San Beda University

College of Arts and Sciences

Department of Financial Management
638 Mendiola St., San Miguel Manila

A Research Submitted to the College of Arts and Sciences

San Beda Manila

A Strategic Management Paper Submitted

In Partial Fulfillment of the Requirements for the Course of

BFM08-Strategic Management

Submitted to:

Prof. John Michael Y. Rubio

Submitted by:

SANCHEZ, Julius Renzo A.

4DFM

1ST SEMESTER, A.Y. 2018-2019

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Table of Contents

EXECUTIVE SUMMARY ........................................................................1

CHAPTER
1 INTRODUCTION ...............................................................................3
2 REASEARCH AND METHODOLOGY ..............................................9
2.1 Research Design........................................................................................... 9
2.2 Scope and Limitation ................................................................................... 10
3 EXTERNAL ENVIRONMENT ANALYSIS .......................................11
3.1 Political Environment ................................................................................... 11
3.2 Economic Environment ............................................................................... 17
3.3 Social Environment ..................................................................................... 24
3.4 Technological Environment ......................................................................... 30
3.5 Legal Environment ...................................................................................... 34
3.6 Ecological Environment ............................................................................... 36
3.7 External Opportunities ................................................................................. 38
3.8 External Threats .......................................................................................... 41
4 INDUSTRY AND COMPETITOR ANALYSIS ..................................43
4.1 Property Industry: A sectoral perspective .................................................... 43
4.2 Growth of the Industry ................................................................................. 43
4.3 Players in the Industry ................................................................................. 46
4.4 Problems in the Industry ............................................................................. 47
4.5 Porter’s Five Forces of Competition ............................................................ 52
4.6 Competitors ................................................................................................. 60
4.7 Critical Success Factors .............................................................................. 63
4.8 Competitive Profile Matrix ........................................................................... 66
4.9 External Factor Evaluation Matrix ............................................................... 67
5 COMPANY ANALYSIS ...................................................................69
5.1 Revenue / Sales in the past 3 years ............................................................ 69
5.2 Market Share of the Company .................................................................... 71
5.3 Products ...................................................................................................... 72
5.4 Financial Performance Indicators ................................................................ 87

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5.5 Mckinsey’s 7s Framework ........................................................................... 90

5.6 Internal Audit ............................................................................................. 101
5.7 Internal Factors Evaluation Matrix ............................................................. 106
6 STRATEGY FORMULATION ....................................................... 107
6.1 TOWS Matrix............................................................................................. 107
6.2 SPACE Matrix ........................................................................................... 108
6.3 IE Matrix .................................................................................................... 113
6.4 Grand Strategy .......................................................................................... 114
6.5 Summary of Strategies .............................................................................. 114
6.6 QSPM ....................................................................................................... 115
7 STRATEGIC OBJECTIVES AND RECOMMENDED STRATEGIES117
7.1 Recommended and Revised Mission-Vision Statement ............................ 118
7.2 Strategic Objectives .................................................................................. 119
7.3 Proposed Strategy .................................................................................... 119
7.4 Departmental Programs ............................................................................ 123
8 STRATEGY MONITORING AND CONTROL ............................... 123
8.1 Balanced Scorecard .................................................................................. 127
8.2 Financial Projections ................................................................................. 129
9 CONCLUSION .............................................................................. 134
REFERENCES ................................................................................... 135
APPENDICES .................................................................................... 139

List of Tables
Table 1.1 Customer Profile ......................................................................................... 7
Table 1.2 Subsidiaries, Joint Ventures and Associates .............................................. 8
Table 3.1 Housing Backlog Data .............................................................................. 16
Table 4.1 Ayala Land Inc., revenue and net income in the past 3 years .................. 61
Table 4.2 Filinvest Land, Inc. revenue and net income in the past 3 years .............. 62
Table 4.3 Competitive Profile Matrix......................................................................... 66
Table 4.4 External Factor Evaluation Matrix ............................................................. 67
Table 5.1 Cebu Landmasters, Inc. revenue and net income in the past 3 years ...... 69
Table 5.2 Cebu Landmasters, Inc. financial performance indicators ........................ 87
Table 5.3 The Board of Directors ............................................................................. 91
Table 5.4 The Executives ......................................................................................... 91
Table 5.5 Mission Parameters .................................................................................. 94

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Table 5.6 Vision Parameters .................................................................................... 94

Table 5.7 ................................................................................................................ 100
Table 5.8 IFE Matrix ............................................................................................... 106
Table 6.1 TOWS .................................................................................................... 107
Table 6.2 SPACE Matrix (Vertical Axis) ................................................................. 112
Table 6.3 SPACE Matrix (Horizontal Axis) ............................................................. 112
Table 6.4 Internal-External Matrix .......................................................................... 113
Table 6.5 Summary of Strategies ........................................................................... 115
Table 6.6 Quantitative Strategic Planning Matrix ................................................... 116
Table 7.1 Parcels of land owned by the Company and its Related Entities ............ 122
Table 8.1 Balanced Scorecard Table ..................................................................... 127
Table 8.2 CBD Costing........................................................................................... 129
Table 8.3 Projected Overall Strategy Costs ........................................................... 130
Table 8.4 Consolidated Statements of Financial Position Projections .................... 131
Table 8.5 Statement of Profit or Loss Projections .................................................. 132
Table 8.6 Financial Ratios After Projections........................................................... 133

List of Figures
Figure 3.1 Perceived quality of infrastructure ........................................................... 11
Figure 3.2 Foreign Direct Investments (Philippines) ................................................. 17
Figure 3.3 Philippines Interest Rates (5-year) .......................................................... 18
Figure 3.4 Philippines Interest Rate (Forecast) ........................................................ 19
Figure 3.5 This chart compares the inflation rate per month since 1986, using different
base years................................................................................................................ 20
Figure 3.6 Philippine peso vs other ASEAN currencies............................................ 21
Figure 3.7 Philippines compared to regional peers .................................................. 22
Figure 3.8 Philippines' Population Pyramid .............................................................. 24
Figure 3.9 Poverty in the philippines ........................................................................ 25
Figure 3.10 OFW Remittances (5 Years) ................................................................. 27
Figure 3.11 SWS Crime Statistics (Jul 1998 to mar 2018) ....................................... 29
Figure 4.1 Porter’s Five Forces of Competition ........................................................ 52
Figure 5.1 VERTICAL RESIDENTIAL MARKET SHARE IN METRO CEBU (IN TERMS
OF SUPPLY) ............................................................................................................ 71
Figure 5.2 Horizontal residential market share in Metro Cebu (in terms of units
available) .................................................................................................................. 72
Figure 5.3 The Chairman ......................................................................................... 96
Figure 5.4 CLI Advantage ........................................................................................ 99
Figure 5.5 Ownership Structure ............................................................................. 102
Figure 6.1 SPACE .................................................................................................. 111

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EXECUTIVE SUMMARY
Cebu Landmasters, Inc., is a home-grown real estate development company in Cebu.

CLI caters to several real estate categories – residential, commercial/offices and

hospitality. Among the three categories, the company’s experience in the industry has

been primarily focused on residential development, comprising 80% of total current

projects. The company has successfully diversified into the development of residential,

commercial, hospitality, mixed-use and civic projects. CLI commands an 11% market

share in terms of the total supply of condominium units in Metro Cebu, second to Ayala

Land, Inc. (17%) and followed by Filinvest Land Inc. (8%) In terms of the number of

condominium units sold, the Company has a 9% market share, second to Ayala Land,

Inc. (17%) and tied with Filinvest Land Inc. (9%). For the current housing market, CLI

ranks among the top three Cebu players with a 10% market share.

Cebu Landmasters, Inc. scored a total of 3.095 in its Competitive Profile Matrix (CPM),

placing it in second place among competitors.

Responsiveness towards the external environment using External Factor Evaluation

(EFE) Matrix scored 2.93. The most significant opportunities are the emerging cities

outside of Metro Manila and the raised public infrastructure spending.

Internal Factor Evaluation (IFE) Matrix for CLI resulted in a score of 3.02 an indication of

general strategies to revolve around grow and build. Significant strengths include its

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higher than average absorption rate and its asset-light business model, allowing for higher

margins.

Based on matrices, product development, market development, and backward integration

are the most appropriate strategies for Cebu Landmasters, Inc. to take moving forwards.

Product development strategies include (1) Project launch in existing markets, (2) Boost

in rental space, and (3) Estate and township developments.

Market development strategy is focused on (1) Project launch in untapped VisMin

markets.

Backward integration strategies include (1) Strategic alliances, (2) Aggressive land

acquisition, and (3) Land reclamation.

The Company is suggested to focus its objectives in increasing their rental income as a

portion of their total revenues, development of its first major central business district,

growth in land inventory, and increased portfolio of projects.

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1 INTRODUCTION
COMPANY PROFILE

Cebu Landmasters, Inc.(CLI), also referred herein as The Parent Company/ The

Company, is a home-grown real estate development company in Cebu. The company is

engaged in the development of residential, commercial, hospitality, mixed-use and civic

projects. The company was established in 2003 in the wonderful queen city of the south

founded by a true blooded Cebuano entrepreneur. Guided by sincere family values,

genuine real estate passion and unrelenting faith, the company is highly committed to its

customers and community.

NATURE OF BUSINESS

CLI is the leading homegrown developer in Cebu. In just 14 years since it started

operations, it has become one of the top real estate players in the region with its growing

mix of residential, commercial, hospitality, industrial and mixed-use product offerings. CLI

is the number one local condominium developer in Cebu and among the top three players

in the local housing market.

CURRENT REVENUE AND PROFIT

For the three years ended December 31, 2015, 2016 and 2017, CLI’s revenues amounted

to ₱1.33 billion, ₱2.36billion and ₱3.93 billion, respectively. CLI has grown steadily in

recent years, with net income increasing from ₱425.85 million in 2015 to ₱1.295 billion in

2017, representing a CAGR of 74.29%.

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COMPETITION

CLI is within the playing field of top national players and local developers across its

product range. The Company goes head to head with national players such as Amaia

Land Corporation, Avida Land Corporation, and Alveo Land Corporation, all of which are

subsidiaries of Ayala Land, Inc., Filinvest Land Inc., Megaworld Corporation, Rockwell

Land Corporation, 8990 Holdings, and Hongkong Land which is in partnership with the

local developer, Taft Properties.

The Company also competes with established local developers in Cebu, and other parts

of VisMin, like Primary Group of Builders which has 25 years of experience in the industry,

AboitizLand with 23 years, Johndorf with over 30 years, and Taft Properties with over 20

years.

In Cebu, the Company’s direct competitor is Primary Group which also offers the same

product range in terms of house and lot offerings, condominium units, offices and

commercial spaces in Cebu, Dumaguete and Bohol.

CLI commands an 11% market share in terms of the total supply of condominium units in

Metro Cebu, second to Ayala Land, Inc. (17%) and followed by Filinvest Land Inc. (8%)

In terms of the number of condominium units sold, the Company has a 9% market share,

second to Ayala Land, Inc. (17%) and tied with Filinvest Land Inc. (9%). For the current

housing market, CLI ranks among the top three Cebu players with a 10% market share.

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Among Cebu-based local developers, CLI is already the number one local housing

developer in Metro Cebu just in a span of 12 years.

To leverage itself against competition, CLI draws its advantage on its core strengths – its

hands-on personalized service, local (i.e., Visayas and Mindanao) real estate expertise,

stringent location selection, and responsible development as well as in its

aggressiveness, speed to market and best value projects.

EMPLOYEES

As of 2017 report, the company has a total of 211 employees, broken down per

department as follows: 53 in Engineering, 41 in Accounting and Finance, 33 in Sales and

Customer Care, 26 in Documentation, Legal, Permits and Licenses, 13 in Property

Management, 11 in Business Development, 10 in Marketing, 10 in HR and Admin, 9 in

Purchasing, 3 in Top Management, and 2 in Internal Auditor.

CUSTOMERS

CLI caters to several real estate categories – residential, commercial/offices and

hospitality. Among the three categories, the company’s experience in the industry has

been primarily focused on residential development, comprising 80% of total current

projects.

From the company’s residential developments, 56% of CLI’s horizontal and vertical

projects serve the need of the mid-market. Fast-selling projects like Midori Residence,

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Midori Plains, Velmiro Heights, Mivesa Residences, and MesaVerte Garden Residences

show the growing demand of the mid-market for new, well-built, well-planned and

strategically located homes. CLI’s mid-market clients are those who can afford a monthly

equity payment of P5,000 to P10,000 and an annual income of P300,000 to P800,000.

The company also caters to a small portion belonging to the upper-mid market segment

who can afford a monthly equity of P10,000 to P15,000 and earning P1 million to P3

million annually. These mid-market segments prefer units at a price range of P900,000 to

P3 million.

CLI’s biggest product offering is economic housing through the Casa Mira brand

comprising 33% of the company’s total revenues from its residential projects. High-end

residential developments are at 10%, with successful projects such as Asia Premier

Residences, Base Line Residences, Base Line Premier and 38 Park Avenue at the Cebu

IT Park. Socialized housing comprises only 1% of the company’s residential projects, with

two projects to date.

OFWs comprise a substantial segment of the company’s customers for its horizontal

residential units with 60-70% of the company’s sales coming from OFWs.

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TABLE 1.1 CUSTOMER PROFILE

EMPLOYMENT % CITIZENSHIP % MARITAL %

PROFILE STATUS

Local 42% Filipino 95% Married 60%

OFW* 39% Foreigner 5% Single 39%

Self-employed 10% Other 1%

Entrepreneur 5%

Others 4%

For its leasing business, the company’s top lessees include a BPO company, a service

provider and food establishments.

OTHER RELEVANT INFORMATION:

INITIAL PUBLIC OFFERING

On January 6, 2017, the Board of Directors (BOD) approved CLI’s application for the

registration of 1,714 million of its common shares with the SEC and application for the

listing thereof in the Philippine Stock Exchange (PSE). The BOD’s approval also covered

the planned initial public offering (IPO) of 430 million unissued common shares of CLI.

CLI’s shares were listed in the Philippine Stock Exchange on June 2, 2017.

SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES

The Parent Company holds ownership interests (See Error! Reference source not

found. for details below) in the following subsidiaries, joint ventures and associates:

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TABLE 1.2 SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES

Effective Percentage of Ownership
Entity 2017 2016
SUBSIDIARIES
CLI Premier Hotels Int’l. Inc. (CPH) 100 100
Cebu Landmasters Property Management, 100 N/A
Inc. (CPM
A.S. Fortuna Property Ventures, Inc. (ASF) 100 N/A
BL CBP Ventures, Inc. (BL Ventures) 50 N/A
Yuson Excellence Soberano, Inc. (YES) 50 N/A
JOINT VENTURES
BL CBP Ventures, Inc. (BL Ventures) N/A 50
Yuson Excellence Soberano, Inc. (YES) N/A 50
Yuson Huang Excellence Soberano, Inc. 50 N/A
(YHES)
Davao Matina Project (Unicorporated) N/A N/A

Pagtambayayong Socialized Housing N/A N/A

(Unincorporated)
ASSOCIATES 45 N/A
Mivesa Garden Residences, Inc. (MGR)
El Camino Developers Cebu, Inc. (El 35 35
Camino)
Magspeak Nature Park, Inc. (Magspeak) 25 25
Ming-mori Development Corporation (MDC) 20 20

The company’s newly incorporated subsidiaries, CLI Premier Hotels Intl., Inc. is not yet

operational and have no revenue contribution as of date. CLI’s property management

subsidiary was incorporated on August 20, 2017 to provide property management

services initially to housing and condominium projects developed by the company. It is

formed, however, with the vision of eventually offering to expand its services to outside

clients. Other subsidiaries are incorporated to facilitate land acquisitions. Joint ventures

are created mostly for expansion of developments in main markets outside of Cebu.

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2 REASEARCH AND METHODOLOGY

2.1 Research Design
The data used in this research came from various sources readily available from the

internet, journals, newsletters, news articles, blogs, books, legal documents, and various

government agency data available on the internet. Some of the websites personally

visited by the researcher are as follows: Philiipine Statistics Authority (PSA), Asian

Development Bank (ADB), Banko Sentral ng Pilipinas (BSP), COL Financial, Wall Street

Journal, Nikkei Asia Review, Bloomberg, Philippine Securities and Exchange

Commission (SEC), World Bank, Business World, Business Mirror, Rappler, Department

of Budget Management (DBM). The mentioned sites, along with other websites, were

used primarily in the sourcing of data for this study.

A large portion of data used in this study is found in the company’s website in the form of

disclosures, annual reports, and financial statement among others. The data used for

evaluation of competing companies came from the same platform provided by these

companies that are publicly listed and information is readily available to the public.

Assessments made for the company with regards to its competitors is supported by data

that came from the companies’ websites.

Other data and information came from the textbook prescribed by the professor, Strategic

Management: Concepts & Cases (14th Edition) by Fred R. David. The textbook provided

reference material for data and computations.

