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

Ladies and gentlemen, good afternoon, and welcome to Ayala Land's briefing on our first half results. Joining us on the line are more than 70 participants, and I would like to remind everyone that copies of the presentation and the press release are available on our website, ayalaland.com.ph. Allow me to introduce our panel led by our President and CEO, Ms. Meean Dy; our CFO, Mr. Toti Bengzon; Head of the Premium Residential Business Group and President and CEO of Ayala Land Premier and Alveo, Mr. Mike Jugo; and Head of the Leasing and Hospitality Group, Ms. Mariana Zobel de Ayala. I would also like to recognize the presence of some members of our management committee, led by -- we have Mr. Paul Birkett, Chief Operating Officer of Ayala Malls; and also Mr. George Aquino, President and CEO of Ayala Land Hotels & Resorts; and I don't see Mr. Robert Lao, but Mr. Robert Lao, Head of our Estates Group; and then Ms. Isa Sagun, our Chief Human Resource Officer; and also Mr. Raquel Cruz, Head of our Core Residential Business Group and President and CEO of Avida and Amaia and BellaVita. And to start our presentation, let me turn over the floor to Toti.

Thank you, Mike, and good afternoon. Welcome to the first half analyst briefing for Ayala Land. Allow me to present our financial and operational performance for the first half before I turn it over to our President and CEO for her key messages. Ayala Land achieved strong results in the first half of 2024, fueled by robust property demand and consumer activity. We posted total revenues of PHP 84.3 billion. This is 28% higher year-on-year. As a note, this is our highest level of first half revenues to date, surpassing our mark in 2019. [Foreign language] It's a hard audience, tough audience. Net income registered at PHP 13.1 billion, up 15% year-on-year. Our CapEx came in at PHP 36.5 billion, and we ended the first semester with a net gearing ratio of 0.73:1, which is an improvement from 0.75:1 last year as our operating cash flows increased and we continue to manage our debt funding requirements prudently. Turning to segment revenues. Our Property Development revenues increased by 34% to PHP 51.9 billion, driven by higher residential and commercial lot bookings. Residential revenues surged by 40% to PHP 43.7 billion, while combined office and lots for sale revenues grew by 9% to PHP 8.2 billion, mainly from commercial and industrial lot sales. The Commercial Leasing segment grew by 10% to PHP 22.1 billion, owing to the higher occupancy of Ayala Malls Manila Bay, the contribution of One Ayala Mall in offices, Ayala Triangle Tower 2, the contribution from Seda Manila Bay as well as the higher occupancy of Seda Nuvali and Lio. Our shopping center revenues grew by 8% to PHP 11.1 billion, while office leasing improved by 6% to PHP 6.1 billion. Furthermore, hotel and resort revenues accelerated by 19% to PHP 5 billion. Our services business such as construction, property management and our airlines, among others, grew by 51% to PHP 8.4 billion on account of higher bookings from external projects, airline sales and stable property management fees. Net construction revenues doubled to PHP 5.5 billion from the first half of 2023, while Property Management, AirSWIFT and our retail electricity supply companies generated total revenues of PHP 3 billion, which is a 2% increase year-on-year. Turning over to the income statement. Real estate revenues reached PHP 82.4 billion. This is a 28% increase from last year due to higher residential and commercial lot bookings, additional contracts from external construction projects and healthy leasing operations. Interest and other income totaled PHP 1.8 billion, 23% higher year-on-year from higher management fees and interest income from short-term investments and cash deposits. Equity net earnings -- breaking down the interest and other income line. Equity in net earnings of associates and JV companies grew by 9% to PHP 945 million as FBDC companies as well as our ALI Eton joint venture and our Ortigas affiliate recorded higher earnings. Interest and investment income increased by 66% to PHP 361 million, reflecting the higher yields generated from our short-term investments and cash deposits. Other income amounted to PHP 517 million. This is a 29% increase year-on-year due to higher management fees earned from our FBDC companies and the ALI Eton JV. Expenses grew by 29%, amounting to PHP 64.7 billion. With more business activity, our real estate expenses totaled PHP 52.7 billion, up 34%, while general and administrative costs increased by 10% to PHP 4.5 billion. Our