31, 2005 mainly due to an increase in non tradeP payables. Material Changes to the Group’s Income Statement as of December, 2005 compared to December 31, 2004 (increase/decrease of 5% or more) = The Group’s net revenue increased by 17% from P 2,379.6 million as of December 31, 2004 to = P 2,793.1 million as of December 31, 2005 largely due to the combined increase in sales, rental, and hotel income. = The Group’s rental income increased by 20% from P 454.7 million as of December 31, 2004 to = P 547.8 million as of December 31, 2005 primarily due to the completion of additional rental property. = The Group’s hotel income increased by 14% from P 88.7 million as of December 31, 2004 to = 101.1 million as of December 31, 2005 mainly due to high occupancy rates. P = The Group’s other revenues decreased by 19% from P 1,251.1 million as of December 31, 2004 to = P 1,012.1 million as of December 31, 2005 due to a decrease in miscellaneous income and foreign exchange gain. = The Group’s finance cost increased by 37% from P 205.3 million as of December 31, 2004 to = P 280.8 million as of December 31, 2005 largely due to payment of interest expenses to bank loans in 2005.

38

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

= The Group’s equity in net losses of associates decreased by 69% from P 207.10 million as of = December 31, 2004 to P 64.6 million as of December 31, 2005 mainly due to the lower income of an associate. = The Group’s income tax expense increased by 44% from P 180.3 million as of December 31, 2004 to = 259.0 million as of December 31, 2005 largely due to higher taxable income. P = The Group’s net fair value losses decreased by 60% from P 111.9 million as of December 31, 2004 = to P 44.8 million as of December 31, 2005 largely due to the increase in fair value of the Group’s investments classified as fair value through profit and loss. The Group’s net earnings applicable to minority interest increased by 340% from a = 5.5 million P = loss as of December 31, 2004 to an income of P 13.1 million as of December 31, 2005 as a result of higher earnings incurred by a subsidiary. There are no other material changes in the Group’s financial position (changes of 5% or more) and condition that will warrant a more detailed discussion. Further, there are no material events and uncertainties known to management that would impact or change reported financial information and condition on the Group. There are no known trends or demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in increasing or decreasing the Group’s liquidity in any material way The Group does not anticipate having any cash flow or liquidity problems. The Group is not in default or breach of any note, loan, lease or other indebtedness or financing arrangement requiring it to make payments. There are no events that will trigger direct or contingent financial obligation that is material to the Group, including any default or acceleration of an obligation. There are no material off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other relationships of the Group with unconsolidated entities or other persons created during the reporting period. There are no material commitments for capital expenditures, events or uncertainties that have had or that are reasonably expected to have a material impact on the continuing operations of the Group. There were no seasonal aspects that had a material effect on the financial condition or results of operations of the Group. There are no explanatory comments on the seasonality of interim operations. There are no material events subsequent to the end of the interim period that have not been reflected in the financial statements for the interim period. There are no material amounts affecting assets, liabilities, equity, net income or cash flows that are unusual in nature; neither are there changes in estimates of amounts reported in a prior interim period of the current financial year.
Review of 2004 versus 2003

= For the year 2004, the consolidated net income (after minority interest) of the Group was P 807.7 = million which is 220% higher than the previous year’s net income of P 252.8 million. Total = = revenues in 2004 were P 4,191.2 million compared to P 3,314.8 million in 2003, a 26% increase. = Among product groupings, P 2,396.7 million of generated revenues came from the sale of residential lots, condominium and office units in 2004, representing a 1.0% increase from = P 2,371.8 million in the previous year. The Group’s registered sales came from the following

39

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

projects: Grand Eastwood Palazzo, Eastwood Excelsior, Olympic Heights, One Orchard Road and Eastwood CyberOne in Eastwood City; Forbeswood Heights in Fort Bonifacio; and Paseo Parkview, Greenbelt Radissons and Greenbelt Parkplace in Makati City. The other components of consolidated revenues were distributed among leasing and hotel = operations, and other revenue. Rental income for the year 2004 amounted to P 454.7 million compared to = 241.4 million in 2003, or an 88% increase. The Group’s hotel operations amounted P = to P 88.7 million in 2004 from = 73.8 million in 2003 or a 20% increase from the previous year. P = Other revenues for 2004 amount to P 1.3 billion or an 99% increase from the previous year due to an increase in interest income, foreign exchange gain and miscellaneous income. Cost of sales as a percentage of real estate sales was 71% in 2004 compared to 70% in 2003, = = = which amounted to P 1,694.9 million and P 1,652.6 million, respectively. Gross profit was P 701.8 = million for the year ended December 31, 2004 and P 719.2 million in 2003 or 29% and 30% of real estate sales, respectively. Realized gross profit as a percentage of real estate sales did not change from the previous year’s recorded rate of 24%. Realization of gross profit is recognized under the percentage of completion method wherein revenue is recognized by reference to the stage of development of the properties. Realized gross profit from current year’s sales decreased by 25%. Gross margins may vary depending on product mix. In general, the growth in operating expenses by 20%, from = 728.1 million in 2004 compared to P = P 872.8 million in 2003, was due mainly to the increase in marketing and selling expenses, particularly commission expenses resulting from aggressive marketing activities and other administrative and corporate overhead expenses. Operating expenses as a percentage of real estate sales was 36% and 31% in 2004 and 2003, respectively. Payment of interest expenses on = = bank loans resulted in an increase in finance costs by 151% from P 81.7 million in 2003 to P 205.3 million in 2004. Unrealized loss from the decline in the value of investment by a subsidiary in bonds and other debt instruments decreased by 46.9% in 2004. The 167.9% increase in equity in net losses of associates, from = 77.3 million to = 207.1 million, was due to the higher losses of an P P associate. For the year 2004, there were no seasonal aspects that had a material effect on the financial condition or results of operations of the Group. Neither were there any trends, events or uncertainties that have had or that are reasonably expected to have a material impact on net sales or revenues or income from continuing operations. The Group is not aware of events that will cause material change in the relationship between costs and revenues. There are no significant elements of income or loss that did not arise from the Group’s continuing operations.
Financial Condition

The Group maintains a prudent financial strategy due to economic instability and high inflation rates that the country is experiencing. Its balance sheet reflects stable financial growth. Total = assets as of December 31, 2004 were = 32,518.5 million compared to P 31,652.2 million as of P December 31, 2003, registering a 3% increase. = = Cash and cash equivalents increased by 33% from P 2,021.1 million in 2003 to P 2,688.9 million in 2004 due to efficient collection systems. Current and non-current trade and other receivables decreased by 12% and 39%, respectively, due to rigid collection of turned-over balance receivables from various clients of a subsidiary and reclassification of some accounts. The reclassification of accounts from property development cost in projects such as Grand Eastwood Palazzo and Forbeswood Heights and the accelerated completion of projects due for 2005 resulted in an = increase in the residential and condominium units for sale by 11% from P 3,636.1 million in 2003 to = 4,051.5 million in 2004. P The 6% decrease in property development cost from = 1,274.3 million as of December 31, 2003 to P = P 1,193.2 million as of December 31, 2004 was due to reclassification of certain accounts. = = Prepayments and other current assets increased by 67% from P 226.1 million to P 377.9 million due to payment for land purchased for development. Current and non-current trade and other
40

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

receivables decreased by 25% due to rigid collection of turned-over balance receivables from = various clients from P 5,382.2 million to = 4,000.8 million as of December 31, 2003 and December P 31, 2004, respectively. The increase in advances to joint ventures by 12% from = 219.3 million to = 246.0 million as of P P December 31, 2003 and 2004, respectively, was due to the grant of cash advances to be used for pre-development expenses such as relocation of existing occupants. = Land for future development increased by 54% to P 1,552.9 million as of December 31, 2004 from = P 1,010.1 million as of December 31, 2003 due to additional cost of land for development. Other = non-currents assets as of December 31, 2004 amounted to P 2,138.3 million compared to = 1,252.9 P million as of December 31, 2003, representing a 71% increase due to long-term investments. The = decrease in deferred tax assets from P 9.6 million as of December 31, 2003 to = 1.2 million as of P December 31, 2004 was due to the application of net operating loss carried over of subsidiaries. = = The decrease in property and equipment of approximately 12% from P 788.8 million to P 696.6 million was due to gradual reduction of depreciation. = = Trade and other payables amounted to P 1,486.6 million and P 1,251.5 million as of December 31, 2004 and 2003, respectively. The increase of 19% was due to additional cost payable to contractors and suppliers for new projects. = Customers’ deposits current as of December 31, 2004 amounted to P 1,224.8 million compared to = P 744.3 million as of December 31, 2003. The 65% increase of = 480.5 million was due largely to P aggressive marketing and pre-selling of various projects. The effect of current and non-current deferred income on real estate sales increased by only 8% = amounting to = 983.7 million as of December 31, 2004 as against P 910.0 million as of December P 31, 2003. Furthermore, reserve for current and non-current property development as of December = = 31, 2004 amounted to P 1,871.4 million compared to P 1,483.2 million as of December 31, 2003. = The increase of 26% or P 388.2 million was mainly due to uncompleted portion of cost attributable to various on-going projects. = Current and non-current interest bearing loans and borrowings amounted to P 4,589.5 million from = P 4,739.8 million as of December 31, 2004 and 2003. There was a 3% decrease due to partial settlement of obligation of a subsidiary. Total equity (including minority interest) increased to = 16,770.3 million as of December 31, 2004 P = from P 16,028.9 million as of end of 2003 due to the Group’s continuous profitability. Considered as the top five key performance indicators of the Group are shown below:
2004 2003

Current Ratio (1) . . . . . . Quick Ratio (2) . . . . . . . Debt to Equity Ratio (3)(6) Return on Assets (4)(6) . . . Return on Equity (5)(6) . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

. . . . .

3.21 : 1 0.58 : 1 0.29 : 1 2.48% 5.03%

4.03 : 1 0.56 : 1 0.31 : 1 0.80% 1.65%

Notes: (1) — Current Assets/Current Liabilities (2) — Cash and Cash Equivalents/Current Liabilities (3) — Bank Loans/Equity (If the ratio will exclude the peso loan obtained against proceeds of the dollar loan, the ratio will = = be P 0.06 : 1 in 2004 and P 0.07 : 1 in 2003) (4) — Net Income/Total Assets (5) — Net Income/Equity (6) — Computed using figures attributable only to parent company shareholders

41

1 million as of December 31. 2004 largely due to the application of net operating loss carried over subsidiaries.3 million as of December 31.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS With its strong financial position.274.051. = The Group’s other non-current assets increased by 71% from P 1. 2004 largely due to long-term investments. 2003 primarily due to granting cash advances for pre-development expenses such as the relocation of existing occupants.2 million as of December 31.138.8 million as of December 31.0 million as of December 31.021.9 million as of December 31. 2003 and P 2.6 million as of December 31. 2003 primarily due to the gradual reduction of depreciation expenses.000.1 million as of December 31. the Group will continue investing in and pursuing expansion activities as it focuses on identifying new markets.8 million as of December 31. 2004 and P 5. 2004 and P 226. 2003 mainly due to a = decline in the value of marketable securities of a subsidiary amounting to P 111.522. 2004 and P 3.010. 2004 compared to December 31. 42 . 2003 primarily due to the reclassification of P some accounts to residential and condominium units for sale. = The Group’s investment in bonds and other debt instruments decreased by 13% from P 4. 2003 primarily due to rigid collection of turned-over balance receivables from various clients of a subsidiary and a reclassification of some accounts.058.2 million as of December 31. 2004 and = 1.3 million as of December 31.0 million as = of December 31.1 million as of December = 31. 2003 to P 1.252.629. = The Group’s deferred tax assets declined by 87% from P 9. 2004 mainly due to efficient systems.9 million as of December 31. = The Group’s residential and condominium units increased 11% from P 4. 2004 mainly due to the additional cost of land for development. Certain accounts in the 2004 financial statements were reclassified to conform to the 2004 financial statements presentation.3 million as of December 31.5 million as of = December 31. Material Changes in the Group’s Balance Sheet as of December 31. = 2003 to P 2.193. The Group’s net property and equipment declined by 12% to = 696. 2003 largely due to a payment in relation to the purchase of land for development. = The Group’s current and non-current trade and other receivables decreased by 21% from P 4.138. = The Group’s advances to joint ventures and landowners increased by 12% from P 246. the Group sufficiently met capital requirements for the whole year of 2004. 2003 (increase/decrease of 5% or more) = The Group’s cash and cash equivalents increased by 33% from P 2. 2003 mainly due to the reclassification of accounts from property development cost.9 million as of = December 31. maintaining established markets and tapping business opportunities. = The Group’s property developments costs declined by 6% from P 1.2 million as of December 31.688. = The Group’s prepayments and other current assets increased by 67% from P 377.9 million as of December 31. 2003 = to P 1. 2004 and P 219.4 = million as of December 31.8 = million as of December 31. It has sufficient resources coming from internally generated funds and looks forward to better business prospects and earnings for the coming years.86 million and the transfer of some investments to short-term placements.1 million as of December = 31. P = 2004 from P 788. = The Group’s land for future development increased by 54% from P 1.753. 2004 and P 4. Sustaining a high level of development activity.636.

P = 2003 to P 1.8 million as of December 31.251. 2003 compared to P 207. Material Changes in the Group’s Income Statement as of December 31. 2003 to P 842. 2003 to P 1. 2004 from P 1. 2003 largely due to the payment of interest expenses on bank loans in 2004.4 million as of December 31. 2003 primarily due to the uncompleted portion of costs attributable to various on-going projects.7 million as of December 31.739.8 million as of December 31.483. 2004 mainly due to additional costs to be paid to suppliers for new projects.6 million as of December 31. = The Group’s equity in net losses of an associate increased by 168% from P 77. 2003 primarily due to increases in marketing and P selling expenses. 2003 to P = P 14.1 million as of December 31. 2004 compared = to P 81. 2004 compared to December 31.7 million as of December 31.3 million as of = December 31. 2004 mainly due to additional income tax payable of a subsidiary in 2004.251.871. 2003 (increase/decrease of 5% or more) = The Group’s total revenue increased by 26% from P 3. 2004 compared to = 728. 2003 largely due to higher income and effective P cash management and sound investments.3 million as of December = 31. 2004 representing an increase in unearned revenue for the current sales. The Group’s income tax payable increased by 49% from = 9.9 million as of December 31.2 million as of December 31. 2003 to P 1. 2004 primarily due to the high occupancy rates of P office spaces and commercial center. 43 .7 million as of December 31.4 million as of December 31.5 million as of December 31.1 million as of December 31. = The Group’s finance cost increased by 151% to P 205.314.8 million as of December 31. unrealized foreign exchange losses of a subsidiary as well as other administrative and corporate overhead expenses. 2004 mainly due to the settlement of an obligation with an associate.7 million as of December 31.4 million as of December 31.871. 2004 mainly due to high occupancy rates. 2004 largely due to aggressive marketing and pre-selling of various projects. 2004 from P 4. 2003 compared to = 88. The Group’s rental income increased by 88% from = 241. 2003 = compared to P 4.5 million as of December 31.1 million as of December 31.8 million as of December 31. = The Group’s operating expenses increased by 20% to P 872. 2003 mainly due to the partial settlement of an obligation of a subsidiary. The Group’s current and non-current reserve for property development cost increased by 26% to = = P 1. 2004 largely due to an increase in losses incurred by an associate. = The Group’s current customers’ deposits increased by 65% from P 744.589. 2004 mainly due to the combined increase in rental and other revenue.2 million as of December 31. = The Group’s advances from associates and other related parties declined by 81% from P 862. = The Group’s hotel income increased by 20% from P 73.3 million as of December 31.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Group’s trade and other payables increased by 19% from = 1.8 million as of December 31.244. P = The Group’s other revenues increased by 99% to P 1.4 = million as of December 31.191.1 million as of December 31. The Group’s current and non-current interest bearing loans and borrowings decreased by 3% to = = P 4. The Group’s current and non-current deferred income on real estate sales increased by 8% from = = P 910 million as of December 31. 2004 compared to = 627.486.8 million as of December 31. 2003 P compared to = 454.

including any default or acceleration of an obligation. liabilities. neither are there changes in estimates of amounts reported in a prior interim period of the current financial year.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Group’s unrealized loss from the decline in value of investment in marketable securities decreased by 46. = The Group’s income tax expense increased by 23% to P 180. There are no material events subsequent to the end of the interim period that have not been reflected in the financial statements for the interim period.2 million as of December 31.9% primarily due to an increase in the value of marketable securities. There are no explanatory comments on the seasonality of interim operations. There are no material commitments for capital expenditures. commitments. and other relationships of the Group with unconsolidated entities or other persons created during the reporting period. 44 .3 million as of December 31. equity. loan. arrangements.5 P = million as of December 31. net income or cash flows that are unusual in nature. The Group is not in default or breach of any note. The Group does not anticipate any cash flow or liquidity problems. There are no known trends or demands. Further. There are no material off-balance sheet transactions. there are no material events and uncertainties known to management that would impact or change reported financial information or the financial condition of the Group. 2003 mainly due to a higher taxable income. lease or other indebtedness or financing arrangement requiring it to make payments.0 million as of December 31. events or uncertainties that will result in or that are reasonably likely to result in increasing or decreasing the Group’s liquidity in any material way. There are no events that will trigger direct or contingent financial obligation that is material to the Group. 2004 compared to = 147. There were no seasonal aspects that had a material effect on the financial condition or results of operations of the Group. There are no material amounts affecting assets. 2003 largely due to losses incurred by a subsidiary. events or uncertainties that have had or that are reasonably expected to have a material impact on the continuing operations of the Group. There are no other material changes in the Group’s financial position (changes of 5% or more) and condition that warrant a more detailed discussion. P The Group’s net earnings applicable to minority interest declined by 176% to negative = 5. obligations (including contingent obligations). 2004 compared to P 7.

7% to 6. The Philippine domestic economy grew by 5. and escalating oil prices in the third quarter. which increased by 6. transport fare and production costs. Philippines Economic Overview Over the past six years. continues to be the core growth driver. power rates.9%. The Government is expecting GDP growth to reach from 5. In the last quarter alone. By 2002. A partial recovery in full year GDP growth of 3. The Government is focused on increased revenues from the expanded value-added tax. the domestic economy started strongly in the first half. 45 .5%. soaring global oil prices led to higher local gas prices. The information in this section is based upon estimates. It appears that the slowdown in the third quarter of 2005 was due to both political noise. which eased in the last quarter of 2005.3% in 2005 on the production side. Indeed.INDUSTRY PHILIPPINES OFFICE AND RESIDENTIAL PROPERTY MARKETS The Company commissioned Colliers International Philippines. which increased at 4. However. coupled with a rebound in exports and new investments to offset risks from higher oil prices and inflation. GDP increased by 6. The share of private consumption in the domestic economy is significant at approximately 70%. As such. which was lower than the 6. This followed the regional economic and currency crisis of 1997 and the effects of an El Nin o-induced drought which caused the agricultural sector (20% of GDP) to contract by 6. private consumption. growth was not broad-based with a particular focus on private consumption.1% in 2005 compared to the previous year. which faded in the fourth quarter. Inc. The publications have been prepared based on discussions with the Company and relevant market findings. By the end of the year. which increased at 5. from 2000 to 2005. GDP growth softened to 3. an independent property consultant.5%. to prepare a report on the office and residential property markets in the Philippines. The estimates are subject to variations that may arise as circumstances and future operations materialize.3% in 2006. However.4% in 1999 and 4.6% slightly surpassed the Government’s target of 4. (‘‘Colliers’’).3% in ˜ 1998. the estimates provided in this section may not be representative of the final result.1% compared to 4. full year GDP growth in the Philippines has averaged 4.5% growth in the previous quarter. Growth in 2003 was still at a low-level equilibrium at 4. The information in this section has been extracted from the Collier’s report and has not been independently verified by the Company or the Lead Manager or any of their respective affiliates or advisors. the Arroyo administration inherited an economy threatened by a burgeoning budget deficit and accelerating inflation. posting a 6.5% rise. the GDP expansion of 4. assumptions and other information developed from market research and knowledge of the industry.0% in 2000 reflected a low base in agriculture.0% achieved in 2004 but above analysts’ consensus.6% in 2001. the economy resisted the price shocks and the 15-year high GDP registered at 6. fueled by the robust performance of the three major sectors including a modest increase in the compensation income of overseas Filipinos remitting income to the Philippines. While growth was led by the services sector. manufacturing and exports.3% in 2005 and the industrial sector.0%.6%. By 2004. While the resignation of President Estrada temporarily bolstered confidence.

Subdivided lots usually 500 sq. . SSS.4% 10. . . . . . . 2000 2001 2002 2003 2004 2005 (growth rates. luxury condominiums with floor area of over 300 sq. . . . .3% 1. . .8% 0.61 5.1% 5.7% 4. . . .7% 5. .m. . . and above. . . . . . .2% = P 50. . min. .9% 2. . Average 91-Day T-Bill Rate (actual) .2% 2.0% 17. . . .5% = P 213 5.1% 4.0% 3. Inflation .500. . .2% 3. . . . .3% = 187 P 5. . .000 Market rates 15 to 20 years 70%–80% 70% of appraised value Market rates 15 to 20 years 60%–70% Row houses. . GSIS = P 225. . . Imports . . . Source: Colliers International Research 46 .9% 9.6% 4. . . .3%) 2. . . .2% 6.1% 5. .7% 2.8% 4. . . . . . inhouse financing from developers Mortgage Terms: = Max Loan Amount P 225. . . Not more than = P 225. . a few private banks = P 750.000 P Source of Mortgage Financing .3% 4.1% 9. . Agriculture . . . Typical Size and Type of Housing. .8% 3. . . . .m.7% 3. . .3% = P 51. .5% 0. . condominiums. . . . . . . BSP Philippine Residential Property Market Overview The Philippine residential property market is segmented into four distinct categories. . . .m.001 to = P 750. Philippine Residential Market Segmentation Characteristics Socialized Low Cost Middle Income High End Price per Unit . . . .7%) (5.. . . . . . . min floor area of 18 sq.Industry Historical National Income Accounts (January to November 2005) The following table sets out the performance of certain of the principal economic indicators for the Philippines. . lot area of 36 sq.5% 14.6% 5.4% (4. . .001 to = P 5.1% 4.000 Mortgage Rate Max Loan Term . . . Exports . . . . floor area of 120 sq. particularly banks. . . .9% 2. . .000 Private financial institutions.0% 3. . . . . . 4. Investments . .0% 5. min floor area of 22 sq.4% = P 56.5% = 53. . . largely based on pricing. .6% 4. . .97 9.1% 3. . . .9% = 44. . .3% 13. PNB. . . . lot area of 32 sq. .m. . . . . . . . . .2% 7. . . .3% 0. . . Government financial institutions like LBP.3% 4.3% 7. . .7% 12. .7% 5. .7% (4. . .m. . .8% 3.5% = P 55. . . . . . . . .5% 0.0% 9.7% = 147 P 4. . Services .000. Average Prime Lending Rate (actual) = P :US$ (average) . townhouses. Lots.9% 4. single detached units. . Personal Consumption Expenditure. .0% = P 123 National Statistical Coordination Board.8% 3. in-house financing from developers Above = 5.9% 5. . Industry . Duplexes.3% 4. . . .0% 5. . . . . particularly banks. . . GDP .1% (3. GSIS. . min. . . Private financial institutions. .000. .7% 3. single detached units.6% 9.03 6. .9% = P 199 6. except where otherwise indicated) GNP. .04 7. . .26 P 9. .000 Market rates 30 years 90% = P 3. . Loan: Appraisal Value.8% 2. Government Expenditure . . . . Source: .m.m. . . ave.8% 5. . .000 Funding agencies such as HDMF. . . . . . . SSS. DBP.9% 4. .4% 4.0%) 3. . . .1% 14. . . . .96 P 5.. .5% 10. . . .3% 6. . . . . .0%) 3.5% 4. . . . .3% 3. . .3% 6. .6% 1. 9%–10% 30 years 100% = P 675.9% = 136 P 4. . . .000 Funding agencies such as HDMF. Budget Deficit (billion) .

. If the residential demand from household formation in Metro Manila is to be segmented by affordability. . . . . . . . .197 1. . . . . .6 million houses to address the growth in households and 1. . 47 . . . . . . is overseas foreign workers that hold high-paying jobs and Filipino immigrants abroad.245 9. . . . . . . . . . . of which 350. . . . . . . . . . . . .031 1. . . .028 5. .230 5. . . . . . . . . From 1996 to 2005. . .695 7. . . . .472 units are from pure household formation. .5 billion in 2004. . .8 million houses are needed from 2005 to 2010 or 626.942 290 423 503 664 669 769 928 1. . . . . .319 3. . . . . . . . . .262 households have been created per year. In Metro Manila.927 290 423 503 664 669 769 928 1. . .262 households created since 1996. . . . . . . . . . . .384 4. . . . .031 1. . . . . Since 1995. . . . . it is estimated that the average demand has been 18. . . . . . . . .132.Industry The Government estimates that 3. . . . . 2. . . . There are an estimated 8. . . . . Discussions with developers revealed that overseas Filipinos’ remittances have a significant impact on the residential segment. .640 6. . . . . . . . . . . . . . . . .035 6. .971 14. . . .466 mid income housing units per year. . . . . . . . . . . . most importantly for the mid-income residential segment.577 11. . . . . . . . remittances in 2005 are estimated to have reached US$12. . . . . . .012 houses each year. . . . The Government estimates that overseas Filipinos’ remittances increased by 27% in 2005 to US$10. . . . . . . . . .034 units per annum. . .899 4. . . . . . . . . . .1 million Filipinos abroad. .3 billion. . . . . .356 6.6% per annum. . . . . it is estimated that an average of 33. . . .493 2.685 9. . . . . low cost housing has the highest demand at 57% of new households. . . . Including inflows from informal channels. . . followed by mid-income at 12. . . Demand estimates from this segment are set out below: Distribution of Overseas Filipino Housing Demand in Metro Manila Metro Manila Demand (units) Year Low Cost (10%) Mid Income (80%) High End (10%) 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Source: . The 2000 census revealed a total of 2. . . . . . . The housing segment that offered the most significant potential is low cost with an average need of 19. . . . In the last ten years. . . . . .092 units per year. . . . .9 billion from US$8. . . .928 units. .421 8. . . Demand from Overseas Filipinos A major source of buyers.197 1. .276 10.148 7.493 Colliers International Research The demand for housing in Metro Manila is derived from adding the pure demand from household formation and those from overseas Filipinos. the impact of the overseas Filipino is the enhancement in the demand for mid income units. .306 11. . . .312 5. . the six-year housing demand is estimated at 496. . This is followed by the mid-income segment at 36%. . . . . . . . . . . .2 million in backlog and replacement. . . . . . the number of households in Metro Manila has expanded by 1. . . . . . . . .989 households in Metro Manila. . . There is an average of 33. . . . . . . This includes 2. While the low cost segment still presents the highest demand. . .

. . .656 176. . . . . . . It is further estimated that the Metro Manila backlog for the middle income is 233. . .899 184. .304 23.193 36.587 (8.932 21. . . . .069 units. . . 1997 . .123 housing units in the last ten years.402 30.805 22. . . Popularity is attributed to: 1) infrastructure constraints in Metro Manila have dictated a preference to be close to employment centers. .229 108 110 112 113 115 117 119 121 123 125 1. . . . .466 1. . . The mid-income segment’s unmet demand from the primary market in the last ten years is at 8. . . . . .101 39.412 units in Metro Manila. . . . 48 . . This represents demand from pure household formation and the impact of demand from overseas Filipinos. . 2004 .426 2.656 units computed in the table above. . . . . Average Source: . . . 2000 . . .995 39. .304 19. . . 2003 . .800 21. . .975 2.666 41. . . . .017 18. . . 2) while landed property remains the preferred format.855 47. . . there is a budgetary constraint coupled with the need to be in proximity to the city center. The Government estimates an annual backlog of 58. . . . .402 2. 1998 . . . .934 (174. . If the Government’s estimates for backlog (to account for replacement and obsolescence) are included. . . . . . 2005 . . .694 1. . .824 15.541 1. .762 676 18. .888 198. . (Deficit)/Surplus . . This is a deficit of 241. pure demand from household growth and overseas Filipinos’ remittances extends to a total of 411.696 36. . .648 units from 1996 to 2005.370) 184. . . the aggregate demand increases to 418. . .647 17. .304 units.286 41. . . . Total . . . . . . . . the deficit significantly increases. .123 273. Colliers International Research In terms of demand. Source: Colliers International Research 411. . . .342 18. .Industry Annual Demand in Metro Manila from Household Formation and Overseas Filipino-Related Demand Can not Afford Year Households Socialized Low Cost Mid Income High-End 1996 . . 2001 . there is a deficit of 137. . .869 (137.581 14. . . . . . . .932 20. residential condominium living in the Philippines has gained ground due to increased market acceptance.163 116 630 640 650 660 670 681 691 702 713 725 6. .717 units compared to the number of HLURB licenses to sell that have been issued. .323 19. . 3) lower maintenance costs for condominium living and 4) the growing trend of children moving out of their parents’ homes earlier.431 198. . . . . . Total HLURB License to Sell (1996–2005) (1) 1996–05 Total Socialized Low Cost Mid Income High End Demand . . .302 2. . . .370 units of unmet by developers. . . . . . . Philippines Residential Condominium Market Beginning in the 1990’s. . . . . .569 412. . .792 19. . .254 units. . . .787 20. . .753 Note: (1) excluding housing demand that could not afford socialized housing The most significant demand is in the low cost segment with 174. . . . .429 18.537 19.794 1.113 17. . . . .062 50. . . . Total Demand vs. .277 21. . . . . . .140 National Statistics Office. . . . . . . . . 1999 . .291 44. . . . 2002 . 33. .155 8. . In light of the primary supply from developers (as measured by issued HLURB licenses to sell). .001 2.762 43. . . . . If this is added to the 184. .334 24. . . . . HLURB License . . . .174 43.121 2. . . .240 19.878 35. . . . . . .615 2.392 20. .830 13.069) 21. . . . . . .656 18.254) 6. .

. . . . . . .352 4. 2. . . .123 4.354 5. . . . . . 2000 .012 1. . .354 52% 1. . .745 5.624 23% — — — — — — — — — — 236 640 640 744 1. . . . the number of residential condominium units in the five prominent condominium districts stood at nearly 20. . .012 condominium units is comparable to the combined supply in Fort Bonifacio and Rockwell at 2. . .233 1. . . . . . . 1996 . .865 15. Among the locations for condominium living in Metro Manila. As of the end of 2005.747 8. . .278 4. . . . .749 5. . . . approximately 46% of residential units have been in existence for more than 10 years. . . . Pioneer and the Greenfield re-development are nearly adjacent to Ortigas. . . . . . . . .626 1. . . .121 4. .432 7. . . .Industry Residential condominiums used to be exclusive to the financial districts of the Makati Central Business District (‘‘CBD’’) and Ortigas. . The stock has grown by a compounded average of about 12% per annum since 1990.871 100% Colliers International Philippines New Residential Communities in the Philippines Infrastructure constraints dictate that satellite communities offering an alternative to the CBD and Ortigas are still located at the periphery of the financial districts. . . . . . . . . 1991 . . .387 8. . On average. . the Makati CBD was the main location for condominium living in Metro Manila with nearly three-quarters of the stock in this location. . . . . . . . . . . . . . . . . . . . . . . . . 1995 . its current stock of 2. . It is more interesting if one considers that Eastwood City is only 15 hectares while Fort Bonifacio and Rockwell have developable areas of 214 and 15 hectares. .129 8. .459 2.440 7% — — — — — — — — — — — 584 584 1. . . . . . Until the late 1990’s. . .584 11. 1998 . In the last five years alone. .076 units have been added annually to the aggregate stock since 1990. 1993 .626 1. nearly a quarter of the residential units were built before 1995. . . . . . .238 2. . infrastructure constraints and lack of amenities gave birth to alternative locations such as Rockwell. .175 4. . .891 6. . . .104 8. .119 4.348 2. 1. .175 4.000 units. . . As of end-2005.998 2. . . . . . respectively. . .175 4. .978 6.175 4. . . . the Makati CBD only accounts for approximately 50% of condominium stock. .530 10.597 5. . . .312 14. . 1994 . . . . .012 10% 3. . 1999 . . . . . . . . . . . .459 3.125 7. . . In Ortigas. . Close to the Makati CBD are Rockwell and Fort Bonifacio while Eastwood City. Eastwood City has exhibited the fastest growth.844 8. efficiency issues. . .441 7% — — — — — — — — — 391 797 797 797 797 797 1. .562 4. .173 1.996 17. it was nearly a monopoly of these locations until the late 1990’s. . . . . .441 1. . . . . Fort Bonifacio and Eastwood. Market acceptance for new locations has been boosted by deficiencies in amenities and the age of residential accommodation in traditional areas. . . . . 2001 . 2002 . . . However. 1992 . .268 9. 2005 . . In the Makati CBD. . . . . . . .881 units. .291 19. .513 13. . In fact.669 9. Percentage Source: . . . In fact.175 4. . 1997 . .583 14. in 2005 . . Year-End Residential Condominium Stock The following table shows the year-end stock of residential condominiums units: Year Makati CBD Ortigas Fort Bonifacio Rockwell Eastwood City Total 1990 . .891 9. . . .474 1. . . 2004 . . 49 . . . . it has grown by a compounded rate of 36% per annum. .735 5. . . . 2003 . .

.275 652 19. . Analyzed by location. . Admirable are projects in Rockwell and Fort Bonifacio. . . Studio and one bedroom units account for 72% of the aggregate future stock. 2007 . 532 284 845 390 383 2. . (2) Fort Bonifacio is seen as relatively cheaper in terms of land value.217 11% 1. . . . From 1997 to 2005. It is interesting to note that while configurations are smaller. . . .434 12% 546 450 1. . 2008 . .351 5. .108 — 5. . This development trend is due to: (1) Makati is seen as a mature development with land values at a premium compared to other locations.188 838 — 6. Until the slowdown in Philippine real estate in 1997. . Shift in Condominium Configurations There has been a major shift in unit configuration. Total . . There are niches of opportunities such as the middle income residential condominiums where intense marketing effort has been exerted to result in sales movement. . Fort Bonifacio accounts for the majority or 30% of the future supply. . lease rates have rebounded. . By location.189 5. . This is followed by Ortigas having 5. .037 30% — 1. .807 units are slated to be completed from 2006 to 2010. . 50 . In 2005 alone.060 364 269 3. followed by Ortigas and environs (includes Greenfield re-development and Pioneer area) at 31%. . developers have managed to increase the selling price per square meter. .340 5. San Lazaro. . . . . prime residential condominiums had been enjoying high pre-sales performance. . Percentage Source: * . . rents escalated by as much as 25% compared to 2004 as demand started to strengthen. . We believe that the property market is in a new development cycle. Araneta Center redevelopment. . . Eastwood (24%). . . the distribution according to configuration has been fairly equal.244 2. it has proven that it can attract the same market as the Makati CBD due to its proximity.344 720 1. . . We have identified 39 comparable mid-income residential condominium projects within five pertinent locations. New locations are now emerging such as Newport City. . . .642 — 575 — 2. . Affordability concerns have led to this shift. . . .757 19% 3. the Bay Area and McKinley Hill. . . units slated to complete until 2010 exhibit a major shift towards the smaller unit configuration. .258 3. Fort Bonifacio accounts for 32% of the comparable units. . . . . . . . .Industry Future Supply of Residential Condominiums The following table shows the future supply of residential condominiums in units: Year Makati CBD Ortigas* Fort Bonifacio Rockwell* Eastwood City Total 2006 . . 2010 . . . Residential Sales Growth After falling by as much as 45% to its trough after the Asian financial crisis in 1997. However. . . 2009 .362 27% 767 2. . which have adopted creative marketing strategies like the use of well-designed model units to attract interest.807 100% Colliers International Philippines includes fringe projects A total of 19. . However. .362 of the units or 27% of total. . . . . . . . the Makati CBD (10%) and Rockwell (2%). . and (3) Rockwell is seen as a niche development. . . . . Developers offered smaller configurations to make the total contract price more affordable. . Sold ratios for various developments starting the third quarter of 1997 have slackened. .

Antel Land Holdings . . . Projects launched in the last quarter of 2005. . . At the height of its marketing campaign. . . . . . . . . . . . In fact. Ayala Land’s interest consists of land. . . . . . . . . . . . G&W Architects and Planners. . . . . .’s real estate subsidiary in 1988. . . East of Galleria and St. . Megaworld was established in 1989 by founder and major shareholder Andrew Tan. . . . .724. . . . .453 per square meter. .000 to = 20. . . . . . . . there is a development offering a studio unit below 20 square meters. this is due to the near sold-out sales ratio. . . .246 961 958 384 356 302 38% 18% 8% 8% 8% 6% 6% 2% 2% 2% Colliers International Philippines Strong Condominium Sales Addressing the issue of affordability.965 2. . . . Philippine Township . . = = The average total contract price of our pre-selling developments is P 3. . . . 77% of the projects being pre-sold are configured as studios and one-bedrooms. . Ayala Land . . . . . . . . . . . . . . . This compares to the 50. . . . . . . . . Developer Market Share in Comparable Developments Sampled Developer Units Percentage Megaworld. . . hotel and theater operations. . . . . Cityland Development . . . . . . have exhibited strong market acceptance. . . . . . . . . . . . . . . . . . . . . . The company is primarily a retail player through its Robinsons chain of malls. . As such. take-up of approximately 40 units per month was usually achieved. . . . . . . . . Meridien Development . unit sizes are following a module of about 45 square meters per bedroom. Francis Residences. . . . . . . . . . . . . . . Newport City and Araneta Center. . . . . . resort development. Ayala Land. . . . . . . . . . .293 per unit or P 70. . . . . . . . . office and commercial leasing. . . . . .855 1. . Ayala Land is the largest listed property company in the country and was spun off as Ayala Corp. . . . . . . . 51 . . the biggest real estate developer in the country. . . .264 1. Kuok Properties. . While projects in Eastwood City and Fort Bonifacio (particularly Megaworld developments) are registering absorption below 20 units per month. . . . . buyers are looking into the payment scheme. . . . . . . . . . . .Industry Leading Residential Condominium Developers In terms of market share. . . . . such as Columns Legaspi. or 72% of total supply within surveyed projects has been sold to the market. Source: . . . . . . . Further addressing prohibitive total contract prices. It started as a developer of high-rise residential and commercial properties in Makati and Ortigas. Other real estate segments that it is exposed to are high-rise residential/commercial projects and residential subdivision development. . .206 residential units. . . . . . . . . . . middle-income housing. . . . . . . The average take-up per residential condominium in the survey is 21 units per month. developers have devised payments terms that target a monthly amortization of = 15. It is a relative newcomer in the middle income high rise segment with its subsidiary Community Innovations. . We have observed that more than the total contract price. . . . . . Xcell Property Ventures. This is followed by Robinsons Land with 18% of the comparable units. . . . . . . . . . . . . . . . . Megaworld is the leading developer in the mid-income residential condominium segment with nearly 40% of the units in the sampled comparable projects. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .264 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . is a relative newcomer in this segment. . . . . . . . . . . . . . . . . . . . . . . Fort Bonifacio. . Robinson’s Land . . . . . . . . . . . . . . . . . . . . . 5. . . . .to 60-square meter per bedroom module before the financial crisis. . . Its current strategy is the creation of community township developments in Eastwood. . Robinsons Land Corporation is the real estate arm of the Gokongwei-controlled JG Summit Holdings Inc. . . . . . . . . . .000. . . . P P The pre-selling market continues to be strong market given that a total of 11. . . . . . . .

. . Corp. Rockwell and Environs Metropolitan Tower . . . . . . . . . . Philippine Townships AVERAGE . . . . Corp. Bonifacio West/Megaworld Bonifacio West/Megaworld Bonifacio West/Megaworld Robinsons Land Corporation Bonifacio West/Megaworld Bonifacio West/Megaworld Xcell Property Ventures Inc. . . . . . . . . . Community Innovations 284 356 284 312 390 325 450 952 306 632 1. . Venue Makati Tower The Columns Tower 3 . Eastwood Parkview T2 . 52 . Columns Legaspi Tower 1 . . . Source: Colliers International Research Megaworld Megaworld Megaworld Megaworld Megaworld Megaworld Megaworld Megaworld Corp. . . . . . . Corp. . G&W Architects and Planners Bonifacio West/Megaworld Bonifacio West/Megaworld Bonifacio West/Megaworld G&W Architects and Planners Meridien Development Philippine Townships Inc. . . . . . . . . . . . . . . Fort Bonifacio Kensington Place . . . . . . . . . . . . . . .Industry Sales Performance of Comparable Condominium Projects Average Monthly Sales Project Developer Total Percentage Sold Months Selling Makati CBD and Environs The Columns Tower 2 . . . . . . . . . . . . Forbeswood Florida . . . . . . . . . . . . One Orchard Road 2 . . . . . . . . . . . . . McKinley Park Residences . . . . . . . . Corp. . . . . . . . Forbeswood Cambridge Hamptons Place . . . . . . . . . . . . . . . . . . . The Bellagio 2 . . Meridien Development Bonifacio West/Megaworld 201 172 197 197 183 228 611 230 161 245 688 364 389 302 357 228 253 294 350 350 448 448 448 720 530 530 344 269 470 399 South of Market Tower 1 Fairways Tower. . . The Bellagio 1 . Gateway Garden Heights . . . . . . One Central Park . . . . . . . .264 504 286 422 602 93% 70% 94% 41% 20% 61% 88% 51% 92% 19% 13% 93% 88% 43% 49% 100% 98% 97% 93% 95% 97% 83% 96% 88% 96% 93% 91% 81% 85% 71% 14% 38% 83% 40% 40% 89% 93% 95% 98% 96% 97% 91% 90% 94% 72% 27 16 26 9 1 16 31 7 15 2 2 21 7 7 12 23 45 45 45 10 22 24 45 45 45 20 20 20 10 8 4 5 26 24 24 53 56 58 46 40 31 16 10 39 24 10 15 10 14 88 27 13 70 19 60 89 22 36 26 42 9 4 4 4 17 10 21 5 3 5 32 17 16 26 31 8 19 14 6 6 8 7 7 15 13 17 21 24 14 21 Robinsons Land Corp. . . . . . . . . . . Eastwood Parkview T1 . . . . . Corp. . AVERAGE . . . AVERAGE . . . . . . . . . . . Robinsons Land Corp. . . . . . . . . . . . . . . . . . . . . . . . Eastwood One Orchard Road 1 . . . . . . . . . . . Fifth Avenue Place . . . . . . . . AVERAGE . Grand Eastwood Palazzo 1 & 2 . . . . . . . One Orchard Road 3 . Forbeswood Bauhinia . . . . . . . Eastwood Parklane . . . . . . . . . . Soho Central Tower 1. . . . . Corp. South of Market Tower 2 . . . . . . . Kuok Properties Meridien Development Meridien Development Robinsons Land Corporation AVERAGE . Rada Regency . . . . . . . . . . . . . Robinsons Land Corp. . . . . . . . . . . Community Innovations Antel Land Holdings. . . Corinthian Executive Regency . . . . . . . . . . . . Forbeswood Dorchester . Corp. St Francis Residences . . Soho Central Tower 2. . . . . . . . Gateway Garden Ridge . . . . . . . . . Forbeswood Evergreen . . . . . . . OVERALL. . . . . . . . Ortigas and Environs One Gateway Place . . . . . . Forbeswood Parklane 1 . Inc Community Innovations Cityland Development Corp. . . . . . . . . . . . . . . . . . . . . . East of Galleria . . . The Icon Tower 1 . The A. . . . . . . . . . Cityland Development Robinsons Land Corp. . . . . . . 1 . Forbeswood Agoho. . . . . . .

