Philippine Real Estate Outlook and Opportunities for Investment Market

Lindsay Orr,

Chief Operating Officer

March 2013

Philippine Real Estate :

Outlook and Opportunities for

Investment Market

Real Estate

2

•

Asia Pacific Market Overview

•

Philippine Property Market Overview

•

Growth Areas and Opportunities

•

Challenges

Outline of the Presentation

Philippine Property Asia Pacific

Market

Growth Areas &

4 4

Global Economic Challenges

Continue to linger…

US

•

Slow economic recovery

•

Fiscal woes

•

Massive government debt

EU

•

Very weak growth

•

Sovereign debt crisis

•

Government defaults

China

•

Slowing economic growth

•

Imbalanced growth

•

Territorial disputes

Middle East

•

Slowing growth

•

Political and social unrest

•

Government upheaval

Japan

•

Natural disaster risks

•

High government debt

•

Territorial disputes

Philippine Property Asia Pacific

Market

Growth Areas &

Asia Pacific commercial real estate markets buffeted by

global headwinds:

•

Asia Pacific property market weathered global challenges in 2012

•

Overall commercial leasing activity slightly subdued

•

Investment volumes remained stable throughout the year

•

Rental rates improve in most cities while rents decline in a select few

Philippine

6

Direct Investment into Asia Pacific Real Estate 4Q 2012

•

Transactional activity in Asia Pacific is stable, down only 3% from last year

•

Asia Pacific saw net outflows of capital from inter-regional investors

$13.8 billion

$2.3 billion

Inter-regional investment volume in Asia Pacific

totalled USD95bn for 2012

$2.0 billion

Global Sources of funds

$0.5 billion

$0.4 billion

Source: Global Capital Flows 4Q12

Philippine Property Asia Pacific

Market

Growth Areas &

40

70

100

130

160

190

220

250

1Q07

3Q07

1Q08

3Q08

1Q09

3Q09

1Q10

3Q10

1Q11

3Q11

1Q12

3Q12

Ne

t Effec

tiv

e Rents (1Q07

=1

00

)

Manila

Singapore

Hong Kong

Beijing

Mumbai

Bangkok

Jakarta

Kuala Lumpur

Sources: Jones Lang LaSalle (Real Estate Intelligence Service), 4Q 2012; The Office Rental Index, February 2013

Asia Pacific Rental Rates

Manila vis-a-vis Key Asia Pacific markets

Note: Figures relate to the major submarket (CBD) in each city. For Singapore, figures refer to Raffles Place only. *2012 rental growth refers to the annual change from 4Q11 to 4Q12.

Manila

Bangkok Jakarta Beijing

Kuala Lumpur Mumbai

Hong Kong Singapore

2012 rental growth*

Philippine

8

5,071

3,571

3,421

2,648

2,536

2,143

1,497

895

790

653

629

Hong

Kong

Beijing

Tokyo

Shanghai Singapore Mumbai Ho Chih

Minh

Jakarta

Manila

Bangkok

Kuala

Lumpur

8

Asia Pacific Rentals

4Q12 Average Grade A Rent (PHP/sqm/month)

Office rents in Manila continued to

grow in 2012, at around 3.3% y-o-y.

Despite the rental growth, Manila

remains one of the cheapest in the

region.

Note: (1) Manila refers to the Makati CBD and Bonifacio Global City Grade A office market.

(2) Figures relate to the major submarket (CBD) in each city. For Singapore, figures refer to Raffles Place only. Sources: Jones Lang LaSalle (Real Estate Intelligence Service), 4Q 2012; The Office Rental Index, February 2013 Exchange rate used (average Dec 2012): PHP 41.007: USD 1

Philippine Property Asia Pacific

Market

Growth Areas &

Supply Variations Across Region

Projected % Additions to Office Stock in 2013

10.2%

0%

5.2

%

0.9%

6.9%

7.4%

10.6%

8.7%

0%

9.3%

0%

18.7%

33.5

%

5%

Note: (1) Manila refers to the Makati CBD and Bonifacio Global City Grade A office market.

