Ayala Land, Inc. (ALI) Earnings Call Transcript & Summary

Okay. Good afternoon, everyone. My name is Mike Garcia, Head of Investor Relations. I'd like to warmly welcome all of you to our briefing on Ayala Land's performance for the first quarter of 2023. Whether you're joining us in person here at the blue room or at the 25th floor of Tower 1 or tuning in virtually, we're glad to have you with us today. For those participating virtually, we hope you find the live broadcast connection loud in clear. And for those here in person, we invite you to make the most of the opportunity to connect with fellow analysts and our [ ManCo ] members after the session. Joining as our members of Ayala Land's management committee, led by our President and CEO, Mr. Bobby Dy; our Chief Operating Officer, Ms. Mian Dy; CFO and Treasurer, Mr. Toti Bengzon; President and CEO of Makati Development Corporation, Mr. Dan Abando; and State Development Head, Mr. Robert Lao; and President and CEO of Ayala Property Management Corporation, Mr. Laurent Lamasuta. Several other Inala officers are joining us today, including our business unit heads, management team members and finance group representatives -- please note that the press release and the presentation are available on our Investor Relations website at ir.ayalaland.com.bh. For questions we may be unable to address during the briefing, we will respond by e-mail as soon as possible. And without further ado, I would like to turn the mic to our CFO, Mr. Toti Bengzon. Thank you.

