Cebu Landmasters, Inc. (CLI) Earnings Call Transcript & Summary

Hi. Good day, everyone. This is Clarissa Cabalda from Investor Relations. So before we start, let me just give a few reminders. [Operator Instructions] Lastly, the meeting will be recorded and may be accessed from the company's website at ir.cebu.masters.com after the briefing. So without any further ado, let me turn you over to Mr. Franco Soberano to start with the key highlights for the 9 months 2023.

Hello. Good afternoon, everyone. Always nice to be meeting you every quarter and even nicer when your company Cebu Landmasters has good news to share. So on behalf of our company, our Board and probably joining me is our CFO, Grant as usual here, we are very pleased to report our 9-month 2023 performance. Starting off with our sustained earnings momentum, growing 28% on a consolidated net income basis, compared to the previous year. Robust top line growth in revenues across all segments, 18% growth that we've managed to continue year in and year out. So from our PHP 10.96 billion in the first 9 months of 2022, we've now registered PHP 12.93 billion this year. Of course, one thing that really keeps us excited is reservation sales. So for the first 9 months, we've already sold PHP 17 billion of reservation sales. So these are projects we've launched this year or inventory that were still available from previous years. So these are revenue that will be recognized as we collect the down payment and accomplish construction on site. So you can see here pointed out very clearly is 93% of all of CLIs nearly 40,000 inventory is sold out. Another good indicator here is we've managed really to be operationally strong. We launched PHP 15 billion worth of projects, 21% more than the previous year. So yes, Grant and I have been busy, but we still manage to enjoy the work that we're doing here at CLI. One other positive highlight, of course, is we always want to share that when we listed on the stock exchange, we were a PHP 7 billion in asset company. So right now, we're a PHP 97 billion asset company, 7 years after our IPO. I believe this is the most judicious, the most committed use of shareholder resources, making sure these really create new value now for our shareholders and, of course, for the homeowners we serve. The good thing is the steady quality landbank continues to grow. We are over 112 hectares of prime real estate. That is reserved for our future development needs. So at this point, I'll hand over the presentation to Grant to talk about our financial performance.

