PART I – BUSINESS AND GENERAL INFORMATION
Item 1. Business
(1) Business Development
On 18 January 1956, Sunturst Resort Holdings, Inc. (the “Company”), then known as Ramie Textiles, Inc., was incorporated to engage in the business of manufacture and sale of all types of ramie products. On 11 February 1959, the Company was listed in The Philippine Stock Exchange, Inc. On 10 June 1994, the SEC approved the Amendment to the Articles of Incorporation (AOI) of the Company changing the name, from Ramie Textiles Inc. to Gaming Interest and Franchise
Technologies, Inc., and its secondary purpose, and including a provision denying preemptive rights to existing stockholders for any future issue of shares. Upon its conversion to a holding company, the Company sought to identify investment opportunities which will yield attractive returns.
On 10 April 1995, the Company’s name was changed from Gaming Interest and Franchise Technologies, Inc. to Greater Asia Resources Corporation. Subsequently, the Company acquired two (2) parcels of land situated in Tagaytay City with an approximate total area of 510,479 square meters in exchange for 250,000 shares out of its unissued capital stock.
On 11 August 1998, the SEC approved the Amended AOI of the Company changing the name from Greater Asia Resources Corporation to BW Resource Corporation (BWRC). The primary purpose of BWRC is to acquire interests in tourism or leisure-related enterprises, projects, or ventures.
On 17 August 1999, the SEC approved an increase in Authorized Capital Stock (ACS) of the Company from 450,000,000 shares to 2,000,000,000 shares with a par value of One Peso (1.00) per share. Out of the increase in ACS, One Billion Two Hundred Million Pesos (Php1,200,000,000) worth of shares were issued to Megaworld Corporation (Megaworld). With the entry of Megaworld on 3 October 2000, the SEC approved the change in name from BWRC to Fairmont Holdings, Inc.
On 6 May 2006, the SEC approved the change of the Company’s name from Fairmont Holdings, Inc. to Suntrust Home Developers, Inc. The change in name came with a change in the Company’s primary purpose or nature of business, from a holding company to a real estate company authorized to engage in real estate development, mass community housing, townhouses and rowhouses development, residential subdivision and other massive horizontal land development. For the purpose of enabling the Company to finance any acquisitions or projects that it may undertake in the future in line with its new corporate purpose, the Board of Directors approved a Php1,000,000,000 increase in the Company’s authorized capital stock from Php2,000,000,000 to Php3,000,000,000. Out of the Php1 billion increase, Php250,000,000 has been actually subscribed while Php62,500,000 has been actually paid-up in cash by Megaworld. In July 2002, the Company acquired from an affiliate, Empire East Land Holdings, Inc. (EELHI), all of the latter’s shareholdings in Empire East Properties, Inc. (“EEPI”). As a result, it was presented in the third quarter of 2002. Prior to such acquisition, EEPI was a wholly-owned subsidiary of EELHI engaged in the development of socialized or low-cost housing projects. In March 2004, the Company’s percentage of ownership in EEPI was reduced from 100% to 60% upon the subscription by EELHI to additional shares of stock of EEPI. On 8 July 2008, EEPI changed its name to Suntrust Properties, Inc. (“SPI”) and increased its authorized capital stock, with EELHI subscribing to such increase. As a result, the Company’s ownership interest in SPI decreased from 60% to 20% and the Company’s control over SPI ceased and, as such, SPI became an associate of the Company. In June 2013, the Company has sold all its remaining shares in SPI.
On 30 August 2005, the Board of Directors of the Company approved the decrease in the number of members of the Board of Directors from eleven to seven directors and the extension of its corporate term for another fifty (50) years from 18 January 2006. These changes to the Articles of Incorporation were ratified by the stockholders of the Company on 11 November 2005 and were approved by the SEC on 10 May 2006. On 25 October 2019, the Board of Directors of the Company approved to allow the Company to focus on tourism-related businesses. These amendments were approved by the SEC on 17 June 2020.