GAE ratio settled at 5.4%, which is lower than the 6.3% level in the first half of last year. Our EBIT margin stood at 31.8%, this is lower than the 34.1% in the same period last year as we recognized some expenses related to our businesses. Interest expense, financing and other charges totaled PHP 7.4 billion, 8% more than last year, due to a higher average borrowing rate as well as an increase in our loan balances. Deducting expenses from revenues, income before tax grew by 24% to PHP 19.6 billion, and this increase translated to an income tax provision of PHP 3.9 billion. And summing it up, income before noncontrolling interest totaled PHP 15.7 billion, 20% more than last year. Netting out our noncontrolling interest from our JVs, which grew by 55% to PHP 2.6 billion, net income attributable to ALI equity holders grew by 15% to PHP 13.1 billion. Breaking down revenue by business line, higher residential bookings, commercial lot sales additional external construction projects and healthy leasing operations drove our top line growth. Property development revenues increased by 34% to PHP 51.9 billion. Residential revenues surged by 40% to PHP 43.7 billion, with higher bookings across all segments. Office for sale revenues, however, declined by 15% to PHP 1.8 billion as the lower incremental percentage of completion offset the new bookings during that period. Revenues from commercial and industrial lots jumped by 19% to PHP 6.3 billion. The lot sales were primarily from our Laguindingan Technopark, Nuvali and Broadfield estates. Commercial Leasing revenues increased by 10% year-on-year to PHP 22.1 billion. Breaking this down, shopping center revenues amounted to PHP 11.1 billion, 8% better than last year due to higher rents as well as the contribution of Ayala Malls' One Ayala. Office leasing grew by 6% to PHP 6.1 billion from increased occupancy and rents as well as the contribution of One Ayala offices and Ayala Triangle Tower 2. Meanwhile, Hotel and Resort revenues accelerated by 19% to PHP 4.9 billion, owing to higher room rates, the contribution of Seda Manila Bay and the higher occupancy in Seda Nuvali and Lio. Services businesses; composed mainly of construction, property management and airlines, registered a 51% growth to PHP 8.4 billion. Breaking this down, MDC posted net construction revenues of PHP 5.5 billion, double last year's figure, on account of the additional contracts from the 50-megawatt ePLDT data center project in Santa Rosa, Laguna. APMC's property management revenues, combined with AirSWIFT and our retail electricity supply companies generated revenues of PHP 2.9 billion, this is a 2% increase year-on-year, primarily from higher airline sales and property management fees. Summing up our top line, real estate revenues amounted to PHP 82.4 billion, 28% higher than last year, with interest and other income of PHP 1.8 million, total revenues grew by 28% to PHP 84.3 billion. Showing you our margins, so pretty stable, all within our set target levels and quite healthy. On the property development side, we've told you guys that we strive for gross profit margins for horizontal residential projects in the mid-40s and mid-30s for the vertical projects. So as you can see, horizontal spot on at 45% and vertical margins, GP margins, came in at 38%. Office for sale margins remained steady at 43% while the margins of our commercial and industrial lots were at 68% (sic) [ 66% ]. This was higher from the 52% we showed a year ago, primarily on account of high margin lot sales from the Laguna Boulevard, Broadfield and Evo City. For commercial leasing, our EBITDA margins are within target. Shopping centers at 62%, office 90% and hotels and resorts at 29%, slightly lower for hotels, factoring in the impact of the Lagen Resort closure due to renovations. Finally, the EBITDA margins for services businesses was steady at 8%. Let's put some more color into our residential sales figures. Residential reservation sales totaled PHP 68.4 billion, this is up 17% year-on-year. In the second quarter alone, we grew residential sales by 15% to PHP 35 billion, 61% of the reservation sales came from the premium segment brands, namely ALP, Ayala Land Premier and Alveo, while 39% came from the core segment led by Avida. Of these projects, 62% were vertical projects and 38% were horizontal. The quarter's sales performance translated to a monthly sales average of PHP 11.4 billion, and this is an acceleration from the PHP 9.5 billion in 2023. Projects of note were Ayala Land Premier Park Villas in Makati, the Courtyards in Vermosa, Alveo's Park East place in BGC, Sereneo in Nuvali and Avida's Birch