So welcome. Once again, good afternoon to our fellow shareholders. Just to walk you through our detailed financial results for the 9 months 2023. Our top line grew, we have a sustained earnings growth momentum, and we are posting a year-to-date 28% growth on consolidated earnings. Our total revenues grew from PHP 10.963 billion same period last year to PHP 12.926 billion this year. This is mainly driven by the growth of our real estate sales, our core business of developing and selling our housing products, mainly as well as a handful of our office products. But I'm also so proud to show you that despite them contributing still a minority of our revenues you can see our recurring income portfolio. They are growing quite rapidly. If you could see that just on using their own base as the proper comparison, they are growing by 78% and 43%, respectively. And you will see a much more significant growth of these recurring income assets and how they contribute to our revenues in the next 12 to 18 months. That is a very strong commitment of ours, as later Franco will be able to elaborate. You will actually see our real estate assets that we have invested so much into in the last few years, including that even span the pandemic they will start contributing to both our top line and our bottom line, thereby diversifying our revenue stream as well as our cash flow stream. We've managed to drive this growth in our top line as well as our bottom line by 28%, all the while maintaining very good margins. Now I will hasten to add that the improvement in the margins was attributable also partly to an accounting treatment where some accumulated interest are going to be recognized later in the future, but the overall takeaway is that we were able to maintain the profitability of our sales at roughly the same margins. So our revenues grew, but at the same time, we are -- we continue to grow our unrealized revenues. So what we are showing you here is that compared to 2022, our year-to-date realized revenue stands at close to PHP 13 billion. So our run rate is definitely much faster than where we were last year. We were at 18% growth. So we fully expect that we will be able to deliver robust growth on our top line for the overall 2023 year. This combined with the fact that we are also continuing to increase our unrealized revenues means that our runway continues. We have several more years of revenue recognition that we can put on our books, simply based on existing sales or existing reservation sales from buyers who have signed up to buy our properties. So once again, these are -- this is a result of our percentage of completion accounting. So these are all in our back pocket. And over here, you can see where -- how diversified our revenue streams are. They are mostly -- they're equally split between our affordable housing product, which is Casa Mira. Our mid-market housing product called the garden series as well as our premier master series. So you can see that they're pretty evenly split with a little bit of bias towards our economic housing model and which is our flagship brand of Casa Mira. You can also see that revenue contributors across geographically are a little bit more spread out. Cebu continues to be our #1 revenue contributor as it is. This is where we are based, but it also shows the fruit of how we're diversifying our market presence and how we plan to extend this into Luzon in the next few years. So the underlying foundation for all our reservation sales or for all our growth in revenues, both on the top line in revenue and the bottom line in net income would be our reservation sales. So this again represent the amount or the peso value of all the new sales contracts we have managed to sign up this year. So the vast majority of this PHP 17 billion in contracts actually flowed to the unrealized revenues we are not yet going to recognize these revenues. Save because we're still waiting or we still have to meet certain collection criteria and percentage of completion threshold before we are able to. But it's important to show that this contributes to our pipeline of revenues and cash flows, and this represents our current real time impact in the housing market. So when you go and survey the impact that CLI is having currently in the housing market. This is the slide to see. It means that we've sold 17, or we've secured PHP 17 billion of sales contracts year-to-date, and they are split like so, you could see that our economic housing model is the driver for such sales so far in the 9 months of 2023. And if you look at the revenue contributors for such, you could see that actually Mindanao contributed to a significant part of our sales this year, owing to very strong sales performances from our new launches [indiscernible] , and you could actually see that Palawan, which is, of course, technically Luzon as well as Visayas, [ Ex Cebu ] and Cebu itself. Of course, continue to be a significant contributor to our reservation sales. In terms of our balance sheet, I constantly look at our ability to be able to meet all our obligations, which is a sign of a very robust and healthy balance sheet. And again, when you look and when you assess the financial position of CLI really, what you want to look at is how much collections we have in our pipeline over the years, and that is reflected in these types of assets, what we call the contract receivables and the contract assets. So if you combine that and compare that against our interest-bearing liabilities, you could see that the ratio is very much healthy and that we have more than enough receivables to pay all our outstanding obligations twice over. In other words, we only have to collect or we have to just finish the projects we have in our pipeline, and we have more than enough receivables to pay our debt twice over. This is evinced by the fact that we have so much more unrealized revenues that we could still recognize over the years. And so if you look at how we are using our balance sheet to drive results, our consolidated return of assets remain steady. And with our debt equity ratio at keeping it very steady with a slight improvement from last year from 1.84x to 1.82x, we're also able to drive very healthy ROE numbers for the [ parent ]. The headwinds that the company is looking at right now in the environment that I would say the entire Philippine economy is in would be the inflationary environment as well as an era of increasing interest rates. And we have not been immune from this. But what we can do is we can proactively manage our liability position as well as our cash flow requirements. So what you see in front of you is our debt maturity profile. Of course, this year, we have managed to pay down all our principal -- scheduled principal payments on time without any missed payments. And what we intend to do is to manage our cost of funds because as you can see that as we increased our project scale. And as we gain more market share, we did so by capitalizing our projects using back then because our projects are of such a risk profile that they're called bankable projects. So these are financed by commercial banks, which typically have the highest risk management principles and thus the lowest dollar adds. In other words, our projects because, for the most part, they're fully sold, they're very bankable and you could see that even while we used back debt to finance our expansion and gain more market share, our cost of funds have gone down. But recently, that has gone up for external reasons or for the very reason that benchmark rates have all gone up. So with a rising tide of interest rates, this is what we have to manage and do watch this space in our public announcements because next year, there will be some capital management exercises in order to manage our leverage a little bit to protect our margins and to ensure that we have a healthy debt maturity profile that is in line with our cash flow profile in the next few years. Okay. So I will get back to you all with more financial updates and perhaps more financial discussions during our Q&A portion. But in the meantime I'll turn you back over to Franco.