Fort Bonifacio. a penetration rate of 30% of the market abroad would yield an estimated 3. The office stock in the CBD comprises 2. . . . . . Extending to a total area of 200 hectares. . .171 140 3. . .251 42 1.549 11. . . flight to quality as the availability of new Premium quality space affords tenants the opportunity to up-grade. . . . . . Premium and Grade A quality buildings comprise 31% of all office space in the Makati CBD. 1. It is not unusual for developers to achieve 30% to 40% of their sales from buyers abroad. The relatively poor quality of office stock in Metro Manila is partly a function of its age. Estimated Sales from Abroad Location Total Units Sales Rate Total Sold Local Sales Sales Abroad* Makati CBD and Environs .555 61% 49% 83% 40% 94% 72% 986 2.844 296 708 1. . Eastwood. Approximately 65% of the existing office stock is over 10 years old and not of the quality usually demanded by multinational companies. vacancies were recorded at 5. Usually marketed in areas where Filipinos have migrated and are holding whitecollar employment. are the most active sectors in the market. . . . The office segment. . The Makati Central Business District (‘‘CBD’’) accounts for 60% of current stock. It is also the preferred location for most multinationals. . . . . .065 3. . . . . . .652 2. . During this period. . Fort Bonifacio Global City is considered an expansion area for the existing CBD rather than a competitive alternative. .006 350 3. Demand for office occupation is driven by the requirements of the Business Processing Outsourcing (‘‘BPO’’) industry. . .360 4. . Rockwell and Environs . Ortigas and Environs . .757 15. the most evident demand characteristics were: . .484 7. together with the mid-income residential condominium segment. . demand from call centers and business process outsourcing units have pushed Premium and Grade A vacancy to the current single-digit levels. . . 53 .Industry Aside from local buyers. The strong recovery in office take-up was recorded beginning in 2002. As at the end of 2005. . .5% in Eastwood City. Given that our sampled developments have sold an estimated 11.816 5. . 0% in Fort Bonifacio and 3. . . . . . . . . . OVERALL AVERAGE .920 98 2. . . . . . . Other office locations have similarly recorded strong absorption.362 Colliers International Research assuming 30% of total sales Philippines Office Property Market Overview The stock of office accommodation in Metro Manila currently extends to approximately four million square meters of leasable space. .647 million square meters. roadshows are done to promote real estate developments. Filipino immigrants are one of the most significant client bases for midincome residential projects. . .7% in Ortigas.206 690 1. .206 units. followed by the alternative business district of Ortigas at 24%. the residential segment has also benefited from rising tenancy. Consequently. Source: * . . Makati CBD Overview The Makati CBD is considered Metro Manila’s traditional office location.626 4. . . . . . . . A prominent feature of the current market is the overseas market that is being tapped. . .362 units. . most major Philippine corporations are headquartered in Makati.

000 full-time jobs within the BPO industry. companies seeking expansion space had few relocation options and no room for negotiation on the lease terms demanded by landlords. where offices were not developing as quickly as residential units. take-up has recovered since 2002 at an average of approximately 49. Eastwood City Cyberpark has been heavily marketed as a selfcontained area designed to meet the high-tech and environmental requirements of a community of IT companies. a former military base. this was compounded by the 1997 downturn which led to a collapse in demand. per year.000 square meters per year. It appears that demand is coming from: . Market rents for the better quality buildings in the Makati CBD decreased by approximately 50% to 55% to in mid-2003. While the ‘‘landlord’s market’’ of the mid 1990s did encourage a level of over-development which would have cooled an overheated market.Industry During the mid 1990s. lease rates have escalated by 15% to 21% year-onyear.583 new hires per year. After its PEZA approval in mid 1999. Eastwood City Overview Eastwood City is a 15-hectare project located along the C-5 highway in Libis.832 square meters.844 square meters. This rate becomes more significant considering that Eastwood is less than 10% of Makati CBD’s land area. On average. Ortigas serving its original function to traditional tenants as an alternative business district as the cost of space in the CBD remains at a premium.843 square meters. By the end of 2005 alone. A plausible reason could be the newer office buildings (as older buildings in the CBD tend to bring down the Grade A average) and the limited supply of office space (Grade A space in Fort Bonifacio is only 3% of comparable space in the CBD). Expectations are for vacancies to ease to below the 5% mark by the end of 2006. there are over 160. Unlike Fort Bonifacio. Compared to the Makati CBD. The total supply of office space is currently 941. Take-up in the Makati CBD has recovered since 2002 at an average of approximately 75. Quezon City. BPO Workforce Growth Driving Office Demand The Business Processing Association Philippines estimates that at the end of 2005. The project also the benefits from being the first PEZA-approved IT zone and being able to offer space for immediate occupancy. There are only two office developments in Fort Bonifacio with an aggregate net space of 34. particularly during periods of low vacancy and rapidly rising accommodation costs. There are currently seven office developments in existence with an aggregate of 139. Rents have since rebounded by 25% to 35% in better quality buildings in the Makati CBD. . Ortigas CBD Overview Extending approximately 50 hectares. Within that period. BPO hiring has grown at an average of 20% in the last six years or 17. The vacancy rate at the end of 2005 was recorded at 7% and is projected to decline further to 3% by 2007. 54 . call centers wanting redundant operations in Metro Manila. call centers and business process outsourcing units considering Ortigas due to increasing costs in the Makati CBD as lease rates begin to escalate. .000 square meters. Grade A rents in Fort Bonifacio are trading at an 18% premium. Ortigas is the alternative to Makati and has been successful in attracting cost-conscious occupants. Eastwood City’s office component significantly expanded from 1999 to 2003.144 square meters were built. which is approximately 36% of what was delivered in the Makati CBD in the same period. 117. Fort Bonifacio Overview Fort Bonifacio. has a total area of 214 hectares.

.000 square meters being occupied by the industry.582 110. . .800 28.928 183. . .375 76.000 190. .091 249. . .900 69. .m. . . . . . 272.682 41. .260 381.948 116. . . .250 7% 7% 7% 31% 31% 35% 25.227 Business Process Association Philippines. . Colliers International Research Notes: (1) assumes that each seat is occupied by 2. . . . . . .591 29. . . .Industry Historical BPO Workforce Estimates BPO Workforce Annual Increase Seats 1 Accommodation (sq. .795 3. . . .500 10. . . . . . . . .091 59. . Its BPO-related office developments are concentrated in its redevelopment of its Pioneer property in Mandaluyong. . . 56. . . .600 square meters are planned. . . .200 127. Space . . It started as a developer of high-rise residential and commercial properties in Makati and Ortigas. .2 employees (2) assumes six square meters per seat Given the current estimate of 162. . . .526 88. .675 square meters in the next five years. . . when it plans to hire an additional 50%. . .575 224. Robinsons Land Corporation is the real estate arm of the Gokongwei-controlled JG Summit Holdings Inc. . . .514 658. 2010 .800 square meters are currently under construction. . . . . . . . . Based on projects under construction. . . . . .700 64.081 907. 2009 . . . . .250 27. . . .064 270. . . this translates to nearly 445. . Projected BPO Real Estate Requirement Year 15% 20% 25% 30% 35% 2006 . . .090 447. . . . . . .773 165. . .273 442. 66. . . . . Megaworld is the leading developer with 28% of BPO-related office supply. . . . .081 282. . . . .) 2 Increase (sq. . Key Developers in the BPO Office Market Megaworld was established in 1989 by founder and major shareholder Andrew Tan. .903 132.591 54. . . . . .051 514.068. . . . The industry association’s bullish estimates point to a steady increase of nearly 40% per annum in the next four years after 2006. . . . . .781 100. .) Year % Increase 1999 2000 2001 2002 2003 2004 2005 Source: . .000 162. . .500 31.455 77. . This means that by 2010. .545 73. . .281 172.700 91. . . Additional Source: . . .000 square meters. . .727 115. .147 1. . . . .455 13. . .852 216.685 Colliers International Research In the next five years. McKinley Hill in Fort Bonifacio and Newport City. . . Other real estate segments that it is exposed to are high-rise residential/commercial projects and residential subdivision development.418 1.500 42. . .950 4. .472 154. . which is the average growth rate since 1999. .800 21. If one utilizes a more moderate growth rate estimate of 20%.m. . . . the space requirement until 2010 is nearly 660. . . . The remaining 268.500 120.500 106. . . . . . . . . .625 138.750 154. .331 87. . .440 152. . .545 327.541.875 209. . . . . .200. . Forthcoming supply is significantly less than even the most conservative forecast of BPO real estate requirements. .200 4. . Township developments with a BPO demand component are Eastwood City. . . 2008 .348 291. . .750 60. . .250 full-time jobs. .652 379. . .773 11. . .400 square meters. . . . supply is estimated at 541. in terms of real estate accommodation. This amounts to an additional occupancy of 2. .000 people to work full-time. . . It was the first PEZA-approved IT park in the country. . . .750 172. . . . the BPO industry estimates that it would have hired 920. . . . 2007 . . 55 .545 177. . . . . . The company is primarily a retail player through its Robinsons chain of malls. . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . office and commercial leasing. . . . . . . .6 7. .5 9. . . . . . . . . . . . . . . . Its BPO-related office development in the reclamation area serves as a complementary project to its most ambitious retail development. .500 22. . . . . .000 26. . . . Ayala Land . . . . . . . . . .8 26. . . A recent player in the BPO-related office development. Mar-Nol Realty . . . . . . . . Robinson’s Land . .8 8. . . . . . . . . . . . .5 Colliers International Philippines 56 . . . . . .200 24. .’s real estate subsidiary in 1988. 70. . . . . Ayala Land’s interest consists of land. .600 18. . . . . . . . Filinvest Alabang Inc. hotel and theater operations. . . . . . . . . . middle-income housing. .8 8. . . . . .5 10. . . .Industry Ayala Land is the largest listed property company in the country and was spun off as Ayala Corp. .000 21. . . . . . . . . . . the Mall of Asia. . . Filinvest Alabang . .m. . . . . . . . . . .000 67. . . . Developer Market Share in BPO-Related Office Developments Under Construction Developer Sq. The company’s biggest move is his winning bid for the government’s 244-hectare Alabang Stock Farm in 1991. . . . . . . . . . to undertake the masterplanned development dubbed as Filinvest Corporate City. . .800 28. . . . . . . . . . . . . . . . . . .147 square meters of office space. . . FDC has formed a subsidiary. SM Investments . . 18-2 Property Holdings . Filinvest Land is the residential property arm of the Gotianun-led conglomerate Filinvest Development Corporation. . . . . . . . . . . . . . . Within this development is Northgate Cyberzone with an aggregate of 91. . it has done built-to-suit premises for Convergys and People Support. . . . . . . . . . . . . . . . . . . . . Percentage Megaworld. . . . resort development. . . (FAI). . . . . . . . . . . . . . SM Prime is a retail-focussed developer in the Philippine property market. . . . . . . . Source: . . . .

. Fort Bonifacio. . .000 35. . . . . . . . . . . . . . Global City Promenade . .800 15. . . . . . 26th Street Office Building . 18-2 Prop. . . . . . . . . 57 . . . .) Makati CBD Ayala Center Office Building 2* . . . . . . . HSBC BPO Building 2 . . . . . . . . . . . . . . . . .000 22. are virtually full. . . . . . . . . . . . . . Filinvest Corporate City Northgate Plaza A . . . . . with the next buildings due to be completed by Ayala Land in 2008. . . . . . .000 Makati and Eastwood. . . . . . . . . . . .000 30. . large scale expansion in Makati is expected to be at a standstill. . . . . . Singapore Embassy Complex* . . . . . . . . . . . . Security Bank Tower* . SunLife Office Tower* . . . .000 4. . There are possibilities for the occupancy of refurbished buildings. . .300 24. . .000 36. . . .200 28. .000 6. . . . . . . . Net Cubed* . . . . . . . . . . . the main areas of interest to BPOs. . . . . .000 4. . . . .m. . . . . . . . . . . . . . . . . Bay Area One e-Com Center . Northgate Plaza E* . . The lack of viable supply has resulted in the emergence of alternative sites such as Filinvest Alabang. . . . . Pasay City Newport Corporate Plaza* . . . . . . . . . . . . .500 12. . . . . . . . . Hldgs 18-2 Prop Hldgs Ayala Land Ayala Land Ayala Land Mar-Nol Realty Megaworld Ayala Land Sun Life British Embassy Singaporean Embassy 2006 2007 2007 2007 2007 2008 2008 2008 2008 2008 2008 26. . . . . . . . . . . . . .000 10.800 10. . . . . . . . . . . . .000 . . . . Dela Rosa eServices Building* . . Fort Bonifacio Net Square. . . . refurbishments may prove to be costly and capital cost concerns will most likely eliminate this option. . .500 35. . . . . . .000 27. . .000 Ortigas EDSA Central IT Building* . . . . . . . . . . . . . . . . . . . . . . however. . . . . Northgate Plaza D . Eastwood City 1800 Eastwood Avenue . . . . . . . . McKinley Hill and Robinsons Pioneer area. . . . . . . . . . . . . . . . . . . . . . . .000 Filinvest Alabang Filinvest Alabang Filinvest Alabang 2006 2007 2007 10. . .000 square meters are completed. . . . . . . . .000 Megaworld Megaworld Ayala Land 2006 2009 2007 35. . . . . . . Mandaluyong Robinsons Cybergate 2 . . . . . . . . . . . . . . . . . . . . . No office building is being constructed within the CBD. . . . . . . . . . . . . . . . . . . . . . Quezon City UP S&T Park . . . . . .000 SM Investments 2007 67. . . . . . . . . . McKinley Hill Corporate Plaza Ayala 30th Street* . . . . . . . . . . . . . . . . . . . . . . . Ayala Land Ayala Land Security Bank 2008 2008 2010 30. .000 20. . Ayala 31st Street* . . . . .300 12. . .Industry Future Supply of BPO Office Buildings The following table lists the future supply of BPO buildings by expected year of handover. Building Developer Completion Gross Leasable Area (sq. . Source: Note: Colliers International Research Asterisk indicates planned Greenfield Robinsons Land 2007 2007 15. British Embassy Complex* . . . . . . . . . the Bay Area reclamation.000 Megaworld 2008 25. . Until those two buildings with a total leasable area of 60. . 1880 Eastwood Avenue* .

continued growth in demand for non-traditional space is expected due to: . with traditional developers wary of constructing new. the most expensive location so far. The need to find. resulting in higher wage levels and duplicative training costs. Even fewer are inclined to risk development. Robinsons Land (Cybergate 1 and 2). . the most aggressive developers are Megaworld (1800 and 1880 Eastwood Avenue.Industry Given the tight supply in traditional locations. 18-2 Realty (Net Square) and Filinvest (Northgate A and D). malls. Traditional areas are running out of space. 58 . . There are a handful of developers who presently have the capability to construct a true BPO building. multi-tenanted premises for fear of repeating 1998. we expect that BPOs seeking to establish initial operations in the Philippines will likely prefer to be in the original BPO areas of BPO Makati and Eastwood City. The need to stay away from competitors that poach employees. and purpose-built facilities. a significant amount of the space taken was from non-traditional sources — warehouses. It is likely that some BPOs may shrink operations in Makati. McKinley Hill Corporate Plaza and Newport Corporate Plaza). . Established BPOs are expanding while business center rental levels are increasing continued occupancy of expensive centers. hire and train an adequate number of employees. and expand elsewhere. Given these however. As expansion continues into 2010. essentially saving in the long term without the need to increase headcount. To date.

2004. Eastwood City is the Company’s first community township development. 59 . construction oversight and property management. The Company’s total gross revenues for the year ended December 31. the Company engages in other propertyrelated activities such as project design. Beginning in 1996. the Philippines’ first IT-based special economic zone. including two international schools.191. lowrise residential garden villas. The Company is developing McKinley Hill.7 million for the year ended December 31. a low density residential subdivision for single detached homes. 2004. Eastwood City. by commencing the development of its Eastwood City project. Metro Manila. that integrate residential. 2004 and 2005. Founded in 1989. including a hotel. One office tower and a number of high-rise residential towers. leisure and entertainment components. Eastwood City Cyberpark contains offices that are capable of supporting ITbased operations such as high-speed telecommunications and 24-hour uninterrupted power supply.812.BUSINESS OVERVIEW The Company is one of the leading property developers in the Philippines and is primarily engaged in the development in Metro Manila of large scale mixed-use planned communities.2 million compared to P 4. an IT training center. are currently under development. Foreign sales contributed approximately 20% to the Company’s consolidated sales and revenues for the years 2003. Complementing the offices are leisure and entertainment hubs which include restaurants and a cinema complex. primarily to BPO enterprises and retail space and (iii) management of hotel operations. or community townships. in response to demand for the lifestyle convenience of having quality residences in close proximity to office and leisure facilities. 2005 was P 1. Real estate sales of residential developments accounted for 66% of the Company’s revenues in 2005 and 57% in 2004. Metro Manila. Development of the community township has occurred in stages. McKinley Hill. The community township is being designed to include the McKinley Hill Cyberpark which will be a PEZA-designated IT special economic zone.153. This is the Company’s first community township incorporating educational . . Rental income from leasing operations accounted for approximately 11% of the Company’s revenues in 2004 and 2005. The first residential tower was launched in the second quarter of 2003 and construction of this tower is expected to be completed in the fourth quarter of 2006. The Company has the following three primary business segments: (i) real estate sales of residential and office developments (ii) leasing of office space. In addition. and 17 high-rise residential developments. leisure and entertainment centers. 2005 were = = P 4. a community township located on 50 hectares of land in Fort Bonifacio in Taguig. a leisure and entertainment area and an institutional area which is expected to include an embassy and educational institutions. primarily for the middle-income market. the Company initially established a reputation for building high quality residential condominiums and commercial properties located in convenient urban locations with easy access to offices as well as leisure and entertainment amenities in Metro Manila. Eastwood City is located on 15 hectares of land in Quezon City. commercial. The Company’s net income (after minority interest) for the = = year ended December 31. The property is adjacent to the Manila Golf and Country Club. subdivision lots and townhouses as well as office projects and retail space. Forbes Town Center is comprised of residential high-rise towers and retail and entertainment centers. a mixed-use development located on five hectares of land in Bonifacio Global City in Taguig. The Company’s real estate portfolio includes residential condominium units. educational/training. The Company is developing Forbes Town Center. The Company’s current portfolio of projects comprises the following: . Metro Manila and comprises: Eastwood City Cyberpark. the Philippines’ most exclusive golf club. Forbes Town Center. the Company began to focus on the development of mixed-use communities.2 million for the year ended December 31.9 million compared to P 807.

1994 and following the offering and the Domestic Block Sale. leasing and marketing. In 1994. The first phase of the project is expected to be launched in the third quarter of 2006. Araneta Center. which is adjacent to Villamor golf course. although the Company continues to focus on its core competence in real estate development. the Company introduced development plans for the Philippines’ first major mass transit-oriented residential community. . Quezon City. a five-star hotel to be managed by an international chain. and leisure and tourism components. COMPANY HISTORY The Company was founded by Andrew Tan and incorporated under Philippine law on August 24. the Company spun off Empire East Land Holdings. The Company is developing Newport City. 1999. In 2005. 2005. respectively of the Company’s share capital. with connections to the MRT-3 and LRT-2 mass transit lines and a land transportation hub. The first office building commenced construction in the fourth quarter of 2005 and construction of this phase is expected to be completed in the fourth quarter of 2007. Inc. The Company leases the balance of 16 hectares on a long-term basis. The property is adjacent to the Villamor golf course. TAGI and New Town Land will hold 27% and 16%. The first phase of residential condominiums was launched in the fourth quarter of 2005 and is expected to be completed by the end of 2008. 1989 under the name of Megaworld Properties & Holdings. Inc. a retail. On August 19. the Company’s principal shareholders. Pasay City. 60 . In addition. Newport City. The community township. The Company’s common stock was first listed on the PSE on June 15. providing residents with access to amenities and offices throughout Metro Manila. The residential lots for single-attached homes were officially launched in the fourth quarter of 2004 and approximately 70% of the lots were sold as of December 31. and among Asian Companies with the Most Convincing and Coherent Strategy in 2005. . a business and technology park. the Company received the Agora Awards for Marketing Company of the Year. The Company was voted among Asia’s Best Property Companies by the Euromoney Best Asian Companies Awards for 2003. was voted among Asia’s Best Managed Companies and the Philippines’ Best in Investor Relations by FinanceAsia Best-managed Asian Companies Awards. assuming the Over-Allotment Option and the TAGI Option is not exercised. Sixty-two hectares of land for which the Company has development rights were acquired through joint development agreements with the land owners while 38 hectares of land were purchased by the Company. with its current portfolio of five major projects accounting for approximately 80% of its landbank. the Company changed its name to Megaworld Corporation to coincide with the Company’s conversion from a purely real estate company into a holding company. among Asia’s Most Improved Companies in 2005. and was voted the Philippines’ Best in Investor Relations. The Company also received the following awards for excellence from Euromoney: the Philippines’ Best in Corporate Governance in 2003. The development is expected to consist of 17 residential condominium buildings. In aggregate. which focused on the middle income market. In 2004. retail and commercial areas. The Company’s objective is to increase its profitability and maintain its leading position as a major property developer in the Philippines by continuing to capitalize on the Megaworld brand name and reputation. comprising 6. the Company was voted among the Philippines’ Superbrands in the Superbrands Awards 2004/2005.000 units on a four hectare site at the Araneta Center. develop its key corporate and retail relationships and enhance its rental revenue and diversify its business mix. business and entertainment complex in Cubao. a community township located on 25 hectares of land in the Villamor Air Base. Best Website and the Philippines’ Best in Clearest Corporate Strategy by Asia Money Polls. The Company was primarily organized to engage in real estate development.BUSINESS institutions into the live-work-play concept. across from the newly built NAIA Terminal 3. the Company owns or has development rights to approximately 116 hectares of land primarily in Metro Manila. is expected to include medium-rise residential towers. 2004 and 2005.

and to introduce flexible design options and payment plans. 61 . with inter-connections to two main mass transit systems and a land transportation hub. 3 (Quezon City) Office Petron Megaplaza (Makati) The World Centre (Makati) Citibank Square (Quezon City) CyberOne (Quezon City) IBM Plaza (Quezon City) Landbank Plaza (Malate) Richmonde Plaza (Pasig City) Eastwood Corporate Plaza (Quezon City) COMPETITIVE STRENGTHS The Company believes its competitive strengths consist of the following: . the Company introduced development plans for the first major mass transit-oriented residential community in the Philippines. The Company is currently the largest developer and owner of office buildings targeting BPO enterprises in the Philippines in terms of leased space. particularly for middle-income purchasers. the Company was the first Philippine property development company to develop an international sales network targeting overseas Filipinos for residential sales.000. Established track record as a market innovator. the Company was the first Philippine company to focus on community township development. The Company’s ability to anticipate market trends and understand the needs of real estate consumers continue to assist it in its efforts to accurately predict trends in market demand. facilitating convenient access to offices and amenities throughout Metro Manila. The Company believes that its identification of areas of growth in the property market was instrumental to its continued financial success during the Asian financial crisis when most sectors of the property market contracted. office buildings and a hotel consisting in aggregate of more than 2. In 1996. 2. In 1996. levels of supply and to plan and design its property developments accordingly. Although the Company initially focused on the high-end residential property market. In 1999. Eastwood City Cyberpark became the first IT park in the Philippines to be designated a PEZA special economic zone. the Company was also the first to develop offices with the infrastructure capable of supporting expanding IT and BPO businesses. in 2005 sales to overseas Filipinos constituted approximately 20% of its residential sales. From 1996 to 2005. the Company and its affiliates have launched approximately 200 residential buildings. As a result.BUSINESS From 1989 to 1996. the Company developed the Eastwood City CyberPark and was instrumental in working with the Government to obtain the first PEZA-designated economic zone specifically for technology and BPO-based companies. According to Company estimates. The following are some of the major residential and office projects completed by the Company: Residential The Salcedo Park (Makati City) One Beverly Place (San Juan) One and Two Lafayette Square (Makati City) Paseo Parkview Towers 1 and 2 (Makati City) Wack-Wack Heights (Mandaluyong City) 8 Wack Wack Road (Mandaluyong City) The Manhattan Square (Makati City) Greenbelt Radissons (Makati City) El Jardin del Presidente (Quezon City) Greenbelt Parkplace (Makati City) Golf Hill Terraces Phase 3 (Quezon City) Golf Hill Terraces Townhouses (Quezon City) Golf Hill Terraces Garden Villas (Quezon City) Marina Square Suites (Manila) Corinthian Hills (Quezon City) Sherwood Heights (Paranaque) Brentwood Heights(Paranaque) Kentwood Heights (Quezon City) Narra Heights (Quezon City) Eastwood Lafayette Square 1. In 2005. it was among the first in the Philippines to identify the growing demand for community township developments.000 square meters. the Company shifted its focus to providing office buildings to support BPO businesses when it began development of the Eastwood City community township. The Company believes it has anticipated market trends faster than other companies in the Philippine property development industry. In 1996. In connection with Eastwood City. the Company garnered a reputation for building high-end residential condominiums and office buildings on a stand alone basis throughout Metro Manila.

Well-established brand name and reputation. The Company’s diverse project portfolio is designed to both limit earnings volatility from potential property market fluctuations and to allow it to enjoy growth upside. which covers all aspects of the Company’s operations. The Company’s extensive residential marketing network enhances the Company’s brand recognition and its ability to pre-sell residential units. . when a number of highly leveraged property development companies went bankrupt. the Company was the first Philippine property company to create an international marketing and sales division specifically targeted at overseas Filipinos. As a result. The proximity of BPO tenants to retail and entertainment properties within the community township allows the Company to benefit from the complementary revenue stream from its retail and commercial leases. The Company’s property portfolio includes a balance between income from residential sales and recurring income earned from commercial and office developments. it has entered into joint development agreements with the land owners to develop their land in exchange for a percentage of the revenue from sales or leases of the completed units. the Company believes that its reputation as a reliable property developer is particularly important in the Philippines to both attract and maintain quality buyers. an independent organization which identifies and recognizes the most-highly acclaimed brands throughout the world. including its planning. Where the Company does not own or lease the land. The Company believes it is currently in sound financial condition with a debt to equity ratio of 0. The Company maintains an in-house marketing and sales division staffed by a trained group of property consultants who sell residential properties exclusively for the Company. project management and customer service operations.BUSINESS . townhouse projects. The Company has completed a number of high quality residential condominium projects.18 : 1 (after minority interest) as of December 31. design. as one of the Philippines’ top brands. The Company’s community township portfolio includes a stable revenue base of long term leases from major international BPO tenants as well as retail tenants. 62 . the Company has developed a strong brand name and reputation as one of the Philippines’ leading property developers with the credibility of delivering high-quality developments. The Company has also received ISO 9001 : 2000 series certification. Since pre-selling is an industry practice. the Company has been able to keep its debt to equity ratio low. . As with other property developers in the Philippines. The Company has been named by Superbrands. In 1997. The Company’s international marketing and sales division is comprised of 23 offices worldwide. Joint development agreements are a cost effective way for the Company to acquire land development rights in desirable areas of Metro Manila at a fixed cost. The Company either owns or has development rights to approximately 116 hectares of land located primarily in strategic locations in Metro Manila. particularly during the Asian financial crisis. for quality control and systems management. As a result. Sound financials with a stable earnings base and low gearing. and sales to this group have increased each succeeding year. Strategic landbank. the Company finances a portion of project development costs through pre-sales of units. All property consultants undergo intensive training prior to embarking on any sales activity and the Company provides an on-the-job skills enhancement program for its marketing and sales professionals to further develop their skills. . the Company believes that its current landbank is capable of sustaining the development of its current portfolio of projects for at least the next 15 years. and that its financial strength enhances its ability to invest in new projects while continuing to develop existing projects. the Company expects to benefit from existing long-term BPO lease arrangements while attracting new BPO tenants. As a result of stable earnings from rental investments in the BPO market and residential sales. Although the Company continues to consider strategic landbanking either through additional joint development agreements or property purchases. 2005. Strong residential marketing network. office projects and leisure and commercial developments throughout Metro Manila. tenants and joint development partners. buyers place great importance on the track record and reputation of developers to reduce the completion risk relating to their properties. With projected growth in the BPO business in the Philippines.

Capitalize on brand and reputation. business and residential properties within proximity to each other enhances the attractiveness. The Company also controls development costs by entering into joint development agreements with landowners. Because the Company’s community townships include a mix of BPO offices. In addition.BUSINESS STRATEGY The Company’s objective is to increase its profitability and maintain its leading position as a major property developer in the Philippines. 63 . The Company’s leadership position in crafting and delivering community township developments has strengthened over the years and continues to be its key strategy in bringing new projects to the market and in entering into new joint venture developments. retail. The Company intends to continue to pursue revenue and property diversification as it develops community townships with the live-work-play-learn concept in various stages throughout Metro Manila. middle-income residential. The Company also intends to continue pursuing innovative product lines that may complement its existing developments. while maintaining a well-diversified earnings base. . the community township developments enable the Company to generate profits from selling residential projects as well as invest in office and retail assets retained by the Company to generate recurring income and long-term capital gains. the Company limits its cash outlays prior to obtaining project funds. . The Company’s gearing ratio is presently low. saleability and lease potential of the residential. Seventy percent of the Company’s residential units are typically pre-sold within one year of project launch and over 90% are typically pre-sold prior to completion of construction. which is a cost-effective means of obtaining rights to develop land as initial costs are fixed and future payments are a fixed percentage of revenue from sales and leasing activity. In addition. Maximize earnings through integrated community township developments. . The Company believes it is able to maximize earnings by integrating residential. This allows the Company to capitalize on the live-work-play-learn concept to maximize its earnings from each sector. Megaworld intends to achieve its objective through the following principal strategies: . office and retail properties in the community township. An important part of the Company’s long-term business strategy is to continue to maintain a diversified earnings base. the Company is able to capitalize on the complementary nature of such properties. The complementary nature of having retail. The Company intends to continue using its brand name and reputation to attract purchasers. The Company continues to enhance its reputation by employing and training a dedicated marketing staff and extensive sales network for its residential sales businesses who market the Megaworld brand. tenants and joint development partners. The Company believes that its strong brand name and reputation are key to its continued success. business and retail property components in an integrated master-plan approach. the Company is strategically involved in the aftersales market for the properties it develops by providing building management and other aftersales services such as interior design services. Since pre-selling is an industry practice in the Philippines. educational/training facilities. The Company typically does not begin construction of its residential buildings until it has sold approximately 70% of the units. The Company is able to control development costs by generating a significant portion of its project financing from pre-sales of residential units. Sustain a diversified development portfolio. By securing post-dated checks and providing a variety of financing options to buyers. specifically in the middle-income residential condominium market and the market for BPO-related office developments. leisure and entertainment properties within close proximity to each other. The Company intends to maintain its strong financial position by controlling costs and increasing its gearing ratio only when necessary. Maintain a strong financial position. buyers place great importance on the track record and reputation of developers to reduce the completion risk relating to their properties.

and to provide education/ training. the Company was instrumental in working with the Government to obtain the first PEZA-designated special economic zone status for IT parks. the Company introduced the Eastwood City Cyberpark within Eastwood City. it intends to lease the residence for rental income. 24-hour uninterruptible power supply and computer security. The planning of Eastwood City adopts an integrated approach to urban planning. Eastwood City Description Eastwood City is a mixed-use project in Quezon City. In response to growing demand for office space with infrastructure capable of supporting IT-based operations such as high-speed telecommunications facilities.BUSINESS PROPERTY DEVELOPMENT PROJECTS The Company’s property development projects consist of mixed-use residential and commercial developments located throughout Metro Manila in addition to residential units to be developed at the Araneta Center in Quezon City. education/training. 64 . The objective of each of the mixed-use developments is to provide an integrated community with high quality live-work-play amenities within close proximity to each other. residential. The Eastwood City Cyberpark includes the headquarters of IBM Philippines and Citibank’s credit card and data center operations as anchor tenants. In connection with development of the cyberpark. the Company intends to lease all commercial and retail properties and sell all residential units. restaurants. The location of each of the Company’s projects is set out in the following map and each project is described in detail below. Where the Company is unable to sell all residential units in advance of completion. A PEZA special economic zone designation confers certain tax incentives such as an income tax holiday of four to six years and other tax exemptions upon businesses that are located within the zone. Metro Manila that integrates corporate. the Philippines’ first IT park. leisure and entertainment components. leisure and retail facilities and residences to complement Eastwood City Cyberpark. For each development. with an emphasis on the development of the Eastwood City Cyberpark to provide offices with the infrastructure to support BPO and other technology-driven businesses.

. . . which may not necessarily represent the eventual state of the actual property development. 299. . .346(1) 149. . . . . . . . . . . . . . . . . . . . . . . . . . . . .BUSINESS Set out below is a model of the Eastwood City development. . . . . . . . . . . . . . .396 60 30 10 100 65 . . . . . The following shows the mix of residential. . . office and leisure and entertainment properties that the Company expects when the project is completed. . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . Notes: (1) Saleable floor area. Leisure and Entertainment . Aggregate GFA (square meters) % Residential . . . . . . . . . . . . . . . . . . . . Eastwood City Model The Company purchased a substantial portion of the land from General Textiles Inc. . . . . . .560 498. . . . . The Eastwood City Cyberpark was designated a PEZA special economic zone in 1999. . . . . . . Corporate . . . (2) Leasable floor area. . . . . . . . . .500(2) 49. . . . . . . . . . in 1995. . . . .

As of December 31.BUSINESS Residential zone The residential zone is expected to consist of eight projects with 17 high-rise towers. 2005. eight towers comprising 1. which may not necessarily represent the eventual state of the actual property development. 66 .895 units have been completed. Eastwood City Residential Zone Set out below is a photo of Eastwood Excelsior and artistic renditions of some of the towers as they are expected to appear upon completion. Set out below is a photo of the Eastwood City Residential Zone as it is expected to appear upon completion. which may not necessarily represent the eventual state of the actual property development.

.507 30. . . . Each tower contains units that range from studios to two bedrooms. .652 17. Grand Eastwood Palazzo Tower 2 . . . . . . of floors (1) No. . . . . . One Central Park . Eastwood Lafayette 1 . .346 3rd 4th 3rd 4th 4th 2nd 3rd 3rd 3rd 3rd 3rd 3rd 3rd 3rd 4th 4th quarter quarter quarter quarter quarter quarter quarter quarter quarter quarter quarter quarter quarter quarter quarter quarter 2003 2001 2003 2001 2001 2003 2005 2005 2006 2006 2006 2007 2007 2008 2008 2009 96 100 100 100 100 100 100 100 90 93 94 99 98 96 97 91 90 4th quarter 2010 Total . . . . . . . .392 20. . . . parking. . . . meters) Actual/Expected completion date Units sold (%) Olympic Heights Tower 1 .810 21. . . . . . . . . . . Eastwood Lafayette 2 . . . . . 2005. . . . . . . .472 17. . Eastwood Parkview 2 . . . . . . .525 15. . . . . . . Eastwood Parkview 1 .392 21. 67 . One Orchard Road Tower 3 . . .248 6. (2) Saleable floor area. . . . Purchasers may combine units. . Eastwood Park Hotel & Residential Suite .094 17. . . . .886 9.BUSINESS Set out in the table below are details of each residential project as of December 31. . . . . . . . . high-speed elevators. .630 7. . . . a pool and other recreational facilities. Eastwood Excelsior 1 . 30 30 30 16 19 25 30 34 43 38 35 38 38 40 40 37 37 224 224 224 180 180 199 260 404 448 448 448 368 352 530 530 364 269 5. . . . . . Grand Eastwood Palazzo Tower 1 . . . .323 14. . . . . . .461 30. . . . . . . . . One Orchard Road Tower 2 . . . . Eastwood Excelsior 2 . . . . One Orchard Road Tower1 . . . . Olympic Heights Tower 3 . . .679 10. . . . No. . . . of units Aggregate GFA (2) (sq. . . . Eastwood Lafayette 3 . . Olympic Heights Tower 2 . .461 21. . . . . . .392 21. .751 15. . . . . . . Each tower is designed according to a specific theme and style. . Notes: (1) Includes basement. Typical building amenities include 24-hour security.323 299. . . .

.00 3. .000. IBM Plaza . .000 35. . . .200. Total GFA (1) Aggregate GFA (2) (square meters) Actual/Expected completion date Occupancy rate (%) Citibank Square . .125. . . . The office properties consist of seven Grade A office buildings as of December 31. . .000 35. Citibank Square is the headquarters of 68 . . . Eastwood Incubation Center . Tenants in the cyberpark include major multinational corporations. . . .00 35. . which may not necessarily represent the eventual state of the actual properties. . . Set out in the table below are details of each corporate development as of December 31. . . International Centre for Information Technology Education (ICITE) . . . . . . . . .000. . . . . . . 2005. . . . . . . .400. .BUSINESS Corporate zone Below are photos of some of the office properties in the Eastwood City Cyberpark.500 3rd 1st 1st 2nd 2nd 2nd 2nd 4th 2nd quarter quarter quarter quarter quarter quarter quarter quarter quarter 1999 2000 2001 2001 2001 2002 2004 2006 2009 100 95 100 100 100 100 90 0 0 Note: (1) Includes office space that has been sold. . . . .00 40. . . The tenants are entitled to various tax incentives in conjunction with the PEZA special economic zone status conferred upon the Eastwood City Cyberpark. . .00 35. 1880 Eastwood . . (2) Leasable floor area attributable to rental income. . . CyberOne . . . largely comprised of software developers.00 6. . . 26. system integrations. 1800 Eastwood .500 24. . . . Each of the buildings listed above is fully equipped with 24-hour IT infrastructure support. .150. .000 149. . . . . . . Eastwood Corporate Plaza . . . .00 224. . .475 5. .00 14.000 15. . . . . .200 10. TechnoPlaza One . . 2005. .800. . . IT and computer system support. . .000.000 3. data encoding and conversion centers. . . . . Total . .00 45. .00 19. . .000 6. . . .800 15. . . . . . . . . call centers. . Each building comprises office space that typically has a column-free layout to provide flexibility in space planning and access to 24-hour dining facilities. . . . . . . .000.

. . . .560 3rd 1st 2nd 2nd 2nd 2nd 4th quarter quarter quarter quarter quarter quarter quarter 1999 2000 2004 2002 2001 2004 2008 94 95 100 100 100 92 — Total . . . Eastwood Citywalk I and II. a billiard and bowling center. . .000 49. . . . . . . . . . Home & Life Center . . . . .400 25. Eastwood Fashion . . . . . . . . . . .560 800 300 400 3. . . Eastwood Lafayette 1 & Cybermall . . In addition. .BUSINESS Citibank’s credit card and data center operations in the Philippines. . . . . . 9. . . Fashion Square and Home Center are designed to complement the office and residential buildings in the community township. . which may not necessarily represent the condition of the actual properties. . . . . an amusement center with a state-of-the-art digital complex. . . . . . . . and Eastwood Citywalk 2. . . . . . . . . . . . . to be identical to the first block and named 1880 Eastwood Avenue. . . . . . . Note: (1) Leasable floor area. . . . . . . . . . . . . . . . . . . . 69 . . . . will commence construction immediately thereafter. 2 (commercial) . . . . . . . . . . . . . . . . . . a beauty and lifestyle center and Home Center. Set out below are photos of some of the retail properties comprising the leisure and entertainment zone. . Leisure and Entertainment zone The leisure and entertainment zone consists of Eastwood Citywalk 1. . . Set out below are the details of each development in the leisure and entertainment zone as of December 31. . . . . . . . . . . . . . . .100 10. a dining and entertainment hub. . . . . . . This zone also includes Fashion Square. . . . . . . . . . . . 2005. Eastwood Central Mall . IBM Plaza houses IBM Philippines as its anchor tenant. . . . . . . a one stop home improvement hub. . Citywalk 2 . . . . . . the corporate zone contains an IT training center. Aggregate GFA (1) (square meters) Actual/Expected completion date Occupancy rate (%) Citywalk 1 . . . . . . . . . restaurants and speciality shops. The Company leases the properties in the leisure and entertainment zone to 189 commercial tenants. . 1800 Eastwood Avenue is currently under construction and a second block. . . . . .