Tower One in Mandaluyong. This drove the sales performance during the period. In terms of our buyer profile, 72% sale, majority of our sales were to local Filipinos. This is 26% higher year-on-year. Sales to overseas Filipinos were slightly down, given the limited launches at the core segment. Sales to other nationalities grew by 5%. So to overseas Filipinos and other nationalities, these two segments accounted for 17% and 11%, respectively, of the total. Just a side note, for other nationalities, 66% were sales to Americans. This is 15% higher year-on-year while sales to overseas Chinese buyers comprised less than 1% of total sales. So we will launch more -- expect us to launch more products in the second half of the year in step with the demand that we're seeing on the ground and well within our internal inventory level targets. On the Leasing segment, for our malls, lease-out rate is at 89%, same level as last year, while total GLA under construction stands at 194,000 square meters. For offices, GLA of 1.4 million square meters. Occupancy rate stands at 91%, well -- much better than the industry's vacancy rate of, I believe, it's about 20%, so we're at 9% versus industries' 20%. We do have a solid pipeline of offices to deliver, 297,000 square meters of leasable space coming in the next three years. In terms of the occupancy of our offices primarily leased out to BPOs, 78%, 12% to headquarter locators and there's just 1% remaining to one POGO locator. For our Hotels and Resorts, a total of 4,500 rooms, occupancy continues to be quite healthy. The average occupancy for all hotels was 64% and 52% for our resorts. Total number of hotel and resort rooms in the pipeline, close to 1,000 rooms. So this is what we can look forward to the rest of the year. We will open Ayala Malls in Vermosa, Cavite, 38,000 square meters of GLA as well as the initial phase of Ayala Malls Evo City, also in Cavite. For offices, we have the Park Triangle Office Tower in BGC with 35,000 square meters of leasable space, and we will be opening our new office Technohub formats at Nuvali and Atria Park District in Iloilo, both having 25,000 square meters of GLA. CapEx spend, PHP 36.5 billion, more than half, 51%, went to residential projects, 27% towards estate development, 11% to commercial leasing and 11% on remaining land acquisition commitments. We've declared a PHP 100 billion CapEx budget for the year. So expect faster spend in the second half of this year. We have a well-managed and conservative debt portfolio with 91% contracted into long-term tenors and 75% locked in fixed rates. Our average borrowing cost picked up a bit to 5.2%, and the average maturities come down to 4.1 years. But just to note, in July, we raised PHP 20.5 billion of sustainability-linked financing, tenors of between 8 to 10 years. So both those facilities will further lengthen our average debt maturity profile. The PHP 6 billion sustainability-linked bond is listed on the PDAX, has a term of 10 years and was well received in the market with demand reaching 3x what we offered. It cleared that spread of 30 basis points over the benchmark. So quite -- a very tight credit spread for a first sustainability-linked bond issued by a local corporate. The PHP 14.5 billion sustainability-linked loan with IFC is ALI's first loan from a multilateral agency and the IFC's first sustainability-linked loan for a Philippine corporate. So combined, we expect that these two financings extended our debt portfolio back to five years. Our balance sheet remains strong. Net gearing ratio of 0.73:1. Total borrowings increased slightly by 3% to PHP 266 billion from year-end 2023, while stockholders' equity grew by 5% from the end of last year to PHP 335 billion. Our current ratio is 1.67x. Our interest coverage ratio is 4.7x, and our net debt-to-EBITDA multiple is now below 4, 3.8x, so all of these are within the standard [indiscernible] prescribed limit for investment-grade property companies. So just to summarize our performance for the first semester. Top line growth, 28% higher year-on-year at PHP 84.3 billion, our highest level of first half revenues to date. Net income of PHP 13.1 billion, up 15% year-on-year. CapEx at PHP 36.5 billion. Net gearing at 0.73:1. In terms of the breakdown of our segment revenues, property development revenues up by 34%. Of this, residential revenue surged by 40% to PHP 43.7 billion. The Commercial Leasing segment grew by 10% to PHP 22.1 billion while our Services businesses grew by 51% to PHP 8.4 billion. So with that, we'll do the Q&A later, but allow me to turn you over to our President and CEO for her key messages. Thank you.