Thanks again, Grant. For always clearly explaining our financial performance. You are really the best one to explain this every quarter. So thank you for the very clear presentation. So in terms of our business update, so I wanted to show that we're really spread out very well throughout the VisMin area. It's a region that we've been expanding in and that we've been thriving in. That's why we announced in the last briefing our move to Luzon. We are nearing the acquisition of a site in [indiscernible] in [indiscernible] . So you should see that added to this [indiscernible] very soon. And why are we always hovering around the 1 million square meter? Because we're launching PHP 10 billion to PHP 15 billion of new inventory or launches every year. So I believe it's the best way to manage landbank, making sure that it's made productive and converted to a project within a few years' time which has been always CLI's strategy. So you can see here that 77% of our land is fully owned by CLI, while 23% is owned by the JVs. 37% are for vertical projects, 63% horizontal. And you can see a vast majority is in Mindanao, which is still very full of promise and potential. You'll see later on that we recently launched projects there that are nearly sold out within 6 months' time. So I'll talk more about that in a few slides. So here is our CapEx. We are nearing the target PHP 13 billion that we set at the start of the year. And most likely, we are definitely going to reach that. I look at CapEx as a very judicious use of our resources, making sure it creates value and, of course, [ rate ] completions for our unit owners, for our investors. So now 86% went into residential development, while the rest 5.2% (sic) [6.2%] in lot acquisition. The good thing here is you can see how just like the rest of the real estate industry, there is a strong -- there is an improving trend from our 2020 pandemic, and we are looking at even having higher CapEx next year. This is our diversified portfolio in CLI, still with residential dominating for us due to the big backlog that we all know about that we all talk about. But more than talking about it, CLI really loves to act on it, be part of the solution especially providing more for the affordable segment. The majority of CLI's residential are in the middle market and affordable segments. So you can see here our offices are 6 buildings. We are still waiting for vast improvements in the office leasing market. Though thankfully, our existing office spaces are leased out quite well. In terms on the hotel developments, we have 10. We actually have 3 opening in the coming weeks, so it's a very busy time for our hospitality team. It's quite exciting as we see a very strong return of tourism. We see Citadines Cebu, our only operating hotel so far, registering occupancy levels in the 80s, 80%, which is healthy from where it came from. Our mixed-use projects are really a strong CLI product, which is financially very sound, with a good combination of for sale and mixed use for sale and for lease products in one site. Of course, we know about our estates at 3, but it's our commitment to grow our township developments. So we have the double global township, of course, which has been a big success so far in Davao. You have the Xavier University collaboration where we are assisting Xavier with its Masters on campus while CLI is developing an adjacent university town called [indiscernible] , which is starting land development now. Next slide. So I'll read through real estate sales. I hope we are giving a strong indication of the market now in terms of residential through our results. So what I always highlight and people ask us, why are we still very bullish. It's really because of this. It helps that our brand has definitely grown. It helps that we do have operational support with over 900 people exclusively for real estate. What I mean is we have a 900-person team that make sure the [indiscernible] of real estate is done properly. So we're with 93% sold with the team that we have, with the brand that we have, we are only motivated to launch more projects. So this is really the motivation for us. And to make it more specific, these are 37,000 units we've done so far in the last 20 years, with the bulk of that coming, of course, in the last 7 to 8 years. You can see here all completed projects at 98%, everything that's under construction. As Grant said, we're here very confident in our receivables, very confident in the receivables. We more than double can cover our debt…

Interest-bearing...

Interest-bearing liabilities. And these are quality receivables. I mean, 95% sold several of that with high collection rates. And what's even more I would say, positive is whatever we've launched in the last 1 year is at 80% [ sold ].

I'll add to this [ along from a ] -- this is the slide that I always emphasize to investors, to our banks and to everyone wanting to know what is the source of strength or what's the secret sauce of CLI, I always say that, of course, you can't expect me to share it with you. But what I can tell you, I told them is, you can see how fast our inventory or how strong the demand is for products -- for CLI products. And we actually have very little inventory. I mean, look at this. For our completed projects, we built 11,585 units. We already sold 11,386 or 98% of that. And a lot of these units or a lot of the sales value attributed to that are still up for collection. So completed doesn't mean collected, okay? And then we move towards the 33 projects under construction. On average, they're 95% sold. And when you say recent launches, these are projects, okay, with over 8,000 units that on average are not even in the market yet for more than 12 months. They are relatively recent launches. So when we say recent launches, they practically have 3 to 4 more years of being under construction for them to be able to reach the 98% track record that we have been facing. So if you really look at the market impact of how many homes we're able to sell and how CLI is doing. You really need to only look at how well our products are selling. And as Franco said, how healthy our receivables are. And I just want to add context to that because I'm proud to say we have one of the lowest delinquency rates probably in the entire industry. It sits at less than 5% with a cancellation rate of less than 4%. It does represent that our pipeline of demand is strong and that if anyone would cancel or back out of their contract due to personnel and some individual reasons that we are prepared for. There is actually very good demand that takes up that inventory, that eventually gets translated into financial results of revenues and net income and eventually cash flow.