(2) Figures relate to the major submarket (CBD) in each city. For Singapore, figures refer to Raffles Place only. Sources: Jones Lang LaSalle (Real Estate Intelligence Service), 4Q 2012

Philippine

10 10

25*

emerging districts with approximately

More than 1,300 hectares

of developed land

Makati CBD

1 UP Techno Hub 2 Eton Cyberpod Centris 3 Eastwood City 4 Araneta Cyberpark 5 Greenhills Redevelopment 6 Rockwell BPO Complex 7 EDSA Central

8 Robinsons Cyberpark 9 Rockwell Center 10 Century City 11 McKinley Hill

12 SM Mall of Asia Complex 13 Metropolitan Business Park 14 Newport City

15 Aseana IT Business Park 16 Asiaworld City

17 Madrigal Business Park 18 Filinvest Corporate City 19 Greenfield City

20 Eton City 21 Nuvali Canlubang

Emerging Business Districts

Bonifacio Global City

Ortigas CBD

Property Market Direction

22 Arca South (FTI) 23 Vertis North 24 Fairview Terraces 25 Circuit Makati 22 23 24 25

Note: *Includes those that are geographically-located outside Metro Manila. Source: JLL Research & Consulting Philippine

12

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Makati

Ortigas Center

Bonifacio

Global City

Alabang

Quezon City McKinley Hill

Eastwood

City

Bay City

Mandaluyong

Araneta

Center

in

M

il

li

o

n

s

Current Supply

=

6.4M

Future Supply

=

1.6M

Office Property Market

Metro Manila Current vs Pipeline Supply

Total of 8M sqm. supply

across districts (current – 2016F)

3.04

1.43

0.52

0.32

0.15

0.20

0.31

0.20

0.16

0.07

0.14

0.20

0.70

0.18

0.20

0.08

0.08

0.01

0.02

Of

fic

e Su

pp

ly

(In

mill

ion

s

qm

)

Growth Areas &

Total space committed as of end of 2012:

482,000 sqm

Office Property Market

Metro Manila Supply Take-up and Pre-commitments

Pre-commitments signed as of end of 2012

117,000 sqm

Note: Estimated demand for 2005-2010 was 300,000 sqm per year; and 2011 was 360,000 sqm

Office space leased as of end of 2012

365,000 sqm

Philippine

14 14 14

Note: (1) Figures are as of Jan 2013. (2) Existing residential units are units completed from 1999 to 2012 while future residential units are new units that will be completed from 2013 to 2018. (3) Metro Manila refers to the following districts/cities: Makati CBD and its fringe areas (includes Rockwell Center, Century City, Chino Roces area), Bonifacio Global City and Taguig, McKinley Hill, Ortigas CBD and the nearby areas in Pasig City and Mandaluyong City, Quezon City, Bay City, Newport City, Manila and Pasay City, Alabang, and the cities of Parañaque and Muntinlupa (outside Alabang).

Source: HLURB, Various brokers and developers, JLL Research & Consulting

Selling Price

Typical Price per sqm

Unit Size

High-End

Php 15 M and above

Php120,000 and above

Above 160 sqm

Mid-End

Php1.5 M to Php15 M

Php50,000 to Php110,000

Below 150 sqm

Existing (1999-2012)*

Future (2013-2018E)*

High-End

3,930 units

High-End

5,100 units

Mid-End

131,720 units

97%

Mid-End

143,900 units

97%

Residential Property Market

Metro Manila Condominium Supply from 1999 to 2018E

3%

3%

135,650

units

149,000

units

Growth Areas &

Ortigas/ Pasig/

Mandaluyong

18%

McKinley Hill

1%

Quezon City

23%

Manila/

Pasay

12%

Parañaque /

Muntinlupa

6%

Newport City

2%

Bay City

5%

Alabang

1%

Alabang

2%

Manila/

Pasay

13%

Bay City

3%

Newport City

3%

Quezon City

19%

McKinley Hill

1%

Ortigas/ Pasig/

Mandaluyong

20%

Parañaque /

Muntinlupa

7%

Existing (1999-2012)

135,650

units

Future (2013E-2018E)

149,000

units

Sources: HLURB, Various brokers and developers, JLL Research & Consulting Notes:

