State of Corporate Governance Report

As a publicly-listed real estate company, we recognize that we are accountable to our stakeholders – especially our shareholders. In conducting our business, we are committed to high standards of governance. We ensure that risks are managed and all laws and regulations are complied with.

This section details the Company’s structure of governance, its practices and internal controls as contained in the Articles of Incorporation and By-Laws and the Revised Manual of Corporate Governance approved by the Board of Directors.

BOARD STRUCTURE AND PROCESS

Key Role and Responsibilities. Overall stewardship of the Company rests on the Board of Directors, the highest governing authority within CHI’s management structure. Collectively, the Board of Directors is responsible for the success of the Company and ensures that CHI’s obligations to its stakeholders are met.

Composition. The Board brings to the organization a balanced mix of business, legal, and finance competencies, with each director capable of adding value and rendering independent judgment in relation to the formulation of sound corporate policies, on issues of strategy, resources, standards and performance related to corporate social responsibility, environmental and economic sustainability.

Decision-making at the Board level adheres to an objective process that does not undermine the independence and integrity of judgment of each individual director.

None of the members of the Company’s Board of directors and management own two percent or more of the outstanding capital stock of the Company.

Independent Directors. As a publicly-listed company in the Philippine Stock Exchange (PSE), CHI conforms with the legal requirement to have at least two independent directors or at least twenty percent of its board size, whichever is less. CHI has three independent directors, Fr. Roderick C. Salazar, Jr., SVD, Enrique L. Benedicto and Hernando O. Streegan.

The Company defines an independent director as one holding no interests or relationships with the Company that may hinder his independence from the Company or management or would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Company complies with the rules of the Securities and Exchange Commission (SEC) with regard to the nomination and election of an independent director.

Chairman. The Chairman of the Board is Antonino T. Aquino, who assumed the position in 2009. Francis O. Monera holds the position of president. The existing board structure provides a clear division between the Board and the executive responsibilities. The respective roles of the chairman of the Board and the president are complementary. This ensures an appropriate balance of power, increased accountability and further provides a greater capacity of the Board for independent decision making.

BOARD PERFORMANCE

The Board holds meetings at least thrice a year or as often as necessary to fulfill its role. The Board has separate and independent access to the Corporate Secretary who, among other functions, oversees the adequate flow of information to the Board prior to meetings and serves as an adviser to the directors on their responsibilities and obligations.

Discussions during Board meetings are open and independent views are given due consideration. The Board held three meetings, including the organizational meeting in 2010.

In 2010, the Board of Directors conducted a selfassessment of their performance covering the year, focusing on the level of Board’s compliance with leading practices and principles on good governance, both as an individual member and as a Board’s collective governing role. The formal self-rating system takes into account factors such as independence, experience, judgment, knowledge, time commitment and teamwork, and identifies areas for improvement.

BOARD COMMITTEES

The committees serve to assist the Board in exercising its authority including monitoring the performance of the business. To aid in good governance, the committees support the Board in the performance of specific functions.

Executive Committee
Acts in accordance with the authority granted by the Board or in case of absence of the Board on specific matters within the competence of the Board of Directors as prescribed in the Company’s By-Laws, except with respect to any action for which shareholders’ approval is also required such as distribution of cash dividends; filling of vacancies in the Board or in the Executive Committee; amendment or repeal of By-Laws or the adoption of new By-Laws; amendment or repeal of any resolution of the Board of Directors which by its express terms is not so amendable or repealable; and the exercise of powers delegated by the Board exclusively to other committees.

Compensation Committee
Establishes a formal and transparent procedure for fixing the remuneration packages of corporate officers and directors. It provides oversight over remuneration of senior management and other key personnel. In 2010, the Compensation Committee considered and approved: 1) the 2009 performance evaluation and promotion of associates, managers and executives; 2) 2009 performance bonus for the associates, managers and executives; 3) the salary adjustments for the qualified managers and executives for the year 2010.

Nomination Committee
Installs and maintains a process to ensure that all directors to be nominated for election at the annual stockholders’ meeting have all the qualifications and none of the disqualifications for directors as stated in the By-Laws, the Revised Manual of Corporate Governance of the Company and the pertinent rules of the Securities and Exchange Commission, to review and evaluate the qualifications of all persons nominated to positions in the Company which require appointment by the Board.

In 2010, the Nomination Committee considered and approved the final list of nominees for directors for the year 2010-2011.

Sustainability Committee
With the support of the Sustainability Technical Working Group (STWG) headed by the Corporate Sustainability Officer (CSO), and the three-person core team, the Sustainability Committee provides assistance to the Board of Directors in its responsibility to the Company’s stakeholders that relate to the Company’s growth in the areas of 1) economic performance, 2) environmental stewardship and 3) corporate social responsibility.

