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

Ladies and gentlemen, good afternoon, and welcome to Ayala Land's briefing and our results for the full year of 2023. Let me start by recognizing our panel composed by our President and CEO, Ms. Meean Dy; our CFO and Treasurer, Mr. Toti Bengzon; Mr. Mike Jugo, Head of the Premium Residential Business Group and President and CEO of Ayala Land Premier and Alveo and; Ms. Mariana Zobel de Ayala, Head of the Leasing and Hospitality Group. We have 60 participants on the line, and we'd like to remind everyone that copies of the presentation and the press release are available on our website, ir.ayalaland.com.ph. And to start the presentation, let me turn over the floor to Mr. Bengzon.

Good afternoon to our analysts. And please take note, we have members of the press here today. Welcome to our full year analyst briefing. And I have the great pleasure of presenting to you report card for 2023. I think you will all be pleased with our grades. So let me start off with our key messages. The company delivered strong results in 2023, fueled by robust property demand and heightened consumer activity. We posted total revenues of PHP 148.9 billion. This is 18% higher year-on-year, while our net income registered at PHP 24.5 billion. This is up 32% year-on-year. Our CapEx for our various residential and commercial projects totaled PHP 86 billion. This exceeded our initial budget, which we communicated to you of PHP 85 billion. We sustained a net gearing ratio of 0.75:1 with the support of higher operating cash flows as we remain prudent in managing our debt funding requirements. Property development revenues expanded by 14% to PHP 92 billion, driven by steady bookings and higher completion of residential projects and offices for sale. Residential revenues rose by 22% to PHP 77 billion, while the combined office and lots for sale revenues declined by 15% to PHP 15 billion, as lower commercial and industrial lot sales outweighed office sales and completion. Meanwhile, our Commercial Leasing segment accelerated by 25% year-on-year to PHP 41.7 billion due to improved occupancy and rents. Our shopping center revenues surged by 31% to PHP 21 billion, while office leasing grew by 6% to PHP 11.8 billion due to improved occupancy and higher rents. Hotel and Resort revenues increased by 42% to PHP 8.8 billion from last year as higher travel and tourism demand pushed up occupancy and room rates. Our service businesses, composed primarily of construction property management and our airline, registered a 36% growth to PHP 11.5 billion. Makati Development Corporation's net construction revenues from external projects scaled up by 56% to PHP 6.6 billion. Property management revenues ended 15% higher at PHP 1.8 billion, owing to higher car park usage. Revenues from AirSWIFT as well as from our retail electricity supply companies reached PHP 3.1 billion. This is 18% more than in 2022, driven by strong airline ticket sales from El Nido tourists. Moving on to our income statement. Real estate revenues reached PHP 145.5 billion. This is 18% higher from 2022, owing to property development bookings and completion, higher leasing occupancy and rates and service business revenues. Interest and other income reached PHP 3.4 billion. This is 4% lower year-on-year, driven by lower other income, mainly due to the subsidiary consolidation and the higher base in 2022 due to a onetime land sale transaction. Equity net earnings from associates and joint ventures increased by 10% to PHP 1.6 billion, driven by our Fort Bonifacio companies and Ortigas Land. Interest and investment income amounted to PHP 690 million. This is 78% higher than the previous year due to higher yields from short-term investments and cash deposits. Other income amounted to PHP 1.1 billion. This is a 35% decline year-on-year as we consolidated the contribution of our JV with the Kuok Group. This is our joint venture in Carmona under AKL Properties. The consolidation happened under real estate revenues beginning the fourth quarter of 2023. In terms of expenses, we managed our expenses to PHP 112 billion. This is 14% higher year-on-year. Real estate expenses reached PHP 88 billion, up 15%, while general and administrative costs increased by 23% to PHP 6.2 billion. Consequently, our GAE ratio settled at 6%, higher than the 5.7% we recognized during the previous year. Our EBIT margin improved. It stood at 34.2%, higher than the 33.1% EBIT margin we reflected in 2022. And it's now higher than our historical average of 33%. Interest expense, financing and other charges totaled close to PHP 15 billion, 6% more than last -- than the previous year due to the higher average borrowing rate and our daily loan balance. Netting out expenses from revenues, income before tax grew by 29% to PHP 36.5 billion. This translated to an income tax provision of PHP 7.5 billion or an effective tax rate of 20.5%. As a result, income before non-controlling interest totaled PHP 29 billion, 29% higher than the previous year. Netting of noncontrolling interests, which grew by 15% to PHP 4.5 billion, net income attributable to ALI equity holders grew by 32% to PHP 24.5 billion. Breaking down our revenues by segment. Our property development revenues expanded by 14% to PHP 92.3 billion owing to healthy bookings and the completion of residential projects and offices for sale. Residential revenues reached PHP 77 billion. This is 22% higher. Office for sale revenues came in at PHP 4.2 billion. This is a 31% growth. While revenues from commercial and industrial lots totaled PHP 10.9 billion. This is 25% less than last year due to the product sales mix and a pushback of certain of our launches. Meanwhile, the Commercial Leasing segment accelerated faster at 25% year-on-year to PHP 41.7 billion due to improved occupancy and rents. Our shopping center revenues surged by 31% to PHP 21 billion, while office leasing grew steadily, 6% to PHP 11.8 billion, both due to improved occupancy and higher rents. Hotel and Resort revenues increased by 42% to PHP 