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

Okay, good afternoon, everyone. Welcome to Ayala Land's briefing on the results for the first 9 months of 2023. I'm Mike Garcia, Head of Investor Relations. I'll be your host this afternoon. Joining us on the line are 69 participants. And we'd like to remind everyone that copies of the press release and the presentation are available on our website, ir.ayalaland.com.ph. Likewise, a copy of the recording will be available on the website this afternoon, after the briefing. Let me start by recognizing our panel composed by our President and CEO, Ms. Meean Dy; our Chief Finance Officer and Treasurer, Mr. Toti Bengzon. And of course, allow me to recognize the presence of the other members of our management committee: Mr. Robert Lao, head of the estates group; Mr. Dan Abando, president and CEO of Makati Development Corporation; Mr. Laurent Lamasuta, president and CEO of APMC; Ms. Mariana Zobel de Ayala, head of the leasing and hospitality group; Mr. Mike Jugo, head of the premium residential business group and president and CEO of Ayala Land Premier and Alveo; and Ms. Raquel Cruz, head of the core residential business group and president and CEO of Avida, Amaia and BellaVita; and last but not the least, Ms. [ Isa ] Sagun, Chief Human Resource Officer. We'll start off with a financial and operating results presentation by the CFO. Afterwards, we'll hear a few key messages from our CEO, and then we can proceed to the Q&A. So to start off, let me turn over the floor to Toti. Thank you.