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2.2 Scope and Limitation

This study is only limited to Cebu Landmasters, Inc. and its competitors in the Visayas

and Mindanao region. While there is a large number of firms in property and land

development, the researcher chose 2 competing firms in terms of total supply and number

of sold condominium units in Metro Cebu. Ease of access of necessary data for

comparison was also considered. These 2 firms are Ayala Land, Inc. (through different

subsidiaries like Alveo Land Corporation, Amaia Land Corporation, and Avida Land

Corporation) and Filinvest Land Inc. due to limited access of information from its direct

competitor in all segments in Cebu, Primary Group. Differences in market capitalization

was largely disregarded in the selection of competitors although considerations in terms

of financial strengths will be made later in the paper.

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3 EXTERNAL ENVIRONMENT ANALYSIS

3.1 Political Environment
BUILD BUILD BUILD

Philippine President Rodrigo Duterte’s plan to supercharge growth with a $180 billion

infrastructure program. Duterte plans to boost infrastructure spending to 7.3 percent of

gross domestic product by 2022 from 6.3 percent this year (Alegado, 2018).

In a 3-year rollout, TRIP includes a total of 4,895 projects worth up to P3.6 trillion – all of

which have a target completion year of 2020 (Tomacruz, 2017).

While projects will be completed on a national, inter-regional, and regional level, 1,313

projects worth P157.4 billion are expected to roll out in ARMM, Caraga, Eastern Visayas,

Soccsksargen, and Northern Mindanao – 5 regions with the highest poverty rates in the

country (Tomacruz, 2017).

FIGURE 3.1 PERCEIVED QUALITY OF INFRASTRUCTURE

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This infrastructure program is brought about to address several key factors. Romei,

(2018) mentioned that poor infrastructure has historically harmed economic progress in

parts of the Philippines and over-concentrated the economy in the capital, Manila. As

shown in the illustration above (see Error! Reference source not found.), the

Philippines is dead last among emerging markets in South East Asia in terms of perceived

quality of infrastructure.

Relevance: Pipelined projects by the government in its “Build, Build, Build” program is

initiated mainly to decongest Metro Manila and to build more roads and bridges to shorten

travel times. The said program can prove beneficial for other regions to prosper. Industry

players with large landbanks in areas that will be affected by the decongestion of Metro

Manila are in for material changes in its operations. However, issues arise in competition

for skilled workers, including engineers and other qualified staff to operate construction

machines. This may raise retention and labor costs for the industry.

STRATEGIC INVESTMENTS PRIORITIES PLAN

The government eyes a single investment priorities plan across all investment promotion

agencies (IPAs) under the second package of the Comprehensive Tax Reform Program

(CTRP) of the Duterte administration. In a forum in Makati City Tuesday, Department of

Finance (DOF) Undersecretary Karl Kendrick Chua said the CTRP Package 2 aims to

have a Strategic Investment Priorities Plan (SIPP) that would be implemented by the 14

IPAs nationwide (Crismundo, 2018).

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Relevance: The CRTP 2/ TRAIN 2/ TRABAHO Bill includes a provision that will provide

tax incentives for industries determined by the economic managers every 3 years. Given

the nature that it is still in the bill phase, it might be subject to political scrutiny and even

in the implementation of the SIPP when the TRABAHO Bill becomes a law. Tax dues is

a large part of every industry’s expenditure and the bill’s passing can positively and/or

negatively affect the industries expenses. Also, policies like this can prove to be beneficial

for overall influx of investments in the country, therefore furthering growth.

POSSIBLE REMOVAL OF DEVELOPERS’ SOCIAL HOUSING INCENTIVES

The Strategic Investment Priorities Plan (SIPP) mentioned in the previous section is the

proponent of the administration to replace the fiscal incentives that will be taken away

from hundreds of businesses should the TRAIN 2/ TRABAHO BILL be passed into law.

Francia (2018) cited in a news article that Center for Housing and Independent Research

Synergies (CHAIRS) President Christopher Ryan T. Tan said mass housing developers

are protesting the planned repeal of compensatory incentives should the Tax Reform for

Attracting Better and High-quality Opportunities (TRABAHO) bill be enacted.

Found in the same article is that Republic Act No. 7279, otherwise known as the Urban

Development and Housing Act, states that socialized housing projects will be exempted

from paying project-related income taxes, capital gains tax on raw lands used for the

project, value-added tax for the project contractor, transfer tax for both raw completed

projects, and donor’s tax for lands donated for socialized housing projects. The law further

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provides that developers must “develop an area for socialized housing equivalent to at

least 15% of the total subdivision area or subdivision project cost and at least 5% of

condominium area of project cost, at the option of the developer.”

In the same article, Mr. Tan was quoted saying Removing this incentive will effectively

paralyze private sector participation housing production.”

Relevance: The repeal of the incentives for social housing projects will affect how the

businesses in the industry will design and develop projects in their pipeline. This may

cause the developers to have to change specific allotments in their projects that are still

under planning and may provide, with less chance, dissent from those that will be affected

by the developers’ reluctance to provide social housing projects knowing that there will

be no incentives for them to do such.

RECENT APPROVALS OF LAND RECLAMATION PROJECTS

Mayor Joseph Estrada has given the go-ahead to a new reclamation project – touted to

be the biggest in Manila Bay – to construct three islands for a P100-billion, 419-hectare

commercial district. The project involves the construction of three 140-hectare islands in

Manila Bay, between the Manila-Pasay border in the south and Roxas Boulevard in the

east. The project would occupy around 3.5 kilometers of Manila Bay’s shoreline (Clapano,

2017).

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Relevance: The approval of these major land reclamation project signals a local and

national executive branch of the government that is in support these kinds of projects.

Construction firms and developers may enter in to similar agreements. This will affect the

supply of land available for development.

PROPOSED LAND USE ACT

Peralta (2018) cited President Rodrigo Duterte’s emphasis on the importance of

preserving the environment in his third Station of the Nation Address (SONA) with an

appeal to the Senate to fast-track the signing of a new land use policy. Both the Executive

and Legislative Departments of the Philippines have been pushing for the passage of the

proposed National Land Use Act for many years. Passing it would mean keeping the

country’s lands from further misuse and degradation (Lamudi, 2018).

Relevance: The national government’s emphasis on policies promoting the protection and

regulation of land use affects industry-wide operation as its passing would provide further

safeguards in land use and clearer guidelines for infrastructure development. It affects

the industry’s ability to implement projects and the consideration of ecological impact

brought by such projects.

HOUSING BACKLOG AND HOW IT MAY SUPPORT FURTHER INDUSTRY GROWTH

The Philippine housing industry believes that every Filipino family has the right to live with

dignity in the comfort of one’s own home regardless of economic status. It aims to

eliminate the housing backlog by the year 2030. The housing backlog is 3.9 million

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households. The highest demand would come from the economic housing segment,

followed by socialized housing, and lastly by low-cost housing. The low-cost, socialized,

and economic housing units account for a large share of housing production (Department

of Trade and Industry and Board of Investments, n.d.).

TABLE 3.1 HOUSING BACKLOG DATA

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Relevance: The housing backlog in economic housing, socialized housing and low-cost

housing present opportunities for the industry to grow. Even if excluding those who could

not afford, the backlog is still high and can provide avenue for sustained growth in the

industry, especially since higher housing tiers are already experiencing a net surplus.

3.2 Economic Environment

STABLE GROWTH OF PHILIPPINE FOREIGN DIRECT INVESTMENTS (FDI)

The influx of capital in the country from foreign direct investments has grown steadily over

the years.

Philippine FDI
12
10.057
10
8.28
8
In USD Billions

5.74 5.639
6
3.737
4 3.215
2.06 2.007
2 1.34 1.07

0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Source: World Bank Philippine FDI

FIGURE 3.2 FOREIGN DIRECT INVESTMENTS (PHILIPPINES)

Increase in FDI may be associated with improved economic growth due to the influx of

capital and increased tax revenues for the host country (UNCTAD, 2010).

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Relevance: The aforementioned improved economic growth and increased tax revenues

is usually channeled by the host country for infrastructure developments to give further

boost on advancements. Increased competition from foreign companies can develop the

quality of service and transactions in businesses, leading to more efficient and productive

gains.

RISING INTEREST RATES

The Bangko Sentral ng Pilipinas (BSP) raised interest rates by 50 basis points (bps),

meeting market expectations. This brings the overnight reverse repurchase (RRP) rate to

4% (Rivas, 2018). Continuous increase in the U.S. Fed rates is also a concern. Philippine

bond rates are also elevated, with the 10-year bond rate remains elevated at 6.5%. This

is because aside from inflation, there are other factors keeping interest rates high (COL

Financial, 2018).

FIGURE 3.3 PHILIPPINES INTEREST RATES (5-YEAR)

The decision of BSP to raise interest rate is to anchor inflation expectations. The 5-year

chart above shows upward activity of change in the interest in 2018 after previously flat

activity (Trading Economics, 2018).

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FIGURE 3.4 PHILIPPINES INTEREST RATE (FORECAST)

Short and medium term forecast in interest rates shows an upward trend and will further

affect the supply and demand of funding (Trading Economics, 2018).

Relevance: When interest rates are high, businesses are affected as it raises the

borrowing cost and might slow down or cancel some projects. It may also deter the

industry’s customers from purchasing properties through using credit and lead people to

spending less. Lessened spending in the economy slows down demand, which would

force business to cut back on expenditures.

INFLATION RATES BEYOND FORECASTED GROWTH

Inflation or the increase in the prices of goods climbed to another 9-year high, hitting 6.4%

in August. The latest figure, announced by the Philippine Statistics Authority (PSA) on

September 5, was higher than July's 5.7%. This is also the fastest since March 2009,

when inflation hit 6.6% during the Arroyo administration (Rivas, Inflation surges to 6.4%

in August 2018, exceeds estimates, 2018).

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FIGURE 3.5 THIS CHART COMPARES THE INFLATION RATE PER MONTH SINCE 1986, USING
DIFFERENT BASE YEARS

Current PSA data on inflation are computed using base year 2012. Inflation data for this

base year was from 2013 onwards. Until June 2018, the PSA also used base year 2006

(Bueza, 2018).

To make inflation data comparable across all years, the PSA has "backcasted" or

recomputed inflation data using base year 2012 (Bueza, 2018).

Relevance: Continuous upward trend in inflation rate is expected in the short to medium

term. With inflation rate breaching the 2%-4% range set by the government, it will

negatively impact overall market conditions.

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PHILIPPINE PESO PREDICTED TO BE ASIA’S WORST-PERFORMING CURRENCY

IN 2018

The peso will slide to 51 per dollar by end of 2018, a loss of 1.5 percent from current

levels, according to the median estimate of a Bloomberg survey, with a most bearish

projection of 56. The currency will be undermined as the current-account deficit widens,

while the central bank is slow to raise interest rates from a record low, strategists and

fund managers say (Lopez & Y-Sing, 2017).

FIGURE 3.6 PHILIPPINE PESO VS OTHER ASEAN CURRENCIES

Some analysts like to blame the interest rate hikes of the US Federal Reserve (simply

called the Fed), which tend to attract investments into the US. As investors in the

Philippines haul off their investments to the US, investors exchange their pesos for

dollars, flooding the local market with pesos and reducing its relative value. In other

words, Fed rate hikes tend to weaken the peso (Punongbayan, 2018).

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But this could hardly be the main reason behind the peso’s weakness today: the Fed rate

has been rising since late 2016, yet other ASEAN currencies have managed to strengthen

against the dollar (Punongbayan, 2018).

Relevance: Some firms’ earnings growth in the industry is dampened by foreign exchange

losses. Cost of importation of materials will rise, expanding expenditures of companies

that heavily rely on imported materials and equipment. However, this may also give rise

to OFW remittances and therefore give rise to spending capacity of OFW families.

PHILIPPINE GDP GROWS BY 6.7% IN 2017

National Statistician Lisa Grace Bersales on Tuesday, January 23 announced that the

gross domestic product (GDP) grew 6.7% in 2017, slightly below the 6.9% growth

recorded in 2016. This, however, still placed the Philippines among the fastest-growing

economies in Asia, after China's 6.9% and Vietnam's 6.8% (Schnabel & Dela Paz, 2018).

FIGURE 3.7 PHILIPPINES COMPARED TO REGIONAL PEERS

Annual GDP growth in selected East Asian countries.

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Relevance: Philippines is still the one of the fastest growing economy in South East Asia

and even globally. With that said, the industry will benefit in the bullish outlook of GDP

growth in terms of possible upwards trend in lease rate and absorption rate of product

lines including residential, office, and hospitality spaces.

TIGHTHENING REGIONAL INCOME GAP

Recent numbers and policy proposals bear some hope to narrow this gap. In a statement

from the Department of Finance, the variability of regional incomes has gone down slightly

between 2016 and 2017, the share of NCR in GRDP declined from 36.64% in 2016 to

36.44% in 2017. In Southern Tagalog, this dropped from 18.74% in 2015 to 18.34% in

2017. Meanwhile, the share of Cordillera rose from 1.69% in 2016 to 1.77% in 2017. This

reflects the fact that gross regional domestic product growth rates in key Mindanao

regions and Western Visayas, even the ARMM, are significantly higher than the nation’s

6.8% GDP (Tria, 2018).

Relevance: Large disparity between Luzon and Mindanao is a grave concern, primarily

since many issues arise from income inequalities. With the current efforts of the

government, this might change sooner or later. The industry may prepare and expect for

growth in the VisMin region, growth that is potentially greater in the long term than what

Luzon may be able to offer. This may shift or expand operational efforts of the industry.

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3.3 Social Environment

PHILIPPINES’ POPULATION PYRAMID AS A PLATFORM FOR SUSTAINED

NATIONWIDE GROWTH

Index Mundi (2018) cited CIA World Factbook on the distribution of the population

according to age. Information is included by sex and age group as follows: 0-14 years

(children), 15-24 years (early working age), 25-54 years (prime working age), 55-64 years

(mature working age), 65 years and over (elderly).

FIGURE 3.8 PHILIPPINES' POPULATION PYRAMID

A population pyramid illustrates the age and sex structure of a country's population and

may provide insights about political and social stability, as well as economic development.

The population is distributed along the horizontal axis, with males shown on the left and

females on the right. The male and female populations are broken down into 5-year age

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groups represented as horizontal bars along the vertical axis, with the youngest age

groups at the bottom and the oldest at the top. The shape of the population pyramid

gradually evolves over time based on fertility, mortality, and international migration trends

(Index Mundi, 2018).

Relevance: Distribution of the population according to age provides insights that will affect

the nation’s key socioeconomic issues and the way needs will be prioritized including

priorities in infrastructure spending. Future growth is likely going to depend on the

structure the nation’s demographic.

DECLINING POVERTY INCIDENCE

As indicated a report by Philippine Statistics Authority (PSA) (Bersales, 2017), the

country’s poverty incidence for 2015 declined to 21.6 percent from 25.2 percent in 2012

and 26.3 percent in 2009.

Source: Philippine Statistics Authority (PSA)

FIGURE 3.9 POVERTY IN THE PHILIPPINES

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Relevance: The trend of declining poverty incidence among the population is a positive

sign of overall economic conditions. Since poverty affects the populations ability to

consume and provide insights on the educational level of population among others,

lowered poverty levels translate to positive business environment.

RAPID URBANIZATION AND ACCOMPANYING RISE OF THE RESIDENTIAL

SECTOR

A key source of growth in the Philippine property market is rapid urbanization and the

accompanying rise of the residential sector. As of 2010, a little under half of the Philippine

population lived in urban areas (48.6%), but this is projected to rise to 56.3% by 2030 and

66% by 2050. Condominiums are becoming particularly attractive in Metro Manila, with

an estimated increase in supply of 14,000 units from 2012 to 2018, mostly coming from

the mid-end segment of the market. Demand for residential properties is mainly driven by

our middle class, and particularly the 11 million Filipinos overseas who in 2014 repatriated

about USD 24.3 billion, allocating about USD 7 billion of which into property

investments. The growth of “townships”—or self-contained districts that fuse together

homes, offices, shops, and schools in linked communities—are particularly attractive not

only to affluent buyers but also young professionals who choose to live near their

workplaces (Balisacan, 2015).

Relevance: The increasing demand in offices, residential properties, townships and other

property related demands have sustained growth in the industry for several years now.

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OVERSEAS FILIPINO WORKERS AS DEMAND DRIVER

The number of Overseas Filipino Workers (OFWs) who worked abroad at any time during

the period April to September 2017 was estimated at 2.3 million. The largest proportion

of OFWs belonged to age group 30 to 34 years comprising 21.7 percent of all OFWs,

followed by those aged 25 to 29 years with 20.4 percent (Philippine Statistics Authority,

2018).

Overseas Filipinos' Remittances

35

30

25
In USD Billions

20

15

10

0
2013 2014 2015 2016 2017

Personal Remittances Cash Remittances

Source: Bangko Sentral ng Pilipinas

FIGURE 3.10 OFW REMITTANCES (5 YEARS)

Personal and cash remittances OFWs is also seen to be strong and resilient despite

uncertainties across the global spectrum. Steady growth of inflows is seen as cumulative

cash remittances for 2013, 2014, 2015, 2016, and 2017 amount to $22.98 Billion, $24.63

Billion, $25.61 Billion, $26.9 Billion, and $28.06 Billion respectively according to the

Bangko Sentral ng Pilipinas.