8.8 billion from the previous year as higher travel and tourism demand pushed up occupancy and room rates. Our service businesses, composed of construction, property management and airlines, registered a 36% growth to PHP 11.5 billion. MDC posted net construction revenues of PHP 6.6 billion, 56% higher than last year due to the contribution from its external projects. APMC revenues grew by 15% to PHP 1.8 billion due to higher parking usage and stable property management fees, while AirSWIFT and our retail electricity supply companies' combined revenues grew by 18% to PHP 3.1 billion due to higher AirSWIFT patronage. Summing up our top line, real estate revenues amounted to PHP 145.5 billion. This is an 18% growth from last year. Coupled with interest and other income of PHP 3.4 billion, our total revenues grew by 18% to PHP 148.9 billion. We've seen stable margins across our business segments despite the challenging macroeconomic scenario. Our horizontal residential margins stood steady at 45%. Vertical margins increased to 38% on higher -- on the back of higher average selling prices of our high demand projects. Our office for sale margins have declined by 6 basis points to 43% on account of the sell-out of our high-margin projects. While commercial and industrial lot margins were 4% lower to 66% due to the sales mix. Our commercial leasing margins remain steady and healthy. Shopping center margins improved to 68% from higher occupancy and rents driven by Glorietta, Ayala Malls Manila Bay, Circuit Makati and Capitol Central. Office margins were steady at 91%, while Hotels and Resorts margins improved to 29% from 25% in the previous year on the back of higher occupancy and average rental rates. Our margins for our service business, stood steady at 10%. Turning over to the operating statistics of our various businesses. Let's start with property development. Despite the prevailing higher interest rate environment, property demand remained resilient. Our full year 2023 reservation sales grew by 9% year-on-year to PHP 113.9 billion. Sales in the fourth quarter registered at PHP 28 billion, 2% higher than the third quarter and the same period a year ago. Our sales performance translated to average monthly sales of PHP 9.5 billion. 57% of our sales reservations came from the premium segment. This is made up of Ayala Land Premier and Alveo, while 43% was from our core segment of Avida, Amaia and BellaVita. 65% of the projects were vertical, while 35% were horizontal. And the in-demand projects during the year were Alveo's Park East Place in BGC; Ayala Land Premier's Ciela in Carmona, Cavite; Our Park Villas, our signature line in Makati CBD; Arcilo in Nuvali, Laguna; and the Parklinks South Tower in Quezon City. In terms of our buyer profile, 67% were sales to local Filipinos, 10% higher than the previous year. Sales to overseas Filipinos were up 2% to PHP 23.5 billion, while sales to other nationalities grew by 11% to PHP 14 billion. These account for 21% and 12% of the total, respectively. In terms of other nationalities, 57% were sales to Americans, 1% higher year-on-year, while sales to Chinese buyers only comprise 1% now of total sales. We launched 14 projects in the fourth quarter with a combined value of close to PHP 40 billion. So our launches last year were clearly back ended. This included ALP's first signature line project, Park Villas in Makati and additional phases of its existing projects such as the Courtyards in Vermosa, Cavite; Arcilo in Nuvali; and Anvaya Cove in Bataan. These developments bring Ayala Land's total launch to 25 projects valued at PHP 76 billion, of which 65% were vertical projects and 35% were horizontal. 88% were dedicated to the premium segment, and 12% for our core segment. We launched 4 new estates in 2023, bringing our total estate count to 52 across the country. In April, we -- our real estate logistics subsidiary, Ayala Land Logistics Holdings Corporation, launched the Batangas Technopark, which spans 55 hectares in Padre Garcia, Batangas. The industrial estate will become a mixed-use development featuring Ayala Logistics' dry warehouse and cold storage facilities, along with the transport terminal, gas station, an agricultural wholesale market and restaurants. And it will host light, medium and nonpolluting industries. In September, we launched the 32 hectare Centrala, located in Angeles City, Pampanga. Centrala is the first estate development in the city and is envisioned to be a dynamic business district in Central Luzon, accessible via NLEX, McArthur Highway and the proposed Eastern circumferential road. It is also only 18 minutes away from the Clark International Airport. Just as a note, this mixed-use development will have 135 commercial lots with a model size of 770 square meters, selling at about PHP 70,000 per square meter. It will also host a 2.5-hectare Signature Central Park as well as a community retail center. In that same month of September, we also launched Southmont. This is in partnership with Cathay Land. Southmont is an 800-hectare mixed-use master plan development in Silang, Cavite. Currently, Southmont offers residential developments such as Alveo Hillside Ridge and Verdea and Ayala Land Premier's Lanewood Hills. Just as a note, we're looking at an initial development cost of PHP 12 billion for this estate with commercial lots of about 1,000 square meters being sold at PHP 75,000 per square meter. In December, we launched Ayala Land's first mountainside leisure estate, Arillo, located in Nasugbu, Batangas. This 62-hectare estate is positioned to be the premier ecotourism and nature hub for life and leisure in Batulao. It will host premium overnight facilities, a nature sanctuary and canyon trails, an events venue, a restaurant district and a town center. About 20% of the estate will be used or allocated for residential developments and mid-rise buildings, 20% for commercial use, 15% -- and 15% for resort type development. The balance will be allocated for leisure activities, common areas and flex lots. Moving on to the operating