(1) Includes only mid-end and high-end residential condominium supply (2) Figures are rounded off to the nearest tens

Residential Property Market

Supply Share Per District – 1999 to 2018E

Makati CBD &

Fringe

18%

Makati CBD &

Fringe

20%

Bonifacio Global

City / Taguig

11%

Bonifacio Global

City / Taguig

14%

16

Residential Property Market

Residential condominiums outside Metro Manila

16

•

Low- to high-rise residential

condominiums in regional urban

centers, such as

•

Metro Cebu

•

Metro Davao

•

Cagayan de Oro City

•

Angeles City

•

Baguio City

•

Tagaytay City

•

Iloilo City

•

Condominium developers include:

•

Major developers

•

Local developers

Source: JLL Research & Consulting

Philippine Property Asia Pacific

Market

Growth Areas &

Existing Retail Supply

(As of 2012)

Future Retail Supply

(2013E-2015E)

Retail Property Market

Existing and Future Retail Shopping Mall Supply

Source: JLL Research & Consulting

Provincial

6.1 million sqm

48%

Metro Manila

6.7 million sqm

52%

Provincial

0.9 million sqm

57%

Metro Manila

0.7 million sqm

43%

18 -500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000

2011 2012 2013E 2014E 2015E 2016E

Num

ber

of

H

ot

el

Room

s

Makati CBD Bonifacio Global City Manila Bay Area Newport City Quezon City Alabang Ortigas CBD Bay City / Entertainment City

18

Hotel Property Market

Supply of Hotel Developments in Metro Manila (2011-2016)

Note: Total proposed hotel rooms with unconfirmed target completion dates are mostly located within Entertainment City in Parañaque City.

1,500

1,370

4,700

4,240

1,720

Total Launched and Planned Hotel

Rooms (2013 – 2016):

14,830 rooms

Total Proposed Hotel Rooms

(with no target date yet)

:

1,250 rooms*

4,170

Philippine

Property

Asia Pacific

Market

Cebu

Property

Growth Areas &

Opportunities

Hotel Property Market

Future Hotels in the Provinces

•

New hotel brands entering the provinces

-

Park Inn by Radisson

-

Richmonde Hotel

-

Lotte Hotel

-

Courtyard by Marriott

•

Boutique/ budget hotel chains expanding

-

Seda Hotels

-

Go Hotels

-

Islands Stay Hotels

-

Tune Hotels

Select Future Hotels in the Provinces

Source: JLL Research & Consulting

Philippine

20

Market Trends

Weather Forecast

Robust growth Moderate growth Minimal growth Minimal decline Moderate decline Significant decline LEGEND

Supply Demand Rent/Price

Office

Residential

Retail

Hotel

Metro Manila

Growth Areas &

22

1) Offshoring and outsourcing

Philippine O&O industry

In US$ bn

3.2

7.2

9.0

15.0

20.0

25.0

2006

2009

2010

Low-end 2016

Baseline 2016

Road Map 2016

CAGR:

30%

CAGR:

25%

CAGR:

9%

CAGR:

15%

CAGR:

20%

Direct

Employment

240K

440K

530K

680K

900K

1.3M

Additional

Office Demand

517K

1.3M

2.6M

Source: Business Processing Association of the Philippines

Philippine Property Asia Pacific

Market

Growth Areas &

2) Overseas Filipinos Remittances

-5

10

15

20

25

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

OF

Rem

ittanc

es

(in USD

bill

ion

s)

OF Remittances (2012):

USD21.4 billion

Sources: Bangko Sentral ng Pilipinas, JLL Research & Consulting **OF remittances refer to cash remittances by Overseas Filipinos

Philippine

24 24

3)

Transportation/Infrastructure Development

Private-Public Partnership

Roads

Rail

Airports

Ports

Cebu Trans-Axial

Highway*

LRT 1 Cavite

Extension

Mactan-Cebu

International

Airport Passenger

Terminal

Central Roro

Spine

NAIA Expressway

LRT 2 Masinag

Extension

Puerto Princesa

Airport (upgrade)

Davao Sasa Port

(rehabilitation)

NLEX-SLEX

Connector Road

NAIA-Clark Express

Rail Link

New Bohol

(Panglao) Airport

New Cebu Port

CALA Expressway

South Line

Modernization

NAIA Upgrade

Central Luzon

Expressway

MRT Line 3

Maintenance

Clark Airport (main

airport fro Greater

Capital Region)

Daang-Hari SLEX Link

Road

MRT Line 3 Additional

LRVs

Kalibo Airport

upgrade

Select PPP Projects

Source: JLLL Research & Consulting

Note: List of projects include ongoing PPP projects and potential projects under PPP.