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Relevance: With a significant number of the population working as an overseas employee

and an even larger population directly or indirectly affected by this data such as

dependents of OFWs, this should be a factor considered by developers in how and to

whom they market their offerings especially since OFW and OFW families have a greater

disposable income relative to averages in those that are working in the country. It is to be

noted that OFW and OFW families are already contributors of a large portion of revenues

property developers.

CULTURAL BELIEFS IN HOUSING

Aside from the hospitable nature, Filipinos are also known for superstitious beliefs and

followings. These beliefs may affect housing decisions such as location, general design,

window and door placement, and even the number of steps that stairs can have (Villar,

2017).

Relevance: Since these beliefs affect even permanent design patterns and even the

location that a house would be, it is a significant factor that should be considered and

inculcated in the designing process not just of housing construction but also including the

designing of an entire development.

PROPERTY CRIME STATISTICS

Merez (2018) cited a Social Weather Stations (SWS) survey in revealing that around 1.5

million families fell victim to common crimes during the first quarter of 2018. The survey

conducted last March 23 to 27 showed that 6.6 percent of Filipino families reported

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victimization by crimes such as robbery, break-ins, "carnapping" or car theft, and physical

violence within the past six months (Merez, 2018).

FIGURE 3.11 SWS CRIME STATISTICS (JUL 1998 TO MAR 2018)

Majority of the incidents resulted in the loss of property such as street robbery, burglary

or break-ins, and "carnapping."

Relevance: As property crime, including burglary, remain to be of high incidence, many

homeowners or would be homeowners would look into safety and security of a location

and the implementing measure protecting such as one of the bigger factors when

considering their choice of property.

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STRONG PHYSICAL RETAIL SHOPPING CULTURE DESPITE THE ADVENT OF E-

COMMERCE

Shopping malls have become an integral structure in country. What is simply a place for

shopping to Westerners is a place for leisure for Filipinos. It has evolved into a destination

for hosting business meetings and operations, as well as a venue for government

transactions through satellite offices. Commercial development has grown and is no

longer exclusive to urban areas, as it is slowly branching out to the provinces. Despite the

advent of online retail, Filipinos are still in love with the mall (Soliman, 2018).

3.4 Technological Environment

THE ADVENT OF HIGH INTERNET USAGE AND DISRUPTIVE TECHNOLOGY AND

ITS EFFECTS ON HOW GOODS AND SERVICES REACH TO CONSUMERS

The latest CEO survey, which PwC published with the Management Association of the

Philippines (MAP), focused on how businesses are coping with disruption caused by the

slew of new technology entering the market. In fact, 94 percent of the CEOs surveyed

believe that their industry was affected by disruptive technology in the past decade, with

14 percent saying that it “completely reshaped” their respective industries (Subido, 2018).

According to Internet World Stats (2018), as of December 31, 2017 the Philippines has

67,000,000 estimated internet users, up from 2,000,000 users by December 31, 2000.

This makes the Philippines one of the top 20 countries in terms of internet users.

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Relevance: It seems that no industry is safe from disruptive advancements in technology.

These advancements can make some operational procedures obsolete. In the

Philippines, several startups have already provided a medium for connecting real estate

firms with the masses. Web-based platforms like OLX and Lamudi can restructure the

costs of selling and real estate properties.

UNMANNED AERIAL VEHICLE (UAV)/DRONE TECHNOLOGY IN LAND SURVEYING

AND DEVELOPMENT

Godfrey-Hoffman (2017) said that drone technology allows for safe mapping of terrains

and property, producing high-quality surveying results that equal or surpass traditional

methods, and is a cost-efficient way to complete more projects in less time.

Whether you are a land developer, construction engineer, or a full-service A&E firm,

utilizing a drone surveying service can decrease project time, reduce overall costs, and

provide planning and development resources with additional ground images and aerial

views of urban landscapes.

Relevance: Airborne Surveying via UAV such us drones delivers significant advantages

in the areas of risk reduction, faster acquisition and improved resolution of data,

accessing difficult terrains and cost. The technology can further be utilized for a faster

turnover from empty land to fully developed property.

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AUGMENTED REALITY IN CONSTRUCTION AND DEVELOPMENT

Augmented reality in construction and architecture projects involves placing a 3D model

of a proposed design onto an existing space using mobile devices and 3D models. AR

has been used in video gaming and media entertainment for a much longer period of time

to show a real image interacting with one created from computer graphics. Its utilization

matured in the architecture and construction industries when contractors such as

Seattle’s BNBuilders began using it to show clients proposed designs in the context of

existing conditions using Apple iPads and other mobile devices on a construction site

(Yoders, 2018).

Yoders (2018) also mentioned that Augmented reality has a wealth of design and

construction uses beyond visualization, too. It can be used for design analysis to pick out

clashes by virtually walking through your completed model. It fits the bill for

constructability review by letting the architect and contractor collaborate on changes that

have to happen between design and construction due to constructability issues. It can

even assist with prefabrication of building components.

Relevance: Technology-based developments provides several benefits for lowering cost

and fastening construction time. Augmented reality may even be used for marketing-

related initiatives like allowing the prospected costumers to directly experience

augmented reality of a particular development project.

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THE INTERNET OF THINGS (IoT) IN PROJECT MANAGEMENT

Engineers Journal (2018) cited that project management, in many aspects, is already

beginning to be one of the major beneficiaries of the IoT. This includes supply chain

management, on-site inventory management, preventative maintenance, and monitoring,

among others.

IoT can help in making areas more livable, making them green, competitive, resilient,

inclusive, and sustainable. In Asia and the Pacific, where there is rapid urbanization, IoT

solutions can enable cities to shift to a more sustainable development path (Ramamurthy,

2017).

Agpar (2014) noted that IoT can support the real estate industry in terms of consumer

data, portfolio strategies, mobility tracking, and modeling.

Relevance: Developers should already think of integrating innovations such as the

Internet of Things in projects from horizontal construction, vertical construction,

hospitality, offices, and estate developments. This will provide improvements in, but not

limited to, monitoring for gated communities and other property management services,

efficiencies in energy consumption and construction management, and providing world-

class developments to customers.

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3.5 Legal Environment

REAL ESTATE INVESTMENT TRUSTS (REIT) LAW CAN PROVIDE LIQUIDITY FOR

THE ILLIQUID REAL ESTATE NATURE IN THE COUNTRY

Real Estate Investment Trust (REIT) is a type of investment in real property without the

activity of having to buy an actual piece of land. After the approval of the REIT Law or

Republic Act No. 9856 in 2009, some of the big real estate companies have expressed

interest in converting portions of their businesses into REITs, to benefit from the tax

incentives and additional market capitalization (Roque, 2018). Lazo (2016) of The Manila

Times cited a Securities and Exchange Commision (SEC) report that fund managers and

investors from US and Singapore are keen on investing in Philippine REITs.

Despite the interest from the supply and demand side, we have yet to see a Philippine

REIT in the local exchange. The primary issues identified by parties were: (a) imposition

of the 12 percent value added tax on the transfer of real property to a REIT even if the

transfer is a tax-free exchange; (b) imposition of the 67 percent minimum public

ownership (MPO) rule; and (c) requirement of an escrow equivalent to corporate income

tax breaks, prior to the REIT’s compliance with the 67 percent MPO requirement (Roque,

2018).

Regulators and industry players may soon break out of this stalemate for the past nine

years. As of today, the industry players and prospective investors will have to just wait

and see.

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Relevance: Successful compromise between industry players and regulators will provide

further boost to the industry as this will create a nature of liquidity for a relatively illiquid

sector. Anyone will be able to purchase portions of income generating property assets

with little barrier in place. Benefits for the industry such as tax incentives and capital

inflows can be a tool for further growth.

SOLID WASTE MANAGEMENT LAW

“Subdivisions and condominiums are very critical in our advocacy for solid waste

management because the residents here are already organized and they are governed

by their respective homeowners’ associations. Getting them to practice waste segregation

and composting will hopefully not be as difficult as they will feel immediate benefits in

terms of a cleaner and greener surrounding,” Paje said, noting that residents in

subdivisions and condos contend themselves with container gardening, using compost

they make out of their biodegradable waste (Department of Environment and Natural

Resources, 2011).

Relevance: Adherence to waste management measures provided by the government is

of importance in property management of the industry players as it entails material

operational costs and fines for non-compliance.

FOREIGN OWNERSHIP OF PROPERTY IN THE PHILIPPINES

Property ownership by foreign individuals will depend on the type of property. In case of

land or other stand-alone piece of real estate, foreigners are not allowed to own such

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properties under the prohibition of the Philippine Constitution. However, foreigners can

own properties under a condominium corporation. This goes not only to natural persons

but to legal entities as well, such as corporations (Flores, 2016).

However, according to the National Economic and Development Authority (NEDA), 5

investment areas and activities can now be subject to 100% foreign ownership. These

areas are: Internet businesses, teaching at higher education levels provided the subject

being taught is not a professional subject, training centers that are engaged in short-term

high-level skills development that do not form part of the formal education system,

adjustment companies, lending companies, financing companies, and investment

houses, and wellness centers.

Relevance: Compliance with the Philippine Constitution in preservation of national

patrimony affects the type of properties that a foreign entity can acquire. The easiest way

for a foreign entity is to purchase properties under a condominium corporation. As

purchases from foreign entity rises, developers will give further importance on the matter.

3.6 Ecological Environment

THE BIG ONE

According to the Department of Science and Technology - Philippine Institute of

Volcanology and Seismology (DOST-PHIVOLCS), the Big One or an earthquake with a

magnitude of no less than 7.2 in the Richter scale may be experienced in our lifetime.

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Also, there are specific locations that are considered most vulnerable to said earthquake

because of their proximity the so-called West Valley Fault (S&T Media Services, 2016).

Relevance: The industry has to take into account any existing faults and other dangers

presented by the risk of “The Big One” in their project planning and design as well as their

land banking activities. Measures may also be required for finished projects. For property

management, assurance of involvement in earthquake drills and information drive is

needed.

FLOOD AND ADVERSE WEATHER CONDITIONS

Throughout history, the Philippines has been challenged by floods often triggered by

typhoon (Jerusalem Hand, 2014). Some of the most devastating floods include:

November 1991 flash flood in Ormoc City that killed about 8,000 people all over Leyte,

June 2008 flood all over Western Visayas that was triggered by typhoon Frank,

September 2009 typhoon Ondoy disaster that displaced thousands of families and killed

hundreds in the process.

Relevance: Floods and adverse weather conditions can affect overall productivity of a

nation. For the industry, this may pose as threats in the delay or cancellation of projects

as well as the need for the industry players to take into account these factors in the design

and costs of their projects.

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3.7 External Opportunities

Emerging cities outside of Metro Manila

Metro Manila in recent years has become the Philippines’ pride and glory. In addition to

being the hub of Philippine culture and commerce, the metropolis, particularly in the

business districts of Makati and Bonifacio Global City, has given rise to some of the most

remarkable buildings and landmarks in the country. Yet for all the pomp and spectacle

that the megacity provides, it does nothing to dim the growing lights of emerging cities

outside Metro Manila (Beltran, 2017).Developments in other regions are on the rise. Cities

like Cebu, Davao, Lapu-Lapu, Cagayan de Oro, Bacolod City, Ilo-Ilo, and Naga are

getting the attention as housing and office demand spreads outs from Metro Manila to

provincial areas, particularly in Visayas and Mindanao.

OFW remittances expansion of around 5% per annum

OFWs comprise a substantial segment of the industry’s customers. Expansion in

remittance can translate to higher revenue from the segment.

Business Process Outsourcing (BPO) Employee’s Housing Need

The growing number of BPO workers is a demand driver as these employees would find

the need to live near their workplace. The need to address housing backlog and demand

for dormitories will rise.

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Private sector’s involvement in public construction

Public construction is quickly catching up with the private sector in the overall domestic

industry as government’s huge infrastructure program starts kicking in (Cahiles-Magkilat,

2018). Big industry players are seen to be involved in recent public projects. IRC

Properties, Inc. recently disclosed changes in their nature of business from Real Estate

Development to Real Estate Development and Investment in Infrastructure Projects. The

Makati City government recently awarded $3.7 Billion Subway Project to IRC Properties,

Inc., its first foray in public infrastructure (Lopez E. C., 2018). Other major players include

Alliance Global Group, Inc. subsidiary, Infracorp Development, Inc. that intends to pursue

its Skytrain project, a monorail linking Metro Rail Transit Line 3’s Guadalupe station to

Megaworld’s Uptown Bonifacio township in Taguig City (Francia, Tan-led Infracorp eyes

O&M partner for Skytrain, 2018), and a recent disclosure from logistics frim, Chelsea

Logistics Holdings Corp., in amending its articles of incorporation that would change its

name to Chelsea Logistics and Infrastructure Holdings Corp.

Philippine Offshore Gaming Operators (POGO)

With Pagcor issuing 51 Philippine Offshore Gaming Operators (POGO) licenses so far,

these POGOs will fill the void left by the BPO sector in terms of office tenancy (Reyes M.

, 2018).

Warehousing and logistics demand

The growing popularity of ecommerce will drive warehousing and logistics demand. While

only one percent of the country’s population shop online, this presents a massive

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opportunity that developers and retailers could tap, and consequently the need for

logistics services and warehousing (Reyes M. , 2018).

Raised public infrastructure spending from 6.3% of GDP this year to 7.3% of GDP

by 2022

The industry stands to gain from the “Build, Build, Build” program of the administration

with more bridges, roads, and other major thoroughfare that aims to decongest Metro

Manila. This, in turn, will increase land values in areas outside Metro Manila and stimulate

economic activity beyond the Metro.

ASEAN Integration

The Philippines’ Association of Southeast Asian Nations (ASEAN) integration poses

opportunities and challenges for the country’s real estate sector. The country is in a good

position in the region for property and development growth.

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External Threats
Competition for skilled workers

Tightened competition for skilled workers is projected as infrastructure spending from the

government as well as private entities is increased.

Unfavorable bank liquidity conditions with banks’ loans to deposit ratio (LDR)

already hit 75.6% as of end June 2018

With banks’ unfavorable liquidity position, availability of credit may be scarce and can

therefore dampen growth as an industry.

Foreign exchange risks (current exchange rate above Php54 to the dollar)

Weakness in the peso can be a positive or a negative depending on the nature of a

business. Products in the country will become less expensive for foreign customers but

can also increase the cost of foreign-sourced raw materials.

Upward trend on interest rates (PH 10-year bond rate around 6.5%)

Higher interest rates mean higher cost of capital for businesses. This will affect their

operational strategies as they may hold their expansionary projects until more favorable

cost of borrowing is present.

Slower office take-up from outsourcing firms

Colliers anticipates less office launches in 2018 following the decline in BPO companies’

office space demand brought about by the US taking a more protectionist stance,

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increasing talent recruitment difficulties and cost, threats to jobs from automation, and

delay in Philippine Economic Zone Authority (PEZA) approvals (Reyes M. , 2018).

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4 INDUSTRY AND COMPETITOR ANALYSIS

4.1 Property Industry: A sectoral perspective
The country’s economic boom shows no signs of slowing down. Considered as one of the

fastest-growing economies in the region, it exhibited an increase in gross domestic

product (GDP) by 6.7% in 2017. This robust macroeconomic condition continues to pave

the way for different sectors to further flourish, including that of the real estate (Origuero,

2018).

Origuero (2018) also noted the real estate industry’s steady growth in the past decades

is attributed to the increase in demand for residential and commercial properties driven

by various factors. These demand drivers, according to a report by Leechiu Property

Consultants, include rising urban population growth; housing needs of BPO (business

process outsourcing) employees, since a growing number of these workers need to live

near their workplace; and remittances from overseas Filipino workers (OFWs), more than

half of which are real estate-related.

4.2 Growth of the Industry

The bullish performance of the country’s real estate sector is projected to further thrive in

the years to come. The OBG report continued, “Buoyed by a strong macroeconomic

environment, cash-laden investors and a full pipeline of projects scheduled to be built

over the next decade, the real estate sector will continue to exhibit strong growth in the

coming years. A steady stream of new residential and mixed-use projects is under way

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at locations across the Metro Manila area, as well as other fast-growing secondary cities

around the country.”

Real estate consulting services firm Colliers International also shared the same outlook

in a December 2017 report, which stated that opportunities abound for the property sector

this year.

“Colliers encourages developers to take advantage of opportunities that could arise from

the implementation of government policies such as the Comprehensive Tax Reform

Package; relaxation of foreign ownership restrictions on retail and construction; and

amendments to the existing procurement law and business registration systems which

should entice more developers to take part in the government’s ambitious infrastructure

development program,” the firm said in the report.

Colliers sees that the improvement of road networks and expansion of airports in major

urban areas in the country will further unlock land values, making it more feasible for

residential projects.

Moreover, Colliers said that the demand for residential units in these locations would

continuously grow, as OFWs will continue to set aside part of their remittances for housing

requirements.

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On the other hand, the firm predicted that there will be less of office launches following

the decline in BPO companies’ office space demand. However, there will be a greater

demand for flexible office spaces over the near to medium term given that there are 1.3

million freelancers in the Philippines, and as mobility, connectivity, and flexibility is

becoming the norm.

Opportunities are also seen in the popularity of e-commerce, which is expected to drive

warehousing and logistics demand. According to Colliers, this particular demand will

particularly propel the economy of Northern and Central Luzon especially because of

Clark Airport’s planned expansion and the construction of the Subic-Clark cargo railway.