statistics of our Leasing and Hospitality Business Group. For malls, total malls GLA stands at 2.1 million square meters. And the average occupancy rate for all malls is 84%, higher than the 81% we registered in the previous year. Drivers of higher occupancy are now Ayala Malls Manila Bay, Circuit Makati as well as Capitol Central. The lease out rate of our portfolio is 90%, 3 percentage points higher than the previous year. And total GLA under construction stands at 194,000 square meters. It's also interesting to note that the average lease rate, we've basically been able to increase it by about 22% from the previous year. Our total GLA for offices stands at 1.4 million. This is more than double what we had in 2014. We only had 610,000 square meters. Our average occupancy rate for all offices is 87%, higher by 6 percentage points from the previous year, while the lease out rate is now at 92%. This is a significant improvement from the 88% in the previous year. Drivers for higher occupancy would be the Circuit BPO Tower 1, 6750 and ATG, Ayala Triangle Gardens Tower 2. Our total office pipeline stands at 297,000 square meters. And just recently, we added to the pipeline Vertis 4 and 5. This is the fourth and fifth tower power in Vertis, our estate in Quezon City, that will add another 82,000 square meters to our office portfolio. In terms of tenant mix, 80% of the portfolio is leased to BPOs, 11% to corporates and about less than 2% to POGO back offices and others. Our vacancy rate stands at 8%. At 8%, this is lower than last year's -- the previous year's 11%. And our average lease rate continues to improve, it's higher by about 5% year-on-year. For Hotels and Resorts, we have total 4,452 rooms in our portfolio. Occupancy and room rates have improved. The average occupancy for all hotels was 67% and 42% for all resorts, up 8 and 13 percentage points, respectively. Total hotel and resort rooms in the pipeline stands at 1,068 rooms. We opened 2 malls with a gross leasable area of 49,000 square meters and 420 hotel rooms during the year to strengthen our commercial leasing portfolio. We opened Ayala Malls, One Ayala with a total of 44,000 square meters. This is where the old InterCon site was located. And we opened an initial 5,000 square meters at Ayala Malls Vermosa in Cavite. We also opened the first 306 rooms at Seda Manila Bay and completed the second tower of Seda Nuvali with 114 new rooms. Our total CapEx spend came in at PHP 86.2 billion, higher than our PHP 85 billion guidance. We spent 49% on residential projects, 11% on commercial leasing projects, 6% for malls, 3% for offices and 2% for hotels and resorts. 21% went to continuing payments on land acquisitions, 16% for estate development and 3% for other general uses. We have a well-managed debt position with 93% of the debt contracted in long-term tenors, 77% locked in fixed rates, an average borrowing cost of 5% and an average maturity of 5 years. Our balance sheet stands strong with a net gearing ratio of 0.75:1. Cash stood at PHP 17.8 billion. It's about PHP 5 billion higher than the previous year. Total borrowings of PHP 258 billion, an increase of PHP 22 billion or 9% from the end of December 2022. Stockholders' equity also grew by 9% to close to PHP 320 billion. Our current ratio stands at 1.76:1, and our total debt-to-equity ratio or gross debt-to-equity ratio is at 0.81. Our interest coverage ratio has improved to 5.2x, while our -- it improved to 5.2x, which is well within the prescribed range by S&P for investment-grade property companies of 3x to 6x. Just to summarize our performance for the full year of 2023. We delivered strong results in 2023. Total revenues of PHP 148.9 billion, 18% higher year-on-year. Net income at PHP 24.5 billion, up 32% year-on-year. CapEx exceeded guidance of PHP 85 billion, coming in at PHP 86.2 billion. Net gearing ratio, 0.75:1, with the support of higher operating cash flows and prudence in managing our debt funding requirements. In terms of segment revenues, property development revenues increased by 14% to PHP 92.3 billion. Commercial Leasing segment, the revenues accelerated by 25% year-on-year to PHP 41.7 billion, while our service businesses grew 36% to PHP 11.5 billion. Allow me now to talk about our 2024 plans. I guess this is the guidance that most of you will be asking us, so I might as well put it out there. So for this year, we are budgeting PHP 100 billion in CapEx. This is going to be 16% more than our total spend in 2023. The CapEx will be allocated as follows: 34% to residential, 23% for the completion of our leasing assets, 24% to estate development and 19% for continuing payments on land acquisition. So this budget is reflective of our push to grow our leasing portfolio and to unlock our estates. This year, we intend to launch PHP 115 billion worth of property development products. This will be broken down to PHP 100 billion worth of residential products and PHP 15 billion of commercial and industrial lots sold by our Estates Group and Ayala Land Logistics Holdings Corporation. 80% of the residential launches will come from the premium segment, while 20% will be for the core segment. By product type, you can see where the preference of the market is. We will launch 52% as horizontal projects and 48% as vertical. By location, we are clearly overweight in Mega Manila, the Calabarzon and Central Luzon areas, 44% in Metro Manila, 38% in Southern Luzon, 7% in Central Luzon and 11% in the Visayas and Mindanao region. On our commercial leasing assets, we will complete 68,000 square meters of malls GLA coming from Ayala Malls Vermosa, Evo City and Park Triangle. We will also open close to 100,000 square meters of office leasing GLA with the completion of One Ayala South Tower and Park Triangle in Makati and BGC, respectively. And we will also complete campus-type technohubs in our Atria and Nuvali estates in the provinces of Iloilo and Laguna. This ends my presentation. And before we go into Q&A, allow me to turn over the floor to our President and CEO for her key messages.