Metro Manila adjacent to the Manila Golf Club. Taguig. retail and entertainment properties when completed. Forbes Town Center Model 70 . which may not necessarily represent the eventual state of the actual property development. the Manila Polo Club and the prestigious Forbes Park residential subdivision. Set out below are models of the Forbes Town Center development. Forbes Town Center is expected to consist of residential.BUSINESS Forbes Town Center Description The Forbes Town Center project is located on five hectares of land in Bonifacio Global City.

. . . . Megaworld and the BWDC transfer the title of their respective units to the purchaser. . and was. . . . . . . . . Total . . . . . . . . . . . . . . . . . . The Company is responsible for designing. . Aggregate GFA (square meters) % Residential . . . The following shows the mix of residential and leisure and entertainment properties that the Company expects when the project is completed. In the event that the Company fails to meet the conditions set out in the agreement. . who also has three seats on the BWDC’s 11-member board of directors. . . . . . Bonifacio West Development Corporation (the ‘‘BWDC’’) in March 2002. .000 92 8 100 71 .000 20. . . . The BWDC is 30% owned by Megaworld. . launched by July 2002 and all development must be completed by 2014. . . . . . . . . . . . . . . The BWDC will share a certain percentage of the developed units and such same percentage from revenues earned from leased property. . . . . 240. . . . . . . . . . . title passes in escrow from the BWDC to the condominium association for each building upon completion of construction.BUSINESS Forbeswood Heights Model The Company acquired development rights to Forbes Town Center by entering into a joint development agreement with landowner. the BWDC may terminate the agreement and retain its land use rights over the unconstructed portions of the property. . . . . . . . . . . . planning and marketing the development as well as paying all expenses. The first building was required to be. . . . . . . . The BWDC must approve the development plans. the BWDC provides the Company with land to be developed for mixed-use projects. . . . In respect of title to the land underlying the residential units. . . Title to the units will be allocated to the parties in accordance with their sharing arrangement. . . . . . . . Leisure and Entertainment . . Upon completion and payment.000 260. . the second building can not be launched until 70% of the first building is sold. . . . . Under the terms of the joint development agreement with the BWDC. . In addition. .

. . . . . . . . Bellagio 1 . .BUSINESS Residential zone The residential zone upon completion is expected to consist of 13 towers. . . .507 7. . 2005. . .694 4th 4th 4th 4th 4th 4th 4th 4th 4th 4th quarter quarter quarter quarter quarter quarter quarter quarter quarter quarter 2009 to 2006 2006 2006 2007 2007 2007 2008 2008 2009 2009 2011 98 97 93 96 88 96 90 81 38 0 0 Total . . Bellagio 3. . . meters) Expected completion date Units sold (%) Forbeswood Heights — Agoho . . . . . 5 . . Forbeswood Parklane South Side . . . . . of units Bellagio 2 Aggregate GFA (2) (sq. . . . 4. . Forbeswood Heights — Bauhinia . . . . Forbeswood Heights Forbeswood Parklane Bellagio 1 No. . . of floors (1) No.692 8. . . . . .337 — 131. . .634 8. . . . . . . . . .078 27. . 72 . . . Bellagio 2 . . . . . . . . Forbeswood Heights — Dorchester . 19 21 21 21 18 25 41 43 32 39 — 173 197 197 230 161 245 324 386 253 341 — 2.247 14. .919 7.182 11.692 9. . . . . . Forbeswood Heights — Cambridge . . . . .808 26. . (2) Saleable floor area. . Notes: (1) Includes basement. Set out in the table below are details of each residential project as of December 31. Forbeswood Heights — Florida . .105 10. Forbeswood Heights — Evergreen . . Set out below are artistic renditions of some of the towers as they are expected to appear upon completion. . . which may not necessarily represent the eventual state of the actual property development. Forbeswood Parklane North Side . .

specialty shops and cinemas. educational. Set out below is an artist’s rendition of the view of the leisure and entertainment zone at Forbes Town Center. entertainment and recreational properties. Metro Manila. restaurants. Set out below is a model map of the proposed McKinley Hill development.000 square meters devoted to bars. McKinley Hill is expected to consist of office. Taguig.BUSINESS Leisure and Entertainment zone The leisure and entertainment zone is expected to consist of 20. retail. residential. Model of McKinley Hill Site 73 . which are designed to complement the office and residential buildings in this development as well as the surrounding office areas in Bonifacio Global City. which may not necessarily represent the eventual state of the actual property development. which may not necessarily represent the eventual state of the actual property development upon completion. View of Forbes Town Center McKinley Hill Description The McKinley Hill project is located in Fort Bonifacio.

horizontal development of McKinley Hill which is the development of raw land into residential lots by constructing roads. . . . . 2005 subject to receipt of local government approval. . . . . . . . . . . . . . . . . Through a bidding process. The deed of sale of this land has been completed and delivery is pending. . the BCDA entered into a joint venture agreement with Alliance Global Group. . .500 65 22 9 4 100 Total . . There are no termination provisions in the joint development agreement between Alliance and Megaworld. The only termination provisions are contained in the joint venture agreement between the BCDA and Alliance which provide for termination in the event that. . . . Terms of the joint development agreement include completion of the = development and a minimum investment of P 2. . Inc. . Title to rental properties passes to the Company upon their completion. . . . . . . . . . . . . . . . . Title to the land has been transferred in trust by the BCDA to the Company. . . . . Megaworld has posted a surety bond to cover Alliance’s guaranteed annual payment to the BCDA. . . .BUSINESS Approximately twenty-five hectares of the land in McKinley Hill are owned by the BCDA. . . . . corporate and leisure and entertainment properties that the Company expects when the project is completed. . . . The Company acquired development rights to McKinley Hill by entering into a joint development agreement with Alliance in July 2003. 74 . . . .0 million with payment to be fully paid by January P 2008. . the BCDA does not receive its required payments. A portion of McKinley Hill constituting a 35. . . . . . . . .060 million by 2013. . . . . . . . . Corporate . . . The development plans upon which Alliance’s bid was based are mirrored in the joint development agreement. In addition. The Company is required to make instalment payments of up to = 394. . . . . . . . . . . . . The leased property is zoned for exclusive use by schools. . . . . . . . (‘‘Alliance’’) in September 2003 for mixed-use development. Aggregate GFA (square meters) % Residential . . . . . . . The following shows the mix of residential. . . . Alliance is responsible for advancing = 927. . . . . . . . . Entertainment . . sporting facilities and other institutional uses. and has completed. . .06 hectare corporate zone received PEZA special economic zone status on August 12. . In 2004. . . . . . . . . .000 78. . .000 200. . . .000 905. . . . . . . . Leisure and Other . . The Company is also responsible for. . . drainage and sewer lines and related facilities. each of which have six members. . 587. . . . Megaworld has also posted a performance bond to secure Alliance’s compliance with its investment and other contractual commitments. . . . . . . .8 million in P cash to the BCDA which has been paid. . . . . . . . As a condition under the joint venture arrangement. . In addition. . . . . . . . . Pursuant to the agreement. . . . Ten hectares of land in McKinley Hill were sold to the Company from BCDA in February 2004. . Alliance is required to guarantee payment of = approximately P 118. . . . there is a management and development committee and a monitoring and audit committee. . . underground water supply systems. . .2 million to the BCDA each year for 15 years in case revenues from sales and rentals should fail to meet that minimum amount. . among other occurrences. . .500 40. . . . . . The joint venture agreement provides that the BCDA and Alliance share all developed lots/units and rental revenues obtained from the development. the Company leased sixteen additional hectares of land in McKinley Hill from the City of Taguig for 25 years with renewal rights. a Government agency organized to arrange for the disposal of Government-owned land occupied by military bases.

Set out below are artistic renditions of the subdivision model homes and the garden villas as they are expected to appear upon completion. which may not necessarily represent the eventual state of the actual properties. Construction began in 2005. Lisbon-inspired Contemporary Mansion Seville-style Patrician Casa South California-style Estate House Modern Maison in the Lyons tradition Cadiz-inspired Spanish Mediterranean Casa Paris-style Neo-classic Chateau McKinley Hill Village Model Houses McKinley Hill Garden Villas 75 .BUSINESS Residential zone The residential zone is expected to consist of a low density single-detached homes and low rise residential garden villas. The first villa is complete and a second villa is expected to be launched in the third quarter of 2006. The Company has pre-sold 70% of the subdivision lots.

which may not necessarily represent the eventual state of the actual property development. The subdivision includes a clubhouse and communal swimming pool for residents.000 square meters. the Korean International School and Enderun Colleges. largely comprised of software developers. The leisure and entertainment zone is expected to have a total GFA of approximately 78. system integrations. The two schools are expected to use villas for staff housing.BUSINESS The subdivision is comprised of lots for the development of single-detached houses. The residential housing for the schools will be constructed pursuant to joint development agreements where the Company contributes land and other parties are responsible for the design and construction of the residences. The first office building in the cyberpark is expected to be completed by the end of 2007. Buyers have the option to purchase an empty lot or to choose among model houses to be built on the lot. specialty shops. The total aggregate GFA in the cyberpark is approximately 200. which are expected to complement the office and residential buildings in the community township. IT and computer system support and are entitled to various tax incentives in conjunction with the PEZA special economic zone status conferred upon the McKinley Hill Cyberpark. Corporate zone The office properties in McKinley Hill are expected to consist of Grade A office buildings. which is also building a campus in the McKinley Hill community township.500 square meters and construction is expected to commence in early 2007. call centers. data encoding and conversion centers. McKinley Hill Corporate Plaza Leisure and Entertainment zone The leisure and entertainment zone is expected to consist of bars. cinemas and sports complex. restaurants. as well as one other international school. Other Two international schools. Tenants for two of the villas include the Korean International School. Tenants in the cyberpark are expected to include major multinational corporations. 76 . have entered into agreements with the Company to build campuses in McKinley Hill. The residential zone is also comprised of garden villas. Set out below is an artist’s rendition of a McKinley Hill office building as it is expected to appear upon completion.

. 180. . . . . Metro Manila in the Villamor Air Base and across the street from NAIA Terminal 3. . . . . . . . . . . . . . Newport City is expected to include medium-rise residential buildings and tourist-oriented retail developments. Title to the land subject to the joint development agreement will be held in trust by Megaworld to be transferred to the condominium association for each building upon project completion and receipt of sale proceeds. . . . . .000 47. . .0 million and complete the development within 12 years of the completion of clearing the existing structures. . . . .0 million to the BCDA. . . . integrating corporate. Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .BUSINESS Newport City Description Newport City is a 25 hectare mixed-use project in Pasay City. . . The property is adjacent to the Villamor golf course. . .5 hectares of land and purchased an additional seven hectares from the BCDA. Set out below is a model of the Newport City development. . . . . . . . . . = The Company is required to invest a minimum of P 200. . residential. . Model of Newport City The Company acquired development rights to Newport City by entering into a joint development agreement with the BCDA in October 2003 for 17. . . . . . . . . . . . The BCDA is entitled to a percentage of the developed lots/units and revenue from leased properties. . which may not necessarily represent the eventual state of the actual property development. . . Leisure and Hotel . . . . . . . . . . Terms of the joint development agreement include the requirement that the Company organize and pay the costs associated with replicating existing structures to = another location within the base and provide an advance payment of P 62. . . . . . .500 25 64 7 4 100 Total . . . . . . . . . . . . . . . . The planning of Newport City adopts a similar integrated approach to urban planning as Eastwood City with the exception that Newport City is targeted towards tenants and buyers where proximity to NAIA Terminal 3 is an advantage. . The following shows the mix of residential. . . . . . . . . . . office and leisure and entertainment properties that the Company expects when the project is completed. . . . . . . . .000 450. . The Company intends to enter into an agreement with a major international hotel management company to operate a five-star hotel on the premises. . . . The Company intends to apply to PEZA for special economic zone status. . . . . . . . . . . . Aggregate GFA (square meters) % Residential . . 77 . . . leisure and entertainment components. . Entertainment . . The joint development agreement may be terminated if the project completion timeline is not met or if the Company does not replicate the original structures. .500 708. . . . . . . . . . . . . . . . . . . . . . . . . .000 31. . . . . .

The Company plans to lease the leisure and entertainment zone area. which are designed to complement the office and residential buildings in the community township. Relocation of original structures The Villamor Air Base is still partly occupied by its original residents. Leisure and Entertainment zone The leisure and entertainment zone is expected to consist of bars. including a direct link to two major transport lines. restaurants.BUSINESS Residential zone The residential zone upon completion is expected to consist of 16 eight to nine storey medium-rise developments. The first cluster of residential towers were launched in 2005. largely comprised of BPO businesses. Phase 1 of the Newport City Residential Resort Corporate zone The office properties are currently expected to include Grade A office buildings. army barracks. retail and touristoriented shops. which may not necessary represent their eventual state upon completion. the MRT-3 and the LRT2.000 condominium units. schools and other structures. Similar to its other mixed-use communities. The Company and the BCDA have agreed to relocate the structures to other areas within the base as determined by the BCDA. All key areas along the transportation lines within Metro Manila will be easily accessible from 78 . Araneta Center Description The project at the Araneta Center is a residential development to consist of 17 residential towers. Tenants in the cyberpark are expected to include major multinational corporations. cargo logistics services and airline-related businesses who consider close proximity to the airport to be an advantage. on a four hectare property at the Araneta Center in Quezon City. 2005. The Araneta Center project is based on integrating a residential community with a major transportation hub. The relocation process is ongoing. The Company has sold 20% of the units as of December 31. comprising 6. the Company expects to establish a PEZA special economic zone cyberpark at Newport City. Set out below is an illustration of the residential towers. Construction of the hotel is expected to commence in 2007. Hotel zone The five-star hotel managed by an international company is expected to comprise 350 rooms and approximately eight to nine floors.

Title to the units are secured upon substantial completion of each phase of the project. SALES AND MARKETING The Company conducts pre-sales of its property units prior to project completion and often. Coscolluella & Associates. The Company also has established relationships with a number of architectural firms in the Philippines such as Recio+Casas Architects and W. the Araneta Center includes leisure amenities such as a recently completed mall with a leasable GFA of 80. which is established upon completion of each phase of the project. in August 2005. The Company’s pre-selling process provides buyers with a variety of payment schemes. All titles to land and to the units are deposited in escrow during construction. Vail in California. The agreement requires Araneta to provide only the land. The Company’s top five contractors listed in order of total payments under construction contracts in 2005 were Steel Asia Mfg Corp. The Company uses a standard form fixed-price contract for both its general and specialty construction contractors. prior to construction.. Inc. progressive billing occurs on a monthly basis. and the Company is required to develop a minimum of 274. Development is to occur in four phases and Araneta is required to approve each phase.BUSINESS the development. The Company has a team of project managers who work closely with outside contractors in supervising the construction phase of each project. Owings & Merrill in New York and Klages.917 square meters of net residential saleable area. The Company acquired development rights to four hectares at the Araneta Center by entering into a joint development agreement with its landowner. 6% and 7%. (‘‘Araneta’’). with down-payment plans ranging from 50% to no money down. In addition. JD Bernardo Engineering & Construction Inc. A typical payment scheme includes progressive payments over the period in advance of property construction. 2004 and 2005. The development must be completed within 11 years. The mall hosts a state-of-the-art cineplex with 10 theaters. the relevant contractor or supplier may be required to pay a penalty. The Company’s contracts with its construction companies typically contain warranties for quality and requirements for timely completion of the construction process. Carter. The Company collects post-dated checks and confirms payment with buyers six months prior to project completion at which point the buyer may choose to replace its post-dated check with bank financing. Title to the land passes to a condominium association. and a 10% retention and warranty provision for workmanship is included and is typically covered by a guarantee bond. payments to the Company’s five largest construction contractors accounted for approximately 15%. respectively of the Company’s total payments under its construction contracts. 2003. The Company has a broad base of construction contractors and suppliers and is not dependent on any one contractor or supplier. 22% and 23%. For the years ended December 31. CONSTRUCTION ACTIVITIES The Company has its own architectural and engineering teams comprised of approximately 150 personnel and also engages independent groups to carry out the design of its high profile development projects. respectively of the Company’s total payments under its construction contracts. The Company’s principal raw materials are steel and cement which are commodities and are readily available in the market from a number of sources.080 square meters in aggregate. Araneta Center..V. payments to the Company’s single largest construction contractor accounted for approximately 5%. Araneta and the Company will share in the developed units and parking slots. the Company has not had any material disputes with any of its contractors or suppliers. and internationally such as Skidmore. For the same periods. including a balloon payment to coincide with buyers’ expected cash flows. The contracts typically include the following key terms: a downpayment of 10% is required from the contractor and is usually obtained in the form of a performance bond. Inc. Launch of the residences is expected to begin in the third quarter of 2006. Universal Steel Melting Co. In the past. which will belong to Araneta. Transfer of 79 . which was designed by US-based architects. Omnico Consortium. In the event of delay or poor quality of work.000. PRE-SALES. The agreement also provides that the base of the residential towers must contain retail space of at least 20. RTKL International. Inc. and Millenium Erectors Corp.

The marketing and sales division is staffed by a select and trained group of property consultants who exclusively market the Company’s projects. The payment structures are designed to appeal to middle class buyers. The property management group contributes to enhancing the Company’s brand and reputation in the after-sales market. The Company regularly monitors the performance of the tenants in its retail 80 . PROPERTY MANAGEMENT AND AFTER-SALES SERVICES The Company remains involved in the properties it develops and sells through its property management group which provides property management and after-sales services. the Company enters into long-term leases of 10 to 15 years. Where the Company is not able to sell 100% of its residential units upon completion. In addition. The Company’s commercial leases are generally for terms of three to five years (with annual rental escalation and review provisions) and typically require three months security deposits and three months advance rent. it rents these units out on a lease-to-own basis or lease with an option to buy. which covers building maintenance expenses. TENANTS AND LEASES The Company typically sells all of its residential property developments and maintains ownership of its commercial developments. The Company’s sells its residential properties primarily directly to end users and is not dependent on any single purchaser or purchasers. Property consultants are recruited via newspaper advertising and required to meet the criteria set by the Company. In each of the last three years. the Company has benefited from pre-sales of an average of 70% of its units a year from launch and an average of 90% unit pre-sales prior to completion. renting these out to tenants. The Company’s tenants are generally charged a monthly management fee assessed per square meter. but in-house personnel also receive a small allowance. The lease payments the Company receives under its leases with retail tenants are based on a participation in the turnover of the tenant’s businesses. For land leases and office tenants which require development of a specific building structure. The Company also works with outside agents who compete directly with the Company’s in-house personnel. The group is also responsible for monitoring the latest developments in the economy and the real estate property markets as well as conducting market research studies for the marketing division. Kiosk retailers are charged a flat rent fee and theatres are co-owned with the Company. which will then market the Company’s projects overseas through their respective marketing networks. The Company enters into marketing agreements with various brokers based in the different overseas markets.BUSINESS title to the property occurs only once all payments have been received. maintain the property and develop long-term relationships with its tenants and purchasers. Rents are typically based upon a turnover component of 3% to 5% of revenues net of taxes and service charges in addition to a minimum rent charge. The property management group is a resource for the Company to obtain feedback from its purchasers and rental tenants in order to provide solutions to their property needs. The Company maintains an in-house marketing and sales division for each of its projects which is comprised of 250 full-time sales agents. The Company also employs a marketing services staff of 25 employees whose job is to provide auxiliary services required by the marketing division for its sales and promotional activities. Tenants are also required to pay their utility charges. Both internal and external agents work on a commission basis. the Middle East and Australia. Europe. North America. the Company has an international marketing division comprised of 10 employees based in Manila who oversee a global network of 23 sales offices which market the projects of the Company and its affiliates to overseas Filipino professionals and retirees throughout Asia. Services include building maintenance and interior design services. All property consultants are trained prior to selling and the Company also provides a skills enhancement program intended to further develop the sales and marketing staff into high-caliber marketing professionals.

financing. malicious damage. affordable pre-sales financing. trademark. However. leasing and property holding companies to attract purchasers and well as tenants for its properties in Metro Manila. Additional land is scheduled to be released by local city governments in Metro Manila and a number of developers have expressed an interest in developing such land in response to growing demands in the BPO market. flood. Inc. typhoon. license. innovative projects.BUSINESS properties. The Company’s lease agreements typically have no pre-termination options. The Company maintains earthquake insurance with respect to the buildings and commercial centers that it owns. the availability of landbank and the concept of community township development to attract purchasers as well as tenants. its associate or joint development partners or any of its or their properties is involved in or the subject of any legal proceedings which would have a material adverse effect on the business or financial position of the Company or any of its subsidiaries. Ayala is not present. product. The percentage of revenues attributable to the Company’s five largest office tenants combined for the years ended December 31. copyright. the Company considers Ayala Land. price. INTELLECTUAL PROPERTY The Company believes that its operations and the operations of its subsidiaries are not dependent on any patent. franchise. 2004 and 2005 were 39%. 81 . With respect to community township developments. INSURANCE The Company believes that its properties are covered by adequate fire. concession or royalty agreement. property and terrorist insurance provided by reputable companies with commercially reasonable deductibles and limits. respectively. strike. It is not customary in the Philippines to maintain. 2003. With respect to its office and retail leasing business. RESEARCH AND DEVELOPMENT The Company incurs minimal amounts for research and development activities which do not amount to a significant percentage of revenues. COMPETITION The Company competes with other property investment. development. execution. and the Company does not maintain. after-sales service and a consistent track record of completion. The Company may elect not to renew the leases of retail tenants whose performance is lagging in order to improve its rental income. The Company believes it has several competitive advantages in each of these categories due to the prime locations of its properties. The principal bases of competition in the real estate development business are location. brand and service. riot. title insurance with respect to its properties. 31% and 29%. the Company believes that there are many companies in the industry. in the majority of locations where the Company’s community townships are located. a reputation for high quality designs. (‘‘Ayala’’) to potentially be its only significant competitor. completion. The Company has a broad tenant base and is not dependent on a single tenant or tenants. However. The Company believes this is largely because its projects differ from those of other companies in the industry in terms of location. Megaworld has not identified any direct competitor. its associate or joint ventures or any of its or their properties. LEGAL PROCEEDINGS Neither the Company nor any of its subsidiaries.

. . . . . . . . . . . . Eastwood Incubation Center . . . . . . . . Quezon City Makati City Taguig City Quezon City Quezon City Quezon City Quezon City Completed Completed Completed Completed Completed Completed Completed None None Joint Venture None None None None Hotels (2) Richmonde Hotel . . . . if any. ICITE . . . . . . . . . . . One Orchard Road . . . . . CyberOne . . . . Golf Hills Terraces . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corinthian Hills . The Bellagio . . . The Company has not experienced any disruptive labor disputes. . . . . . . . Puyat Avenue. . . . . . . . . . . . . Mandaluyong City Quezon City Manila Quezon City Makati City Quezon City Quezon City Quezon City Makati City Makati City Quezon City Quezon City Taguig City Taguig City Completed Completed Completed Completed Completed Under development Completed Under development Completed Under development Under development Under development Under development Under development Joint Venture Joint Venture None None Joint Venture None None None None Joint Venture None None Joint Venture Joint Venture Rental Properties (1) Eastwood City Walk 1 and 2 Paseo Center . Pasig City Completed None Footnotes: (1) Lease terms and rental rates vary depending on the property and the lessee. . . . the Company and its subsidiaries had 355 employees. . . . . The Company owns both of the floors that it occupies. their location. . . . . . . . . . . . . . . . . . . . . Forbeswood Heights . Makati City. . . . . . . . 82 . . . . . . . . The Company provides for estimated retirement benefits in accordance Philippine retirement law pursuant to Republic Act 7641. . . . . . . . . . Grand Eastwood Palazzo Eastwood Parkview . . . Paseo Parkview Suites . . . . . . . . . . . The Company complies with the minimum compensation and benefits standards pursuant to Philippine law. . . Greenbelt Radissons . . . . . . . . . . . . . . . . (2) The Richmonde Hotel is operated by subsidiary of the Company. . . . . . . . . . . Greenbelt Parkplace . . . . . . . Forbes Town Center . strikes or threats of strikes and the Company believes that its relationship with its employees in general is satisfactory. . . . . . Eastwood Excelsior . 101 employees were involved in operations and 122 performed administrative functions. . . . 2005. . . . . . . . . . . . . . . CyberMall . . . . . . . . . The principal properties that the Company owns. . . . . . . . . . . . . . . . . . . . . . . . . . . condition and limitations on ownership. . . . . . . . . . . . . . . . The Company’s principal corporate headquarters are located on the 20th and 28th floors of The World Centre at Sen. . The Company has no collective bargaining agreements with employees and no organized labor organizations in the Company. . .BUSINESS EMPLOYEES As of December 31. . . . . . . . . . . . . . . The Company anticipates that it will be hiring approximately 35 employees within the ensuing 12 months. . . . . . . . . Subdivision Lots . . See ‘‘— Tenants and Leases’’. . . . . . . . . . . 102 of these employees performed clerical functions. . . The Company intends to hire additional employees if the present workforce becomes inadequate to handle the Company’s operations. . Gil J. . . CyberOne . . are listed below: Project Location Condition Limitations on Ownership Condominium Units and 8 Wack Wack Road . . Marina Square Suites . . . . . . . .

as discussed below. 83 . must comply with Batas Pambansa Blg. Dealers. Approval of such plans is conditional on. The first type of subdivision. commercial. A developer of a commercial subdivision is required to reserve at least 3. The development of subdivision and condominium projects can commence only after the local government unit has issued the development permit. enforces this decree and has jurisdiction to regulate the real estate trade and business. Project permits and licenses to sell may be suspended. technical and administrative capabilities. the length of the housing blocks and house construction. cancelled or revoked by the HLURB by itself or upon complaint from an interested party. 220. Further. Alterations of approved plans which affect significant areas of the project. the developer’s financial. All subdivision and condominium plans for residential. lot sizes. which are distinguished by different development standards issued by the HLURB. Presidential Decree No. together with local government units. all subdivision plans and condominium project plans are required to be filed with and approved by the HLURB.REGULATORY AND ENVIRONMENTAL MATTERS Presidential Decree No. 957 covers subdivision projects and all areas included therein for residential. 957 as amended. The issuance of a development permit is dependent on. road access. Further. which set out standards for lower density developments. Under current regulations. 7279 requires developers of proposed subdivision projects to develop an area for socialized housing equivalent to at least 20% of the total subdivision area or total subdivision project cost. industrial and recreational purposes. There are essentially two different types of residential subdivision developments. a developer of a residential subdivision is required to reserve at least 30% of the gross land area of such subdivision for open space for common uses. Other subdivisions must comply with Presidential Decree 957. Owners of or dealers in real estate projects are required to obtain licenses to sell before making sales or other dispositions of lots or real estate projects. aimed at low-cost housing. such as infrastructure and public facilities.5% of the gross project area for parking and pedestrian malls. Both types of development must comply with standards regarding the suitability of the site. the sewage disposal system. among others (i) compliance with required project standards and technical requirements which may differ depending on the nature of the project. and (ii) issuance of the barangay clearance. which include roads and recreational facilities. is the principal statute which regulates the development and sale of real property as part of a condominium project or subdivision. also require the prior approval of the relevant local government unit. within the same city or municipality. the HLURB locational clearance. water supply. commercial. and in accordance with the standards set by the HLURB. which allows for a higher density of building and relaxes some construction standards. The HLURB is the administrative agency of the Government which. whenever feasible. A bond equivalent to 10% of the total project cost is required to be posted by the project developer to ensure commencement of the project within one year from the issuance of the development permit. necessary community facilities. industrial and other development projects are subject to approval by the pertinent local government unit in which the project is situated. Subdivision or condominium units may be sold or offered for sale only after a license to sell has been issued by the HLURB. at the option of the developer. The license to sell may be issued only against a performance bond posted to guarantee the completion of the construction of the subdivision or condominium project and compliance with applicable laws and regulations. and DENR permits. Republic Act No. and condominium projects for residential or commercial purposes. electrical supply. open spaces. among other things. brokers and salesmen are also required to register with the HLURB.

Navotas. Pateros. An IT Building is an edifice. as well as amenities required by professionals and workers involved in IT enterprises. In case of an environmentally critical project within an environmentally critical area. Makati. facilities and amenities. As a requisite for the issuance of an ECC. PEZA registered enterprises locating in an Ecozone are entitled to fiscal and non-fiscal incentives such as income tax holidays and duty free importation of equipment.REGULATORY AND ENVIRONMENTAL MATTERS ZONING AND LAND USE Under the agrarian reform law currently in effect in the Philippines and the regulations issued thereunder by the Department of Agrarian Reform (‘‘DAR’’). an environmentally critical project is required to submit an Environmental Impact Statement (‘‘EIS’’) to the EMB while a project in an environmentally critical area are generally required to submit an Initial Environmental Examination (‘‘IEE’’) to the proper DENR regional office. Once enacted. commercial. Paranaque. administers and manages designated special economic zones (‘‘Ecozones’’) around the country. a portion or the whole of which. Lands may be classified under zoning ordinances as commercial. Las Pinas. Quezon and Valenzuela and the five municipalities of Malabon. Metro Manila is the area that covers the 12 cities of Manila. San Juan and Taguig. Marikina. Special Economic Zone PEZA is a Government corporation that operates. The Company is not aware of any pending legislation or governmental regulation that is expected to materially affect is business. Muntinlupa. and tourist/recreational centers. The construction of major roads and bridges are considered environmentally critical projects for which EISs and ECCs are mandated. and tourist/recreational regions. IT Building. Pasay. Mandaluyong. and business process outsourcing using electronic commerce) are entitled to fiscal and non-fiscal incentives if they are PEZA-registered locators in a PEZA-registered IT Park. residential or agricultural. or easy access to such amenities. The DENR through its regional offices or through the Environmental Management Bureau (‘‘EMB’’). the National Water Resources Board. An IT Park is an area which has been developed into a complex capable of providing infrastructures and other support facilities required by IT enterprises. or Ecozone. While a procedure for change of allowed land use is available. machinery and raw materials. PEZA requirements for the registration of an IT Park or IT Building differ depending on whether it is located in Metro Manila. free trade zones. the DAR. An Ecozone may contain any or all of the following: industrial estates. Land use may be also limited by zoning ordinances enacted by local government units. The Company routinely secures the required governmental approvals for its projects during the planning and construction and marketing stages of project development. land classified for agricultural purposes as of or after 15 June 1988. which are generally created by proclamation of the President of the Philippines. an EIS is required. The Company believes that it has obtained the required government approvals relevant for each project at its current state of development. industrial. cannot be converted to non-agricultural use without the prior approval of DAR. 84 . land use may be restricted in accordance with a comprehensive land use plan approved by the relevant local government unit. this process may be lengthy and cumbersome. are areas earmarked by the Government for development into balanced agricultural. export processing zones. industrial. Pasig. IT enterprises offering IT services (such as call centers. These PEZA requirements include clearances or certifications issued by the city or municipal legislative council. provides such infrastructure. determines whether a project is environmentally critical or located in an environmentally critical area. and the DENR. Caloocan. ENVIRONMENTAL LAWS Development projects that are classified by law as environmentally critical or projects within statutorily defined environmentally critical areas are required to obtain an Environmental Compliance Certificate (‘‘ECC’’) prior to commencement. Ecozones.

Presidential Decree No. as a minimum. mitigating and enhancement measures is known as the EIS System. including a discussion of the direct and indirect consequences to human welfare and ecological as well as environmental integrity. All land patents such as homestead. codified the laws relative to land registration and is based on the generally accepted principles underlying the Torrens System. The Company incurs expenses for the purposes of complying with environmental laws that consist primarily of payments for Government regulatory fees. that the proposed project or undertaking will not cause a significant negative environmental impact. The EIS System successfully culminates in the issuance of an ECC.REGULATORY AND ENVIRONMENTAL MATTERS The EIS refers to both the document and the study of a project’s environmental impact. the Register of Deeds may issue an Original Certificate of Title. The issuance of an ECC is a Government certification. In a judicial proceeding. All development projects. unregistered land may be brought under the system by virtue of judicial or administrative proceedings. that the proponent has complied with all the requirements of the EIS System and that the proponent is committed to implement its approved Environmental Management Plan in the EIS or. Title to registered lands cannot be lost through adverse possession or prescription. that it shall comply with the mitigation measures provided therein. if an IEE was required. Project proponents that prepare an EIS are mandated to include a commitment to establish an Environmental Monitoring Fund (‘‘EMF’’) when an ECC is eventually issued. Project proponents that prepare an EIS are required to establish an Environmental Guarantee Fund (‘‘EGF’’) when the ECC is issued to projects determined by the DENR to pose a significant public risk to life. health. administration and assessment of the effects of any project on the quality of the physical. The entire process of organization. Such fees are standard in the industry and are minimal. as amended. Persons opposing the registration may appeal the judgment within 15 days to the Court of Appeals or the Supreme Court. installations and activities that discharge liquid waste into and pose a threat to the environment of the Laguna de Bay Region are also required to obtain a discharge permit from the Laguna Lake Development Authority. publication and service of notice and hearing. 1529. it contains all relevant information regarding the projects environmental effects. sales and free patents. for projects in environmentally critical areas. Similarly. including the Government. the land is granted to the applicant by the DENR by issuance of a patent and the patent becomes the basis for issuance of the Original Certificate of Title by the Register of Deeds. The decree of registration may be annulled on the ground of actual fraud within one year from the date of entry of the decree of registration. Once registered. The EGF is intended to answer for damages caused by such a project as well as any rehabilitation and restoration measures. rules and regulations. including mitigation and enhancement measures. title to registered land can no longer be challenged except with respect to claims noted on the certificate of title. While the EIS or an IEE may vary from project to project. 85 . application. property and the environment. biological and socio-economic environment as well as the design of appropriate preventive. must be registered with the appropriate registry of deeds since the conveyance of the title to the land covered thereby takes effect only upon such registration. PROPERTY REGISTRATION AND NATIONALITY RESTRICTIONS The Philippines has adopted a system of land registration which conclusively confirms land ownership which is binding on all persons. in an administrative proceeding. The IEE refers to the document and the study describing the environmental impact. After proper surveying. the Regional Trial Court within whose jurisdiction the land is situated confirms title to the land. After the lapse of the period of appeal. The EMF shall be used to support the activities of a multi-partite monitoring team which will be organized to monitor compliance with the ECC and applicable laws.

86 . Real property taxes may not exceed 2% of the assessed value in municipalities and cities within Metro Manila or in other chartered cities and 1% in all other areas.REGULATORY AND ENVIRONMENTAL MATTERS Any subsequent transfer of encumbrance of the land must be registered in the system in order to bind third persons. buildings may be assessed at up to 80% of their fair market value. a Condominium Certificate of Title is issued by the Register of Deeds. All documents evidencing conveyances of subdivision and condominium units should also be registered with the Register of Deeds. To evidence ownership of condominium units. the foreign ownership of units in such developments is limited to 40%. Land is ordinarily assessed at 20% to 50% of its fair market value. Subsequent registration and a new Transfer Certificate of Title in the name of the transferee will be granted upon presentation of certain documents and payment of fees and taxes. there is generally no prohibition against foreigners owning building and other permanent structures. with respect to condominium developments. While the Philippine Constitution prescribes nationality restrictions on land ownership. However. An additional special education fund tax of 1% of the assessed value of the property is also levied annually. The assessed value of property and improvements vary depending on the location. use and the nature of the property. Title to the subdivision or condominium unit must be delivered to the purchaser upon full payment of the purchase price. and machinery may be assessed at 40% to 80% of its fair market value. PROPERTY TAXATION Real property taxes are payable annually based on the property’s assessed value. Any mortgage existing thereon must be released within six months from the delivery of title.

. manage or sell real estate properties. . . . 2005 100% 100% 100% 100% 100% 100% 100% 100% 60% 60% 50% 45. was incorporated in the Cayman Islands to act as a promoter and entrepreneur. was organized primarily to act as a principal agent or broker. It has not started commercial operations as of December 31. Megaworld Central Properties. broker. 2002 October 6. 1997 June 24. . Inc. Quezon City. . . .22% 35.1956 (1) August 15. . has not commenced commercial operations as of December 31. spun off certain of its business operations as a requirement of certain financing or statutory requirements to incorporate a separate company for a particular project or business operation. . . . . . . . Palm Tree Holdings and Development Corporation. Inc. . Mactan Oceanview Properties and Holdings. . . . . financial. . 1996 September 15. . Note: (1) Fairmont was originally incorporated under the name Ramie Textiles. . . . . . . . hotel and restaurant and related businesses. Fairmont Holdings. . . . . . . 2003 August 26. Megaworld Newport Property Holdings. Set out below is a description of each subsidiary or associate company and its main activities. . Richmonde Hotel Group International . Inc. Inc. Eastwood CyberOne Corporation is the developer of the CyberOne office condominium project located in the Eastwood City Cyberpark. in certain circumstances. . Eastwood CyberOne Corporation . . 1994 February 16. . . 2005. 1994 January 18. . . . . . Megaworld Newport Property Holdings. . . . . . 2001. . Inc. . . . . Inc. . Prestige Hotels and Resorts.. Inc. . . . . . 1999 February 6. . . carry on the business as a financier. Inc. . . . Forbes Town Properties and Holdings. . . . . . . . . . construct. . . . . 2005. Mactan Oceanview Properties & Holdings. . Megaworld Globus Asia. . dealer. . . . . .SUBSIDIARIES AND AFFILIATES As of December 31. Inc. . mixed-use residential and commercial condominium facility. Megaworld Cayman Islands. . . . . agent. . . . . 2005. trading and other operations. Inc. . The Company started commercial operations on October 30. . . . . . Megaworld-Daewoo Corporation . . . . and importer and to undertake all kinds of investments. . Forbes Town Properties and Holdings. leases and markets office space in the CyberPark to prospective locators. . Inc. . . Inc. Inc. . It adopted its present name on October 3. . . . . . . 2002 October 21. . . . Megaworld Land. . . . . Inc.29% 40% . . Richmonde Hotel Group International Ltd. . . . . . . . and to acquire by purchase or lease. . . . . 1996 August 14. . . 1999 August 16. . . Megaworld Cayman Islands. . the Company holds interests in the following subsidiaries and associates: Subsidiaries and Associates Date of Incorporation Percentage Ownership Subsidiaries Megaworld Land. . . . Inc. . . . . . Inc. Inc. . . . Prestige Hotels & Resorts. . wholly owns Prestige Hotels & Resorts. . . . . 87 . 2002. . . . . . Associates Empire East Land Holdings. 2005 March 17. 1995 July 15. . . . . was organized to develop a resort property in Cebu into a first class. . It sells. . . Inc. operates the Company’s Richmonde Hotel in Ortigas Center. . . The Company has. . was incorporated in the British Virgin Islands to undertake all kinds of investments and engage in trading. . . May 26. . on commission basis or otherwise. . . . .

a 3-tower residential condominium project in Eastwood City. Puyat Avenue. Quezon City. 2005. has not commenced commercial operations as of December 31. Fairmont Holdings. Inc. 1956. was previously incorporated under the name Ramie Textiles.SUBSIDIARIES AND AFFILIATES Megaworld-Daewoo Corporation has completed the development of Tower 2 of the Olympic Heights project. Inc. a twin-tower residential condominium project located along Sen. has completed the development of The Salcedo Park. is engaged in the development and marketing of affordable housing projects either in the form of condominium communities or house-and-lot packages. Palm Tree Holdings and Development Corporation has not commenced commercial operations as of December 31. Inc. Makati City. commercial and office space and mixed-use complexes. Inc. 2005. It adopted its present name on October 3. Gil J. 88 . Inc. Megaworld Central Properties. on January 18. Empire East Land Holdings. 2001. Megaworld Globus Asia. and to a limited extent.

. . . Barrack. Inc. . Andresons Global Inc. Jr. Lourdes Clemente . Maquinto . . . . Megaworld Land. Mr. Tan . . Acosta Edwin B. 2006. In recognition of Mr. . Inc. . . . . Gerardo C. . . of which two are independent directors. Tan . All of the directors were elected at the Company’s annual stockholders meeting on June 17. . . Katherine L. he was also named Most Outstanding Alumnus of the University of the East. Victoria M.BOARD OF DIRECTORS AND SENIOR MANAGEMENT BOARD OF DIRECTORS AND EXECUTIVE OFFICERS The overall management and supervision of Megaworld is undertaken by the Board. . . Sy . Eastwood CyberOne Corporation. . . . . . . . . . In 2003. . . . . Luke T. He has served as Chairman of the Board and President of the Company since its incorporation in 1989. Tan is the founder of the Company. Roberto Guevara . . . Tan’s role in spurring economic and societal development of the City of Taguig through the investments and development projects of the Company. . . . . . . . 56 66 54 52 58 64 54 Filipino Filipino Filipino Filipino United States of America Filipino Filipino Director. . Cirilo L. . . . . . .. The table sets forth each member of Megaworld’s Board as of February 28. Francisco Canuto . Manlangit . Name Age Citizenship Position Andrew L. Megaworld’s executive officers and management team cooperate with Megaworld’s Board by preparing appropriate information and documents concerning Megaworld’s business operations. . . . . . Antonio Tan. . . . . . Tan . . Inc. . and Megaworld Globus Asia. . and The Manila Banking Corporation. . . Currently. . . Thomas J.. and Vice Chairman of Alliance Global Group. . . . . . Raffles & Co. . . . The Andresons Group. . ... He also sits in the boards of Gilmore Property Marketing Associates. . . . . Enrique Santos L. . Inc. . . . financial condition and results of operations for its review. He concurrently serves as Chairman of the Board of Empire East Land Holdings. . Mr Tan serves in the boards of subsidiaries. . . . 2006. . Name Age Citizenship Position Kingson Sian . Tan graduated Magna Cum Laude from the University of the East with the degree of Bachelor of Science in Business Administration. . . Noli Hernandez . . Chairman and President Director Director Director Director Independent Director Independent Director The table below sets forth Megaworld’s executive officers in addition to its executive directors listed above as of February 28. 44 44 42 48 56 36 44 44 35 Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Executive Director First Vice President for Operations First Vice President for Finance and Administration Treasurer Vice President for Corporate Communications Vice President for Marketing Managing Director for International Sales Corporate Secretary Assistant Corporate Secretary Andrew L. 2005 and will hold office until their successors have been duly elected and qualified. Consolidated Distillers of the Far East. . Tan ‘‘Businessman of the Year’’ in recognition of his ‘‘visionary leadership’’ in transforming Eastwood City into a ‘‘magnet for investments’’ and the ‘‘most dynamic growth center in Quezon City’’. . . . . In 2004. Yang . the Quezon City government named Mr. . Inc. Garcia . . the Board consists of seven members. 89 . Ma. Inc. the City of Taguig in April 2005 conferred on him the Forward Taguig Award in the Field of Business an Entrepreneurship. George T. Inc. . . . He is also Chairman of the Board of Megaworld Foundation. . . Inc. .