I can ask Grant to even head the sales team. That's how we're all hands on deck here in Cebu Landmasters. But really, I give credit to our sales team. As you know, we don't have an in-house sales team or in-house agents but we do have a sales support team that supports thousands of brokers and agents who work very hard to help Filipinos out there. And of course, foreign investors who look at -- look at real estate here as investment property. So thank you for that, Grant. We can move to the next. These are the completed projects. I have always talked about how this is very important to us that we deliver our projects as best as we can. It's repeated in meetings with our CEO, with our Board that the end game is really a satisfied customer. And we don't stop there. We still continue to manage all the residential properties we develop. I think this sets us apart where we really want to be there for as long as we can, to keep improving on the product, maintaining it, securing our residents. Next, please. So of course, this is where we've built our organization to respond strongly to construction with over 200 engineers in-house doing our project management, working with the best national and local contractors. It gives us a lot of excitement. We are actually turning over in my last count 18 projects, meaning I have 18 projects among these 33 that are now being turned over to unit owners. You can see some here like this the Velmiro Greens Bohol. I was talking to one of our managers in [ Visia ] that there are 3 units for turnover in Bohol this week. We also have projects like MesaVirre C, that is turning over soon the last building in our Bacolod development. So this is where really CLI wants to prove itself. I mean how well are we able to finish. And it helps to support Grant to manage all our commitments and where we're just very thankful to the team that we remain focused on the task at hand to continue doing what we love to do here in real estate. So these are the recent launches. So everything we've launched in the last 12 months is now 80% sold. It includes Casa Mira Davao. You must have heard that this sold 85% in just 3 weeks. And Mindara which is part of our [indiscernible] in Davao, which sold out in less than a week. So there were -- this is quite exciting as well. Although the record of CLI is PHP 4 billion in 1 week. So that was the East Village that we launched. So we're glad to continue setting records here. And we are also innovating. Mirani Steps it's actually our first walk up product in the town -- in the city of Danao in Cebu. And in spite of being a new product, meaning we're doing 3-story, 4-story walkup condos for sale in a city that's 25 kilometers away from Cebu, we're at 50% sold. Our first project at Palawan continues to do very well. We're now in our fourth tower. That's nearly 60% sold. You can see here and our Costa Mira Beachtown in Panglao is now in our third tower as well. Next, please. So this is where I will talk a little more about really where CLI is going in the for-sale aspect, that's always our bread and butter. We have been doing that for a long time. But I really want to share that in terms of our recurring income portfolio, several are coming online. You see a trajectory here. At 35,000 net leasable, it may be a low figure for now, but this will balloon to more than 100,000 in the next 2 years, but we're doing it or we're doing it with the same quality and class as our residential. I mean we really want to assemble the best tenants. For a home grown player, we want to take good care of the tenant. Make sure they succeed very well. So we have a combination of a lot of homegrown businesses and, of course, some national brands as well coming in. And we've seen a return in BPO here in Cebu. We recently leased out 2 floors in latitude. So we're very happy with that as well. And of course, all our residential properties have retail spaces below. So we also filled that up quite easily as well. So you can -- we're sharing with you really how we at CLI are -- want to be operationally strong in leasing. So you see us working with national retailers. We do have our Davao global township. That's a big hit now. We have Seattle's Best and McDonald's now doing land leases for us with their drive-through stores there. We're -- [indiscernible] High Street along one of the [ primus ] corridors in Cebu easily [indiscernible] 70%. Our new wing in a very prime downtown area in Cebu, is 54% leased out. We have very strong brands from [ Mila ] coming here, our international brands like Dean & Deluca. And I think the one reason why tenants like our residential properties do is because these are sold very well. These are usually at the high occupancy, and they're located in prime areas, no? So we want to put [ premium building ] up that [ represents ] reputation as a very supportive landlord. So in terms of [ hotels ] . So congratulations to my team, 78% growth. So thank you to the CLI hotels team. You can see here what we're excited about in the next slide. Yes, we're going to add 338 rooms to our operational portfolio, which includes Lyf Cebu, Citadines, Mahalo and The Pad, our first co-living brand. We did [indiscernible] in Mahalo City, which was very exciting. I was the first one to stay there with our CEO, and we hope to really open our doors very soon. It will be a beautiful product. Of course run by one of the best, no, with the [ aspot ] limited their managing. And Lyf is the first Lyf hotel in besides Mindanao. Lyf already opened in Manila. And The Pad is our way of helping -- so this is our pad product. It's just across the [indiscernible] Park , giving affordable lodging options for BPO workers and also students who study in nearby colleges. You can see our Lyf hotel now with its very colorful and very, I would say, playful themes coming online. Why are we bullish about hospitality? There are really not enough keys here in Cebu. And we see a very strong influx of both domestic and international tourists. You can feel it in the lines at the airport. But I would think what CLI is trying to do in terms of hospitality is creating, really working with strong brands -- strong proven international brands. And plus Cebu doesn't have that many brands. So we hope to bring this value to VisMin having more international operators here. So in terms of mixed-use and townships, I'll just give some updates about the townships we're developing. You can see here a recent photo of DGD. For those of you who have been here, it's quite a hit. It's something very refreshing not to be in a development. You don't see the wires, all underground. You don't see any banding of water because we have large potential tank systems 3 floors deep. There's a park. So we hold a nice market here. We're going to move -- who are a Christmas Bizarre here, and we're building the first retail and the public park is ongoing, including our East Village. So CLI is really trying to become a strong counter player, focus on quality, a focus on really keeping the community close. We do hope you visit DGD. So before I let Grant just wrap things up, I'll just talk very briefly about significant milestones, and we hope really to hear more from you in the Q&A. As I mentioned, we have a new product segment introduced walkups. At CLI, we really want to help. There are really -- because of cost rise in -- our role as a developer is to make sure we can still make our units reachable and available. So this is one of -- one way we're doing that. It's very difficult to sell studio units now for less than PHP 3 million or less than PHP 2.5 billion. But we manage to find a solution for it, walkup developments that are well designed and well built like this Mirani Steps in Danao. So another update here was really sales velocity continues to be very strong and Davao continues to be a very strong market. This is a testament to that with Mindara selling out 100% in 1 week's time. So you can see some actual photos there. It's just lining up for your bill payment. So they have to really get their priority numbers. You can see the -- really, I like to thank the brokers and investors in Davao for believing in us. We're now moving towards our eighth to ninth project in the city of Davao. Thank you very much. So this is a very positive development as well. In an independent real estate market study, CLI was determined to be the #1 business developer with a 23% market share. I think it's just really our thrust having our priorities, our resources focused in the region we're from. And it's not just in terms of supply, it's also in terms of absorption that we leave our market. Do you want to add to this?

