Strategic Management Paper - SM Prime Holdings - John Cris Vincent Pelletero - Revisions

JOSÉ RIZAL UNIVERSITY, GRADUATE SCHOOL
I. INTRODUCTION
Company Background
SM Prime Holdings, Inc. (SMPH) is one of the largest property developers in Southeast
Asia. The company offers innovative and sustainable lifestyle cities with the development of
shopping malls, residences, office building, hotels, and convention centers.
SMPH is the property arm of SM Investments Corporation, which started as a mall

business back in 1985, but has grown into a highly strategic property developer. Through its
units and subsidiaries, expanded its interests from malls, residential condominiums,
commercial office buildings, resorts and leisure projects, and hotels and convention facilities.
SM Prime is committed in providing world-class and sustainable property development.
SMPH was incorporated in 1994 with a focus on mall development and management. It
then expanded its core business through its subsidiaries namely SM Development
Corporation (SMDC) - its residential development arm; Costa del Hamilo Inc. (CDHI) - the
premier leisure developer of Hamilo Coast; Highlands Prime, Inc. (HPI) - an upscale developer
in Tagaytay; Commercial Property Group (CPG) - office building development and leasing, and
building and land holdings management arm; and SM Hotels and Conventions Corporation
(SMHCC) - its hotels and convention centers development and operating arm.
As of today, SM Prime Holdings Inc. has a total of 72 malls in the Philippines, seven malls
in China, 63 residential projects all over the Philippines, 11 office buildings, six hotels, four
convention centers, and three trade halls.
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Current Group Performance
Figure 1 - SM Prime Holdings, Inc. performance overview for 20181
1
SM Prime Holdings 2018 Annual Report
2
Performance Overview
The growth of SM Prime Holdings has been steadily trending upward for the past few
years. Figure 1.2 shows us how their asset, revenue, and net income have been steadily
moving upward for the past three years.
Figure 2 - SM Prime Holdings, Inc. performance overview for 20182
2
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II. RESEARCH AND METHODOLOGY
The data and information used for this research came from publicly available
documents from SM Prime Holdings, Inc., its competitors, as well as downloadable resources
from real estate websites and consulting firms.
Various sources such as the Philippine Stock Exchange and the Philippine Stock
Exchange Edge websites were also used to gather relevant information on the subject of this
paper. Other online resources and websites were also used to further acquire information
that may we useful for the completion of this paper.
Scope and Limitation
This paper encompasses the business of SM Prime Holdings, Inc., as well as its
subsidiaries. Due to the large number of property developers in the Philippines, this paper
has been limited to include only the top three competitors of SMPH.
4
III. MACRO ENVIRONMENTAL ANALYSIS
3.1 Social Forces
• Average disposable income level can affect the number of people visiting the
malls. With a change in disposable income of the populace, it will also affect their
decision whether to visit the malls or not. Less people visiting the malls means less
revenues for the stores that lease in SM Malls. The smaller the margin of income,
the less likely they will be staying inside the malls. This factor can also affect the
hotels business of SM Prime. The lower the disposable income, the less likely
people will stay in hotels, but might sway them to pick a cheaper option whenever
they are travelling or craving for a nice staycation. In contrast, then the average
disposable income increases, people will be drawn to visit the malls, and stay at
hotels.
• Wealth of the people is also another social factor that can affect the business. This
will not only affect the mall and hotel businesses, but also the residential projects
business as well. The greater the wealth of the people the more likely they are to
spend their money. One of the best investments most people pick is buying their
own place – such as a condominium unit. The greater their wealth, the more likely
they are to buy. However, if the wealth of the people goes on the opposite
direction, then the idea of paying for a brand new condominium unit may not be
as exhilarating.
• Buying habits of the populace will also affect the business of SM Prime –
particularly its mall business. With the advent of online shopping and food hailing
applications, people are now able to buy stuffs and food at the comfort of their
own home.
5
3.2 Technological Forces
• The advent of smart phones and the apps we call “disruptors” of the established
process of shopping and food ordering also affect the business of malls. As
mentioned in the third item of the Social Forces, these apps changed the way
people buy, and stores are leveraging grabbing the opportunity of selling online,
which makes them sell products at a cheaper price, yet saving a few bucks by not
needing to rent a place at a mall to sell their products.
3.3 Economical Forces
• A belief in the overall good state of economy is one of the major factors that can
affect SM Prime’s business. For the consumer’s perspective, this means that
consumers are more willing to buy stuffs – which means more people will be going
to the mall at a regular basis. This will also encourage people to buy their own
place – which includes condominium units. Businesses will also be drawn to invest
in the country resulting in a spike of office space requirements.
• Another factor that affect business is the financial market conditions. The better
performing the country’s financial market is, the more confident the investors will
be. More investors mean more business, and more business means more
requirements for office spaces, convention centers, and trade halls. Not to
mention the need for hotel accommodations for visiting expatriates for
international companies.
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3.4 Environmental Forces
• The country’s environmental protection legislation could also affect the business.
SM Prime needs to adhere to these regulations and come up with a plan on how
to develop a sustainable and environment friendly business.
3.5 Political Forces
• The level of bureaucracy is one of the factors that can affect a business. This can
include the infinite number of procedures to go through to get a permit, etc. SM
Prime is not a stranger in this type of issue. In 2013, part of their expansion plan
was hit the 75 mall mark in the Philippines by 2018. The plan is to make sure that
they hit the 75 malls by 2018 in order to hit their revenue target of 100 billion.
Sadly, due to too much bureaucracy, applying for permit to build the required
number of malls slowed their progress, thus they never hit the 75 malls target by
2018, and they were forced to rethink their strategy to hit the 100-billion-peso
revenue target.
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IV.INDUSTRY AND COMPETITOR ANALYSIS
Industry Analysis
In 2018, the Philippine economy grew at a rate of 6.2%. In 2019, banks and credit firms
forecast GDP growth between 6% and 6.5%. The sustained economic growth gives a positive
outlook to the real estate segment for 2019. The increase in number of offshore gaming and
outsourcing operations in the country will drive the demands for office space and
condominium units, while the increase in brand penetration for both food and beverage will
have a positive effect on the retail sector. The hotel occupancy will also be sustained due to
high number of foreign visitors.
An estimated 220,000 square meters of office space was taken up in Q1 2019. Offshore
gaming firms covered about a third of total transactions during the period followed by non-
outsourcing tenants such as traditional firms, government agencies and flexible space
operators. Strong pre-leasing will sustain the office sector with about 30% of space due for
completion in 2019, about 30% of which is already pre-committed.
Sales in the pre-selling market are projected to have reached between 10,000 to 13,000
units. About 54,000 residential condominium units were sold in the Metro Manila pre-selling
market in 2018, outpacing the 53,000 sold in 2017. A major challenge for developers is to
beat 2018 residential sales despite higher prices, lack of developable land and slower
launches of more affordable units.3
In 2018, it was estimated that around 1 million square meters of office space was added
to the 9.1 million square meters of existing office space in the country. Out of which, 72% has
3
Collier’s International – Asia Market Snapshot Q1 2019
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been leased out. The top three office space occupiers for the fourth quarter of 2018 were
business process outsourcing, online gaming, and flexible workspace providers.
Office rents maintained its growth due to strong demands. This is despite challenges
such as delays in construction, and delayed Philippine Economic Zone Authority (PEZA)
accreditations, and apprehensions on the Tax Reform for Acceleration and Inclusion 2 law.
The supply of residential condominiums in 2018 grew by 35,000 units. The cumulative
stock for 2018 reached 338,000 units, with majority of the units located in Quezon City,
Makati, and Taguig.
The market for condominium leasing was mainly driven by the influx of expatriate
employees from the BPO, and online gaming industries, while the sales market was driven by
the demand from local and foreign high net worth individuals.
In retail, an estimated 348,900 square meters of space was completed last year, with
the existing retails space reaching 6.5 million square meters. The vacancy rates in retail
shopping centers remained at 3.7% in the last quarter of 2018. The high demand for retails
space is driven by both foreign and local retailers. The fashion segment led the expansion
activity for the foreign brands, while food and beverages sector drove the retail activity for
local brands.
The retail vacancy rate is expected to be low in Metro Manila which is estimated to be
below 10%, with the food and beverage sector is expected to drive spending. Food and
beverage sector covers between 30% and 50% of leasable space in shopping malls across
Metro Manila. Lease rate growth is not expected to increase for 2019.
In the hospitality sector, an additional 3,000 rooms were added to the existing stock in
2018. Majority of these rooms can be found in the Day Area due to the increase real estate
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investment in the said area for the past several years. New developments that were
completed last year were the Grand Hyatt, Citadine’s Bay City, and Hilton Manila City. The
tourism sector maintained its upward trajectory last year, with a growth of 7.4% year-on-
year4.
THE COMPETITORS
Company :
Profile :
Ayala Land, Inc. is one of the biggest real estate developers in the
Philippines, with its headquarter located in the famous business district,
Makati. It’s a real estate division of Ayala Corporation, which is a
century-old company, but have operated independently since 1988. So,
they have a long history and experience under their belt. In 2016, it was
the second largest developer in terms of yearly revenue and its net
income reached around PHP 21 billion (USD 400 million). That’s a 15%
increase compared to 2015.5
Property Types : Estate development, shopping malls, property development (residential