Prestige Hotels & Resorts. Garcia is an independent director of the Company. Barrack also served in the Reagan Administration as Deputy Undersecretary of the Department of the Interior. He also serves as Chairman of the Board of Ronald McDonald House Charities (Philippines). he was head of the legal department and served as Corporate Secretary of Gateway Enterprises International Corporation. Bass. Barrack serves on the Board of Directors of such publicly-traded companies as Continental Airlines. Inc. Inc. 2004. Fun Characters International Pte. He attended Law School at the University of San Diego and the University of Southern California. He is also a director of Philippine Tech. Inc. He practiced international finance law until 1976. Mr.. Mr. Mr. Garcia has served in the Company’s Board of Directors since 1994. Megaworld Daewoo Corporation and Megaworld Globus Asia. He is President of Megaworld Foundation.. Inc.. She served as Treasurer of the Company from 1989 to 1994. Inc. where he was an editor of the Law Review and received a J. He previously served as a member of the Company’s Board of Directors from August 1999 until June 2002. Gerardo C. Fairmont Holdings Inc. University of Pennsylvania. Barrack served as President of Oxford Development Ventures.D. with the degree of Bachelor of Science in Business Administration and holds a Masters Degree in Business Administration from the Wharton School. Barrack was a principal with the Robert M. Inc. with the degree of Bachelor of laws.9 billion. Mr. He was also Legal Officer and Corporate Secretary of Integrated Resources Corporation. Inc. Yang has extensive experience in real estate development. Inc. (Marketing Licensee for Walt Disney Company for Asean countries) and Kristin Management & Development Corporation. Garcia served as 90 . Inc. Thomas J. and Eastwood Property Holdings. Barrack began his real estate development career as President of Dunn International Corporation. Barrack. Mr. Katherine L. He is Chairman of the Board of Alliance Global Group. Inc. MC Home Builders’ Depot. and First Republic Bank. Inc. Barrack is the Founder. Hutton & Co. in 1972. and multi-family properties in six states. Mr. Mr. Inc. Tan has served as a member of the Company’s Board of Directors since 1989. Legal Officer of the Marina Properties Corporation and Associate Attorney of Dizon Paculdo Jurado Vitug & Associates Law Offices. operation and management of over seven million square feet of industrial. Inc. Manlangit graduated from the University of the Philippines among the top ten of his class. Inc. Manlangit also serves in the boards of Empire East Land Holdings. He is also President and Chairman of the boards of Golden Arches Development Corporation (McDonald’s Philippines). in 1969 from the University of Southern California. Megaworld Land. Barrack received a B. He concurrently serves in the boards of Megaworld Land. where he oversaw the construction. In 1976. Trojan Computer Forms. Consolidated Distillers of the Far East.. Mr. Ms. & Development Ventures.. as independent director. and Gilmore Property Marketing Associates. Before joining the Company. Prior to the formation of Colony. office. HAVI Food Services Philippines. Inc. Manlangit has served as a member of the Company’s Board of Directors since 1994. Inc. Construction Strategies & Management Corporation and GEC Land Development Corporation... Yang graduated Cum Laude from the De La Salle College. Mr.. the principal investment vehicle of the Fort Worth.. Eastwood Property Holdings. Manila.. Inc. Inc. Andresons Global Inc. was elected as a director of the Company on May 19. Texas investor Robert M. Inc. Inc. Mr.F. Jr. and director of Empire East Land Holding.BOARD OF DIRECTORS AND SENIOR MANAGEMENT George T. Fun Characters. Chairman and Chief Executive Officer of Colony Capital. LLC. Mr. USA. She is concurrently Director and President of The Andresons Group. Prior to joining the Group. Bass Group (‘‘RMBG’’). He is concurrently Executive Vice President of the Company. Inc.. in New York. Ltd.. a $3 billion Canadian-based development company. Scholastica’s College with a degree in Nutrition. Cirilo L. Eastwood CyberOne Corporation.. and as a Senior Vice President of E. the fast food chain business and marketing of consumer products.. First Georgetown Ventures. He is also a member of the Board of Directors of Prime Gaming Management Corporation and a Member of the Board of Governors of The Philippine National Red Cross and The Tower Club. Yang has served as Vice Chairman of the Company’s Board of Directors since 1994. Tan graduated from St. Prior to joining RMBG.A. Mr. which is one of the more prominent real estate opportunity funds in America having acquired assets in excess of US$13. Mr. He also serves in the boards of subsidiaries. and Raffles & Co.

Guevent Industrial Development Corporation and Radiowealth Finance Corporation. Mr. Prestige Hotels & Resorts. He is a trustee of Megaworld Foundation. Mr. Ms. Creative Director of AdCentrum Advertising. He is concurrently Corporate Secretary of Empire East Land Holdings. Guevara is an independent director of the Company. Inc. Inc. Tan joined the Company in July 1994 and is currently the Company’s First Vice President for Operations. Mr. He is also President of Seed Capital Corporation and RFC (HK) Limited. Inc. He topped the Professional Licensure Examinations for Civil Engineering in 1983. Inc. Inc..BOARD OF DIRECTORS AND SENIOR MANAGEMENT Executive Vice President of UBP Capital Corporation. Canuto joined the Company in 1995. Roberto S. He graduated from the Polytechnic University of the Philippines with the degree of Bachelor of Science in Commerce major in Accounting. He also has a Masters Degree in Civil Engineering from the University of the Philippines.. he worked as Group Head of Engineering in Consolidated Energy & Power Asia. and Senior Auditor in Cabanero Katigbak Clemente & Associates and RubberWorld Philippines. Kingson U. He is a trustee of Megaworld Foundation. Sian graduated from the University of the Philippines with the degree of Bachelor of Science in Business Economics. Enrique Santos L. and Senior Engineering of Basic Technology and Management Corporation in association with Pacific Consultants International of Japan. a company engaged in financial. and First Oceanic Property Management Inc. Megaworld Daewoo Corporation and Prestige Hotels & Resorts. he worked as Audit Manager of SGV & Company and Controller of Federal Express Corporation. Inc. Sy is Vice President for Corporate Communications. 91 . 2001. Company. Inc. which is a licensee of Avis Car Rentals. and President and Chief Operating Officer of Megaworld Land. Clemente joined the Company in 1990. He is concurrently Director and President of Prestige Hotels & Resorts. Inc.. Inc. He has been a member of the Company’s Board of Directors since June 20. Francisco C. Mr.. and a member of its Board of Directors. Mr. Inc. Eastwood CyberOne Corporation. she was Audit Manager of Philippine Aluminum Wheels. Mr. He also serves in the boards of Andresons Global. Inc. Sian was formerly a Vice President of FPB Asia Ltd/First Pacific Bank in Hong Kong from 1990 to 1995. Prior to that. Inc. Inc. Eastwood CyberOne Corporation.. Inc. He holds a bachelor’s degree in Chemical Engineering and a Masters Degree in Business Administration from the University of the Philippines. She is currently a director of Megaworld Land. He is concurrently a director of Eastwood Property Holdings. Megaworld Daewoo Corporation. Inc. Inc. He serves on the board of other companies. management advisory services. Inc.. and Fairmont Holdings Inc. Mr. Prestige Hotels & Resorts. Sy joined the Company in August 1989. G & S Transport Corporation. in the United States from 1988 to 1990. Sian joined the Group in September 1995 as Senior Vice President and is currently Executive Director of the Company. Eastwood CyberOne Corporation. Antonio T.. Lourdes G. Guevara is Chairman of the Board of Directors of Seed Capital Ventures. Canuto was named Outstanding Alumnus in Financial Management by the Polytechnic University of the Philippines during its centennial year. In 2004. Inc. Mr. and Gilmore Property Marketing Associates. such as Export & Industry Bank. Sy previously worked as Advertising Manager of Consolidated Distillers of the Far East. a Hopewell Holdings. Ltd. He obtained his Masters Degree in Business Administration for Finance and Business Policy from the University of Chicago. He is concurrently President of First Oceanic Property Management. Clemente graduated Cum Laude from the Far Eastern University with the degree of Bachelor of Science major in Accounting. Ltd. and Director of Megaworld Land. Clemente is a Certified Public Accountant and is the Company’s First Vice President for Finance and Administration. Prior to joining the Company. Before joining the Company. Mr. Ms. Tan graduated with honors from the Mapua Institute of Technology with the degree of Bachelor of Science in Civil Engineering. Canuto is a Certified Public Accountant and currently serves as Treasurer of the Company and Senior Assistant to the Chairman. he was connected with Citicorp Real Estate. Canuto has a Masters Degree in Business Administration from the Ateneo Graduate School of Business. Inc. Before joining the Company.

BOARD OF DIRECTORS AND SENIOR MANAGEMENT

Copy Chief of Admakers, Inc. and Peace Advertising Corporation, and Creative Associate of Adformatix, Inc. Mr. Sy graduated with honors from the Ateneo de Manila University with the degree of Bachelor of Arts in Communication Arts. Noli Hernandez began his career with the Company as a property consultant in February 1994 and was appointed Vice President for Marketing on February 20, 2003. Mr. Hernandez rose from the ranks in the Company, starting out as a property consultant then becoming Sales Manager, Assistant Vice President, Senior Assistant Vice President, and finally to Vice President for Marketing. Ma. Victoria M. Acosta is Managing Director for International Sales and has held this position since September 1999. Prior to her appointment, Ms. Acosta had twenty years of marketing experience in real estate and consumer products with other companies. Ms. Acosta was Executive Vice President and Chief Operating Officer of Empire East Land Holdings, Inc. from 1997 to 1998 and was Executive Director for Marketing from 1996 to 1997. Earlier, she also served as Senior Vice President and General Manager of Raffles & Co., Inc. Ms. Acosta graduated from the University of the Philippines with the degree of Bachelor of Science in Business Administration major in Marketing & Finance. Edwin B. Maquinto is the Corporate Secretary of the Company and has held this position since 1997. Mr. Maquinto graduated from the University of the Philippines, with degrees in law and economics. He served as Special Assistant to the Legal and Corporate Manager of the Philippine Coconut Authority, Chief Legal Counsel of the FORZA group of companies, Legal Officer of the Office of Legal Affairs and Hearing Officer of the Garments and Textiles Export Board, both of the Department of Trade and Industry. Luke T. Tan serves as Assistant Corporate Secretary of the Company and has held this position since 1997. Mr. Tan graduated from the University of the Philippines with the degree of Bachelor of Science in Economics. He has a Masters Degree in Business Administration from the Ateneo de Manila University. The members of Megaworld’s Board and its executive officers can be reached at the address of the principal office of Megaworld which is at the 28/F The World Centre, 330 Sen. Gil J. Puyat Avenue, Makati City, Philippines 1227. INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS OF DIRECTORS AND EXECUTIVE OFFICERS None of the members of Megaworld’s Board nor its executive officers are involved in any criminal, bankruptcy or insolvency investigations or proceedings for the past five years and up to the date of this Prospectus. FAMILY RELATIONSHIPS Mr. Andrew L. Tan and Ms. Katherine L. Tan, both directors of the Company, are spouses. COMMITTEES OF THE BOARD Pursuant to Megaworld’s corporate governance manual adopted in 2002, its Board created each of the following committees and appointed board members thereto. AUDIT COMMITTEE Megaworld’s Audit Committee is responsible for ensuring that all financial reports comply with internal financial management and accounting standards, performing oversight financial management functions, pre-approving all audit plans, scope and frequency and performing direct interface functions with internal and external auditors. Megaworld’s Audit Committee has three voting members and two independent directors, one of whom services as the head of the committee.
92

BOARD OF DIRECTORS AND SENIOR MANAGEMENT

COMPENSATION AND REMUNERATION COMMITTEE Megaworld’s Remuneration and Compensation Committee is responsible for establishing a formal and transparent procedure for developing a policy on executive remuneration and for fixing the remuneration packages of corporate officers and directors, as well as providing oversight over remuneration of senior management and other key personnel ensuring that compensation is consistent with the Company’s culture, strategy and control environment. Megaworld’s Remuneration and Compensation Committee consists of three voting members, including at least one independent director. NOMINATION COMMITTEE Megaworld’s Nomination Committee pre- screens and shortlists all candidates nominated to become a member of the Board in accordance with qualifications prescribed by Philippine law and the Company’s manual on corporate governance. Megaworld’s Nomination Committee has three voting members, including at least one independent director. EXECUTIVE COMPENSATION
Summary Compensation Table

The following tables identify Megaworld’s Chief Executive Officer and the four most highly compensated executive officers and summarize their aggregate compensation in 2003, 2004, 2005 and 2006 :
Annual Compensation Name A. 1. 2. 3. CEO and five most highly compensated executive officers Andrew L. Tan . . . . . . . . . . Cirilo L. Manlangit . . . . . . . Lourdes G. Clemente . . . . . . Position Year Salary Bonus 1,056,850 Others 2,511,345

2006 15,865,285 . . . .

4. 5. 6. B.

. . President . Executive Vice President . First Vice President for Finance and Administration Antonio T. Tan . . . . . . . . . . . . First Vice President for Operations Kingson U. Sian. . . . . . . . . . . . Executive Director Francisco C. Canuto . . . . . . . . . Treasurer All other officers and directors as a group unnamed . . . . . . . . . . . Annual Compensation 20,488,285 1,401,850 2,856,345

Name A. 1. 2. 3. CEO and five most highly compensated executive officers Andrew L. Tan . . . . . . . . . . Cirilo L. Manlangit . . . . . . . Lourdes G. Clemente . . . . . .

Position

Year

Salary

Bonus 919,000

Others 2,183,779

2005 13,795,900 . . . .

4. 5. 6. B.

. . President . Executive Vice President . First Vice President for Finance and Administration Antonio T. Tan . . . . . . . . . . . . First Vice President for Operations Kingson U. Sian. . . . . . . . . . . . Executive Director Francisco C. Canuto . . . . . . . . . Treasurer All other officers and directors as a group unnamed . . . . . . . . . . . 17,815,900 1,219,000 2,483,779

93

BOARD OF DIRECTORS AND SENIOR MANAGEMENT

Name A. 1. 2. 3. CEO and five most highly compensated executive officers Andrew L. Tan . . . . . . . . . . Cirilo L. Manlangit . . . . . . . Lourdes G. Clemente . . . . . .

Position 2004 . . . .

Salary 5,931,715

Bonus 750,000

Others 2,050,000

4. 5.

6. B.

. . President . Executive Vice President . First Vice President for Finance and Administration Antonio T. Tan . . . . . . . . . . . . First Vice President for Operations Enrique Santos L. Sy . . . . . . . . Vice President for Corporate Communications Francisco C. Canuto . . . . . . . . . Treasurer All other officers and directors as a group unnamed . . . . . . . . . . . Position CEO and five most highly compensated executive officers Andrew L. Tan . . . . . . . . . . Cirilo L. Manlangit . . . . . . . Lourdes G. Clemente . . . . . . Year 2003 . . . . 6,984,765 1,050,000 2,350,000

Name A. 1. 2. 3.

Salary 5,392,468

Bonus 658,000

Others 1,520,000

4. 5.

6. B.

. . President . Executive Vice President . First Vice President for Finance and Administration Antonio T. Tan . . . . . . . . . . . . First Vice President for Operations Enrique Santos L. Sy . . . . . . . . Vice President for Corporate Communications Francisco C. Canuto . . . . . . . . . Treasurer All other officers and directors as a group unnamed . . . . . . . . . . . 6,349,786 858,000 1,820,000

STANDARD ARRANGEMENTS The members of the Board receive a standard per diem for attendance in Board meetings. In 2004, = the Company paid a total of P 180,000 for directors per diem. For 2005, the Company has allocated = 420,000 for the directors’ per diem. Other than payment of the per diem, there are no P standard arrangements pursuant to which directors of the Company are compensated, or are to be compensated, directly or indirectly, for any services provided as a director for the years ended December 31, 2004 and 2005. OTHER ARRANGEMENTS There are no arrangements pursuant to which any director of the Company was compensated, or is to be compensated, directly or indirectly, during the years ended December 31, 2004 and 2005, for any service provided as a director. There are no compensatory plans or arrangements with respect to any named executive officer. EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-INCONTROL ARRANGEMENT Executive officers are appointed by the Board to their respective offices. The Company does not enter into employment contracts with its executive officers. There is no compensatory plan or arrangement with respect to an executive officer which results or will result from the resignation, retirement or any other termination of such executive officer’s employment with the Company and its subsidiaries, or from a change-in-control of the Company, or a change in an executive officer’s responsibilities following a change-in-control of the Company.

94

BOARD OF DIRECTORS AND SENIOR MANAGEMENT

WARRANTS AND OPTIONS OUTSTANDING There are no outstanding warrants or options held by the Company’s President, the named executive officers, and all officers and directors as a group. DISCLOSURE ON COMPLIANCE WITH LEADING PRACTICES ON CORPORATE GOVERNANCE In 2002, the Company adopted a Manual on Corporate Governance in order to institutionalize the principles of good corporate governance in the entire organization. Among measures undertaken by the Company in order to fully comply with the provisions of the Corporate Governance Manual are periodic monitoring and evaluation of the internal control system for corporate governance. No sanctions have been imposed on any director, officer or employee on account of noncompliance. The Company is committed to good corporate governance and continues to improve and enhance its evaluation system for purposes of determining the level of compliance by the Company with the Manual on Corporate Governance.

95

Advances granted to joint venture partners are in the nature of cash advances made to landowners under agreements covering the development of parcels of land. 96 . the Company entered into a Memorandum of Understanding with Alliance Global Group. The Company avails of marketing services of Eastwood Properties and Holdings. an associate and other related parties. The Company’s remaining advances to ECOC were settled by the subsidiary using part of the proceeds of its new loan (See Note 14 to the Financial Statements) and by the issuance of additional shares of its capital stock. in exchange for additional shares of stock of the subsidiary under a taxfree exchange. an associate and other related parties are for purposes of working capital requirements. In 2002. Advances granted to and obtained from subsidiaries. The commitment for cash advances under the agreements has been fully granted by the Company. which are to be used for pre-development expenses such as relocation of existing occupants. a wholly-owned subsidiary of EELHI. Inc. the Company has not entered into any other related party transactions. In 2003. (MLI). Inc. Other than those disclosed in the audited Financial Statements included in this Prospectus. (See Note 19. the Company pays commission based on contracted terms.RELATED PARTY TRANSACTIONS Transactions with related parties include investments in and advances granted to or obtained from subsidiaries. Other Related Party Transactions). including the notes thereto. The excess of the values assigned to the shares over the cost of the transferred properties was taken up in the parent company’s books as unrealized gain on intercompany transfers of properties deducted from the investments account. the Republic of the Philippines bonds owned by a subsidiary were used as collateral for a loan obtained by the Company from a local bank (See Note 8 and 14 to the Financial Statements). for the development of the Lawton Parkway project. As consideration for said marketing services. Total amount advanced by the Company for the project is recorded as part of the Property Development Costs account in the balance sheets. Related Party Transactions). Inc. the Company transferred certain trade receivables. Commission expenses charged by EPHI and MLI are based on prevailing market rates. and Megaworld Land. For more information. see Note 9 to the Financial Statements included with this Prospectus. In 2003. which acts as a manager and leasing agent for the commercial properties of the Company. Repayment of these advances shall be made upon completion of the project development either in the form of the developed lots corresponding to the landowner’s share in saleable lots or in the form of cash to be derived from sales of the landowner’s share in the saleable lots and residential and condominium units. Advances to Landowners and Joint Ventures) and investees which investments are accounted for at cost and other entities which are owned and managed by investors/owners of the Company (see Note 10 to Financial Statements. (EPHI). Other related parties include joint venture partners (see Note 9 to Financial Statements. Certain subsidiaries and related parties enter into real estate transactions with the Company. real estate properties and related deferred credits to ECOC. Amounts due to or from these entities arising from these transactions are shown as part of Trade and Other Receivables (See Note 7 to Financial Statements) and Trade and Other Payables accounts in the balance sheets.

Thomas J. . . . Corp. . . . Valentin T. Jr. . . . . .000 5. .798 723.P. . . Guevent Industrial Dev. . . . .4331% 14. . . . . . . . .0395% SELLING SHAREHOLDER The table below shows the number of Shares held by the Selling Shareholder before the Offer. . . . OCBC Securities Phils. . . . . . . . . First Centro. the number of Shares to be sold in the Offer. . . . . . . . neither it nor any person acting on its behalf will issue. .4484% 2. .156. . .166. . . . . . . . . Simon Lee Sui Hee. . . . . .588. . . . L. . . . .6535% 0. Inc. . . . . . . . .449 30. . . . . . . . . New Town Land and Mr. .813.503. . Barrack. Fao: Santiago J. . . . . . . . .550. . . . . Colony Investors III. Richmonde Hotel Group International Limited . . . . . . . . . . . . . . . . . . . . . . . . . .655. . . .. . . .0859% 0. .000 5. . . .7% 423. . . . . . . . . . . . . . . Number of Shares Held Percent of Total Outstanding Shares Name of Shareholder The Andresons Group. . . . . . . . . . .166. . . . Colony-CB Richard Ellis MW. . . . . . .6538% 21. offer. . . . . Jasper Karl Tanchan . . While retaining utmost confidence in Megaworld’s growth strategy and management team. . Andrew L.0494% 0. .000 33. . . . . . . .0830% 0. . . . . sale or disposal of). . . . . . . . . . . .. Chua Lee Keng . . . . . . . . . . Tan . . . .452 6. .547. . . . .360 8. .164 2. . . . . . .886. . . any Shares or securities convertible or 97 . . . . . . . . . . . . . Colony-CB is represented on the Board of Megaworld through its nominee. . . . . . . . . . . . LLC which invested in Megaworld in 1998. .000.2815% 0. . . . . .7% of the Company’s outstanding Shares. . . .265. . . . decided to sell its entire shareholding in Megaworld given that the hold period for this investment is now approaching the time period limitations which are imposed under the applicable limited partnership agreement. . .0792% 0. . . . Inc. . . Khoe .825 69. Inc. . . the managing member of the Selling Shareholder’s general partner and an affiliate of Colony Capital. .000. . other than in connection with the Over-Allotment Option or the TAGI Option. .220. . . . . . . . . . . . . . . .166. . . . .P. . . . . . . . . Inc. L. Yang . directly or indirectly. Andrew Tan have each agreed with the Lead Manager that. . .171 945.000 9. . . . . for a period of 180 days after the First Closing Date. Incorporated . . . .9092% 8. Eagle Equities. The Company. . . . . . . . . . .3155% 0. . .372. . . .180. . . . . . sell. . .452 608.7868% 5. . . . . . . . . . .283. and the number of Shares the Selling Shareholder will own immediately after the Offer and after the Domestic Block Sale to be executed in parallel with the Offer.300 5. . . . . . . . PCD Nominee Corporation (Non-Filipino) . . . .370. . . . . . . . . . . . .735. . . George T. Ramon Eng Chuan Chua . . .200 8. . Gilmore Property Marketing Associates. . . .0802% 0.000 5. . . . . . New Town Land Partners. . . . . . .617.000 0 0 0 Colony-CB beneficially owned 723. Shares to be sold pursuant to Shares to be exercise of Oversold in Offer Allotment Option Shares held after Offer and Domestic Block Sale Shares before Offer as of December 31. . .166. . . contract to sell. . . . . . .7128% 4. . . 3. . . . . .0486% 0. . . . . . . . .452 Shares. . .000 1. . . Tanchan Jr. TAGI. offer. . . 2005 % of Shares outstanding % 723. . . . .636. PCD Nominee Corporation (Filipino) . . . .0504% 0. . . . Inc. . .000 5. . . . .845.8733% 6. . . . . . . . . . pledge or otherwise dispose of (or publicly announce any such issuance. . . . . . or approximately 6. . .734 31. . . . . . . .760 4. . .PRINCIPAL AND SELLING SHAREHOLDERS PRINCIPAL SHAREHOLDERS The following table sets forth the twenty largest shareholders of Megaworld as of December 31. . . . . . .0507% 0. . . . . . . . . .0490% 0. Winston Co . . . . . . . . . . . . . . . . . . . . .919 474. . .400. . . . . 2005. . .000 221. . . . .206. . . . . . . . . . . Evangeline Abdullah .

. PCD Nominee Corporation (Filipino). Tan exercises voting and investment power over NTLPI’s shares of stock in the Company. .4331% Participants of the Filipino PCD composed of custodian banks and brokers Participants of the NonPCD composed Filipino of custodian banks and brokers 1. .235. New Town Land Partners. .813. Tan Common . . sales or options or warrants or other rights to purchase Shares or any security or financial product whose value is determined directly or indirectly by reference to the price of the underlying securities without.452 6. . 8 Common . Makati Common . 723. (TAGI) 1 20/F IBM Plaza. ..500. . Andrew L. . .357.503. the prior written consent of the Lead Manager. 6767 Ayala Ave. Colony-CB MW.540.919 4. .283. . .166. . . SECURITY OWNERSHIP OF CERTAIN RECORD AND BENEFICIAL OWNERS AND MANAGEMENT Security Ownership of Certain Record and Beneficial Owners of more than 5% of the Company’s Shares of Common Stock as of February 28. (6) The PCD is not related to the Company.7868% Filipino Filipino 604.379. 6767 Ayala Ave. .164 % of Class 31. 6767 Ayala Ave. of Shares Held 3. .. (NTLPI) 3 . . Eastwood City. . M. Mr.8733% Social Security System (SSS) 7 Filipino 760.1411% Common .000 5. . . . . . L. . (5) The PCD is not related to the Company. Tan who exercises voting and investment power over NTLPI’s shares of stock in the Company. . . . TAGI has in the past designated its Chairman of the Board.A. . . PCD Nominee Corporation (Filipino) 5 . L. . 98 .S. Makati Common .4559% 945. .. 4 Filipino 2. . . . Tan 9 U. . .PRINCIPAL AND SELLING SHAREHOLDERS exchangeable into or exercisable for Shares. 2 Title of Class Name and address of record owner and relationship with the Company Citizenship Filipino No. . . Tan. Quezon City Common . . Social Security System (SSS) New Town Land Partners. . Inc. is concurrently Chairman of the Board of Directors and President of the Company. 2006 Name of beneficial owner and relationship with record owner The Andresons Group. Makati Andrew L. .928. . is also Chairman of the Board and President of the Company.400 7.P. Andrew L. . . . (2) The Board of Directors of TAGI has voting and investment power over TAGI’s shares of stock in the Company.W.P. . Andrew L. Makati Common . The Andresons Group. Ave. . Andrew L. . . . forwards. G/F MKSE Building. Inc.04233% Notes: (1) The Chairman of the Board of TAGI. Andrew L. 30/F The World Centre... to vote TAGI’s shares of stock in the Company. G/F MKSE Bldg. (3) Mr. . in each case. .. .036. Richard Ellis. . . . (4) Mr. Colony-CB Richard Ellis. . PCD Nominee Corporation (nonFilipino) 6 . . Gil Puyat.67061% 0. including equity swaps.7114% Common .492 14. . Inc.000 21. . .798 8. . Mr. Tan. Sen. . Inc. G/F MKSE Bldg.

Andrew L.774 33. Andrew L. Edwin B.351.007 479. . LLC. warrants.PRINCIPAL AND SELLING SHAREHOLDERS (7) SSS is a participant of the PCD.568. . Common . Manlangit Common . Note: 1 No director or executive officer has the right to acquire additional shares of the Company within 30 days from options. Manlangit Katherine L. . Roberto S. . Guevara 608. All directors and executive officers as a group 608. Noli Hernandez Common . . as the sole member of Colony-CB. Luke T. Sian Common .000 0.06789 CHANGES IN CONTROL There has been no change in the control of the Company since it was incorporated in 1989. . a Delaware limited liability company exercises voting and investment power over ColonyCB’s shares of stock in the Company.800 Filipino Filipino Filipino Filipino Filipino Filipino 5. . Sy Common . Common .735. conversion privileges or similar obligations or otherwise. . .000 CEO and Five Most Highly Compensated Executive Officers Common .A. 2006 Amount & nature of beneficial ownership Citizenship Title of Class Name of Beneficial Owner % of Class Directors Common . The 760. . Victoria M. Common . Tan Common .007 1. Yang Cirilo L. . Maquinto Common . Enrique Santos L. Andrew L. . Common . Acosta Common .250 1 Filipino Filipino Filipino Filipino Filipino 00075597 n/a n/a n/a 00100798 6.924 533. Tan Common .S. Colony MW Genpar. Tan Gerardo C.000 181. . Tan Thomas Barrack.71284822 00732019 00450398 00500443 00328467 00170615 80. Clemente Common . Garcia George T. 99 . .166 1 1 Filipino Filipino Filipino Filipino Filipino U. Lourdes G. Common . Antonio T. Tan is a client of a participant of PCD Nominee Corporation (Non-Filipino) (8) (9) Security Ownership of Management as of February 28. . Tan Common . Francisco C.250 350.400 shares beneficially owned by SSS form part of the shares registered in the name of the PCD (Filipino).449 780. .71284822 00329193 31549211 00732019 01268038 0. rights. Common . Jr. Filipino 5.735. . . Canuto Other Executive Officers Common .928.919 350. Ma. . Cirilo L.553 0 0 0 107. The Board of Directors of the SSS exercises voting and investment power over the SSS shares of stock in the Company.617. Kingson U.406 646.919 780.

and/or operating restaurants. engage in. or otherwise dispose of real and personal property of every kind and description. collect. lease. and other allied or similar establishments as complimentary or support services therefore. including all voting powers of any stock so owned.200. and. 2006. maintain. 2005 and ratified by stockholders of the Company owning at least two-thirds of the outstanding capital stock of the Company on June 17. the Securities and Exchange Commission approved the increase in = authorized capital stock of the Company from P 13. the Board approved its first cash dividend of P 0. to perform all and everything necessary and proper for the attainment of or in furtherance of this purpose. use.000 divided into 9. engage in. or otherwise acquire and own. sell. or carry on the business of acquiring. To acquire by purchase.000 common shares and 4. maintain.DESCRIPTION OF THE SHARES HISTORICAL SHARE CAPITAL INFORMATION On October 12. use.02 per Share.00 per share. to P 20. processing. To engage in the research.200. mortgage. engineering. gyms.106 as of December 31. for whatever lawful purpose or purposes the same may have been organized and to pay therefore in money or by exchanging therefore stocks. either by land.000 preferred shares with par value of = 1. likewise as complimentary or support services therefore. 2005. and to construct. The number of Megaworld’s issued share capital was 10. To conduct. exchange. Between 1994 when the Shares were listed and December 31. motels. develop and hold for investment or otherwise. sell. debentures. bonds. bars.559. construction. together with their appurtenances. acquiring. bonds.200. and. 2005. to acquire. operate and/or maintain transportation. stalls. shuttle. or obligations. notes. and privileges of ownership. 2006 to shareholders on record as of March 15. and other securities or obligations of any corporation or corporations. lease.000 divided into P = 16. association or associations. trading. marketing and distribution of technology and all technology-related or derived products and/or services. resorts. powers. gaming and other tourist-oriented projects. inns. donation of otherwise and to own. clubs. stocks. agricultural. pledge. improve. . and while the owner or holder of any such real or personal property. 100 . To carry out a general and commercial business of importing and exporting. To invest in. bonds.655. and/or ferry facilities and/or services. . parlors.00 per share. assign. buying. and to possess and exercise in respect thereof all the rights. either alone or in conjunction with others. payable on April 10. dividends. . leisure parks. constructing. including shares of stock. condominiums and other structures of whatever kind. either alone or in association with other corporations or individuals. domestic or foreign. transfer. to conduct.000 common shares = and 4. development. boutiques. On February 28. holding. . subdivided. contracts. gardens. Megaworld had five stock = dividend declarations. real estate of all kinds. evidence of indebtedness. exchange. or otherwise disposing of and dealing in any and all kinds of industrial. developing and/or operating hotels. lodges. 2006. mortgage. 2005. constructing.200. develop. manufacture. OBJECTS AND PURPOSES The Articles of Incorporation of Megaworld state that its primary purpose and secondary purpose is to engage in the following business activities: . and carry on the business of acquiring. developing. cafes. debentures. distributing. or other evidence of indebtedness or securities. and income arising from such property.000. purchase. and dispose of the interest. manufacturing.000 preferred shares with par value of P 1. water or air. shops. The increase was approved by majority of the Board of Directors of the Company on May 10. manage or otherwise dispose of buildings. hold. 2005. improve. selling. to receive.000. hypothecate.

essences. and utensils. own or invest in any and all kinds of business enterprises or assist or participate in the organization. Examples of instances in which the corporation is allowed to purchase its own shares are: elimination of fractional shares arising out of stock dividends. In the case of par value shares. at a stockholders’ meeting duly called for the purpose. provided. . wearing apparel. . agents or commission merchants. beverages. and products of all classes and description which are within the commerce of man. food and beverage flavours. fragrances. as well as those similar and allied to them. A corporation is empowered to acquire its own shares for a legitimate corporate purpose. provided that the corporation has unrestricted retained earnings or surplus profits sufficient to pay for the shares to be acquired. shall 101 . the shares become treasury shares. 7042. machineries. The shares of stock of a corporation may either be with or without a par value. corporation or establishment as may be allowed by law. as amended. and other evidences of indebtedness of all kinds and to secure the same by mortgage. aromatics. that where the investment by the corporation is reasonably necessary to accomplish its primary purpose. however. and in connection with such activities. distributors. or such other classes of shares with such rights. cosmetic and dermatological applications. which may be resold at a reasonable price fixed by the board of directors. establish. ophthalmic instruments and products. food or grocery items. liquors. and To borrow money. devices. in amounts as the business of the Company may require. kitchenwares. and to do every other thing commonly done by those conducting a similar business. Megaworld has both preferred and common shares. to subscribe to. to make and issue notes. The Philippine SEC ruled in September 2005 that such premium may not be distributed as cash or stock dividends. factors. both preferred and common. To promote. provided that the change is approved by a majority of the board of directors and by shareholders representing at least two-thirds of the issued and outstanding capital stock of the corporation voting at a shareholders’ meeting duly called for the purpose. equipment. merger or consolidation thereof. household or office goods. implements. currently issued or authorized to be issued have = a par value of P 1. When a corporation repurchases its own shares. appliances. concessions or goodwill of any firm. supplies. limiting land ownership to Philippine Nationals. purchase or otherwise acquire shares of stock or other evidence of equity participation in any business enterprise. or purchase or otherwise acquire all or part of assets. operate. industrial oils. materials. the purchase of shares of dissenting shareholders exercising their appraisal right as referred to below and the collection or compromise of an indebtedness arising out of an unpaid subscription. pledge or otherwise. whether for cash or otherwise. LIMITATIONS OF FOREIGN OWNERSHIP Megaworld owns certain real estate and as such. a corporation may invest its funds in any other corporation or business or for any purpose other than the primary purpose for which it was organized when approved by a majority of the board of directors and ratified by the stockholders representing at least two-thirds of the outstanding capital stock.DESCRIPTION OF THE SHARES transport. either as principals. All of Megaworld’s shares. at wholesale. it is subject to nationality restrictions found under the Philippine Constitution and other laws. privileges or restrictions as may be provided for in the articles of incorporation and the by-laws of the corporation. where a corporation issues shares at a price above par. manage. a corporation may increase or decrease it authorized capital stock. clothing materials. Subject to approval by the Philippine SEC. franchises.00 per share. ovenwares. SHARE CAPITAL A Philippine corporation may issue common or preferred shares. The term ‘‘Philippine National’’ as defined under the Republic Act No. Under Philippine law. the approval of the stockholders shall not be necessary. the amount by which the subscription price exceeds the par value is credited to an account designated as paid-in surplus.

