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

Hi, good afternoon, everyone, and welcome to Cebu Landmasters Full Year Investors and Analysts Briefing. [Operator Instructions] The meeting will also be recorded and can be accessed from the company's website at ir.cebulandmasters.com. This afternoon, we will hear [Audio Gap] executives, Mr. Jose Franco Soberano, CLI's Chief Operating Officer; and Mr. Grant Cheng, CLI's Chief Finance officer. Now I will turn you over to our COO, Mr. Jose Franco Soberano to start with the key highlights.

Hello, and good afternoon, everyone. It's our pleasure to be announcing to you our full year 2023 results. And it's really our great pleasure to be announcing not just any results, but great results to you today. It's proudly my 6th year of announcing these results since we went public in 2017, and we had our first full year reporting in 2018. And it's really humbling that we've managed to really show results that exhibit continued growth, and it's always our motivation for our shareholders. So some key highlights that we're showing to you on the screen now is definitely, there is sustained earnings growth momentum. We grew 29% year-on-year on a consolidated net income basis. And while our parent grew a strong 13% to PHP 3.58 billion from the PHP 3.17 billion last year -- in the previous year. Of course, the PHP 3.58 billion parent income is our highest in our history. Two, robust top line growth across all segments, growing 20% of our revenue year-on-year, a surge to PHP 18.8 billion from PHP 15.7 billion in 2022. Of course, I would like to report our outstanding sales performance. Our top line is also growing higher. So we're just very happy that in spite of the higher top line, we're still able to do very good double-digit sales performance. So we grew our sales by 14%, exceeding PHP 20 billion in reservation sales, and we're actually 93% sold out across all stages of development. So a virtual round of applause to our sales team, our partners. So thank you very much. Another highlight that our CFO likes to talk about the last few days is our steady growth in assets, but also us, the small player from Cebu now reaching PHP 102 billion in assets. When we listed on the stock exchange, we were at PHP 5 billion or PHP 7 billion. So it's been a great ride and we can't wait for what's next, and that's what we'll be reporting you today. We've had very good consistency and persistence in our launch of quality projects. We launched PHP 18.7 billion in new projects last year, and these were around 4,249 units that we added to the market. Of course, even as we're building up our assets, our receivables, our contract assets, we're still managing a very healthy land bank of more than 107 hectares, including key urban sites, and these are worth over PHP 9.7 billion. Of course, Grant and I have actually been busy. We've been talking to various investors, shareholders in the last few weeks because of our preferred share issuance. But of course, this is the first time we are showing our full year 2023 results. And I have the best person who will be here to talk about the results of CLI. So may I now introduce our CFO, Grant Cheng, to talk about our financial performance. Take it away, Mr. Cheng.