Good afternoon, everyone. All right. Allow me to start with the highlights of our first quarter financial performance. We started on a strong note. We delivered solid growth in the first quarter of the year. Our total revenues amounted to PHP 30.9 billion. This is a 26% increase. Additionally, net income-- Net income posted a significant growth of 42%, reaching PHP 4.5 billion. Our CapEx totaled PHP 19.5 billion to bolster our residential and commercial projects. And we recorded a net gearing ratio of 0.77 is to q as we managed our debt and liquidity prudently to support our balance sheet. Turning to segment revenues. Our Property Development segment generated PHP 17.1 billion. This is an 8% increase driven by higher residential completions, bookings and sales of office units. Despite the prevailing higher interest rate environment, residential demand remained resilient, and we recorded PHP 27.7 billion in reservation sales. This is a 15% increase compared to last year. At the same time, commercial leasing revenues surged by 57% to PHP 10.1 billion from higher occupancy and rental rates. This was buoyed by improving mall tenant sales, steady BPO demand and travel resurgence. Mall footfall has resumed to pre-Covid levels and tenant sales are normalizing, reaching 92% of pre-Covid activity. Moving on to our income statement. Real estate revenues came in at PHP 30.1 million. This is a 24% increase, fueled by the strong performance of the residential and commercial leasing segments. Interest and other income for the quarter reached PHP 786 million, more than double the figure recorded in the first quarter of 2022. This growth was attributable to higher equity earnings from unconsolidated associates and joint ventures as well as our other income line. Equity in net earnings from associates and JVs surged by 70%, reaching PHP 424 million. driven by higher revenues of our FBDC companies, or Ortigas Land and our joint ventures with the[ Cox ] in Ciela subdivision as well as Eaton properties, the Lucio Tan Group in our Parklinks estate. Interest and investment income for the quarter amounted to PHP 89 million. This is a 130% increase from the same period last year due to higher yields from short-term investments and cash deposits. Other income generated from marketing and management fees from our joint ventures amounted to PHP 273 million. This is a 179% surge quarter-on-quarter -- I'm sorry, year-on-year. And this primarily came from our projects with the [ Cox ] in Ciela heights. As I mentioned, with Eaton group, Parklinks estate and our BGC companies. Expenses amounted to PHP 24.6 billion. This is a 26% increase compared to the same period last year due to the normalization of our operations. Real estate expenses came in at PHP 19.4 billion. This is up 35%, while GAE increased by 32% to PHP 2 billion. Our GAE ratio settled at 6.3%. This is slightly higher than 6% in the same quarter last year. Our EBIT margin stood at 30.6%. This is lower than the 35.1% recorded in the same quarter last year. The EBIT margin in the first quarter was in the EBIT margin in the first quarter of 2022, rather, was in the higher range of our 30% to 35% target. As we recognize the income accretion from the sale of AR, as well as the positive contribution in the shift of ALP's accounting treatment to POC from percentage of connection for marketing and management fees during that period. Now fast forward to the first quarter of 2023, we did not have any AR sales, which normally adds 1% or 2% to our EBIT margin. We will be having our AR sales in the coming quarters. Interest expense, financing and other charges totaled 3.2 billion. This is 11% less than the previous year due to the absence of financing activities during the quarter. Deducting expenses from revenues, income before tax grew by 24% to PHP 6.4 billion. This translated to an income tax provision of PHP 1.2 billion, 8% higher year-on-year. As a result, income before noncontrolling interest totaled PHP 5.2 billion, 28% more than last year. Netting off the noncontrolling interests, which declined by 24% to PHP 677 billion, net income attributable to ALI equity holders grew by 42% to PHP 4.5 billion Residential and our commercial leasing segments fueled our top line growth. Property development revenues increased by 8% to PHP 17.1 billion, driven by higher residential completion, bookings and the sale of office units. Residential revenues reached PHP 14.2 billion. This is a 10% year-on-year improvement on higher completion and net bookings. While office for sale revenues registered a 43% growth from last year, owing to sales from One Vertis Plaza in Quezon City. Revenues from commercial and industrial lots declined by 19% to PHP 1.8 billion, primarily due to sales timing. We will be selling more commercial lots in the market in the next -- coming -- in the coming quarters. In commercial leasing, revenue surged by 57% to PHP 10 billion from higher occupancy and rental rates, this was [ buoyed ] by improving more tenant sales, steady BPO demand and the resurgence in travel. The improvement in mall tenant sales lifted occupancy and rents, which led to a 71% growth in shopping center revenues totaling $5 billion. Moreover, the stable demand for office spaces in prime locations supported higher tenancy and rents. This resulted in office revenues growing by 8% to PHP 2.9 billion. Notably, hotel and resource revenues expanded by 164% to PHP 2.2 billion as occupancy and room rates increased as a result in the increase in travel. Turning to services. composed primarily of MDC, APMC, our power service companies as well as Air Swift. Total revenues amounted to PHP 2.9 billion. This is 53% higher than the previous period. MDC posted net construction revenues of PHP 1.5 billion. This is double last year's level, owing