Incurring. . . . As a general rule. the holders of preferred shares are not to be voted as directors of the Company nor are they entitled to vote. Merger or consolidation of the corporation with another corporation. Pre-emptive Rights The Corporation Code confers pre-emptive rights on shareholders of a Philippine corporation entitling such shareholders to subscribe for all issues or other dispositions of equity related securities by the corporation in proportion to their respective shareholdings. Philippine law. regardless of whether the equity related securities proposed to be issued or otherwise disposed of are identical to the shares held. including: 102 . provides for the following instances in which non-voting shares (such as the preferred shares) are given statutory voting rights: . The Articles of Incorporation of Megaworld currently contain such a denial of pre-emptive rights on all classes of shares issued by the Company and therefore further issues of shares (including treasury shares) can be made without offering such shares on a preemptive basis to the existing shareholders. Adoption and amendment of by-laws. Investment of corporate funds in another corporation or business. lease. 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 the Philippines of which 100% of the capital stock outstanding and entitled to vote is wholly owned by Filipinos or trustee of funds for pension or other employee retirement or separation benefits. pledge or other disposition of all or substantially all of the corporate property. A Philippine corporation may provide for the denial of these pre-emptive rights in its articles of incorporation. Appraisal Rights The Corporation Code grants a shareholder a right of appraisal in certain circumstances where he has dissented and voted against a proposed corporate action. however. . Increase or decrease of capital stock.DESCRIPTION OF THE SHARES mean a citizen of the Philippines. Amendment of the articles of incorporation. . Sale. where the trustee is a Philippine national and at least 60% of the fund will accrue to the benefit of Philippine Nationals. . creating or increasing bonded indebtedness. . exchange. RIGHTS RELATING TO SHARES Voting Rights Megaworld’s Shares have full voting rights. Derivative Rights Philippine law recognizes the right of a shareholder to institute 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. or a domestic partnership or association wholly owned by citizens of the Philippines. and Dissolution of the corporation. where the directors themselves are the malefactors. Megaworld is thus constrained to keep it foreign equity interest below the 40% threshold and any sale or transfer of shares in excess of this threshold shall not be recorded in the stock and transfer book of the Company. for example. mortgage.

mortgage. which is a majority of the total Megaworld directors. either in person or by proxy. Any matter that may be limited by law or by the board of directors by the majority vote of its members Any vacancy created by the death. The Company has seven directors. If the election of directors shall not be held on the day designated for the annual meeting or at any adjournment of such meeting. From the time the shareholder makes a demand for payment until the corporation purchases such shares. which shall require the vote of a majority of all the members of the board of directors. and a merger or consolidation. the sale. determine any question about whether a dissenting shareholder is entitled to this right of appraisal. except the right of the shareholder to receive the fair value of the share. including voting and dividend rights. Directors may only act collectively. resignation or removal of a director prior to expiration of such directors term may be filled by a vote of at least a majority of the remaining members of the Board. the corporate powers of the Company are exercised. the annual meeting shall be held on the next succeeding business day. the board of directors shall cause the election to be held at a special meeting as soon thereafter as the same may conveniently be held. shall be suspended. transfer. the shareholders may elect the directors and transact other business as stated in the notice of the 103 . BOARD OF DIRECTORS Unless otherwise provided by law or the Articles of Incorporation.DESCRIPTION OF THE SHARES an amendment of the articles of incorporation which has the effect of adversely affecting the rights attached to his 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. exchange. The election of directors may only be held at a meeting convened for that purpose at which shareholders representing at least a majority of the issued and outstanding capital stock are present. one by the corporation. representation of foreign ownership on the Board is limited to the proportion of the foreign shareholding. constitute a quorum for the transaction of corporate business. SHAREHOLDERS’ MEETINGS Annual Shareholders’ Meetings The Corporation Code requires all Philippine corporations to hold an annual meeting of shareholders for corporate purposes including the election of directors. The Philippine SEC will. the vacancy must be filled by the shareholders at a meeting duly called for the purpose. individual directors have no power as such. The Company’s by-laws provide for annual meetings on the third Friday of June of each year at the Company’s principal office or at some other place in Metro Manila as may be designated in the notice. lease. Under Philippine law. its business conducted. and its property controlled by the Board. the dissenting shareholder may require the corporation to purchase its shares at a fair value. Four directors. pledge or other disposal of all or substantially all the assets of the corporation. otherwise. every decision of a majority of the quorum duly assembled as a board is valid as a corporate act. if still constituting a quorum. which in default of agreement is determined by three disinterested persons. At such special meeting. Except for certain corporate actions such as the election of officers. Any director elected in this manner by the Board shall serve only for the unexpired term of the director whom such director replaces. one of whom shall be named by the shareholder. at such hour as may be specified in the notice of said meeting. If the date of the annual meeting falls on a legal holiday. in the event of a dispute. two of which are independent directors within the meaning set forth in Section 38 of the SRC. and the third by the two thus chosen. The remedy will only be available if the corporation has unrestricted retained earnings sufficient to support the purchase of the shares of the dissenting shareholders. all rights accruing on the shares. which is not a legal holiday. In these circumstances.

reset the annual meeting to another date. any business may be transacted which might have been transacted at the meeting as originally called. place and time of the meeting and. such notice shall be deemed to be given when deposited in the Philippines mail. in person or proxy. Notices shall be sent by the Secretary by personal delivery. shall be transmitted by personal delivery. Notice of any adjourned meeting of the shareholders shall not be required to be given except when expressly required by law. special meetings of the shareholders may be called by the President. Notwithstanding such notice requirements under the Company’s bylaws. Under the Company’s by-laws. written or printed notice of all annual meetings of shareholders. The requirement for notice of the meeting shall be deemed waived if the stockholder. cable. a majority of the subscribed and outstanding capital. by majority vote and for good cause. in person or by proxy. 104 . at least one week before the date of the meeting. whenever he or they shall deem it necessary. present in person or represented by proxy. facsimile. notice thereof need not be given to the shareholder. Whenever shareholders are required or permitted to take any action at a meeting. telegraph. shall be sufficient at a shareholders’ meeting to constitute a quorum for the election of directors and for the transaction of any business whatsoever. the purpose and purposes for which said meeting is called. If any shareholder shall. shall be present thereat. In the absence of a quorum. QUORUM Except in instances where the assent of shareholders representing two-thirds of the outstanding capital stock is required by the Philippine Corporation Code to approve a corporate act (usually involving fundamental corporate changes). mail. as amended. notices of shareholders’ meeting must be sent to all shareholders of record at least one week prior to the date of the meeting. expect when expressly required by law. a written notice of the meeting shall be given which shall state the place. or by publication in a Philippine newspaper of general circulation. Note that the board of directors may. shall have the power to adjourn the meeting from time to time. if necessary. telegraph. Only matters stated in the notice can be the subject of motion or discussions at the meeting. and time of the meeting. in person or by proxy. directed to the stockholder of record at his last known postal address. cable or by mailing the notice to each stockholder of record at his last known address or by publishing the notice in a newspaper of national circulation at least ten days prior to the date of the meeting. Except as otherwise provided by law. Special Shareholders’ Meeting Under the Company’s by-laws. stating the date. until stockholders holding the requisite number of shares shall be present or represented. If mailed. postage prepaid. Notice of any adjourned meeting of the stockholders shall not be required to be given. waive notice of any meeting. At any such adjourned meeting at which a quorum may be present. the general nature of the business to be considered. before or after the meeting. Except where expressly required by Philippine law. telegraph or cable to a shareholder’s last known postal address. Notices of shareholders’ meeting may be sent by personal delivery. Notice of special meetings may be waived in writing by any shareholder. or by telegraph. mail. any officer entitled to preside or act as Secretary of the meeting. Such notice shall be deemed waived. if such shareholder is present at the special meeting. in person or by proxy.DESCRIPTION OF THE SHARES meeting with the same force and effect as at an annual meeting duly called and held. or by the majority of the Board. no publication of any notice of annual meeting of shareholders shall be required. whether before or after the holding of such meeting. or facsimile. an information statement and proxy form (in case of proxy solicitation) relating to such shareholders’ meeting. date. the Company is required under the SRC to send to its shareholders of record at least 15 business days prior to the date of the annual or special meeting. facsimile or cable to each shareholder of record entitled to vote thereat at such Shareholder’s address last known to the Corporate Secretary.

promulgate rules for listed companies such as Megaworld relating to the fixing of such record dates. The votes for the election of directors. No member of the PSE and no broker/dealer shall give any proxy. a corporation can only declare dividends to the extent that it has unrestricted retained earnings that representing the undistributed earnings of the corporation which have not been allocated for any managerial. shall be by show of hands. except upon demand by any shareholder. The proxy executed by the broker shall be accompanied by a certification under oath stating that before the proxy was given to the broker. and. that the record date set shall not be less than 10 trading days from receipt by the PSE of the notice of declaration of stock dividend. Stock dividends may only be declared and 105 . or by the Philippine SEC officer supervising the proxy validation process. by the distribution of property or by the issuance of shares. either in person or by proxy duly given in writing and duly given in writing and duly presented to and received by the Corporate Secretary for inspection and recording not later than five working days before the time set for the meeting. contractual or legal purposes and which are free for distribution to the shareholders as dividends. except such period shall be reduced to one working day for meeting that are adjourned due to lack of the necessary quorum. the record date shall not be less than 10 nor more than 30 days from the date of shareholder approval. In the event that a stock dividend is declared in connection with an increase in authorized capital stock. A corporation may pay dividends in cash. the votes upon any question before the meeting. consent or authorization. from time to time. Proxies executed abroad shall be duly authenticated by the Philippine Embassy or Consular Office. except with respect to procedural questions determined by the Chairman of the meeting. and Philippine SEC Memorandum Circular No. every stockholder who has voting power upon the matter in question shall be entitled to vote in person or by proxy. Proxies should comply with the relevant provisions of the Philippine Corporation Code. FIXING RECORD DATES The Philippine SEC may. a special committee of inspectors shall be designated or appointed by the board of directors which shall be empowered to pass on the validity of proxies. Under existing Philippine SEC rules. There shall be a presumption of regularity in the execution of proxies and shall be accepted if they have the appearance of prima facie authenticity in the absence of a timely and valid challenge. In the validation of proxies. 5 (series of 1996) issued by the Philippine SEC. MATTERS PERTAINING TO PROXIES Shareholders may vote at all meetings the number of shares registered in their respective names. No proxy bearing the signature that is not legally acknowledged by the Corporate Secretary shall be honored at the meetings. Any dispute that may arise pertaining thereto. DIVIDENDS Under Philippine law. cash dividends declared by corporations whose shares are listed on the PSE shall have a record date which shall not be less than 10 nor more than 30 days from the date of declaration. the SRC. for each share of stock held by such shareholder. he had duly obtained the written consent of the persons in whose account the shares are held. without the express written authorization of such customer. provided however.DESCRIPTION OF THE SHARES VOTING At each meeting of the shareholders. in respect of any securities carried for the account of a customer to a person other than the customer. shall be resolved by the Philippine SEC upon formal complaint filed by the aggrieved party. the corresponding record date shall be fixed by the Philippine SEC. With respect to stock dividends. Proxies shall be valid and effective for five years unless the proxy provides for a shorter period and shall be suspended for any meeting wherein the shareholder appears in person.

A stockholder may request upliftment of the Shares from the PDTC in which case a certificate of stock will be issued to the stockholder and the Shares registered in the stockholder’s name in the books of the Company. but any off-exchange transfers will subject the transferor to a capital gains tax that may be significantly greater than the stock transfer tax applicable to transfers effected on an exchange. but retains beneficial ownership over the Shares. lodges the same with the PCD Nominee Corporation. consistent with the needs of shareholders and the demands for growth or expansion of the business. Notwithstanding this general requirement. in turn. TRANSFER OF SHARES AND SHARE REGISTER All transfers of Shares on the PSE shall be effected by means of a book-entry system. except that certificates will not be issued for fractional shares. No share certificates shall be issued to a subscriber until the full amount of the subscription together with interest and expenses (in case of delinquent shares) has been paid and proof of payment of the applicable taxes shall have been submitted to the Company’s Corporate Secretary. Philippine corporations whose securities are listed on any stock exchange are required to maintain and distribute an equitable balance of cash and stock dividends. MANDATORY TENDER OFFERS Under the SRC which took effect on August 8. (ii) when the required consent of any financing institution or creditor to such distribution has not been secured. the Company may issue additional Shares to any person for consideration deemed fair by the Board. (iii) when retention is necessary under special circumstances. brokers and custodian banks) (‘‘PDTC Participant’’) that. a Philippine corporation may retain all or any portion of such surplus in the following cases: (i) when justified by definite expansion plans approved by the board of directors of the corporation. ISSUES OF SHARES Subject to otherwise applicable limitations. (b) 35% of such equity over a 106 . Philippine law does not require transfers of the Company’s Shares to be effected on the PSE. See ‘‘The Philippine Stock Market’’. Under the book-entry system of trading and settlement. All transfers of Shares on the PSE must be effected through a licensed stock broker in the Philippines. Shareholders wishing to split their certificates may do so upon application to the Company’s stock transfer agent. or (iv) when the non-distribution of dividends is consistent with the policy or requirement of a government office. See ‘‘The Philippine Stock Market’’. SHARE CERTIFICATES Certificates representing the Shares will be issued in such denominations as shareholders may request. such as when there is a need for special reserves for probable contingencies.e. See ‘‘Philippine Taxation’’. Shares may also be lodged and maintained under the book-entry system of the PDTC. The Corporation Code generally requires a Philippine corporation with retained earnings in excess of 100% of its paid-in capital to declare and distribute as dividends the amount of such surplus.. it is mandatory for any person or group of persons acting in concert intending to acquire at least (a) 35% of (i) any class of any equity security of a corporation listed in the Philippines or (ii) any class of any equity security of a Philippine corporation with assets of at least 50 million and having 200 or more shareholders with at least 100 shares each. 2000 and its implementing rules and regulations.DESCRIPTION OF THE SHARES paid with the approval of shareholders representing at least two-thirds of the issued and outstanding capital stock of the corporation voting at a shareholders’ meeting duly called for the purpose. a registered stockholder shall transfer legal title over the Shares to such nominee. provided that such consideration shall not be less than the par value of the issued Shares. The transfer of legal title is done by surrendering the stock certificate representing the Shares to participants of the PDTC System (i.

ACCOUNTING AND AUDITING REQUIREMENTS Philippine stock corporations are required to file copies of their annual financial statements with the Philippine SEC. amendment of the articles of incorporation. . The following require the approval of shareholders representing at least two-thirds of the issued and outstanding capital stock of the corporation in a meeting duly called for the purpose: .DESCRIPTION OF THE SHARES period of 12 months. issuance of stock dividends. . 107 . merger or consolidation. . mortgage. The Board is required to present to shareholders at every annual meeting a financial report of the operations of the Company for the preceding year. lease. exchange. investment of corporate funds in any other corporation or business or for any purpose other than the primary purpose for which the corporation was organized. FUNDAMENTAL MATTERS The Corporation Code provides that certain significant acts may only be implemented with shareholders’ approval. . an increase or decrease in capital stock. Corporations whose shares are listed on the PSE are also required to file quarterly financial statements (for the first three quarters) with the Philippine SEC and the PSE. . This report is required to include audited financial statements. and declaration of stock dividends. sale. Shareholders are also entitled to inspect and examine the books and records that the corporation is required by law to maintain. . extension or shortening of the corporate term. delegation to the board of directors of the power to amend or repeal by-laws or adopt new by-laws. . the securities shall be purchased from each tendering shareholder on a pro-rata basis. removal of directors. In the event that the securities tendered pursuant to such an offer exceed that which the acquiring person or group of persons is willing to take up. . to make a tender offer to all the shareholders of the target corporation on the same terms. . Shareholders are entitled to request copies of the most recent financial statements of the corporation which include a balance sheet as at the end of the most recent tax year and a profit and loss statement for that year. . or (c) less than 35% of such equity that would result in ownership of over 51% of the total outstanding equity. pledge or other disposition of all or a substantial part of the assets of the corporation. creation or increase of bonded indebtedness.

one of whom is the President. services. Each exchange was self-regulating. 2001. PSE completed its demutualization. which began operations in 1963. Classified into financial. In June 1998. the Manila Stock Exchange. A listing committee comprised of representatives elected by the board of directors of the PSE deliberates on all applications for listing and. if the listing application is endorsed by the committee. With the increasing calls for good corporate governance. referred to as the PHISIX. the PSE listed its shares by way of introduction at its own bourse as part of a series of reforms aimed at strengthening the Philippine securities industry. a trading right evidenced by a ‘‘Trading Participant Certificate’’ was immediately conferred on each member broker allowing the use of the PSE’s trading facilities. 2006 simultaneous with the migration to the free float index and the naming of the PHISIX to PSEI.8 million. governed by its respective Board of Governors elected annually by its members. The PSE was incorporated in 1992 by officers of both the Makati and the Manila Stock Exchanges. companies are listed either on the Exchange’s First Board.3 million is subscribed and fully paid-up. which was organized in 1927.000 shares of the new PSE at a = par value of P 1. holding firms. Each of the 184 member-brokers was granted 50. As a result of the demutualization. PSE has adopted an online daily disclosure system to improve the transparency of listed companies and to protect the investing public.00 per share. industrial. The new PSEI includes 30 selected stocks listed on the PSE. While the PSE maintains two trading floors. forwards the application to the PSE board of directors for approval. Each index represents the numerical average of the prices of component stocks. these floors are linked by an automated trading system which integrates all bid and ask quotations from the bourses. the licenses of the two exchanges were revoked. 2003. requiring the inclusion of seven brokers and eight non-brokers. the Philippine SEC granted the PSE a Self-Regulatory Organization (‘‘SRO’’) status. 108 . converting from a non-stock member-governed institution into a stock corporation in compliance with the requirements of the SRC. of which 15. In addition. BRIEF HISTORY The Philippines initially had two stock exchanges. which as at the date hereof reflects the price movements of 34 selected stocks listed on the PSE. The PSE will shift from full market capitalization to free float market capitalization effective April 3. The PSE has an index. The PSE has an authorized capital stock of 36. one in Makati City and the other in Pasig City. mining and oil sectors.THE PHILIPPINE STOCK MARKET The information presented in this section has been extracted from publicly available documents which have not been prepared or independently verified by the Company or the Lead Manager or any of their respective affiliates or advisors in connection with sale of the Offer Shares. In March 1994. On December 15. allowing it to impose rules as well as implement penalties on erring trading participants and listed companies. the composition of the PSE Board of Governors was changed. On August 8. based on traded prices of stocks from the various sectors. and the Makati Stock Exchange. Several steps initiated by the Government have resulted in the unification of the two bourses into the PSE. property. Second Board or the newly created Small and Medium Enterprises Board.

. . . . . .442. . . . . . . . . .0% in one day (based on the previous closing price or last posted bid price.000 shares depending on the price range and nature of the security traded. . . and value of shares traded for the same period: SELECTED STOCK EXCHANGE DATA Composite Index at Closing Number of Listed Companies Aggregate Market Capitalization (in billions) Combined Value of Turnover (in billions) Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Source: . . or (‘‘SCCP’’). whichever is higher). A buy (or sell) order that matches the lowest asked (or highest bid) price is automatically executed. a trading halt is imposed by the PSE on the listed security the following day. . .6 1. . . .494. .6 383. .5 Philippine Stock Exchange. . .545. . . . unless there is an official statement from the relevant company or a government agency justifying such price fluctuation. . . . . .373.577. Payment of purchases of listed securities must be made by the buyer on or before the third trading day (the settlement date) after the trade.2 5. 2002. .8 2. . .168. . . . .2 1. . It is responsible for (i) establishing liabilities between PSE Brokers. . .3 1. . is the central clearinghouse for all transactions executed on the PSE. . . .5 159. Buyers and sellers are each represented by stock brokers.973. . . . . . . The SCCP received its permanent license to operate on January 17. . . . .9 357. . . . . Odd-sized lots are traded by brokers on a board specifically designed for odd-lot trading. .4 206. . TRADING The PSE is a double auction market. settlement is on the day the trade was made. . . . .9 1. . . . .4 379. .8 2.018. . . . .000.083.822. . in which case the affected security can still be traded but only at the frozen price. .4 1.261. . the price of that security is automatically frozen by the PSE. .6 159. . . . . .948. . .7 145. . . when the price of a listed security moves up by 50.9 588. .2 3. except legal and special holidays. . . . (ii) 109 . .968. . . . .6 2. .142.121.766. . . .0 408.7 713. . .0% or down by 40.8 4.2 2. . SETTLEMENT The Securities Clearing Corporation of the Philippines.938. Trading days are Monday to Friday.7 2. .7 1. Inc. .0 668. .1 1. Buy and sell orders received by one broker at the same price are crossed at the PSE at the indicated price. . bids or ask prices are posted on the PSE’s electronic trading system. To trade. . . . . .096. . . .170. . . .6 2. . . . . . . . Resumption of trading shall be allowed only when the disclosure of the issuer is disseminated. . . . If the issuer fails to submit such explanation. To maintain stability in the stock market.1 1.869.6 2. subject again to the trading band.594. . . . . . . .4 1. market capitalization. 2. . . For Small-Denominated Treasury Bonds. . .THE PHILIPPINE STOCK MARKET The table below sets forth movements in the composite index from 1995 to 2005. . . . . Under current PSE regulations. and shows the number of listed companies. Transactions are generally invoiced through a confirmation slip sent to customers on the trade date (or the following trading date). . .142.0 205 216 221 221 226 230 232 234 236 236 237 1. provided that they are executed at the last traded price and are only for the purpose of completing unfinished orders. . .5 1. . Minimum trading lots range from 10 to 5. . . . . . . . Trading on the PSE starts at 9 : 30 am and ends at 12 : 00 pm with a 10-minute extension during which transactions may be conducted. . . . . . . . . . . . . . . . daily price swings are monitored and regulated. .

Lodgment is the process by which shareholders transfer legal title (but not beneficial title) over their shares of stock in favor of PCD Nominee Corporation (‘‘PCD Nominee’’).). Under the current the PDTC system. they must rely on their participant-brokers and/or participant-custodians. with respect to the participant’s aggregate holdings. No consideration is paid for the transfer of legal title to PCD Nominee. will be the beneficial owner to the extent of the number of shares held by such participant in the records of the PCD Nominee. All listed securities at the PSE have been converted into book-entry settlement in the PDTC. the security element of the trade will be settled through the book-entry system. trades and uplifts on these shares will have to be coursed through a participant. Thus. The PDTC also provides depository and settlement services for non-PSE trades of listed equity securities. (iii) guaranteeing the settlement of trades in the event of default by a PSE Broker and (iv) administering the appropriate risk management function in order to ensure settlement. Rizal Commercial Banking Corporation and Equitable PCI Bank. Ownership and transfers of beneficial interests in the shares will be reflected. the Philippine Depository & Trust Corporation (formerly the Philippine Central Depository. Once it is determined on the settlement date (trading date plus three trading days) that there are adequate securities in the securities settlement account of the participant-seller and adequate cash or an appropriate bank limit in the system cash 110 . and into the PDTC system. Settlement occurs on the third business day after the trade date. Beneficial owners are thus advised that in order to exercise their rights as beneficial owners of the lodged shares. All lodgments. Inc. The SCCP is then required to deliver the stock certificates and documents to the transfer agent of the relevant company in order to effect the transfer in the company’s books and to deliver the new certificates back to the clearing house. transfers of beneficial title of the securities are accomplished via book-entry settlement. was organized to establish a central depository in the Philippines and introduce scripless or book-entry trading in the Philippines. 1996. In order to benefit from the book-entry system. in the records of the participants. Once lodged. Brokers must comply with all requirements for the transfer of shares and must deliver the corresponding stock certificates and all requisite documents to the relevant clearing house within three business days from the trade date of the relevant transaction. dividend declarations and rights offerings. brokers and custodians) will be recognized by the PDTC as the beneficial owners of the lodged equity securities. while the cash element will be settled through the current settlement banks.g. and with respect to each beneficial owner’s holdings. securities must be immobilized into the PDTC system through a process called lodgment. Any beneficial owner of shares who wishes to trade his interests in the shares must course the trade through a participant. securities lending and borrowing and corporate actions including shareholders’ meetings. each beneficial owner of shares through his participant. The depository service of the PDTC provides the infrastructure for lodgment (deposit) and upliftment (withdrawal) of securities.THE PHILIPPINE STOCK MARKET synchronizing the settlement of funds and the transfer of securities. The participant can execute PSE trades and non-PSE trades of lodged equity securities through the PDTC system. a corporation wholly owned by the PDTC whose sole purpose is to act as nominee and legal title holder of all shares of stock lodged into the PDTC. only participants (e. Inc. For transactions on the PSE. in the PDTC system. All transactions are settled through the SCCP. SCCP assumes the role of guarantor for transactions by PSE Brokers in the PSE and maintains and administers a trade guarantee fund called the Clearing and Trade Guaranty Fund. On December 16. SCRIPLESS TRADING In 1995. This trust arrangement between the participants and PDTC through PCD Nominee is established by and explained in the PDTC Rules and Operating Procedures approved by the Philippine SEC. ‘‘Immobilization’’ is the process by which the warrant or share certificates of lodging holders are canceled by the transfer agent and a new warrant or stock certificate covering all the warrants or shares lodged (‘‘Jumbo Certificate’’) is issued in the name of PCD Nominee. the PDTC was granted a provisional license by the Philippine SEC to act as a central securities depository. All matched transactions in the PSE trading system will be fed through the SCCP. pledge of securities.

The difference between the depositary and the registry would be on the recording of ownership of the shares in the issuing corporations’ books. Be a system participant of the SCCP wherein the CCSS would offer to the custodians the interface to both the depositary and registry systems. such that shares are recognized or recorded with PCD as the master/controlling account. and the market itself initiating the move. in Operating Procedures. for shares under the PDTC. dividends. Prospectively. the beneficial ownership the participant-seller to the participant-buyer without the covering the traded securities. The option of whether a listed security should be ‘‘housed’’ in the depositary or registry is at the issuer’s discretion. Once settled. Once the CCSS is in place. however. Likewise. The PSE and the SCCP expect a natural migration to the registry model. custodians are direct PDTC account holders. The expenses for upliftment are for the account of the uplifting shareholder. For shares under the PDTC. with the shares still recorded in the PCD Nominee name as far as the corporation/transfer agent is concerned. wherein customers’ certificates are canceled and a new jumbo certificate is issued in the name of PCD Nominee Corp. as far as the issuing corporation is concerned. 111 . In this option. custodians will still have the option to maintain their own accounts in the PDTC or have an omnibus account together with the broker accounts in the PDTC as shares are accounted for or segregated per accountholder in the CCSS. the custodian appears to be a ‘‘client’’ under ‘‘PCD’’. recording will already be at the beneficiary level (whether it be a client or a registered custodian holding securities for its clients). If a stockholder wishes to withdraw his stockholdings from the PDTC System. straight-through processing of trades or settlement can already be done directly with the custodian or with its client. Under this system. with system and cost efficiency as the catalyst. the custodian will have its own master account. The SCCP expects to launch its Central Clearing and Settlement System (‘‘CCSS’’) in the first half of 2006. will only be made within the book-entry system of PDTC. In the depository set-up. as the case may be. This simplifies the custodian’s interface into only one connectivity for both the depositary and the registry systems. when the custodian is accredited as an indirect clearing member of the SCCP. and other communications and information directly. In the registry set-up. settlement and recording of ownership of traded securities will already be directly made in the corresponding issuing company’s transfer agents’ books or system. the migration is expected to strengthen measures to protect public investors/shareholders and decrease transaction costs resulting from additional layers in the settlement process. In the registry scenario. the PDTC has a procedure of upliftment under which PCD Nominee will transfer back to the stockholder the legal title to the shares lodged by surrendering the jumbo certificate of PCD Nominee to a transfer agent which then issues a new stock certificate in the name of the shareholder and a new jumbo certificate of PCD Nominee for the balance of the lodged shares. However. the current securities infrastructure in the Philippines is composed of a depositary and a registry system wherein listed shares are traded and settled as book-entry shares. for shares under the registry. having the control over its own account. Transfers among/between broker and/or custodian accounts. The move will also prepare an infrastructure for a complete name-on registry system. Likewise.THE PHILIPPINE STOCK MARKET account of the participant-buyer. The custodian effectively is given a direct relationship with the issuing company wherein it receives the annual reports. The migration from the depositary to the registry model aims to eliminate the legal and operational risks brought about by a depositary infrastructure. whereby PDTC acts as their implied ‘‘Custodian’’. shares are simply immobilized. thereby removing from the broker its current ‘‘de facto’’ custodianship role. custodians holding Philippine listed equity securities will have the following options: Stay with the depositary for all its securities. the underlying certificates are in the nominee’s name. for shares under the registry system. custodians are already recognized as the beneficiary holder of the securities on behalf of its clients. the accordance with the PDTC Rules and of the securities is transferred from physical transfer of stock certificates PSE trades are automatically settled in the PDTC system.

such shares shall be deemed to be withdrawn from the PDTC book-entry settlement system. any beneficial owner of the shares may apply to PDTC through his broker or custodian-participant for a withdrawal from the book-entry system and return to the conventional paper-based settlement. the beneficial interest in the shares covered by the application for upliftment is frozen and no trading and bookentry settlement will be permitted until certificated shares shall have been issued by the relevant company’s transfer agent. The expenses for upliftment are on the account of the uplifting shareholder. Pending completion of the upliftment process.THE PHILIPPINE STOCK MARKET Issuance of Certificated Shares On or after the listing of the shares on the PSE. Philippine Foreign Exchange Controls. 112 . If a stockholder wishes to withdraw his stockholdings from the PDTC System. The expenses for upliftment of beneficial ownership in the shares to certificated securities will be charged to the person applying for upliftment. Upon the issuance of certificated shares in the name of the person applying for upliftment. the PDTC has a procedure of upliftment under which PCD Nominee will transfer back to the stockholder the legal title to the shares lodged by surrendering the Jumbo Certificate of PCD Nominee to a transfer agent which then issues a new stock certificate in the name of the uplifting shareholder and a new Jumbo Certificate to PCD Nominee for the balance of the lodged shares. and trading on such shares will follow the normal process for settlement of certificated securities.

without need of BSP approval. subscription agreement and proof of listing on the PSE (either or both). with the approval of the President of the Philippines. The application for registration may be done directly with the BSP or through a custodian bank duly designated by the foreign investor. proceeds of divestments or dividends of registered investments may be converted into foreign currency sourced from the Philippine banking system and are repatriable or remittable immediately and in full through the Philippine commercial banking system. an investment in Philippine securities (such as the Shares) must be registered with the BSP if the foreign exchange needed to service the repatriation of capital and the remittance of dividends. may also be remitted in full. 113 . and represent the investor in all necessary actions in connection with his investments in the Philippines. may be lodged temporarily in interest-bearing deposit accounts. divestment proceeds. net of applicable tax. Remittance of divestment proceeds or dividends of registered investments may be reinvested in the Philippines if the investments are registered with the BSP or the investor’s custodian bank. as the case may be. as well as dividends of registered investments.PHILIPPINE FOREIGN EXCHANGE CONTROLS Under current BSP regulations. profits and earnings derived from such Shares is to be sourced from the Philippine banking system. Pending registration or reinvestment. when an exchange crisis is imminent or in times of national emergency. (ii) credit advice or bank certificate showing the amount of foreign currency inwardly remitted and converted into pesos. and (iii) transfer instructions from the stockbroker or dealer. Remittance is permitted upon presentation of the BSP registration document. at the exchange rate applicable on the date of actual remittance. A custodian bank may be a commercial bank or an offshore banking unit registered with the BSP to act as such and appointed by the investor to register the investment. hold shares for the investor. to restrict the availability of foreign exchange during an exchange crisis. Upon registration of the investment. net of taxes. Interest earned thereon. Applications for registration must be accompanied by: (i) purchase invoice. The foregoing is subject to the power of BSP.

’’ otherwise. the term ‘‘resident alien’’ refers to an individual whose residence is within the Philippines and who is not a citizen thereof. some of which (such as dealers in securities) may be subject to special rates. Cash and property dividends received by non-resident alien individuals engaged in trade or business in the Philippines are subject to a 20. Prospective purchasers of the Shares are advised to consult their own tax advisers concerning the tax consequences of their investment in the Shares. however. individual or corporate status. or other equivalent certifications issued by the proper government authority. and a ‘‘non-resident foreign corporation’’ is a non-Philippine corporation not engaged in trade or business within the Philippines. The following summary does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to invest in the Shares and does not purport to deal with the tax consequences applicable to all categories of investors. of Megaworld’s application for tax treaty relief. while cash and property dividends received by non-resident alien individuals not engaged in trade or business in the Philippines are subject to tax at 25. such non-resident alien who is actually within the Philippines for an aggregate period of 180 days or less during any calendar year is considered a ‘‘non-resident alien not engaged in trade or business in the Philippines.0% tax on the gross amount thereof. a ‘‘non-resident alien’’ is an individual whose residence is not within the Philippines and who is not a citizen of the Philippines. and may also involve the filing of a judicial appeal. The 35. subject. Megaworld shall withhold taxes at a reduced rate on dividends to be paid to a non-resident holder. TAX ON DIVIDENDS Cash and property dividends received from a domestic corporation by individual shareholders who are either citizens or residents of the Philippines are subject to a final withholding tax at the rate of 10.0%. or any other official document proving residence.PHILIPPINE TAXATION The statements made regarding taxation in the Philippines are based on the laws in force at the date hereof and are subject to any changes in law occurring after such date. It may be reduced to 15.’’ A ‘‘resident foreign corporation’’ is a foreign corporation engaged in trade or business within the Philippines. the nonresident holder of the shares may file a claim for refund from the BIR.0%. a non-resident alien who is actually within the Philippines for an aggregate period of more than 180 days during any calendar year is considered a ‘‘non-resident alien engaged in trade or business in the Philippines. However.0% of the gross amount. to the applicable preferential tax rates under tax treaties executed between the Philippines and the country of residence or domicile of such non-resident foreign individuals.0% rate for dividends paid to a non-resident foreign corporation may be reduced to a lower rate. if such non-resident holder provides Megaworld with proof of residence and if applicable.0% if (i) the country in which the non-resident foreign corporation is domiciled imposes no tax on foreign sourced dividends or (ii) if the country of domicile of the non-resident foreign corporation allows a credit equivalent to 20. because the refund process in the Philippines requires the filing of an administrative claim and the submission of supporting information. Proof of residence for an individual consists of certification from his embassy. Cash and property dividends received from a domestic corporation by another domestic corporation or by resident foreign corporations are not subject to tax while those received by non-resident foreign corporations are subject to tax at the rate of 35. or BIR. Subject to the approval by Philippine Bureau of Internal Revenue. Philippine tax authorities have prescribed certain procedures for availment of tax treaty relief. If the regular tax rate is withheld by Megaworld instead of the reduced rates applicable under a treaty. consulate. 114 . As used in this section. it may be impractical to pursue such a refund.0% for taxes deemed to have been paid in the Philippines.

exchange or disposition of shares received as stock dividends by the holder is subject to the capital gains or stock transaction tax. . . . if sale was made outside the PSE Net capital gains realized by a resident or non-resident other than a dealer in securities during each taxable year from the sale. . . . EXCHANGE OR DISPOSITION OF SHARES Capital Gains Tax. . .000 and 10% on the net capital gains realized = during the taxable year in excess of P 100. . . . . Singapore. . . . (9) Under the RP-Germany Tax Treaty. . (10) Under the RP-UK Tax Treaty.0% on gains over P = P 100. . . . . . Taxes on Transfer of Shares Listed and Traded at the Philippine Stock Exchange A sale or other disposition of shares of stock through the facilities of the PSE by a resident or a non-resident holder. . . . . . .PHILIPPINE TAXATION Stock dividends distributed pro-rata to any holder of shares of stock are not subject to Philippine income tax. . . . . (8) Capital gains are taxable only in the country where the seller is a resident. . . are subject to tax as follows: 5. . . . . . (4) 10% if the recipient company holds directly at least 25% of either the voting shares of the company paying the dividends or of the total shares issued by that company during the period of 6 months immediately preceding the date of payment of the dividends. . Germany . . . . In which case the sale is subject to Philippine taxes. . This tax is required to be collected by and paid to the Philippine Government by the selling stockbroker on 115 . . . . . . . . . .5% of the gross selling price or gross value in money of the shares of stock sold or otherwise disposed. is subject to a stock transaction tax at the rate of 0. . . Tax rates are 5% on the = net capital gains realized during the taxable year not in excess of P 100. . . . . However.0% on gains not exceeding = 100. . . . . 25(1) 25(2) 15(3) 25(4) 25(5) 25(6) 25(7) Notes: (1) 15% if recipient company controls at least 10% of the voting power of the company paying the dividends. . . the assets of which consist principally of real property situated in the Philippines. . . . . . . . unless an applicable treaty exempts such gains from tax or provides for preferential rates. . . . . . . . exchange or disposition of shares of stock outside the facilities of the PSE. . . . . . . . . France . . . unless an applicable treaty exempts such sale from said tax. . . . . the sale. . . . . . . . . . . (5) 15% if during the part of the paying company’s taxable year which precedes the date of payment of dividends and during the whole of its prior taxable year at least 15% of the outstanding shares of the voting stock of the paying company was owned by the recipient company. . . (2) 15% if the recipient company holds directly at least 15% of the voting shares of the company paying the dividends. (3) 10% if the recipient company owns directly at least 25% of the capital of the company paying the dividends.000. . . Japan . . . . . . irrespective of the nature of the assets of the Philippine corporation. . . . . . .000 and 10. SALE. . . . . . . . . . . . capital gains on the sale of the stock of Philippine corporations are subject to tax only in the country where the seller is a resident. . . . .5 Exempt (8) Exempt (8) Exempt (10) Exempt (8) Capital Gains tax due on disposition of Shares outside the PSE % Exempt (8) Exempt (8) 5/10 (9) Exempt (8) Exempt (8) Exempt (10) Exempt (8) Dividends % Canada . . . . United Kingdom United States . . . . . . . Tax Treaties The following table lists some of the countries with which the Philippines has tax treaties and the tax rates currently applicable to non-resident holders who are residents of those countries: Stock transaction tax on sale or disposition effected through the PSE % Exempt (8) Exempt (8) 0. . . . . . . . (6) 15% if the recipient company is a company which controls directly or indirectly at least 10% of the voting power of the company paying the dividends. An application for tax treaty relief must be filed (and approved) by the Philippine tax authorities in order to obtain an exemption under a tax treaty. . . . . . . . . . . . . . . . capital gains from the alienation of shares of a Philippine corporation may be taxed in the Philippines irrespective of the nature of the assets of the Philippine corporation. . . . . . . (7) 20% if during the part of the paying corporation’s taxable year which precedes the date of payment of dividends and during the whole of its prior taxable year at least 10% of the outstanding shares of the voting stock of the paying corporation was owned by the recipient corporation. . other than a dealer in securities. . . provided the shares are not those of a corporation. . . . . . . . .000. . . . . . .

00 par value or a fraction thereof. or (b) if the laws of the foreign country of which the decedent or donor was a citizen and resident at the time of his death or donation allows a similar exemption from transfer or death taxes of every character or description in respect of intangible personal property owned by citizens of the Philippines not residing in that foreign country. however. and is generally passed on to the client. Estate and donors’ taxes. if the net = estate is over P 200. DOCUMENTARY STAMP TAX = The original issue of shares of stock is subject to documentary stamp tax of P 1. regardless of residence.0% to 15. who transfer shares of stock by way of gift or donation are liable to pay Philippine donors’ tax on such transfer of shares ranging from 2.75 for each P 200. ESTATE AND GIFT TAXES The transfer of shares of stock upon the death of an individual holder to his heirs by way of succession. lineal descendant or relative by consanguinity within the fourth degree of relationship) is a flat rate of 30.000. is subject to Philippine taxes at progressive rates ranging from 5. of the shares of stock issued.0% to 20.00 par value or a fractional part thereof of the share of stock transferred. However. the sale.PHILIPPINE TAXATION behalf of his client.0%. 116 . This Prospectus does not discuss the tax considerations on non-resident holders of shares of stock under laws other than those of the Philippines. for a period of five years from March 20.00 for each = P 200. In addition. Under certain tax treaties. 2004. barter or exchange of shares of stock listed and traded at the PSE shall be exempt from documentary stamp tax.0% of the net gifts during the year = exceeding P 100. ancestor.. However. the securities borrowing and lending agreement should be duly covered by a master securities borrowing and lending agreement acceptable to the appropriate regulatory authority. such as shares of stock: (a) if the decedent at the time of his death or the donor at the time of the donation was a citizen and resident of a foreign country which at the time of his death or donation did not impose a transfer tax of any character. The tax treatment of a non-resident holder of shares of stock in jurisdictions outside the Philippines may vary depending on the tax laws applicable to such holder by reason of domicile or business activities and such holder’s particular situation. hence such gain is subject to Philippine income tax and the transfer of such shares by gift (donation) or succession is subject to the donors’ or estate taxes stated above. The rate of tax with respect to net gifts made to a stranger (i. Individual and corporate holders. sister. a VAT of 12. the exemptions from capital gains tax discussed herein may not be applicable to the stock transaction tax. one who is not a brother. or in accordance with regulations prescribed by the appropriate regulatory authority.000.0% is imposed on the commission earned by the PSE-registered broker. and should be duly registered and approved by the BIR.0%. in respect of intangible personal property of citizens of the Philippines not residing in that foreign country. The stock transaction tax is classified as a percentage tax in lieu of a capital gains tax. shall not be collected in respect of intangible personal property. TAXATION OUTSIDE THE PHILIPPINES Shares of stock in a domestic corporation are considered under Philippine law as situated in the Philippines and the gain derived from their sale is entirely from Philippine sources. the borrowing and lending of securities executed under the Securities Borrowing and Lending Program of a registered exchange. whether or not citizens or residents of the Philippines. The transfer of shares of = = stock is subject to a documentary stamp tax of P 0. spouse. whether such holder was a citizen of the Philippines or an alien. In addition. are likewise exempt from documentary stamp tax.e.

OWNING AND DISPOSING OF THE OFFER SHARES. 117 .PHILIPPINE TAXATION EACH PROSPECTIVE HOLDER SHOULD CONSULT WITH HIS OWN TAX ADVISER AS TO THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF PURCHASING. LOCAL AND NATIONAL TAX LAWS. INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE.

5% of the total proceeds of the Domestic Offer Shares sold in the Domestic Offer. Securities Act. The Domestic Underwriter shall receive the Commitment to Purchase forms (as defined below) and the corresponding payments of each PSE Broker. the Selling Shareholder has appointed BDO Capital to act as the Domestic Underwriter. There is no assurance that such reallocation will be exercised by the Domestic Underwriter or at all. The Underwriting Agreement entered into between the Company. Prior to the closing of the Domestic Offer. including force majeure. the Selling Shareholder and the Lead Manager (the ‘‘International Underwriting Agreement’’) is subject to certain conditions and may be subject to termination by the Lead Manager if certain circumstances.486. THE DOMESTIC OFFER Domestic Offer Shares shall be offered by the Selling Shareholder exclusively to the PSE Brokers during the Domestic Offer. the Domestic Underwriter shall receive from the Selling Shareholder a fee equivalent to the higher of one million pesos.008.000 Offer Shares.S.000 Offer Shares are being offered by the Selling Shareholder in the Philippines to the PSE Brokers. as a maximum.008. The Crossing Broker engaged by BDO Capital shall conduct block trades of the Domestic Offer Shares in settlement of the Domestic Offer. through the Lead Manager.727. will be paid to the PSE Brokers within 10 Banking Days after the Listing Date. The allocation of the Offer Shares between the Domestic Offer and the International Offer is subject to adjustment.000 Firm Shares (excluding the Over-Allotment Option described below) in the International Offer outside the Philippines and the United States in reliance on Regulation S under the U. Each PSE Broker shall initially be allocated 1. The reallocation shall not apply in the event of over-application in both the Domestic Offer and the International Offer. the Lead Manager is committed to purchase or 118 . but no less than 1.0% of Domestic Offer Shares taken up and purchased by the relevant PSE Brokers. As shall be discussed below. and procure the services of a PSE licensed broker (the ‘‘Crossing Broker’’) responsible for crossing the number of Domestic Offer Shares specified in the form to the appropriate PSE Broker on the Listing Date. subject to the terms and conditions of the Domestic Offer.727. occur on or before the Offer Shares are listed on the PSE. as a minimum. The selling fee.158. The PSE shall allocate the Domestic Offer Shares among the PSE Brokers. All of the Domestic Offer Shares shall be transferred to the PSE Brokers in scripless form through a block trade executed by the Domestic Underwriter.000 Offer Shares (computed by dividing the Domestic Offer Shares by 132 PSE Brokers). PSE Brokers who take up Domestic Offer Shares shall be entitled to a selling fee of 1. any allocation of Offer Shares not taken up in full by the PSE Brokers shall be distributed by the Domestic Underwriter to its clients or the general public. PSE Brokers may maintain the Domestic Offer Shares in scripless form or opt to have the stock certificates issued to them by requesting an upliftment of the relevant Domestic Offer Shares from PDTC’s electronic system after the closing of the Domestic Offer. less the PCD EQ Trade fee.PLAN OF DISTRIBUTION Of the Offer Shares. THE INTERNATIONAL OFFER The Company and the Selling Shareholder. are offering 3. and subject to reallocation as may be determined by the PSE. Under the terms and conditions of the International Underwriting Agreement.000 Offer Shares are being offered by the Company and the Selling Shareholder in the Offer outside of the Philippines and 196. International Offer Shares may (at the option of the Domestic Underwriter) be reallocated from the International Offer (with the consent of the Lead Manager) to the Domestic Offer. or 3. To facilitate the Domestic Offer. 3. In the event of an under-application in the International Offer and if there is a corresponding over-application in the Domestic Offer.

pledge or otherwise dispose of (or publicly announce any such issuance. Under the terms and conditions of the Share Purchase Agreement. a non-Philippine National. it does not have any material relationship with the Company. Such activities may stabilize. The Domestic Block Sale will provide leeway for the ownership of Shares by non-Philippine Nationals. Andrew Tan have each agreed with the Lead Manager that. The Stabilizing Agent may purchase Shares in the open market only if the market price of the Shares falls below the Offer Price. Once the Over-Allotment Option has been exercised by the Stabilizing Agent. Domestic Block Sale The Selling Shareholder. a Philippine National 300.000. including in connection with the Offer. without the prior written consent of the Lead Manager. which is exercisable in whole or in part for 30 days from the commencement of the trading of the Company’s Offer Shares on the PSE to purchase up to 15% of the total number of Firm Shares on the same terms and conditions as the Firm Shares as set forth herein. The Over-Allotment Option In connection with the Offer. including force majeure. The Lead Manager has no direct relations with the Company in terms of share ownership and other than as Lead Manager for the Offer. contract to sell. Lock-Up The Company.475. The closing of the Domestic Offer and the International Offer are expected to occur concurrently. sell. occur on or before the Offer Shares are listed on the PSE. other than in connection with the Over-Allotment Option or the TAGI Option. New Town Land and Mr. the Company has granted the Stabilizing Agent an Over-Allotment Option. neither it nor any person acting on its behalf will. it will no longer be allowed to purchase Shares in the open market for the conduct of stabilization activities.000 Domestic Block Sale Shares on the Listing Date at the Offer Price and on the same terms and conditions as the Firm Shares as set forth herein. all services provided by the Lead Manager. 119 .000 Optional Shares may be over-allotted and the Stabilizing Agent may effect price stabilization transactions for a period which shall not exceed 30 days from the Listing Date. forward sales and options. including equity swaps. The closings of the Domestic Block Sale and the Offer are conditional upon each other.PLAN OF DISTRIBUTION procure purchasers for all of the Offer Shares to be offered in the International Offer. Up to 588. sale or disposal of) any Shares or securities convertible or exchangeable into or exercisable for any Shares or warrants or other rights to purchase Shares or any security or financial product whose value is determined directly or indirectly by reference to the price of the underlying securities. The Lead Manager and its affiliates have engaged in transactions with and performed various investment banking. maintain or otherwise affect the market price of the Shares which may have the effect of preventing a decline in the market price of the Shares and may also cause the price of the 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. TAGI is committed to purchase all of the Domestic Block Sale Shares. for a period of 180 days after the First Closing Date. The Share Purchase Agreement entered into between the Selling Shareholder. it may discontinue them at any time. the Lead Manager and TAGI (the ‘‘Share Purchase Agreement’’) is subject to certain conditions and may be subject to termination by TAGI if certain circumstances. offer. However. TAGI. offer. have been provided as an independent contractor and not as a fiduciary to the Company or the Selling Shareholder. commercial banking and other services for Megaworld and its subsidiaries and affiliates in the past and may do so from time to time in the future. The Lead Manager does not have any right to designate or nominate a member of the board of directors of the Company. issue. will sell to TAGI. The closing of the Domestic Offer is conditional on the closing of the International Offer.

shall be sold or distributed by any person within the Philippines unless such securities shall have been registered with the Philippine SEC on SEC Form 12–1 and the registration statement has been declared effective by the said Commission.PLAN OF DISTRIBUTION Selling Restriction Philippines No securities. 120 . except of a class exempt under Section 9 of the Philippine Securities Regulation Code or unless sold in any transaction exempt under Section 10 thereof.