Thank you, Toti, and good afternoon to everyone. I just have a few points to make, and then we can open this to Q&A. We are hitting our growth targets across all our business lines. Sales reservations outperformed expectations. I will no longer go through the details of our performance because our CFO has already gone through it in detail. While rate cuts are expected in the coming months, we recognize that interest rates will not immediately be at the pre-pandemic levels. As such, we are prepared to grow our property development business using capital as efficiently as possible. We are pleased that our inventory levels are now at 19 months based on the last 6 months' sales coming from 22 months this time last year. We feel there is still room to bring this down further to 16 to 18 months, roughly where we were pre-pandemic. To achieve this, we need to continue with our strong sales performance and balance our launches. As such, we are strategically sequencing our launches to ensure that the organization, especially the sales organization is selling inventory from existing projects. In the first half of the year, we launched PHP 34 billion worth of projects, about half of the PHP 66 billion reservation sales from the same period. And for the full year, we are projecting about PHP 85 billion in launches, which translates to 12% increase versus 2023 launches. We also need to ensure that project launches are compelling and deliver healthy take-up from the get go. Projects launched in the first half of the year had an average take-up of 25% considering most of them were launched in the second quarter. These projects include the following: Anvaya, Searidge residences launched just last June, take up 82% with an average per unit price of PHP 30 million. Caleia in Vermosa now has a takeup of 40% with an average price per unit of PHP 16.5 million. The take-up of Sereneo in Nuvali is now at 25% with an average price per unit of PHP 17.8 million. Launched also in June was Orean Residences in Vertis North, with a take-up of 15% and an average unit price of PHP 27.8 million. With a strong focus on moving existing inventory and strategically timing the launches of quality projects, we can use our capital efficiently to grow the business at our target of 2x GDP. We are on track with the reinvention of our key leasing assets and the continuous expansion of our leasing portfolio. Four flagship malls are undergoing reinvention and are progressing well within the 10% to 15% percentage of completion. In Glorietta, works on the facade, the park, cinemas, interior hallways are ongoing. In Greenbelt, demolition works have started. In TriNoma, the Mindanao Avenue lobby, cinemas and rooftop gardens are being tackled first, while in Ayala Center Cebu, the activity center and the interior hallways are the focus. We have also decided to take a more aggressive approach to our merchant optimization program. We expect to partially mitigate the impact of this accelerated program with the growth of our overall mall portfolio and improving lease out in our other malls. Meanwhile, in the hospitality segment, the renovation of Lagen Resort in El Nido is in full swing and will be completed in 12 months. Four hotels will follow suit within the year. We are gearing up for the opening of 144,000 square meters of gross leasable area of malls and offices this year. All of these are well situated within our estates with 83% of the GLA located in NCR and Greater Metro Manila. This approach will enable us to grow the business as committed while providing our shareholders with improved returns. Our leverage is well within our comfort levels with a net DE of 0.73 and an interest cover of 4.7x. We have a program to return capital to our shareholders through dividends and buyback, totaling PHP 8 billion as of the first half of 2024 or 32% of last year's NIAT. Our annualized ROE stands at 9.4%, up from 8.8% in the same period last year. We are excited about the reinvention we are undertaking both in our key leasing assets as well as in redefining the standards of our residential offerings. These investments position us best for the growth opportunities that we see from the rising affluence of the Filipino market. Thank you very much.