Yes. Thank you, pareng Franco. So likewise, it is my pleasure and privilege to present our full year 2023 results. So I'll spend a little bit of time going through our profit and loss statement, and then a little bit about our balance sheet. And then I would attempt to contextualize and provide some details about the drivers of our performance. So just on headline basis, our total revenues grew 20% year-on-year from PHP 15.657 billion to PHP 18.82 billion on a consolidated basis. For me, what's really quite noteworthy is that, yes, our core business on sale of real estate, in other words, our saleable projects, our house and lots, our condos, it has grown quite steadily at 20% growth year-on-year. You will note that as we kept saying, our hotel and leasing income will start to ramp up and will start to significantly contribute to our performance and to our operations starting 2023. And, in fact, 2023 is just the beginning of it. You see a growth in our hotel revenues of 66% from PHP 83 million last year to PHP 139 million for 2023, and 42% in the growth of leasing income. So what we're excited to show you is to show you the actual hotels and assets that are contributing to this. And we're happy to say that we've only really just begun wrapping up. These product segments are about to enter into a very strong, very steep growth mode, because these are projects that were under construction in the past several months and are slowly coming to become operational and starting to contribute operational revenues and cash flow as well to CLI as a group. And while we've grown strongly, equally important is that we have grown without sacrificing our business model. In other words, if I can call your attention to our gross profit margin, we have managed to keep our cost of sales relatively within the rate at which we grew our revenues. In fact, there has been slight improvement. Our gross profit margin is at 49% this year versus 47% last year. There's an improvement across our margin impact in our EBITDA margin as well as our net income margin. So our ability to drive growth and to generate value for our shareholders does not come at the expense of sacrificing our business model. At least for us that is a clear blessing in a market where we are in, where demand is consistently strong, where supply is continuously undersupplied. The market is continuously undersupplied. There's always the backlog of housing that we are serving into. So we know that as long as we build and design and stick true to our business model, so far we have been rewarded with very strong market reception. And later, we'll provide some numbers, again, that show you exactly how strong our residential sales are. So moving downwards, you could see that our operating expenses grew pretty much at pace at what we expected. Our profit before tax stands at PHP 6.194 billion and our consolidated net income after tax is PHP 4.64 billion for the CLI Group. And for CLI shareholders -- that is PHP 3.576 billion for CLI shareholders. So for all of you who are holding CLI shares, that means that in 2023, we just generated PHP 1.03 worth of value or of retained earnings to your shares against a weighted average outstanding shares, which really did not change. We did not issue nor did we recall any shares. If you look at where those revenues are coming from, as I mentioned, our other business segments are coming along strongly. But really to focus on the vast majority of our business, which is sale of real estate or our saleable projects. The PHP 18.8 billion, we break down the data in two types. The first is market segment. So you could see that our Casa Mira brand or the yellow slice of the pie continues to be one of the largest driver -- the largest relatively to our revenue contribution. It does show that the market for affordable housing and economic housing -- when we say affordable, that starts at around PHP 2.8 million, that remains to be very strong. We're quite grateful. In fact, we monitor even the regulatory environment closely. So the fact that even the VAT threshold went up to PHP 3.6 million, goes to show that there's a realization that this is the segment where we can make the most impact on the housing backlog that our government keeps talking about. So the recurring income portfolio, the recurring income revenues, you could see it, it's still a thin slice of the pie, but it's thin only because everything else is growing. But we expect to see that, as a percentage, growing, but also, of course, the absolute values as well. Now if you take a look at where the revenues are coming from, it's interesting to note that at Cebu, just like last year, it's 43%, which is no longer the majority. The majority of our revenues are coming from outside Cebu already. Cebu, of course, is still our #1 contributor, but it goes to show that we have started to reap the fruits of geographical diversification which we started. It shows also that we have the sustained established ability to expand our market share in the growth areas or in markets where we just launched our presence 2 to 3 years ago. Now the other thing or the other crucial information that we want to share, our reservation sales. So again, just to provide some background. I can't reiterate this enough. The slides that we've been showing you so far, the numbers we're showing you on our profit and loss as well as revenues are accounting audited