In October 2019, to allow the Company to venture in tourism-related businesses and facilitate investments therefor, the Board of Directors of the Company approved the amendments to the Company’s primary and secondary purposes in its AOI, the conduct of fund-raising activities for tourism-related businesses that the Corporation would venture into (such as issuance of shares to third parties at par value or issuance of convertible bonds), and the entering of a Co-Development Agreement with Westside City Resorts World, Inc. (Westside). Furthermore, the Board of Directors and the stockholders of the Company ratified the approval by the Board of Directors on 23 September 2014 and the stockholders on 18 November 2014, to increase the Corporation’s Authorized Capital Stock.
On 28 October 2019, Fortune Noble Limited (Fortune Noble), a wholly-owned subsidiary of Suncity Group Holdings Limited (Suncity Group), a listed company on The Stock Exchange of Hong Kong Limited, acquired fifty-one percent (51%) of the outstanding capital stock of the Company. Suncity Group is principally engaged in: (i) property development in Guangdong and Anhui Provinces in the People’s Republic of China; (ii) property leasing in Shenzhen in the People’s Republic of China; (iii) provision of hotel and integrated resort general consultancy service in Vietnam; and (iv) provision of travel related products and services. The Suncity Group has been expanding its tourism-related business in the South East Asia region.
On 10 December 2019, the SEC approved the increase in the Authorized Capital Stock of First Oceanic Property Management, Inc. (FOPM), the Company’s subsidiary since September 2011. Considering the shift in the Company’s business focus, a new investor, which is a related party to a substantial stockholder of the Company infused capital in the form of cash to FOPM and the Company’s interest in FOPM became 24.27%, while retaining the same number of FOPM shares it held before and after the said increase in FOPM’s Authorized Capital Stock. Incorporated and registered with SEC on 31 January 1990, FOPM is engaged primarily in the management of real estate properties consisting of residential and office condominiums and private estates. FOPM also holds 100% of the outstanding shares of stock of CityLink Coach Services, Inc. (CityLink), which was incorporated and registered with SEC on 7 November 2006. CityLink is a domestic company primarily engaged in providing transportation services. (FOPM and CityLink, hereinafter FOPM Group)
On 20 December 2019, the SEC approved the increase in the Company’s ACS from Three Billion Pesos (Php3,000,000,000.00) to Twenty-three Billion Pesos (PhP23,000,000.00). The SEC also approved the Company’s application for registration under the Foreign Investments Act of 1991. On 17 June 2020, the SEC then approved the amendments to the Company’s primary and secondary purposes, from that of a real estate company to a tourism-oriented company authorized to engage in tourism-related businesses, including but not limited to acquiring, developing, improving and operating tourism-oriented facilities such as hotels, resorts, private clubs, leisure parks, entertainment centers, restaurants, food and beverage outlets, and other recreational facilities; to operate, manage, and/or maintain such other allied businesses, services, and facilities, incidental or necessary or connected therewith. The Company entered into agreements to pursue the intended transactions under the Co-Development Agreement with Westside.
On September 6, 2021, the Company’s Board of Directors approved the amendment to the Articles of Incorporation and By-Laws to change the Company’s corporate name to “Suntrust Resort Holdings, Inc.”. On October 26, 2021, the Parent Company’s shareholders approved the aforementioned amendments to the Company’s Articles of Incorporation and By-Laws. These amendments were approved by the SEC on June 8, 2022.
(2) Business of Issuer
From a holding company with investments in stocks, the Company has shifted its business focus to tourism development to take advantage of investment opportunities that will yield attractive returns.
On 28 October 2019, it entered into a Co-Development Agreement with Westside. Under the Co-Development Agreement, the Company shall finance the development and construction costs for, and would be appointed as the exclusive operator and manager of the operations of, a 5-star hotel and casino establishment (Main Hotel Casino) over certain parcels of land located at Manila Bayshore Integrated City, Parañaque City (Project Site). The Main Hotel Casino would be designed to have approximately at least four (400) hundred rooms, nine hundred sixty (960) car parking slots, and a casino establishment that would cater to both mass and VIP markets. The Main Hotel Casino is expected to be operational prior to 2023. Under the Co-Development Agreement, the Company would enter into a Lease Agreement over the Project Site with Westside and Travellers International Hotel Group, Inc. (Travellers), and an Operation and Management Agreement (O&M Agreement) with Westside for the operation and management of the Main Hotel Casino.