to the external projects that they've been able to gain. Meanwhile, APMC, Air Swift and our power service companies combined revenues grew by 18% to PHP 1.4 billion due to higher -- primarily due to higher airside pattern edge as well as parking usage in the car parks managed by APMC. Summing up the top line, real estate revenues amounted to PHP 30.1 billion, a 24% growth from last year with interest and other income of PHP 786 million. Total revenues grew by 26% to PHP 30.9 billion. Let's now turn over and look at the operating statistics of our business, starting with property development. Despite the prevailing higher interest rate environment, residential demand remained resilient. And we recorded PHP 27.7 billion in gross reservation sales. This is a 15% increase compared to last year. ALP’s Ciela in Carmona, Cavite; Parklinks South Power in Quezon City; ALP’s Arcilo and Avida Southfield settings, both in Nuvali; and Alveo the Lattice also in Parklinks, were the projects that received the most demand during the period. We launched 3 projects worth close to PHP 9 billion during the quarter. In terms of mix, 58% of what we launched were horizontal projects from Ayala Land Premier and Amaya, while 42% were vertical projects from Alveo. 22% of our sales reservations are PHP 6.2 billion originated from our digital selling channels. Breaking down our sales by nationality, 68% were sold to local Filipinos 13% higher than last year. Sales to overseas Filipinos were about the same as last year, while sales to other nationalities surged by 61% sales to over OFs and to other nationalities accounted for 19% and 13% of the total, respectively. On our other -- on the other nationalities, were sales to Americans 85% higher year-on-year. Meanwhile, sales of Chinese buyers declined by 20%, comprising less than 1% of our total sales reservations. Moving on to our leasing business, parking with our malls. The improvement in multiland sales lifted occupancy and rents. Our tenant sales now stands at 92% of pre-Covid levels. Total [ BOSS ] GLA stands at 2.1 million square meters, and the average occupancy rate for all our malls is now at 83%. Lease out rate of our molds portfolio stands at 89% with total GLA currently under construction at 243,000 square meters. This year, we will open 44,000 square meters of GLA at One Ayala Avenue and another 43,000 square meters at Ayala Malls Formosa will be completed -- for office leasing, stable demand supported higher tenancy and rents across the entire portfolio. Total GLA stands at 1.4 million square meters with an occupancy rate for all our offices at 89%. Office pipeline stands at 216,000 square meters as we launched new product, new projects to capture demand for new office space. We look forward to opening the headquarters building at One Ayala Avenue. This is the third tower of the mixed-use development in the last quarter of this year. In terms of GLA tenancy, BPOs occupy 73% of our portfolio, 10% by headquarter type tenants, 4% by co-working spaces on only 2% remaining for Pogo. For Hotels & Resorts, the travel resurgence in the country reached our occupancy and room rates. We have a total of 4,038 rooms in our portfolio, while occupancy and room rates have improved significantly. The average occupancy for all hotels was at 69%. And for resorts, it stood at 47%. This is up by 21 and 36 percentage points, respectively. Total hotel and resource rooms in the pipeline stands at to 1,500 rooms, while upcoming openings this year include the 350 room Seda Manila Bay located in the Ayala Malls Manila Bay complex. Our ancillary leasing formats strengthened the leasing portfolio. Ayala Land Logistics Holdings Corporation now has a GLA of 309,000 square meters for industrial spaces, composed of factory buildings and warehouses, complemented by its cold storage facilities under the ALogis Artico brand, which has a total pilot position of 10,300. The total occupancy and lease out rate of dry warehouses stand at 69% and 77%, respectively, and 93% and 101% for cold storage. For the city flats, we have a total bed count of 2,032 beds, spread between our facilities at Amorsolo and Sacred Heart in Makati and in BGC, the Fifth Avenue. For Clock In, we have a seat count of 1,400 seats occupying 6,400 square meters of gross leasable [ covert ] space Total CapEx in the first quarter of the year amounted to PHP 19.5 billion. We spent 61% on residential projects, 5% on commercial leasing, broken it down like 3% in malls, 1% for offices and 1% on hotels and resorts, 80% on land acquisition, 15% for estate development and what the balance of 1% for other general purposes. We have a -- we have a well-managed debt position with 84% locked in fixed rates with an average borrowing cost of 4.9% and an average maturity of 4.3 years. We have contracted 91% of our debt currency into long-term tenders. Finally, our balance sheet stands strong. Our net gearing ratio is at 0.77, cash of PHP 12.3 billion. Total borrowings in the first quarter reached PHP 244.5 billion. This is 4% higher from the end of 2022, while stockholders' equity ended at over $300 billion to 2% higher year-on-year. Our current ratio is at 0.78, and as mentioned, the debt-to-equity ratio stands at 0.77 : 1. Meanwhile, our interest coverage ratio is 4.4x. So well within the standard in Poor's prescribed range of 4 to 6x for an investment-grade-rated company. Summarizing our performance. We started strong with the top line growing by 26% and the bottom line growing by 42%. CapEx of PHP 19.5 billion, roughly in line with our PHP 85 billion guidance. Net gearing, fairly similar to where we ended last year at 0.77:1. Segment revenues, property development grew by 8%, while commercial leasing revenues surged by 57%. Thank you. We can now open the floor to Q&A.