I'll just add context to this. The type of market leadership we have, in fact, is actual market impact or the 22.8% you see here is our share of actual reservation sales or sales take up, from available [indiscernible] body out there. So a couple -- for me, there are a couple of takeaways here. Yes, we've done well. We have -- I mean, from a finance point of view, I can always point out how proud I am of the company that we were able to deploy capital, both equity and debt capital towards providing home ownership that we have had such an outside impact to the market that need is available that we are contributing to the national goal of providing shelter and housing. But also on the other hand, it gives me great confidence and optimism about the company for the long run because you could see that, yes, we have #1 market share. But this is what I call we are the largest minority. So we're not even 25% yet. So what this shows is that not only are we operating in a market with persistent underserved demand -- so even without increasing our market share, we would still be able to grow. But it demonstrates that we have 2 vectors of growth that will complement each other. In fact, are multiplicative. One is increasing our market share, and there's a lot more to go. You can see that the markets are actually -- it's a very fragmented market, and there is an opportunity for a strong player with economies of scale with enough organizational capability to be able to get more market share. But the other is simply the demand and the growing market. So if we get a larger piece of a growing pie, this really will fuel the growth that we can be. And this is the kind of focus and commitment that the company will not forget to invest in and to continue to invest in even as we expand to other markets.

Thank you for that Grant. Okay, next. First, sometimes, our partner, sellers join these briefings. So here it is. So we're not done yet for the year. We're looking to end the year on a high note as always. So we still have 3 projects -- 3, 4 projects to launch. It includes Velmiro in Consolacion. Consolacion is a very strong market -- provide affordability. But yet, good proximity to the city. This is 14 to 15 minutes away from the city center of Cebu. So that's over PHP1.1 billion in potential unit sales. And of course, our highly anticipated East Village, Towers 5 and 6. Since Towers 1 to 4 are sold out, the 5 and 6 will give more buyers in Davao an opportunity to own a piece of the Davao global partnership, be one of the first residents there. In Casa Mira South, we continue to expand our flagship housing development. That's now about to reach the 4,000 unit mark in there. So we do our best to keep the community by brand, well run with good provisions. So this is a continuation of Casa Mira South. Grant, do you want to talk about this since you are holding the trophy?