Philippines. Romulo Mabanta Buenaventura Sayoc & de los Angeles or Allen & Overy has acted or will act as promoter. Certain legal matters as to English law and United States federal law will be passed upon for the Lead Manager by Allen & Overy. Manila. None of Picazo Buyco Tan Fider & Santos Law Office. voting trustee. warrants or rights thereto) pursuant to. or in connection with the Offer. Philippines and for the Lead Manager by Romulo Mabanta Buenaventura Sayoc & de los Angeles.LEGAL MATTERS Certain legal matters Philippine law relating to the Offer will be passed upon for the Company by Picazo Buyco Tan Fider & Santos Law Office. underwriter. Manila. None of Picazo Buyco Tan Fider & Santos Law Office. 121 . officer or employee of the Company. Romulo Mabanta Buenaventura Sayoc & de los Angeles or Allen & Overy will receive any direct or indirect interest in the Company or in any securities thereof (including options.

Punongbayan & Araullo gave its consent to the inclusion of its reports in this Prospectus. were = 1. Punongbayan & Araullo will not receive any direct or indirect interest in the Company or in any securities thereof (including options.INDEPENDENT PUBLIC ACCOUNTANTS Punongbayan & Araullo. Punongbayan & Araullo has neither shareholdings in the Company nor any right. Such financial statements are included in this Prospectus based on Punongbayan & Araullo’s authority as independent public accountants. P respectively. to nominate persons or to subscribe for the securities in the Company. included in this Prospectus. 2004 and 2005. for the audit of the Company’s annual financial statements and services normally provided by the external auditor in connection with statutory and regulatory filings or engagements for 2005 and 2004. The foregoing is in accordance with the Code of Ethics for Professional Accountants in the Philippines set by the Board of Accountancy and approved by the Professional Regulation Commission.150. Punongbayan & Araullo has acted as the Company’s external auditors since 1994. warrants or rights thereto) pursuant to or in connection with the Offer. audited Megaworld’s financial statements without qualification as of and for the years ended December 31. independent certified public accountants. 2003. excluding = out-of-pocket expenses and fees directly related to the Offer. 122 . Apart from the foregoing.000 and P 880.000. Gregorio S. no other services were rendered or fees billed by the Company’s external auditors for 2005. whether legally enforceable or not. Audit and Audit-Related Fees The aggregate fees for professional services rendered by Punongbayan & Araullo. The 2003. Navarro is the current audit partner for the Company. has served as such since 2004. The Company has not had any disagreements on accounting and financial disclosures with its current external auditors for the same periods or any subsequent interim period. 2004 and 2005 financial information included in this Prospectus has been prepared under PFRS. a member practice of Grant Thornton International.

. . . . . . . . Audited Consolidated Statements of Cash Flows for the years ended December 31. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Audited Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31. . . 2005. . . 2004 and 2003 . . . . . . Audited Consolidated Statements of Income for the years ended December 31. . . . . . . . . . . . . . . . . . . . . Notes to Audited Consolidated Financial Statements . . . . . . . . .INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Auditors . . . . . . . . . . . . . . . 2004 and 2003 . . . . . . . . . . . . . . . . . . 2005. . . . . . Audited Consolidated Balance Sheets as of December 31. . . . . . . . . 2005. . . . 2004 and 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2 F-3 F-4 F-5 F-6 F-8 F-1 . . . 2005 and 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2005. 2004 and 2003. 2006 F-2 . 0013-AR-1 BIR AN 08-002511-2-2005 (Dec. 2006. January 4. 2005 to 2008) February 27. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards in the Philippines. In our opinion. 27. on a test basis. Navarro Partner CPA Reg. 2004 and 2003. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. the consolidated financial position of Megaworld Corporation and subsidiaries as of December 31. These financial statements are the responsibility of the Company’s management. and the related statements of income. 2005. changes in equity and cash flows for the years then ended. An audit includes examining. in accordance with generally accepted accounting principles in the Philippines. as well as evaluating the overall financial statement presentation.REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Megaworld Corporation and Subsidiaries We have audited the accompanying consolidated balance sheets of Megaworld Corporation and subsidiaries as of December 31. 4182116. 0033571 TIN 109-228-435 PTR No. No. PUNONGBAYAN & ARAULLO By: Gregorio S. in all material respects. evidence supporting the amounts and disclosures in the financial statements. We believe that our audits provide a reasonable basis for our opinion. the financial statements referred to above present fairly. Makati City Partner SEC Accreditation No. and the results of their operations and their cash flows for the years then ended. An audit also includes assessing the accounting principles used and significant estimates made by management.

. .126.366. . . Marketable securities .290.101. .180.641 1. .623. EQUITY Equity attributable to parent company’s shareholders . . .231.652.021. .202 705. . .448.979. .777 965. .205 4.212 3.691.111 1. . .779.005 2. .908 226.306 9.483. .590 788.332 1.934. .320. . .873 = 32. .070 1.123. Advances from other related parties . .437 11. .176 = P 314.258 592.979 16. . .953. . . .285.312. Deferred income on real estate sales .059 709.011 1. .770.032. . .602. .141. .516 783.926 1. Income tax payable . .512.944. . .078.618. .753.865.065.869 240. . Prepayments and other current assets — net . . . . .782. . .516. .520 8.979.273.274.277.051. .813. . . Investments in and advances to associates and other related parties — net .435.426 450.537. . . .891. . .061.211. Other non-current assets — net . .939.652.883 744. . . Residential and condominium units for sale .386.829. .803. . Customers’ deposits . . .275.162.190. .651. .775.177 862. Other current liabilities .613. . . . Property and equipment — net .473. .221.784. . Total Liabilities . . .701.591 4. . . TOTAL ASSETS . . .251. .837 1. .920 14.313. . .795 9.311. .193. . . .638.644 14. .097 169. .290. . 2004 AND 2003 (Amounts in Philippine Pesos) Notes ASSETS CURRENT ASSETS Cash and cash equivalents . Total Non-current Assets .010. . .480 661. . .466.768. .782. . TOTAL LIABILITIES AND EQUITY .226. .620. . .639 = P 32.629.028.518.761. .325 17.162. .699 16. . . . . . . .266. .719.510. .744 3.011 2.321.773 1. .962. .463. .328.416 4.947 1. . .614 1.611 2. .607 14.955 696.178.815 7.097 6.673. . Total Current Liabilities .190.282.525.224.271. .661 4. . . Deferred tax assets . . .988.936 219. Total Current Assets. .568 P 2.395.668 4. . F-3 .119. .306.108 1. .018 287.748. .636.032.860 556.643.718.080.436.879.872.213. . . .932. .959 = 31. .093 2.REPORT OF INDEPENDENT AUDITORS MEGAWORLD CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31.588. . .799 P 15. .832. .652. .850 1.686.982.540 17. . Property development costs . .773 227. .278.128 245. . . .469. .850. . .863 1. . . Reserve for property development . .674 14.252. .858.056.708. .181 = 32. .275. Deferred tax liabilities — net . .032.258 4. .954. .220 10 11 12 18 13 7.247 = 31.619. . .599.587 17.618. .552. Minority interest .129.414. . .631. .695 1. .526 3.318.197 2.138.548 710. .552. Trade and other receivables — net . . . .404.970 P See Notes to Financial Statements. Advances to landowners and joint ventures . . . . . .987.012.456 P 2.567. .382. .880.723 19 18 17.374. . . . . 14 7 9 2005 2004 2003 6 7 8 = 2.751.672 784. . .782. . . . .155.364. .268.132. . .570. .726.815 16. .146 2.893 740. . Other non-current liabilities .115.652.419 4.577.390.310 1. . . . . . .844 1. . .639.154 748.767. .104.799 P 7. Investment property — net . .811 3. . . .565 619.243. . .965. . . . . .330 641.970 P 14 15 = P 963. . . Total Non-current Liabilities . .618. . . . . . . .301.253 1.507 = 2. . .532 2.113. .280 1.999.300 1. Reserve for property development . . . . . .874. NON-CURRENT LIABILITIES Interest-bearing loans and borrowings Customers’ deposit .027 15.197 1. . .791.491. . . Deferred income on real estate sales . .940 11.891. .612. .804 = P 32. . NON-CURRENT ASSETS Trade and other receivables . .629 4. .466.116 682. .486. 2005.234. .669 1. .606. .532.843. . . . .724 377.253 941. . .194.123. .655 785.868. .618 = P 228. .307 15. .098. . Land for future development . . .518.052 733. .640. . .490. . . . Total equity .858.410 = 2.427 2. .039. .617 166. .918.610 3. .688.353.525. .138.635 P 2.454 17. .140 200.623.363.908. . . . .097. LIABILITIES AND EQUITY CURRENT LIABILITIES Interest-bearing loans and borrowings Trade and other payables. .945 14.

838. . Equity in net losses of associates Fair value losses — net . . .320 982. Impairment losses .179. . .201 2. . . . .538 190.151.761 1. .816.REPORT OF INDEPENDENT AUDITORS MEGAWORLD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31.993. .643. . . .939.471 = P = P = P = P 802. . .476.587.854 112.279.212. . .396. . .680 1. 2004 AND 2003 (Amounts in Philippine Pesos) Notes REVENUES Realized gross profit from real estate sales: Real estate sales . .638.858. Realized gross profit on prior years’ sales .282 (2. . .351 = P 1. .676 728. . . .287 81. .881. . .425.862.138. . .559 205. .213. . . .371. Gross profit . .234. . . . . . Other revenues .745.857.603 406.651) 424.724. . . . . .958 Earnings Per Share .259.822 INCOME BEFORE TAX .281 7. . .979.949 (294. . .870. . Amortization of preoperating expenses and deferred foreign currency losses Other operating expenses .011. . . . .214. . 21 = P 0. .221. .720. . . Advertising and promotions . . .02 16 OPERATING EXPENSES Commissions . . . .202.591. . .910 241.727. .787 (1. 17 252. . . .917. . . .890.732 — 50. . . . .464 1. . . . . . .08 = 2. .607 1.612 16 OPERATING PROFIT .908 12.153.158. . .836 32. .405.117) 701. .668. .799. Cumulative effect of a change in accounting policy . .343.766. . . .766. Parent company’s shareholders . . . . . . .979 77.859. .696) 625. . . . . .325 179. . . . .670 (381.092.236.355) 319. . . .856.374) 719. . .281 0. . .11 See Notes to Financial Statements. . . Foreign currency losses . . .087 17. . . .001 547. . Rental income . .694.785.341 27.874 44.555 = P 2. . . .061.684 122.065 88.271. .628 145.557.121. . . .796 627. .768 (5.433 111. . Deferred gross profit .652.665 61. . . .612 578. . . . . OTHER CHARGES Finance costs . . . . . 2005 2004 2003 = P 3. .657.007 259. . .918.492.166.254 101. .475 210. . .482 976.118.213. .535 116. .099 1.521.804. . Taxes and licenses .717 133. .197 207. .550 585. . .147.979. .684 146.586.835. . 14 10 8 1. . . . . . . .958 = P 13. . . .471. .818 506. . . .057. Realized gross profit on current year’s sales . . .814 124. . . . . . NET INCOME .080. .166. . . .504 31. . . .183 1. . . . . Attributable to: Minority interest .993. . .354.062 386. . .411 1. Employee benefits .822.690.514 (367. . . .793. . .430. .251. . .690 — 524. . . Hotel income — net . .768 0.264 — 192.320 230. .416 14. .358. . .496. . . . . .378 172. .016. .966. .810 64. . .939 73. . . . .239 180.749.748. .100. . . . .652.999. . . . . .267. .506.768) 993.274 252. . . .132.639 3.379.720) 807. . .304 — 254.012. . . . .983. . . . .403 = P = P = P = P 259. . .979 2.315 265.977. .326.983. . Cost of real estate sales. .084.852 47. . 18 1.550. F-4 . . . . .943 280. . .439.038 793.155. . .941.998 872. . . .810. 7. .780. . .323 P (1.876.138 — 390. . . TAX EXPENSE. .934. .653. .103. .652. . Depreciation and amortization . .727. 2005. .245.318.488 802.865 454. . . . . .182 65. .298 153. .824. .121 258. . . .163 = P 1. . .

. . . .488 — 5.778.516.979 = 16. . . . .862.311. . net of taxes . . . MINORITY INTEREST . . . net of taxes .880. . . .555. . . . . . .540. . . . . Balance at end of year . . . . . ADDITIONAL PAID-IN CAPITAL . .926. . .295 2003 = 8. . . .892. .583. . . Currency translation differences during the year. . . .028.600. . . . . . . . 20 2005 = P 10.844 (311.639 = P (145.409 710. . . Net Gain (Loss) Recognized Directly to Equity . .911) 91.233) (295. . .587 = P 17. . . .212) 4. . . 2004 AND 2003 (Amounts in Philippine Pesos) Notes CAPITAL STOCK .690. . . .862.009. .199 20 See Notes to Financial Statements. . .745.655 2 (26. . .782. . . .199 91.007 — 4. .954. .516) 4.835) 4.655.199 5.632.290. .712) (320. . 2005. .835) 30.113. . . . . .351 (1.945) 57.115. . . . . .575.892. .875.541.185. .482. . .555. . . . . . .782.898 1.932. .590 P 2. . .647. .176) (363. .482.534 2 (585.275) 5.677.559. . TREASURY SHARES. . .590 P 2. .632. .199 (60.215. Balance at end of year — 250 million shares in 2005 and 350 million shares in both 2004 and 2003 . .566.874. . . .229. .769 (363.879. .303.290. As restated . .039. . . .227. . . . . . . . .275) (114.954. . . . . . Disposals during the year. Stock dividends . . .364 — — — 91. TOTAL EQUITY . . . .737. . . .575.227. . Balance at end of year . . . .737. .REPORT OF INDEPENDENT AUDITORS MEGAWORLD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31. . .227. . . . . . . As restated .247 P = P 91.701. .677. . .367. representing parent company’s common shares held by subsidiaries Balance at beginning of year.153. . .295 (363. Effects of transition to PFRS. .494.715. . .402 252. . . . . . .300 2004 = 8. . . .699 = 16. . F-5 .898 705.364 (145. . . .892. .291) 30. . . . .945) 68.737. . . . . .775. . . Net income . . . . .945) — (42. . . . Effects of transition to PFRS. .622 (633.733 733. . . .737. . .945) (363. .410 807.797.106 2.367.636) 5. . .668. . ACCUMULATED TRANSLATION ADJUSTMENTS Balance at beginning of year As previously reported .879.660) 91. . . RETAINED EARNINGS Balance at beginning of year As previously reported .770. . . .181 P = P (60. . net of tax . .442) 4. . . .575. .859 (15.575.752.

REPORT OF INDEPENDENT AUDITORS

MEGAWORLD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003 (Amounts in Philippine Pesos)
2005 CASH FLOWS FROM OPERATING ACTIVITIES Income before tax . . . . . . . . . . . . . . . . . . . . . . . . Adjustments for: Depreciation and amortization . . . . . . . . . . . . . . . Cumulative effect of a change in accounting policy . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . Fair value losses on marketable securities. . . . . . . . . Interest income . . . . . . . . . . . . . . . . . . . . . . . . . Dividend income . . . . . . . . . . . . . . . . . . . . . . . . Gain on sale of investments . . . . . . . . . . . . . . . . . Probable losses . . . . . . . . . . . . . . . . . . . . . . . . . Equity in net losses of subsidiaries and an associate . . Amortization of pre-operating expenses . . . . . . . . . . Amortization of deferred charges . . . . . . . . . . . . . . Operating income before working capital changes . . . . Decrease (increase) in trade and other receivables . . . Decrease (increase) in residential and condominium units for sale . . . . . . . . . . . . . . . . . . . . . . . . . Decrease (increase) in property development costs . . . Increase in prepayments and other current assets . . . . Decrease (increase) in advances to landowners andjoint ventures Increase in trade and other payables . . . . . . . . . . . Increase in customers’ deposits . . . . . . . . . . . . . . Increase (decrease) in deferred income on real estate sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase (decrease) in other current liabilities . . . . . Increase in reserve for property development. . . . . . Increase (decrease) in other non-current liabilities . . Cash generated from operations. . . . . . . . . . . . . . . . Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash paid for income taxes . . . . . . . . . . . . . . . . . . Net Cash From Operating Activities . . . . . . . . . . . . . . . . . . . = P 1,425,977,121 190,179,814 — 280,835,810 44,785,138 (715,435,491) (28,791,600) (45,163,750) 3,496,464 64,638,874 — 1,103,304 1,221,625,684 (229,336,178) 499,169,776 (489,758,441) (48,687,520) 2004 = 982,557,239 P 172,326,852 — 205,271,197 111,857,690 (571,123,393) (27,975,650) — 61,856,416 207,138,433 — 13,960,410 1,155,869,194 845,082,620 (358,904,954) 70,174,819 (267,443,556) 2003 = P 406,918,684 133,405,182 17,080,062 81,668,979 210,657,087 (507,102,154) (32,590,274) — — 77,318,475 12,550,628 50,749,908 450,656,577 (321,546,677) 615,305,453 (628,034,566) (49,909,434)

5,342,196 61,722,929 402,595,625 (139,429,038) (35,810,108) 13,200,222 201,581,580 1,462,216,727 (280,835,810) (371,094,617) 810,286,300

(26,705,064) 24,053,188 453,768,233 73,734,053 406,418,141 388,291,767 80,091,929 2,844,430,370 (205,591,795) (112,424,844) 2,526,413,731

756,018 268,134,613 1,378,644,052 140,464,298 223,348,766 349,797,528 (72,202,741) 2,355,413,887 (125,220,235) (75,657,699) 2,154,535,953

F-6

REPORT OF INDEPENDENT AUDITORS

MEGAWORLD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003 (Amounts in Philippine Pesos)
2005 CASH FLOWS FROM INVESTING ACTIVITIES Additions to: Investment property . . . . . . . . . . . . . . . . . . . . . . Land for future development . . . . . . . . . . . . . . . . Property and equipment. . . . . . . . . . . . . . . . . . . . Proceeds from disposals of property and equipment . . . Net increase in investments in and advances to associates and other related parties . . . . . . . . . . . . . . . . . . Net increase in other non-current assets . . . . . . . . . . Disposals (acquisition) of investments during the year . . Interest received . . . . . . . . . . . . . . . . . . . . . . . . . Dividends received . . . . . . . . . . . . . . . . . . . . . . . . Net Cash Used in Investing Activities . . . . . . . . . . . . CASH FLOWS FROM FINANCING ACTIVITIES Payments of long-term liabilities and other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition of shares of parent company by subsidiaries Proceeds from long-term liabilities . . . . . . . . . . . . . . Net Cash From (Used in) Financing Activities . . . . . . . NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . 2004 2003

(841,646,195) (42,123,813) (180,262,482) 1,391,857 (613,020,623) (506,389,546) 493,936,997 347,803,636 28,791,600 (1,311,518,569)

(382,473,955) (115,996,375) (9,693,965) 8,631,939 (874,893,731) (1,374,703,467) 461,396,297 565,480,423 27,975,650 (1,694,277,184)

(95,720,433) (296,760,402) (19,168,620) 17,449,178 (1,452,034,186) 496,412,628 (1,986,858,091) 507,102,154 32,590,274 (2,796,987,498)

(450,115,471) — 1,112,671,628 662,556,157 161,323,888 2,688,988,568 = P 2,850,312,456

(164,245,614) — — (164,245,614) 667,890,933 2,021,097,635 = 2,688,988,568 P

(228,918,668) (320,797,233) 950,000,000 400,284,099 (242,167,446) 2,263,265,081 = 2,021,097,635 P

Supplemental Information for Non-cash Investing and Financing Activities: In the normal course of business, the Company enters into non-cash transactions such as exchange or purchase on account of real estate and other assets, transfers property from Land for Future Development Costs to Investment Property as the property goes through its various stages of development. These non-cash activities are not reflected in the cash flows statements (see Notes 9, 11 and 12). See Notes to Financial Statements.

F-7

CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003, 2004 AND 2005

MEGAWORLD CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005, 2004 AND 2003 (Amounts In Philippine Pesos) 1. CORPORATE INFORMATION

Megaworld Corporation (the ‘‘Company’’ or ‘‘parent company’’) holds interests in the following subsidiaries and associates:
Explanatory Notes Percentage of Ownership 2005 2004 2003

Subsidiaries/Associates

Subsidiaries: Megaworld Land, Inc. (MLI) . . . . . . . . . . . Prestige Hotels and Resorts, Inc. (PHRI) . . . . Mactan Oceanview Properties and Holdings, Inc. (MOPHI) . . . . . . . . . . . . . . . . . . . . . . Megaworld Cayman Islands, Inc. (MCII) . . . . Richmonde Hotel Group International (RHGI) Eastwood CyberOne Corporation (ECOC) . . . Forbes Town Properties and Holdings, Inc. (FTPHI) . . . . . . . . . . . . . . . . . . . . . . . Megaworld Newport Property Holdings, Inc. (MNPHI) . . . . . . . . . . . . . . . . . . . . . . Megaworld-Daewoo Corporation (MDC) . . . . Megaworld Central Properties, Inc. (MCPI) . . Megaworld Globus Asia, Inc. (MGAI) . . . . . . Associates: Empire East Land Holdings, Inc. (EELHI) . . . Fairmont Holdings, Inc.. . . . . . . . . . . . . . . Palm Tree Holdings and Development Corporation (PTHDC) . . . . . . . . . . . . . .
(a) (b) (c) Wholly owned subsidiary of MLI Subsidiary acquired in 2005

(a)

100% 100% 100% 100% 100% 100% 100%

100% 100% 100% 100% 100% 100% 100% — 60% — 50% 43% 36.32% —

100% 100% 100% 100% 100% 100% 100% — 60% — 50% 43% 36.32% —

(b) (c)

100% 60% 60% 50% 45.22% 35.29%

(c)

40%

Subsidiary incorporated in 2005, not yet in commercial operations as of December 31, 2005

Except for MCII and RHGI, the subsidiaries and associates were incorporated in the Philippines and operate within the country. MCII was incorporated and operates in the Cayman Islands. RHGI was incorporated and operates in the British Virgin Islands. The Company and its subsidiaries (the ‘‘Group’’), except for MCPI and PTHDC which are not yet in commercial operations as of December 31, 2005, are presently engaged in the real estate business, hotel operations and marketing services. The registered office of the Company is located at 28th Floor, The World Centre Building, Sen. Gil Puyat Avenue, Makati City. The financial statements of the Group for the year ended December 31, 2005 (including the comparatives for the years ended December 31, 2004 and 2003) were authorized for issue by the Company’s Board of Directors on February 27, 2006.

F-8

CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003, 2004 AND 2005

2.

TRANSITIONING TO PHILIPPINE FINANCIAL REPORTING STANDARDS

The Accounting Standards Council (ASC), the accounting standards-setting body in the Philippines, started a program in 1997 to move fully to the International Accounting Standards (IASs) issued by the then International Accounting Standards Committee (IASC). In April 2001, IASC was succeeded by the International Accounting Standards Board (IASB) which since then has issued revised IASs and new International Financial Reporting Standards (IFRSs). To correspond better with the issuances of the IASB, the ASC renamed the Standards it issues as Philippine Financial Reporting Standards or PFRSs (previously referred to as Statements of Financial Accounting Standards or SFASs). PFRSs consist of: a. b. c. PFRSs (corresponding to IFRSs); PASs (corresponding to IASs); and, Interpretations (corresponding to IFRICs and SICs).

In compliance with the pronouncements of ASC and the regulations of Securities and Exchange Commission (SEC), the Group has adopted all the relevant PFRS for the first time in its financial statements for the year ended December 31, 2005 with January 1, 2003 as its transition date. The transition from previous generally accepted accounting principles (GAAP) in the Philippines to PFRS has been made in accordance with PFRS 1, First-time Adoption of Philippine Financial Reporting Standards. Due to the transition to PFRS, the 2004 and 2003 comparatives contained in these financial statements differ from those previously presented in the financial statements for the years ended December 31, 2004 and 2003. The following reconciliations and explanatory notes thereto describe the effects of the transition on the Group’s opening PFRS balance sheet as of January 1, 2003 and for the years ended December 31, 2003 and 2004. All explanations should be read in conjunction with the PFRS accounting policies of the Group as disclosed in Note 3. No adjustments to capital stock, additional paid-in capital and treasury stock were necessary in the opening PFRS balance sheet as of January 1, 2003 and the comparatives prepared for the year ended December 31, 2003 and 2004.

F-9

752. . .008.583. .402 (311.760 (170. Remeasurement of security deposits at amortized cost .859 (15.712. . .581) 28. . .336. .534 P = 91. Equity under PFRS . . . . . Remeasurement of trade receivables at amortized cost . Equity under previous GAAP . . .759 (633.404.814) 20. .396.677. Depreciation of investment property by component .677.CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003. . . .115.185. . 1 2003 Accumulated Translation adjustments under previous GAAP . .564.215.4 2. .830) (42.539) (133. . . . .926. Recognition of equity share in net loss of an associate . Reversal of goodwill amortization . . . Total adjustment to retained earnings .053.291) 30. . . .355) (22.974.367.678. Accumulated Translation adjustments under PFRS . . . .294. Fair value adjustment of marketable securities .036. . . Recognition of transitional liability and defined benefit expense . . . . . . .237) 13.661. . . . . . . . . . . . . .548 P =15. . . . . .485. . . . 31 2004 Dec.736.162. . .101 (237.613) (62.466. .715. . . .6 2.129 P =16.202 P =15.872) 15. . .027. . . . . . . . . .3 2.031 (311.252) (23.472. . . .607.482. .318. . . . .647. P = 2.047.271.844 — (246. .363. Restatement of foreign subsidiaries’ financial statements . . .229.954. . . . . .212) 4. .622 — (314. Retained Earnings under previous GAAP .613) (367. . . 2004 AND 2005 2. .660) 91. Total adjustments to Equity .636) 5.715.736. .719) (38.655 (26.959.7 2.932. . . .458 (28. .951.8 2. .11 57. .290.988. .065. .755.12 2. .576 F-10 . . Deferred tax adjustments . .381 24.193) 29.862.10 25. . . .420 P = — — — 4. . . .985) 12.540.030. . . . .927) 16.018 2.238) 31. .606. . .442) 15.1 Reconciliations a.737.898 (611. Retained Earnings under PFRS .199 5. The reconciliation of the Group’s equity reported under previous Philippine GAAP to its equity under PFRS are summarized as follows: Notes Dec. .849) (17.364 5. . . 31 2003 Jan.875.200.5 2. .442) 4. .469 (585.541.410 (633. . .569 (12.394. .494.740. . . .

023. . 2. .811 4. .842 11. 2003 Changes in assets: Current trade and other receivables . . . . . . .252 (12. . . . 2003 and 2004 are summarized as follows: Notes Previous GAAP Effects of Transition PFRS January 1.736.590 788.083 1.943 2.304.960. .247.772 6.8 2.714. 2. 2.10 2.185.932.073. .753.001.438. . .064 2.320 P P = (633.10 2.752. . 2.226. .348) P =(311.859.490.437 8. Property. .642. 2.660) 7. . Property and equipment — net Other non-current assets . . . 2.682.967 P = (12.983.830 332.512 2.7 2. .442) 7. .569) (9. . .883 709.777 965. .822 1.708.146 10. . .001. . .744 2. . .979.666 (38. . .2.2.462 Changes in liabilities: Trade and other payables. . 2. .235. .597.880.720.487. . . .265. .715.984) (171.668 = 4.238) P = (12.889. Other current liabilities .2 7.766) P 2. . .987.843.181.023) 147.740.767. 2. .229.833.053 377. . . . . December 31.702 P = 332. . . . .736.815) (388.370.397.718. plant and equipments .879.414 P =8.876 1. Non-current trade and other receivables .2.255. Other non-current liabilities . . . . .623. .769. 2003 and comparative financial years as of December 31. .959. .936 .990. . .030.306 1.673.075.467. . .042. . Changes in liabilities: Trade and other payables.2. .2.247.049. . . 2. .849) (246.2 2. .753.049.537.123.502.212) =14. 2. .036. . .510. . Non-current portion of longterm liabilities . .546.633 P = 1. .883. Investments in and advances to associates and other related parties . .2. .031) (13.376.234.689. . The remeasurements of balance sheet items at the opening PFRS balance sheets as of January 1. . .425 4.610 3.454 (138.662.177.015.980. . Investments in marketable securities .2. Investments in and advances to associates and other related parties . 2.849) 2. .051. .060. . .336.617.2 2.921 = 2.306. .675 P = 22. .473.872.259 493.159. . .729 2. .454 P =23.223 5. .955.5 P = 8.472.5 998.048 (8. .000 P =2. . 91. . .417.954. .12 2. .779.247. .934. . . .321.250. .428 761.6 2. . . .020. . . .002. . .409. . Deferred tax liabilities — net Other non-current liabilities . .954. Total adjustment to equity .872. Investment property . . . . .653.304 (320. . . .251. .744.128) 276.829.904 .294.2. .648.947. Total change in assets .397 747. .905 689.12 2.199 Translation adjustment .747 2.824.470.598 904.093 1.8 7.308 P = 1. Deferred tax liabilities — net . 2004 AND 2005 b. . . .7 2. .343. . Investment property . . . .CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003. .696 2.488.955.4 P = — 2.261. .6 2.404.001 91. 2.4 P 2. . .433 (20.108 F-11 .352 442.762 Total adjustment to equity . Non-current trade and other receivables . .074 1.931. .252. 2.859 P =15.091.818. . 2.925.984.747 1. 2003 Changes in assets: Investments in marketable securities . .245.665 2.790) 17. .660 1.584.327. . .2.450.418.236 640.2 2. .210.614 733.762) 346.454 P =21. .547 (15.596. .737.

273. .753.540 22. 2. .486.2.396.613. . . Investment property . . . .406.719.047. Deferred tax liabilities . .057 6.132.078.532 (367. 2.954. .267. . 2004 Changes in assets: Current trade and other Receivables .205 4. . .275.2. .893 740.531. .101 (1.353. .940.306. . 2.944.681. .898 25.042. .616. . .110. 2. .101 P = 441. . . .489) 28. .511) 299.117.753 = 2.910 724. .028. . .638.612 441.988. .061.258 = 4. . .314 F-12 .364 Changes in liabilities: Trade and other payables. 57. . . 2.655 P =14. .290.7 2. .610 1. . .850 2. Investment in and advances to associates and other related parties .888.005.864.875. .481. .3 7.486. .314. .4 P 1.211 4. Total adjustment to equity .611 1. . .926.178 1. .567. .128 . .809. . .700 2.838.559.636) =13.2 2.278. .749.906. .952 2. . . . . .072.119.215.2 2.906.343 30. .6 2.694 784.464.2 2. . . Other current liabilities .629 4.883 2. . .950 P P = (585.138.940 8.618.973) P 2. Property and equipment — net Other non-current assets . .394.382. .138. . .10 2.7 2. Other non-current liabilities .852.582) (361. 2. .266.291) 7.313. Investments in marketable securities . Non-current portion of longterm liabilities .2. .2. . . . . . .527.931.816.112.051 (191. .017) 15.232.374.301.221.132.540.487. . .505 2.873.2.661 1.082 342. .618. . .12 2.021 1.CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003.8 2.494. Non-current trade and other receivables .416 (26. . . .171. .439 20.482. . 2.466 396.927 Translation Adjustments .5 1.433 (41. 2004 AND 2005 Notes Previous GAAP Effects of Transition PFRS December 31. 2. .955 696.458. .505 2. .098. . . .401.191.

.469.524 (205. .543. .657.720 P = 759.865 1. . . . the amounts of trade receivables sold as of January 1. . . . . . . . . . . .576 P =585.770) P = 578.985.142. Operating expenses .710 — P = 47.791 218.305. . . .433) (111. = F-13 . 2.125) (95.10 736. . .234.475) (17. . 2004 : Realized gross profit on real estate sales . . . .964. . . .12 2.562 4. . . . .155.470. .693. . .849. . . . .690) (289. . .724. .267.151) P =(173. . . . . . .748.559 (205.325 (728. . . .912 Revised Structure of Balance Sheet and Statement of Income The Company has modified its previous balance sheet and income statement structure on transition to PFRS. . .455) (4. .5 2. . Profit and loss reported under previous GAAP for the year ended December 31.072.707. .550 2. . . . . .728 — P =(321.942 (24. . . .7 P = 761. . Fair value gains (losses). .795) 27.105.010. .969.087) (309.6 2.692.087) (386. .355. . .2 2. . . . . Net Income .740. These sold trade receivables did not qualify for derecognition criteria under PFRS since related risks and rewards were not transferred from the Group to the buyer of the receivables. . . . . . .223. . . . . .529 (872.274) P =574. . .690) (524. . 2004 AND 2005 c.239 (180. Net earnings applicable to minority interest. .4 2.12 (77. . . . .641) 812.560) 2. December 31.761) 1.4 2. . . 2. . .530 755. . .415 1. . Cumulative effect of change in accounting policy .043) (329. . . . . . . .690. .062) (210. 2. . . . Operating profit .857. . .038) 793. . . .320 (872. . . . Net losses applicable to minority interest. .767) — (234.476. . . . .979) (77.356 (17. .471) 5.824. . .373 (188. . . Tax expense .266.868. .476. . . .271. .320) 982. .521. . .857. .603) 406.709.854) 17. . Other income (charges) Finance cost . .214. .643. . . . .261.998. . 2003 and December 31.080.720.777 2.7. . . . .403) (7. .657.287 (81. .794. . . . . .598 (234.782.591.605. .516.007 2. .856.244 274. .889.318. .232. .088. .727. Under the previous GAAP. 2. Equity share in net earnings (losses) .6 Income before tax and minority interest . . . . Other revenues .745. .346.4 2.866 8.498) 7. . .944. . 2003 : Realized gross profit on real estate sales . . . . .684 (146. . .978. .234.970. . .054. . .720 P = 807. Other revenues .4 2. . .455 2. . . . . .197) (207.558. . . .5 2. . .383 (703. .181) 5.668. . . .182 (154. . . .138. . .435. . Equity share in net earnings . . . . .910 942. . . .939. . trade receivables sold with recourse are derecognized from the carrying amount of trade receivables account. . . . . .917. Accordingly. . . . . . . . . . . The main changes are summarized as follows: a.853 1. . .766. .831) — (210. .131) (7.CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003. .379.945.084.918. . .198. .334 (111. . . . . 2003 and December 31. . . . .488 Income before tax and minority interest .468. . .905 274.558. . . . . .620) 187.114) 447. . 2003 and 2004 amounting to P 658. . . . 2. 2004 is reconciled to profit and loss under PFRS as follows: Notes Previous GAAP Effects of Transition PFRS December 31. .080. .343. . . . Net Income .047. . . . .169) 39.8 P =759.035 320. . .062) — (76. Tax expense .557. . Operating expenses . . .591.2. .200. .742 P =(182. . .397) (19. Operating profit .979 1.138.506. .878.10 942. .274) P = 252.753. . . Fair value losses .005) 1. Other income (charges) Finance cost .

As a result. Based on the test. Under PFRS.866. 2003.917. 2003 and the comparatives as of December 31. Goodwill was not amortized.088 in retained earnings as of January 1. 2. and = 173. Goodwill presented as part of the Other non-current asset recognized under previous GAAP has been tested for impairment at the date of transition to PFRS. 2003 and 2004 by P 314. representing the excess of acquisition costs over the equity in underlying net assets of the subsidiaries or associates at date of acquisition. recognized in 2003 and 2004 amounted to P 182. included in Other Revenues. 2003 and 2004.193 = and P 237.325 and interest income of = P 182. b. c. e. the amortization amounting to P 25. 2. in accordance with PFRS 1. The related day-one loss. which represent financial assets at fair value through profit and loss. no impairment loss was required to be recognized. respectively. Investments in preferred stock classified as part of the Investments in and Advances to Associates and Other Related Parties under previous GAAP are now included in Marketable Securities which represent financial assets at fair value through profit and loss. some balance sheet items that previously were classified as non-current in accordance with previous GAAP requirements are now presented as current under PFRS. in accordance with PFRS. As required by PFRS 1.955 in net income for 2003 and 2004.059.988. The net adjustments resulted in the = decrease of the beginning retained earnings as of December 31.3 Cessation of Amortization of Goodwill Under PFRS.770. presented as part of Trade and Other Receivables amount in the Balance Sheets. This resulted in the increase in the Trade and Other receivables and Other current and non-current liabilities accounts in the opening PFRS balance sheet as of January 1.173 and P 488.620 and P 114. These were measured under the previous GAAP at realizable value.509.956 and net increase of P = P 76. and interest income. = F-14 .788. This resulted in the recognition of day-one loss amounting to P 428. Real estate held for lease under the previous GAAP is now presented as Investment Property and Property and Equipment. respectively. respectively.607. 2004.101 for 2004 recorded under the previous GAAP = were reversed in the reconciliation from previous GAAP figures to PFRS figures with corresponding reduction in Other operating expenses in that year.4 Remeasurement of Trade Receivables at Amortized Cost Trade receivables. Also. Investments in shares of stocks wherein the Company has no significant influence measured at cost previously included in Investments in and advances to associates and other related parties under previous GAAP are now presented as part of Other Non-current Assets classified as available for sale financial assets.069. Instead. respectively. Goodwill. In addition. d. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired.438.114 P = = and P 250. the unamortized amount as of January 1.238. Individual notes to the balance sheet items and the accounting policies provide further details on these changes. The discount rate used of 10% was determined by reference to the market interest rate at the time of the recognition of sale.664.870. are non interest-bearing receivables. 2004 AND 2005 P 638. This resulted in a net decrease of = 67.113. is not amortized.CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003.305. adjusted to the = Realized Gross Profit from Real Estate Sales. For the year ended December 31. were reversed and the related liability was = = recognized for the proceeds received by the Group.736. Investments in bonds and other debt instruments previously presented separately in the face of the balance sheets and classified as long-term are now presented as part of Marketable Securities. 2004 has been considered as the carrying amount of Goodwill in the opening PFRS balance sheet. the trade receivables are considered as loans and receivable financial assets measured at amortized cost using the effective interest rate method.853.