Thank you very much, Toti. Can we just go to the slides? So I have 5 key messages for today. Let's just go through this one by one. 2023 was a good year for Ayala Land, with all our business lines hitting their stride. The residential business grew 22% to PHP 77.2 billion. Ayala Malls grew 31% to PHP 21.1 billion. Hotels and resorts grew 42% to PHP 8.8 billion. Offices grew 6% to PHP 11.8 billion, ending the year with a 92% occupancy. Residential reservation sales totaled PHP 113.9 billion, up 9% versus 2022. This year, we also began our program to take advantage of high-value market opportunities and drive for quality. Park Villas, an ALP signature project in Makati, was launched in December 2023 at $9 million per unit, 20% sold. Park East Place, our first Alveo development in BGC in 7 years, ended the year with 45% sold 8 months after launch. PHP 13 billion of CapEx is allotted for the renewal of our flagship malls, starting with the closure of Greenbelt 2, which will be repositioned as a luxury mall. We will soon start work in TriNoma, Glorietta and Ayala Center Cebu. This is envisioned to bring up the unique value proposition for each of our malls and bring them to their full potential. Greenbelt 1 is a total rebuild and will have its own budget. Works will start by the second quarter. A bold renovation plan for our resorts and hotels is also in the works, with 2 resorts in El Nido and 4 hotels scheduled this year to bring the customer experience to the world-class levels that we aspire for. We broke ground for 2 new office towers in Vertis North, one of our most robust office sites. The first 3 office buildings in Vertis have been fully occupied since opening. And these 2 new office towers will add 82,000 square meters of new GLA to our office portfolio. Number three, we are optimistic about opportunities for 2024, but pragmatic in addressing the potential challenges of a higher for longer interest regime. Based on its latest monetary policy report, the BSP expects the economy to remain intact over the medium term, but could operate slightly below its potential. GDP could settle below the cabinet level development budget coordination committee's target of 6.5% to 7.5% this year and even until 2025. And with that, for 2024, we have a budget of PHP 100 billion for CapEx and PHP 115 billion for property development launches. This is 26% higher versus 2022, and 80% of our launches will be premium residential and commercial lots. Number five, we will continue to grow the business by doing the following: leaning on our premium residential brands and horizontal projects utilizing our existing land bank; getting our leasing assets to operate at their full potential; and expanding our leasing footprint with an additional 800,000 square meters of mall GLA, 500,000 of office GLA and 4,000 hotel rooms by 2028. That ends the CEO message.