* Included by the PPP in the list of projects for possible funding by the Project Development and Monitoring Facility (PDMF)

Philippine Property Asia Pacific

Market

Growth Areas &

0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 4,000,000 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Tou rist A rrivals 0 1,000 2,000 3,000 4,000 5,000 6,000 Tou rism Receipt s ( in US D m illions)

Tourist Arrivals Tourism Receipts

Sources: Department of Tourism (DOT), UNWTO

Tourist Arrivals (2011): 3.9 million visitors

Tourist Arrivals (2012): 4.3 million visitors

4) Tourism

Foreign Tourist Arrivals and Tourist Receipts

Philippine

26

5) Real Estate Investment Trust (REIT)

Evolution of the Global REIT Market

Source: The Association for Real Estate Securitization and CFA Institute

USA

Netherlands

Australia

Canada

Belgium

Turkey

New Zealand

The Philippines

India

China

Mexico

Thailand

Hong Kong

Bulgaria

Malaysia

Israel

Germany

UK

Italy

Japan

South Korea

Singapore

South Africa

France

Greece

Taiwan

Brazil

1960’s

1970’s

1990’s

2000’s

2009 - Present

1980’s

Growth Areas &

Business Optimism

Philippines to become one of the fast-growing economies

•

IMF

: raised 2013 economic growth forecast for the Philippines to

6.0%

•

Tholons

: Metro Manila and Cebu are the

top 3 and top 8 global outsourcing destinations

, respectively

•

Moody’s Investors Service

: October 2012 – Moody’s upgraded the Philippines’

credit rating to Ba1

, just

one notch below investment grade

•

S&P

:

July 2012 – S&P

raised

the Philippines’

debt rating to BB+,

the highest level since 2003

•

Deutsche Bank

:

touted the

Philippines as the strongest performing economy in Asia today

. Its 6.4%

growth in 1Q12 made it the

best performing economy in the region next to China.

•

CNBC

: considers the Philippines as the

top country for long term growth

prospects due to the rapid

population growth

•

HSBC

: Philippines will leapfrog 27 places to become the

16

th

largest economy in the world by 2050

•

Goldman Sachs

: the Philippines can be

one of the top 10 “growth countries”, or economies

that account

for at least 1% of global GDP, within the decade.

•

Morgan Stanley

: included Philippines in the

“overweight group”

together with China, Russia, Brazil and

South Africa in their

Global Emerging Markets list

. Philippines could become a

“breakout nation”

•

BofA

: expects Philippines’

outsourcing industry to generate as much as $25 billion in revenue by 2016

,

providing employment opportunities to as many as 1.3 million individuals

Sources: CNBC, HSBC, MSCI, Bank of America (BofA), Goldman Sachs

Philippine

28 -100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012F -500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 4,000,000 4,500,000 5,000,000

Est. No. of Employees Visitor Arrival

28

Country Risk: BPO Employees vs. Tourist Arrivals

Growth in Office Demand Despite Country “Issues”