Thank you, Mike. Good afternoon, everyone, and welcome to our third quarter analyst briefing. Allow me to take you through our financials and operating metrics; first and foremost, the highlights for the first 9 months of the year. We maintained a strong growth trend driven by the continuing resilience of the residential market and the vibrant consumer activity despite ongoing macroeconomic headwinds. Total revenues came in at PHP 98.9 billion. This is 15% higher year-on-year, while our net income came in at PHP 18.4 billion. This is 38% year-on-year. Our CapEx for our various residential and commercial projects totaled PHP 57.6 billion, while we sustained a net gearing ratio of 0.75:1 with the support coming from our higher operating cash flows coupled with a prudent management of our debt-funding requirements. Turning to our segment revenues. Our property development segment grew by 4% to PHP 57.2 billion, owing to higher residential completion, stable bookings and office unit sales. Residential revenues grew by 4% to PHP 47.5 billion, while reservation sales increased by 11% year-on-year to PHP 85.9 billion. Commercial leasing segment continues to show strong recovery. Revenues were 32% higher year-on-year to 38 -- PHP 30.8 billion due to improving occupancy and rents. Shopping center revenues were 40% higher from a year ago, PHP 15.7 billion, on account of higher occupancy and rents due to healthy operations. Offices grew by 7% to PHP 8.8 billion due to stable occupancy and higher rents from our solid BPO and corporate tenant base. Meanwhile, hotel and resort revenues significantly jumped by 62% from last year to PHP 6.3 billion due to higher domestic business travel and local tourist activity which pushed up occupancy and room rates. Moving on to our income statement. Real estate revenues reached PHP 96.3 billion, a 14% increase from last year fueled by steady residential bookings and vibrant commercial activity. Interest and other income reached PHP 2.6 billion. This is 25% higher than the previous period. This growth was attributable to higher equity earnings from unconsolidated associates and joint venture companies, income from interest, investments and other sources. Our equity in net earnings from associates and JVs surged by 54% to PHP 1.4 billion, driven by our joint ventures with the Kuok in our Ciela subdivision, the FBDC companies and Ortigas Land. Interest and investment income amounted to PHP 302 million. This is 24% more than last year due to higher yields from short-term investments and cash deposits. Other income generated coming from marketing and management fees from our JVs amounted to PHP 935 million. This is 2% lower than last year, owing to our Circuit Makati's Samsung Performing Arts Theater's fewer event bookings and sponsorships during the period. Meanwhile, we managed to contain expenses to PHP 72.8 billion. This is a 10% growth year-on-year. Real estate expenses reached PHP 56.5 billion, up 9%, while general and administrative costs increased by 22% to PHP 6.2 billion. Consequently, the GAE ratio settled at 6.3%. Our EBIT margin improved to 36.4%, above our 33% historical average, while interest expense, financing and other charges totaled PHP 10 billion. This is 12% more than last year. This reflects higher interest rates on our borrowings as well as the higher average daily loan balance. Deducting expenses from revenues, income before tax grew by 29% to PHP 26.1 billion. This increase translated to an income tax provision of PHP 5.1 billion. This is 29% higher year-on-year. As a result, income before noncontrolling interest totaled PHP 20.9 billion, 28% more than last year. Netting off noncontrolling interests, which declined by 14% to PHP 2.5 billion, net income attributable to ALI equity holders grew by 38% to PHP 18.4 billion. Steady residential bookings and vibrant commercial activity fueled higher revenues. Property development revenues reached PHP 57.2 billion. This is 4% higher, driven by higher residential and office-for-sale completions and stable bookings. Residential revenues reached PHP 47.5 billion, 4% higher, while office-for-sale revenues registered a 31% growth from last year to PHP 2.8 billion. Meanwhile, revenues from commercial and industrial lots totaled PHP 6.9 billion, 8% lower than last year. In commercial leasing, revenues were 32% higher year-on-year to PHP 30.8 billion due to improving occupancy and rents. Shopping center revenues reached PHP 15.7 billion. This is 40% better than a year ago. Offices grew 7% to PHP 8.8 billion primarily on account of the stable occupancy and higher rents from our solid BPO and corporate tenant base, while hotel and resort revenues significantly jumped by 62% to PHP 6.3 billion due to higher domestic business travel and local tourist activity which pushed up occupancy and room rates. Moving on to our services sector composed primarily of Makati Development Corporation, APMC and AirSWIFT. Total revenues amounted to PHP 8.3 billion, 46% higher than the previous period. MDC posted net construction revenues of PHP 4.3 billion. This is 60% higher than last year due to the contribution from our increasing external projects. APMC, AirSWIFT as well as our retail electricity supply companies combined revenues grew by 34% to PHP 3.9 billion due to stable property management fees and higher AirSWIFT patronage. Summing up our top line: real estate revenues of PHP 96.3 billion. This is a 14% growth from last year, coupled with interest and other income of PHP 2.6 billion. Total revenues grew by 15% to PHP 98.9 billion. Turning over to the operating metrics of our business lines, starting with property development. Residential demand remained resilient despite the prevailing high interest rate environment. Our residential sales in the first 9 months increased by 11% year-on-year to PHP 85.9 billion. We recorded third quarter sales of PHP 27.6 billion, adding to the PHP 58.3 billion sales we generated in the first half. Our sales performance for the period translated to average monthly sales reservations of PHP 9.5 billion. 63% of the sales take-up came from vertical projects, while 37% came from horizontal developments. Our in-demand projects, to cite a few, were Alveo's Park East Place in BGC, Ayala Land Premier's Ciela in Carmona, Cavite; Arcilo in Nuvali Laguna and the Parklinks South Tower in Quezon City. Avida, on the other hand, had the Avida Towers Makati Southpoint. On our buyer profile, 66% were attributable sales to local Filipinos, 12% higher than last year. Sales to overseas Filipinos were up 9%, while sales to other nationalities grew by 11%. On other nationalities, 57% of the sales were to Americans, 3% higher year-on-year, while sales to Chinese buyers comprised only 1% of our total sales. 21% of our sales reservations or PHP 18 billion originated from our digital selling channels. We launched 5 projects in the third quarter, with a combined value of PHP 4.3 billion, namely Ayala Land Premier's Ayala Greenfield Estates parkside terraces tranche 2; Andacillo tranche 5; and Lanewood Hills batch 3; Avida's first mid-rise condominium offering in Nuvali, Solara Park Storeys; and Amaia Scapes Cabuyao sector 4. These developments bring Ayala Land's total launch to 11 projects valued at PHP 36.3 billion in the first 9 months of the year, 71% of which were vertical projects and 29% horizontal, with 64% of these located in Metro Manila and the balance of 36% in Southern Luzon. The latest take-up rate of our Park East Place is 40%. We launched our Southmont estate in Silang, Cavite last September. This is Ayala Land's fifth largest estate, following Nuvali, Alviera, Sicogon and the Makati CBD, bringing our total count to 50 estates nationwide. Southmont is positioned as an elevated modern suburb with direct access to the CALAX through the Silang East interchange. It will also host a 3-hectare sports club and Chiang Kai Shek College. The estate will have an initial development cost of PHP 12 billion, with 69% of the estate dedicated for residential developments; 11% for commercial use; 20% for institutional locators, common areas and flex lots. We target to sell commercial lots by the second quarter of 2024 with lot sizes of about 1,000 square meters with an indicative price of PHP 75,000 per square meter. Moving on to our leasing business, starting with our malls. Improving occupancy and rents boosted our revenues. Our total malls GLA stands at 2.1 million square meters. The average occupancy rate for all malls is 84%, while the lease-out rate is 91%. Total GLA under construction is 243,000 square meters, and we will announce the additional pipeline. Our CEO will announce the additional pipeline of malls. And for this year, we look forward to the opening of our One Ayala mall. This is One Ayala Avenue, 44,000 square meters of gross leasable space; and the first phase of our Ayala Malls Vermosa, 5,000 square meters out of a total of 43,000 square meters. We look forward to opening these by next month. For office leasing, stable tenancy and higher rental rates drove the segment's growth. Total GLA stands at 1.4 million square meters. The occupancy rate is at 89% with a pipeline of 215,000 square meters. Again our CEO will announce the -- our -- in the -- our pipeline, our additional pipeline. We look forward to opening a headquarter building, One Ayala Avenue south tower, by next month. This is the third office tower of the mixed-use development and this will cater to headquarter-type tenants. As far as our GLA tenancy breakdown is concerned, BPOs occupy 73% of our portfolio; 11%, by headquarter-type tenants; 4%, by co-working spaces; and 2%, POGOs. For hotels and resorts, the increased business and tourist activity in the country raised our occupancy and room rates. We have a total of 4,358 rooms in our portfolio, and occupancy and room rates have improved significantly. The average occupancy for all hotels was at 67%, while for resorts is at -- it was at 42%. This is up by 11 and 14 percentage points, respectively, year-on-year. Total hotels and resort rooms in the pipeline stands at 1,186 rooms. During the quarter, we opened the first 230 rooms at Seda Manila Bay. And we are targeting to complete the remaining 120 rooms of this 350-room facility by end of this year. We've spent approximately 66% of our CapEx budget for the year, PHP 57.6 billion for the first 9 months, 54% of which went to the completion of residential projects; 9% on our commercial leasing projects, broken down, 5% malls, 3% offices and 2% hotels and resorts; 18% on continuing land acquisition payments; 17% on estate development; and 2% for other purposes. We have a well-managed debt portfolio, 84% locked in fixed rates, an average borrowing cost of 4.9% and an average maturity of 4.6 years. 93% of our debt is locked in long-term tenors. Finally our balance sheet. Net gearing is stable at 0.75:1. Cash stood at PHP 12.1 billion. Our total borrowings of PHP 248.9 billion is a 5% increase from the end of 2022. Stockholders' equity of PHP 314 billion is 17 -- is 7% higher year-to-date. Current ratio is healthy at 1.78:1, total debt-to-equity of 0.79. Interest coverage ratio is 4.4x, well within the investment-grade metric of 3x to 6x. And just to summarize our performance for the first 9 months of the year. Our strong-growth rent continued: total revenues of PHP 98.9 billion, 15% higher year-on-year. The bottom line grew by 38% to PHP 18.4 billion, CapEx on -- pretty much on track. We've spent 67% of our budget, so we've spent PHP 57.6 billion. Net gearing ratio stands at 0.75:1. And in terms of our segment revenues, PHP 57.2 billion generated by property development, this is 4% higher. Commercial leasing revenues of PHP 30.8 billion, 32% higher year-on-year. With that, allow me to turn over the floor to our President and CEO, Meean Dy, for her key messages.