Yes. So this year, we're proud to share with our community that -- for the first time, we garnered Golden Arrow -- an award for garnering 2 Golden Arrows. So this is an award for good corporate governance given by the ICD or the Institute of Corporate Directors. So it's 2 and the highest level is 5. So we have a ways to go, but it does show that as a company that is growing, we are committed to growing the right way in a sustainable manner, with strong corporate governance to ensure that the company is well run. And this is really -- yes, I know it's me holding it. It's just -- I would say, but that is a testament to the work that many people in the company are working on in the background. So that's everyone from our front liners who ensure proper documentation of our sales process, to our back office, to our engineers on the ground, making sure that the products are delivered on time and according to specifications in our permits and our designs. This is an end-to-end process. So you can be assured that while 2 arrows is a nice feather in the cap. We will continue to strive to be better. We feel that we should be able to -- there's hope for us to be better, but this is a nice recognition.

Congratulations again to our compliance team, and of course, to the whole organization. We're down to a few more updates and really hope to interact with you over Q&A. Of course, the year is flying by so fast. It's been flying by so fast for the last decade. Just -- so we, of course, look at this year as a year of grace. It's a grace filled year for CLI celebrating 20 years in the industry from the time our Founder, Jose Soberano, my big boss started this company with a mission to really help our fellow Filipinos. So from [indiscernible] 117 projects from 2 employees before -- you remember the story of [indiscernible], he's the one who distributed snacks during his selling seminars no, so it was him and another assistant. So from 2 to now [ 900 ] is the correct, including our subsidiaries and the strengthening of leadership investment. That's why this year, we made the decision to finally expand to Luzon. It was already announced and reported. And we just want to continue our general spread of development there. We really are very motivated to show better standard in Luzon, while we respect so many of our peers there. But having new players always healthy in any market, just as we welcome new players here in our region. We hope to do a very good job. I think not written here, but I have to mention, of course, CLI has entered into its first foreign joint venture with [ NDPUD ], for the NPD Group of Japan. We're very excited about that. We are developing prime residential buildings here in Cebu. So we'll announce more about that in the coming months as well. So it's been a very strong year to celebrate our 20th and I am very confident with the team that we have, with the values powering us that the next 20 will even be greater and better. So with that, we do hope you have some questions for us. I hope you have your cup of coffee all ready to answer some questions. So thank you again very much for supporting us, keeping track of us and rest assured, the company is looking at ending the year on a very strong note.

And I think we can before -- we also -- this is -- we usually do our quarterly briefings online. But just like -- this year, I think this will be a great opportunity for us to catch up with all of you. When we do our full year 2023 in Manila next year.

Yes. But the next briefing will already be in April. Whole year, but we do hope to -- as you know, CLI is setting up an office. So I [ was in Manila yesterday. So we'll have our office in [indiscernible] in [indiscernible] in the new CWC building there. We will be there. So we will see you there. We'll have a full-time investor relations teams there, including a sales team for expanding [ Pardun ] expansion. See you all soon in Manila.

[indiscernible] So to start the ball rolling you [indiscernible] Grant, you mentioned about capital management [indiscernible] years. So maybe you can share funding plans that we have for the company next year?

Right. I want to be very careful here because the [ PSE ] and the rules dictate we cannot announce it. But I could tell you -- and I want to be very clear about this that certain plans are being deliberated and are being considered by management and the Board and are being discussed as we speak. They're on the table. So a fact that I could share is that we still have PHP 10 billion worth of shelf registered bonds that we could issue that will expire in 2025. So the time to use that registered -- shelf registration sorry -- the successful shelf registration will be within the next 12 to 15 months. And I do want to share that when we do so, we would like to take that opportunity to actually use that capital raising exercise to also label it as a green or social bond in order to highlight and demonstrate to the investing community as well as investors who may be getting to know us in the first place, how we can commit to ESG standards. Another option that we are considering is an issuance of our preferred shares, given the current nature of interest rate environment as well as valuations in the equity space with the Philippine Stock Exchange. This is a good hybrid or middle-of-the-road instrument that we are considering. So these are the things that we're looking at in order to sustain the momentum of an industry that is building up dozens of buildings and projects to be able to finish the construction of them and collect on the over 20,000 sales contracts that we have. I hope that answers your question.