and office), commercial leasing, construction, and property
management 6
4
https://business.inquirer.net/263553/the-outlook-of-the-philippine-real-estate-industry-in-2019
5
https://www.asiapropertyhq.com/property-developers-philippines
6
Ayala Land, Inc. 2018 Annual Report
10
Company :
Profile :
With its headquarter located in Taguig City, Megaworld Corporation is
one of the biggest developers in terms of annual revenues. The company
was established in 1994 and owns another subsidiary, Global-Estate
Resorts, Inc. that focuses on the development of hotels and resorts.
Megaworld won the Best Developer Award in 2016 and 2017 and was
nominated in 25 categories in the 2017 annual PropertyGuru Philippines
Property Awards.7
Property Types : Residential, office, shopping malls, food and beverages, and gaming
business8
Company :
Profile :
Vista Land & Lifescapes, Inc. was founded by Manuel Villar in 2007 and
is one of the biggest property developers in terms of annual revenue. It’s
one of the fastest growing developers in the Philippines. In the 2017
Property Guru Property Awards, they won the award for Best Universal
Design Development and Best Affordable Condo Development for their
project, Vista Taft.
Property Types : Shopping malls, condominiums, and housing projects
7
https://www.asiapropertyhq.com/property-developers-philippines
8
Megaworld Corporation 2017 Annual Report
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4.1 Industry Value Chain
A value chain is a business model that describes the full range of activities needed to
create a product or service.9 Below is the value chain diagram for the real estate industry.
Figure 3 - Real Estate Value Chain10
The value chain of the real estate industry is divided into five segments; ownership and
development, finance, property sales leasing and management, construction, and tenant use.
The economic activity moves from left to right (from ownership and development, to tenant
use).
The five functional segments of the value chain have the following characteristics:
9
https://www.investopedia.com/terms/v/valuechain.asp
10
An Analysis of the Real Estate Value Chain by Marcy Lowe and Gary Gereffi
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• Ownership and Development – These are the companies that develop and
own real estate. This includes the developers, real estate investment trusts
(REITs), and home builders.
• Finance (Equity) – The equity section of the finance segment is composed of

large companies or institutions that invest in real estate, which also provides
capital to the developers of the real estate project.
• Finance (Debt) – The debt section of the finance segment refers to

companies who connect borrowers with mortgage lenders such as
commercial banks.
• Property Sales, Leasing and Management – This segment is composed of

agents and brokers who acts as the middlemen between the buyers and the
sellers of real estates. Companies who offers property management to
commercial real estate owners are also found in this segment.
• Construction – This segment is composed of construction companies and

construction management company. These companies are responsible for
every phase of construction from design, construction, and completion of
the building for its intended use.
• Tenant Use – The final segment of the real estate value chain are the
buyers/tenants of the real estate. This includes:
o Residential – which consists of family housing such as apartments,
condominiums, and houses.
o Commercial – consists of retail (malls), offices, and hotels
o Industrial – consists of industrial parks
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4.2 Porter’s Five Forces Model
One of the most important part of strategy formulation if identifying how profitable the
company’s industry is. The five forces model is a framework developed by Michael Porter,
which identifies the five forces that determines the profitability of an industry and help
identify the company’s competitive strategy.
In general, the stronger the five forces, the lower the industry’s profit potential –
making the industry less attractive for competitors.11
Figure 4 - Porter's Five Forces Model
11
Strategic Management Concepts, 2nd Edition
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4.2.1 Threat of New Entrants: LOW
The vastness of the property development industry makes it easier for big
companies to dominate the large-scale developments or projects. SMPH belongs to a
select group of companies in the elite level. These are the companies with multi-billion
dollar investments and are capable of developing a small city if they want to.
The large capital requirement to develop business districts and shopping centers
can prevent new entrants on going toe to toe with the well-established companies.
Most new entrants would focus mainly in residential development – or on a more
accurate note, small-scale developments.
4.2.2 Bargaining Power of Suppliers: LOW
There are a large number of suppliers for each type of materials required for
construction, a large number of property management companies, and a large number
of property consultant/sale representatives – including freelance.
Most of the time, the suppliers and the property development companies form a
partnership together. This is to make sure that supplies can be acquired in a timely
manner, prices are controlled and at a lower price, and that the materials meet the
quality expected by the property development company.
Suppliers also earn the most from these property development companies as they
receive bulk orders from them and they usually have a monopoly supplying to all the
development projects of their partner companies.
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4.2.3 Bargaining Power of Buyers: LOW
The buyers can’t normally negotiate the prices of the properties being sold or
being leased. However, the buyer/customer may be able negotiate a lower price, in
exchange for a larger area/property to be bought/leased. Whether the buyer negotiates
a lower price or not, the property development companies usually get the better end
of the deal – whether by having more properties available to be sold/leased, or by
having more properties that are currently earning money or already achieved their ROI.
4.2.4 Threat of Substitute Products or Services: LOW
Substitute products/services from the ones being offered by the property

development companies are somehow low. For instance, the only products of these
companies where consumers can find substitutes are the residential houses or small
office buildings. These houses and buildings can be constructed by the house or building
owners themselves. However, these type of projects will demand more time and effort
from the consumer (in the example the house/building owner). Compared to the ones
that are being built by the property development companies where the buyer just needs
to pay for the product and can use it immediately right after.
4.2.5 Rivalry Among Existing Competitors: HIGH

The rivalry between the existing competitors in the property development
industry is steep. Most or all of the companies listed in the top 10 of the property
development companies in the Philippines are doing development and management in
the same key areas of the real estate sector.
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Figure 5 - Real Estate Developers Earnings in 201612
12
https://www.lamudi.com.ph/journal/2016-reported-income-of-philippine-real-estate-developers/
17
4.3 Strategic Positioning Analysis and Recommendation
Since the integration of SM’s properties companies in 2013, the company consistently
delivers double-digit results in terms of revenues and net income. This is attributed to the
strong performance of their mall and residential businesses, as well as the growing office,
hotels, and convention centers businesses.
By having multiple subsidiaries focus on different sector of property development, SM

Prime is able to maximize the result of their strategic positioning. This is done by having their
subsidiaries focus on the three strategies; Cost leadership, differentiation, and focus (being a
specialist).
Of all the property sectors which SM Prime has a presence, there is nothing more
obvious than their residential arm in which the three strategies are in effect:
• SM Development Corporation, is their residential property arm which

focuses on the middle-tier of the residential condominium market. SMDC’s
target market are customers who are looking for convenient locations, yet
affordable residences. SMDC’s projects are strategically located in Metro
Manila, particularly near business districts. Their projects continue to
expand in other areas of the country including Tagaytay, Laguna, Bulacan,
and Davao.
• Highlands Prime is another residential property arm of SMPH, but focuses

on upscale property development. Their target market are customers who
value high-class living. This can be seen in the location of their project in
exclusive Tagaytay Highlands mountain resort and residential complex. This
location has an 18-hole golf course, and is overlooking the grand view of the
Taal Lake.
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• Hamilo Coast is their property arm which focuses on the leisure home sector.
Target market is primarily tourism-based, but also customers who value
upscale lifestyle – most notably coastal living, and the beauty of nature.
As of the end of 2018, SM Prime has a total of 72 malls in the Philippines and seven
malls in China. This thriving mall business accounted for 57% for the company’s consolidated
revenue in 2018. The mall business’ revenue grew by 11% on the same year.
The cinema and event ticket sales also grew by 9% in 2018, while the revenues from
amusement and merchandise sales also increased by 14% in the past year.
Currently, the company’s mall business in the Philippines, in terms of floor area, can be
broken down into 41% in Metro Manila, 37% for the rest of Luzon, 14% in the Visayas, and
8% in Mindanao.
SM Prime’s residential business is also flourishing. SM Development Corporation

(SMDC) reported a growth of 22% in revenue in 2018.
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4.4 Market Share, Size and Growth Trends
Figure 6 - Number of properties per developer as of 201913
As seen in figure 6, all four developers are dominating in one or more property segment.
SM Prime is currently ahead in the shopping malls and hotel development, while Ayala
Land and Vista Land are currently way ahead of the competition in the residential property
segment. Megaworld is currently ahead in the office buildings development, but is only
running second to Ayala Land in terms of leasable office space.
13
https://www.smprime.com/
https://www.ayalaland.com.ph/
https://www.megaworldcorp.com/
https://www.vistaland.com.ph/
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Figure 7 - Developer market share for office space as of 201814
As of 2018, the office space market (in terms of total floor area) has been dominated by
Ayala Land, with a total market share of 11%, followed by Megaworld with 8%, SM Prime at
7%, Robinsons Land at 4%, and the rest (70%) is shared by all other property developers.
The office market in Metro Manila is expected to continue with its upward trajectory,
with most of the business districts in Quezon City, Mandaluyong, Pasig, Makati, Pasay, Taguig,
and Muntinlupa are expected to be fully developed by 2020. Due to the high demand of office
space, Metro Manila may face a deficit of office supply by 2022 because of business districts
maintaining low vacancy rates.
14
Leechiu Property Consultants - Real Estate Market Insights, December 2018
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However, commercial developments will start to flourish in the nearby districts outside
Metro Manila because of enhanced interconnectivity by the Luzon Spine Expressway
Network. Leechiu Property Consultancy came up with a forecast of the upcoming office space
pipeline from 2019-2023.
Figure 8 – Developer office space market share from 2019-2023
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4.5 Competitive Profile Matrix (CPM)
The competitive profile matrix identifies SM Prime Holding, Inc.’s key competitors and
compare them to each other using their industry’s critical success factors. In this analysis,
SMPH will be compared to Ayala Land, Inc., Megaworld Corp., and Vista Land & Lifescapes
Inc.
Rating: 1 – Major Weakness; 2 – Minor Weakness; 3 – Minor Strength; 4 – Major Strength