Thank you, Toti. Just a few messages for this afternoon. Okay, number one, consumer sentiment continues to be optimistic despite some macroeconomic headwinds. And amidst this background, we're very happy to announce that Ayala Land posted a net income growth of 38% to PHP 18.4 billion, almost in line with our full year 2022 performance. We will continue to leverage our key capabilities to take advantage of high-value market opportunities and continue to invest in quality and growth. And we are welcoming new members of our senior management to boost our organizational capabilities and strengthen our market position. So as you all know, we've had our challenges, as far as our macroeconomics are concerned, a 25 basis point off-cycle [ rate hike ] as well as a lower-than-expected second quarter GDP performance of 4.3% growth, but amidst this, there have also been some opportunities, a manageable unemployment level, a continued strength in our BPO industry. Consumers continue to be optimistic. And housing prices continue to pick up, with a 14% increase in the residential real estate price index as of the second quarter of this year. And as Toti has already gone into so much detail, you know that we've performed -- the performance was at 38% increase as of the third quarter. Property development continued with its recovery, with revenues growing 4% year-on-year to PHP 57.2 billion. Residential and office-for-sale revenues grew by 5% to PHP 50.3 billion, with our premium brands ALP and Alveo accounting for 62% of the revenue. Sales reservations grew to -- 11%. And with inventory levels now at 20 months, we have an aggressive fourth quarter launch schedule to offer new inventories to the market. And I will go into this in the next slide. The commercial leasing business revenues are 32% higher year-on-year to PHP 30.8 billion, from continued improvements in occupancy levels across all our leasing businesses. Mall foot traffic is now back to pre-pandemic level. And average rental rates per square meter for malls and per room for hotels are back to pre-pandemic levels, while that of offices is even higher by 20% compared to 2019. We will leverage our key capabilities to take advantage of our high-value market opportunities. We will lean on our horizontal projects and premium brands to grow the development business. In the fourth quarter of this year, we will launch PHP 53 billion worth of property development projects, which would be our largest quarter launch since 2019. 85% of the upcoming launches are from the estates and the premium brands. And except for one ALP signature project in Makati, all other launches are outside Metro Manila and horizontal. We introduced 2 new estates, so far, this year, with 2 more this fourth quarter, with a total of 854 hectares. Batangas Technopark and Southmont in Silang, Cavite have already been launched. And for the rest of the year, we will launch [ Arillo ] in Nasugbu, Batangas and Centrala in Angeles, Pampanga. The reinvention of the first batch of flagship malls, Glorietta, Greenbelt, TriNoma and Ayala Center Cebu. Our flagship malls account for more than 30% of our retail GFA -- GLA, and works will now begin for this first batch on the first quarter of 2024 and for completion in 2026. Our malls continue to grow, with over 500,000 GLA in the pipeline on top of the 243,000 under construction. Selective expansion of our commercial leasing portfolio in select sites. We will be adding 205,000 square meters of GLA in the pipeline, bringing our total office pipeline to 511,000 square meters. We will maintain AREIT's dominant position and infuse 10 billion to 15 billion in assets in 2023. We are also -- the construction of the 276-room 5-star Mandarin hotel in Makati will start in first quarter of 2024 -- or will restart on the first quarter of 2024. We are welcoming new members of our senior management, headed, of course, by Mariana Zobel de Ayala, who will be heading the leasing and hospitality business of Ayala Land; Carissa Feria-Darre, who will -- the head -- who will become the head of strategy and transformation; Isabel Sagun, who is the Chief Human Resource Officer; Jeremy Sy, brand experience and strategy; and Roscoe Pineda, Chief Information Officer. So we welcome the new members of our management team to Ayala Land. Thank you very much.