N o. of E m plo ye es To ta l T ou ris t A rriv als 2001 911 EDSA D os ED SA Tr es 2002 2003 SA RS O utb rea k Oa kw oo d Mu tin y 2004 Inf an ta Mu d S lid e 2005 "To Fly A ga in" 2006 Mi len yo 2007 ER AP C on vic tio n ZTE S ca nd al Glo rie tta 2 Bo mb ing Co ng res s B omb ing 2008 2009 H1 N1 O utb rea k Ty ph oo n Mo rak ot Ty ph oo n O nd oy Ty ph on P ep en g 2010 No yN oy Fa cto r? Ma nil a H os tag e C ris is DL SU E xp los ion du rin g B ar Ex ams Ty ph oo n Me gi Viz co nd e ma ss ac re su sp ec ts ac qu itte d 2011 Ma ka ti B us E xp los ion Tr op ica l S tor m Ju an ing 2012 Co ron a I mp ea ch me nt Tr ial Ne gro s a nd C eb u E art hq ua ke Te rrit ory D isp ute w ith C hin a Ph ilip pin es G en era l E lec tio ns Do s P alm as K idn ap pin g Gr ac ia an d Ma rtin B urn ha m Kid na pp ing Za mb oa ng a B omb ing Ca ptu red Je ma ah Is lami ya h Se nte nc ed Je ma ah Is lami ya h Da va o A irp ort B omb ing Je ma ah Is lami ya h e sc ap e Jo se P ida l P lun de r C as e "In Th e P res en ce of my E ne mi es " V-Da y B omb ing Ma ste rmi nd s d ea thn se nte nc e Va len tin e's D ay B omb ing He llo "G arc i" s ca nd al Ge ne ral Sa nto s C ity Ma ll B omb ing Da va o B us Te rmi na l Ge ne ral Sa nto s C hris tma s B omb ing Su pe rFe rry bo mb ing Ph ilip pin e G en era l E lec tio ns Co tab ato B us S tat ion B omb ing So uth ern Le yte Mu d S lid e St ate of E me rge nc y D ec lar atio n ZTE -N BN Ir reg ula ritie s Co tab ato C ity B omb ing Ma nil a P en ins ula In cid en t Ph ilip pin e N atio na l E lec tio ns MV P rin ce ss of th e S tar sa nk Ce s D rilo n K idn ap pin g Me ralc o S toc kh old ers Me etin g Ma gu ind an ao Ma sa cre Gr ee nb elt 5 Ro bb ing Su pe rFe rry sa nk in Za mb oa ng a De ath of C ora zo n C . A qu ino Philippine Property Asia Pacific Market

Growth Areas &

30 30 Philippine Property Asia Pacific Market

Growth Areas &

Opportunities Challenges

Challenges:

•

Can the Country sustain its strong macroeconomic fundamentals.

•

Will the reforms undertaken by the Aquino government be sustainable after

2016 when the President steps down.

•

Will the strengthening Peso have a negative impact on BPO’s and the

export industry generally.

•

Will the level of overseas worker remittances ($ 21 Billion – last year) be

sustainable.

•

Need to prevent a bubble from forming in the real estate sector. Supply must

be matched by end user demand. Speculation and price spikes should be

avoided.

•

JLL is the

leading real estate services firm in the country

-

Sales and Leasing

- Project and Construction Management

-

Facilities & Property Management

- Research, Consultancy and Valuation

•

Forefront of the BPO industry

- servicing 10 of the top 12 BPOs in the Philippines,

handled more than 50 contact center clients, and acquired over 130 sites for these clients.

•

Serviced around

50% of all office space

occupied by the outsourcing industry

•

Negotiated about

110,000 sqm

of build-to-suit buildings, and about

90% of BPO office

lease

transactions outside Metro Manila.

•

Handled over

350,000 sqm of office space

in 2012 (renewal, expansions and new

leases).

•

Transacted approximately

92% of office space

in Bonifacio Global City.

•

Managed

14 buildings and around 400,000 sqm

in facilities management

•

Sold over

Php25B worth of properties

in 2012.

Jones Lang LaSalle

Who We Are, What We Do

32 32

© Jones Lang LaSalle. All rights reserved. 2013

This presentation has been produced solely as a general guide and does not constitute advice. Jones Lang LaSalle (JLL) has used and relied upon information from sources generally regarded authoritative and reputable, but the information obtained from these sources may not have been independently verified by JLL. Whilst the material contained in the presentation has been prepared in good faith and with due care, no representation is made for the accuracy of the whole or any part of the presentation. No liability for negligence or otherwise is assumed by JLL for any loss or damage suffered by any party resulting from their use of this presentation. The whole or any part of this presentation must not be reproduced or copied without the JLL’s written consent.

Thank you

Lindsay Orr

Chief Operating Officer

+63 2 902 0870