SM Prime Ayala Land Megaworld Vista Land
Critical Success
Factors Weight Rating Score Rating Score Rating Score Rating Score
Market Share 0.3 4 1.2 4 1.2 3 0.9 3 0.9
Promotions 0.2 4 0.8 3 0.6 3 0.6 3 0.6
Customer Loyalty 0.2 4 0.8 3 0.6 2 0.4 2 0.4
Range of Products 0.2 3 0.6 3 0.6 3 0.6 2 0.4
Brand Reputation 0.1 4 0.4 4 0.4 2 0.2 2 0.2
TOTAL 1 3.8 3.4 2.7 2.5
Table 1 - Competitive Profile Matrix
The total score of the top four property developers in the country shows that SM Prime
Holdings, Inc. is currently leading the pack. The company’s competitive advantages are its
market share, promotions, and its customer loyalty.
The market share is somehow tricky to analyze. There is no clear winner on who’s
winning this category. This can be attributed to the fact that one developer is dominating in
the shopping mall segment, but is not leading on other segments such as condominiums,
office, or housing projects – which are being dominated by the other three companies.
Brand reputation, is where SM Prime and Ayala Land are both dominating. This can be
attributed to their wide range of offerings on different property segments, as well as their
strong brand presence in the shopping malls/retail segments. It is also important to point out
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that both SM Prime and Ayala Land are going on a toe to toe battle in terms of total assets
with Php 604 billion and Php 668 billion respectively – each out muscling both Megaworld
and Vista Land combined, with Php 322 billion and Php 200 billion worth of assets
respectively.
4.6 External Factor Evaluation (EFE) Matrix
The EFE Matrix is a strategy tool used to examine the external environment of the
company and to identify the threats and opportunities in the said environment. There are a
lot of external factors that could affect the business of SM Prime Holdings, Inc. In this paper,
we will tackle the external factors that could affect each sector of the property development
industry – office, residential, hospitality, and retail.
Weighted
Key External Factors Weight Rating
Score
Opportunities
Positive outlook for office occupancy for
BPO, online gaming, and flexible workspace 0.15 4 0.6
firms
Increase in rent due to healthy demand 0.1 3 0.3
Strong demand for luxurious residential
0.05 2 0.1
properties
Rising disposable income of Filipinos 0.1 3 0.3
Expected increase in foreign investments
due to the relaxation of the Trade 0.2 4 0.8
Liberalization Act of the Philippines
56.3% of Filipinos are expected to move to
0.1 3 0.3
urban areas by 2030
Threats
Expected inflow of more foreign hotel
0.1 2 0.2
operators
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Slow release of Philippine Economic Zone

0.05 2 0.1
Authority (PEZA) proclamations
Continued rise on the price of lands 0.1 3 0.3
Suspension of the issuance of new licenses
0.05 2 0.1
to POGO
Total 1 3.1
Table 2 - External Factor Evaluation (EFE) Matrix for SM Prime Holdings, Inc.
The EFE Matrix score of SM Prime currently stands at 3.1 – which is a very good score.
This means that the opportunities in the property development industry outweigh the
threats. This is a good sign especially if the company plans to expand its business and target
new markets for their products.
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V. COMPANY ANALYSIS
5.1 Vision Statement
A company’s vision statement is a statement that expresses the organization’s ultimate

objectives. It is the vision statement that guides the CEO, and every executive and managers
of the company in achieving the organization’s objectives.
SM Prime Holding, Inc. has the following vision statement:
“To build and manage innovative integrated developments that are catalysts for a better
quality of life.”
Parameter Yes/No Why?

SMPH states that their ultimate goal is to
Does the company’s vision
build and manage innovative, integrated
answers the question ‘What do YES
developments that are catalysts for a better
we want to become?’
quality of life.
Is it concise enough yet The company’s vision statement is short, but
YES
inspirational? delivers the message that it wants to convey.
The vision statement clearly shows us the
Is it aspirational? YES company’s aspiration to build a better quality
of life through property development.
Does it give clear indication to The company’s vision statement does not
NO
when it should be attained? indicate when the vision should be attained.
Table 3 - Vision Statement Analysis
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5.2 Mission Statement
A company’s mission statement describes what the company is actually does, what are
its businesses. And why do they do it. A company’s mission statement defines its core
purpose. Every important reason why the company exists must be reflected in its mission
statement – so that an employee, supplier, customer, or community would understand the
driving force behind the organization’s operations.15
SM Prime Holdings, Inc. has the following mission statement:
“We will serve the ever-changing needs and aspirations of our customers, provide
opportunities for the professional growth of our employees, foster social responsibility in the
communities we serve, enhance shareholder value for our investors and ensure that
everything we do safeguards a healthy environment for future generations.”
Component Yes/No Evaluation

The company’s mission statement indicates that
Customers YES they will serve their customers’ needs and
aspirations.
The company’s products and services are not
Products and Services NO
highlighted in their mission statement.
The company’s geographical markets are not
Markets NO
mentioned in their mission statement.
The company’s basic technology is not mentioned in
Technology NO
their mission statement.
The company states that enhancing shareholder
Concern for Survival YES
values for their investors is one of their mission.
The company’s philosophy is to ensure that
everything they do safeguards a healthy
Philosophy YES
environment for future generations. This is
highlighted in their mission statement.
15
https://www.strategicmanagementinsight.com/tools/mission-statement.html
27
The company’s strengths, weaknesses, and

Self-Concept NO competitive advantages are not mentioned in their
mission statement.
The company’s mission statement indicates that
Concern for Public
YES they foster social responsibilities in the communities
Image
they serve.
The company’s mission states that providing
Concern for Employees YES opportunities for the professional growth of their
employees is one of their mission.
Table 4 - Mission Statement Analysis
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5.3 McKinsey’s 7s Framework
Figure 9 - The 7s Framework
5.3.1 Strategy
As of 2018, the main focus of SM Prime’s strategy is growth. Their growth

strategy is spearheaded by their mall business expansion. This strategy was
conceptualized back in 2013, when the company set a goal of hitting the Php 100 billion
revenue by 2018, and hitting the 75 malls mark in the Philippines. However, due to
unforeseen delays for building permits and other government papers, they settled in
for 72 malls instead, but was able to hit a whopping Php 104 billion in revenue.
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Since 2013, the company built an additional of:
• 24 malls in the Philippines

• Two malls in China
• 41 condominium projects
• Eight office buildings
• Two hotels
• One convention center
As 2019 begins, SM Prime Holdings, Inc. highlighted their strategy for the year.
These are:
• Increase acquisition of large-scale strategic land bank to develop more

lifestyle cities
• Leverage on world-class malls to anchor lifestyle city strategy
• Ensure excellence in delivering residential projects
• Continue the rollout of offices, hotels and convention centers as part of
Integrated Development
• Maintain strong balance sheet, prudent risk and capital management
and good governance16
16
SM Prime Holdings, Inc. Investor Kit 2019
30
5.3.2 Structure
At the helm of SM Prime’s governance structure is its board of directors. The

board of directors is responsible on formulating and ensures the achievement of the
company’s mission and vision, which upholds the values of focus, hard work,
innovation, integrity, teamwork, and sustainability. The board also plays the leading role
in the establishment of the company’s strategic framework, setting the overall strategic
direction, and reviewing and monitoring the company’s strategic goals.17
Figure 10 - SM Prime Board of Directors
17
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Figure 11 - SM Prime Holdings, Inc. Board of Directors
32
The company’s board of directors has established five committees to aid in the
performance of duties. Each of these committees has adopted a charter which defines
its composition, roles, and responsibilities. The following are the five committees and
their respective responsibilities:
• Executive Committee
o Responsible for assisting the board of directors in overseeing the
implementation of strategies and long-term goals, reviewing
major issues in the organization, monitoring the operating
activities of each business group, and defining and monitoring
the company’s performance improvement goals.
• Audit Committee
o Assists and advises the board of directors in fulfilling its oversight
responsibilities to ensure the quality and integrity of the
company’s accounting, financial reporting, auditing practices, risk
management and internal control systems, and adherence to the
over-all corporate governance best-practices.
• Risk Oversight Committee