All right, thank you very much, Meean and Toti. Now we can open the floor for questions. We now have 133 attendees on the line. [Operator Instructions]

Okay, we can take the first question from Mr. Carl Sy.

I have a number of questions actually, mostly related to the results first. So with respect to the third quarter in particular, it looks like operating margin rose quite substantially both quarter-on-quarter and year-on-year; and from what I can tell, the highest operating margin you had in over 5 years, so could you give us an idea of how this happened? Why were expenses so low for the third quarter? Was this a blip? Or yes, was something -- yes.

Carl, yes. I think we did -- if you're looking at EBIT margins, yes. We did, approximate, our EBIT margin in 2019, about 40%. So a couple of things. We saw some improvement. And you'll be seeing this more and more, equity in net earnings in our JV companies. That's growing. Particularly you'll see growth coming from our joint venture with the Kuok as we sell properties in Ciela, which is going to be an estate. I'm not sure I can say the name just yet, but that will be a fairly big project. It will be an estate, so we will be recognizing more revenues coming from that project. We also will start seeing more revenues coming from our JV with the Lucio Tan group in Parklinks. As you know, we're building a couple of residential condominiums there. And we're also going to establish a very high-end mall in that area, so that did add some additional margin. And we also -- under other income, we're also collecting marketing and management fees, again related to these JV cos, so quite a bit of pickup we're recognizing from those JV cos.

Okay. And the items you mentioned were mostly on the revenue side. I was wondering if there were some cost-side measures as well.

[ GP services ]...

It's a bit -- a little bit higher. Our [ GPs ] are a bit higher. So I think continuous initiatives on cost control have led to a lowering of cost. As you see, our real estate expenses only grew by 9% relative to the top line growth. It's lower, so yes, some continuing efficiencies and cost management.