Okay. Thank you, Meean, and thank you, Toti. We can now open the floor for questions. We now have 141 participants on the line. Maybe we can start to entertain any questions from our live audience. Okay. The next -- the first question comes from Mr. Carl Sy of Regis.

I have a number of questions. I'll start off with the residential business. So on launches, for first -- 2023, I think -- I don't recall the exact number, but maybe 80% of the launches were in the premium. And then that's going to be the case as well in 2024. So -- but I believe on presales, maybe 45% last year was from core. So going forward, do you still even have the product to match last year's sales on the core segment?

The answer, Carl, is yes. We have baked in into our budgets both a more aggressive launch. And at the same time, we do want to continue taking down our inventory levels. So in the case of core, we also have inventory there that we can sell. So it's not just the launches. But ultimately, our target is to -- to launch about 15% more this year and to bring down our inventory levels. We ended last year at about 21, 22 months. So we want to be between 18 to 20 months in 2024.

And maybe to add to that, since we have the land bank, we have a couple of projects in the core that we have proceeded with planning and even permit acquisition. So should there be an opportunity, these projects are on push button mode.

Got it. So looking ahead, let's say, up over the next 5 years. I understand there will be more focus on premium. But is the idea, in fact, that the core will even shrink on an absolute basis? Or will that not -- is that your plan or not?

Our desire would be for the core market to come back. But I think this year, we are still not certain as to how robust that core market will be, which is why we are ready with our premium segment. But for a market like us, we really would like to see the core market come back, maybe not in the near -- otherwise, not so much the near-term effects, but the medium-term effects, it will be felt if it doesn't come back. So we're hoping that it would come back. And I would say that we have the projects and the land bank ready for when this market returns.

Got it. And with respect to the fourth quarter launches, you actually launched a lot of projects. But for the reservation sales, they were flat for the fourth quarter. I just want to check, did most of the launches come very tail end of the fourth quarter?

Thank you, Carl. Extremely. In fact, the flagship project, we did private selling mid-December. So effectively, the inventory is there, but sales did not follow relative to the timing. Even some of the launches that we mentioned on the estates, will be recognized this January.

Okay. So more to come in -- more recognition in January. Got it. And then I'll ask about the mall business this time. So I guess, in 3 stages of timing. So looking back in the fourth quarter, mall revenue was flat quarter-on-quarter. Normally, you would expect some strength during the holiday season. So could you give us why that was the case when it was flat?

Yes. We actually had some delays in terms of the cutoffs. So there'll be some carryover to this year.

Sorry, openings? Opening...

No, in terms of the cutoff to be able to recognize our billings.

Okay. Got it. And then during this period, this 3-year period of renovations. So I want to check, does Ayala Land expect on a system-wide basis mall revenue to be coming down?

No. We've actually particularly managed the redevelopment in phases to be able to manage the effect to our overall revenues.

Okay. And then looking further ahead of that, when, let's say, the transformation of these flagship malls are complete. Again, we're expecting a higher level of experience and look. Does that mean, at least on average, will the clientele be much more high end? Is that the plan? Or will the tenant mix change substantially?

So it will differ from mall to mall. I think our view is that each of our malls have a different identity. And I think the clarity with which we are able to develop that identity should be relative to the catchment and the opportunity. That being said, a number of our flagship malls happen to be in areas where the A, B, C 1 market are more prevalent. In all cases, to be able to justify the investment on the redevelopment, it's -- the investment case requires a return similar to a new mall. So we would necessarily need to increase our sales rather than just increase our rent, increase kind of foot traffic and sales to be able to justify that investment. So we do see that sales will increase. I think our CEO in the past has made reference to a 15% to 20% increase in rental rates as a function of sales increase again.

Those are all of my questions. Thank you.

Okay. Thank you, Carl. In line with that question on the malls, we received a question from Chang Qi of JPMorgan Asset Management. He's asking what is the occupancy rate for Ayala Malls, Manila Bay and One Ayala.

Yes. I will pull that up and get right back to you.

Okay. Thanks, Mariana. And One Ayala. So the next question -- the next question comes from Xuan Tan of Goldman Sachs.

[indiscernible] residential cancellation in 2023 and what's the expectation in 2024?

The question was about cancellation...

2023, and what's the expectation for 2024?

So in terms of effect of cancellation on our revenue. In 2022, it was about 10%. By 2023, we're now down to 9%. And if you take away the impact of office for sale, which, as you know, has been a more challenged segment, that would have been 7% of revenue.

Maybe to follow-up on Manila Bay and One Ayala. So at Manila Bay, we're at 65% occupancy, which is quite a jump from the previous year, and One Ayala's at 55%.

And I think -- yes, go ahead.

[indiscernible] can you give guidance for cancellation itself?

The guidance for cancellation in 2024?