o Oversees the company’s enterprise risk management system to
ensure its functionality and effectiveness. This committee assists
the board in ensuring that there is an effective and integrated risk
management process in place.
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• Corporate Governance Committee

o Assists the board in the performance of its corporate governance
responsibilities, including functions that were formerly assigned
to the Nomination and Compensation and Remuneration
Committees.
• Related Party Transactions Committee

o Reviews all material related party transactions (RPTs) of the
company. The mandate for this committee specifically includes
the evaluation of the RPTs to ensure that these are undertaken
upon terms not less favorable to the company than those offered
to any unaffiliated third party under the same or similar
circumstances and overseeing the implementation and regular
review of the related party policy.
5.3.3 Systems
SM Prime has subsidiaries, each focusing on different segments of property

development. These subsidiaries undergo different stages in the property development
as follows; Land banking, land packaging, land development, building development,
operations, renovation, and redevelopment.
5.3.4 Style
As a huge company, SM Prime Holdings, Inc. has a steep organizational

hierarchy. The top management is being headed by the board of directors, and followed
by the five committees. These two levels of top management oversee the entire
34
organization. Under the top two levels, are the management teams of each of the
subsidiaries of SM Prime.
Annually, the corporate governance committee facilitates the evaluation of the

performance of the board as a whole, its respective committees, its individual directors,
and the company’s president – based on their duties and responsibilities. The annual
evaluation also serves as a venue for identifying areas for improvement in terms of
trainings, education programs, and any other form of assistance their directors needs
in order to perform their duties. 18
5.3.5 Staff
SM Prime Holdings has around 11,000 employees at its disposal. This includes
all rank and file employees up to the company’s top executive level. This does not
include the 13,000 employees under their third party service providers from different
localities where SM Prime’s businesses are located.
Out of the 11,000 employees, 60% of which are females.
5.3.6 Skills
SM Prime Holdings conduct annual trainings for their employees. These trainings
ranges from pollution control, safety, ethics and compliance, and corporate governance
trainings for top executives.
18
35
5.3.7 Shared Values
SM Prime Holdings has a Code of Ethics. This states the principles that guides
the company’s employee from staff up to their top level management in the
performance of their duties and responsibilities, and in their transactions with
investors, creditors, customers, contractors, suppliers, regulators, and the general
public. The code requires full compliance with all applicable laws and regulations.
In line with SM Prime’s mission, the Code of Ethics underscores the Company’s
commitment to promote and protect the welfare of its employees, customers and the
communities where its businesses operate. The code likewise emphasizes the need to
protect, sustain and enhance the environmental, social and economic resources needed
to deliver long-term growth.19
19
36
5.3.8 The 7s Evaluation
7s Aligned?
Able to hit their target revenue despite unforeseen
Strategy Yes
circumstances?
Are all subsidiary companies aligned on the
Structure Yes
objectives of SM Prime Holdings as a whole?
Are the company's standards and processes
System Yes
evaluated properly?
Is the leadership style effective across the
Style Yes
organization and its subsidiaries?
Staff Are all the gaps in the companies being filled in? Yes
Are all the employees properly equipped to perform
Skills Yes
their responsibilities?
Does the whole company follow their core values
Shared Values Yes
and codes?
Table 5 - The 7s Evaluation Table
37
5.4 Key Financial Ratio Analysis
Figure 12 - Key Financial Highlights for 2018
38
5.4.1 Working Capital Ratio
The working capital ratio shows how easily a company can turn assets into cast
to pay short-term obligations. Below is the current working capital ratio of SM Prime
Holdings, Inc. as of December 2018:
In Thousand Pesos 2018 2017 2016

Current Assets 127,790,263 125,576,040 103,950,556
Current Liabilities 88,279,852 78,207,732 49,421,276
Working Capital Ratio 1.45 1.61 2.10
Table 6 - SM Prime Holdings, Inc. Working Capital Ratio
The current working capital ratio of SM Prime Holdings, Inc. is sitting

comfortable at 1.45. However, if we compare it to the previous two years, their ratio is
steadily declining. On the other hand, their current ratio is still a pretty good indicator
that they have the ability to pay their current liabilities. Also, the percentage of the
decrease in its working capital ratio for 2018 has been smaller compared to that of 2017,
with a decline of 10% compared to 31% the previous year.
39
5.4.2 Acid Test Ratio
The acid test ratio is used to gain a realistic view of the company’s liquid assets.
This ratio is almost identical to the working capital ratio, but with an exception – the
inventory should not be included in the computation of the current assets.
A company with an acid test ratio of less than 1 will not have enough liquid assets
to pay their current liabilities, and should be treated with caution. If the acid test ration
is much lower than the current ratio (working capital ratio), it means that the company’s
current assets are highly dependent on inventory.20

Current Assets 112,643,234 110,986,025 92,051,656
Current Liabilities 88,279,852 78,207,732 49,421,276
Acid Test Ratio 1.28 1.42 1.86
Table 7 - Acid Test Ratio for SM Prime Holdings, Inc.
The acid test ratio shows that SM Prime will still be able to pay its liabilities
without any problem. Though the ratio’s decline over the past two years is obvious, the
company is still sitting at a comfortable ratio of 1.28
20
https://www.investopedia.com/terms/a/acidtest.asp
40
5.4.3 Debt-to-Equity Ratio
The debt-to-equity ratio is used to evaluate a company’s financial leverage. It is

used to measure the degree to which a company is financing its operations through
debt versus wholly-owned funds. This ratio reflects the ability of shareholder equity to
cover all outstanding debts in the event of a business downturn 21

Total Liabilities 325,056,356 275,543,684 230,196,588
Shareholder's Equity 279,077,962 262,873,914 235,363,544
Debt-to-Equity Ratio 1.16 1.05 0.98
Table 8 - SM Prime Holdings, Inc. D/E Ratio
As seen in the table above, SM Prime has been increasingly and aggressively
taking debt to finance its growth. Over the past three years, the company’s D/E ratio
has been increasing with 7% in 2017, and 11% in 2018. Given that the company’s
revenue in 2017 and 2018 have growth rates of 13.9% and 14.5% respectively, the D/E
ratio signifies that in 2018, the increase in the rate of debt by the company translated
to a much lower increase in its revenue.
21
https://www.investopedia.com/terms/d/debtequityratio.asp
41
5.4.4 Return on Equity (ROE)
Return on equity (ROE), is the measurement of how a company’s management

effectively uses the company’s assets to create profit.
In Thousand Peso 2018 2017 2016

Net Income 32,911,129 28,124,463 24,367,624
Shareholder's Equity 279,077,962 262,873,914 235,363,544
ROE 0.12 0.11 0.10
Table 9 - ROE of SM Prime Holdings, Inc.
SM Prime currently has a 12% ROE, which is 10% higher than 2017. Their ROE is
currently in an upward trajectory for the past three years. However, based on the
average ROE of property development companies listed in the Philippine Stock
Exchange, the company’s ROE is still below the average of the publicly listed companies
focusing on property development.
42
5.4.5 Net Profit Margin
Net Profit Margin (also known as “Profit Margin” or “Net Profit Margin Ratio”) is
a financial ratio used to calculate the percentage of profit a company produces from its
total revenue. It measures the amount of net profit a company obtains per dollar of
revenue gained. The net profit margin is equal to net profit (also known as net income)
divided by total revenue, expressed as a percentage. 22
In Thousand Peso 2018 2017 2016

Net Income 32,911,129 28,124,463 24,367,624
Revenue 104,080,565 90,921,850 79,816,231
Net Profit Margin 32% 31% 31%
Table 10 - Net Profit Margin for SM Prime Holdings, Inc.
The net profit margin of SM Prime for 2018 is 32%. Which means that for every
peso the company makes, it kept Php 0.32 as profit.
22
https://corporatefinanceinstitute.com/resources/knowledge/finance/net-profit-margin-formula/
43
5.5 Internal Factor Evaluation (IFE) Matrix
After evaluation of the company’s annual reports, as well as other resources available
in the SM Prime Holding’s website and other online resources, the following key internal
factors that influences the company’s performance have been identified:
Weighted
Key Internal Factors Weight Rating
Score
Strengths
Market Share 0.2 4 0.8
Promotions 0.1 4 0.4
Customer Loyalty 0.1 4 0.4
Range of Products 0.1 3 0.3
Brand Reputation 0.05 4 0.2
Weaknesses
Not dominant on other property segments outside
0.15 2 0.3
of shopping malls or retail
Weak residential presence outside Metro Manila -
0.1 2 0.2
especially outside Luzon
Still catching up in the office space segment 0.1 2 0.2
Requires heavy investments for expansion 0.1 2 0.2
Total 1 3
Table 11 - Internal Factor Evaluation Matrix for SM Prime Holdings, Inc.
The above table shows the current strengths and weaknesses of SM Prime Holdings,
Inc. Note that the weight of market share got the highest weight and rating combination. This
is due to the fact that the SM has a huge presence across the country, not just in Metro Manila
and Luzon – compared to its closest rival which is Ayala Land. Such presence has been present
since the early part of 1980s, when SM decided to put up SM Delgado (in Iloilo City) back in
May 1979 - its first department store outside Metro Manila.
44
The total score indicate that SM Prime has a good score for its internal factors. The
company scored 3.0 which is above the average value of 2.5. It shows that the company has
tremendous amount of strengths and it can leverage those strengths to beat the competition.
45
VI.STRATEGY FORMULATION
6.1 Strengths, Weaknesses, Opportunities, Threats (SWOT) Matrix
POSITIVE NEGATIVE
Strengths Weaknesses
• Market Share • Not dominant on other property
• Promotions segments outside shopping malls
• Customer Loyalty or retail
• Range of Products • Weak residential presence outside
INTERNAL
• Brand Reputation Metro Manila – especially outside