Got it. And on the residential segment specifically this time, let's say -- for reservation sales for the third quarter specifically, it's down 10% quarter-on-quarter. And looking at the bar chart earlier, it looks like that was mostly because of a drop in Alveo. Now you mentioned that Park East Place, I think, is still at 40% sold, so I'm quite curious about how you view residential demand right now. Because normally you would think -- BGC project. It actually sold quite well in the second quarter as well. It looks like, in 3Q, this slowed down. And so how do you view residential demand right now? And maybe for your commercial lots as well.

Maybe let me answer the overall view. And then I'll transfer this on to Mike to answer specifically about Park East Place. As you -- as I mentioned, we have a very strong fourth quarter launch for residential. The third quarter launch was a little bit weak, admittedly. As you saw, we launched only 5 projects in the third quarter, but the fourth quarter will be our biggest quarter since 2019, so we continue to be very positive about the residential market in general. You also ask about commercial lot sales. And I think again we have a good pipeline of lots for booking on the fourth quarter, although admittedly there is some lumpiness to commercial lot sales. There could be some variability just because of the value per transaction when it comes to commercial lot sales, but in general we remain quite positive, as indicated by the more than PHP 50 billion of launches for the remainder of the year. For Park East Place, I'll let Mike answer that.

Thank you, Meean. Carl, regarding the -- I guess, the dip that you're calling out in quarter 3, it's primarily because, every time there's a launch in the quarter, you'll see a surge, but demand has actually been steady for BGC. In fact, for Park East Place, we're able to move an additional, I think, 12 units. And we were able to implement price increases in Q3. Thank you.

Got it. And if I may ask as well: For the ALP signature project, may I ask the value of that? Is that something you can reveal already, not yet?

Well, it's for Q4, but maybe we can give you a snippet. But it's around -- it's minimum around PHP 20 billion in terms of take-up.

[ Got it ].

So we've gotten the LTS. And we've gotten the...

Yes. We were able to secure the LTS.

So we're beginning book build for that.

And on the residential revenue side this time and for the third quarter again. Residential revenue -- or development revenue, I should say, was down year-on-year and quarter-on-quarter. Is this just a timing issue, or did cancellations pick up?

Well, it's -- for real estate, I'm not sure if we should look at things quarter-on-quarter, so I wouldn't -- I guess, the way we look at it, it's more important. Let's look at the full year. And I think we're still tracking -- or we intend to achieve double-digit growth on the property development revenue side. Having said that, there were some cancellations that we recognized. I think this is primarily related to office condominiums for sale. That was something that we had not budgeted for the year. And there was about a little over PHP 1 billion of that, that we recognized in the third quarter. So yes, there was some -- a blip in cancellations. If we look at just residential cancellations: I think we've said it's stabilized. We're looking at it being lower than last year, but the office condominium for sale segment, we did recognize PHP 1.5 billion of cancellations in the third quarter.

Got it. And for the mall business this time. Occupancy is now at 84%, lease-out rate 91%, but if I'm not mistaken, the lease-out rate was already, let's say, 88%, 89% as of fourth quarter last year, so I'm curious. How long does it take for that to become people, I mean the tenants, actually starting operations?

Let me check the lease-out rate that we had said, [ yes ], but there are some challenges getting the merchants to open as quickly as we would like them to open. But once we've declared the lease-out rate, that's pretty solid. That will become occupied. It's just a matter of time.

Carl, let me just go back to your previous question on the residential sales performance for the quarter because, I guess, a couple of things. Number one, Toti is right. We're still looking at a double-digit growth year-on-year. Number two, it's a little hard to look at it quarter-on-quarter. And obviously we looked at this, and there is a question of the mix of projects that you are recognizing for the year and at what stage of percentage of completion they're in. So there are so many variables that go into it on a quarter-on-quarter basis, which is why sometimes it's difficult to draw a conclusion on 1 quarter, but as you can see, sales reservations actually continue to grow. And launches continue to grow, which indicates our continued confidence in the growth of the market.

Thank you, Meean. Thank you, Toti. Just to go back on the question on margins: We did receive a question from [ Gokul ] from HSBC. And his question was, "Can you give me the 9-month EBITDA margin for the commercial segments?"

EBITDA margin for commercial. We like to disclose this full year...

First half and full year.

Full year. First half -- let me just pull that up. It's been pretty stable. For our malls, the EBITDA margins are at about 60%, 62%, if I'm not mistaken. It's -- let me just...

[indiscernible].

[indiscernible] let's go back [ to him ].

Yes.

Yes. So we'll get back to you on that. The next question is from XT.