We don't really give a guidance for that. But I think given the trend, we're -- it's probably in that vicinity, high single digits. As a percent of revenue.

Okay. Got it. And following on residential, can you talk a bit more about inventory...

So given the back-ended launches, some of which were launched literally towards the last 2 weeks of the year, we ended the year at 22 months inventory.

And for 2024 what would be your expectation on residential margins?

Our margins have actually been stable, as presented earlier, and we don't expect any major deviations from that.

The next question comes from Mr. Richard Laneda of COL. Can you talk about the quarter-on-quarter increase in residential development revenues in fourth quarter 2023?

Property development revenues quarter-on-quarter grew by 55%. So this is really coming from bookings that we recognize as well as percentage of completion. I -- for this business, I wouldn't really look at quarter-on-quarter because there are a lot of things that go on during the year. So if you want -- it's 55%, but as we had shown, our real estate revenues for the full year grew by 18%. I wouldn't put too much meaning into a quarter-on-quarter number.

Okay. The next question, we have a follow-up question from Chang Qi regarding Ayala Malls, Manila Bay. So the current occupancy is 65%. What is the lease out rate as of now? Then maybe we could get back to you there. Let's tackle the question first from...

So it's over 80% at this point. So we were working with the tenants to make sure that we can follow up on opening.

Thanks, Mariana. The next question comes from Mr. James Kenneth Gudito. Regarding the recently approved Board resolution to raise up to PHP 50 billion in debt capital, could you provide insight into the anticipated timing for this capital raising endeavor?

Yes, PHP 50 billion is what we got approval for this morning, and we intend to access both our bank lines as well as the debt capital markets. Roughly maybe 50-50. Of the total of PHP 50 billion, PHP 25 billion will be to finance our CapEx this year and the other PHP 25 billion is for refinancing of maturing debt. . Fortunately, most of that, if not all of the maturities will happen in the second half. And we will be able to finance our new requirements in the first half of the year by drawing down on our short-term lines. The strategy is to access the -- our long-term bank lines as well as our -- as well as the debt capital markets in the second half of the year as we anticipate that by that time, rates should start trending downwards. So we have that flexibility to trigger our major part of our financing program in the second half of the year when, hopefully, rates would have moderated. And as you know, we like to -- we want to borrow long-term fixed rate. So it's important for us to try to time it or to get the financing at the opportune time.

Okay. Thank you. The -- we have a question from Ms. [ Jelline Gaza ].

I have 3 questions. First is on the residential. Sir, Mike, can you give us some idea as to how -- I mean, the profile of the PHP 80 billion new launches that you would want to bring to market next year? I mean, what are you looking at in terms of ASP price trajectory as well on a per square meter basis? That's the first one. Second is on the unsold inventory. Would you be able to provide more clarity as to how much of the total peso value is located in Metro Manila and outside and the distribution across the brands? And third is on the residential CapEx. I noticed that for the budget for this year, it's around PHP 34 billion, whereas you have spent around PHP 41 billion last year. What drove the decline? And how should we think about it in relation to percentage of completion progress on construction?

Thank you, [ Jelline ]. For the first question related to the 80% of prospective launches for 2024, as shown in the presentation, a bulk of the horizontal launches will still be in the south where our estates are. And selling prices would be pretty much where we're at or maybe just a slight increase. There will be some condo launches, hopefully, latter part of this year within the BGC, Makati area. And then there will be a big launch in [indiscernible]. That's what we're preparing for.

In terms of the -- you're talking of the inventory for Ayala Land Premier and Alveo? Total?

Total.

Total would be -- so it's a little bit -- it's about -- in terms of value, about -- because we're saying we're looking at -- we ended last year with about 20 -- 21 to 22 months. So we're running at about PHP 10 billion a month. So close to about PHP 200 billion of inventory, of which 55% -- 25% horizontal, so it's quite tight. And about 150 would be residential. The balance would be commercial lots for sale and office for sale. And then to your question on CapEx, [ Jelline ], I just wondered, I'm pulling out some data on our allocation of CapEx over the past -- actually over the past decade. And yes, you're correct. The CapEx this year is a bit -- is lower for residential. Let me just pull out that data.

Okay. We received the same question for [ Mr. Mike, Mr. Bengzon ] about the inventory. So I hope we were able to address that earlier. Let's move on to Mr. Joseph Allan Sinay of T. Rowe Price. Thank you for the good 2023 results. Can you share with us some of the metrics or signs that you see in South Luzon that gives you more confidence in launching more products here?

No, I think as you can see, a lot of our land bank is actually in the Calabarzon area. And this is really an area where we see a lot of benefit coming from infrastructure that is coming to fruition. This is also where we have our estates, Nuvali, [indiscernible], Southmont. And traditionally, the performance of our projects in these estates have been very strong. In terms of our sales this year, we can get you what percent of the sales is actually coming from that area.