Northern and Central Luzon is also set to be an industrial hub as major developers are

developing industrial parks, which is foreseen to increase industrial lease rates especially

in areas such as Cavite, Laguna, and Batangas.

Not only industrial parks are going outside Metro Manila. Colliers said that townships are

also projected to rise in areas such as Cavite, Laguna, Bulacan, Pampanga, Cebu, and

Davao over the near to medium term as land values are being unlocked by an aggressive

expansion of road networks anchored on the government’s initiative to generate

economic opportunities outside Metro Manila.

The increasing tourist arrivals in the country also open more possibilities for the real estate

sector. In terms of hotels, it is seen that three-star and four-star hotels in resort

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destinations will be more visible in the next two to three years with Cebu, Bacolod, Iloilo,

Palawan, Davao, and Bohol as among the most attractive locations for these

developments.

Cebu, in particular, experiences a continued surge of tourists resulting to an increase in

occupancy rate as well. Seeing the rising attractiveness as a tourist spot and growing

competitiveness as an investment destination, Colliers encourages industrial locators in

Visayas to consider this province.

Moreover, to cater to the growing domestic market driven by millennial travelers, Colliers

encourages investors to build more budget hotels.

Meanwhile, for the retail segment, Colliers said that malls will still be an important part of

the Filipino lifestyle and will continue to attract consumer traffic, thus, are encouraged to

provide more lifestyle amenities that generate a sense of destination (Origuero, 2018).

4.3 Players in the Industry

Lamudi (2017) mendtioned in a journal that there are many players in Philippine real

estate. Below is a list of the top real estate players in the Philippines, as nominees and

winners for 2017’s Top Commercial Developer at Lamudi Philippines’ The Outlook:

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SM Prime Holdings

Among the Philippines’ most influential developers continues to be SM Prime Holdings,

a multi-faceted company that has come a long way from its beginnings in over six decades

ago as a shoe store in Manila.

Robinsons Land

Another far-reaching developer with a widely recognized brand is Robinsons Land

Corporation. Similar to SM, the developer is widely recognized in large part to its having

numerous retail centers all over the country, where even non-real estate markets can

immediately recognize.

Ayala Land

The developer arguably most synonymous with luxury, Ayala Land Inc. is an old family

company which has not only lent its name to the most recognized major thoroughfare in

Makati City, but has developed some of the area’s longest standing office and corporate

spaces.

4.4 Problems in the Industry

The researcher extracted a compilation of problems that the industry is facing in the

current, medium, and long term. The said list, compiled by Lamudi (2016), is presented

below.

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One of the country’s most exciting industries continues to exceed expectations, but there

are burning issues that can disrupt its growth

Given the upward trend witnessed in the Philippines’ real estate sector in the past years,

industry experts are optimistic that the growth will be sustained this year, but there are

major areas for growth that need to be addressed to maximize the sector’s potential.

The capital, Manila, has seen major investment from global capitalists, according to

auditing and advisory firm BDO’s “Asian Real Estate” report, placing the city in the same

league neighboring hub Bangkok. There are certain aspects, however, where Philippine

cities can surpass its neighbors.

Change Is Necessary

With the ASEAN Economic Community now in effect, the Philippines is seen by many

analysts to be in a good position to lead in the region’s property growth because of its

young population and English-language proficiency. But success can be achieved by

implementing certain changes, beginning with infrastructure.

National Economic and Development Authority (NEDA) chief Arsenio Balicasan recently

told reporters in Manila: “There is a constant need for the infrastructure system to keep

up with rising demands in the fast-growing economy, especially these days as new

property investments flood the market.”

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Balicasan emphasized that the country’s weak infrastructure squanders the full potential

of Philippine real estate and continues to hound the industry. He added that more

transparency in the market and possible ownership policy changes could help increase

investments in the country.

The Future Is Green Building

Meanwhile, Ramon F. D. Rufino, executive vice-president of The Net Group and chairman

of the Philippine Green Building Council (PhilGBC), notes that the Philippines is still far

behind many countries when it comes to environmental initiatives. “But the good news is

there is growing momentum,” he claims.

“The awareness and desire for sustainability is already strong, but we really need to

improve on the level of commitment and action,” adds Rufino, who highlighted the

PhilGBC’s achievements in creating awareness for green building and sustainability, and

the establishment of the BERDE rating system when he received the Real Estate

Personality of the Year award at the Philippines Property Awards 2015.

“There are so many areas to work on but our top priority is for more and more companies

and projects to secure green building certification. It’s easy to market and advertise real

estate projects as ‘green’ but only certification provides the users, the public, and the

government with the assurance that a project is truly green and sustainable.”

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Technology Can Transform the Industry

Cyndy Tan Jarabata, president of TAJARA Leisure & Hospitality Group Inc. and three-

time chairperson of the Philippines Property Awards, agrees, noting that many big

developers have joined the green movement in the last few years. “They look at

innovation and they look at design very carefully.”

She adds that some developers are also looking to incorporate smart or green

technologies in their projects. “It’s bound to happen not only because it’s what the

consumer wants, but because it’s the right path to progress. We have to continue to be

mindful of occupier’s or market demands in living, working and space planning.”

Moreover, around 40 percent of Filipinos now have access to the Internet through their

smartphone, based on industry estimates. It has allowed the rise of property portals,

which reveal that investors are also looking beyond congested Metro Manila for property

investment.

There Are Real Estate Opportunities Outside Metro Manila

The Thomson Reuters Foundation reported that real estate loans in the country hit a

record high of Php1.23 trillion ($25.69 billion) in Q3 2015, per data from the Bangko

Sentral ng Pilipinas. It reflects a growing confidence in the property sector as a whole, as

well as the tremendous support given by the banking and lending industries in the

Philippines.

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Secondary cities such as Iloilo and Cebu have become more popular BPO hubs, with the

latter being named the country’s second-largest (and eighth biggest worldwide)

outsourcing center, per Michael McCullough, managing director of KMC MAG, an

international affiliate of Savills.

Putting these secondary cities on the global investment map is the next step for

developers, who are increasingly using social media to reach and educate first-time and

even experienced buyers or renters.

Low-cost Housing Segment Helps Drive the Sector

Although there are many exciting investment opportunities in the Philippines, there are

concerns regarding affordability of residential properties. To date, industry experts

estimate that the country lacks some 5 million housing units, and that number can only

grow as prices soar in the coming years.

The Chamber of Real Estate and Builders’ Associations Inc. (CREBA) is advocating

through its five-point housing agenda, “A Home for Every Filipino.” The organization is

also pushing for the establishment of a “Department of Housing and Urban Development”

in the country as a necessary reform to address the housing situation in a time when a

real estate bubble is always a probability.

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4.5 Porter’s Five Forces of Competition

FIGURE 4.1 PORTER’S FIVE FORCES OF COMPETITION

Threat of Substitutes

Number of close substitutes: Low

Private real estate and property development’s closest substitute would be government

owned developments. For the residential market – apartments, town house, subdivisions,

and condominiums, close substitute would be government owned parcels of land and

cheap housing provided by institutions like Pag-Ibig. For the commercial market – tourism

centers, malls, offices, and recreational areas, close substitute would be government-

owned properties including museums, zoos, and other establishments.

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Price substitutes: Low

Pricing among substitute is relatively lower in comparison to the pricing provided by

private real estate firms. This, however, doesn’t reflect the full story as the fact is that

these lower-priced substitutes are scarce. Government institutions are trying to address

housing problems, but this is insufficient and does not provide a significant impact to shift

the supply away from private institutions. Firms that provide competitively priced

substitute will have a compromise on the facilities provided and catering to overall

consumer need.

Aggressiveness of substitute producers: High

Aggressiveness among developers in the industry is high in terms of producing substitute.

This is evident as the dominant players’ lineup of offerings are of similar nature in

residential, commercial, and mixed used segment. It would differ, however, if we use the

government’s substitute offerings. This would create low aggressiveness of substitute

producers due to the fact that the government has a limited capability and capacity in

establishing formidable substitutes to compete with private firms.

Contribution to quality of substitute: Low

As mentioned, the dominant substitute producer, the government, has a limited capacity

in order to fully develop quality forms of substitute as compromise are made to reduce

development and funding cost. The reach of these substitutes are also very low, focusing

on marginalized and low-middle income earners.

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Bargaining Power of Suppliers

No. of suppliers: Low

Suppliers in the industry is dominated by very few firms, resulting in scarce selection. It

is given than multitudes of possible suppliers are present but the dominant ones that

produce quality materials are low. The same is also true when it comes to the adequate

supply amount that smaller firms just couldn’t handle the same way that dominant

suppliers could for developers to fast track project completion. With that said, supplies

may be considered as critical in the success of such developments. While developers

have an option to source its supplies from different providers, deviating from the

accustomed method, it would entail higher cost for the developers and would require more

time for project completion.

Substitute supply availability: Low

Relative to the number of suppliers, the supply themselves are scarce. As previously

mentioned, only very few suppliers have the capacity to deliver the necessary volume of

supply that real estate projects would need.

Contribution of Supplier to buyer’s quality: Moderate

While the buyer side would likely be impartial to whoever the supply came from, the quality

would be play a big role in determining standing in sales and credibility. New entrants

may need to consider sourcing known quality products in order to build a rapport among

the buyers.

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Threat of suppliers to create their own markets: Low

Such case of suppliers creating their own market and integrating relevant businesses that

would compete with the industry is not heard of. However, the supply business is a

relatively profitable endeavor and the dominant supply side firms may be financially

capable to do so if they ever intend to.

Threat of New Entrants

Capital Requirements: High

Firms that are interested in the industry will have to shell out capital in the hundreds of

thousands, if not millions, just to start up in small-scale real estate developers. Medium

and large-scale players would have to play around the billions in order to just be

competitive. Key issues are land reserves, land titles, contractors, suppliers, and other

relevant matters. Capital expenditure for 2018 among dominant industry players

according to various disclosures are as follows: Ayala Land Inc. at Php111 Billion, SM

Prime Holdings at Php80 Billion, and Megaworld Corp. at Php60 Billion. Capital

expenditure for previous year 2017 for these firms were Php91.4 Billion, Php58 Billion,

and Php 60 Billion respectively.

Access to Technology or Distribution Channels: High

Most of the developers, especially the market leaders will need to heavily market their

products competitors try to take over or at least be at par with these leaders. The concept

of property selection for Filipino families is a strong and very important one, hence the

need for capital efforts in advertising and marketing such offerings. Distribution of

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offerings may be done in retail floorspaces of the developers where foot traffic is high.

Online marketing, billboard ads, fliers, and physical installations are also present.

Brand Loyalty: High

While the consumers are given a lot of options to choose from, the market often does not

switch from one developer to another. The value in question is not necessarily the loyalty

in the brand but the experience that the brand provides in terms of the quality of projects,

the ease of transaction with such developers, and the prestige that the brand offers, if

any. There is a lot of complexities in choosing the right property, which is a factor for

consumers to be loyal with the first choice of developer that consumers will make

especially if there is no significant event that would make the consumers think otherwise.

Switching Cost: High

It would take a lot for consumers to even consider switching from one property to another

as constrains are very high. For the residential market, they would have to go through the

process of looking for the right property again while also having the burden of having to

sell their current position whether they have already finished the mortgage payments or

not. For commercial and retail spaces, the transfer and switching cost will also be high.

Retail spaces in particular would likely just choose to set new shops in other development

instead of transferring one shop to another.

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Sales Volume: Neutral

Sales volume would largely depend on the on the size of the firm and the diversity of their

product line up. Small-scale developers would likely focus on small apartments and

condominiums, as well as low-cost horizontal developments. Medium and large-scale

developers would have a wide range of properties in its offering including residential and

office spaces, retail spaces, mix-used properties, and central business districts in some

cases.

Access to Raw Material: Low

Small-scale developers would be provided with a high access to raw materials. Growth

and expansion, as well as new medium and large-scale developers will have to face the

scarcity of suppliers that are able to cater high-volume demands. This is one critical factor

that will be a determinant of success in the industry.

Rivalry Of Competition

Number Of Competitors: High

There is no short supply of national and local competition in the market. However, it is

dominated by comparatively fewer firms. There are several players in the real estate

industry. This is unfavorable because while high demand is present in the industry, such

demand is not cyclical. This means that a person that would purchase a property is not in

the market of switching or buying another property for years to come. The retail and office

segment produce the same issues. However, expansion in provincial markets may

provide breathing room for the competition.

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Industry growth: Low

Growth in the industry early on is low, costly and time consuming. Anyone who would

want to participate and become one of the leaders in the industry will have to be in

business for several years. Growth and expansion in the later years comes faster as the

competing firm starts to enjoy economies of scale, more sources of funding, and being

known for in the business by both consumers and other competitors.

Strategic stakes: moderate

Strategies in land banking and expansion is obviously important in the industry. Firms

with limited sizeable land properties may be left behind when larger firms start

accumulating land in different areas as they have more capacity to do so because of their

deep pockets. It is to be noted that most of the leading firms in the industry are under the

umbrella of large conglomerates and/or holding firms.

Bargaining Power of Buyers

Buyers Are Price Sensitive: Moderate

Customers are presented with a high supply of product in higher segments. Surplus of

inventory is present in medium-cost housing and higher. Sensitivity in price is also relative

of the location where the property is located because of several factors including safety,

convenience, facilities in and around the property.

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Importance of product quality to buyers: High

Utility is of top priority for buyers in this industry. Developers are motivated to attain an

unquestionable reputation in terms of quality, service, and impact in the lives of the

prospective buyers.

Threat of buyers to produce their own inputs: Low

Experience, capital capacity, and knowledge in the business are some of the most

important factors in succeeding in the industry. As such, it would be very difficult for

buyers to produce their own inputs. This is especially true and more developed areas as

land values become extravagant.

Summary of Porter’s Five Forces of Competition

In summary, the threat for new entrants in property development can be considered low

due to the fact that a large sum of capital requirements along with other variables such

as the industry being a time-consuming endeavor even to just establish, and long product

cycles to name a few. Threat from substitute is low mainly due to the capacity constraints

of those who attempt to provide substitute products. Bargaining power of buyers can be

classified as low especially in higher tier properties because of several factors affecting

the supply side of the offerings. The bargaining power of supply side is considered to be

high because of the scarcity of players in the industry than can handle the tall order that

large developments require. As for the competitive rivalry in the industry, it can be

considered to be moderate due to the fact that there are plenty of players in the industry

and while few are dominant, they could not be immediately categorized as market leaders

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due to the narrow gap among the dominant players. Some of the offerings overlap

between competitions, while some complement it. It can be said that the battle would rise

between firms in terms of land acquisition, with deep-pocketed firms having an

advantage.

4.6 Competitors
CLI is within the playing field of top national players and local developers across its

product range. The company goes head to head with national players such as Amaia

Land Corporation, Avida Land Corporation, and Alveo Land Corporation, all of which are

subsidiaries of Ayala Land, Inc., Filinvest Land Inc., Megaworld Corporation, Rockwell

Land Corporation, 8990 Holdings, and Hongkong Land which is in partnership with the

local developer, Taft Properties.

The company also competes with established local developers in Cebu, and other parts

of VisMin, like Primary Group of Builders which has 25 years of experience in the industry,

AboitizLand with 23 years, Johndorf with over 30 years, and Taft Properties with over 20

years.

In Cebu, the Company’s direct competitor is Primary Group which also offers the same

product range in terms of house and lot offerings, condominium units, offices and

commercial spaces in Cebu, Dumaguete and Bohol.

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For the purpose of this paper, the following are used as comparison because of the

overlap of product offerings as well as the availability of necessary information:

Ayala Land Inc.,

TABLE 4.1 AYALA LAND INC., REVENUE AND NET INCOME IN THE PAST 3 YEARS
(Values In Php) 2015 2016 2017

Revenue 107,182,940 124,628,795 142,296,952

Net Income 17,630,275 20,908,011 25,304,965

Ayala Land is the largest property developer in the Philippines with a solid track record in

developing large-scale, integrated, mixed-use, sustainable estates that are now thriving

economic centers in their respective regions. Ayala Land’s foray in the market that which

CLI stands to try and dominate is relatively lower than Ayala Land’s involvement in

markets which CLI does not participate as CLI is focused in the Visayas and Minadano

markets. Among the Company's subsidiaries are Alveo Land Corporation; Avida Land

Corporation; Ayala Property Management Corporation; Makati Development Corporation;

North Triangle Depot Commercial Corporation; Laguna Technopark, Inc.; and Ten Knots

Philippines, Inc.

Shareholdings Structure:

(As of March 31, 2018)

Ayala Corporation 46.80%

Public Ownership 52.10% (Foreign Ownership 22.03%)

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Filinvest Land, Incorporated

TABLE 4.2 FILINVEST LAND, INC. REVENUE AND NET INCOME IN THE PAST 3 YEARS
(Values In Php) 2015 2016 2017

Revenue 18,302,853 19,500,586 20,269,651

Net Income 5,098,564 5,350,786 5,834,181

Filinvest Land, Inc. (FLI) is one of the leading real estate developers in the Philippines. It

is a subsidiary of Filinvest Development Corporation (FDC), which has more than 40

years of experience in real estate development.