The Lease Agreement was entered into on 21 February 2020 and has an original term of until 19 August 2039, renewable automatically, subject to applicable laws, for another twenty-five (25) years. The O&M Agreement was executed on 4 May 2020 and has a term of until 11 July 2033, and shall be automatically extended or renewed, unless terminated earlier in accordance with the provisions of the O&M Agreement.
The Main Hotel Casino is currently in the construction and planning phase and is expected to be operational prior to 2023. It may be expected that the Main Hotel Casino may face significant competition in the Philippines and elsewhere in Asia. There are three (3) hotel and casino facilities currently operating within the Entertainment City, where the Project Site is located. These facilities are already open to the public and are operated by PAGCOR licensees. PAGCOR also operates other gaming facilities (and satellite gaming facilities which are smaller casinos and slots clubs) across the Philippines.
Dependence on a Single or Few Customers
The Company’s businesses are not dependent upon a single or a few customers or tenants, the loss of which would not have a material adverse effect on the Company. Transactions with and/or Dependence on Related Parties The Company’s policy with respect to related party transactions is to ensure that these transactions are entered into under terms comparable to those available from third parties, on an arm’s length basis, and will not be prejudicial to the Company’s shareholders and its other stakeholders.
In normal course of business, the Company entered into transactions with related parties, including advances from related parties for working capital purposes and for the settlement of certain liabilities. Major related party transactions have been disclosed and discussed Note 15 to the Audited Financial Statements and other portions thereof, as well as elsewhere in this report. Westside, with whom the Company executed the Co-Development Agreement, the Lease Agreement, and O&M Agreement, is a subsidiary of Travellers which is a related party to Megaworld, a principal shareholder of the Company.
The Company does not hold any patent, trademark, copyright, license, franchise, concession or royalty agreement upon which their operations are dependent.
Effect of Government Regulations on the Business
A casino is also expected to be operated in the Main Hotel Casino.
The operation of casinos in the Philippines is a regulated activity under the auspice of PAGCOR. PAGCOR is a government owned and controlled corporation responsible for the licensing and monitoring of casinos in the Philippines and enforcement of relevant laws affecting gaming operations. Every casino licensee has to be licensed by PAGCOR and obtain a valid license from PAGCOR for the operation of their gaming activities.
PAGCOR has granted a Provisional License to Travellers and Westside, authorizing them to operate casinos and to enter into any agreement for the operation and/or management of the casino without need of prior written approval of PAGCOR provided that (i) such agreement will not result in the assignment, transfer, sale, lease or sub-leasing of the Provisional License; and (ii) the appointed casino manager or operator, if a juridical entity, should be registered with the SEC and not included in PAGCOR’s list of banned personalities.
Under Republic Act No. 10927, casinos have been included as among the covered persons under Republic Act No. 9160 (Anti Money Laundering Act), as amended. The Casino Implementing Rules and Regulations was also issued by the Anti-Money Laundering Council (“AMLC”) and Appropriate Government Agencies (“AGA”) in October 2017. Under the Casino Implementing Rules and Regulations , casinos should report to the AMLC all suspicious transactions as defined by law and single casino cash transaction involving an amount in excess of Five Million Pesos (Php5,000,000.00) or its equivalent in any other currencies within five (5) working days, unless the AMLC prescribes a different period not exceeding fifteen (15) working days, from the occurrence thereof. Casinos had also been required to submit covered and suspicious transactions to the AMLC following the effectivity of AMLC’s Registration and Reporting Guidelines for Casinos in August 2018. Casinos were likewise required to conduct customer due diligence (CDD) in accordance with PAGCOR’s CDD Guidelines for Land-Based Casinos since November 2018.
Research and Development
The Company has not devoted a significant percentage of revenues for research and development activities in the past three years have not amounted to. There are no new products or design being developed that will require a material amount of the Company’s resources.