Thank you, Meean and Toti, and now let's open the floor for questions. We now have 126 participants on the line. Let's take the first question from Ms. Jelline Gaza of JPMorgan.

My first question is regarding [Technical Difficulty] inventory, would you be able to share with the prioritizing -- selling of inventory? How much of that is currently coming from the premium versus core brands? And in line with this one, do you think [Technical Difficulty] back to maintaining the mid-teens presales growth for the second half as we prioritize inventory and how do you think the new launch pipeline can support that presales growth?

Good to see you in person. Let me answer the last question first. Yes, we believe we are on track to achieving our gross reservation sales or take up targets in the mid-teens, so we believe we're on track. In terms of -- your question was on the take up? How many percent was?

[Technical Difficulty].

Unsold inventory, 68% premium, 32% core.

This is a housekeeping. How much of that is currently RFO, if you have the numbers?

Total RFO now is at 2 months.

Two months, so approximately [ 2 over 19 ]. That's how we get it.

Yes. Slightly over 10%.

So over 10%?

Slightly.

Mr. RJ Aguirre from UBS.

Since we're on the topic, I just want to follow up on inventory levels, which are Metro Manila and which are ex Metro Manila, what percentage?

We'll get back to you RJ, go ahead.

My next question is on cancellation. I saw that the slight -- single digit. Any exact number or maybe mid- to high single digit?

So we ended last year at about 9%, so we're now at 8.5%.

My other question is on margins. So I noticed that, as you mentioned earlier, top line is all-time high. But on the net income, it's nowhere year 2019 levels. So can you give us some color on the margin and the outlook for that, in case you're trying to improve it?

Yes. We will -- we hope to improve our EBIT margins. As you know, we're in the mid-30s level. So for this particular period, we recognized costs which were related to number one, improving the overall customer experience. So there were higher OpEx that we recorded. Number two was in line with our Quality is job #1 initiative, we implemented certain enhancements to our projects, both on the residential and leasing side. And admittedly on some of our slower-moving residential inventory, we did give some discounts, but this was very selective. Selective discounting on certain of our projects, residential projects. So that combined -- those are the 3 major reasons why we showed the margin decline from last year.

That's it for me now.

60% Metro Manila, 40% outside Metro Manila.

Any questions from our call participants? I don't see anyone raising their hand. We have a question from Xuan Tan of Goldman Sachs.

I have a question on the CapEx [indiscernible] run rate [indiscernible] PHP 100 billion [indiscernible] can you provide more color [indiscernible] expectation for second half?

Yes. The expectation is, we'll be spending a little bit faster in the second semester. So our guidance, our CapEx guidance of PHP 100 billion is still intact. So a little slow off the blocks in terms of spending, which is, for me, a good thing. But the project teams reassure me, they're going to be spending what they budgeted for in this last semester of the year. So the guidance for PHP 100 billion is still on.

And my second question is a follow-up on the margin. Any color on when should we expect margins to improve? Or is this a run rate that's sustainable for the rest of the year and going to next year as well?

I think this is the investment that we're making as far as getting our products to the quality that we need to -- where we would like our quality and our experience to be. So for us, as long as we're in the 30% to 35% level, which is what we've always said we were comfortable with, I think we would make the appropriate investments for so long as we're in that 30% to 35% range.

The next question comes from Ms. Joy Wang of HSBC.

Two questions for me. First of all, just a follow-up on margin, in particular on retail. There's a bit of fluctuation. Is this a reflection of ongoing asset enhancement? And when can we expect that margin to normalize?

Leasing margins, EBITDA margins have so far been steady at the 63% level. That's been our target for EBITDA margins as far as our malls are concerned. Potentially, we might see that dip a little bit on account of the reinvention. As you know, we're investing heavily to quite a bit of CapEx that we're putting to reinventing some of our assets. So that will be below the depreciation level, but also in terms of some of the OpEx that we might be spending to enhance that customer experience, that could have an impact on our leasing EBITDA margins. But I think we'll try to keep it on the 60% level.

And then the second question is on total shareholder return. You did PHP 8 billion return between dividend and share buyback. How should we think about the split going forward? And is there any target level that you will be looking at?

In terms of the dividends, I think you can see us running at about a 30% payout ratio of prior year's net income. So that's pretty much what we bake into our budgets. Now in terms of the buyback, I guess, a little bit more opportunistic for us on that side. We do see our shares trading at much lower than its intrinsic value, and that's why we continue to buy back in the market. In terms of our approvals from the Board, we have about PHP 12 billion remaining. So this year, we bought back about PHP 6 billion worth, and we still have a $12 billion allocation approved by the Board.