FLI’s business has historically focused on the development and sale of affordable and

middle-market residential lots and housing units to lower and middle-income markets

throughout the Philippines. It has developed over 2,100 hectares of land, and provided

home sites for over 110,000 families, which makes it one of the largest home providers

in the Philippines today. Clash in the offerings between CLI and FLI revolves around these

key markets.

FLI has, over the years, accumulated an extensive, well-located, low-cost landbank. As

of the end of 2010, FLI’s landbank stood at 2,369 hectares, bulk of which is located just

outside Metro Manila in the nearby provinces of Rizal, Bulacan, Batangas, Cavite and

Laguna, as well as in growth areas such as Cebu, Davao and General Santos City in

South Cotabato province.

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Shareholdings Structure:

Filinvest Development Corporation 59.41%

Non-Filipino Public Ownership 28.44% (Invesco Hong Kong Limited with more than 5%)

Filipino Public Ownership 10.85% (No single shareholder with at least 5% ownership)

4.7 Critical Success Factors

Market Position

An analysis of a company’s market position may be derived from the market share in each

segment it serves. Strong market position tends to be a leverage in bargaining with

contractors and customers.

Financial Capability

The types of assets and resources that the players hold in their balance sheet, their

financing requirements and methods, and the amount necessary for the business to run

are all important in the success or failure of such industry players. Included in the analysis

are the financing structure of the players, financial flexibility, cash flow and liquidity

variables.

Land Bank

Any developments in the industry would require sizeable land reserves in order to

maximize offerings and value creation for stakeholders involved.

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Asset Quality

Analysis of the quality of assets includes the assessments on the properties’ location, age

of property assets, attractiveness towards potential buyers, tenants and lenders, quality

of tenants in rented properties as well as environment, facilities, and infrastructure that

surround the properties.

Brand Image and Reputation

ALI’s brand dominance in the national and local market scene is prevalent. It is a brand

that is associated with prestige. FLI builds its brand with experience in the property sector.

CLI is a relatively new brand to the market, having only 14 years in the Visayas and

Mindanao region, relatively young compared to its national and local competitors. Its

recent Initial Public Offering (IPO), however, brought the CLI brand to the public’s

attention. Its offering was oversubscribed.

Responsible Development

Cebu Landmasters, Inc. (CLI), Ayala Land, Inc. (ALI), and Filinvest Land Inc. (FLI) all

practice responsible development in all its segment. Ayala Land, Inc. takes the top spot

as an initiator and benchmark for responsible development.

Value Creation

Analysis of creation of value to businesses, buyers of residential properties, level of

satisfaction for employees and employee competency.

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Operational Effectiveness

This includes the analysis of timeliness of construction schedule, efficiency of project

design, soundness of subcontractors, level of governmental, legal, and regulatory

compliance, use of technology, on site health and safety guidelines, and retention of past

project experience.

Marketing Aggressiveness

Marketing strategy is an approach utilized by the company to create a market and raise

awareness of existing and future products. Its main goal is in increasing company

revenues and achieve sustainable competitive edge among key competitors.

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4.8 Competitive Profile Matrix

TABLE 4.3 COMPETITIVE PROFILE MATRIX
Cebu Landmasters, Ayala Land, Inc. Filinvest Land Inc.

Inc.

Critical Success Weight Score Weighted Score Weighted Score Weighted

Factors Score Score Score

1. Market Position 0.15 3 0.45 4 0.60 3 0.45

2. Financial 0.06 2 0.18 4 0.24 3 0.18

Capability

3. Land Bank 0.08 2 0.16 4 0.32 3 0.24

4. Asset Quality 0.125 2 0.250 4 0..50 3 0.375

5. Brand Image and 0.125 3 0.375 4 0.50 3 0.375

Reputation

6. Responsible 0.06 3 0.18 4 0.24 3 0.18

Development

7. Value Creation 0.10 4 0.40 4 0.40 4 0.40

8. Operational 0.20 4 0.80 4 0.80 3 0.60

Effectiveness

9. Marketing 0.10 3 0.30 3 0.30 2 0.20

Aggressiveness

TOTAL 1 3.095 3.80 3.00

Legend: 4= Major Strength; 3= Minor Strength; 2= Minor Weakness; 1= Major Weakness

The identified critical success factors for the industry are market position, financial

capability, land bank, asset quality, brand image and reputation, responsible

development, value creation, operational effectiveness, and marketing aggressiveness.

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4.9 External Factor Evaluation Matrix

TABLE 4.4 EXTERNAL FACTOR EVALUATION MATRIX
Opportunities Weight Rating Weighted Score

1. Emerging cities outside of Metro Manila 0.15 4 0.60

2. OFW remittances expansion of around 5% 0.08 3 0.24

per annum

3. Business Process Outsourcing (BPO) 0.05 3 0.15

employees’ housing need

4. Private sector’s involvement in public 0.08 1 0.08

construction

5. Philippine Offshore Gaming Operators 0.02 3 0.06

(POGO)

6. Warehousing and logistics demand 0.05 3 0.15

7. Raised public infrastructure spending 0.15 3 0.45

8. ASEAN Integration 0.08 2 0.16

Threats Weight Rating Weighted Score

1. Competition for skilled workers 0.04 2 0.04

2. Unfavorable bank liquidity conditions 0.08 3 0.24

3. Foreign exchange risks 0.04 3 0.12

4. Upward trend on interest rates 0.08 3 0.24

5. Slower office take-up from outsourcing firms 0.10 4 0.40

Total 1 2.93

Legend: 4= Major Strength; 3= Minor Strength; 2= Minor Weakness; 1= Major Weakness

The External Factor Evaluation (EFE) Matrix is the strategic tool used to evaluate firm

existing strategies, EFE matrix can be defined as the strategic tool to evaluate external

environment or macro environment of the firm include economic, social, technological,

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government, political, legal and competitive information. Identified opportunities that were

discussed in Chapter III are emerging cities outside of Metro Manila, OFW remittances

expansion of around 5% per annum, Business Process Outsourcing (BPO) employees’

housing need, private sector’s involvement in public construction, Philippine Offshore

Gaming Operators (POGO), warehousing and logistics demand, raised infrastructure

spending, and ASEAN integration. Found in the same chapter are the identified threats

for the industry. These are the competition for skilled workers, unfavorable bank liquidity

conditions, foreign exchange risks, upward trend on interest rates, and slower office take-

up from outsourcing firms.

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5 COMPANY ANALYSIS
5.1 Revenue / Sales in the past 3 years
TABLE 5.1 CEBU LANDMASTERS, INC. REVENUE AND NET INCOME IN THE PAST 3 YEARS
(Values In Php) 2015 2016 2017

Reservation Sales 1.799 Billion 2.95 Billion 4.58 Billion

Revenue 1,329,698,963 2,361,133,163 3,928,662,841

Net Income 425,849,866 780,328,949 1,294,994,302

Cebu Landmasters, Inc. reported outstanding financial growth for the year ended

December 31, 2017 as its total revenues reached Php3.929 billion, a 66% year-on-year

growth driven by strong performance across all business units. The real estate segment

of the company which comprised a big portion of the revenue also increased by 67%,

from Php2.322 billion in 2016 to Php3.869 billion in 2017.

The said increase was primarily attributable to the robust sales performance and

construction progress from newly constructed projects, Casa Mira Linao, Mivesa

Residences building 5, Casa Mira Towers, Mesaverte Residences, Baseline Center

where Citadines, Baseline HQ and Baseline Premier is. The Company now uses the

Percentage of Completion (POC) Method of revenue recognition to align with the industry

practice and adapt in advance the Philippine Financial Reporting Standards (PFRS) 15

dictating that revenue from contracts be recognized in reference to the stages of

development of the properties. With this change in method, the prior year’s 2015 and

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2016 were restated using POC in revenue recognition to reflect comparability in the

financial statements.

The demand for real estate in selected growth areas increased reservation sales to

Php4.58 billion, 55.7% higher than 2016’s sales figure of Php2.94 billion. CLI attributed

its exceptional performance primarily by the robust sales across various projects

particularly from the company’s new launches: 38 Park Avenue in IT Park Cebu,

MesaVerte in CDO, Casa Mira South in Naga, Cebu and Mivesa Garden Residences in

Salinas Drive, Cebu. Currently these projects are nearing fully sold status after a few

months after launching.

Furthermore, rental income increased by 17% Year on Year to Php46 million from Php39

million. The growth was attained due to higher occupancy rates and rental rate increases

during the year.

The Company also started recognizing revenue from the projects it manages. These

projects pertain to Joint Ventures (JV) where CLI is the project manager. Management

fee charged is 2%-3% of the JV’s sales collection and construction cost paid during the

year. Currently, the Company has four Joint Venture projects under development,

namely: MesaTierra in Davao, Latitude Corporate Center in Cebu Business Park, 38 Park

Avenue in IT Park, Cebu, Mivesa Garden Residences Phase 3 in Salinas Drive, Cebu.

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Part of the Management Fee are also revenues from the recently incorporated, Cebu

Landmasters Property Management, Inc (CLPMI), the property management arm of Cebu

Landmasters. CLPMI offers integrated property management services including building

administration, subdivision maintenance, and special technical services. The subsidiary

is currently managing five condominiums and six subdivision projects of CLI creating an

extended relationship between Cebu Landmasters and its buyers even after turnover.

5.2 Market Share of the Company

CLI, established itself as one of the top real estate developers in Metro Cebu despite

being a new comer. In recent reports, provide by both CLI and property agent Santos

Knight Frank, the company commands the following market shares:

Ayala Land, Inc.

17%
Cebu Land Masters, Inc.

Filinvest Land, Inc.

Others
43% 11%
LandTraders World Properties
Corporation
Taft Properties
8%
Primary Homes
7%
Others
7% 7%

FIGURE 5.1 VERTICAL RESIDENTIAL MARKET SHARE IN METRO CEBU (IN TERMS
OF SUPPLY)

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12%

10% Primary Homes

Cebu Land Masters, Inc.
8990 Development Corp.
8% Aboitiz Land
56%
Vista Land
Others
8%

6%

FIGURE 5.2 HORIZONTAL RESIDENTIAL MARKET SHARE IN METRO CEBU (IN TERMS OF UNITS
AVAILABLE)

The company’s project mix, including projects in various stages of development, is

composed of 67% residential projects, 22% commercial/office/retail developments and

11% hotels, measured in terms of total sales value.

5.3 Products
CLI’s initial forte is in residential development. It created a niche when it started

developing low to middle cost subdivisions in the southern part of Cebu. Today, CLI is

one of the leading horizontal and vertical residential players in Cebu. More importantly,

CLI has diversified its residential offerings to cater to the four major market segments –

socialized, economic, mid-market, and high-end.

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CLI is also capitalizing on the growth of the BPO sector in Cebu, launching commercial

development projects. Other developments include mixed-use development, hotel and

recreational development, and industrial development.

Horizontal (Subdivision) Projects:

Villa Casita

Launched in 2014, this is CLI’s first socialized housing development and is located

in Buanoy, Balamban, Cebu. With an area of 8,128 sq.m., it consists of 101 row

house units, with each unit having a lot area of 36 sq.m. and a floor area of 22.65

sq.m. Pre-sold units were priced at about P400,000. It is fully developed,

completed and sold out.

Villa Casita Bogo

The project is the second of the Villa Casita series in Cebu, the socialized housing

brand of the company. Villa Casita offers its homeowners well-designed homes,

well-planned site development, and sizable green spaces for parks and community

facilities traditionally found only in mid-market or upscale developments. The

development is designed to provide over 697 homes to families in the North of

Cebu. Guadalupe Pinamalayan Socialized Housing Project Launched in 2015, this

socialized housing project is developed in cooperation with Habitat for Humanity

and is located in Pinamalayan, Oriental Mindoro.

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The 38,639-sq.m. project consists of 337 single-floor and detached units, 77 of

which have been allocated to Habitat for Humanity beneficiaries.

Casa Mira Linao

Launched in 2015, this is CLI’s first foray into economic housing development. The

project is located in the hills of Linao-Lipata, Minglanilla, Cebu on a 7.8-hectare

property. It is composed of 725 townhouse units with floor areas ranging from 37

to 62 sq.m. and lot areas ranging from about 42 sq.m. to more than 52 sq.m. per

unit. Average selling price starts at P900,000 for the smallest unit and up to about

P1.4 million for the largest unit. It is fully developed, completed and sold out.

Casa Mira South

Launched in 2016, this economic housing development is located in the Naga City

and the Municipality of San Fernando, both in Cebu. This 31-hectare community

is divided into three phases consisting of 3,242 townhouse units, with each unit

having floor areas ranging from 36 to 59 sq.m. and lot areas ranging from 42 sq.m.

to more than 68 sq.m. Average pre-selling price ranges from P1.07 million to P1.6

million. Land development and house construction has already started.

Casa Mira Coast

Casa Mira Coast in Barangay Maslong, Sibulan, Negros Oriental is residential

subdivision is a 53,031 sq. m. project that consists of 543 townhouses selling at

P1.4 million to P2.2 million. It offers amenities that are not only top of the line but

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also affordable. Apart from this, the project has a breathtaking view of the nearby

coast and is only 2 km away from the Dumaguete Airport.

San Jose Maria Villages (“SJMV”)

This series of villages located in the south and southwest of Cebu City paved the

way for CLI in providing affordable mid-cost quality homes to the middle market

segment. SJMV offered a mix of single-detached, semi attached townhouses and

lot-only choices to the buyers. SJMV-Balamban is a three-hectare development

with 231 units launched in 2013. SJMV-Minglanilla is a 2.9-hectare development

with 145 units launched in 2007. SJMV-Toledo is a 3-hectare development with

144 units launched in 2009. SJMV-Talisay is a 1.9-hectare development with 96

units launched in 2010. Lots were pre-sold at P7,000 per sq.m., while house and

lot units averaged at P1.4 million to P3.6 million. All SJMV projects are fully

developed and completed, with both SJMV-Minglanilla and SJMV-Talisay sold out.

Midori Plains

Launched in 2011, this mid-market development is located in Municipality of

Minglanilla, Cebu. This eight-hectare Asian-inspired subdivision south of Cebu City

has 370 residential units ranging from townhouse units with 40-sq.m. floor areas

to single-detached units with an area of 77 sq.m. each. It is fully developed,

completed and almost sold-out.

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Velmiro Heights Cebu

This mid-market development was launched in 2013 and is located on an 8.8-

hectare property in Tunghaan, Minglanilla, Cebu. This 428-unit development offers

11 different house models, ranging from townhouses to single-detached, two-

storey units.

Townhouses have 60-sq.m. floor areas, while the largest unit contained 131 sq.m.

of living space. Townhouses were pre-sold at an average price of P1.7 million while

the largest singledetached unit is about P5.3 million. Phase 1 is already fully

developed, completed and sold out while the 81 units belonging to Phase 2 are

still being marketed.

Velmiro Uptown CDO

Launched in 2017, Velmiro Uptown is located in Upper Canituan, Cagayan de Oro

city. This 143,452 sq Horizontal Subdivision has a total 396 homes with prices that

range from P 2.4 million to P 5.7 million. Velmiro Heights provides easy access to

various establishments in the city. The project is set to completed by 2021.

Vertical (Condominium) Projects:

One Astra Place

Situated in the heart of A.S. Fortuna Street, the lifestyle avenue of Mandaue City,

One Astra Place is the residential component of Astra Centre, a mixed-use

development that carries astounding design of residential towers, upscale lifestyle

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mall, world-class hotel and modern office spaces. One Astra place is a 15-storey

condominium with a wide range of world-class amenities and features. The

development is scheduled for launching this year and will be completed on the 2nd

Quarter of 2021.

38 Park Avenue

38 Park Avenue was launched last 2017 with a total of 745 units. This 38-floor New

York inspired condominium is designed to be the highest building in Cebu I.T. Park

offering an exclusive and breath-taking 360 view of the city. 38 Park Avenue

presents five (5) types of condo residences: Studio 24 square meters, One-

bedroom 54 to 56 square meters, Two-bedroom 80 square meters, Three-

Bedroom 111 to 137 square meters and the biggest units are the Penthouses 320

to 420 square meters. The project is expected to be completed by the fourth

quarter of 2021.

Casa Mira Towers Labangon

Launched in 2016, this is CLI’s first foray in the economic segment of residential

condominiums. It is located in Labangon, Cebu City on a 3,681-sq.m. property that

used to be the location of the old CLI headquarters. It has 13 two towers on top of

a commercial podium and a total of 686 residential units. It offers 20-sq.m. studio

units and 1-bedroom units averaging 37 sq.m. units were pre-sold at P1.25 million

to P1.43 million. Development started in June 2016 and is expected to be finished

by the middle of 2018.

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Casa Mira Towers Guadalupe

Located across the Fooda intercestion of V. Ramos St., and V. Rama, Casa Mira

Guadalupe is a 5,342.81 sq. m. residential condominium. It has 544 units in total,

with retail components of the first two floors of the building. This beautifully

designed two-towered residential Condominium offers quality living and an

upgraded lifestyle. A studio room currently costs about P 1.97 million pesos,

whereas units were pre-sold at 1.58 million. This project is expected to be

completed by 2021.