numbers. And those accounting numbers, those audited numbers, those revenues, are calculated using certain criteria. Primarily it's the percentage of bookings shown. Meaning, even if I book a condo sale or a house and lot sale, when we presell a project, we do not recognize revenues immediately. We recognize them gradually as we build up the project using a percentage of bookings shown. So what you're seeing on our revenues is essentially the lagging indicator, because those represent revenues from sales contracts we have signed or we have secured years ago. The one in front of your screen right now, reservation sales, this is the actual leading indicator of what our future revenues and our cash flow will be. What they are, what these numbers show is the value or the cumulative value of sales contracts we were able to sign from our buyers in that year. So what you're seeing here is that in 2023, which is once again, our record year. So it's been a record -- I never get tired of saying this, but I said it was a record year in 2020, in 2021, 2022, once again, 2023. We saw PHP 20.56 billion in houses, net of cancellations. So I just want to make this clear, every housing developer, every business, when you receive an order, you're essentially in a pipeline of order. There's some attrition, there is a natural attrition between the time a product is ordered and the time the product is delivered, and that cancellation is something that we monitor very closely. Okay? So the numbers that you're seeing here are already net. That growth number shows you our net sales as of this year. And if you look at where those net sales are coming from, notice that once again it's the Casa Mira brand that's driving our sales. It continues to be our best seller. If you look at the pandemic years, 2020, 2021, they proved to be quite strong, a very strong rebound in mid-market and premium segment last year. And this year, the mid-market still continues to be very strong at 36%. The premium segment also continues to be a significant contributor at 17%. But it goes to show that we actually have quite a well-balanced diversified portfolio that caters to the market need and caters to the opportunity in front of us when we're presented with certain land bank deals. Now if you take a look at where the sales are coming from, they're actually coming from all over Visayas and Mindanao already, but interestingly enough, 41% of our sales last year came from Mindanao. We had very strong sales in Davao, particularly, in Cagayan De Oro. 30% of those sales came from Cebu and 23% came from Visayas ex-Cebu. 7% came from Palawan. All right, next slide, which leads me to my balance sheet. These are numbers in billions. So what we wanted to show here in terms of our -- we highlighted our contract assets and real estate inventories. Because what we wanted to show are the assets that are close or they're closer to monetization. They're high up in the balance sheet. And then you can compare that against our interest-bearing liabilities. And again, I will reiterate, the numbers you are seeing now, which is our balance sheet as of 2023, are audited numbers. And therefore, when you say contract assets and the receivables, they're understated. They are understated because it doesn't reflect all of the future receivables that we are slated to receive from contracts we've already signed, because before we put them on our financial statement, there has to be [indiscernible]. So our total -- I'll elaborate later. We have a couple of slides later that elaborates, that provides more context to [indiscernible]. Our total assets, year ending 2023, stands at PHP 102 billion, with total liabilities of PHP 76 billion and total equity of PHP 26 billion. So there's a slight improvement in our net debt to equity ratio, but as well our return on equity as well as our return on assets remain to be positive. Here, we wanted to show our debt maturity profile and our maturity [indiscernible]. Again, this is just a visual representation of how we manage our debt and our principal maturity. So you could see that we spread out our debt obligations in a way that makes it sustainable for us to service and make sure that we meet these obligations, but at the same time, continue our CapEx. So as always, with a capital-intensive industry like Cebu Landmasters, with anyone building infrastructure like ours, building housing, you have to make sure that you balance your CapEx requirements as well as your debt obligation. Here, we just wanted to show the schedule at which our debt matures, to show that there's not a single year that stands out as a big refinancing risk to us. That if needed, we fully expect that we can reavail certain financing facilities that are available to us in order to embark on new CapEx or should the markets tighten, or should the banking sector tighten up, as we've seen -- we last saw this 17 years ago during the great financial crisis, then we should have the ability to pay this down with internally generated funds. So later I'll get back to you and I'll provide more details underpinning those numbers. But right now, I'd like to pass it back to Franco because, of course, the drivers of these numbers are ultimately our business and what we've done in the real estate products that we're developing and selling. So happy to pass it back for business updates and significant milestones to my partner, Franco.