Thank you, Toti. We now have 126 participants on the line. Again, we would like to remind the participants that you may use the chat bot function on the screen. And please remember to state your name and organization to be recognized properly. You may also use the raise hand function and we will unmute your line. Thank you Okay. The first question comes from [ Mr. Berlin ]. Why did other charges declined from 107.

Maybe I'll ask our CFO to answer that question. I think the question refers to the interest, financing and other charges. I think the question is, why did it decline from $3.5 billion to $3.2 billion.

This was primarily due to the absence of financing activities during the quarter, primarily, again, the AR discounting that we typically do throughout the year. So that's what led to the decline. We did an AR discounting in the previous quarter -- in the previous year. This quarter, we didn't have that, but we should have that in the succeeding quarters.

Okay. Thank you. The next question comes from Meredith. How are cancellation rates compared to the second half of 2022.

Okay. Let me pass on that question to Mian.

Cancellations are beginning to moderate after our cleanup of accounts last year with the lifting of the Bayanihan law, we envision or we expect that -- for the full year, it will be maybe 10% to 20% lower than last year.

Okay. Thank you, Mian. The next question comes from Wilson Ng of Morgan Stanley. Why have development revenues falling around 20% quarter-on-quarter? And do you expect it to remain or improve in the coming quarters?

Maybe Toti you could pick that up.

Thank you for the question, Wilson. As you know, our financial performance, typically revenues as well as the bottom line, the sort of a timing effect and typically, the increases as the year wears on. So, we do expect an improvement -- further improvement in the succeeding quarters.

Thank you, Toti. We hope that answers your question, Wilson. The next question comes from [ Marco Mauleon ]. Can you discuss margin trends in property development and commercial leasing?

So, on margin, I think it's fairly flat. Obviously, it's hard to look at it on a quarter-on-quarter basis. But when you look at it over a longer period of time, you've seen how our margins have held both in terms of the residential business as well as the commercial businesses. So, this quarter, the -- if there are slight differences, that should basically average out towards close to what we were doing last year. So, the way we've been pricing our product is we're holding our margins. So, if there's inflationary pressure on the cost, so we could mentally increase the price of our products.

If I may add. On the residential side, we continue to manage our margins as we've communicated in the past and as what we've shown for vertical projects, target margins would be in the mid-30s for horizontal projects, it's in the mid-40s. And we do continue to see those kinds of margins on the residential side. For commercial industrial lots, the margins there are fairly healthy and that can range from anywhere in between 50% to 70%.

Thank you, Toti. We have Wendy Estacio from CLSA. She raised hand. Go ahead, Wendy.

I remember you guided the launches of above of PHP 110 billion to PHP 130 billion for full year 2023. Just getting some indication from you given that you launch 8.6 billion in the first quarter. Do you guys try to wrap up or catch up for the next quarters?

The answer is, yes, if you look at the -- again, our profile mill, typically, we -- our launches are towards more on the second half of the year rather than the first half. If you also remember, we actually launched quite a number of projects in the fourth quarter of last year. So, we still do have inventory to be able to service the demand that we're seeing in the market. Based on the reservation sales that we're seeing based on the trend, we feel fairly good about the prospects of launching the number that we had actually committed, which is about, I think, PHP 110 billion for the year.

My second question is on the inventory. Can you provide how many months’ worth of sales or the inventory as of first quarter?

[indiscernible] Mian...

We're holding steady at 24 months’ worth of inventory.

Thank you, Wendy. And in line with that, we received a question from Ms. Joan Dela Cruz. Can you give us a profile of the inventory geographically by brand? And second question is, are you keeping the full year new launch target.

Let me -- I think I already mentioned the second question, the answer is, yes, the guidance that we provided, which is about PHP 110 billion, so we're sticking to that. On the first question, I'll pass it on to Mian.

In terms of inventory, we have higher inventories in our vertical than in our horizontal. And that's also why, I guess, when we take a look at our launches, we're very conscious of how much inventory is out there, though we will be ready with PHP 110 million to PHP 130 billion. We will launch if it makes sense, given the inventory levels we have at that particular trade area...

So, in terms of the inventory, 31% is horizontal and 69% is vertical, of which less than 15% would be in the Visayas and Mindanao region. Everything else, about 85% would be in our core areas of Mega Manila, Calabarzon and Central Luzon.

Thank you, Mian and Toti. We hope that answers your question, Joan. Just so if you have any follow-up questions. The next question comes from Mr. Gilbert Lopez of Macquarie. Can you give more information on the previously disclosed 4 new large estates that will form the PHP 110 billion launches level for the full year.

Okay. And maybe I could pass it on to Robert Lao, the head of our estates.

We will launch one in Batangas, San Jose Del Monte, Bulacan and Davao.

Just to add, I think you've seen the launch of Batangas Technopark, which we did about a month ago. We're going to be launching an estate in the next month or so in Davao and then the rest will be for the balance of the year.

Okay. Then we received a follow-up question from Ms. Joan Dela Cruz. How much of the unsold inventory's [ RFO ]?

10%.

Thank you, Toti. From Ms. Felicia Barus of Citi, how much is your book revenue as of the first quarter of 2023.