Midori Residences

This zen-inspired mid-market residential condominium development is located in

Banilad, Mandaue City, Cebu. This twin-vertical development is the first of its kind

in the city. Its 22-sq.m. studio and 40-sq.m. 1-bedroom units were pre-sold at an

average of P1.3 million to P2.6 million. It is fully developed, completed and fully

sold out a total of 396 units.

Mivesa Garden Residences

Located in Lahug, Cebu City and launched in 2013, this 1.8-hectare development

will be home to seven mid-rise, mid-market residential buildings, and is designed

as a garden-inspired community which has 60% open spaces within the prime

property. This is a three-phase project with the first two phases covering the first

five buildings. The first two phases offer 938 units consisting of studio, 1-bedroom

and 2-bedroom units. Pre-selling starts at P1.2 million for a 20-sq.m. studio unit,

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and up to P2.9 million for a 2-bedroom 48-sq.m. unit. Phase 1 and 2 are almost

sold out, completed and delivered. Phase 3 with a total of 576 units is currently

under construction and is expected to be finished by the 2nd quarter of 2020.

MesaVerte Residences

Launched in 2015, this is CLI’s first entry into the Mindanao market. It is located

on an 8,740-sq.m. property in downtown CDO, Misamis Oriental, and 60% of the

property is dedicated to open spaces. The project offers 20- sq.m. studio and 39-

sq.m. 1-bedroom units which were pre-sold at P1.47 million and P2.88 million

respectively. Of the 798 units, ninety four percent have been sold. The

development, which started construction last July 2016, is expected to be

completed by the 4th quarter of 2018.

MesaTierra Garden Residences

Located in Emilio Jacinto Extension, the heart of Davao City, this 5,094 sq m.

condominium development has a total of 694 residential units priced between

P1.60 – P 3.40 million. This condominium has various amenities like swimming

pools, a sky garden, a playground and work spaces. This condo project is expected

to be turned over by the 2nd Quarter of 2020.

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MesaVirre Garden Residences

Launched in the first quarter of 2018, MesaVirre Garden Residences, a 3-tower

condominium is the first project of CLI in Bacolod. The first tower consists of 294

units. The project is only 17 minutes away from the airport, 3 km from the Riverside

hospital and situated near a number of malls. Land development has already

started and building construction is expected to be finished by the end of 2020.

Asia Premier Residences

Launched in 2010, this is CLI’s first vertical high-end residential condominium

project. It is located at the Cebu IT Park and is also the first residential development

in the area. The units ranged from studio units sized at 28 sq.m. and 3-bedroom

units measuring 109 sq.m. It is fully developed and completed and has since sold

out its 88 units.

Base Line Residences

This 201-unit residential condominium project is located in uptown Cebu City on

Juan Osmeña Street. The project offered 23-sq.m. studio units at a pre-selling

price of P1.59 million, while its 41-sq.m. 1-bedroom unit presold at P3.15 million.

The project was launched in 2011, and is fully developed and completed, with its

201 units having been sold out.

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Base Line Premier

This development was launched in 2015 as the residential component of Base Line

Center, a one-hectare mixeduse development located along Juan Osmeña Street,

Cebu City and right beside another CLI project, Base Line Residences. It has 379

units consisting of 24-sq.m. studio and 45-sq.m. 1-bedroom units. Studio units pre-

sold at P2.22 million, while 1-bedroom units pre-sold at P4.16 million. Construction

started in March 2016 and is expected to be completed in December 2018.

Baseline Prestige

Located in Juana Osmena St., Kapmuthaw Cebut City, this 3,600-sq m Residential

Condominium the final tower to rise in the Base Line Center. With over 351 units,

each unit is designed to be spacious and accessible to various establishments.

This tower has a wide range of amenities, from retail podiums, fitness gyms, pools

and playgrounds. Units for this project are being sold for P2 million to P 10 million.

The project is set to be completed by 2021.

Commercial development projects:

Astra Corporate Center

Part of the mixed-use project in AS Fortuna, is Astra Corporate Center, the office

leasing component of Astra Centre. The Office building is 15-storey high with a

total of 28,000 sq.m. of gross floor area. The project is expected to be completed

and be a source of leasing income of the company by 2022.

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Park Centrale Tower

Park Centrale Tower is CLI’s first office development. Located at the Cebu IT Park,

the 19-storey Grade A office tower was launched in 2013 with a total construction

floor area of 17,500 sq.m., and total GFA of 11,920 sq.m., and was completed in

only two years of construction. The project was positioned to cater to both BPOs

and executive offices. Thus, 60% of the office spaces were offered for lease, while

40% were sold as office condo units and were fully sold-out. In 2014, the project

was awarded as the Best Commercial Development (Cebu) at the 2014 Philippines

Property Awards.

Base Line HQ

This is the office component of the Base Line Center, a major mixed-used project

of CLI. Similar to its successful Park Centrale Tower, this also caters to both BPOs

and executive offices. CLI offers for sale 60% of the floors as office condos, while

the Company will retain 40% for its growing leasing business. With its location near

Osmeña Boulevard/Mango Avenue, this will emerge as a very strategic business

address for those in the medical, legal, government and outsourcing services.

There is a total of 74 office units with areas ranging from 33 sq.m. to 142 sq.m.

Latitude Corporate Center

This is a green building project registered with BERDE, the nationally accepted

green building rating system used to measure, verify and monitor the

environmental performance of buildings that exceed existing mandatory

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regulations and standards in the Philippines. This 34,000-sq.m. development is a

project of BL CBP Ventures, Inc., a joint venture company of CLI and Borromeo

Bros, Inc. At 24-storeys, this will be the tallest office development at the Cebu

Business Park. As the project’s developer and manager, CLI uniquely positioned

this project as a three-product office development with BPO, enterprise and

executive office offerings. With its iconic design and green building features, the

project is aiming for a 3-star BERDE certification.

Park Avenue Corporate Tower

This Grade A office building with over 20,000 sq.m. of leasable area is one of the

company’s future projects in the recently acquired 1.17-hectare property inside the

Cebu IT Park. The development will cater to BPO and other commercial offices

and retail establishments.

Mixed-use development:

With its growing brand, experience and portfolio, CLI pursued larger scale

developments in prime urban locations. CLI’s first major mixed-use development

is the Base Line Center, a 1.6-hectare modern redevelopment in the heart of

midtown Cebu. The company removed the existing structures in the old Base Line,

a well-known favorite gathering place of Cebuano families, and built a mixed-use

development. Phase 1 of Base Line Center will be completed in Q1 2019. It will

house a retail center, residential condominium units, offices and the first Ascott-

managed property outside Manila, the Citadines Cebu City.

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CLI, through its joint venture, El Camino, also acquired a 1.17-hectare property

inside the Cebu IT Park, the largest remaining private property inside the

prestigious address. This property called 38 Park Avenue at the Cebu IT Park, will

be transformed into a mixed-use urban park with a 38-storey residential tower,

BPO office and retail boulevard.

In 2017, CLI launched another major mixed-used development, the AS Fortuna

Center (Astra Center), in the bustling AS Fortuna Mandaue area, a growing

commercial district and the major thoroughfare that connects Cebu and Mandaue.

This medium-density project will house a hotel, residential, office and boutique

mall.

CLI also entered into two new joint venture to develop a mixed-use development

in Riverside Davao and a Central Business District in Matina Davao. The 1.9-

hectare Riverside project in McArthur Highway will feature BPO offices, a

residential condo, serviced residences (condotel) and retail commercial areas. The

22-hectare Matina project on the other hand will be developed into a large scale

self-contained community with office, residential, retail and institutional uses.

Mixed-Use Developments: Base Line Center, Astra Center, 38 Park Avenue at the

Cebu IT Park, Riverside Davao Mixed-use, Davao Matina CBD

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Hotel and recreational development:

Citadines Cebu City

After sealing a partnership with Scotts Philippines, Inc., a wholly-owned subsidiary

of The Ascott Limited (“Ascott”), the world’s largest serviced residence operator.

CLI will develop Citadines Cebu City, with Ascott as the hotel operator. Citadines

Cebu City will house over 180 rooms, of which 92 condotel units were offered for

sale and 88 units will be retained by the Company. The units for sale are already

sold out. Citadines Cebu City is expected to be operational by the 1Q of 2019.

Astra Hotel

Located at AS Fortuna Mandaue, Astra Hotel has approximately 146 hotel rooms.

Its prime location which is near the airport and many malls around Cebu, sets it

apart from other hotels. Astra Hotel is expected to start operations on 2021 and

will be managed by Radisson Red.

Baseline Lyf Hotel

Part of the 3rd tower of the Baseline Center project is Baseline Lyf Hotel, a 153-

room serviced residence targets the booming local and foreign millennial market

in Cebu City. The hotel will be managed by Ascott Limited, one of the world’s

leading international serviced residences. This project is set to be completed by

2021.

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Citadines Riverside Hotel

Located at General Douglas Mcarthur Highway, Bucana Tolomo, Davao City,

Citadines Riverside is an apartment hotel which will be managed by Ascott. The

hotel is designed to provide guests its world class amenities, such as a fully-

equipped kitchen, home entertainment, dining and retail outlets. Citadines

Riverside is set to open on 2021.

Industrial development:

CLI intends to diversify into industrial development through its associate, Ming

Mori, which has proposed to finance, design and undertake the Ming-Mori

Reclamation Project through private-public partnership with the Municipality of

Minglanilla. The proposal of Ming-Mori was accepted and endorsed by the

municipal council of the Municipality of Minglanilla in May 2013 and since then, the

Municipality of Minglanilla has submitted to the PRA a letter of intent to undertake

the reclamation and land development of the proposed project.

In December 2016, the Municipality entered into a Memorandum of Understanding

with the PRA setting out requirements and timeline for the review and evaluation

of the project. CLI has subscribed to shares equivalent to 19.87% of Ming-Mori,

the issuance of which is subject to the approval by the SEC of Ming-Mori’s increase

in authorized capital stock.

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5.4 Financial Performance Indicators

TABLE 5.2 CEBU LANDMASTERS, INC. FINANCIAL PERFORMANCE INDICATORS
MEASURES METHODS OF PERFORMANCE
COMPUTATION 2015 2016 2017

LIQUDITY AND PRUDENT DEBT

MANAGEMENT

Working Capital Current Assets-Current 1,485,937,455 2,275,069,381 6,071,077,792

Liabilities

Current Ratio Current Assets/ Current 2.09 2.24 2.67

Liabilities

Debt to Equity Total Debt/Total Equity 1.94 2.34 1.33

Interest Coverage Ratio EBITDA/Interest Paid 67.71 13.23 15.94

PROFITABILITY

Gross Profit Margin Gross Profit/ Revenues 56% 52% 52%

Net Profit Margin Net Profit/Revenues 33% 33% 32%

Return on Assets Net Income/Ave. Total 13% 15% 11%

Assets

Return on Equity Net Income/Ave. Total 42% 58% 40%

Shareholder’s Equity

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Current Ratio (Current Assets / Current Liabilities) – The Company’s current

ratio is strong, as with the rest of the liquidity ratio as they can easily cover their

short-term obligations. This, however, is composed mainly of trade receivables

which may suggest inefficiencies in collections and significantly higher percentage

of cash and cash equivalents in 2017 from proceeds from the recent IPO.

Explanation: When a current ratio is low and current liabilities

exceed current assets (the current ratio is below 1), then the company may have

problems meeting its short-term obligations (current liabilities).

Debt to Equity Ratio (Total Debt / Total Shareholders’ Equity) – As was the

message in the above ratio, the Company’s debt-to-equity shows positive results,

but it might have a legroom for incurring more debt to take advantage of the

increased profits that it may bring. Due to BOI egistration provisions and

agreements with financial institutions involved, debt to equity ratio is capped at

75:25.

Explanation: In general, a high debt-to-equity ratio indicates that a company may

not be able to generate enough cash to satisfy its debt obligations. However, low

debt-to-equity ratios may also indicate that a company is not taking advantage of

the increased profits that financial leverage may bring.

Interest Coverage ((EBITDA) / Interest Paid) – The interest coverage ratio is

used to determine how easily a company can pay their interest expenses on

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outstanding debt. In the Company’s ratios, there is no doubt in its capacity to pay

their interest expense in 2015 to 2017.

Gross Profit Margin (Gross Profit / Sales) – The Company’s gross profit margin,

comparable to its nearest competitor Ayala Land, is significantly higher. This

suggests that the Company is able to sell its inventories and services at a premium

or against lower costs.

Net Profit Margin (Net Profit / Sales) – We again compare the Company’s Net

Profit Margin with Ayala land and CLI produces a higher margin. Net profit margin

played within a very tight range of 32-33%

Return on Assets (Net Income / Ave. Total Assets) – The Company enjoys

Return on Assets beyond industry average mainly due to its mainly due to its asset

light model.

Explanation: Return on Total Assets is an indicator of how profitable a company is

relative to its total assets.

Return on Equity (Net Income / Ave. Total Shareholders’ Equity) – As with the

Return on Assets, the Company enjoys a very high ROE of around 40-50% range,

significantly higher that peer averages of around 9-10%.

Explanation: Return on Equity is the amount of net income returned as a

percentage of shareholders equity.

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5.5 Mckinsey’s 7s Framework

Strategy

Garcia-Yap (2017) reported that according to CLI chief executive officer (CEO),

Jose R. Soberano, Cebu Landmasters Inc. employs an ‘acquire and develop

immediately strategy’ when it imbarked on an initial public offering (IPO) in 2017.

Mr. Soberano said that the capital raised from the IPO is to be used primarily to

pay out existing agreements for properties that they started acquiring outside

Cebu. In the same report, Mr. Soberano said “we will focus our expansions in the

VisMin area, especially in these areas where we have set (out) to expand. These

are the areas where we see demand for products that we have been successfully

offering here in Cebu,” referring to continued expansion in Cebu, entry in Davao,

Dumaguete, Iloilo, Bacolod and Cagayan de Oro.

Galolo (2017) reported that Mr. Soberano provided information that CLI is slated

to tap the debt market to be able to raise P5 billion to P10 billion to finance its

expansion plans.

Structure

The Board of Directors of Cebu Landmasters, Inc. works closely with the

corporation’s Officers and Managers by committing to the principles and practices

contained in their manual on corporate governance, constituting sound strategic

business management.

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TABLE 5.3 THE BOARD OF DIRECTORS

Jose R. Soberano III Chairman, President & CEO

Ma. Rosario B. Soberano Director, EVP & Treasurer

Jose Franco B. Soberano Director, EVP & COO

Jonna Marie Soberano- Director, Vice President & Marketing

Bergundthal Director

Rufino Luis T. Manotok Independent Director

Ma. Aurora Geotina-Garcia Independent Director

Jesus N. Alcordo Independent Director

Jose P. Soberano, Jr. Independent Director

Janella Mae B. Soberano Director

TABLE 5.4 THE EXECUTIVES

Stephen A. Tan Senior Vice-President & CFO

Engr. Pedrito Capistrano, Jr. Vice-President – Engineering

Macario Balali Assistant Vice-President – Human

Resources

Connie Guieb Vice-President – Accounting & Financial

Comptroller

Marie Rose Yulo Vice-President – Sales and Customer Care

Sylvan John Monzon Assistant Vice-President – Business

Development

Atty. Larri-Nil Veloso Vice-President – Legal and Permits

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System

The Company now uses the Percentage of Completion(POC) Method of revenue

recognition to align with the industry practice and adapt in advance the Philippine

Financial Reporting Standards (PFRS) 15 dictating that revenue from contracts be

recognized in reference to the stages of development of the properties. The use of

the POC method requires the Group to evaluate the stage of completion of the

project or development using relevant information such as costs incurred to date

as a proportion of the total budgeted cost of the project and inputs from its

engineers, contractors and other experts.

The Group has no significant foreign currency exposure risks as most of its

transactions are carried out in Philippine pesos, its functional currency.

The Group’s goal in capital management is to maintain a maximum debt-to-equity

structure ratio of 75:25 on a monthly basis. This is in line with the Parent

Company’s compliance with requirement of the BOI and banks.

The Group sets the amount of capital in proportion to its overall financing structure,

i.e., equity and financial liabilities. The Group manages the capital structure and

makes adjustments to it in the light of changes in economic conditions and the risk

characteristics of the underlying assets. In order to maintain or adjust the capital

structure, the Group may adjust the amount of dividends paid to shareholders,

issue new shares or sell assets to reduce debt.

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Controls and internal rules on key issues (like conflict of interest) is provided in the

company’s manual on corporate governance, with penalties in place in case of

violation of any of the provisions in the manual.

The following penalties shall be imposed, after due notice and hearing, on the

Company’s directors, officers, and employees:

1) First Violation – reprimand;

2) Second Violation –suspension from office, the duration of which shall depend

on the gravity of the violation; and

3) Third Violation – removal from office

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Shared Values
Mission

To transform properties into exceptional developments where people can proudly

live, work and thrive.

TABLE 5.5 MISSION PARAMETERS

Parameters Yes/No If Yes, which part of the statement
Customers Yes People can proudly live, work and
thrive.
Products and Yes Exceptional developments
Services
Markets No -
Technology No -
Concern for Survival, No -
Growth and
Profitability
Philosophy Yes Transform properties into exceptional
developments
Concern for public Yes People can proudly live, work and
Image thrive.
Employees No -

Vision
By 2020, CLI envisions to be the leading and a highly diversified real estate

developer in Visayas and Mindanao delivering sustainable value for its employees,

customers, partners, investors and community.