Any more questions from our call participants? Mr. Carl Sy?

I'd like to ask about the outlook going forward. So you actually performed quite well in the second quarter. But it was only in July when President Marcos announced the POGO ban. And I acknowledge, of course, you have very little, very limited direct exposure to Mainland Chinese or POGO, but looking ahead, would you say -- you are more positive or more cautious on the sector now or relative to a few months or early this year?

So Carl, our office, we really don't have POGO, right, only about 1%. I think just one tenant, in fact. So our direct exposure to the POGO is rather limited. So I suppose what you're asking is, how it would affect the residential business for us. And one of the first things I did was I looked at all our buildings and how much POGOs live in our completed and turned over buildings. And what we found is only less than 5% of our units are actually occupied by POGO. So I think, in general, our products are not that exposed to the POGO market, either directly in the office or indirectly as tenants for our residential buildings.

And also on earlier mentioned by Toti, the residential performance was quite good across all segments. I'm wondering if you're seeing better results from the core segment, in particular? Is it better than you thought or just about the same?

So our gross take-up grew 23% for the premium and 9% for the core. So clearly, there's still a bias for premium. I think for the core, we will continue to, I guess, focus our sales force and make sure that we are able to move our current inventory and in fact, start launching some projects in our core segment. But clearly, we see the strength more in the premium than in the core as our numbers show.

The next question comes from [ Ares Marcelino ] of MBTC. Since we don't have him ready yet, maybe we can move to -- Okay, go ahead, [ Ares ].

What are the efforts you're undertaking to improve cancellation levels? And do you expect the core to further improve by the same next year, given the anticipated [indiscernible] cycle?

I think our cancellation levels have improved drastically from maybe 18 months ago. In fact, as the CFO said, our cancellations are now 8.5% of our revenue. This started nearly more than 10%, in fact, 18 months ago maybe. So for the most part, we have -- I think we have already passed the worst of times. We have also increased some of our reservation fees, particularly in our core segment, to try to weed out, I guess, or to try to select, I guess, those who are really serious in buying our projects. Internally, we are also much quicker now that we know what the market is like. We're also much quicker in deciding when to cancel a project and bring it back to the inventory and bring it back to selling. So we've also had to adjust our internal processes because these are realities that we face. As the interest rate improves, clearly, the beneficiary of that would be the core segment, where, as we always say, 90% of our market get the mortgage. So we're expecting some improvement in our core residential sales as interest rates go down.

The next question comes from Mr. Chang Qi Ong of JPMorgan Asset Management.

Just a couple of questions, some on resi, some on malls. On the resi side, you are doing quite well, especially when compared to some of your peers. On the premium side, where you have been doing very well, so far have there been any signs of so-called buyer exhaustion where you might have pushed out too much inventory to the market and are you [indiscernible] concerned that whether the market can absorb all these inventories [indiscernible] right now, still 62% vertical, 38% horizontal, when do you think this will sort of tilt the other way, which we start to see more sales coming from horizontal than vertical. If you can get [indiscernible] ask my questions on the [indiscernible].

So the question really goes to the strength or the resiliency of the premium market. As you know, our CEO announced last year that we would focus or lean on the premium segment for the next year or so. I think it's a strategy that has served us in good stead, as shown by the numbers. We always think about what -- or how big is that demand. And I guess when we look at demand, some of the numbers we look at and this is something we share with our overseas investors is, how many dollar millionaires are being minted in the Philippines. And I think the number that HSBC put out was -- we expect that to quadruple from 100,000 to 400,000 dollar millionaires through 2030, okay? That's a wealth manager's assessment and estimate, so that's a quadrupling. So we're talking of an additional 300,000 individuals. And when we look at how many units we're launching in the premium segment. How many units we're launching? About 10,000. So it seems to us like there's this demand that's out there that we will continue to service. There's no -- it's hard to come up with any additional scientific data, but at least from what we're seeing on the ground, the actual sales, it continues to grow. Premium segment continues to grow. And so we think going forward to the next 5 years, that demand will be there, and it's something we'd like to -- I guess, in many ways, we'd like to be the dominant player in that segment, but we want to continue to be the dominant player.