Thank you, Sir Grant. Maybe for Sir Franco, I have a question here. After [ Cansor ], are there other land acquisitions lined up in Luzon and which areas you can share?

Yes. So aside from [ Cansor ] we're looking at Batangas. There are many opportunities there. not just in horizontal even potentially vertical. I was in Batangas City, there you can count the number of [indiscernible] with one hand. So there are opportunities to also help there. So [ Cansor ], Batangas and of course [indiscernible] is expanding, but our brand of development can cater to that area as well.

Thank you. For Sir Grant. Does CLI have plans for EV?

We've -- we've been very transparent about this. Yes, we do. But those are plans are not immediate plans but rather plans in the next 3 to 4 years. So we want to make that very clear. And the reason for this, it ties into what Franco was saying earlier, that we have a lot of recurring income projects and assets that are going to come online in the next 6 to 12 months. We're going to be very busy in terms of opening these projects, and we're really excited to bring this to the market. And what we intend to do is to develop reliable and a documented track record of getting earnings and recurring income from these projects. So for our hospitality project, it's about establishing an occupancy rate, but the room rate, F&B capture for office space, it's about our tenancy, our tenant profile, our occupancy rate as well as our lease escalation rates. All metrics that will serve as a foundation to have a successful IPO of any potential [ read ]. So the answer is yes, but nothing specific in the immediate term. We intend to do so and again, it will probably happen in a span of 3 to 4 years, but the important thing is getting the foundational assets that we will infuse into the operation offers, and that is the first significant step and we hope that you can continue to monitor us because it will definitely happen.

Thank you, Sir, Grant. That's from Henry [ Poblado ] I forgot to mention. Next question is from [ Barerom from Deitsche ]. The government [indiscernible] pricings on socialized housing. How much of your reservation sales are from this segment? And also how much of your reservation sales are not subject to that?

Yes. Very good question. This is something we're passionate about at CLI. But as you know, there's been a slowdown in socialized housing development due to the rising costs. It was pointed out in many quorums [indiscernible] . Because prior to a month ago, socialized housing was capped at PHP 450,000 to PHP 580,000 and cost to build a home is 800...

That includes land.

Land would be -- so meaning it's a losing proposition, although we would want to help. But thankfully, it was announced already that [ net-net ] has approved a new housing ceiling for vertical socialized housing. And as you know, CLI is the first developer here to build 2 vertical condos for the former settlers, but this is a full outer intonation as part of our compliance. So we donated for Cebu City, 100 units, 5 stories and we're about to complete in Mandaue 90 units at PHP 90 million, as part of our socialized compliance. However, now, vertical socialized housing can now have a ceiling of PHP 1 million to as much as PHP 1.6 million, depending on the number of floors. And if we include the value of land, the maximum is PHP 1.8 million. The good thing about this program, this falls under the [ 4 Ps ] is the serving beneficiaries are also reselected by partnering LGUs. This gives Filipinos a chance to own these units. So it's really a titled condominium. However, we have not seen this built not yet. No, but CLI is committed to being one of the first to build one. So we're actually in the process of looking for sites for this. So in answer to your question, I think this year, socialized housing that's contributing to revenue is probably less than 1%. Because we have one ...

Yes. Less than 0.5%.

Less than 0.5%. But as you said, we've done socialized housing, but donated. Because there was an outright donation mode of compliance that we undertook in a special way. But so I'm very thankful that we showed the administration is pushing for this. Because vertical socialized housing is a good solution. It gives our hard working Filipinos the chance to live closer to the city, owning their homes or I believe it can be as low as PHP 2,000 to PHP 3,000 if this works. The challenge is, the cost to build the condo unit is PHP 1 million as well. On average, the -- so -- there is a good chance that there's a little margin there, but it's also our job as developers to be part of that movement to provide socialized affordable housing.