Okay. Thank you. To move on, we have a question from [ Mr. Nick Yumul ]. Anecdotically, we are hearing concerns regarding delays on deliveries, particularly for high-end segment. What is causing this, if this is true? And then the follow-up question is, what is the rationale behind renovating the key mall assets at the same time instead of facing how disruptive will these renovations be to the adjacent leasing spaces and any sizable potential impact on the total revenues during our renovations? I think Meean, Mariana addressed it earlier.

Let me answer the first question, which has to do with the delays, and I'll pass this on to Mariana to answer the question on the renovations. So on the delays, I think coming out of the pandemic, it's really been a challenge for the industry to catch up in terms of construction. There has been a slowdown for everyone during the 3 years of the pandemic and all the different lockdowns during that time. And I think everyone in the industry have tried their best to make up and ensure that deliveries are on time. Developers also given an extension of time because of the pandemic. And I think for the most part, we are living within the allowed extension of time. There might be a couple of projects that would extend beyond that. But for the most part, I think we are living within the allowed extensions of time.

And let me close out the question of [ Jelline ] on CapEx allocation. So for this year, we are allocating only 33% to our residential businesses. And I'll just do a fast comparison, 2019 and earlier, that time we were doing about 42%, close to 50% to residential development. What's happened since is we are focusing on utilization of our land bank. So you will see that over the next couple of years, our allocation for land bank will be declining. And what we are putting focus on is unlocking our estates. So pre-pandemic, we were allocating about 15% to estate development. This year, it's up to 24%. And on the leasing side, this year, we're allocating 22%. So a little bit decrease in the residential side, stable to going lower on the land acquisition side, and we're redeploying more towards leasing and estate development.

So maybe to close the loop on the rationale behind the 4 renovations at once. We noticed a lot has changed even prior to the pandemic in terms of customer behaviors, preferences, tastes. And so in all honesty, a lot of these renovations were due prior to the pandemic. So it's kind of pent-up need. And therefore, we see no choice to be able to kind of compete and bring our assets to their true value to do them together. Now that being said, we mentioned earlier that we're taking -- for each of the assets, the renovations will be done in phases over the next 2 years. So we'll work to minimize any disruption, and it will also allow us to kind of continue to deliver on the rental revenues.

Maybe just to add to that, the company is really focusing on differentiating itself based on the quality. And I think the best place to start with that is through the malls, which is how most Filipinos experience us. And so even if maybe it would have been easier to do this one at a time, we thought that we should do this across all our flagship malls really to drive the message that the company is focused on quality.

Okay. Thank you. We have a question from [ Mr. Raffy Mendoza ].

Thank you for the presentation. I just want to go back to reservation sales. There's been, I think, a slowdown quarter and quarter or -- and in the past few quarters, would you think that would be attributed to the lag effect of the interest rate hikes from the previous years? And I guess, in relation to that, I also just want to clarify your buyers' profile between -- this is for residential, buyers' profile between cash and mortgage buyers.

So that's really dependent on the product. On the core product, close to 90% at the mortgage for the premium product. In ALP, hardly anyone. In Alveo, maybe about 20% to 30% would get a mortgage. So it really depends on the brand that we're talking about. Now in terms of the take up quarter-on-quarter, I think -- okay.

So again, it's a little -- I don't think looking at it quarter-on-quarter gives us a good picture. But in terms of gross reservation sales or takeup, we've been increasing ever since the pandemic started. If you will recall, in 2022, we had PHP 82 billion of gross reservation sales. In 2021, it was PHP 10 billion more, PHP 92 billion. And then in 2022, PHP 105 billion. And last year, we came in at PHP 114 billion. So throughout the pandemic, it's been growing year-on-year.

Maybe the other thing to note is our buyers think about what the mortgage rate will be in 5 years' time when it's time for the takeout because that's really when they will need to get a bank loan. So if the expectation and the sentiment is that it will become lower, then that would give them more confidence to proceed with the purchase.

Thank you, [ Raffy ]. In line with that, we did receive a question from Felicia Barus of Citi. She's asking, do you still provide stretch payment options for your products? And how long is the stretch payment at the moment for each brand or product type?

So yes, the payment terms are still longer than when -- than pre-pandemic. About 2 years longer for our core, and we have about 1 year longer for premium. Our expectation is that this is how it will be for a while. And so we are preparing ourselves and all our business plans along these lines.

And then we have a question from [ Brian Oi ]. What is your expectation for presales in 2024?