TABLE 5.6 VISION PARAMETERS

Parameters Yes/No Why
Does it clearly answer Yes The company envisions to be the
the question: What do leading and a highly diversified real
we want to become? estate developer in Visayas and
Mindanao.
Is it concise yet Yes The company’s aim to sustain value
inspirational? is clear while being concise.

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Is it aspirational? Yes The company’s intentions towards its

stakeholders are clear.
Does it give clear Yes The company has set its sight for the
indication as to when achievement of its vision by the year
it should be attained? 2020.

The company’s mission and vision would have checked all the parameters aside

from technology had it been treated as a singular statement. With that said, only

minor changes in the wordings and placements of its mission and vision is

necessary.

The company’s core values are:

C – Customer-First

C – Collaboration

C – Competence

L – Leadership

I – Integrity

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Style

Leadership comes directly from the founder

himself. Joe Soberano leads Cebu Landmasters,

Inc. as its Chairman and CEO. Prior to

establishing Cebu Landmasters in 2003, he

worked for the Ayala Group of Companies for

over 23 years. His experience included various

stints with Ayala Investment, Bank of the

Philippine Islands and Ayala Land, Inc. He was

FIGURE 5.3 THE CHAIRMAN
part of the pioneering group that established Cebu

Holdings, the Ayala Land subsidiary in Cebu City, where he led various vertical

and horizontal developments, and played an integral part in the development of

both the Cebu Business Park and Cebu IT Park – urban redevelopments that have

proven vital to Cebu’s economic present and future.

Based on CLI’s 14-year history, Macaraeg (2018) provided some insights on how

Mr. Soberano leveraged their size and agility against their big competitors:

Personal touch

“The priorities are also there for the large companies, of course. If they could only

do that, they will. It's just that their hands are tied. Unlike me, [when] I was starting,

I know what to do to make things count,” Soberano explained.

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CLI’s tagline is “We Build With You In Mind,” and the Soberano family really places

it to the core. This “personal touch” can go from his son, Franco,

delivering lechon during a homeowners’ meeting, to Joe personally handing over

the keys to residents.

Low overhead cost

CLI built its first project in 2003, which was a residential subdivision for the

employees of a shipbuilding company in Balamban, Cebu. Though there were big

developers already present in the province, Soberano surmised they steered away

from the project because it would have cost them more because of their larger

overhead cost. “Probably they figured, ‘What kind of money are we even going to

get from here? It's not going to be (enough),’” he said.

Big companies would have had to disburse more money for the project,

considering that they have a larger workforce. In contrast, Soberano recounted

how he did his first pitch for the Balamban housing project: “It was just me and an

assistant. I did the planning, I did the follow-up, permits--I was even the one doing

the [sales] presentation in the auditorium. During break time, my assistant would

distribute the sandwiches. I will be the one opening the soft drinks,” he said with a

chuckle.

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Soberano revealed he earned a 30-percent profit margin on the project and

speculated that if big developers have done it, they would have probably earned

only around 10 percent.

Better relationships with clients

“Honestly, this is sometimes the irony of business. If you ask contractors whom

they would like to build it better, they'd like to look at us, medium companies.

Because they feel that they can talk to the owner directly,” he said.

Based on Soberano’s experience, considering that he had previously worked with

Ayala Corp. as project manager at regional subsidiary Cebu Holdings Inc. for 23

years, this type of setup works better because it presents a more effective work

dynamic, making the clients feel more secure.

Reduced bureaucracy

“They'd rather give a good price, a much lower price to me because [it’s] unlike the

bureaucracy of presenting a billing, and how long will it take for them to get the

releases,” he said.

Relationship with LGUs

“Quite honestly, that's probably where I could have an edge over those big ones:

being able to get the confidence of the LGUs, and because of the more direct

association,” he shared.

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Skills

The Cebu Landmasters Advantage

HANDS ON SERVICE VISMIN REAL ESTATE EXPERTISE

o Monthly Construction Updates o Vismin/Local Expertise
o Customer Care o High Quality Delivery
o Timely Responses o Best Value Expertise
o Regular Updates

STRINGENT LOCATION SELECTION RESPONSIBLE DEVELOPMENT

o Accessibility to Main Road o Eco-friendly, Green Features
o Close to Major Establishments o Commitment to Community
o Ease of Access to Public o Development & Enhancement
Transportation
FIGURE 5.4 CLI ADVANTAGE
Aside from company claims on their advantages, the company is also known for

their projects that are usually sold-out at a higher selling velocity than competitors.

Moreover, CLI takes utmost pride in its timely construction and delivery of projects,

and it has even outperformed national players in Cebu in that aspect. On the

average, the Company can convert raw land into a completed project in less than

two to three years depending on the project size.

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Staff

As of the end of 2017, the company has a total of 211 employees broken down per

department as follows:

TABLE 5.7
Department Number of
Employees

Sales and Customer Care 33

Marketing 10
HR and Admin 10

Accounting and Finance 41

Business Development 11
Documentation, Legal, Permits, and Licenses 26
Property Management 13
Engineering 53

Internal Auditor 2
Top Management 3

As of November 19, 2018, the company is continuously recruiting for more

positions, especially in their project/property management business, as well as

documentation, legal, permits & licenses department.

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5.6 Internal Audit

CLI is a Cebu-based real estate development company. It is owned by the

Soberano family, headed by Jose R. Soberano III, a local of Cebu. Mr. Soberano

established CLI upon retirement after working for the Ayala Group of Companies

for over 23 years.

14 years in operations, the company attained being one of the top real estate

players in the Visayas region with a growing mix of residential, commercial,

hospitality, and mixed-used projects. Multiple market segments are catered by the

company. However, CLI’s strength lies in the economic and mid-income residential

categories, see in its pre-IPO residential revenue mix: 44% economic, 38% mid-

market, 16% high-end, and 2% socialized. CLI has developed 18 residential

condominiums & subdivisions, 3 commercial developments, 2 hotels, and new

projects in various stages of development.

CLI was listed in the local bourse, Philippine Stock Exchange (PSE), on June 2,

2017. CLI sold 505 million shares by primary offer and 75 million shares through

an over-allotment option, each priced at P5, which brings the total offer size to P2.9

billion.

As of April 18, 2018, through a PSE disclosure of public ownership, CLI reported

that 561,014,999 of 1,714,000,000 listed common shares are publicly owned. That

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amounts to a public ownership of 32.77%. The rest of the listed common shares,

1,152,958,001, is owned by the Soberanos and various directors and officers.

Ownership Structure

Public
33%

Non-Public
67%

Non-Public Public

FIGURE 5.5 OWNERSHIP STRUCTURE

CLI has an excellent track record in executing its projects based on company’s

high project absorption rate and fast project turnover. Given the company’s

strategy of selling better quality residential projects at a slight discount to its peers.

Projects are usually sold-out at a higher selling velocity than competitors. Among

its completed projects, 97% of the inventory has been sold out. On average, the

company can convert raw land to a fully developed project in 2 to 3 years. Another

reason for attractiveness towards buyers.

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The company enjoys superior financials relative to its peers. CLI was able to grow

its earnings by a CAGR of 27% between 2014 to 2016, significantly faster than its

peers, ranging from 7% to 13% CAGR. The company’s target revenues in 2020 is

at P10.0-billion, this will translate to a CAGR of 46% from 2016 to 2020.

Reservation sales are strong, with reservation sales amounting to P4.58-billion in

2017.

The company also enjoys a very high ROE relative to its peers. CLI’s ROE in 2017

is 40%, significantly higher than the 9% to 11% range of its peers. This is achieved

through its asset light model.

CLI sources construction materials and services from third party suppliers and

service providers both in the local and national level who meet the company’s strict

quality standards through pre-qualification and a bidding process. No shortage of

raw materials or services is foreseen for its day-to-day operations. In line with this,

the company is not dependent on any single supplier or service provider. Land

development and construction is conducted through contractors on a per project

basis. The company mostly outsources architectural and engineering services for

its projects.

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Weakness

Weak recurring income

As of end 2016, the company’s rental income was only less than 2% of its total

revenue. Recurring income is derived from BPO floor space, executive office

space, residential and commercial units.

Low land bank

Due to its asset-light strategy, allowing it to enjoy high margins and ROE, CLI’s

retains a limited land bank. This may put future earnings growth at risk as

competition for land increases in Visayas and Mindanao, with the additional

inflationary pressures. The company downplays such, resorting to the company’s

strong brand name and track record in the region and its joint venture projects.

High Joint Venture (JV) dependence

High dependence on joint ventures for land acquisition or ability to have a sizeable

land for development

Low availability of assets for collateral

Some loans are collateralized by real properties of major shareholders w/out extra

cost to the group. While this may signify a strong commitment from the owners,

this also can signify that the company does not have enough collateral. Php309.97

Million of Php983.01 Million Fair Value estimates for 2017 from Investment

properties is used as collateral for some of the loans.

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High capital requirements

Because the company is in the early stage of its growth, it will continue to enjoy

significant earnings growth, with a majority of its projects are in various stages of

development. With this however, funding needs both for projects and land banking

activities are high in order to sustain growth.

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5.7 Internal Factors Evaluation Matrix

TABLE 5.8 IFE MATRIX
KEY INTERNAL FACTORS WEIGHT RATING SCORE

STRENGTHS

Focus on economic and mid-market segments .10 4 .40

High absorption rate .10 4 .40

Fast project turnover .05 4 .20

Low pricing compared to peers .10 3 .30

Strong financials .05 2 .10

Asset-light .10 4 .40

VisMin Focus .05 4 .20

Flexibility to take on more debt .05 3 15

WEAKNESSES

Weak recurring income .10 2 .20

Low land bank .15 1 .15

High JV dependence 0.08 2 .16

Low availability of assets for collateral 0.07 3 .21

High capital requirements 0.05 3 .15

TOTAL 1.00 3.02

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6 STRATEGY FORMULATION
6.1 TOWS Matrix
TABLE 6.1 TOWS
STRENGTHS-S WEAKNESSES-W
S1. Focus on economic and mid- W1. Weak recurring income
market segments W2. Low Land bank
S2. High absorption rate W3. High joint venture (JV)
S3. Fast project turnover dependence
S4. Low pricing compared to W4. Low availability of
peers assets for collateral
S5. Strong financials W5. High capital
S6. Asset-light requirements
S7. VisMin Focus
S8. Flexibility to take on more
debt
OPPORTUNITIES-O SO Strategy WO Strategy
O1. Emerging cities outside of SO1. (O1, O2, S1, S2, S3, S7) WO1. (W1, W4, O1, O3, O5,
Metro Manila Project launch in untapped O8) Boost in rental space
O2. OFW remittances expansion VisMin markets
of around 5% per annum WO2. (W1, W2, W4, O1, O3,
O3. BPO employees’ housing SO2. (O1, O2, O3, O4, S1, S2, O5, O6) Estate and
need S3, S7) Project launch in township developments
O4. Private sector’s involvement existing markets
in public construction
O5. Philippine Offshore Gaming WO3. (W2, W3, O4, O6, O7)
Operators (POGO) Build Build Build party
O6. Warehousing and logistics
demand WO4. (W1, W2, W3, O1, O2,
O7. Raised public infrastructure O3, O4) Strategic alliances
spending
O8. ASEAN Integration

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THREATS-T ST Strategy WT Strategy

T1. Competition for skilled ST1. (T2, T3, T4, S5, S8) Debt WT1. (W2, W3, W4, T2, T3,
workers Market and/or Real Estate T4) Aggressive land
T2. Unfavorable bank liquidity Investment Trust as funding banking
conditions with banks’ loans to
deposit ratio (LDR) already hit WT2. (W2, W4, T2) Land
75.6% as of end June 2018 reclamation
T3. Foreign exchange risks
(current exchange rate above
Php54 to the dollar)
T4. Upward trend on interest
rates
T5. Slower office take-up from
outsourcing firms

Market Development

S1, S2, S3, S7, O1, O2, O3, W2 – Project launch in untapped VisMin markets

Development and offering of current products in new (no company exposure) and

emerging cities in Visayas and Mindanao with inclusion of OFW data, among

others, in the selection process of new geographical markets to enter. Expedite

project launch in key development areas for earliest turnover of property to buyers.

Expansion of brands Casa Mira and Villa Casita is highly suggested.

Product Development

O1, O2, O3, O4, S1, S2, S3, S7, W2 – Project launch in existing markets

Development and offering of new projects and improvement on existing ones in

current markets that are Independent Component Cities(ICC) and underdeveloped

Highly Urbanized Cities(HUC) with exposure like (Bacolod, Bohol) with inclusion

of OFW data, among others, in project prioritization.

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W1, W4, O1, O3, O5, O8 – Boost in rental space

Increased development and exposure in office and hotel project to increase net

leasable floor area portfolio and hotel and recreation revenues.

W1, W2, W4, O1, O3, O5, O6 – Estate and township developments

Venture into Central Business District (CBD) estates in Davao and/or Metro Cebu,

banking on further growth in the Visayas and Mindanao region.

Diversification

T2, T3, T4, S5, S8 – Debt Market and/or Real Estate Investment Trust as

funding

Assess for other possible funding options to sustain growth while also providing

different but related products (i.e. REIT).

W3, W2, O4, O6, O7 – Build Build Build party

Venture in public infrastructure and industrial spaces such as warehousing and

logistics.

Backward Integration

W1, W2, W3, O1, O2, O3, O4 – Strategic alliances

Actively seek alliance that will further the company’s value. Seek ownership or

increased control over current joint venture projects with sizeable land bank.

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W2, W3, W4, T2, T3, T4 – Aggressive land acquisition

Go forth with land acquisition for future development. Direct acquisitions, joint

ventures and associate increase and other possible means should be exercised to

lower acquisition cost.

W2, W4, T2 – Land reclamation

Another option for land banking is land reclamation projects on the coast/s of

current market. This is a more tedious process that will heavily involve

governmental supervision. This will, however, boost land reserves for the company

for future development.

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6.2 SPACE Matrix

FIGURE 6.1 SPACE
FS
Conservative Aggressive
Market Backward, forward,
Penetration horizontal int.
Market
Market Development 6 Penetration
Product Market
Development 5 Development
Related Product
Diversification 4 Development
Diversification
3 (related/unrelated)
(2.67, 1.33)
2
CA 1 IS
-7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6
-1
Backward, forward,
Retrenchment -2 horizontal int.
Market
Divestiture -3 Penetration
Market
Liquidation -4 Development
Product
-5 Development
Defensive -6 Competitive
ES

X Axis: 2.67; Y Axis: 1.33

Cebu Landmasters, Inc., according to the results of the SPACE Matrix, is shown

to be on the aggressive quadrant. It is therefore concluded that the company is in

an excellent position to utilize internal strengths in exploiting external opportunities,

convert weaknesses into advantage, and guard itself against existing external

threats. As the product mix is continued to be diversified, it is feasible to build on

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product mix with weak exposure, it is also appealing for the company to penetrate

and develop new markets, as well as improve its products on the existing markets.

Backward, forward, and/or horizontal integrations may also be pursued, including

engineering and architectural designing in-house among others.

TABLE 6.2 SPACE MATRIX (VERTICAL AXIS)

Financial Strength (FS) Ranking Environmental Strength Ranking
(ES)
46.67% 3-year ave. ROE 6 Ecological initiative in -3
building
13% 3-year ave. ROA 4 Price range -2
3-year ave. Interest 5 Barriers of entry -4
coverage ratio of 32.29
52% 2017 Gross profit 4 Segments catered -1
margin
33% 2017 Net income 4 Rate of inflation -4
margin
Liquidity (2017 Current ratio 3 Competition for skilled -4
2.67) workers
TOTAL AVERAGE 4.33 TOTAL AVERAGE -3.00

TABLE 6.3 SPACE MATRIX (HORIZONTAL AXIS)

Competitive Advantage Ranking Industry Strength (IS) Ranking
(CA)
Quality of product -2 Growth potential 4
Market share -3 Financial stability 5
Absorption rate of projects -1 Dominated by few 5
Fast project turnover -1 Current supply deficit 5
Regional expertise -2 Benefit from fiscal policies 5
Asset-light model -3 Productivity 4
TOTAL AVERAGE -2.00 TOTAL AVERAGE 4.67
SPACE MATRIX Axes Conclusions:

Financial Strength (FS) Average: 4.33

Environmental Strength (ES) Average: -3.00

Competitive Advantage (CA) Average: -2.00

Industry Strength (IS) Average: 4.67

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6.3 IE Matrix
As one of the various strategic management tools, IE Matrix is utilized in analyzing

divisions’ current position and help suggest future strategies. Based on an analysis

of internal and external factors, the Internal-External (IE) Matrix is presented

below.

TABLE 6.4 INTERNAL-EXTERNAL MATRIX

TOTAL IFE WEIGHTED SCORE

IFE = 3.02 Strong Average Weak

3.0 to 4.0 2.0 to 2.99 1.0 to 1.99
EFE= 2.93

High
3.0 to 4.0

TOTAL EFE
WEIGHTED Medium
SCORE 2.0 to 2.99

Low
1.0 to 1.99

With the consideration of the company’s IFE total weighted score of 3.02 and EFE

total weighted score of 2.931, Cebu Landmasters, Inc. is positioned at Quadrant

IV. This translates to the company being best managed with grow and build

strategies that include: backward, forward, or horizontal integration, market

penetration, market development, and product development.