Yes. We -- it's about PHP 165 billion -- it -- yes, it did increase from year-end of 2022.

Thank you, Toti. The next question comes from Diego. Of your current office occupancy, are there still Pogo tenants? If so, how many percent of your total lease GLA is being tenanted by POGOs?

I think our slide showed that there's a 1% left.

Thank you. Maybe we could entertain some questions from our live audience. Mr. Miguel Sevidal from MayBank.

Three questions for me. The first is on the malls. Just wanted to ask if there's been any -- how are we in terms of escalating the fixed rent component? And has there been any pushback from any of the tenants as far as raising the rental base, I understand from the previous quarters that department stores were kind of the segment lagging behind. So, I also wanted to check on how the department stores are doing in the first quarter.

Maybe I could pass on that question to our Head of Malls Chris Maglanoc.

Pretty much on the rent it has held, both of the fix on the variable, sorry. So, there are some merchants who do ask for assistance but case to case. For departments or, I would say they're about 75% to 80% of where they were in terms of sales from -- compared to 2019.

The next 2 questions are residential. I noticed that the local Filipino the presales from the local Filipino buyer base was up 13%. Just wanted to ask, which segment or which brands contribute to this and which were the products that they were taking.

ALP and Alveo were the strongest in the quarter, Avida also, I think that those are the 3 top brands were really our drivers for the first quarter. Also, because the launches were in ALP and Alveo. So that helped the performance in the first quarter as well.

And these are verticals or horizontals.

In ALP largely horizontals.

And then lastly, I just wanted to ask for the thoughts of management on where we are in terms of payment terms. Are we -- should we expect the payment schemes to tighten? And are we are we still offering stretch payments [ for the time being ]? Are we still offering stretch payments schemes for the time being for the [ addressing ] products?

I think since last year, we've been tightening our payments on the higher end of the market, if we look at ALP and Alveo, we started tightening payment schemes back in 2022. I think in the middle income, both Avida and Amaya, they're still pretty much where they were last year in terms of the stretch payment terms.

Those are all my questions.

Thank you, Sevi. The next question, we have a follow-up question from Mr. Gilbert Lopez. What drove the contraction in property development EBIT margin of 26% in the first quarter of 2023 versus 38% in the first quarter of 2022.

I think our CFO mentioned a while ago that the target really is from 30% to 35% now because there were no AR sales this quarter compared to a year ago that basically -- we weren't able to book income for the AR sale and therefore, the cost of contraction of the margin this quarter. But as our CFO mentioned, Toti that we expect that, that should basically equalize our level of -- through the balance of the year as we sell receivables to the second quarter to the fourth quarter.

Thank you, Bobby. Any more questions from our live audience Yes, Mr. Carl Sy from Regis.

Good afternoon. I'd like to ask about reservation sales as well. So, there's been a big increase in sales to foreigners. And even for OFWs as well for the past year or 2 years. So, I'd like to ask if there's any large difference in how you target that market OFWs and foreigners are you doing more road shows rather the people or any upfront sales offices that rollout…

Yes, definitely, the -- because that market is now about 1/3 of our total gross reservation sales. So ever since, I guess, the markets opened last year, we've been more aggressive in terms of doing roadshows, abroad, putting in more resources and, I guess, manpower into that particular channel.

And the new setup permitting offices abroad where do you have the permanent broker network roll...

Not necessarily permanent offices, but definitely expanding our broker networks in the foreign markets. also tapping new for newer markets that maybe we weren't so active in the past?

And with respect to the sales to Americans, would you say these are mostly people with [ rooms ] in the Philippines, like a partner Filipino or has relatives in the Philippines?

Yes. I think predominantly Filipino Americans.

And what is the product that's popular with the Americas at they have covered 11% of your sales? So, what's strong with areas.

Avida, Alveo are the strongest in the U.S. Thanks.

Thank you, Carl. Any more questions? Yes, Mr. RJ Aguirre from UBS.

My question is from your comments on AR sales this year. Can you remind us how much it was last year? And any indication on the changes on the possible rates that you're kind of bringing.