149.539 and P 62. 2003. the Company’s obligation under post-employment defined benefit plan should be actuarially determined using the projected unit credit method.200. This resulted to the recognition of fair value loss of P 12.820 and P 19. The fair value gain or loss is = = recorded in the 2003 and 2004 statements of income of the Group. an additional disclosure shall be made on the assets’ fair market value as of the comparative balance sheets dates. 2.846.065.158 and interest expense of P 812. F-15 .613.917. The adoption of the related new standard resulted in the recognition of transitional liability amounting to P 17. The Group recognized an additional day-one gain pertaining to lease contracts acquired in 2003 and 2004 amounting to P 19.317 and P 10. refundable guarantee deposits are considered as loans and receivable financial assets measured at amortized cost using the effective interest rate method.396. 2003 and P 97.695. The adoption of this new standard resulted in the recognition of additional depreciation expense amounting to = 23. this requirement is not clearly set out. these financial assets.162.485.830 and = 28. This also resulted in the recognition of additional defined benefit expense in 2003 and 2004 amounting to P 5. The net adjustment to the beginning retained earnings as of December 31. which quoted market price. 2004 AND 2005 2.252 as of = January 1. were classified as financial asset at fair value through profit and loss.589 in retained earnings as = = of January 1.074. respectively.CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003. Under PFRS.5 Measurement of Security Deposits at Amortized Cost Security deposits. The Group uses the discounted cash flow valuation model in determining the assets’ fair market value. 2.25 million as of = = December 31.813 in 2004.008. that have useful lives significantly different from the useful life of the building are identified as separate components and are depreciated separately.466.719 as of January 1. Under PFRS.067. This transitional liability was fully recognized retrospectively in the Company’s opening PFRS balance sheet. presented as part of Other non-current liabilities.265. 2003.760 and P 31.506 in 2003 and fair value gain of P 195.030. The total P = adjustments to retained earnings as of December 31. The additional depreciation expense recognized in 2003 and 2004 amounted to P 18. = = respectively.923. investment property should be measured using the cost model or fair value model. 2003 and 2004 amounted to P 29. = 2003. When the cost model is used.924.053. This resulted in the recognition of day-one gain amounting to P 14. The Group elected to measure its investment property using the cost model. the Group’s investment property previously classified as real properties held for lease was measured using the cost model. adjusted as a reduction to the retained earnings P of that date. arising from the lease of investment property were measured under the previous GAAP at the amount of consideration given by the lessees which amounted to P 39.442.125 and P 7.9 Classification and Measurement of Investment Property Under the previous GAAP.472. Under PFRS.783.613. 2003 and 2004 amounted to P 42. respectively which resulted to decrease in consolidated net income = = for that years. respectively. The resulting decrease in retained earnings as of December 31. 2003. 2003 and December 31. Projected annual cash inflow less the projected annual cash outflow specifically attributed to the asset is discounted using the cost of capital of the Group. 2003. = = 2. The Group also recognized fair value loss of P 157.578 and = 5. The discount rate used of 10% was determined by reference to the market interest rate of comparable financial instrument at the date of the inception of the lease. Interest = = expense amounting to P 4.381. P = 2. adjusted to retained earnings as of that date.445 for 2003 and 2004 is recognized representing = = the cost of money paid in advance by the Group’s tenants.75 million as of January 1. and presented as Marketable Securities in a separate line item in the balance sheets. respectively. such as elevators.833.6 Fair Value Measurement of Financial Assets Certain investments in bonds classified as Investments in bonds and other debt securities under the previous GAAP were measured at cost less amortization of discounts and premiums.7 Full Recognition of Defined Benefit Obligation Under PFRS. 2004 amounted to P 22. respectively. Under previous GAAP.849 as of January 1.8 Depreciation of Buildings by Component Significant component parts of the buildings of the Group.736.

CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003, 2004 AND 2005 2.10 Deferred Tax Adjustments

The deferred tax expense recognized by the Company which relates to the temporary differences arising from PFRS adjustments amounted to P 12,959,031 in January 31, 2003, P 20,712,759 in = = December 31, 2003, and P 28,974,469 in December 31, 2004. =
2.11 Accumulated Translation Adjustments This represents translation adjustments resulting from the conversion of MCII and RHGI’s foreign currency denominated financial statements into the Group’s presentation currency using the closing rate at balance sheet date following the provision of PFRS. Restatement of foreign subsidiaries under PFRS resulted to a decrease in Accumulated translation adjustment of = 15,660 and = 26,540,291 as of December 31, 2003 and P P December 31, 2004, respectively. 2.12 Recognition of Equity Share in Net Loss of an Associate

During the year, the Company has gained significant influence in an associate previously accounted for at cost. As such, adjustments were made to take-up the Company’s share in net losses of the associate in 2003 and 2004 amounting to P 133,047,814 and = 367,926,581, respectively. P = 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies that have been used in the preparation of these consolidated financial statements are summarized below. The policies have been consistently applied to all years presented, unless otherwise stated.
3.1 Basis of Preparation

The consolidated financial statements of Megaworld Corporation and subsidiaries have been prepared in accordance with generally accepted accounting principles in the Philippines as set forth in PFRSs. The financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial assets. The measurement bases are more fully described in the accounting policies below. Accounting estimates and assumptions are used in preparing the financial statements. Although these estimates are based on management’s best knowledge of current events and actions, actual results may ultimately differ from those estimates. The consolidated financial statements are presented in Philippine pesos, the Group’s functional currency, and all values represent absolute amounts except when otherwise indicated.
3.2 Impact of New and Revised Accounting Standards Effective Subsequent to 2005

There are new and revised accounting standards, amendments and interpretations to existing standards that have been published by IASB and adopted by the ASC which are mandatory for accounting periods beginning on or after January 1, 2006. Of the new ASC pronouncements, the following standards are relevant to the Group, which the Group has not opted to adopt early:
2006 PAS 19 (Amendment): . . . . . . . . . . . . PAS 39 (Amendment): . . . . . . . . . . . . 2007 PAS 1 (Amendment): . . . . . . . . . . . . PFRS 7 : . . . . . . . . . . . . . . . . . . . . Presentation of Financial Statements Financial Instruments: Disclosures Employee Benefits The Fair Value Option

F-16

CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003, 2004 AND 2005

The Group will apply the relevant new accounting standards in 2006 and 2007 in accordance with their transitional provisions. It is currently evaluating the impact of those standards on its consolidated financial statements and has initially determined that the following new standards may have significant effects on the financial statements for 2006, as well as for prior and future periods: . PAS 19 (Amended), Employee Benefits. This amendment introduces the option of an alternative recognition approach for actuarial gains and losses. It imposes additional recognition requirements for multi-employer plans where insufficient information is available to apply defined benefit accounting. It also adds new disclosure requirements. As the Group does not intend to change the accounting policy adopted for recognition of actuarial gains and losses and does not participate in any multi-employer plans, adoption of this amendment will only impact the format and extent of disclosures presented in the accounts. The Group will apply this amendment for annual periods beginning January 1, 2006. PAS 39 (Amended), The Fair Value Option. This amendment changes the definition of financial instruments classified at fair value through profit or loss and restricts the ability to designate financial instruments as part of this category. The Group believes that this amendment will not have a significant impact on the classification of financial instruments, as the Group would be able to comply with the amended criteria for the designation of financial instruments at fair value through profit and loss. The Group will apply this amendment for annual periods beginning January 1, 2006. PFRS 7, Financial Instruments: Disclosures and complementary amendment to PAS 1. PFRS 7 introduces new disclosures to improve the information about financial instruments. It requires the disclosure of qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk, including sensitivity analysis to market risk. It replaces PAS 30, Disclosures in the Financial Statements of Banks and Similar Financial Institutions, and disclosure requirements in PAS 32, Financial Instruments: Disclosure and Presentation. It is applicable to all entities that report under PFRS. The amendment to PAS 1 introduces disclosures about the level of an entity’s capital and how it manages capital. The Group has assessed the impact of PFRS 7 and the amendment to PAS 1 and concluded that the main additional disclosures will be the sensitivity analysis to market risk and the capital disclosures required by the amendment of PAS 1. The Group will apply PFRS 7 and the amendment to PAS 1 for annual periods beginning January 1, 2007.

.

.

As for the other new accounting standards, the Group has initially assessed that they will not result in significant changes to the amounts or disclosures in its financial statements.
3.3 Consolidation, Investment in Associates and Interest in Joint Venture

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as of December 31, 2005, 2004 and 2003 and for the three years in the period ended December 31, 2005. The financial statements of subsidiaries are prepared for the same reporting year as the parent company, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies that may exist. The Company accounts for its investments in subsidiaries and associates, and minority interest as follows: . Investments in Subsidiaries. Subsidiaries are all entities over which the Group has the power to control the financial and operating policies. The Company obtains and exercises control through voting rights. In addition, acquired subsidiaries are subject to application of the purchase method. This involves the revaluation at fair value of all identifiable assets and liabilities, including contingent liabilities of the subsidiary, at the acquisition date, regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. On
F-17

CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003, 2004 AND 2005

initial recognition, the assets and liabilities of the subsidiary are included in the consolidated balance sheet at their revalued amounts, which are also used as the bases for subsequent measurement in accordance with the Group accounting policies. Goodwill represents the excess of acquisition cost over the fair value of the Group’s share of the identifiable net assets of the acquired subsidiary at the date of acquisition. All intercompany balances and transactions with subsidiaries, including unrealized profits arising from intra-group transactions, have been eliminated in full. Unrealized losses are eliminated unless costs cannot be recovered. . Transactions with Minority Interests. The Group applies a policy of treating transactions with minority interests as transactions with parties external to the Group. Disposals to minority interests result in gains and losses for the Group that are recorded in the statement of income. Purchases from minority interests result in goodwill, being the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary. Investments in Associates. Associates are those entities over which the Group is able to exert significant influence but which are neither subsidiaries nor interests in a joint venture. Investments in associates are initially recognized at cost and subsequently accounted for using the equity method. Acquired investments in associates are also subject to purchase accounting. However, any goodwill or fair value adjustment attributable to the share in the associate is included in the amount recognized as investment in associates. All subsequent changes to the share of interest in the equity of the associate are recognized in the Group’s carrying amount of the investment. Changes resulting from the profit or loss generated by the associate are charged against Equity in Net Earnings (Losses) in Group’s consolidated statements of income and therefore affect net results of the Group. These changes include subsequent depreciation, amortization or impairment of the fair value adjustments of assets and liabilities. Items that have been directly recognized in the associate’s equity, for example, resulting from the associate’s accounting for available-for-sale financial assets, are recognized in consolidated equity of the Group. Any non-income related equity movements of the associate that arise, for example, from the distribution of dividends or other transactions with the associate’s shareholders, are charged against the proceeds received or granted. No effect on the Group’s net result or equity is recognized in the course of these transactions. However, when the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the associate. Unrealized gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group. . Interests in Joint Ventures. For interests in jointly controlled operations, the Group recognized in its financial statements the assets that it controls and the liabilities, the expenses that it incurs and its share in the income from the sale of goods of goods or services by the joint venture. No adjustment or other consolidation procedures are required since the assets, liabilities, income and expenses of the joint venture are recognized in the financial statements of the venturer.
Cash and Cash Equivalents

.

3.4

Cash and cash equivalents are defined as cash on hand, demand deposits and short-term, highly liquid investments readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value.

F-18

CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003, 2004 AND 2005 3.5 Financial Assets

Financial assets include cash and financial instruments. Financial assets, other than hedging instruments, are classified into the following categories: marketable securities which represent financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets. Financial assets are assigned to the different categories by management on initial recognition, depending on the purpose for which the investments were acquired. The designation of financial assets is re-evaluated at every reporting date at which date a choice of classification or accounting treatment is available, subject to compliance with specific provisions of applicable accounting standards. All financial assets are recognized on their trade date. All financial assets that are not classified as at fair value through profit or loss are initially recognized at fair value, plus transaction costs. The Group’s financial instruments are currently lodged in the following classifications: . Financial Assets at Fair Value Through Profit or Loss/Marketable Securities. This category includes financial assets that are either classified as held for trading or are designated by the entity to be carried at fair value through profit or loss upon initial recognition. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. Derivatives are also categorized as ‘held for trading’ unless such are designated as hedges. Assets in this category are classified as current assets if they are either held for trading or are expected to be realized within 12 months of the balance sheet date. Subsequent to initial recognition, the financial assets included in this category are measured at fair value with changes in fair value recognized in profit or loss. Financial assets originally designated as financial assets at fair value through profit or loss may not subsequently be reclassified into another category, hence, it must remain in such category until it is disposed of or derecognized. . Loans and Receivables. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. These arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivables. These are included in current assets, except for maturities greater than 12 months after the balance sheet date which are classified as non-current assets. Loans and receivables are subsequently measured at amortized cost using the effective interest method, less impairment losses. Any change in their value is recognized in profit or loss. Loans and receivables are presented as Trade and Other Receivables in the balance sheets. Trade receivables, which generally have one to five-year terms, are non-interest bearing instruments recognized initially at fair value and subsequently stated at amortized cost using the effective interest method, less accumulated impairment losses, if any. An impairment loss is provided when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the impairment loss is recognized in the profit or loss. This receivable represents buyers’ unpaid balances arising from sale of real estate properties. The title to the real estate properties remains with the Group until such time that the Group fully collects its receivable from the buyers.

F-19

as determined by the project engineers. regardless of how the related carrying amount of financial assets is measured. In the case of impairment. They are included in non-current assets under the Other Non-current Assets account in the balance sheets unless management intends to dispose of the investment within 12 months of the balance sheet date. Any impairment loss from a real estate project is charged to operations during the period in which the loss is determined. cost is considerably lower than the net realizable value. Gains and losses arising from securities classified as available-for-sale are recognized in the statement of income when they are sold or when the investment is impaired. net of any effects arising from income taxes. including other costs and expenses incurred to effect the transfer of title of the property to the Group. This include non-derivative financial assets that are either designated to this category or do not qualify for inclusion in any of the other categories of financial assets. All financial assets within this category are subsequently measured at fair value. Non-compounding interest and other cash flows resulting from holding financial assets are recognized in profit or loss when received. fair value is determined by reference to the current market value of another instrument which is substantially the same or is calculated based on the expected cash flows of the underlying net asset base of the investment. less estimated costs of completion and the estimated costs necessary to make the sale.CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003. Available-for-sale Financial Assets. Considering the Group’s pricing policy for real estate units for sale. Residential and condominium units are valued at the lower of cost and net realizable value. unless otherwise disclosed. any loss previously recognized in equity is transferred to the income statement. Net realizable value is the estimated selling price in the ordinary course of business. the accumulated costs of the project are transferred to the Residential and Condominium Units for Sale account. Cost of real estate property sold before completion of the development is determined based on the actual costs incurred to date plus estimated costs to complete the development of the property. For investments that are actively traded in organized financial markets. are charged to the cost of residential and condominium units sold with a corresponding credit to the Reserve for Property Development account. 3. For investments where there is no quoted market price.6 Real Estate Transactions Acquisition costs of raw land intended for future development. Derecognition of financial assets occurs when the rights to receive cash flows from the financial instruments expire or are transferred and substantially all of the risks and rewards of ownership have been transferred. Borrowing costs on certain loans incurred during the development of the real estate properties are also capitalized by the Group as part of the Property Development Costs account. When portions of the property being developed are sold prior to the completion of the development. Losses recognized in the statement of income on equity investments are not reversed through the statement of income. The estimated expenditures for the development of sold real estate property. are charged to the Land for Future Development account. Related property development costs are then accumulated in this account. Losses recognized in prior period income statements resulting from the impairment of debt instruments are reversed through the statement of income. fair value is determined by reference to stock exchange quoted market bid prices at the close of business on the balance sheet date. The Group recognizes the effect of revisions in the total project cost estimates in the year in which these changes become known. These costs are reclassified to the Property Development Costs account when the development of the property starts. F-20 . with changes in value recognized in equity. 2004 AND 2005 .

. . Goodwill on acquisitions of subsidiaries is presented under Other Non-current Assets. . .15). The depreciation and amortization periods for property and equipment. . . . . . .7 Investment Property Properties held for lease under operating lease agreements. whichever is shorter. fixtures and other equipment and transportation equipment are carried at acquisition or construction cost less subsequent depreciation and any impairment losses. . . . . . . 3. . Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the statement of income in the year the item is derecognized. F-21 . 10–25 5–20 3–5 5 years years years years An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (see Note 3. . fixtures and equipment Transportation equipment . . . The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arises. . . . major improvements and renewals are capitalized. . . Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. . . . . . . . . office furniture.9 Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary or associate at the date of acquisition. . . . . . . are as follows: Condominium units . . . . . . Financial liabilities are recognized when the Group becomes a party to the contractual agreements of the instrument. . . . buildings and condominium units. . . at each balance sheet date. . expenditures for repairs and maintenance are charged to income as incurred. . .10 Financial Liabilities Financial liabilities include bank loans and trade and other payables. . Depreciation is computed using the straight-line method over the estimated useful lives of the assets ranging from 5 to 25 years. All interest related charges are recognized as an expense in the statements of income under Finance Costs. . . Goodwill is tested annually for impairment. An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. When assets are sold. hotel improvements. . . . Goodwill is allocated to cash-generating units for the purpose of impairment testing. . . . . . . are classified as Investment Property and carried at cost net of accumulated depreciation and any impairment in value (see Note 3. . 3. . and adjusted if appropriate. .15). The cost of an asset comprises its purchase price and directly attributable costs of bringing the asset to working condition for its intended use. . . Amortization of leasehold and office improvements is recognized over the estimated useful life of improvements or the term of the lease. Expenditures for additions. . . . The residual values and estimated useful lives of property and equipment are reviewed. . . Goodwill on acquisitions of associates is included in the carrying value of investments in associates. which comprise mainly of land. . Office furniture.8 Property and Equipment Buildings and improvements.CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003. . . . . . . . 2004 AND 2005 3. . . their cost and related accumulated depreciation and amortization and impairment losses are removed from the accounts and any resulting gain or loss is reflected in income for the period. . retired or otherwise disposed of. . a hotel building. . . . . . . . Office and land improvements. . . . . . 3. . based on the above policies. . Depreciation is computed on the straight-line basis over the estimated useful lives of the assets. . . . . . . . . . .

Trade payables are recognized initially at their nominal value and subsequently measured at amortized cost less settlement payments. Dividend distributions to shareholders are recognized as financial liabilities when the dividends are approved by the shareholders. Advances made to contractors and suppliers are treated as actual cost incurred in determining the stage of development of the properties. not exceeding the amount of the related provision. the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A present obligation arises from the presence of a legal or constructive commitment that has resulted from past events. no liability is recognized in the financial statements.e. i. 2004 AND 2005 Bank loans are raised for support of long-term funding of operations. a modified basis of computing the taxable income for the year based on collections from sales is used by the Company. revenues from transactions covering sales of residential and condominium units are recognized under the percentage of completion method. legal disputes or onerous contracts.. . F-22 . for example. Financial liabilities are derecognized from the balance sheet only when the obligations are extinguished either through discharge.12 Revenue and Cost Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. based on the most reliable evidence available at the balance sheet date. revenue is recognized when the risks and rewards of ownership of the undeveloped land has passed to the buyer and the amount of revenue can be measured reliably. Under the full accrual method. are not recognized in the financial statements. ECOC and EELHI. 3. long-term provisions are discounted to their present values. if virtually certain as a separate asset.CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003. including premiums payable on settlement or redemption and direct issue costs. Where there are a number of similar obligations. Finance charges. net of direct issue costs. Sale of residential and condominium units — For financial reporting purposes. including the risks and uncertainties associated with the present obligation. Probable inflows of economic benefits that do not yet meet the recognition criteria of an asset are considered contingent assets. In those cases where the possible outflow of economic resource as a result of present obligations is considered improbable or remote. revenue is recognized in the period in which the work is performed. MGAI. Provisions are measured at the estimated expenditure required to settle the present obligation. hence. Under this method. while MDC report revenues based on the percentage of completion method. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. These are recognized at proceeds received. In addition. where time value of money is material. Any reimbursement expected to be received in the course of settlement of the present obligation is recognized. realization of gross profit is recognized by reference to the stage of development of the properties.11 Provisions Provisions are recognized when present obligations will probably lead to an outflow of economic resources and they can be estimated reliably even if the timing or amount of the outflow may still be uncertain. or the amount to be provided for cannot be measured reliably. are charged to profit or loss on an accrual basis using the effective interest method and are added to the carrying amount of the instrument to the extent that these are not settled in the period in which they arise. Sale of undeveloped land — Revenues on sales of undeveloped land are recognized using the full accrual method. For tax reporting purposes. cancellation or expiration. The following specific recognition criteria must also be met before revenue is recognized: . 3.

. in which case income and expenses are translated at the dates of the transactions). 3.13 Leases . Group as lessee — Leases which do not transfer to the Group substantially all the risks and benefits of ownership of the asset are classified as operating leases.S.6).14 Functional Currency and Foreign Currency Transactions . Associated costs. . . Translation of Financial Statements of Foreign Subsidiaries The results and financial position of all the group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: . Rental and hotel income — Revenue is recognized when the performance of contractually agreed tasks has been substantially rendered. All resulting exchange differences are recognized as a separate component of equity. 2004 AND 2005 . dollars as its functional currency. are expensed as incurred. Income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates. On consolidation. . Transaction and Balances Foreign currency transactions during the year are translated into the functional currency at exchange rates which approximate those prevailing on transaction dates. Operating lease payments are recognized as income in the statement of income on a straight-line basis over the lease term. Group as lessor — Leases which do not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. development costs incurred to date and estimated costs to complete the project. . Operating lease payments are recognized as expense in the statement of income on a straight-line basis over the lease term. F-23 .CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003. the accounting records of the Group are maintained in Philippine pesos. such as maintenance and insurance. Dividends — Revenue is recorded when the stockholders’ right to receive the payment is established. When a foreign operation is sold. such exchange differences are recognized in the consolidated statement of income as part of the gain or loss on sale. 3. and. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the consolidated statement of income. Functional and Presentation Currency Except for MCII and RHGI which use the U. Costs of residential and condominium units sold before completion of the projects include the acquisition cost of the land. . Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet. exchange differences arising from the translation of the net investment in foreign entities are taken to equity. Interest — Revenue is recognized as the interest accrues (taking into account the effective yield on the asset). Items included in the financial statements of the Group are measured using the currency of the primary economic environment in which the entity operates (the ‘‘functional currency’’). The financial statements are presented in Philippine pesos. determined based on firm construction contracts and on estimates made by the project engineers (see Note 3. .

land for future development. In this case.CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003. unless the changes to the pension plan are conditional on the employees remaining in service for a specified period of time (the vesting period). are credited initially to the carrying amount of goodwill. 2004 AND 2005 Goodwill arising on the acquisition of a foreign entity are treated as assets of the foreign entity and translated at the closing rate. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The amount exceeding this 10% corridor is charged or credited to profit or loss over the employees’ expected average remaining working lives. goodwill. Actuarial gains and losses within the 10% corridor is disclosed separately. For the purposes of assessing impairment. An impairment loss is recognized for the amount by which the asset’s or cash-generating unit’s carrying amount exceeds its recoverable amount. even if plan assets for funding the defined benefit plan have been acquired. Individual assets or cash-generating units that include goodwill and other intangible assets with an indefinite useful life or those not yet available for use are tested for impairment at least annually. some assets are tested individually for impairment and some are tested at cash-generating unit level. Note 3. Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the Group at which management controls the related cash flows. 3. usually dependent on one or more factors such as age. together with adjustments for unrecognized actuarial gains or losses and past service costs. The liability recognized in the balance sheet for defined benefit pension plans is the present value of the defined benefit obligation (DBO) at the balance sheet date less the fair value of plan assets. F-24 . The present value of the DBO is determined by discounting the estimated future cash outflows using interest rates of high quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating to the terms of the related pension liability. to which goodwill has been allocated. Retirement Benefit Obligations Pension benefits are provided to employees through a defined benefit plan. the past service costs are amortized on a straightline basis over the vesting period. years of service and salary. investment property. based on an internal discounted cash flow evaluation. reflecting market conditions less costs to sell and value in use. as well as qualifying insurance policies. The legal obligation for any benefits from this kind of pension plan remains with the Group. Plan assets may include assets specifically designated to a long-term benefit fund. The DBO is calculated annually by independent actuaries using the projected unit credit method. noncontributory and administered by a trustee. The pension plan is tax-qualified. Any remaining impairment loss is charged pro rata to the other assets in the cash generating unit. With the exception of goodwill. assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). and property and equipment are subject to impairment testing. all assets are subsequently reassessed for indications that an impairment loss previously recognized may no longer exist. The Group’s defined benefit pension plan covers all regular full-time employees. A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement. Past-service costs are recognized immediately in the income statement.15 Impairment of Non-financial Assets The Group’s investment in associates. Actuarial gains and losses are not recognized as an expense unless the total unrecognized gain or loss exceeds 10% of the greater of the obligation and related plan assets. As a result.9 provides further details on initial recognition of goodwill. Impairment losses recognized for cash-generating units. 3.16 Employee Benefits . The recoverable amount is the higher of fair value.

interest and other borrowing costs are charged to expense when incurred. using the balance sheet liability method on temporary differences at the balance sheet date between the tax base of assets and liabilities and their carrying amounts for financial reporting purposes. 3. net of any related income tax benefits. borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. deferred tax liabilities are recognized for all taxable temporary differences and deferred tax assets are recognized for all deductible temporary differences and the carryforward of unused tax losses and unused tax credits to the extent that it is probable that taxable profit will be available against which the deferred income tax asset to be utilized. 3. borrowing costs are recognized as expenses in the period in which they are incurred. except to the extent that they are capitalized. 3.e. The capitalization of borrowing costs commences when expenditures for the asset are being incurred. fiscal authorities relating to the current or prior reporting period. based on the taxable profit for the year. Compensated Absences Compensated absences are recognized for the number of paid leave days (including holiday entitlement) remaining at the balance sheet date. They are included in Trade and Other Payables at the undiscounted amount that the Group expects to pay as a result of the unused entitlement. Treasury shares are stated at the cost of re-acquiring such shares. Deferred tax is provided. construction or production of a qualifying asset (i.18 Income Taxes Current income tax assets or liabilities comprise those claims from. based on tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date. that are uncollected or unpaid at the balance sheet date. Most changes in deferred tax assets or liabilities are recognized as a component of tax expense in the consolidated statement of income.CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003. All changes to current tax assets or liabilities are recognized as a component of tax expense in the consolidated statement of income. 2004 AND 2005 . Any transaction costs associated with the issuing of shares are deducted from additional paid-in capital.19 Equity Capital stock is determined using the nominal value of shares that have been issued. They are calculated according to the tax rates and tax laws applicable to the fiscal periods to which they relate. Under the balance sheet liability method. F-25 .17 Borrowing Costs For financial reporting purposes. or obligations to. For income tax purposes. Additional paid-in capital includes any premiums received on the initial issuing of capital stock.. with certain exceptions. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled. an asset that takes a substantial period of time to get ready for its intended use or sale) are capitalized as part of cost of such asset. Only changes in deferred tax assets or liabilities that relate to a change in value of assets or liabilities that is charged directly to equity are charged or credited directly to equity. Retained earnings include all current and prior period results as disclosed in the income statement. Capitalization ceases when substantially all such activities are complete. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Borrowing costs that are attributable to the acquisition.

(b) Principal assumptions for management’s estimation of fair value Investment property is measured using the cost model. among other factors. void periods.932 if the = proportion of the completed projects were increased. In making this judgment. These valuations are regularly compared to actual to market yield data. The resulting accounting estimates will. with each segment representing a strategic business unit that offers different products and serves different markets.CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003. Financial Instruments: Recognition and Measurement. (b) Distinction between investment properties and owner-occupied properties The Group determines whether a property qualifies as investment property. expected future market rentals.715. maintenance requirements. The Group is engaged in the development of residential and office developments including urban centers integrating office. on determining when an investment is other-than-temporarily impaired. and appropriate discount rates. and actual transactions by the Group and those reported by the market. the duration and extent to which the fair value of an investment is less than its cost. In making its judgment. or would be decreased by = 104. changes in technology and operational and financing cash flow. 5. The fair value disclosed in the financial statements is determined by the Group using discounted cash flows valuation technique since the information on current or recent prices of assumptions underlying the discounted cash flow approach of investment property is not available. Were the proportion of the percentage of completed projects to differ by 10% from management’s estimates. by definition. The Group uses assumptions that are mainly based on market conditions existing at each balance sheet date. the amount of revenue recognized in 2005 would be increased by about P 94. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and judgments are continually evaluated and are based on historical experience as adjusted for current market conditions and other factors. This determination requires significant judgment. 4. the Group considers whether the property generates cash flows largely independently of the other assets held by an entity. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below: (a) Revenue recognition The Group uses the percentage-of-completion method in accounting for its realized gross profit on sales of real estate. Owner-occupied properties generate cash flows that are attributable not only to property but also to other assets used in the production or supply process. The Real Estate Sales segment pertains to the development and sale of residential and office developments. the Group evaluates. The use of the percentage-of-completion method requires the Group to estimate the portion completed to date as a proportion of the total budgeted cost of the project. including factors such as industry and sector performance. 4. The expected future market rentals are determined in the basis of current market rentals for similar properties in the same location and condition. The Rental segment includes leasing of office and commercial F-26 .025 if P the proportion of the completed projects were decreased. and the financial health of and near-term business outlook for the investee. residential and commercial components.484. The principal assumptions underlying management’s estimation of fair value are those related to: the receipt of contractual rentals.2 Critical judgments in applying the Group’s accounting policies (a) Impairment of available-for sale financial assets The Group follows the guidance of PAS 39. SEGMENT INFORMATION The Group’s operating businesses are organized and managed separately according to the nature of products and services provided.1 Critical accounting estimates and assumptions The Group makes estimates and assumptions concerning the future. seldom equal the related actual results. 2004 AND 2005 4.

985 = P 198. Unallocated expenses .015. Intersegment sales . . . Depreciation and amortization . . . .000. .214. .260 = P = — P 17. .701 1.626. . general and corporate income and expense items.600 (64. .444 28. . . .088. .190.232. .100 = P 572.768. The Group generally accounts for intersegment sales and transfers as if the sales or transfers were to third parties at current market prices. .578. . . . .032.899 (280.874) (44. . Segment liabilities . . . Minority interest — share in net income . 2004 AND 2005 spaces.301.951. The Hotel segment relates to the management of hotel business operations.525.106. 2005 Real Estate Sales TOTAL REVENUES Sales to external customers. Total assets . Fair value losses — net . . .381. .868.000) = P = 22.057. . .351 = P (60.638. .000) P 4.000. RESULTS Segment results .784 45.CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003. Net income .768.138) Rental Hotel Income Corporate and Others Elimination Consolidated P 3. .601 P 119.791.591 P = 1. .421 5. .713 = 26.955 = P = — (60.958 (13. . . . 2005.791.214. . . .444 28.638. . . . . . . Segment accounting policies are the same as the policies described in Note 3.385 P (25.000 P 607.553 = P 214. . . Dividend income . P 26.742.421 P 32.324.375.166. . . .324 P 841.591 = — P = 4.619.646.691 = Investment in associate accounted under the equity method . .329. .725 = P = — 5.933. .032.370.661.329. . Equity in net loss of an associate . .059.254 = P 385. . .106. . Interest income .874) (44.434. . . . .010. .758 (143. .600 (64. . .197. .375 = = Income before tax .829.822.537. 2004 and 2003.392.799.835. .215 = P 3. .955 = — P 572. . .810) 406. . ASSETS AND LIABILITIES Segment assets . (280.734. . .785.121. . . . . .755. . .151. . . . 2004 and 2003 and certain asset and liability information regarding segments at December 31. .272 190. . .785. .282 P 627.010. Unallocated assets . . . . . . . Tax expense . .486. .734. .891. OTHER SEGMENT INFORMATION Project and capital expenditures .814 F-27 . . .607) P 1. .930. . .176 = P 2.100.254 = 60. .190. .766 = P 4. . .977. The Corporate and Others segment includes marketing services. .425. P 13. .388.813 = P 14.580 = 6. .701 1.835. .688. . .862.195 = 112. .100 = — P 214. Total revenues . .232.016.735 P = 4. Finance costs .993. . .279) P 515. . . .153.486. .908. . Income before minority interest .329. 2005. . The following tables present revenue and profit information regarding industry segments for the years ended December 31. .083 = P = — P 744.291. . . .724 = P 547.301.782.000.482. . .121 (258. .810) 406. Income from operations.163) 1.822.151.282 = — P = 3.154 P = — — P = 3.983. . .833 = P 229. . . .138) 1.179.859) 1. .

326. . . .700. . Intersegment sales .566. .065 = 54. . . Depreciation and amortization . .690) 982. .473.944 = P = — P 17. .518. . .619 P 508.787 P = 211. . Equity in net income of an associate . .039. 2004 AND 2005 2004 Real Estate Sales TOTAL REVENUES Sales to external customers. . . .727. . .098.156.433) Rental Hotel Income Corporate and Others Elimination Consolidated P 2.630) P 595. . .975.852 F-28 . .782. . . .099. .600 = 20. . . . Investment in associate accounted under the equity method . . .652 27.787 = — P = 2. . . .857. .145. . .046 = 23. . .619) (99.587. . . . .650 (207.CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003.175.955 = 71. . .185 = P 185. . . . .653. .768 5. . .422 = 57.976.702.987 = (57.197) 379.047.575 = P 251. . . .204 P 454. .618 = P 2.297. . .138.170.137. . OTHER SEGMENT INFORMATION Project and capital expenditures . . Unallocated expenses . Minority interest — share in net losses .963. Income from operations. .303. .684 = P 361. . . .652 27. .271.146.248) P 3. Interest income .048 = — P 665.257 (205. . . .239 (180. . RESULTS Segment results .047. .650 (207.023 = 172. .557.120 = — P 185. .625.954. Dividend income .640 = P 222. .860. . Fair value losses — net .039. . . .793 P 896.144.767 P 32. . . . Total revenues .748.602. .625. .619) (54. .491 710.988. . .767 P = — P 26.144.730) 1.488 P (11. . . .396.702.589 = 5.120 = P 665.047. .782 = P 4.215.562.715.652.955 P 382. ASSETS AND LIABILITIES Segment assets . . Segment liabilities .720 P = 807. .642. .618. .343. . . .138.358. . . . . .396.690. Total assets . Net income . .472. .541 = 5.988.975. . . . (205. Unallocated assets .476.661. .466. . .145.991. .136.799 = P 15. .491 710.530 = P 4.443.952 P = — — P 2. . .197) 379.181. . . .268. P 13. .048 = P = P = P = — (54.099 = P = — P 2. .433) (111. . Finance costs .020 P 1.155. Income before minority interest . .020 = — P = 3.618. .954.271. .182.471) 802.476 = = Income before tax . Tax expense .152 P 8.247. . . .213. . . . . . . .727.324.

188. CASH AND CASH EQUIVALENTS Cash and cash equivalents include the following components as of December 31 : 2005 2004 2003 Cash on hand and in banks .405.087) (17.051 = P 240. . . 4.635 Cash accounts with the banks generally earn interest at rates based on daily bank deposit rates.979) 372.351.443 P 13. . . . .925. . . .246. .733 P 503. Depreciation and amortization .614.881.325 = 24.668. .762 P 273.632.CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003. .979. .086 1. Minority interest — share in net earnings .371.312.657. .571 P = 2. RESULTS Segment results .019. .226 = 55. . . .701 = P 152.594 = P 3. .446. .446.234.722.401. .005.997 2. and 3. . . . . . .904. .456 = P = 287. . . .100.939 = 31.208.3% to 8. . .973 P 31.018. . . . Cumulative effect of change in accounting policy .131 = — P 157.973 P = — P 24. .702.608 = P 151. .742. . .475) (210.908. .904.097.389.850.939. ASSETS AND LIABILITIES Segment assets .335. .916.939 2. . . . .807.016.643 853. .415 = P = — P 14. Net income . . . .171 = 133.203 = 23. . . . . .277. .417 = 28. .323 = — P = 2.433 P = — — P 3. Total revenues .274) P 252. Short-term placements . . . .257.8% in 2005.5% to 8.080. Interest income .802.979) 372.131 = P (12. . . .590.141. . .899 — 31.439.590. . . .918. .623. .899 P = — (31.820.274 (77.568 P = 578. .718. F-29 .354 = 5.157. . . . . .4% in 2004.378. Unallocated assets . .5% in 2003.274 (77.762) P 2. .379. .2% to 9. .517 P 2. . . .831.351. .059) = P = P = 31. .282.799. . . . . .475) Rental Hotel Income Corporate and Others Elimination Consolidated P 2. . . . . Income before minority interest .549 P = 2.062) 406. OTHER SEGMENT INFORMATION Project and capital expenditures . .632. .435 = P 6. . .745.021. . Income from operations.688. P 13.672 P 241. . .742. . . .154. .918.292 = — P = 2. (81.403) 259. . . . .318. .908. .652. . . Intersegment sales . Investment in associate accounted under the equity method .162.762) = P 25. .799. .292 P = 458. . .323 P = 314.274 = 5. Fair value losses — net . .997.318. . . .988. . . . .104. .519. . 2004 AND 2005 2003 Real Estate Sales TOTAL REVENUES Sales to external customers. . .460 = P 157.936. Tax expense .767) 201.573 P 5.103.757 32.802.916.904.283.281 (7. . Equity in net income of an associate . . . .378.684 (146. . .007 = P (31. . .598. . Short-term placements are made for varying periods of between 15 to 30 days and earn effective interest ranging from 4. . . .199) = Income before tax .995.182 6. Dividend income .643 853. .430. P = 750. .668. . . .970. . .371.876. .442. Segment liabilities .827. . Total assets . Finance costs .700 = P = — P 2. . .023 (70. .723 P 2. . .681.127. Unallocated expenses . . .487. .256 (81.970 = P = 15. . . . .149 = P (22. .757 32.

Trade receivables are non — interest bearing and are remeasured at amortized cost using the effective interest rate of 10%. certain subsidiary credited P 106 million of its advances to contractors (net of unpaid = billings) against the estimated amount of unbilled work done by the said contractors.212 = P = 1.648 P 1. Total finance cost attributable to this transaction amounted to P 30.047 and P 25.703 in 2005.689 P = 2. US$1.716 P = 1. Advances to Contractors shown under Trade and Other Receivables was reclassified to Residential and Condominium Units for Sale for the same amount.133 in = = = 2005. The changes in fair value of Marketable securities are presented as Fair Value Gains or Losses in the statements of income.868.252.533.864.257. 2005.518.CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003.823.164.642 (14.634 P = 2.599.934.098.791.404. respectively. and marketable equity securities which are presented at fair values as of those dates. P 43.520. The fair value of other short-term trade and other receivables is not individually determined as the carrying amount is a reasonable approximation of fair value. 2004 and 2003.407 P = 2. Subsequently. All amounts presented have been determined directly by reference to published prices quoted in an active market.708.274 150.964 in 2004 and US$1. 8. In 2004. presented as part of Finance cost in the consolidated statement of income. Interest income from bonds amounted to US$5.173.438.668.430.128 P = 2.597.327. 2004 and 2003.829) 2.401.412 4. the Group does not identify specific concentrations of credit risk with regard to trade and other receivables. as the amounts recognized resemble a large number of receivables from various customers.187.221 316.287. The installment period of sales contracts ranges from one to five years. The outstanding interest receivable amounted to US$1.069 in 2004 and = 114.010.936 19 Non-current: Trade receivables Others P = 1. MARKETABLE SECURITIES This account represents financial assets at fair value through profit and loss.095.751.922. 2004 AND 2005 7.914. Interest income recognized amounted to P 232.267.702. However.330.623.618.382.813 139.609.025 (2. As of December 31.561.106 (4.360 936.668 P = 2.534 and US$4.418 in 2005.38%. US$6.221 4.338 in 2003.171. TRADE AND OTHER RECEIVABLES This account is composed of the following: Notes Current: Trade receivables Allowance for impairment Advances to contractors and suppliers Others 2005 2004 2003 19 P = 1.247 5.072.575 12.268.258 P = 1.788.450) 1.130. The Company partially finances its real estate projects and other business undertakings through discounting of its trade receivables on a with recourse basis with certain local banks.829.584. respectively.181.613. 2004 and 2003. All trade receivables are subject to credit risk exposure.796. = 250.277 P 2.804.673.227 in 2005.895.832) 1. investments consist of investments in bonds and other debt instruments.577 608.50% to 9.869 = Certain receivables from trade customers are covered by postdated checks.361.077.627.001.719. The proceeds of trade receivable discounted are presented as part of other non-current liabilities.664 in 2003 P P = presented as part of Other revenues in the consolidated statement of income. Investments in bonds and other debt instruments earn interest based on coupon rate ranging from 4.802. F-30 .

.237.896.460 (466.694.537 = P = 1. . . . the Group.023. 2004 AND 2005 9. .728. . . . .354. Under the terms of the agreements.760) P = 1. The commitment for cash advances under the joint venture agreements has been fully granted by the Group.349. The net commitment for construction expenditures amounted to: 2005 2004 2003 Total commitment . .. . .134 (454.993 (1. Inc. . . Repayment of these advances shall be made upon completion of the project development either in the form of the developed lots corresponding to the owner’s share in saleable lots or in the form of cash to be derived from sales of the landowner’s share in the saleable lots and residential and condominium units. (AGGI) for the joint development of the Lawton Parkway Project (the ‘‘Project’’). . Expenditures incurred .330. . Total amount advances made by the Group for these projects are recorded under Property Development Costs account in the balance sheets.922.891. P = 2. F-31 . . in addition to providing specified portion of total project development costs. . .340. .228.383 The Group enters into numerous joint venture agreements for the joint development of various projects. ADVANCES TO LANDOWNERS AND JOINT VENTURES The Group grants cash advances to a number of landowners and joint ventures under agreements they entered into with landowners covering the development of certain parcels of land.168. . In 2004.751) P = 894. . . Total amount advanced by the Company for the Project is recorded as part of Property Development Costs account in the balance sheets. . . the Group signed a joint venture agreement with Bases Conversion Development Authority for the development of Villamor Gateway Center. .090. . Net Commitment . In 2003.162.CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003. .700 P = 1.456) P 1. . also commits to advance mutually agreed-upon amounts to the landowners to be used for pre-development expenses such as relocation of existing occupants. the Company entered into a Memorandum of Understanding (MOU) with Alliance Global Group.