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6.4 Grand Strategy

RAPID MARKET GROWTH
Quadrant II Quadrant I
1. Market development 1. Market development
2. Market penetration 2. Market penetration
3. Product development 3. Product development
4. Horizontal integration 4. Forward integration
5. Divestiture 5. Backward integration
6. Liquidation 6. Horizontal integration

WEAK STRONG
COMPETITIVE 7. Concentric diversification COMPETITIVE
POSITION POSITION

Quadrant III Quadrant IV

1. Retrenchment 1. Concentric diversification

2. Concentric diversification 2. Horizontal diversification
3. Conglomerate
3. Horizontal diversification diversification
4. Conglomerate diversification 4. Joint ventures
5. Liquidation

SLOW MARKET GROWTH

Firms found in Quadrant I are in a prime strategic position. Continued

concentration on current markets, providing product and market developments as

well as penetration of other markets are the appropriate approaches of these firms.

It is recommended for firms in this quadrant to follow these strategies: market

development, market penetration, product development, forward integration,

backward integration, horizontal integration, and related diversification.

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6.5 Summary of Strategies

The summary of strategies will take into account previous matrices and tools

utilized to come up with a shortlist of strategic options. The utilization of various

information drawn from external and internal analysis is exercised.

TABLE 6.5 SUMMARY OF STRATEGIES

STRATEGY OPTIONS TOWS SPACE IE GSM TOTAL

Forward Integration X X X 3
Backward Integration X X X X 4
Horizontal Integration X X X 3
Market Penetration X X X 3
Market Development X X X X 4
Product Development X X X X 4
Diversification X X X 3

The identified strategies that received the highest rating are backward integration,

market development and product development, all garnering 4 points.

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6.6 QSPM
TABLE 6.6 QUANTITATIVE STRATEGIC PLANNING MATRIX

KEY FACTORS WEIGHT BACKWARD PRODUCT MARKET

INTEGRATION DEVELOPMENT DEVELOPMENT

EXTERNAL OPPORTUNITIES AS TAS AS TAS AS TAS

1 Emerging cities outside of Metro Manila 0.15 3 0.45 4 0.60 3 0.45
2 OFW remittances expansion of around 5% per
0.08 4 0.32 4 0.32 4 0.32
annum
3 BPO employees’ housing need 0.05 3 0.15 3 0.15 3 0.15
4 Private sector’s involvement in public construction 0.08 3 0.24 3 0.24 3 0.24
5 Philippine Offshore Gaming Operators (POGO) 0.02 3 0.06 3 0.06 3 0.06
6 Warehousing and logistics demand 0.05 3 0.15 4 0.20 4 0.20
7 Raised public infrastructure 0.15 3 0.45 4 0.60 4 0.60
8 ASEAN Integration 0.08 3 0.24 3 0.24 3 0.24
EXTERNAL THREATS

1 Competition for skilled workers 0.04 2 0.08 3 0.12 2 0.08

2 Unfavorable bank liquidity conditions 0.08 1 0.08 3 0.24 3 0.24
3 Foreign exchange risks 0.04 2 0.08 3 0.12 3 0.12
4 Upward trend on interest rates 0.08 2 0.16 3 0.24 3 0.24
5 Slower office take-up from outsourcing firms 0.1 2 0.20 3 0.30 3 0.30
INTERNAL STRENGTHS

1 Focus on economic and mid-market segments 0.1 3 0.30 3 0.30 4 0.40

2 High absorption rate 0.1 3 0.30 2 0.20 3 0.30
3 Fast project turnover 0.05 4 0.20 2 0.10 3 0.15
4 Low pricing compared to peers 0.1 3 0.30 3 0.30 4 0.40
5 Strong financials 0.05 3 0.15 4 0.20 3 0.15
6 Asset-light 0.1 2 0.20 4 0.40 3 0.30
7 VisMin Focus 0.05 4 0.20 4 0.20 4 0.20
8 Flexibility to take on more debt 0.05 4 0.20 4 0.20 4 0.20
INTERNAL WEAKNESSES

1 Weak recurring income 0.1 2 0.20 3 0.30 3 0.30

2 Low land bank 0.15 4 0.60 3 0.45 2 0.30
3 High JV dependence 0.08 4 0.32 3 0.24 3 0.24
4 Low availability of assets for collateral 0.07 4 0.28 2 0.14 3 0.21
5 High capital requirements 0.05 2 0.10 4 0.20 3 0.15
TOTAL ATTRACTIVENESS SCORE 2 6.01 6.66 6.54

Rating Score: 4=Most Acceptable, 3=Probably Acceptable, 2=Possibly Acceptable, 0=Not Acceptable

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Product development scored the highest attractiveness with 6.66, which the

researcher considered to be the main direction for the company moving forward.

Market development scored tightly close with 6.54. Backward integration scored

6.01, mainly due to lesser optimization for long term growth perceived by the

researcher, as well as the strategies easy compatibility with the 2 higher-scored

strategies.

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7 STRATEGIC OBJECTIVES AND RECOMMENDED

STRATEGIES
7.1 Recommended and Revised Mission-Vision Statement
It is to be noted that the researcher finds the current Mission-Vision Statement to

be satisfactory in how the company sees itself and what it aims to become.

However, for the sake of compliance with parameters provided, here is the

recommended revision for the mission-vision statement of Cebu Landmasters,

Inc.:

Mission

To transform properties into exceptional, future-proof developments where people

can proudly live, work and thrive, while ensuring sustainable value for its

employees, customers, partners, investors and community.

Vision

By 2020, CLI envisions to be the leading and highly diversified real estate

developer in Visayas and Mindanao, touching the lives of every stakeholder in a

sustainable manner.

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7.3 Strategic Objectives

Short and long-term objectives are as follows:

1. Increased portion of rental income, allotting 8-12% of the company’s total

revenues by 2021.

2. Completion of the company’s first major central business district

development in 2022.

3. 40% growth in land inventory by end 2018.

4. A portfolio of 70 projects in various phases of development by end 2019.

7.4 Proposed Strategy

Using all the gathered necessary internal and external information about the

Company, its position in the industry, and the industry outlook, it is recommended

that Cebu Landmasters, Inc. prioritize a strategy of grow and build, particularly in

product development. The product development initiative that the researcher came

up is focused continuous launch of new developments in the existing markets,

increased portfolio of rental properties, and estate and township development,

particularly in the development of its first central business district (CBD). Aside

from product development, the previous chapters allowed the researcher to

conclude that the next best strategies are market development and backward

integration.

Looking into the Company’s several projects in various stages of completion, it is

concluded that CLI has a good system in developing and selling vertical and

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horizontal projects but there is a need for the company to develop a flagship project

in the future, possibly in the form of a CBD or other integrated estate development

that will cement the Company’s success today and tomorrow.

Product Development

W1, W2, W4, O1, O3, O5, O6 – Estate and township developments

Venture into Central Business District (CBD) estates in Davao and/or Metro Cebu,

banking on further growth in the Visayas and Mindanao region.

For decades, CBDs have become an integral part of the urban development all

over the world. From foreign CBDs like the Midtown Manhattan Financial District

in New York, U.S.A., Zurich Financial District in Zurich, Switzerland and

International Financial Center in Dubai, U.A.E. to local CBDs like Bonifacio Global

City in Taguig and Cebu Business Park in Cebu. As important as they are for their

nation and the localities that these districts are located, their development has

become the face that showcases the identity of the developers behind such

districts. A great example would be Makati’s development and it being almost

synonymous with the Zobel de Ayala family, Ayala Corporation, and its real estate

arm, Ayala Land, Inc.

The researcher sees such a development for CLI to be a flagship project,

cementing the values of the company and the image of what CLI is and what CLI

will be in the short, medium, and long-term future.

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Market Development

S1, S2, S3, S7, O1, O2, O3, W2 – Project launch in untapped VisMin markets

Development and offering of current products in new (no company exposure) and

emerging cities in Visayas and Mindanao with inclusion of OFW data, among

others, in the selection process of new geographical markets to enter. Expedite

project launch in key development areas for earliest turnover of property to buyers.

Expansion of brands Casa Mira and Villa Casita is highly suggested.

In the most recent reports during the writing of this research, Cebu Landmasters,

Inc. has developments in what they call “8 key cities in VisMin.” These key cities

are Cebu, Mandaue, Davao, Cagayan de Oro, Dumaguete, Bacolod, Iloilo, and

Bohol. The researcher concludes that these markets are potentially limiting and

could impede growth in the future as well as achieving dominance over the markets

of Visayas and Mindanao. Sections of Eastern Visayas and Southern Mindanao,

many are even Highly Urbanized Cities (HUC) like General Santos, Iligan, and

cities across the company’s roots from the province of Leyte.

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Backward Integration

W2, W3, W4, T2, T3, T4 – Aggressive land acquisition

Go forth with land acquisition for future development. Direct acquisitions, joint

ventures and associate increase and other possible means should be exercised to

lower acquisition cost.

TABLE 7.1 PARCELS OF LAND OWNED BY THE COMPANY AND ITS RELATED ENTITIES

As we can see in the table (Table 7.1) above, due to the asset-light model that the

company operated as of end 2017 with 863,178 sq.m. or 86.31 hectares only. A

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far cry from the competitors used for comparison in this research with Filinvest

Land, Inc. (FLI) having more than 2,200 hectares of land bank nationwide and

Ayala Land, Inc. (ALI) with 10,285 hectares over the same period.

7.5 Departmental Programs

Top Management

The Top Management mainly serves as the oversight for all the aspects of running

and managing the organization.

Action Plan:

2nd quarter, 2018. This is the period for discussion and approval of capital raising

activities, arranging meetings with banks in order to tap debt market for necessary

funding of upcoming projects and the plans of aggressive land banking.

a. Top management, with emphasis on its accounting and finance department,

should focus on the approval and selling of corporate bonds.

b. Analyst briefings and annual stockholder meetings must include the

discussion of plans for capital raising and reporting on the process and

completion of corporate goals.

c. Earmarking and utilization of current funds, as well as the proceeds from

debt market, must be done effectively and efficiently, creating controls for

expenditures and investments in partnerships.

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Accounting and Finance

The Accounting and Finance Department is responsible for the controllership of

the organizations expenditures and the ability to meet various financial obligations.

Action Plan:

a. Assessment and management of risks involved in the going concerns of the

business as well as the proposed projects and its funding, presenting it to

the executive officers.

b. Assessment of future needs according to CLI’s operational and expansion

costs.

c. Ensuring the maintenance of the 75:25 debt-to-equity ratio requirement.

Documentation, Legal, Permits, and Licenses

The Documentation, Legal, Permits, and Licenses Department is responsible for

general legal and regulatory compliance services needed by the organization.

Specific service revolves around management of contracts, documentation of

transactions, claims made against or made by the organization, sales and lease

matters, etc.

Action Plan:

a. Ensure compliance of regulatory and internal policies within the company.

b. Expedite permits and licenses procedures.

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c. Asses legal/regulatory risks involved in current and future business

developments.

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Sales and Customer Care

The Sales and Customer Care department is responsible for dealing with clients

on the primary transaction of sale and after sales service should any issues occur.

Action Plan:

a. Ensure consistent customer care processes.

b. Development of other channels for sales and customer care transactions.

Business Development

The Business Development Department are the primary people arranging

transactions of possible integration of related activities or partnerships with

complimentary firms.

Action Plan:

a. Further develop and expand property management business of the

company.

b. Make necessary arrangements for the discussion of partnerships and joint

ventures with relevant firms.

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8 STRATEGY MONITORING AND CONTROL

8.1 Balanced Scorecard
TABLE 8.1 BALANCED SCORECARD TABLE
CATEGORIES OBJECTIVES TARGET RESPONSIBILITY
Above D – Driver
expectation A – Accountable
Alert C – Consulted
Below I – Informed
expectation
FINANCIAL A. REVENUE 80% increase or D – Sales and
GROWTH higher customer care
50% increase A – Sales and
or higher customer care
30% increase C – Accounting and
and below finance
I – Top
management
B. RENTAL 8-12% of total
INCOME AS PART revenue D – Top
OF TOTAL 5-8% of total management
REVENUE revenue A – Top
below 5% of management/ Sales
total revenue and customer care
C – Business
development
I – Top
management

C. LAND 45% and above D – Top

INVENTORY 35-45% management
GROWTH below 35% A – Top
management
development
I – Top
management
CUSTOMERS A. CUSTOMER Customer D – Sales and
SATISFACTION complaints customer care
1 in 15 A – Sales and
transactions customer care
1 in 10 C – Documentation,
transactions legal, permits and
1 in 8 licenses
transactions I – Top
management

B. SAFETY AND Reported D – Sales and

SECURITY incidence of crime customer care
None A – Sales and
up to 10 customer care
11 onwards

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C – Documentation,
legal, permits and
licenses
I – Top
management

D – Sales and
C. EFFECTIVE Number of customer care
CAPACITY defaults/ late A – Sales and
ASSESSMENT payments customer care
below 5% C – Documentation,
5-8% legal, permits and
beyond 8% licenses
I – Top
management
MANAGERS/EMPLOYEES A. EMPLOYEE Employee turnover D – Admin and HR
TURNOVER rate A – Admin and HR
2% C – Documentation,
5% legal, permits and
beyond 5% licenses
I – Top
management

B. Efficiency Revenue per D – Admin and HR

employee A – Admin and HR
15% increase C – Accounting and
No increase Finance
Decrease I – Top
management

OPERATIONS A. NUMBER OF Beyond 70 D – Business

PROJECTS projects development
67-70 projects A – Top
below 67 management
C – Documentation,
legal, permits and
licenses/ Business
development
I – Top
management

B. COMPLETION Operations in a D – Business

OF CBD PROJECT certain phase of development
projects A – Top
2021 management
2022 C – Documentation,
2023 legal, permits and
licenses/ Business
development
I – Top
management

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8.2 Financial Projections

Assumptions:

1. Aggressive land banking pushes through

Cebu Landmasters, Inc., earmarks Php1 Billion in land acquisition for 2018 and

another Php1 Billion for 2019.

2. Debt market proceeds, gross of Php5 Billion, 5-year corporate bond, reflected

in financial statements by 2019. Interest rate is at 6.5% p.a. with maturity in

3. Cost of construction for the Central Business District amounts to Php10 Billion

for 5-year construction, with CLI’s portion in the venture at 60%. Cost allotment per

year is: 2018 = 15%, 2019 =35%, 2020 = 15%, 2021 = 15%, 2022 = 20%.

TABLE 8.2 CBD COSTING

Year Cost CLI’s portion

2018 1,500,000,000.00 900,000,000.00

2019 3,500,000,000.00 2,100,000,000.00

2020 1,500,000,000.00 900,000,000.00

2021 1,500,000,000.00 900,000,000.00

2022 2,000,000,000.00 1,200,000,000.00

4. Annual revenue growth of 35% for the next 3 years.

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TABLE 8.3 PROJECTED OVERALL STRATEGY COSTS

Year Land Acquisition CBD Costs Interest Total

Payments
2018 1,000,000,000 900,000,000 325,000,000 2,225,000,000
2018 1,000,000,000 2,100,000,000 325,000,000 3,425,000,000
2020 900,000,000 325,000,000 1,225,000,000

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TABLE 8.4 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION PROJECTIONS

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TABLE 8.5 STATEMENT OF PROFIT OR LOSS PROJECTIONS

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TABLE 8.6 FINANCIAL RATIOS AFTER PROJECTIONS

MEASURES PERFORMANCE
2015 2016 2017 2018 2019 2020

LIQUDITY AND
PRUDENT DEBT
MANAGEMENT

Working Capital 1,485,937,455 2,275,069,381 6,071,077,792 7,008,859,876 11,214,904,844 12,703,696,945

Current Ratio 2.09 2.24 2.67 1.33 1.39 1.40
Debt to Equity 1.94 2.34 1.33 1.81 1.81 1.81
Interest Coverage 67.71 13.23 15.94 25.19 4.00 14.73
Ratio
PROFITABILITY
Gross Profit Margin 56% 52% 52% 40% 36% 48%
Net Profit Margin 33% 33% 32% 26% 22% 36%
Return on Assets 13% 15% 11% 13% 14% 27%
Return on Equity 42% 58% 40% 34% 40% 77%

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9 CONCLUSION
After careful analysis of the cumulative data from the previous sections, the

researcher implemented land banking, earmarking Php1 billion for 2018 and

another Php1 billion for 2018. Debt market is used for financing needs, tapping a

gross of Php5 billion, 5-year corporate bond at 6.5% interest p.a. Cost of

construction for the Central Business District is budgeted at Php10 billion, with

appropriate costs to the company of Php900 million in 2018, Php2.1 billion in 2019,

and Php900 million in 2020.

All of this is to be done in an effort to achieve the primary objectives of (1)

Increased portion of rental income, allotting 8-12% of the company’s total revenues

by 2021, (2) Completion of the company’s first major central business district

development in 2022, (3) 40% growth in land inventory by end 2018, and (4) A

portfolio of 70 projects in various phases of development by end 2019.

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APPENDICES
Appendix A

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Appendix B

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