So maybe just a quick one on the mall business. So first half revenue grew about 8%, if we were to adjust for the impact of the development where you closed quite a bit of space to do asset enhancements, how much would have revenue increased by?

So actually, right now, we've been managing the reinvention scheduling. And so I think only about 1% of our GLA has been closed as a result of the reinvention. So I'd say it's quite minimal. But we did bring 2 new malls online end of last year that are still stabilizing.

The next question comes from Mr. [ Paulo ] Garcia of ATR Asset Management. Can you provide more color on the first half '24 mall foot traffic? How it has been relative to last year? And can you also elaborate on average consumer spend or tenant sales? Are we seeing more strength in casual dining, F&B or retail?

So in terms of tenant sales, we've seen particular growth actually in Services and Specialty. Food continues to grow as well, but we saw a particular uptick in Specialty and Services. In terms of the exact growth of foot traffic year-on-year, let me get back to you.

So for the month of June, foot traffic grew 9% year-on-year. Same mall revenue growth, 7% year-on-year.

The next question comes from James Kenneth [indiscernible]. Following the recent issuance of sustainability-linked bonds and the IFC loan, are there any further plans to raise capital through debt or equity markets in the third and fourth quarters of 2024?

Our borrowing activity program for the year was about PHP 50 billion, of which PHP 20 billion would go to refinancing, so we've completed that. In this last semester, we haven't triggered the borrowing for the PHP 30 billion of new debt as the CapEx has not been spent just yet. And we've actually seen some strength in our internally generated cash flows. So the budget would be maybe PHP 20 billion to PHP 30 billion of debt to be raised in this last semester. So that's what we've penciled in, but we have to finalize the actual funding program.

We have a follow-up question from Ms. Joy Wang.

I just wanted to follow up on resi. Have you seen a payment term change, short term?

It's still pretty much the same. So for the core segment, it's still 12 to 18 months longer versus pre-pandemic. And for premium, in particular, vertical, it's still 6 to 12 months longer than pre-COVID.

And I guess just based on your experience in the past, how quickly do you think that the interest rate impact can translate to the return of demand in core segment? And also any potential of this payment term to be shortened as a result of interest rate impact?

On the first question, I don't think we have an empirical way of determining how quickly demand can snap back. But my sense is, the market is just waiting for rates to have peaked, which I think the market is getting comfortable with that. Then when the BSP starts cutting, then directionally, they know rates are coming down. I think that will be sufficient to keep those who have been on the sidelines excited about getting back into and buying property. So this would be primarily for the core segment. In terms of payment terms, further tightening, not sure, but I guess to a certain extent, this might be the new normal and we're prepared -- with these payment schemes, we're prepared to make a good return given that even if payment terms have sort of lengthened and that translates to more working capital. So we've planned for that and we budgeted it. So we want to make sure we hit our target hurdle rates. So we've pretty much baked in these longer than pre-COVID payment terms.

Maybe just to add on the pay terms, particularly on the core segment. One thing we have to take a look at is the overall industry supply, because that actually affects how we can also tighten our own pay term, particularly in that segment where there are other players. And so we're quite realistic here thinking that it will not be that immediate because there are other players who also have inventory.

Let's take Mr. [ Danielo Picache's ] question.

First question would be on malls. Can you provide some color on how demanding [indiscernible] potential new segments for the malls under renovation? And are the affected tenants moved to your other malls by the discounts offer? And will that be a [indiscernible] change in the [indiscernible]?

Yes. So in terms of managing malls that have ongoing construction, we actually factor in concessions for the period which they're affected. So that can be between 1 and 2 months. In many cases, like such as in Makati, where we have kind of 4 different assets, we are moving some tenants to other locations. Sorry, was there another part of your question that I may have missed?

Yes, that's the question [indiscernible] can change in the [indiscernible].

Yes. Yes. I think so -- I think we've shared in the past that we have identified -- in addition to kind of the physical renovations, we've identified merchant spaces that we feel could be performing at a greater capacity. And so that will be part of the shift. And generally speaking, there's been an increase in food tenants and also bringing in kind of newer global brands that will bring in a new shopper into our centers.