Luzon
• Still catching up in the office space
segment
• Requires heavy investments for
expansions
Opportunities Threats
• Positive outlook for office • Slow release of PEZA proclamation
occupancy for BPO, online gaming, may affect office space demands
and flexible workspace firms by outsourcing companies
• Increase in rent due to healthy • Increasing land prices
demand • Suspension of the issuance of new
EXTERNAL
• Strong disposable income of licenses to Philippine offshore

Filipinos gaming operations (POGO)
• Expected increase in foreign • Intense competition in property
investments due to relaxation of development market
the Trade Liberalization Act of the
Philippines
• 56.3% of Filipinos are expected to
move to urban areas by 2030
Table 12 - SWOT Matrix for SM Prime Holdings, Inc.
46
6.2 Strategic Position and Action Evaluation (SPACE) Matrix
The SPACE matrix is an important management tool used to determine the type of
strategy a company should take. The matrix has four variables – financial position (FP),
industry position (IP), stability position (SP), competitive position (CP).
Internal Analysis
Financial Position (FP) Score
Working Capital 5
Debt to Equity 4
Return on Equity 4
Revenue 5
Net Profit Margin 4
Average 4.4
External Analysis
Stability Position (SP) Score
Positive Office Occupancy Outlook -3
Increase in Rent Due to High Demand -3
Expected Inflow of Foreign Investments -2
Intense Competition -4
Crackdown of Online Gaming Companies -4
Average -3.2
Internal Analysis
Competitive Position (CP) Score
Market Share -2
Product Quality -3
Customer Loyalty -2
Variety of Properties Offered -2
Brand Recognition -1
Average -2.0
External Analysis
Industry Position (IP) Score
47
Growth Potential 5
Financial Stability 4
Ease of Entry into Market 3
Government Regulations 4
Increasing Land Prices 2
Average 3.6
X Axis = CP + IP 1.6
Y Axis = FP + SP 1.2
Table 13 - Space Matrix
Table 13 shows us that the average score of SM Prime Holdings, Inc. for its Financial
Position is 4.4, Stability Position is -3.2, Competitive Position is -2.0, and Industry Position is
3.6. Given the average of the four variables, we compute for the value of the X and Y axis to
be placed in out SPACE quadrant using the formula at the bottom of table 13 – which will give
us the following quadrant.
Figure 13 - The SPACE Matrix of SM Prime Holdings, Inc.
48
Based on the result of our analysis with the four variables for the SPACE matrix, SM
Prime should use the aggressive strategy to further grow its business.
6.3 Boston Consulting Group (BCG) Matrix
The BCG matrix is designed to help the company with its long-term strategic planning,
consider growth opportunities, and to help identify hat product or services the company
needs to discontinued, invest into, or develop.
Below is the BCG matrix for SM Prime Holdings, Inc. There are four business divisions
used in the matrix – malls, residential, offices, and hotels. The revenue of each division is then
compared to the revenue of the top competitor in each of these divisions. Note that SM Prime
is the top revenue earner for the mall segment, thus it is the one listed as the top competitor
in the said segment.
Note: Earnings are in billion pesos

Top
SMPH Industry Sales Relative
Division Competitor
Revenue Growth Rate Market Share
Revenue
Malls 59.3 59.3 8% 1.00
Residential 36.5 120.3 20% 0.30
Offices 3.6 8.6 20% 0.42
Hotels 4.9 6.4 4% 0.77
Table 14 - Revenue and Relative Market Share Profile of SM Prime Holdings, Inc.
49
Figure 14 - BCG Matrix of SM Prime Holdings, Inc.
As shown in the BCG matrix for SM Prime, it is clear that their star product are their
malls/shopping centers. They are currently dominating the said property segment and there
are no signs of them slowing down anytime soon. The matrix also shows that the hotels
segment is a very good option for them.
50
Meanwhile, the residential and office segments is currently showing a ton of potential
in terms of growth rate at 20% each. It is a good time for SM Prime to invest more on their
residential and office space projects and maximize their earning potential in these two
segments while the growth rate is still at its peak.
6.4 Grand Strategy Matrix
In its simplest definition, the Grand Strategy Matrix is a tool used by businesses to
formulate alternative strategies. It can be used along with other strategy tools such as SWOT
Analysis, SPACE Matrix, BCG Matrix, and others.
There are four quadrants in the Grand Strategy Matrix which are based on two
dimensions; competitive position, and market growth. Based on these quadrants, the
company’s management team can have a clear idea of the current standing of their company,
within their respective industries. The four quadrants are classified as:
• Quadrant I – Strong competitive position, rapid market growth

• Quadrant II – Weak competitive position, rapid market growth
• Quadrant III – Weak competitive position, slow market growth
• Quadrant IV – Strong competitive position, slow market growth
Based on the earlier strategy tools we used, we can define SM Prime Holdings, Inc. to
be in the first quadrant.
51
Figure 15 - SM Prime Holdings, Inc. Grand Strategy Matrix
Our previous analysis of SM Prime Holdings, Inc. had us identified the company to be in
the first quadrant of the Grand Strategy Matrix. The company has been a solid performer in
the property development industry, and has been dominating the mall development for a
couple of decades now. This is not to take anything from other property segments they are
currently involved in. SM Prime is either dominating, or competing very well in all segments
of property development.
52
The company’s market share in malls is in no doubt huge. However, their residential,
office, and hotel businesses are also on the rise, and are currently going toe to toe with the
top three developers in each of those segments. On top of that, they are currently focusing
on delivering projects on residential, hotels, and office segments backed by their strong
financial position and strong market presence.
The following figures show the existing market penetration of SM Prime, as well as the
future markets they are planning to tap.
Figure 16 - Locations of SM Malls - Department Stores, not included
53
Figure 17 - Residential Coverage of SM Prime Holdings - 35 of 44 projects of SMDC are located in

Metro Manila
54
Figure 18 - SM Prime's outstanding landbanks, located in emerging progressive cities around the
country. The company’s outstanding landbanks are good for the next 5-7 years.23
23
55
6.5 Internal-External (IE) Matrix
The Internal-External Matrix is a strategy tool used to analyze the current position of
the company, and can be used to suggest future strategies. This tool is the combination of
the EFE and IFE matrix models.
There are three main regions in the IE Matrix:

• Grow and build covers cells 2, 3, and 6
• Hold and maintain covers 1, 5, and 9
• Harvest and divest covers 4, 7, and 8
Below is the IE Matrix for SM Prime Holdings, Inc., using its EFE score of 3.1 and its IFE
score of 3.25.
Figure 18 - SM Prime Holdings, Inc. IE Matrix
56
Using the weighted scores of the IFE and EFE matrices, we identified that SM Prime is
currently positioned at cell number 3 of the IE Matrix. This means that the company’s strategy
should focus on growth and build – which is what their 2019 strategy is focusing on, based on
the strategies the company highlighted in their investor kit for 2019.
6.6 Summary of Strategies
The following table shows the summary of the strategies that SM Prime Holdings, Inc.
can use:
Matrices
Strategies Total
SWOT SPACE BCG GSM IE
Product development X X X X 4
Market development X X X X 4
Backwards integration X 1
Forward integration X 1
Concentric diversification X X 2
Aggressive expansion X X X 3
Table 15 - The summary of strategies for SM Prime Holdings, Inc.
Table 15 shows us how frequent a strategy comes up across the five matrices we used
to analyze SM Prime Holdings, Inc. It shows us that out of six advisable strategies for the
company, two of which are present on four matrices – which means that these two strategies
should be highly considered – product development, and market development.
57
6.7 Quantitative Strategic Planning Matrix (QSPM)
Quantitative Strategic Planning Matrix (QSPM) is a tool used to evaluate the strategic
options of a company, and to determine the attractiveness of each strategy. The QSPM
determines which of the strategies are feasible, and prioritizes that strategy.
Product Market
Key External Factors Weight Development Development
AS TAS AS TAS
Opportunities
Positive outlook for office occupancy for
BPO, online gaming, and flexible 0.15 3 0.45 4 0.60
workspace firms
Increase in rent due to healthy demand 0.10 4 0.40 4 0.40
Strong demand for luxurious residential
0.05 4 0.20 2 0.10
properties
Rising disposable income of Filipinos 0.10 3 0.30 3 0.30
Expected increase in foreign investments
due to the relaxation of the Trade 0.20 4 0.80 4 0.80
Liberalization Act of the Philippines
56.3% of Filipinos are expected to move to
0.10 3 0.30 3 0.30
urban areas by 2030
Threats
Expected inflow of more foreign hotel
0.10 3 0.30 2 0.20
operators
Slow release of Philippine Economic Zone
0.05 2 0.10 2 0.10
Authority (PEZA) proclamations
Continued rise on the price of lands 0.10 2 0.20 3 0.30
Suspension of the issuance of new licenses
0.05 2 0.10 4 0.20
to POGO
Total 1.00 3.15 3.3
Strengths
Market Share 0.20 4 0.80 4 0.80
Promotions 0.10 4 0.40 4 0.40
Customer Loyalty 0.10 4 0.40 4 0.40
Range of Products 0.10 3 0.30 3 0.30
Brand Reputation 0.05 4 0.20 4 0.20
58
Weaknesses
Not dominant on other property segments
0.15 3 0.45 2 0.30
outside of shopping malls or retail
Weak residential presence outside Metro
0.10 2 0.20 3 0.30
Manila - especially outside Luzon
Still catching up in the office space
0.10 4 0.40 1 0.10
segment
Requires heavy investments for expansion 0.10 4 0.40 3 0.30
Total 1.00 3.55 3.10
Sum Total Attractiveness Score 6.70 6.40
Table 16 - QSPM of SM Prime Holdings, Inc.
The result of the QSPM shows that out of the two strategies that the company should
consider – product development (5.60), and market development (5.20), SM Prime should
consider focusing on product development. The attractiveness of the office and residential
segments should be considered, keeping in mind that the two property segments both have
growth rates of 20% in the past year. Product development should also focus on maintaining
their mall leadership – as it’s their top revenue earner.
59
VII. STRATEGIC OBJECTIVES AND RECOMMENDED STRATEGIES
7.1 Recommended Revised Vision and Mission
7.1.1 Recommended Revised Vision
In our earlier look at SM Prime Holdings, Inc. vision statement, it passed on three
out of four parameters that we used. The company’s vision – answers the question
‘what do we want to become’; it’s concise yet inspirational; and it is aspirational.
However, the vision statement will need to indicate when will the vision be attained.
The recommended vision statement is as follows:
“To be the best property development company by 2050, who builds and manages
innovative integrated developments that are catalysts for a better quality of life.”
Parameter Yes/No Why?

SMPH states that their ultimate goal is to
Does the company’s vision
build and manage innovative, integrated
answers the question ‘What do YES
developments that are catalysts for a better
we want to become?’
quality of life.
Is it concise enough yet The company’s vision statement is short, but
YES
inspirational? delivers the message that it wants to convey.
The vision statement clearly shows us the
Is it aspirational? YES company’s aspiration to build a better quality
of life through property development.
Does it give clear indication to The company’s vision statement indicates that
YES
when it should be attained? its vision should be attained by 2050.
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7.1.2 Recommended Revised Mission
Based on our evaluation of SM Prime Holdings, Inc.’s mission statement, we found

out that it failed to include four components in their statement. These components are;
products and services, markets, technology, and self-concept.
In order for a mission statement to be effective, it should include the following

nine components; customer, products/services, markets, technologies, concern for
survival, philosophy, self-concept, concern for public image, and concern for
employees. As such, we revised the company’s mission statement with the following:
We will serve the ever-changing needs and aspirations of our customers (1) using
the best tools and technologies (4) available. We will continue to provide our customers
with a wide selection of products from commercial to residential, to shopping malls (2)
all over the Philippines, and across the globe (3).
We will continue to provide opportunities for the professional growth of our

employees (9) - who are the core of our strength (7), foster social responsibility in the
communities we serve (8), enhance shareholder value for our investors (5) and ensure
that everything we do safeguards a healthy environment for future generations (6).
Component Yes/No Evaluation

The company’s mission statement indicates that they
Customers YES
will serve their customers’ needs and aspirations.
The company’s products and services are highlighted
Products and Services YES
in the revised mission statement.
The company’s geographical markets are mentioned
Markets YES
in their revised mission statement.
The company’s basic technology is mentioned in their
Technology YES
revised mission statement.
61
The company states that enhancing shareholder

Concern for Survival YES
values for their investors is one of their mission.
The company’s philosophy is to ensure that
everything they do safeguards a healthy environment
Philosophy YES
for future generations. This is highlighted in their
mission statement.
The company’s strengths are mentioned in their
Self-Concept YES
revised mission statement.
The company’s mission statement indicates that they
Concern for Public
YES foster social responsibilities in the communities they
Image
serve.
The company’s mission states that providing
Concern for Employees YES opportunities for the professional growth of their
employees is one of their mission.
Table 17 - Evaluation of the revised mission statement
62
7.2 Strategic Objectives
Based on the matrices used on the previous chapter, SM Prime should make growth
their primary strategic objective. As highlighted by their 2019 investor kit, they currently have
the following strategies:
• Increase acquisition of large-scale strategic land bank to develop more lifestyle

cities
• Leverage on world-class malls to anchor lifestyle city strategy
• Ensure excellence in delivering residential projects
• Continue the rollout of offices and convention centers as part of Integrated
Development
• Maintain strong balance sheet, prudent risk and capital management and good
governance24
Based on the strategies laid out above, SM Prime is setting its focus on growth – by
acquiring land banks to develop into lifestyle cities.
It should be noted that leveraging their mall business to anchor their lifestyle cities
projects is one of the highlights of their strategies. This strategy is identical to what the QSPM
analysis shows us – as part of the product development strategy. For the longest time, SM
has been dominating the mall industry. Most Filipinos – especially outside Metro Manila
associate the name SM to shopping malls - that is brand recognition at its finest.
However, the growth potential of the residential and office spaces should not be over
looked. As shown in the BCG matrix, both residential and office spaces have market growth
rate of 20%. That is a big growth rate to ignore. Going back to the strategies highlighted in
24
63
the company’s investor kit for 2019, the company has clearly taken notice of that growth rate,
and is now taking actions to solidify their position in those two property segments – if not
overtake the current leaders.
7.3 Recommended Business Strategies
The recommended business strategy for SM Prime is for them to focus on product
development. This strategy will be help them lure in more customers and buyers for all their
products by modifying their existing product offerings so they appear fresh and therefore
more attractive. This product development strategy could also pave the way for them to
enhance their current products and introduce it to new markets they just tapped.
Based on an article written by McKinsey & Company, malls are no longer primarily about
shopping. Customers visit malls to look for experience that go well beyond traditional
shopping. The advent of the e-commerce and the rise of digital technologies are reshaping
the expectations of consumers and shifting the functions of malls towards useful and
entertaining customer experiences.
Adding features and amenities in their products to emphasize value-added elements

can increase the company’s revenue. By adding new features and amenities focusing on
leisure, the malls in Brazil were able to increase their mall revenues by 41% in 2013, compared
to 2012. 25
SM Prime should focus on customer experience in the projects they build. For instance,
they should establish differentiations on all their projects, to lure in customers.
Listed below are the current differentiators by SM Prime:
25
https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/the-future-of-the-shopping-
mall
64
• Ice skating rink • SM by the Bay

• Bowling alley • IMAX
• Archery • Cyber Zone
• Boating
Given that SM Prime is focus on developing lifestyle cities moving forward, they can
further add to their differentiators a few other features in these new projects, such as:
• Basketball courts • Bike trails / jogging trails

• Football fields (mini) • Paint ball / Airsoft arenas
The differentiators will be the company’s invitation to everyone to ‘Come here at SM,
it’s fun in here.’
65
7.4 Recommended Organizational Strategies
The recommended organizational strategy for SM Prime Holdings, Inc. is to focus on

market development. The company should start tapping into new markets – be it
geographically, customer base, or product base.
Currently the residential arm of SM Prime is mainly focus on condominium

development. They have house and lot offerings, but only targets the upper-class market.
This means that they are not able to tap middle-class market for residential housing –
something that is a big part of the business of its competitors Ayala Land and Vista Land &
Lifescapes. The company should consider tapping the middle-class market for their house and
lot offerings.
Geographically, SM Prime should focus on establishing their presence in new markets

with high potential for urbanization. This market penetration should be spearheaded by their
mall development, and eventually add additional projects once the urbanization of these
areas start to take place.
66
7.5 Financial Projections
With the recommended strategies put in place, the financial performance of SM Prime
Holdings, Inc. should get at least 12% increase annually in terms of revenue. Between 2019
and 2021, SM Prime will be able to tap six provinces for its mall development which will
spearhead additional developments moving forward.
The financial projections are as follow:

In Billion Pesos Actual Projection
2016 2017 2018 2019 2020 2021
Revenue 79.82 90.92 104.08 116.57 131.72 150.16
Cost and Expenses 44.55 50.29 55.75 61.33 69.30 77.61
Operating Income 35.27 40.63 48.33 55.24 62.43 72.55
Net Income 23.81 27.57 32.17 37.00 42.54 48.93
EBITDA 42.52 49.04 57.24 65.25 72.43 82.57
Table 18 - Revenue projection for 2019 - 2023
Income Statement Analysis