And actually, it's a 2-part question by [ Carlo ]. The second part is how much of your reservation sales are not subject to VAT. So thanks for the question. Actually, it shows someone who really knows the real estate industry because those are 2 different segments, socialized housing is different from sales of houses that are VAT exempt. So right now, currently, the VAT exempt threshold is 3.199 million. And there are, I believe, discussions among the industry groups and lawmakers all the way up to the finance secretary and the BSP Governor on increasing that ceiling on non-VAT sales. So these units that fall below that 3.199 million VAT exempt threshold. They're not called socialized housing anymore. They're actually called economic housing or affordable housing. And yes, we have a very strong business segment that caters to that market. So to answer your question, there are -- we have PHP 9 billion worth of sales coming from non-VAT units, but they're not socialized now. So they range actually at this point between PHP 2.8 million to PHP 3 million, and this won't require -- or this won't attract VAT in terms of sales. So I hope that answers your question.

Thank you, sir. We have another question here from [ Rusty Mercado]. He's from [ China Bank ].

Thanks for the coverage.

So he said thank you for the briefing and congratulations on the results. So these are his questions. Can you share more color on your higher GPM margin? Is there anything you're doing differently or more on the growing mix of leasing income? And how do you see this moving forward?

I'll do a quick answer from the operational standpoint. So lucky we're able to see some improvement in commodities. Steel prices have really gone down considerably. Cement prices have been going down. I would say cement is down 20% from their -- 30% from their highest, no of last year. Cement is going down by 20%. So you have some improvements in cost. What CLI has been doing well is really protecting margin by matching the selling prices to our costs. So we've been adjusting prices to protect margins while really still making sure the product is superior, making sure it's reachable and attainable. Since CLI projects are really known to have value for money -- so we're very conscious that if we do increase prices, these are still the most value for money prices in the market out there per segment. Now in terms of the growing lease income, yes, you can see 70% increase and in hotel, double-digit also on leasing. But on a value perspective, it's still a 200 million, 300 million which is less than 2% of its contribution. But definitely, this is where I was mentioning that in 2 years' time, we would be easily above 100,000 square meters of leasable area with our models opening and we'll have from 1 operating hotel to at least 4 operating hotels next year having the full year to operate. Grant, do you want to add anything?

Yes. The other thing is there were some -- we -- on the operations side, there's a very strong consciousness about really very proactively managing our costs and having establishing good relationships with our suppliers. But one of the reasons for the improvement, and I really -- this one I can -- we cannot take credit for is there was an accounting -- or there's an accounting change that our auditors required of us, which removes some of the accrued interest rate cost from our cost of sales. So while -- but on a like-for-like comparison, I think it's still an excellent result because in an inflationary environment on a like-for-like result we manage to improve or keep our margins pretty stable. And going forward, we do expect to either to maintain it within a certain range because we are still -- I don't think economists or even the company expects that the price or price volatility has stabilized in the long run. I do -- we do continue to diligently monitor world commodity prices, the peso exchange rate, which plays a large part in our input costs. So I cannot give an exact projection of the margins. But I think a range projection, which is this -- the margin that you're seeing throughout the year this year will be the rate at which we will start to maintain this.

One last question before we end. Also from [ Rustic & Engineering ]. Were there any land sales booked during the quarter? If none, when do you expect those starts [indiscernible] ?

Yes, good question. There were no land sales booked in the quarter. But we have recently launched on lots for sale in the Davao Global township. So it's an exciting opportunity for top fellow developers to own a piece of [ BDG ]. So hopefully, in the coming quarters, now we'll see contributions from that. And moving forward, given our townshipping at the end, the [indiscernible] has some opportunities to offer land for investment or for lease as well.

That is it.

No more questions? Must have a lot of [indiscernible] . But maybe we just wrap things up here. We are -- we just had our strat planning session and the theme for CLI is really as a lot on mastering excellence. What do we mean by that is as we reached 20 years, we don't want to be complacent. We want to remain with our feet firmly on the ground, recognizing that there are things that we can still definitely improve. There's definitely balance in our organization that we can continue to develop. And that's the attitude that we want. So from a CFO point of view, from a still COO point of view, it's recognizing that humility so we can continue mastering the excellence that people expect from CLI. So we do hope our shareholders and investors are pleased with our results. Our organization has been working very hard in spite of headwinds and we do hope to carry that forward to closing the year very strongly. So thank you again to everyone who tuned in. We appreciate your support. And Grant, how about you?

Well said. I will see you all in our briefing next year, and we'll continue to do well by our shareholders. Thanks, guys.

Thank you very much.