Audit and Risk Committee
Provides assistance to the Board of Directors in fulfilling its oversight responsibility to the shareholders relating to: 1) the Company’s financial statements and the financial reporting process; 2) the systems of internal controls and financial reporting controls; 3) the internal audit activity; 4) the annual independent audit of the Company’s financial statements; 5) compliance with legal and regulatory matters; and 6) the adequacy of risk management. In 2010, the Committee reviewed and approved the following: 1) internal and external audit plans; 2) re-appointment of Sycip, Gorres, Velayo and Company (SGV & Co.), as the external auditors of the Company; 3) quarterly unaudited financial statements; 4) consolidated audited financial statements as prepared by the external auditors SGV & Co.; and 5) internal audit results. For the Committee’s further awareness and appreciation of Company’s initiatives and programs, the committee was also oriented on other aspects of the Company such as the Balanced Scorecard (BSC ) as a strategic management system, overview of the Construction Management Division (CMD), Project Development Group (PDG) and the Innovation and Design Group (IDG).

DIRECTOR AND SENIOR EXECUTIVE COMPENSATION

Non-executive directors, defined as members of the Board of Directors who are neither officers nor consultants of the Company, receive remuneration consisting of a per diem of P20,000 for each Board meeting attended and P10,000 per Board committee meeting actually attended. The said remuneration of non-executive directors was implemented effective April 28, 2006.

None of the directors, in their personal capacity, has been contracted and compensated by the Company for services other than those provided as a director.

The Company adopts a performance-based compensation scheme for its senior executives as incentive. Performance assessment of top management and associates is based on the corporate and functional Balanced Scorecard (BSC) Management System in which targets include, but are not limited to the financial aspects of the business. Other key result areas focus on non-financial aspects such as the Company’s customers, internal business processes, and the organization’s learning and growth that cover the requirements of the Company’s Quality, Environment, Health and Safety Management Systems (QEHS MS). The QEHS Management Systems establish the processes of implementing and monitoring programs and initiatives related to quality products and services, customer satisfaction, environmental sustainability and social responsibility.

The total compensation paid to non-executive directors as well as officers is disclosed annually in the Definitive Information Statement sent to shareholders, together with the Notice of Annual General Meeting, 15 business days prior to the Annual General Meeting. The total annual compensation includes the basic salary and other variable pay
(i.e. guaranteed bonus and performance-based incentive).

RISK MANAGEMENT

The Company’s enterprise-wide risk management (ERM) framework integrates the policy, scope, process and structure of risk management. The scope of ERM encompasses the processes in the value delivery chain and support processes. The risk management process starts from risk identification, measurement, treatment and ends in monitoring and review. The structure highlights the oversight function of the Board of Directors and corporate functions of the ERM committee, management committee, finance and audit.

Stewardship and accountability rests on the Management Committee. The ERM committee was created to monitor the risk management policies and processes to ensure the continued flow of relevant risk information and its integration with the achievement of corporate goals and objectives. This cross-functional committee is headed by the Chief Risk Officer (CRO) who reports functionally to the Audit and Risk Committee, and administratively to the President and the Management Committee.

The ERM Committee is composed of representatives from the Real Estate Development Group, Retail Business Group, Property Management Division, Construction Management Division and the Corporate Services Group.

ACCOUNTABILITY AND AUDIT

The Audit and Risk Committee provides oversight to external and internal auditors. The internal audit function of the Audit and Risk Committee is governed by a separate Internal Audit Charter.

Independent Public Accountants. SGV & Co. is the principal accountant and external auditor of the Company. Davee M. Zuñiga has been the partner-in-charge since 2009.

The Audit and Risk Committee is empowered to independently review the integrity of the Company’s financial reporting and oversee the independence of the external auditors.

The Audit and Risk Committee is responsible for reviewing all financial reports for compliance with the internal financial management handbook and pertinent accounting standards, including regulatory requirements. It also recommends to the Board and stockholders the appointment of the external auditors and the setting of appropriate audit fees.

Over the past two years, CHI paid or accrued the billed fees to its external auditors, SGV & Co., who was engaged to audit the Company’s annual financial statements.

Internal Audit. The Internal Audit Department provides independent and objective assurance and consulting services to the Company with the objective of adding value and assisting the organization in accomplishing its objectives through effective control, risk management and governance processes.

The department reports to the Audit and Risk Committee of the Board, and likewise assists the Audit and Risk Committee in carrying out its duties and responsibilities as provided for in the Company’s Revised Manual of Corporate Governance. Annual audit plans, status updates and accomplishment reports are submitted by the department to the Audit Committee for review and approval.