My first question is on residential cancellation. I recall first half was 10% of revenue. [ All right ], can you share what is 9 months with [ or ] without the office condo?

Cancellations.

Cancellations, yes. We -- the office -- the condos that we canceled, the office condos, added about 2% to the cancellation rate as measured by a rather impact on our residential revenues. So it was plus 2%. So I guess we -- last year, we had about -- we said we had about 10% cancellation in terms of revenue or revenue impact. We are looking at getting our about -- our residential cancellation rates to about 8% this year.

[ Without office ].

Without the office.

Got it. So full year, we should expect 8% without office, and 10% with.

Yes, yes. And then back to the EBITDA margins: So we're tracking 65% for shopping centers, 91% for offices and 31% for hotels and resorts. This is roughly the margins we were seeing in 2019.

Okay, thank you. We hope we answered your question, [ Gokul ]. XT, would you have any follow-up questions?

Yes. On 2024, I guess, can you give us a sense, CapEx? What should we be looking at for next year?

We are looking at -- basically to keep pace with our growth aspirations, so CapEx going into next year should be maybe 10% to 15% more than where we're going to end this year. So we said that we were going to spend about PHP 85 billion. I think we're pretty much on track to PHP 85 billion CapEx for the full year, so going into 2024, I'd say maybe 10% more.

Got it. And just one last question, on the malls, flagship malls, right, but what's the CapEx there? And also how should that affect rent?

What's the CapEx there? And how should it affect rent?

How much -- just to clarify. The question is how much of the CapEx is for the malls.

Yes, yes. And also, how should that affect the mall rent before and after?

All right, in terms of affecting rents, well, CapEx that we're dedicating today primarily will go to new malls, so the -- we expect, when we open those malls, the lease rates then will be higher than what we're seeing today. I think we will be dedicating quite a bit of CapEx to the reinvention initiatives that the CEO has mentioned. That's quite a big chunk of change that we're going to be dedicating to upgrading our flagship malls. Now the expectation there is that we will be able to charge significantly higher rent. And the way we green light these reinvention projects is we look at what kind of incremental rent we'll be able to generate from the renovated premises. And the incremental rent should be -- pretty much be able to generate and meet the investment hurdles that we set for greenfield projects. In other words, the CapEx should in effect be able to pay for itself by way of the increase in rent.

So the reinvention is, I guess, a couple of levels: one, obviously, improving the spaces. Number two, it's also about optimizing our merchant mix to make sure that, I guess, we are getting the most appropriate brands and stores for the places that we renovate. And then the third is, with this renovation, also to bring up the sales per square meter. So the second and the third points should be driving up our rent per square meter. And the increment should justify the investments that we will be making in -- we will be making for the reinventions.

Thank you, Meean. Thank you, Toti. Any more questions from our callers, from our live participants? Calling for questions from our virtual participants. Okay, there's one more here. What is the inventory level currently?

We started the year at 24 months. Today, we're at 20 months; to be exact, 19.8 months.

Thank you, Toti. The next question is from [ Nada Nai ]. Any early guidance for land bank CapEx in 2024? I guess...

Suffice it to say we're focused on utilizing and monetizing our existing land bank, so land bank CapEx next year is primarily just going to go towards continuing payments on committed land acquisitions.

But just to -- I guess, just to align expectations: I mean that's not going to go away, for a couple of reasons. Number one, as Toti said, the land we have in our land bank, a lot of those are paid under very favorable installment terms, so which -- just my way of saying that there is still quite a sum that is actually still unpaid. So we're -- we will be paying that maybe in the next 5 years. And second is, if there are really good land bank opportunities and jewels that come on to the market, then obviously we will take a look at those.

Okay, we have Mr. Wilson Ng on the line.

Just 2 questions. Maybe, firstly, on the launch pipeline, PHP 53 billion in the fourth quarter -- maybe, could you share how much of that PHP 53 billion has already been launched, so far, up to this week in November?

So to date, of the PHP 53 billion, we've launched a little over PHP 20 billion. Was that the question?

Got it. And maybe a follow-up question would be on the reservation sales numbers. I mean it looks like fourth quarter is probably in for a bit of pickup given the launch pipeline. For the full year of this year, what would you consider to be, I don't know, a good kind of outcome for reservation sales growth for this year? And then maybe moving forward, next year or even through the cycle longer term, what is the kind of reservation sales growth that Ayala Land hopes to achieve?

We're expecting to grow our sales, reservations, by mid-teens this year and to continue that on to next year.