Second question is on residential. This was [indiscernible] classified [indiscernible] 16 to 18 months inventory [indiscernible]?

Is it for end 2024?

Well, we're right now at 19. The target is to bring that down lower by the end of the year. So we should be in the 16 to 18 range by then.

Let me just take this question from Mr. Rafi Mendoza about residential. Would you have a rough estimate of ALI's market share in the premium segment?

I'll take a stab at the -- we track our market share. This is our [indiscernible] I'm going to share with you. We track our market share on the residential side in terms of share of revenues. And we have a peer set of 3 other players. So when we look at -- and this is statutory numbers because that's the official record. We have the largest market share in terms of revenue, about 47% of total property development revenues booked. 47% of that is accounted for by ALI and the universe would be -- there's 4 of us in that set. Now on the premium side.

So I'm going to be more mayabang than Toti about this. So in the premium segment, because we track this, we track this quarter-on-quarter. So it fluctuates. It depends on who launches, honestly. That's what the market share will see. But if you think about a cumulative period, let's say, the last, whatever, 5 years or 3 years, I think only Ayala Land has consistently launched premium projects at scale, at different formats, different geographies. So if you take this on a total basis, not on a quarter-by-quarter, but say, the last 3 years or the last 5 years, I would suspect that we probably had, had the most number of product units out there in the market I think.

The next question comes from Mr. Wilson Ng of Morgan Stanley.

Firstly, a couple of housekeeping questions. Just a follow-up on the unsold inventory of 19 months. How much is that in pesos?

Residential inventory is roughly about PHP 200 billion.

And in terms of your [indiscernible] residential revenues, how much is that currently?

It increased from year-end. We're at about PHP 146 billion.

Lastly, sorry, if I missed this earlier, but what was the reason for lowering your target launches for this year, from 100 to 85?

We really wanted to manage our inventory levels, and that goes back to our move to be more efficient in terms of how we use our capital. And so we wanted to make sure that the sales and the organization is really focused on moving inventory in projects that are already launched before launching new projects. It also -- yes, well, these are obviously projects that we already have in terms of the land, in terms of the permits and the plans. If the market picks up faster, whether it be in certain geographic areas or whether it be in total, then we should be ready to increase that number of launches. But for now, from what we're seeing and what we're projecting in terms of our sale, coupled with our desire to bring down our inventory level, we believe that the PHP 86 billion is where we would end up by year-end.

So in terms of housing demand, [indiscernible] we are still seeing that going strong or slow down?

So far, yes.

Let's go back to our audience. I could see Jelline raising her hand earlier.

I'd just like to ask if you have an update at presold level for Park Villas and Park East Place. You still have around PHP 50 billion of future launches in the second half. Can we expect something of a similar profile of new launches in the second half? Or would it be in next year already?

Yes. For Park Villas, we're around 40% sold. For Park East Place, we're closer to 60%. And we do have a pipeline for launches. But as our CEO mentioned, the focus really now is on sales efficiency and strategic phasing of the launches.

Next question is on the -- you said you were reflecting some selective discounts. Anything -- if Meean put it correctly, there's a lot of inventory. Some of your peers are getting more aggressive in terms of discounting. How do you see this going forward as we see more turnovers of POGO related optimism back in 2017 and 2019 getting turned over in the next two years? Should this be a concern on margins, specifically for the core brand?

Well, I think realistically, there would need to be some adjustments that we will make for slow-moving projects, particularly in the core. We've started that this first half, and it was just necessary, we believed. It will probably continue until the end of the year. Fortunately, for us, I think we've said that majority of our inventory is now in the premium segment. So I think our exposure to that particular segment and the propensity to discounting is much less than perhaps some of our other peers.

Okay. Thank you very much. Unfortunately, we're running out of time. We have room for one more question. Okay. We don't have any more takers. So I guess that concludes our briefing this afternoon. We'd like to thank everyone for joining us. If you have any additional questions, please feel free to send us an e-mail at Investor Relations at ayalaland.com.ph. Thank you for attending.