Regular audits of business and corporate service groups are conducted in accordance with the approved Audit Plan. Special audits are undertaken when necessary. The QEHS MS internal audits are conducted every 12 months and in accordance with the QEHS MS annual audit program. The department also heads a cross-functional team of QEHS MS auditors.

Risk-Based Audit Approach. The Internal Audit Department executed its audit activities for 2010 in accordance with the risk-based audit approach in conformity with the International Standards for the Professional Practice of Internal Auditing (ISPPIA) and, at the same time, in compliance with the Securities and Exchange Commission’s Code of Corporate Governance (SEC Memorandum Circular No. 6: Series of 2009).

Quality Assurance Improvement Program (QAIP). In compliance with ISPPIA and the ongoing commitment to growth and improvement, the Internal Audit Department implemented the five-year Quality Assurance Improvement Program (QAIP) since 2009. As scheduled, the department conducted assessments involving internal evaluations of the internal audit activity, coupled with periodic selfassessment and/or reviews.

Compliance Officer. Eleanore R. Tomaneng has been the Compliance Officer of the Company since 2008. She holds the position of Chief Finance Officer with the rank of senior division manager. As Compliance Officer she reports directly to the Board. She is responsible for monitoring compliance with the Code of Corporate Governance and the rules and regulations of regulatory agencies and, if any violations are found, reports the matter to the Board. She recommends the imposition of appropriate disciplinary action on the responsible parties and the adoption of measures to prevent a repetition of the violation.

AWARDS AND RECOGNITION

Cebu Holdings, Inc. and Ayala Center Cebu
Silver Award for Design and
Development Excellence
International Council of Shopping Centers
November 8, 2010

IP Seal Award
Intellectual Property Coalition and DTI-Cebu
and Pilipinas Anti-Piracy Team
May 6, 2010

Cebu Holdings, Inc. Gold Award 2009 Corporate Governance Scorecard for Publicly-listed companies
awarded on July 27, 2010
(Institute of Corporate Directors, CIPE, Philippine Stock Exchange and Ateneo de Manila Law School)

Cebu Property Ventures and Development Corporation Gold Awardee 2009 Corporate Governance Scorecard for Publicly-listed companies
awarded on July 27, 2010
(Institute of Corporate Directors, CIPE, Philippine Stock Exchange and Ateneo de Manila Law School)

DISCLOSURE AND TRANSPARENCY

CHI is committed to high standards of disclosure and transparency to enable the investing community to understand the true financial condition of the Company and the quality of its corporate governance.

Ownership Structure. The Company has a transparent ownership structure. It annually discloses the top 20 holders of the common equity securities of the Company. In addition, disclosure of the security ownership of certain record and beneficial owners owning more than five percent as well as of directors and management is made annually. This information is also contained in the Definitive Information Statement sent to shareholders.

Content and Timing of Disclosures. CHI updates the investing public with strategic, operational and financial information through adequate and timely disclosures filed with the SEC and PSE.

In addition to compliance with periodic reportorial requirements, the Company punctually discloses major and market-sensitive information such as dividend declarations, joint ventures and acquisitions, sale and disposition of significant assets, as well as other material information that may affect the investment decision of the investing public. In 2009, unstructured disclosures were filed involving matters such as the declaration of P0.07 cash dividend to common shareholders.

Consolidated audited financial statements for the latest financial year are submitted to the SEC on April 15, as required. The audited annual report is submitted at least 15 working days before the Annual General Meeting. In 2010 the audited Annual Report as contained in the Definitive Information Statement was submitted to the SEC and the PSE on March 18, 2010, more than three weeks before the April 29, 2010 annual general meeting.

Interim (i.e., quarterly financial statements) are released between 30 and 45 days from the end of the financial period. The results are disclosed to the SEC and PSE within 24 hours from the time the Board meets to accept the results. The results are also sent to financial and stock market analysts via the internet immediately upon confirmation by the SEC of its receipt of disclosure, and made available on the Company’s corporate website.

Financial Reporting. The Company’s financial statements comply with the Philippine Accounting Standards and the Philippine Financial Reporting Standards which are in compliance with International Accounting Standards.

The annual consolidated financial statements provide a breakdown of total assets, total liabilities and equity, revenues, costs and expenses, income before income tax, net income attributable to equity holders of CHI and minority interests and earnings per share.

A more extensive, transparent disclosure of segment results such as assets, liabilities and revenues is provided to enable shareholders to appreciate various businesses and their impact on overall value enhancement. The following are disclosed in the Note on Business Segments:

total revenues
operating profit
net income
segment assets
investments in associates and jointlycontrolled entities
segment liabilities
depreciation and amortization

Transactions entered into with associates and other related parties in their conduct of business are on an arms-length basis. Sales and purchases of goods and services to and from related parties are made at normal market prices. Related party transactions are discussed and quantified in the Notes to the Consolidated Financial Statements.