Compliance with Environmental Laws
The Company has incurred minimal costs to comply with environmental laws.
Major Business Risks
The Company is exposed to a variety of financial risks in relation to financial instruments that it holds under its investment portfolio. The Company’s risk management is coordinated with its Board of Directors and it focuses on actively securing short-to-medium term cash flows by minimizing the exposure to financial markets. The Company does not actively engage in the trading of financial assets for speculative purposes nor does it write options. The Company’s financial investments are largely in the form of short-term time deposits.
Potential risks in relation to development of the Main Hotel Casino include:
No direct operating history
The Main Hotel Casino is currently in the construction and planning phase, and is expected to commence operations prior to 2023. The Company may face adverse changes in the business environment, economy and/or the applicable laws and regulations. If these risks are not managed successfully, it could have a material and adverse effect on the results of operations, financial performance and business of the Main Hotel Casino.
Supply of raw materials / delay in construction
As the Main Hotel Casino is currently in construction and planning phase, the sources of construction materials such as lumber, steel and cement, may experience shortages or increases in prices. Construction, equipment, staffing and difficulties in obtaining requisite licenses, permits, and authorization from the Government could increase the total cost, delay project completion, or affect the design and features of the Main Hotel Casino.
The Main Hotel Casino may face intense competition in the Philippines and elsewhere in Asia
The Company expects competition in the Philippines to be intense as multiple integrated resort – casino projects have been approved and/or currently operating in the Philippines. The Entertainment City, where the Project Site is located, is continuously being developed into a casino hub in Manila. Furthermore, hotel, casino, and entertainment complex projects may also be approved elsewhere in the Philippines and in Asia. Competitive pressures in the Philippine gaming industry could affect the Main Hotel Casino’s business, financial condition and results of operations.
Sensitivity to economic downturn, economic uncertainty and other factors affecting discretionary consumer pending
Demand for luxury services, gaming-related services and leisure activities are sensitive to global economic downturn. Changes in discretionary consumer spending or consumer preferences could be driven by economic conditions. Any reduction in consumer demand for the gamingrelated services could affect the Main Hotel Casino’s business.
The ability to attract and retain a sufficient number of qualified employees to run the operation The Main Hotel Casino will depend on its ability to attract and retain a sufficient number of qualified employees to run the operations and the facilities in the Main Hotel Casino. The ability to maintain its competitiveness is, to a large extent, dependent on the efforts, skills and continued service of key management and operating personnel. The loss of key management and operating personnel may have an adverse impact on the Main Hotel Casino’s business.
Risks associated with gaming activities
The gaming industry is characterized by the elements of chance. In addition to the element of chance, theoretical expected win rates are also affected by other factors, including players’ skills and experience, the financial resources of players, the volume of bets placed by the players of the Main Hotel Casino and the amount of time the players spent on gaming. These factors, alone or in combination, have the potential to negatively impact win rates. As a result, actual win rates may differ greatly over short time periods, including from quarter to quarter and could cause the results of operations of the casino to be volatile. Players may also may commit fraud or attempt to cheat in order to increase winnings by using counterfeit currency, chips or other tactics. Failure to discover such acts in a timely manner could result in losses in the operation of the casino. The gaming industry may also face potential money laundering and other illegal activities. If strict controls will not be implemented, incident of money laundering and other illegal activities may occur.
Epidemics and other communicable diseases may affect our business operation
Outbreak of epidemics and other communicable diseases, such as swine flu, avian flu, SARS and Novel Corona Virus Disease-2019 (COVID-19) are beyond the Company’s control. PAGCOR has ordered a suspension of all gaming operations since mid-March 2020 until further notice. These events may adversely affect the current construction and planning phase of the Project, as well as the business operating environment in the Philippines’ economy.
Number of employees
The Company and the FOPM Group have 653 employees in 2019 and 596 employees in 2018. None of the Company’s employees are represented by a labor union or are subject to collective bargaining agreements. Nor is the Company and its employees involved in any labor dispute. Considering the Company’s focus in tourism development, it is expected to hire additional employees to support the development, construction, and operations of its tourism-related businesses.