Last year, we did about -- I think it was about PHP 19 billion. And this year, we're looking roughly at about PHP 15 billion. In terms of the discounting rate, it's higher than what we had seen in the previous years. But as in the previous years, the discounting cost is still lower than the -- if we were to borrow the similar amount for a similar tenor. So, it's still a very cost-effective way of raising cash while it also has added benefit of [ defeasing ] risk in as much as all these ARs are sold in without recourse basis.

Is the increase in AR sales potentially this year, a factor of the higher cost of debt that you have now at 15 basis points, 4.9% for this year, I saw in the chart.

We're decreasing the AR sale this year from last year.

Of PHP 15 billion into 9?

Yes. Not from PHP 19 billion to PHP 15 billion. Yes. And the cost that you're seeing in the debt portfolio slide, that's only -- that only calculates on books debt. So that reflects loans from our banks as well as indebtedness from the capital markets.

My other question is on retail loss. Can you give some granularity on the performance of the Ayala Bay area mall in terms of occupants sales.

Maybe I could pass it on to Chris Maglanoc.

For Manila Bay Ayala Malls Manila Bay. So, our lease out is there's a big improvement from 2020 to soar close to 70%. Landmark Encore is completing their construction. So, the supermarket will be open by December this year. And then the department store, maybe the first floor will be opening first quarter in 2024.

Thank you, RJ. Thank you, Chris. Any more questions from our virtual participants. How about from our live audience.

I think we saw an earlier note about our earnings are not in line with consensus. I think you've seen it a year out, our revenues at escalate as the year progresses because definitely towards the latter part of the year are residential sales typically grow. So, I don't think you can look at -- you can just divide your consensus by 4. There is some timing there, okay? And historically, you see our revenues and net income escalating as the quarters roll on.

Thank you for that fiction clarification Toti . We have one more question from Ms. Felicia Barus from Citi. You mentioned earlier that payment in the middle-income segment, Avida and Alveo are still stretched. How many months longer is the stretch.

It's same as the previous year. So, we estimate that payment schemes are on account of the pandemic escalated or have increased by between 18 to 24 months.

But to clarify, it's Avida and Amaia...

It's Avida and Amaia -- thank you -- any more questions from our live audience Okay. I don't see any more questions from our virtual participants. Okay. So, I guess that concludes our briefing on Ayala Land's performance for the first quarter of 2023. We hope that you find the information. Sorry, there's one more question that came in from Carlos Angelo Temporal. Is there a level of inventory that management would consider as [ ITL ] before pushing for the upper end of the target project launches of PHP 130 billion.

Yes. We've said that we're comfortable having inventory levels of between 18 to 24 months. So, 24 months were at the higher end, but it's still within our comfort level. 18 to 24 months is our target.

Before we close off, Mike, maybe just a few comments. We are actually quite pleased and actually encouraged with the Q1 results. that we've achieved. When we look at all our business lines, we've basically seen growth from residential to the various commercial leasing businesses, malls, offices, hotels and resorts. As you know, some of these businesses were badly hit during the pandemic. But now I think we're inching up and really getting close. In some cases, have actually exceeded what we saw during the pre-pandemic. So, moving forward, we feel confident that as the year progresses, that will be able to continue the trajectory that we've achieved in D1 and hopefully be able to deliver the results that we feel would be meaningful for a company that will basically register a significant growth from where we were a year ago. So, Mike, before we go I'd just like to thank everybody for participating and joining us in today's briefing.

Yes. And then sorry, Bobby, if I could just squeeze in one last question from Mr. [indiscernible]. What are the payment terms now for ALP and Alveo.

It's a bit -- again, we limit it on a per project basis. But typically, when you look at an ALP in particular, typically, what happens is we are able to collect pretty much the bulk of the cash to be to basically complete the project while under construction. So, there's very, very minimal developer financing that is involved in ALP. In Alveo, there is some developer financing, particularly on the verticals. But I think the horizontal are pretty much we're able to cover the construction cost with the payment schemes that we have during the construction period.

Okay. Thank you. I guess that officially closes or briefly. We don't have any more questions. We hope that you find the information presented informative and valuable. If you have any further questions, please get in touch with us through [email protected]. Additionally, a recording of this briefing will be available on our website, ir.ayalaland.com.ph. Once again, thank you for joining us this afternoon. Merienda is served. Have a great day.