160.00
140.00
120.00
100.00
80.00
60.00
40.00
20.00
-
2016 2017 2018 2019 2020 2021
Revenue Cost and Expenses Operating Income

Net Income EBITDA Linear (Revenue)
67
7.6 Overall Evaluation of Strategies
The recommended strategies were based on a thorough assessment of the results of

the various strategy tools that were used, as well as the assessment of the corporate reports
of SM Prime Holdings, Inc.
Assessing the current strategies of SM Prime shows that the strategies they are
currently taking is not far from the strategies recommended by the strategy tools used in this
paper. Moreover, the assessment using the strategy tools agrees with the strategies laid out
by SM Prime in their 2019 Investor Kit document.
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VIII. ACTION PLAN AND DEPARTMENTAL PROGRAMS
8.1 Action Plan
Focus Area: Land Bank Acquisition and Property Development

Goal: To acquire land banks before the prices start to go up, and to develop lifestyle cities in fast-growing
urban areas across the Philippines
Objective Actions to be Taken Timeline
Work with NEDA to identify areas with a
huge potential of becoming highly 3 months
urbanized in the next 10 - 20 years
Scout the areas identified in step 1 which
have huge potential to be highly
urbanized, and identify potential sites for 12 months
To acquire land banks in areas with huge future lifestyle cities or projects within the
potential for future development area
Scout areas surrounding highly urbanized
areas and identify possible location for 12 months
future projects
Acquire the best land banks identified in
steps 2 and 3 to be the sites of future 12 months
projects
Design a master plan to develop the land
3 Months
banks acquired in step 4.
Develop lifestyle cities to create an
integrated community/location for all 5 years
projects of the company
Build malls to cater to the general
population of the areas where the lifestyle 3-5 years
cities are built
To develop lifestyle cities in highly Build office buildings, hotels, and
urbanized and surrounding areas in the convention centers within the lifestyle 5-8 years
country cities
Build communities of residential
condominiums within the lifestyle cities, to
cater to the needs of employees that will 5-8 years
be working in the office spaces in the
vicinity
Add publicly accessible amenities to the
lifestyle cities to help boost the number of
2-3 years
visitors and potential residents/tenants for
all the properties within it
Table 19 - Action plan for SM Prime Holdings, Inc.
69
The action plan for SM Prime Holdings, Inc. has been divided into two objectives; to
acquire land banks in areas with huge potential for future development (urbanization), and
to develop lifestyle cities in highly urbanized areas in the country.
These two objectives have 10 steps combined. These steps lay out the plan on how SM
Prime will be able to achieve their objective of company growth, spearheaded by their mall
development in their planned lifestyle cities across the country. The plan will take around ten
years to get implemented depending on the number of projects they plan to put up in each
lifestyle city.
The most important part of the action plan is identifying where the next big urbanization
will come from. Such task requires collaboration with NEDA to identify what province or area
has the potential to become the next big city. Identifying these areas early is key for the
company to save money on land acquisition, and to be a step ahead of their competition by
planting their feet and establish their brand before the competition does.
70
8.2 Sustainability Report
SM Prime Holdings, Inc. has a strong sustainability plan in all their projects. To quote
their president Mr. Jeffrey C. Lim:
“We acknowledge that our businesses impact the environment and society in a
significant way. We therefore continuously uphold our commitment to operate sustainably
not only for our interests but also for the benefit of our stakeholders, the environment, and
society”26
The company’s sustainability strategy is anchored on four pillars covering all the
dimensions of sustainability; People, Community, Economic, and Environment.
Figure 19 - The four pillars of sustainability
26
SM Prime Holdings, Inc. Sustainability Report 2018
71
People SM Prime recognizes the valuable contributions of employees to the

Company’s success. Hence, the Company puts great importance to their
professional growth and well-being. The Company invests through
developmental programs to improve the employee’s knowledge and skills.
SM Prime institutionalized programs on health and wellness. Employee
volunteerism is highly encouraged as it helps develop and strengthen
relationships internally and with the communities served by the Company
and its people.
Community SM Prime’s property development brings about significant ripple effect to
the communities where it has situated its businesses. Cognizant of this
opportunity to serve millions of customers daily, the Company ensures that
its facilities foster inclusivity and accommodate the needs of its various
stakeholders. The Company creates strong relationship not only with its
local communities but also with the LGUs, NGOs, International
Organizations and other interest groups. The communities are then
transformed and grow with SM Prime.
Economic SM Prime acknowledges that it plays a significant role as a catalyst of
economic growth in the Philippine economy. The Company’s mission
includes the enhancement of shareholder value of its investors. Integral in
maximizing the shareholders’ return of investment is SM Prime’s strict
adherence to good corporate governance. Further, SM Prime’s businesses
create multiplier effect in the communities where it operates thereby
resulting to increase economic activity and improvement in the lives of its
customers and stakeholders.
Environment SM Prime as a key player in the Philippine property development industry
is aware that it needs to build and manage lifestyle cities sustainably. Thus,
various innovations and technological advancements for the protection of
natural capital have been adapted by the Company. It has also entered into
72
partnerships with local and international environmental and disaster risk

resilient organizations as a sign of its serious commitment to being
environmentally responsible and resilient across all aspects of its
operations.
Table 20 - SM Prime's Four Pillars of Sustainability27
SM Prime Holdings, Inc. also adheres to the United Nations Sustainable Development
Goals (UN SDGs) to ensure a better and sustainable future for the company and the Filipinos.
SM Prime puts an active effort in involving stakeholders to contribute to the company’s

goals in achieving the SDGs. The company’s view of sustainability is about ensuring that its
initiatives are geared towards a better and sustainable tomorrow.28
27
28
73
Figure 20 - SM Prime Holdings, Inc. UN SDGs (continues on the next page)
74
75
76
8.2.1 Sustainability Projects Highlights
The following are the highlights of the sustainability projects by SM Prime as pf

the year ending 2018:
Figure 21 - SM Prime's commitment to a more accessible education
77
Energy Efficient Malls
Figure 22 - Energy efficient malls concept by SM Prime
78
The Solar-Powered Malls
Figure 23 - The 10 solar-powered malls of SM Prime
79
Figure 24 - The power generating capacity of SM Prime's solar panels combined
80
Water Conservation
Figure 25 - SM Prime’s water recycling process
SM Prime recycles its wastewater by providing sewerage treatment plants in all

its malls resulting to a savings of 5.9 million cubic meters of water, and a monetary
savings of Php 545 million, in 2018 alone.
81
Diversity and Equality
Figure 26 - SM Prime's employee diversity figures
82
APPENDICES
83
Appendix A: Financial Statements
84
85
86
87
88
89
Appendix B: Competitors’ Financial Statements
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
Appendix C: References
Books:
• Strategic Management, 2nd Edition by Frank T. Rothaermel
• Strategic Management by Kevan Williams
Public Documents:
• SM Prime Holdings, Inc. 2018 Annual Report
• SM Prime Holdings, Inc. 2017 Annual Report
• SM Prime Holdings, Inc. 2018 Sustainability Report
• SM Prime Holdings, Inc. 2019 Investor Kit
• Ayala Land, Inc. 2018 Annual Report
• Megaworld Corp. 2018 Annual Report
• Vista Land and Lifescapes 2017 Annual Report
• Colliers International – Asia Market Snapshots 1Q 2019
• Colliers International – Philippines Office Market 4Q 2018
• Colliers International – Philippines Residential Market 4Q 2018
• Colliers International – Quarterly Retail 3Q 2018
• Leechiu Property Consultants – Real Estate Market Insights, December 2018
• An Analysis of the U.S. Real Estate Value Chain with Environmental Metrics by
Marcy Lowe and Gary Gereffi
108
Online Resources:
• https://www.strategicmanagementinsight.com
• https://www.investopedia.com/
• https://www.opstart.ca
• https://www.asiapropertyhq.com
• https://business.inquirer.net
• https://www.isc.hbs.edu
• www.maxi-pedia.com
• https://www.mindtools.com
• https://mba-lectures.com
• https://www.businessstudynotes.com
• https://www.lamudi.com.ph
• https://www.mckinsey.com
109
Appendix D
Researcher’s Curriculum Vitae
110
JO H N C R IS V I NC E NT S . PE LLE TER O
Blk 4, Lot 8, King’s Road Residence, Daang Hari Street,

Perpetual Village, Brgy. San Martin de Porres, Paranaque City
Mobile No.: +63.926.676.1257
Email: jc_vincent.pelletero@outlook.com
OBJECTIVE
To apply my skills in system administration to a company that needs a hard

working professional, who is self-driven and always strives for success. To
continue to develop my leadership skills through people and work management.
SUMMARY
Over ten years of experience in OLAP systems administration, implementation,

customization, and support.
Given the responsibilities to lead and administer different enterprise systems and
projects. Driven with a desire to maximize the benefits of system automation for
a more efficient and effective way of managing the time and effort of the
administrators and the support groups.
Accepts lead roles in implementing large projects over the course of 10 years,
across multiple multinational organizations.
Given responsibilities in various projects in government agencies, manufacturing

companies, insurance, and corporate travel management. Involved in both
internal and external projects for MISNet, Inc., Texas Instruments Inc., Asurion,
and CWT wherein my technical expertise and leadership skills were developed
over the years.
111
SKILLS
➢ Hyperion Administration: ➢ Databases:

• Essbase (11.1.2.3, 11.1.2.2, • MS SQL Server (2008, 2012)
11.1.2.1, 11.1.1.3) • Oracle 9i and 10g
• Planning (11.1.2.2, 11.1.2.1)
• Financial Management (11.1.2.3,
11.1.2.2, 11.1.2.1)
• Financial Data Quality
Management (11.1.2.3, 11.1.2.2,
11.1.2.1)
• Data Relationship Management
(11.1.2.2, 11.1.2.1
• Shared Services (11.1.2.3,
11.1.2.2, 11.1.2.1)
➢ OBIEE Administration: ➢ Operating Systems:

• Analytics (11.1.1.7) • Windows Server 2008 R2
• Windows 7
• Windows Server 2003
• Windows XP
➢ Application Servers: ➢ Web Development:

• Bea Weblogic Application Server • HTML
(9.2, 11.1.1.1) • PHP 5.0
• Microsoft IIS 7
• Enterprise Manager (11.1.1.7)
112
PROFESSIONAL EXPERIENCE
July 2015 – Present CWT
Functional Role: Lead Hyperion Administrator / Senior Technical Analyst
▪ Lead for Hyperion administration, handling: Essbase, Financial Data Quality

Management (FDM), Hyperion Financial Management (HFM), and Reporting and
Analysis
▪ Improved the team’s relationship with the business users by improving team
integrity, providing customer satisfaction, and improving communication
▪ User support for Smart View and other Hyperion client tools
▪ System installation and configuration
▪ Troubleshooting of Hyperion systems and server-related issues
▪ Hyperion system maintenance, automation, and patch deployments
▪ Oversees the transition of Hyperion products from third-party consultants to CWT
IT
▪ Improved and stabilized system performance
▪ Improved system availability and independence from IT through system
automation
▪ Technical lead for the iDigi Tool project
*****
113
April 2011 – July 2015 Asurion
Functional Role: Lead Hyperion / OBIEE Administrator
▪ Lead for Hyperion and OBIEE administrators for infrastructure, maintenance, and
support for global operations
▪ System installation and configuration
▪ Guided the administration team through Hyperion/OBIEE tasks by setting up
knowledge transfer meetings, and constant status updates
▪ Provided the team with goals/targets regarding Hyperion projects and tasks, and
provide directions
and guidance when needed
▪ Application-specific configurations
▪ Troubleshoot Hyperion and OBIEE errors/issues
▪ Hyperion and OBIEE system maintenance, automation, and patch deployments
▪ Administrator for the following Hyperion products: Planning, Essbase, Financial
Data Quality Management (FDM), Hyperion Financial Management (HFM), Data
Relationship Management (DRM)
▪ Hyperion system and user support for Planning, Essbase, FDM, HFM, DRM, and
SmartView
▪ Maintaining 19 Hyperion servers for production and non-production environments
▪ Experienced in Hyperion Life Cycle Management for application migration
(Planning, Essbase, HFM, FDM, Financial Reporting, Reporting and Analysis, and
Calculation Manager)
▪ Development and maintenance of MAXL, and batch scripts for system automation
▪ Development and maintenance of PHP and HTML scripts for accounting jump page
for finance users
▪ Supporting OBIEE 11.1.1.7
▪ High availability and clustering set up for OBIEE
▪ Maintaining four OBIEE servers for production and non-production environments
▪ Oracle Enterprise Manager administration for Oracle BI components
▪ WebLogic 11 Console administration for Hyperion and OBIEE components
▪ Set up of Microsoft IIS 7 for PHP jump page
114
▪ Basic troubleshooting for Microsoft IIS for application pools for FDM, HFM, and
DRM
▪ SQL Server scripts creation/development for automation of additional finance
projects for global operations
▪ Knowledgeable in Microsoft Failover Manager - in a user perspective
*****
October 2009 – April 2011 Texas Instruments Inc.
Functional Role: Essbase Developer / Application Manager / Administrator
▪ Served as an Essbase developer, application manager, and administrator

▪ Part of the two-man team that handled Essbase development and maintenance
▪ Develop new Essbase applications
▪ Essbase application enhancements
▪ Supported Essbase applications that enables the company’s financial analysts to
performance quick analysis and forecasting
▪ Essbase application bugs and issues troubleshooting
▪ Updated and maintained SQL scripts and stored procedures based on new
forecasting rules
▪ Granted access rights to financial analysts for the 7 applications we handled
▪ Performed members and data load to Essbase cubes
▪ Data extraction from Oracle to SQL Server 2005 through SSIS
▪ Essbase cube creation using Essbase Integration Services (EIS)
▪ Essbase performance enhancements
▪ Served as the application manager for Essbase which oversees the tickets and
projects for Essbase
*****
115
June 2007 – October 2009 MISNet Inc.
Functional Role: Technical Consultant / Presales Engineer
▪ Served as a technical consultant and a pre-sales engineer for various projects of

the company
▪ Part of a four-man team that was deployed to SAS Institute Phils. from 2007 -
2008
▪ Primary resource for the StopFiler project for the Bureau of Internal Revenue
using SAS Base and Java portal customization
▪ Involved in development of other SAS projects for BIR
▪ Part of the Hyperion team for MISNet Inc.
▪ Focused on Essbase (11.1.1.3) application development
▪ Proof of concepts creation
▪ One of three Integio consultants in Southeast Asia
▪ Product presentation and POC development
▪ Spatial analysis development
▪ Maps and floor plans creation and customization
EDUCATION
2017 - Present Jose Rizal University

Mandaluyong City, Metro Manila
Master in Business Administration
2003 – 2007 Jose Rizal University

Mandaluyong City, Metro Manila
Bachelor of Science in Information Technology
116

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JOSÉ RIZAL UNIVERSITY, GRADUATE SCHOOL

SMPH is the property arm of SM Investments Corporation, which started as a mall

Current Group Performance

Figure 1 - SM Prime Holdings, Inc. performance overview for 20181

Figure 2 - SM Prime Holdings, Inc. performance overview for 20182

II. RESEARCH AND METHODOLOGY

Scope and Limitation

III. MACRO ENVIRONMENTAL ANALYSIS

3.1 Social Forces

3.2 Technological Forces

3.3 Economical Forces

3.4 Environmental Forces

3.5 Political Forces

IV.INDUSTRY AND COMPETITOR ANALYSIS

Property Types : Estate development, shopping malls, property development (residential

Property Types : Shopping malls, condominiums, and housing projects

4.1 Industry Value Chain

Figure 3 - Real Estate Value Chain10

• Finance (Equity) – The equity section of the finance segment is composed of

• Finance (Debt) – The debt section of the finance segment refers to

• Property Sales, Leasing and Management – This segment is composed of

• Construction – This segment is composed of construction companies and

4.2 Porter’s Five Forces Model

Figure 4 - Porter's Five Forces Model

4.2.1 Threat of New Entrants: LOW

4.2.2 Bargaining Power of Suppliers: LOW

4.2.3 Bargaining Power of Buyers: LOW

4.2.4 Threat of Substitute Products or Services: LOW

Substitute products/services from the ones being offered by the property

4.2.5 Rivalry Among Existing Competitors: HIGH

Figure 5 - Real Estate Developers Earnings in 201612

4.3 Strategic Positioning Analysis and Recommendation

By having multiple subsidiaries focus on different sector of property development, SM

• SM Development Corporation, is their residential property arm which

• Highlands Prime is another residential property arm of SMPH, but focuses

SM Prime’s residential business is also flourishing. SM Development Corporation

4.4 Market Share, Size and Growth Trends

Figure 6 - Number of properties per developer as of 201913

Figure 7 - Developer market share for office space as of 201814

Figure 8 – Developer office space market share from 2019-2023

4.5 Competitive Profile Matrix (CPM)

Rating: 1 – Major Weakness; 2 – Minor Weakness; 3 – Minor Strength; 4 – Major Strength

Table 1 - Competitive Profile Matrix

4.6 External Factor Evaluation (EFE) Matrix

Slow release of Philippine Economic Zone

5.1 Vision Statement

A company’s vision statement is a statement that expresses the organization’s ultimate

SM Prime Holding, Inc. has the following vision statement:

Parameter Yes/No Why?

Table 3 - Vision Statement Analysis

5.2 Mission Statement

SM Prime Holdings, Inc. has the following mission statement:

Component Yes/No Evaluation

The company’s strengths, weaknesses, and

Table 4 - Mission Statement Analysis

5.3 McKinsey’s 7s Framework

Figure 9 - The 7s Framework

As of 2018, the main focus of SM Prime’s strategy is growth. Their growth

Since 2013, the company built an additional of:

• 24 malls in the Philippines

• Increase acquisition of large-scale strategic land bank to develop more

At the helm of SM Prime’s governance structure is its board of directors. The