Yes. Thank you, Grant. Always the most eloquent CFO I know by our side, and thank you for communicating clearly our financial results. I'd like to highlight our business performance. This is what I mentioned that our land bank has grown steadily, while you see the great turnaround in new launches as well. Our new presence here is in General Santos and Butuan. Actually, as of tomorrow, we're going to launch our Butuan project. I heard that this might be another sold-out project in a few weeks, hopefully. And in General Santos, we hope to launch that also in the coming months. And as we announced, we are looking at a first project in Luzon in the very near future with an acquisition in Naga City, Camarines Sur. Next slide. So you can see here that since the pandemic days, we've been spending more CapEx every year. And last year, we spent a total of PHP 12.89 billion. These were mainly concentrated in residential development of 81% in residential development. Also, 1.1% in investment property. This includes our hotel developments, our office developments, retail developments, and 6% in land acquisition. So you can see CLI, as your company, really investing CapEx where value is created. You can see there that we don't let our money sit around. We really reinvest it to create more value for our shareholders and stakeholders. Next slide. I'm glad my team updated our photos of projects here. So thank you, Clarissa and team. We do have a beautiful projects we recently completed. So we see our Casa Mira Bacolod here, some accents looking like the sugar cane. You can see our award-winning Latitude Corporate Center above the office segment. You can see our Base Line complex featuring one of the largest murals in the country with our lyf at Cebu City mural. And you can see a picture there of our Davao Global Township main avenue. And we now comprise a total of 90 residential projects, 6 offices, 10 hotels, 10 mixed-use projects, and 3 estates. So in terms of real estate sales, we were able to report that in our books, in our full year '23 performance, we grew 20% to PHP 18.5 billion, and we are 93% sold out across all stages. And we launched PHP 18.7 billion in new projects. Next slide. This is a slide we like to keep track of, and we show this to you quarterly and look at the confidence this gives me as a Chief Operating Officer or as a leader of a growing organization. When we have projects that are completed and 97% sold, projects that are ongoing at 96% sold, projects that had launched in the last 1 year alone at 63% sold, this really gives us confidence that we are on the right track, that we need to really expand our footprint, not just in the region, but also gave us the confidence to go to Luzon, because we are really specialized in the right segments there. And this really is the one propelling us now to grow our residential portfolio. Next slide. So this is our footprint of completed projects. You can see here, it's spread all over the Visayas and Mindanao region. We don't mention it a lot, but one big source of pride of CLI is our property management operation. We do operate and manage all these completed residential projects. So we have 45 completed. 45 out of 45, we're still managing through our subsidiary. We like to make sure our customers are well protected, they are happy in their CLI-branded developments. We are here to stay. That's always the theme we communicate to our people, "Hey, we are here to stay".