That's very helpful. Just one last housekeeping question on what's the level of unbooked revenues, so far, for third quarter.

Pretty stable from the previous quarters, roughly about PHP 160 billion unbooked revenues, so far.

Great. The next question is from [ Samin Reza ]. "When do you expect to get back to 2019 net profit after-tax margin, ROE?"?

I don't remember 2019 anymore, no. It's -- well, clearly we are on a strong recovery, but I guess -- and my -- the way I would frame the answer is I think the environment we operated under in 2019 is very, very different from the environment we're operating under. So leading up to 2019, if you will recall, those were pretty much buoyant. There was quite a buoyant and very, very strong demand for residential. You saw the influx of mainland Chinese money, and it was reflected in our launch and take-up numbers leading up to 2019. If I recall, we did launch close to PHP 160 billion worth. Take-up then was -- for that year was close to PHP 140 billion, okay? Then the pandemic happened. And what I can say is property development revenues will probably be clocking maybe 60% to 70% of where we were in the 2017-to-2019 period. For leasing revenues, we can say that we've pretty much recovered. I think, by the end of this year, we can say that, in terms of our property -- our leasing revenues, we're back to where were in 2019. And then we can grow from this base. So similarly, I would say we grow from the base of where we end our property development revenues this year and we will be growing. I think the aspiration is -- given a fairly healthy economic environment, we've said that we would like to see our financials, our bottom line grow by -- we'd like to double that in the next 5 years, so that implies a 15% growth year-on-year, but again that is going to be contingent on how supportive the environment is. And as a rule of thumb, the way we look at it is we look at GDP growth and we'll aspire to grow at least 2x that number.

But maybe just to summarize that, where we are in -- I guess, in our growth journey, so to speak. This is really what we're seeing as the new baseline for us. We're starting to get very comfortable with the situation that we are operating in. As far as our leasing business is concerned, as I mentioned earlier, we're now really thinking of how to grow that pipeline. And as mentioned earlier, we have a 500,000-square-meter pipeline now for office, another 800,000 for our malls business. And we continue to look for opportunities, in the next 4 years, that we can pursue. As far as our hotels businesses are concerned, we're also now thinking of how to double our number of rooms so, as far as leasing is concerned, very comfortable. And we're aggressively pursuing the growth. Now as far as residential is concerned, clearly there continue to remain some challenges, some headwinds. And we are capitalizing on segments of the market which we feel are more resilient, which we feel are -- really are more natural strengths and differentiation, which is why we're doing quite a bit of leaning on our premium brands and doing quite a bit of horizontal, using up our land bank. And we feel like we're comfortable in growing our take-up by mid-teens year-on-year, and that's really how we are planning to move the business forward now. We remain very, I guess, in tuned with what's happening to the market. If things change, then we will adapt accordingly, but for now that is how we view things for our property development and our leasing business.

Okay, the next question is, "Any impact from the recent rate hike?"

So I guess rate hike is always something that we keep an eye on. I think the signals have been that it will be stabilizing from here. And if that's the case, then it should be something that our customers and our market can -- I guess, can adapt to. Clearly, if it goes drastically the other way, then we would have to reassess our strategy, but with this one-off rate hike and for so long as things are stable, then I think we're okay. Our customers will be okay. As far as our own borrowing costs are concerned, I think we've had a very well-managed balance sheet, yes. And the impact on our own borrowing costs have been, I would say, rather manageable.

Okay, the next question is from [ Ms. Grace Gabrit ] of Metrobank Trust. How much AR sales were booked as of 9 months 2023? AR...

Yes. Is it 6 billion? 6 billion.

And then from Mr. Richard Laneda: What's the reason behind the margin expansion in 2Q and 3Q? Cost of real estate as percentage of real estate revenues has been going down, from 67% in the third quarter of 2022 to 65% in the fourth quarter of 2022 then 58% in second quarter '23 and now 55% in third quarter '23.

Real estate revenues...

[indiscernible].

So what's the margin -- the reason behind the margin expansion in second quarter and third quarter? The cost of real estate as percentage of real estate revenues has been going down, from 67% in third quarter '22 to 65% in fourth quarter '22 then 58% in the second quarter '23 and now 55% in the third quarter. So real estate expenses.

It's quarter-on-quarter...

Yes.