193. .567 338. P = 7.29% 40.000. .999 Total Investments in and Advances to associates and other related parties — net .175.027. . which is lodged in the Group’s retained earnings as of those dates is not available for declaration as dividends.618 6. .057.850. . .164 2. .959 1.475) 1.231 and P 1.477. .179 P = 3. . .627 12. .179 Share in additional paid-in capital of an associate . . .440 4. .567 — 350. .645. The associates except for PTHDC are listed in the stock exchange.605. .670 373. .085.178. .433) 1.420 1. . P = = respectively.22% 35.445.940 688. .583.670.625.000 — 4. .619. . . 768. . . .610 All of the above associates are incorporated in the Philippines. .078.389. . . . . . . 602. . As of December 31.893 and P 1. . the Group has paid P 62.087.699 26.107 489. 2005.795 in 2005.537.139 (77. PTHDC was incorporated. . .318.622. .231 = = = as of December 31. . . .543.398.664 (207.231 6.619.387.037.428.037.945.945. 2005.000 4.849.227. .791 1. The balance of the equity in net earnings of P 1. .CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003.892 1.037 1. .260 812.625. Effects of transition to PFRS . The parent company made an investment in the shares of the investee amounting to = 60.103 350.489 775. .419 P = 7.664 6. . Equity in net earnings: Balance at beginning of year . 45. 2004 and 2003.225. . . . Advances to other related parties .000.716. .037. .002. . .182. F-32 .369. .128.834. . FHI . .950.583.455.260 602.000 — 4.494.188. — . . . .398. The total fair value of investment in the listed associates amounted to = 2.065 376.816.406. . .193. 2004 and 2003.602.313.854. . . P 1.941. .583. . . .336.719 1. On August 15.357 6. FHI . .175.344 875. .265. . . Balance at end of year . which represents ownership interest in the P investee of 40%.000 60. . . .5 P = million recorded as subscription deposit included as part of the acquisition cost of associates account above. . .400.128. .150. .660.138.002. . .730 1.440 1. .638.400. . . .451. As restated. . . .361.057.357. P 1. 2004 AND 2005 10. .432.768.761.629 P = 7. 2005.123.00% P = 3. .866. .432. .231 (64. . .387.260 812. PTHDC . . . . .889. . respectively. . Equity in net losses .713.037.193. . The Group subscribed an additional 250 million shares of common stock of FHI at par value or a total subscription price of = 250 million.000. .344 P = 3.434. INVESTMENTS IN AND ADVANCES TO ASSOCIATES AND OTHER RELATED PARTIES The details of investments in and advances to associates and other related parties are as follows: % Interest Held 2005 2004 2003 Investments in associates at equity: Acquisition costs: EELHI .034.507 Advances to Associates: EELHI . . . .229 709. .874) 1.260 602.776. . .

. . .780.844. .714. . . net of earnings. . .793 P 924. .670.160. . . . . . .756 P 386.123.539. .238 P 672.147. FHI . . . . . . of associates amounted to P 64. . . . . .249. .946.125 = 44. .281.633 751.6 million.533 P 10.731. . . . P = 9. .225 = 2003 : EELHI . . .014.917 = P = 3.646 — P 726. .694 = P = 3. . .846. . . FHI . .294. . P = 10. 2004 AND 2005 The Group’s share in the assets and liabilities of the associates are as follows: Assets Liabilities Revenues 2005 : EELHI .1 = = million and = 77.929.433.374 = 53.397. .CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003. .412 38. .836 P 11.982. . . . PTHD . . . .881 = The Group’s equity in losses. .282.605 — P = 5. . .996. . .419. .158. . . FHI . . . . .772 P 341. . . . . . .862.816.224. .945. . . . . .611. .245. . . . .141.886 = P = 4.161 1. . . .494.160 P 11.872. .068. . . . . . . . P = 9.765.3 million in 2005.787. .872 787. . . .460 555.220 P 877. . . . . .561. . . . .757 1.432 = 46.348 P = 4.831.020 = 2004 : EELHI . . .292. . 2004 and 2003.695. .144. . . respectively. .034. P F-33 . . . .312 P = 3.594.638 1. . P 207. .243. . . . .

. .282. . . . Disposal . Depreciation charge for the year .590 P = 2. .379 95. . .325 P = 2.613. . net of accumulated depreciation. .264. 2005. .648 (67.581 (58. .103.033 P = 730. .955 P = 4.114 (47.495) P = 2.195 (102. .767.681. .228. . .511.037.843. .092 813.997. Reclassifications . Balance at December 31.937. P = 2.720. . . .325 P = 439. . .438.022.981) P = 4.955 841. . net of accumulated depreciation . .166 (80.500 (37. .769.119. . .171. .858. . .103 (133. . . 2004 AND 2005 11.195.038) (49. .538 P = 782.394) Balance at December 31. Balance at December 31. .473.888) P = 739. . .325 P = 2. . P = 2.613.767. .090. Depreciation charge for the year . . . INVESTMENT PROPERTY A reconciliation of the carrying amounts at the beginning and end of the periods and the gross carrying amounts and the accumulated depreciation of Investment property are shown below: Land Building Condominium Units Total 2005 Balance at January 1. .671. .955 176. . . 2003 Balance at January 1.455) P = 562.103.142. . .185.103. .949.325 — (29.097) P = 3.230.858. . . . .103. .339. . . Accumulated depreciation Net carrying amount .997. . 2004 Cost . . .966.991) P = 3.997. . . . .310 P = 4. . .954.869) P = 730.297 P = 811. . .072. .193. .427.552) Balance at December 31.433 3.997.621.769.399 (111. 2004.435. .646.151. . . .155 (43.590 382.620.791) P = 501. . .325 P = 383. . . .655 P = 5.939) P = 4. . .038) (78. . . . P = 2. 2003 Cost . .486. .556) P = 383.455 (65. 2003. .538 P = 4. . Accumulated Depreciation Net Carrying Amount .103.103.603) P = 368. . . .444) P = 4. . .919. Additions .538 28. 2005. .701.435. .200) P = 395. . . Additions . . . . .131. . . . . .388. .325 — P = 2. . . .103.325 — P 133. .325 — — P = 383.101 (14. . .103. . .090.399. . . . .092 P = 739. . .997. . . .228. . . P = 2.251.310 206. .435.997. . . . . . .954. . .325 — — — P = 395. . . Accumulated depreciation Net Carrying Amount .954. . . . .608.297 P = 4. .289 (9.171. net of accumulated depreciation. December 31.955 (138.636.955 P = 576.885.997. . .350. .325 P = 1. .767.791) P = 562. . . . .858.514) P = 739.325 — P = 2. . . . .639. .372.171.955 . 2005 Cost . net of Accumulated depreciation.452. . 2004 Balance at January 1. net of accumulated depreciation. . . . Additions .594 (213. . Depreciation charge for the year .404. . . . .131. .655 . .325 P = 395. . . .720. . . .997.290.325 — P = 2.228.590 F-34 .058 = — 299. . .613. .052.661. . .119. .103.339.997.222. net of accumulated depreciation.620. .740 (36.630 (138. .070) P = 1.092 P = 450.997. . . .012. . 2004.310 P = 3. .CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003.997. . . .033 P = 1. . .339. . .103.426 (43.433 107. . . December 31. . 2003.427. P = — — 2.955 P = 562.103.609.997. . .437 95.103.119.689. .

117 = P 160. .468.374.593. 2004.482 (3.968. (8.021.061 Disposals .085.234. .008 = 3.782. .904) P = 184.688) Net carrying amount = 230. Certain properties held for lease with net book value of P 2 billion as of December 31.008 = P = P = — P = 696.614 = (35.076.542 = P = 351.117 = P 54. .824.338.887.850 = December 31. .319) P 182.021. .301 P 212. .005 P = 1.540.748 P P 109.809. .008) (87.850 = 180. . 2004 Cost .085.323) (2. .139.396) Balance at December 31.773.943 4.024 (232. respectively. . 2005.633.379 — (4.068) P = — — — — P = 788.779 P = Additions . .634 (19.590. .027 = — P 54.828.121) (93.450. .820.566. . . the Company and a certain subsidiary reclassified Land Held for Future Development with carrying values of = 272. . .CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003. P 9. net of accumulated depreciation . were used as collateral for ECOC’s interest-bearing loan (see Note 14). (29.566. . .834) Depreciation charge for the year . a certain subsidiary reclassified from Residential and Condominium Units for Sale to Investment property with carrying value of P 911 million. .694. to Investment property since P = such properties will be leased out to other parties. .412.0 million and P 2. 12. . net of accumulated depreciation .726) P 182.626. .027 = P 54.903.097.976.979. .779 = — (—) P = — F-35 .976. . net of accumulated depreciation . . = 260.662 (151.513 P = 6.478.227) P 124.850 P 1. .618. .583. net of accumulated depreciation .605.296.049.278) P 126. . (31.748 P P = 221. . . (147.574.375.532.027 — — P 696.000) Depreciation charge for the year . = 300. .149) P = 195.553) (102.085. .267 896.654. 780.57 billion in = = = 2005.446 (166. . .828. 2004 and 2003. .741) P = 9.670.000 (69. .968.693.776.784 — (14.603) Balance at December 31. .076.005 2004 Balance at January 1.779 = P = 195. .558. . .106. 2004.91 billion and P 9.076.300) P 109.715 = 3.27 billion.462 Disposals . .600 P 132.843. . .055.248) (2.976.997) (27.172 P December 31.7 billion. .497) P 124. .768.802 P 124.347. . (177. . .570.561 (539. .915.149.976.270) P = — 54. . = In 2003.152. = 407.008 = P 156. .011 = P 184.806 110. PROPERTY AND EQUIPMENT A reconciliation of the carrying amounts at the beginning and end of the periods and the gross carrying amounts and the accumulated depreciation of property and equipment are shown below: Office Furniture.321 P = Additions . 2005 Cost .076.306 9. .481.513 P = 346. .957) P 696.861.354) P = 8.807 = (453. .170. = 408.170.926) (2.136 P = 29.802 6. . .832) P = 6. = 260. .172 P P = 195. .629. 2005 and = 2004. .235 = (31.968. . . .618.556) P = 785.347.877 (19.737 = (139.600 — (27.378. .027 = P = 785.837. .542 P = 9. .403 630. = 230. 2005. The fair market values of these properties are P 10.325.348.021.134) (35.136 P 124.629.691. (1.011 = P 321.196) Net carrying amount = 260.481.798) (2.887. 2004 AND 2005 In 2005.513 4.115.798.764) P 124. respectively.473.566.847. . . 230.755) P = 6.361 — (4. .965 (8.802 P = 25.262.748 P 109.137.605.532. Hotel Building Fixtures and and Equipment Improvements Land and Office Improvements Condominium Units Transportation Equipment Construction in Progress Total 2005 Balance at January 1. .860 P Accumulated depreciation . .975 P = Accumulated depreciation .618.

768. The liabilities are payable within a period of three to five years and are either collateralized by a real estate mortgage on certain Group properties. .139. . 2004 AND 2005 Condominium Units Office Furniture.321 = 13. The = loan shall be payable for a term of ten years.348. respectively.865.872 (18.160.267 = P 345. .832.538.482 Disposals . .160) P 126.600 P P 255.592 P 145.270 5. .370.361) Balance at December 31. . .454 13.306 P 1. .104.129 = (367.540 P = 264. . .523 = = Accumulated depreciation .715 = P 153. .594.823) P 788. (121. . 2004 and 2003. The shares of these companies are not listed in the stock exchange and. .843.338.675.344 378. — 9.267 = P = 8. .000 P = 2. .652.3 million and P 228.727. . OTHER NON-CURRENT ASSETS — NET This account consists of: 2005 2004 2003 Goodwill — net .408 = — (14.733) (13. .795) P 221.982) P = 8. .223) P 14.133 million which were sold in full in 2005. the Group acquired equity security investments amounting to = 1.843.325 = P = 264. .266.403 P 126.966) (86.826. the parent company held long-term placements of cash in a local bank used as collateral for the Group’s long-term loan with the same bank (see Note 14). Others .984 2.573. = 300.681.370. .782.730.782.770 P = 1.168. 2003.600 P P 132.880. .234. .484. P 264.202) Net carrying amount = 300.408) — P 881. . .252.046 = 5. .338.1 Available-for-sale financial assets Equity security investments where the Group held no significant influence are accounted for at cost.824. .636. . Collateral for the loan consists of the ROP bonds owned by a subsidiary in 2003 and long-term F-36 . 2005.000 372.1 = billion. . . .820. Guarantee deposits . .489) P 129. The current portion amounted to = 963. .911 = 1.306 = December 31.6 million.702 1. . Hotel Building Fixtures and and Equipment Improvements Transportation Equipment Land and Office Improvements Construction in Progress Total 2003 Balance at January 1.916. .023.075.091. the Group obtained a long-term loan from a local bank amounting to P 950. . In 2004. respectively. .424. . .097. inclusive of a three-year grace period on principal payments.875 = (27.852. (2.872.234. P In 2004.722.299) Depreciation charge for the year . 14.440 = 19.062 = (124. .715 = P = — — — — P = 788.027 — (4. 2004 and 2003 amounting to P 3. .060.469) P = 8.787. . hence.197) (75.711 P 661.139. . . . .340 5. .7 billion. .6 billion and = 4.156. . .768.480. . . Interest is payable every quarter based on 91-day treasury bill plus certain spread.410.139. net of accumulated depreciation . .492.138.CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003.344 = 18. P 314.9 million as of December P = = 31.403 P = 27. . . 2003 Cost . 2005.499 = = Additions .620 (26. . . .625. .463. P 327. .302.093.449. . 2003. represents the remaining amount payable to P P certain landowners relating to the acquisition of real estate properties and the balance of the Group’s long-term loan from a local bank.321 = P 221.259) (9.494 356. (24. the fair market value of their shares cannot be determined reliably. .344 446.000 536. . . .114. . . . net of accumulated depreciation . . .768.0 million.348. INTEREST-BEARING LOANS AND BORROWINGS The aggregate balance of this account as of December 31. .099. . .484.588.908 — (3. Available-for-sale financial assets .203 — (39. .268. = 4. . . P 422. In 2003.788) P 132.797 P 207.

. 2004 and 2003 (see P Note 11).486.310.748 = and Trade payables . .404 P 1.979 P = 21.026 8. . .805 17.569.623.999 10.092 10.803 P 145.419.461 P = 1. .354 215. Repairs and maintenance . . . . . .012.224.791.446. . .307 64.201 = P = 571.293. .692.691. . .435. ECOC was granted a long-term loan facility amounting to US$25 million (approximately P 1.482 = P = 192.975.093 18. The proceeds of the loan were used in the = construction of several information technology buildings at the Eastwood City Cyber Park. .CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003. .466. ECOC and the parent company are required to comply with certain loan covenants. 2005.916 P 627. .669.330 12.766.039. . .636.0 million. TRADE AND OTHER PAYABLES This account consists of: Note 2005 2004 2003 to P 250. .031. .283.200 P 254. inclusive of a two-and-a-half year grace period on principal payment. . . .512.474.710. .274 — 202.590. . . in 2005 and 2004. . .111. . . . . . . .509 22. Rental.036 — 149. 16. .268. .347.251. . .304. .856 P = 1. Total finance cost attributable to these amounted P 56. P = 41. 19 P 1. . . 2004 AND 2005 cash placements in 2004 (see Note 13. .269.06 billion) was made on October = 15. respectively from the same local bank subject = = to the same terms and conditions. .981 — 72. 2004 and 2003.680 = P 10. .905 16. .650 93. .147.078. Collaterals for the loan consisted of a first ranking mortgage over ECOC’s certain investment property with a total carrying value of = 2 billion as of December 31. .490 = 32. . . . . .578. Others . . . . .966.567.846 as of 2005. . . 2002.393 27.073 558.579. . = P 162.863.3 billion) by a foreign financial institution. .695 P = 954.979 = 68. .691. .716.857. . . . . . .123. . respectively.744 42. . . . . net. .732 28. . .793 P 392.863 P = 1.725. — . .270. The loan is payable in 10 years. gain . In 2002. . Miscellaneous . . . . .251.229 = 9. . Probable losses . .998 F-37 .347 379. .738 10. .706 256.673 81. . including maintenance of certain financial ratios at the end of every financial year. .491 28. . . .676 = Other Operating Expenses: Association dues . . . . Dividend income Foreign currency Miscellaneous . . .909 49. . . . . The Group obtained an additional loan amounting to P 347. due to their short duration. .663.659.437. and a full guarantee from the parent company. . . . . .887 59. . . . . . . P = 715.679.071.285. . . . Transportation and travel Utilities . .883 The fair values of trade and other payables have not been disclosed as.061.955. . . Interest is payable every six months at LIBOR rate plus certain spread. . . .473. .669 19. OTHER REVENUES AND OPERATING EXPENSES Presented below are the details of these accounts: 2005 2004 2003 Other Revenues: Interest income .557 P 1. . Accrued expenses .224. . The drawdown from the loan facility amounting to US$20 million (P 1. . . = 15.0 million and P 40. . .1).600 11.047.838. management considers the carrying amounts recognized in the balance sheet to be a reasonable approximation of their fair values. .280 = P = 1. . . . . . .221. .479.

. .776 = 4.032. . . . .761 P = 34.346. .958. . .658 P = 34.365 = 3. the subsidiary received premiums which are recognized as part of fair value gains included in the Other Revenues in 2005 and 2004 statements of income. Retirement — defined benefit plan . .695 = (—) 41.046 P 27.341 = The Group maintains a tax-qualified. .571. .396. .245. .980. .461. .064 = 4. The Group’s transition to PAS 19 is discussed in Note 2.346.221 P 27. . .386 = P = 27. . .313.081 — P = 7. P 2.388 11. . The amounts of retirement benefit obligation presented under Trade and other payables account recognized in the balance sheets are determined as follows: 2005 2004 2003 Present value of the obligation . . .388 (—) 22. Net actuarial losses recognized during the year .285 = F-38 . Interest costs . . Employee Benefits. P 41. . . . . .346. The Group obtained an updated actuarial valuation as of January 1. . . .461.285 7.926. .221 36. . P 34.991. Retirement benefit obligation . . .900. .344 P 112. .313. . . . .989. . . .061. . . .680 3.761 P = 1. . In consideration of these. .309) P 40.285 — P 27.032. . . . . . . . .073 — P = 4.859 P = 122. 2004 AND 2005 Put Options In 2005 and 2004.046 P 22.711) P 5. Fair value of plan assets .504 P 71. .884 7.340 = P = 3. . .695 (1. .989. . Unrecognized actuarial gains. EMPLOYEE BENEFITS Expenses recognized for employee benefits are presented below: 2005 2004 2003 Salaries and wages . 2003 to ascertain its transitional liability as of that date in accordance with PAS 19.399 P 116. . .285 = (—) 27.221 The movements in the retirement benefit obligation recognized in the books are as follows: 2005 2004 2003 Balance at beginning of year.466.461. .386 = P = 22. . 17. .561.097 5. .CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003. .285 = The amounts of retirement benefits recognized in the statements of income are as follows: 2005 2004 2003 Current service costs . P = 77.313. .335. . . . . . . . .686 (315.761 43.605. . .032. .464.335.396.900.993. .836 = P = 71.313. . .340 33. .503.148 2.340 P 40. Balance at end of year . .032. .333.046 = 5. 13th month and other employee benefits . . . .859. Expense recognized . .309. . . . . . . . RHGI entered into option contracts wherein the subsidiary sold put options on securities.989.032.445. noncontributory defined benefit retirement plan that is being administered by a trustee covering all regular full-time employees. . Retirement benefits . Actuarial valuations are made every two years to update the retirement benefit costs and the amount of contributions.

. . .993.498.847.706 53. . .743 8. .193. . .714 P = 146. 2004 AND 2005 For determination of the retirement benefit obligation. . . . . .608 = 14.5% . . . . . Expected rates. . . . . Statements of changes in equity: Deferred tax relating to origination and reversal of temporary difference .799. . . . salary . . .289.032 P = — F-39 . . rate of .585 = 22. . .239 — 172. .1 Current and Deferred Taxes 2005 2004 2003 Statements of income: Current tax expense: Regular corporate income tax (RCIT) — at 35% and 32% Final tax at 20% and 7. .496. .077.200 — 102. TAXES The major components of tax expense for the years ended December 31 are as follows: 18.403 = Tax expense reported in statements of income . .343. increases .395. . on plan . .156 P 87. . . .051. . .223. .163 P 61. . Deferred tax relating to change in tax rates . . . . . .649. .4% 10% 14% 0% 8% 18.917 26.676.315 — 7.973. Minimum Corporate Income Tax (MCIT) — at 2% .449 7. . .131 = P = 6. the following actuarial assumptions were used: 2005 2004 2003 Discount Expected assets .289. .202 205. . . .451. .939. P = 258.471 44.595 P 146.595 — 44. .CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003. .115. 45.315 P = 180.808 Deferred tax expense: Deferred tax relating to origination and reversal of temporary difference .496. P 183.927 77. . . . . 12% 0. . . return .4% 10% 14% 0.400. rate of .

Dividend income . . .811. . . . . . .CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003.719. . Tax expense reported in statements of income . .831. . . . Adjustment for income subjected to lower income tax rates .109) (97.403 = F-40 .533) (5. .993. .318. . . . .648) — (8.952. .190 3.570) 1. . Nondeductible expenses .441) 14.896) P 146. .711) — — — 669. . . .000) (165.824. .189 P = 351. .163 = (1.222 = (43. . . . . . . . .978. .529. . .895 — 6. . . Miscellaneous . .689) 11.913.782. .539. . .531) 7.357. Equity earnings in investment in associates . . .986 — — — (6. .365) (2.208) — — (77. . .160 P 258. . Tax effects of: Non-deductible interest expense . .581. . . Non — taxable income . .538 12. . . . Unrecognized MCIT for the year .911. . .245. . . 2004 AND 2005 The reconciliation of tax on pretax income computed at the applicable statutory rates to tax expense attributable to continuing operations is as follows: 2005 2004 2003 Tax on pretax income RCIT (at 35% and 32%) . . . . . . Net loss carry over . . . Increase in deductible temporary differences due to change in tax rate . . . Unrecognized deferred tax assets . . . .701. . . . . .648 P 227. .639 P = 180. .471 2. .551. . .853. .908 8. .592. .939.917.226.771 = (5.343.382. . P 532. . . . Rental income under PEZA . .626) (9. .706 193.631. .952.227) 2. .077.394. Change in valuation allowance . . Benefits from previously unrecognized deferred tax liabilities . . . . .270 (11. .324. . .270) — — (155. .048 (142. . . .171 (19.005) (975. .475) — (7. .166. . . . .

.306.473) 668. . . . . . .190 1.030. . Translation adjustment . Allowance for impairment losses on receivables . . . .146. . Deferred tax liabilities: Uncollected gross profit . .937) (9.253 = Statements of Income 2005 2004 2003 19. P = 2. .666 P = 2. . . .200. . . .374. .815. .509 = 142. . . .323. . .608.644 = (1. . . . .099) (54.718. Capitalized interest . . . . . .412 (57. . . .313 (410.373 3. .719 (4. Difference between the tax reporting base and financial reporting base of leased assets . . . Difference between the tax reporting base and financial reporting base of depreciation expense . . . . . . .911 P = 1. .562) — — — 37. . . . .123.746) 26.262 P = 6.051. . Provision for probable loss . . . Unrealized foreign currency losses .557. .131.302. . .662) — 1. . .578) 17. . .472) 347. . . . . . . .536 (18.052) P = 1.988. .196. . . .666 — — P = 44.163.239.971) (1.794 121.226.643 — P 5. . .730 P 8.197. . . . . .623.422. . . .650) (6. .731) P = 3. .730 — P = — 8. .078 — P 7. . . . . . . . . Unamortized preoperating expenses .289.578) (259. . . . .117. .951) (6. . . . .032 25. .301 2. .892. . .400.480 P = 1. . . .214 1. .777 Statements of Equity 2005 2004 2003 Deferred tax assets: NOLCO and Depreciation — timing difference . . . . .273. .140.643 = P = P = — — — P = P = — — — P 2. .699 P = — — — P = — — — P— = — — P— = P— = — — — — — — — — — — — P =— F-41 P = 54.712. . . .310. . Capitalized interest . . . .556. .290. .093.032 = .449 = P P = (7. . . .995. . . .343) P 53. . . . .349. .480 — — P = — 453. .585 P = 1. . .032 1. . . .189. .126. . . .123. Accrued retirement cost . Uncollected rental income .492.940. .319. . .070.214) (54. P = — 54. Deferred tax liabilities: Uncollected gross profit . .701 — (2. . . .427. 2004 AND 2005 The deferred tax assets and liabilities as of December 31 relate to the following: Balance Sheets 2005 2004 2003 Deferred tax assets: NOLCO .629.468. .205 22.004) — — 45.131 — — — — — P 61. .912) (722. . Net operating loss carry over (NOLCO) . .193. . Net Deferred Tax Liabilities .769.400. . . Deferred Tax Expense . . .615 312. . . . . .012 (16. . . Total Deferred Tax Assets .564) (14.139.131 = — — — — 6. Others .744) — 1.073.411 (1.893 13. . .323.346) 4.967) (5. .402. . .399 139. .395) = 53. . . . . . Allowance for impairment losses on receivables . .892. . . .982. .290. . .842. .910. . Provision for probable loss . .165 773. . . . .501) (7.385) (55. . .066. Amortization of pre-operating expenses . . Accrued retirement cost .547 — 6. .000) (28. Allowance for doubtful accounts . . . . . .258 = 21.756 (20. .942. . . . . .875. . . .006.785 (18. Allowance for doubtful accounts .316. .671. . . .431. . .798.713) 6. NOLCO . .471. .009. Others . .220. .496. . . .570. .427 P = 9. . . Depreciation expense .032 — — — — — P 6.703) P = 1.739) — (3.070 P 1. . . .595 — — — — 61. .315 = (521. . . .CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003. . . . .941) (16. Total Deferred Tax Assets .051.840 P 1.375. . . Unrealized foreign currency losses Amortization of pre-operating expenses . .046 (18.176.402.840 5. . . Unamortized preoperating expenses. . . .350.327 (3. . . .215. . . . . .056.051. Translation Adjustment . . . .553 (2. . .922) (54.564 17. . . .

. 2004 2003 2004 2003 2003 P = 68. MOPHI .491 2007 2006 2007 2006 2007 2006 The entities in the Group are subject to the minimum corporate income tax (MCIT) which is computed at 2% of gross income. . . . . . . . . . . .040 782.864 766. . PHRI . In 2004. . . . .787 408. . The Group has no liability for tax should the amounts be declared as dividends since dividend income received from domestic corporation is not subject to income tax. . . . as defined under the tax regulations. the deferred tax assets as of December 31. 9337 (RA 9337). . . . . 2004 2003 2004 2003 2004 2003 P = 7. 2006 to increase the VAT rate to 12% under certain conditions (the rate was increased to 12% effective February 1. . . 2009. . . e. . .1 New Tax Regulation On May 24. . . . . 10% VAT rate is now be imposed on certain goods and services that were previously zerorated or subject to percentage tax. . Republic Act No. . RCIT rate is increased from 32% to 35% starting November 1. .329. 2006). . . 2005. . . . . . . . . 2003 were derecognized and no deferred tax assets were recognized on MCIT and NOLCO that arose in 2004. . are shown below: Subsidiary Year incurred Amount Expiration Year MGAI . . . . . . . . . .387 488. . . . . . . . . . . . 2008 and will be reduced to 30% beginning January 1. . . . . . . . . . . . . . . d. . . hence. . . . which can be claimed as deduction from their respective future taxable income within three years from the year the loss was incurred. . 2004 AND 2005 No deferred tax liability has been recognized on the accumulated equity in net earnings of subsidiaries. . The details of MCIT paid by certain subsidiaries.197. . . . . F-42 . 10% VAT rate remains unchanged. . and. . . . . 2005. . . . . . . . . . . . . . . . . . . . . was signed into law and become effective beginning November 1. . .CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003. . which can be applied as deduction from their respective future regular income tax payable within three years from the year the MCIT was paid. . . . . . c.502 66. certain subsidiaries paid MCIT (see below). . The management of the above subsidiaries believes that the amount of deferred tax assets on the subsidiaries’ MCIT and NOLCO could not be recovered within the availment period. . . . . amending certain sections of the National Internal Revenue Code of 1997. .234. . MLI . . . . . . 2005 until December 31. . . FTPHI . . . . . . . . . . . . .646 4. . are shown below: Subsidiary Year incurred Amount Expiration Year MGAI . . . . b. .830 812 2007 2006 2007 2006 2006 The details of NOLCO incurred by certain subsidiaries. . . . . . . . . . . . . . . . . The following are the major changes brought about by RA 9337 that are relevant to the Group: a. MOPHI . . . . . whichever is shorter. . . . . . . Creditable input VAT is capped by a maximum of 70% of output VAT per quarter. No MCIT was reported in 2005 as the regular corporate income tax (RCIT) was higher than MCIT in both years. . . Input tax on capital goods shall be claimed on a staggered basis over 60 months or the useful life of the related assets. MLI . . . . . . .854 794. . . . . . . . . . . with the President of the Philippines having a stand-by authority effective January 1. .887 14. . 18. . . . . . . . . . . .

252.818 — P 477. . Other related parties . allowing a margin ranging from 20% to 30%.212.600 7. . .068 = P = — P = — P 18.CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003. . . . . Rendering of Services and Rental: Subsidiaries .111.363.302.619 371. The following are the transactions with related parties: 19.818 5. . .1 Sale of Real Estate. .408 8.974. . . . .251 60. .284 479.600 = 4.395. .068 = P = — P = — .270. . . .123 2. . . . Associates . Associates . . .575.472 P 67.107.161. associates. . .904. 2004 AND 2005 19. F-43 . P 18.520. . 2004 2003 Outstanding Balances 2005 2004 2003 . . . .369 = 2.472 = — 47.199.176 = — 67.519 = 477. .965 P 62.721.399 = 2.762 261. 56. .724. .747. 19. The related outstanding payables for goods purchased in 2005. . .000 = P = — P = — P = — P =— P— = . 2004 and 2003 to associates are presented as Trade Payables under the Trade and Other Payable account in the balance sheets (see Note 15). .363. . Services and Rental Amount of Transactions 2005 Purchases of Real Estate: Associates . . . .556. .395.000.784.178. . .126 P 604.974. .818 = — — P— = — — P— = Total . .759 P = 47. .047. . . Services and Rental Amount of Transactions 2005 Sale of Real Estate: Associates . . . The related outstanding payables for services obtained from associates in 2005. Rendering of Services and Rental: Subsidiaries . Real estates are bought on the basis of the price lists in force with non-related parties. Services rendered are usually on a cost-plus basis.419 98. . Other related parties .796 9. .597. . . . .525 P 154.131 — 51. 2004 2003 Outstanding Balances 2005 2004 2003 . . . . . allowing a margin ranging from 20% to 30%.977 P 72. . Real estates are sold on the basis of the price lists in force with non-related parties.886. . . the Group’s key management and others as described below.468.683 126. .957 P 32. RELATED PARTY TRANSACTIONS The parent company’s related parties include wholly owned subsidiaries.206 = 54. . .491. 6. . 2004 and 2003 are presented in the Advances from associates and related parties account in the balance sheets.581 P 108.045. The outstanding receivables from sales of goods and services from associates are presented as Trade Receivables under the current Trade and Other Receivables account in the balance sheets (see Note 7). .992 = 31. . Services rendered are usually on a cost-plus basis.800 389. . . .317. . . .747.454.300 P 69. .2 Purchases of Real Estate. P 60.759 Total . . .

2005.590 1.164 2. .879. .632. 2005.628 P 11.625.200.106 = P 8. . .879.489 775. . . the Company issued 1.150. . . . . . . .879. . . The outstanding balances of advances to related parties are as follows: 2005 2004 2003 Advances to Associates: EELHI . . . FHI . . .768. . .000. . .567 = — 350.926. convertible into F-44 . EELHI.879.927 = 974. . .625. The parent company’s preferred stock. The balance of advances to related parties is as follows: 2005 2004 2003 Advances from other related parties P = 169.154.0 billion shares.632.000 9. .632.879. On May 5. the Company provided a consultancy services to an associate. . . . . Advances to other related parties .898. .863 = 19. .572 P = 16.590 = P 8. .00 per share. .618 6.065.559.645. . .000 9.590 = — P 8. . .229 709.768.926. .776. .926. .632. . . P = 768.056 1. . .999 P = 373.655. .000 = P 9.879. On December 6.4 Advances from Related Parties Entities within the Group advance to the parent company and other entities in the Group and associate for working capital purposes.107 489.632. . . P = 22.516 10. . . none of which is outstanding.590 = In 2005.200.065 376.892 P = 1.940 P 688. . 2004 AND 2005 19.632.200.716.590 8.155.000 P 16. .632. . .590 P 8. .200.000 = P 9. . .679 2. . .516 P 10.093 P 12. .590 — 8.CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003.590 = — P 8. .959 P 350.660. 19. . .020 = 20.000.879. .5 Key Management Personnel Compensation The group’s key management personnel compensation includes the following expenses: 2005 2004 2003 Short-term benefits . .089. the authorized number of shares of which is 1. EQUITY Capital stock consists of: Shares 2005 Common shares — P 1 par = value Authorized .000.190.310 P = 166. . . .590 = 1.200. The Series A preferred shares shall be nonparticipating.775.410 P 25. . . Balance at end of year 2004 2003 2005 Amount 2004 2003 16.428. consists of Series A and Series B shares. .879.000. Stock dividends . .567 338.730 P = 1.000 = 8.027.775. .3 Advances to Related Parties Entities within the Group obtain advances from the parent company and other entities in the Group and associate for working capital purposes. . Issued and outstanding: Balance at beginning of year . .879.253 P 862.0 billion shares and 3.879. the Company = declared a 20% stock dividend out of the increase in authorized capital stock.866. . . .085. .415.455. Post-employment benefits . respectively.559.849.507 = In 2005.089 = P = 15.390.000.361.516.655.632.200.775.516 common shares as stock dividend paid out from the unrestricted retained earnings of the Company.106 8. and recorded the consultancy fee as part of the miscellaneous income.632.265. .632. .180. the parent company increased its authorized capital stock by P 7 billion divided into 7 = billion common shares with a par value of P 1. . .000. . Total . .590 — 8. .

They shall be convertible into common shares at par value. . . . . . .904. . . .106 P = 0. . The Group’s risk management is coordinated with its parent company. There were no outstanding convertible preferred shares and other stock equivalents as of December 31. . . . .121.462 P 4. . The management of the Group is of the opinion that losses. . . The average annual rental covering these agreements amounts to about P 547. . .029 P = 4.877 2. than . P 629.488 10.559.08 P = 0. . .8 million for the consolidated balances.2 Others There are commitments. EARNINGS PER SHARE Earnings per share amounts were computed as follows: 2005 2004 2003 Income available to common shares Divided by number of outstanding common shares. 2004 AND 2005 common shares and nonvoting.11 P = 807.106* P = 0.065 = 2.351 10. .690. 2004 and 2003.153.407. . . .867.132. * P = 1. . The Series A preferred shares shall not be entitled to dividends and shall have no preemptive right to subscribe or purchase any shares of any class. and focuses on actively securing the Group’s short to medium term cash flows by minimizing the exposure to financial markets.324.248. . and include annual escalation rates of 5% to 10%.639. = 2005 2004 2003 Within one year . . . . guarantees and contingent liabilities that arise in the normal course of the operations of the Group which are not reflected in the accompanying financial statements.925 = P = 553. .106* P = 252.049. . . 2005.705. The leases have terms ranging from 3 to 20 years.328. . Conversion price shall be fixed at a discount of 10% of the average price of the closing prices of the common shares of the associate during the last 10 trading days prior to the execution of the subscription agreement. Long-term financial investments are managed to generate lasting returns. . . . .529. in close cooperation with the Board of Directors.607.114 1. . 22.559.1 Operating Lease Commitments — Group as Lessor The Group is a lessor under several operating leases covering real estate properties for commercial use.997. if any.584. 21. . no information on diluted earnings per share is presented. . . . 23.559.465. .260.773 P = 485. .655.398 1. . More than five years .655.136. five .239 1. F-45 .529 22. COMMITMENTS AND CONTINGENCIES 22. Earnings per share . .655.176 P = 3.745. . After one year but not more years .862. with renewal options. RISK MANAGEMENT OBJECTIVES AND POLICIES The Group is exposed to a variety of financial risks which result from both its operating and investing activities. . . from these items will not have any material effect on their financial statements.732.867 1. .652. . Surrendered Series A preferred shares upon conversion may again be issued or disposed of by the associate. . . The Series B preferred shares can be converted within 60 days from the expiration of two years from the date of expiration of the subscription agreement. . hence.007 10.CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003.02 After retroactive restatement to give effect to the 20% stock dividend declared in 2005 (see Note 20).638.

The most significant financial risks to which the Group is exposed to are described below.S. Effective November 21. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. is only disclosed in circumstances where the maximum potential loss differs significantly from the financial asset’s carrying amount. as operator of the Eastwood City Cyber Park. which include planning. dollars. Among others.1 Foreign currency risk The Group has interest-bearing loans denominated in U. dated October 6. Inc.3 Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities. dollars denominated investments in debt securities. The Group takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. 23. The Group’s trade and other receivables are actively monitored to avoid significant concentrations of credit risk. Credit risk.2 ISO Certification The parent company was awarded a Certificate of Registration ISO 9001 : 1994 effective November 26.4 Cash flow and fair value interest rate risk The Group’s interest rate risk arises from short-term and long-term borrowings (Note 14). 1999 by Certification International Philippines. it is entitled to preferential tax rate of 5% on gross income earned from its PEZA registered activities. The Group has adopted a no-business policy with customers lacking an appropriate credit history where credit records are available. Its exposure in foreign currency fluctuation is brought about by the fluctuation in U. 23.1 Registration with Philippine Economic Zone Authority (PEZA) ECOC. 23. in lieu of all local and national taxes. 23. and to other tax privileges. for a significant proportion of sales. 2004 AND 2005 The Group does not actively engage in the trading of financial assets for speculative purposes nor does it write options. the maximum credit risk exposure of financial assets is the carrying amount of the financial assets as shown on the face of the consolidated balance sheet (or in the detailed analysis provided in the notes to the consolidated financial statements). therefore. it has policies in place to ensure that rental contracts are made with customers with an appropriate credit history. The scope of the certification covers all areas of the parent company’s operations. As PEZA registered entity. 1999. 24. F-46 . 191. OTHER MATTERS 24. the availability of funding through an adequate amount of committed credit facilities. is registered with PEZA pursuant to Presidential Proclamation No.CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003. Interest costs may increase as a result of such changes. The Group has no significant concentrations of credit risk. Also. They may reduce or create losses in the event that unexpected movements arise. 24.2 Credit risk Generally. which is part of financial assets at FVTPL presented as Marketable Securities in the balance sheets.S. project management and customer service for its real estate business. In addition. 2002. advance payments are received to mitigate credit risk. The Group aims to maintain flexibility in funding by keeping committed credit lines available. the parent company has upgraded its Certification to ISO 9001 : 2000 series. design. the parent company is required to undergo surveillance audits every six months.

The Company was voted among the best in investor relations. the Company was cited as one of Asia’s best-managed companies in Finance Asia’s 2005 survey. the Philippine Marketing Association at its 25th Agora Awards rites honoured the Company among others as Marketing Company of the Year. The Company ranked first among local companies in corporate governance practices. In December 2003. F-47 . 2004 AND 2005 24.CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 2003.3 Recent Awards In November 2004. growth potential and quality of management and earnings. profitability. Euromoney noted that its standing as the country’s foremost residential developer is built on a strong platform of professional management anchored on innovation. financial transparency. Euromoney magazine again ranked the parent company as ‘‘one of the bestmanaged companies in Asia. the Company joins the line up of individual brands in Asia that have earned Superbrand’s stamp of approval. All the companies were rated according to ownership transparency and rights. stakeholder relations and managerial interests.’’ It was ranked high on market strength. market focus and financial discipline. Also in 2004. and placed seventh overall in Euromoney’s poll of 132 companies from 25 countries. one of the most authoritative sources of information regarding developments and trends in international banking and capital markets. At present. Long-term brand building has led the Company to acquire a ‘‘Superbrand’’ status in December 2003. The Company has been recognized as the top Philippine company in a corporate governance survey for emerging markets in 2003 as conducted by Euromoney magazine. board structure and process.

Gil J. de la Costa Street Salcedo Village Makati City Philippines To the Lead Manager as to English law and United States federal law Allen & Overy 9/F. The JMT Corporation Condominim 27 ADB Avenue. Citibank Tower 8741 Paseo de Roxas Makati City Philippines INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Punongbayan & Araullo 20th Floor. Ortigas Center Pasig City.REGISTERED HEAD OFFICE OF THE COMPANY Megaworld Corporation 28th Floor The World Centre 330 Sen.V. acting through its business group UBS Investment Bank 52/F Two International Finance Centre 8 Finance Street Central Hong Kong SOLE DOMESTIC UNDERWRITER AND SOLE BOOK RUNNER BDO Capital & Investment Corporation 11th Floor. Tower 1 The Enterprise Centre 66 Ayala Avenue 1200 Makati City Philippines . Three Exchange Square Central Hong Kong as to Philippine law Romulo Mabanta Buenaventura Sayoc & de los Angeles 30/F. Puyat Avenue Makati City Philippines SOLE INTERNATIONAL UNDERWRITER AND SOLE BOOK RUNNER UBS AG. Philippines 1600 LEGAL ADVISERS To the Company as to Philippine law Picazo Buyco Tan Fider & Santos Law Office Liberty Center 104 H.