I'll just add, yes, very quickly. And also I'm proud of that. I always mention this because remember that being the property management of our turned over projects is always earned, because the homeowners' associations, the condominium corporations are essentially formed of independent members already who bought us. And so I know if you -- for those of you who follow the real estate industry or are familiar with it, the homeowners' associations will always have a choice if they want to retain or who they want their property manager to be. So I think it speaks volumes to how we build and how we maintain our relationships with our buyers that we're 45 out of 45. It's a project we build. Our homeowners choose us to continue to -- and continue to pays the management fees.

Because, as you know, the best governance of a homebuilder is you have to turn over the project to the residents, which we do. And in spite of the turnover, the residents, they value our presence there. It's never a perfect operation, but I think we always adjust and improve and that's why we're still there. So next slide, please. Thank you, Grant. So construction in progress is where we are very excited about this year, because we're delivering so many units, and that means I'm providing a lot of cash flow to Mr. Cheng and his team. So we have several projects completing this year, including One Astra Place, Casa Mira Homes Dumaguete. These are actual photos, by the way. Casa Mira Ormoc. Velmiro Heights CDO in the PIN code area in Agusan, very beautiful project, and One Paragon Place. You can see the sold out status there, 100% sold, and 90-plus for most. So our job is to deliver this on time with the highest quality, and then we turn around other projects. You can see here, with a high inflationary environment, even with a higher interest rate environment last year, look at how we've kept our sales at 96%. Next slide. So this is our new launches. As I said, these are in the last 6 to 12 months. And among many milestones, so you have Casa Mira Homes Davao. We sold 85% in 3 weeks. It's now 95% sold. Mindara promptly sold out PHP 2.5 billion in less than a week. This is in our LPU Town Davao. Mirani Steps Danao was our way of innovating. We created walk-up type units near emerging urban centers or cities like the Danao. Casa Mira Palawan, though it's part of Luzon, we feel like it's the same latitude as VisMin, but amazingly, 62% sold, our Tower 4. And we have Casa Mira Towers Bacolod, Panglao, all at healthy sales levels in this part of the region. Next slide. So quickly about our growing recurring income portfolio and our investment property portfolio. You can see some positive results here. 42% growth in revenue from leasing. And we do have over 35,000 in leasable area, and we're seeing this grow to 110,000 in the next 5 years. Next slide. So you can see here a steady growth of our leasing portfolio, and we're very selective when it comes to our tenants. We are very supportive as a landlord, as a developer. I do feel very excited about the growth of this portfolio and the increased contribution of this business to our books. We know that post IPO, I would say, this was a strong program for us. We needed to grow our recurring income portfolio. And we are now seeing this come online. Next slide. You can see some of our new tenants here with drive-throughs in our Davao township. In our co-living dorm, 70% leased. Our new wing of our Base Line Center Mall. Our high-end development, 38 Park Avenue has fully leased out its prime retail spaces. So most of our retail spaces are in the podium levels of our residential projects and mixed-use projects. Next slide. Of course, another very important product is our growing hospitality portfolio. We have completed 180 rooms and our revenue growth is 66% last year. Of course, in the last few months, we did open two more hotels with lyf Cebu City and we opened as well The Pad in Cebu City. Next slide. So as of today, our hotel portfolio is at 797 rooms here -- sorry, it's 338 with City Cebu lyf and The Pad, just to make sure, and it will grow to 797 keys operating this year. So it gives the actual photos of our projects. I'm actually flying to Bacolod tomorrow to test out our new hotel there. We're on a trial period. We do hope there are some people swinging in from Bacolod. It's your best looking hotel by side, and it's even better looking in the interior of the property. So I'll be seeing you there. And you can see our other projects under development, the very high-end Abaca Resort Mactan, Sofitel, including other quality brands like Mercure Cebu, Citadines Davao, and Radisson Red in Astra Cebu, all opening soon as well. Next slide. You can see here, we opened 78 rooms of The Pad, our very first co-living brand, doing very well actually, because it's located very prominently in Banilad. And you have the lyf Cebu City that opened 80 rooms. We had a very nice opening ceremony last December. So moving now to our mixed-use and township projects. Yes, we are now capitalizing or creating value out of these townships. Next slide, please. Thank you again to Clarissa and team for showing these nice photos. We sometimes forget to showcase. So this is how beautiful the township is. Our first major township. No stone was left unturned. All the highest specifications, green initiatives here. So we now are developing our first retail concepts here. Some drive-throughs are being constructed now, like Seattle's Best and McDonald's. And we've had so many events here from car shows to bazaars, Christmas concerts because of the well planned and developed township here. Please do drop by here in Davao. Next slide. And moving on to significant milestones before I ask Grant to close our full year report. We're very honored that the market continues to embrace us and it's reflected in our market leadership with 22.8% of the market done independently by Colliers. Thank you for that. Our shareholders and customers, thank you. And of course, our team. Next slide. This is a very special milestone for the company and a very special event for our ExCo now, which comprises our CEO, Joe (myself), Grant. For us to be selected by NTTUD Asia as their entry point into the Philippines. It's a big honor. They chose Cebu over the various opportunities in Manila. I really feel they chose CLI, our good governance, track record and culture. And NTTUD, of course, is a subsidiary of NTT Telecom, the third largest company by this market capitalization in Japan. This is how big our partner is. And their real estate arm, NTTUD, is present in the U.S., U.K., Australia. But in Southeast Asia, they're only in two countries, Vietnam and the Philippines. And in the Philippines, they are only in Cebu with Cebu Landmasters. So we're in the process now of developing our first two residential towers in the heart of Cebu IT Park. You can see here our whole management team was with the management team of NTTUD, with our CEO, who visited us a few months ago. So we're very honored. I'm not sure if they're also listening to the report, but arigatou gozaimasu, again, for the NTTUD Asia team. We're really excited to be working with you. Next slide. So this is our -- of course, last year was us celebrating 20 years of Masterful Development, but I would say 20 years of us just really working hard and everything else followed. So from one subdivision to 119 projects in 2023. From 2 employees to 900 strong CLI employees. And from what I would assume 0% market share to 23%, Mr. Cheng. So we're very honored. Thank you very much on behalf of our 900-strong team. Next slide. And growing shareholder value. Grant, do you want to take this? Or do you want me to take this?

Yes, go ahead, go ahead. I'll contextualize it. I'll add to this.