Information on the Company’s financial instruments is accompanied by a presentation of the Company’s risk management objectives and policies to allow for a better assessment of financial performance and cash flows. Significant accounting judgments and estimates are also disclosed.

DEALINGS IN SECURITIES

CHI continues to adopt a uniform policy on securities transactions to reinforce and formalize existing government regulations against insider trading.

Reporting of Transactions. CHI is compliant with the requirement of the PSE for directors and principal officers to report any acquisition, disposal or change in their shareholdings of the Company to the SEC and to report changes in ownership of Company shares within five trading days.

The Company expanded coverage of this reporting requirement to include members of the management committee. All other officers are required to submit a quarterly report on their trades of Company shares to the Office of the Compliance Officer.

Trading Blackouts. The Company continues to adopt a policy on insider trading. Under this policy, directors, officers and employees who are considered to have knowledge of material facts or changes in the affairs of CHI which have not been disclosed to the public, including any information likely to affect the market price of the securities of the Company are prohibited from buying or selling the Company’s securities during trading blackout periods. The policy covers the Company’s shares of stocks, options to purchase stocks, bonds and other evidence of indebtedness.

All members of the Board of Directors, all key officers, consultants, advisers and employees of the Company who are made aware of undisclosed material information, including members of the immediate families of key officers are covered in this policy.

During the year, notices of trading blackouts for structured disclosures were issued for a period covering ten (10) trading days before and three (3) trading days after the disclosure of quarterly and annual financial results. Compliance with these trading blackout periods is strictly enforced. There have been no cases of violation of the Company’s policy on insider trading.

Stakeholder Relations

CHI seeks to adhere to a high level of moral conduct and fair dealings with all its stakeholders. The Company believes this is the basis and foundation for building long-term, mutuallybeneficial relationships.

Shareholder and Investor Relations
The Company believes that open and transparent communications are requisite for sustained growth and building investor confidence. Our investor communications program seeks to promote greater understanding of the Company’s longterm value creation proposition.

The Company, through its Finance Division reporting directly to the President, addresses the various information requirements of the investing public and communicates with minority shareholders through timely and full disclosures to the PSE, Annual General Meetings, one-on-one meetings, conference calls, investor visits and tours, web site and emails or telephone calls.

The Company has updated the Investor Relations section of its website to include the organization structure, performance, ownership and governance of the Company. The section is updated promptly when and as disclosures to the regulatory agencies are made. Proceedings of analysts’ briefings by way of presentations are immediately made available on the web.

Shareholder Meeting and Voting Procedures
Stockholders are informed at least 15 business days in advance of the scheduled date of the general meetings. Notice of regular or special meetings contain, in addition to the date, the hour and place of the meeting, and a statement of the matters to be transacted at the meeting. The notice to stockholders also set the date, time and place of the validation of proxies which is prescribed to be no less than five business days prior to the annual stockholders’ meeting.

Each common share of stock entitles the person in whose name it is registered in the books of the Corporation to one vote, provided the conditions as regards payment have been complied with.

Employee Relations

CHI is committed to promoting the safety and welfare of its employees. It believes in inspiring its employees, developing their talents, and recognizing their needs as business partners. Strong and open lines of communication are maintained to relay the Company’s concern for their welfare and safety, and deepen their understanding of the Company’s value creating proposition. These are all articulated in the Company’s strategic management system, the Balanced Scorecard specifically under the Learning and Growth perspective and also in the Health and Safety Management System certified to OHSAS 18001: 2007 standard.

The Code of Ethical Behavior outlines the general expectations and set standards for employee behavior and ethical conduct. It covers all CHI employees, its subsidiaries and affiliate. The Company and its employees commit to adhere to the Company’s core values in conducting personal and business affairs.

Code of Ethical Behavior
The Code of Ethical Behavior is intended to be read in conjunction with the Company’s Human Resources Manual of Personnel Policies which includes the Code of Conduct governing acceptable office conduct for the orderly operation of the Company as well as for the protection of the rights, safety, and benefit of the total employee force.

Company employees are required to annually disclose any business and family-related transactions to the Company by accomplishing the conflict of interest disclosure statement submitted to the Human Resources and Admin Department that monitors compliance of this policy.

OTHERS

Anti-Money Laundering. CHI is committed to comply with the Anti-Money Laundering law. The Company ensures strict compliance to its provisions by instituting internal control procedures. Since the enactment of the law, CHI has not faced issues of anti-money laundering.