2 percentage points. That's -- well, 2 percentage points quarter-on-quarter, I guess, is a little -- yes. I guess we don't look at it quarter-on-quarter, but clearly, as I did respond to Carl's earlier question, there's continuing cost management initiatives, yes. And that's why we're trying to continue find -- continue to find ways to lower our real estate expenses, which we did show the growth of real estate expenses was lower than the growth of our real estate revenues. So cost management initiatives continue. Now is that going to continue going down next quarter? Again it's a little difficult to look at it quarter-on-quarter, but overall we look at a yearly target on -- in terms of our margins.

Okay. And then just on the corporate segment. The question is from [ Mr. Samin Reza ]. The question is how did corporate segment become gross profit positive or GP positive. I guess you were pertaining to the office sector, [ Samin ]. We'll get back to that. Let's clarify, first. From [ Ray Ston ]: What is the sell-through rate for the 5 launches in the quarter? And for BPO, what are the key sectors driving the growth in BPO demand?

[ That will be the first one ]. BPO demand, Carol, maybe you can answer the BPO drivers.

Yes. So the industry IBPAP-projected growth of -- target is 1 million employees for the next 5 years. [ There's ] 7% to 8% growth annually in BPO. Revenues drivers are shared services, health care, finance, IT and some third-party services also.

What was the first question?

The first question is what is the sell-through rate for the 5 launches in the quarter.

We'll get back to him, yes...

[indiscernible] Park East Place was 30% in...

Yes.

[indiscernible] quarter...

In the third quarter, Park East Place is now 40%.

40% take-up.

But for the balance, we'll let -- we'll get back to you.

We can get back with the...

We will get back to you on that.

Yes. And then just a follow-up question from [ Gokul ] from HSBC. "Inventory levels are 19.8 months. Can we also have the inventory mix?"

Inventory mix in terms of horizontal and vertical. In terms of mix, I guess maybe we could just look at the -- by brand. About -- it's roughly about 30% each for ALP, Alveo and Avida.

Okay, I haven't seen a follow-up from [ Samin ], so we could probably get back to him over e-mail. Any final questions from our live audience? Go ahead, Alexa.

Just 2 questions from me. First, have the payment schemes been relaxed for ALI? And the second one is, considering the 9 months' launches, are there updates to the target launches for the year? Or is it still at PHP 100 billion?

So on the payment schemes. For Avida, we are still around 1 to 2 years longer than we were pre pandemic; for the premium, about 1 year longer for our verticals for Alveo; and same already for ALP. So for the -- second question was...

Launches, [ if we're ] on track for the PHP 100 billion [ target ]...

Launches, so -- okay. So the launches for the year 2023, it's expected to be PHP 100 billion. That will include residential launches, estate launches as well as launches in Malaysia.

Any more follow-up questions, Alexa?

No.

Okay. Let's have XT for the last question.

Just a question on residential. I guess, the strategy to shift towards premium and also horizontal project, how should we expect in terms of its impact on margins? Just for residential.

Horizontal versus -- first, horizontal versus vertical. So horizontals typically have a higher margin than verticals. Now as far as our different brands are concerned, margins are more or less the same across the different brands for vertical projects. I know you'd think that -- because the price of one brand would be higher than the other brand, then you'd expect margins to be higher, but the truth is the quality, the location, the price of the land is also, I guess, higher as you go higher end. So all told, margins for all the different brands for verticals are more or less the same.

Got it, but given that -- yes, so -- but there's no -- given that there's more horizontal on a blended basis, is it fair to assume better margins going forward?

It depends...

The -- going into the -- I mean I think, even this year, you will see that probably 2/3 of our launches are now vertical and 1/3 is horizontal. And as you can imagine, the value of 1 horizontal project -- or the value of 1 vertical project would probably be equivalent to maybe 4 or 5 horizontal projects, so we can't just completely move everything to horizontal. And that's dictated by the market, so there is -- during the pandemic, where there was preference for horizontal -- and we did supply the market with horizontal projects, but now that the pandemic has abated, you're seeing demand for vertical projects returned. And so that's why we're also launching more vertical projects. So the determination on whether to launch vertical or horizontal is market-driven. Where is the demand? And the demand now, as we see it, is for vertical projects, so we're putting in about 2/3 of our launches in vertical, 1/3 horizontal.

Okay, with that, I guess, allow me to conclude our briefing this afternoon. Thank you very much for the engaging discussion. We'd like to remind everyone that copies of the press release, the presentation and the recording will be available on our website at ir.ayalaland.com.ph. We have some snacks on the back, so please do enjoy. Please enjoy the rest of the day. Thank you.