So I do core part of our Investor Relations team, providing back up to Grant's team, but we're very proud that we declared, just 2 days ago, a regular cash dividend of PHP 0.15 per share and a special cash dividend of PHP 0.03 per share, so combined PHP 0.18 per share that we declared. But you can see here [Foreign Language] what our real value is. I do feel we're still undervalued in the market, but we've had now 7 years of consistent results, 7 years of creating great shareholder value. You can see our book value per share as of last year is PHP 4.75 and our stock price is PHP 2.85. The number speaks for itself, our performance speaks for itself, and we do hope our analysts here can continue to talk about CLI and the growth we've had, the consistency we've had, and the potential we have. So you can see here our results. Our market capitalization is at PHP 9.88 billion, but we do have assets over PHP 102 billion and, I guess, approaching PHP 30 billion in equity. Price to book of 0.60x. Price earnings of 2.77x. Grant, anything you want to emphasize?

The one thing I do want to emphasize is the dividend that we paid in cash, and we paid it consistently every year. It's a direct result of our business model, meaning that because most of our projects are saleable projects, right, we base our decisions on the dividends based on the collections that we have had in the past years. One way to think about how a company like CLI or how the mentality of the executives and the Board when we declare a dividend is we actually look at the complete cash cycle of our projects. And once a project is closed out, meaning a project -- if you recall, the rate at which we're selling out our residential -- imagine one of our resident buildings, it's already 100% sold out. Then it's only right that we give dividends or we start returning that to our shareholders based on that completed building, and the decision to capitalize and to have CapEx for another building is a separate independent decision when we raise capital or when we start putting together capital. Now of course, the way we do it is we also look at our retained earnings and collections in order to build up the capital that we need for the next round of CapEx. But really, these dividends represent a fraction of the net collections we have had from projects that we launched several years ago. So it's useful to think about the cash conversion cycle and the way our business model is put together, because given that it's majority sales in condominiums and house and lots, that is the source of which we're declaring.

Yes. And we're looking at this year as a better year. So we will continue to maintain with you, our shareholders, analysts, on the progress we have this year, but we do feel that this is a reason to celebrate also our 2023 year. But to never rest on our laurels. I mean that's our attitude always. So congratulations to our shareholders for this as well. So this is a segue to Grant's 2024 outlook. So hope you were able to appreciate our updates and significant milestones. So thanks again, and Grant, please go ahead.

Thank you. So 2024 is going to be more of the same things that has worked for us, and that has delivered a lot of value to our shareholders and to our stakeholders. That means everyone that believes in CLI, everyone that's involved in CLI, from our shareholders, to our banks, to our suppliers, contractors, our buyers, our employees, our business partners and JV partners. We will continue to launch projects. We're looking at PHP 27.6 billion in project launches, environment permitting, meaning as long as our regulators and our government agencies as well as all the other prerequisites that come for launch of project come on time, and we will allocate PHP 14.5 billion capital expenditure, mostly for project development, note it's 83%, and then the rest for land acquisition. Meaning that the bulk majority of the capital we are raising, whether debt or equity, or from retained earnings from previous projects, really goes into ongoing projects. So again, the message here is, we're not deviating from our business model. We know what works for us, we know what we're good at, and we're going to put our capital there to make it grow. Our leasing portfolio is going to grow to 48,590 square meters additional GLA from new properties being opened up and new leases being signed up. So as Franco mentioned, we've got large national names like Dean & Deluca, McDonald's, Seattle's Best already becoming our tenants. And we're relatively new at this, but we look forward to be a much more well-rounded developer, where these developments, these recurring income assets, whether it's leasing or hospitality, will be able to provide a lot of synergy and a lot of mutual value to each other. And of course, the other pillar of our recurring income is hospitality. So this will go up to 459 keys with 3 hospitality projects, so one in Cebu, one in Bacolod -- sorry, two in Cebu and one in Bacolod. And this brings the number of operating hotels to 4, and we have 6 more in the pipeline. So you could see that we're heavily committed to the hospitality sector, we are a big believer in it, and it will come to fruition. This is a key number that we are highlighting. I do believe this is the first time we're going to share this with the public, but just to provide some context. The PHP 13 billion is the amount of receivables or the amount of collections we are scheduled to get in the next 12 to 15 months, I would say, from completed projects with signed sales contracts, okay? So not to get too much into the weeds or details of it, but these are really the collectibles from those finished housing units that we are about to deliver that has been reserved and sold with a signed contract to sell to buyers. And with all of this being said, you can continue to expect a continued growth in our financial performance in 2024. And so how do we achieve that? These are our pipeline projects. So Franco was saying that we look forward -- we're going to launch Butuan before Holy Week. If market response is any indication, this is like the ERAS Tour Butuan style, sorry for the exaggeration, but it's true. We do get a very strong market reception whenever we go to new regions, new cities when we launch our Casa Mira project. But aside from that, there are a couple more -- or many more projects all over Visayas and Mindanao. So in Cebu, in Cagayan De Oro, in Davao, right? We're so excited with these projects. The Manresa condominium in the township we are collaborating.