The inspiration of the company is to grow by 15%. I think -- or to double in 5 years. So roughly, that's about 15% year-on-year. The business is not linear, as we've already said, so there will be years that it will be more than 15%. There might be years that it will be less. But the target remains to double in 5 years.

Okay. Great. We have Mr. Wilson Ng on the line. Go ahead, Wilson.

Two questions, please. First one, just following up on what [indiscernible] land bank. How much of the land bank was utilized last year? How much do you plan to utilize this year? That has been my first question.

We're just pulling out our calculator because I think there's quite a bit of utilization. Yes. So it's -- well, the -- over the next 5 years, we're looking at using about 4,000 hectares of our land bank. So roughly about 800 hectares a year. So just last year, we utilized about 1,000 hectares. You're going to see that in our 17-A, which we will be filing soon. So 1,000 hectares was utilized last year, then in the next 5 years, roughly about -- on the average, about 800 hectares a year.

Just kind of current stock of land bank...

Yes. We will end the [ 2023 ] at 11,000 -- around 11,400. About 11,400, Wilson.

Just last question for me. On average borrowing cost [indiscernible]?

Borrowing costs. Well, we're managing it carefully, and we're quite fortunate that most of our -- close to, I think, close to all of our debt is long term and about 80% is fixed rate. So we're able to forecast that our borrowing costs will move incrementally. So last year, it moved up by about 30 basis points from the previous year, and we estimate roughly maybe about another 30 basis points this year.

Just to be specific on the land bank, we added 2023 with 11,240 hectares. Thank you, Wilson. Let's move on to Ms. Joy Wang. She has several questions. So the first one is, what's your expectation of the timing of return of core residential markets? If this segment doesn't recover, would that affect your target to double your earnings?

Expectation on return of the core, I guess, it's really very difficult to pinpoint the exact time for that. We're hoping it will come back in 2 to 3 years. And yes, if it doesn't come back, it will impact our medium-term forecast.

The next question is could you share the expected return on investment for the PHP 13 billion CapEx you plan to spend on the renovation of the retail malls, including Greenbelt and the others?

As Mariana has explained, it is assessed based on -- as we assess a new building or a new mall. So it should give us the same increment as the same returns as a new mall would using the incremental revenue that we will earn because of the renovations.

And then the next one is what's the guidance for debt funding costs for 2024?

30 to 40 basis points higher than where we ended.

Thank you.

We ended 2023 at 5%. So we're modeling a scenario where we're probably going to be about 30 to 40 basis points higher.

So we're down to -- 2 last questions on the call and maybe one last from Mr. RJ Aguirre. The first 2 questions come from Mr. Paulo Gabriel Garcia. In terms of launches, PHP 53 billion in property development launches was guided for fourth quarter '23 during the last 9 months of '23 briefing. But fourth quarter '23 residential launches was PHP 37.7 billion. So were the other launches in the office for sale commercial lots or others tempered overall? Can you provide more color on this?

Yes, it was a slide on some permit acquisitions, which we should see latter part of this quarter.

Okay. Thank you, Mike. Can we have the last question from Mr. RJ Aguirre.

Thank you, everyone. Yes, my first question was actually addressed earlier about land usage. The second one is on launches. So 80% premium, 20% core for this year on residential. Can you give us like a bit of color on how many units if you separate both premium versus core, if that's possible? And also the pricing on which these projects would be compared to last year, if it's increasing or not? And lastly, if you have some changes on payment terms that are being given in the market currently?

Thank you, RJ. In terms of units, we're programming around maybe around 3,500 for premium and a little more -- almost 6,000 for core, right? Pricing, I think we've been managing price increases because we do understand affordability for this market is very, very important. And as our President has mentioned, I think on payment schemes, I think we'll be holding it, but the terms have increased are longer by 1 year for premium and as much as 2 years for core.

My last question is actually on the offices. So maybe you can because last week, we've had reports that the market is at 20% vacancy. So I'll be reconciled investing more, opening 100,000 square meters currently versus what's in the market as vacancy.

Sure. I think generally, for our office portfolio, it's extremely healthy given the locations that we're located in. So we mentioned earlier that we're at a 92% occupancy, which is very high for the industry. In terms of our renewal rates, it's still been relatively managed. We see about 7% of our current portfolio of our renewal this year, and we expect that 85% to 90% will be renewed. That being said, we're cautious in terms of our kind of future developments. We're working hard to ensure pre-leasing, and we are very selective in terms of the location. I hope that answers your question.

Okay. Unfortunately, we've run out of time. So if there are any additional questions that you have, please do feel free to send us an e-mail at ir.ayalaland.com.ph. And we really think the level of engagement and participation that we have this afternoon. So allow me to conclude our briefing. We have snacks on the back, please do enjoy. And enjoy the rest of the day. Thank you.