I believe this is one of the first times we're showing this perspective, but it's just a little preview. It's mimicking the mountains of a green, of a respectful environment. And then you have the West Village in Davao Global Township, more premium design there. So you can see us evolving in our offerings and it makes me...

I think what's notable, you could see that a lot of our project launches are Phase 2 or Phase 4, Tower 5. And the reason why these are -- again, it's building on successful business models for them. So let's say, we've had a handful of successful projects in Cagayan De Oro, it makes sense for us to build on that growth and to replicate what has worked for us. And now, actually, this is also something that we're showing. You remember earlier on when I showed you our balance sheet and our profit and loss statement, we were showing contract assets and receivables of about PHP 47 billion. And I said that was understated, because those numbers are completed on a percentage of completion basis. But what we wanted to show to the public, if you just counted the peso value, the remaining peso value that we can collect from our sales contract as of today, what would that number be? Okay. At the end for 2023, it is PHP 77.7 billion. So again, I want to reiterate, these are not projections and these are not estimates. This is the calculated aggregate value of our sales contracts that we have yet to collect from our buyers. In other words, this is our order book. We build it, then we will collect this. This year, we have completed several projects that will allow us to collect over PHP 13.6 billion in collectibles. Now it may not all happen in calendar year 2024, as some of the buyers may be taking their time, may be abroad, or some of the units may take a little bit more time to finish. But all it goes to show is that this is our actual pipeline of receivables. And there's still so much more upside with unsold units. And if you recall, the rate at which we're selling out. So now we have over 117 projects. But of those 117 projects, 91 are saleable residential projects. Now most of them are sold out. But the 1, 2, 3, the handful of units left per project, those could still be a source of liquidity for us as we do essentially RFO sales or ready for occupancy types of sales. Next slide, please. Now most of you might be aware that we're already launching or we are now in the public offer period of our preferred shares. This is our maiden preferred shares. We plan to raise as much as PHP 5 billion, but that's maximum really. We've already raised what we needed from this issue 1. The PHP 5 billion is the maximum depending on what the market risk is, how many more buyers might want to come in, but we already got what we needed when we launched this offer. So I did want to thank our partners, our underwriters, our issue managers here. And if you feel that the numbers that you see here today are attractive, we do believe that CLI is offering right now quite a compelling investment instrument for your consideration. But it is something that we can tell you that the funds that we are raising here will go to essentially building the projects that you saw in the pipeline. Mr. Cris Larano, I see you're raising your hand. Maybe I'll acknowledge that later during our Q&A. But on that note, I would like to reiterate that for anyone of you, if you have questions, I encourage you to put it in a Q&A box. We actually look forward to the this interactive portion of our analyst briefing, and we'll tackle them one by one. But then, just for good order, may I encourage you to please type down your question, so that we could see it and then go through it one by one when we get there. Now all of this, so our development and our growth, we try not to forget that we have an underlying responsibility not only to our shareholders to drive economic value and create value for them, but also on other metrics, on the environment, on our society, as well as good corporate governance or ESG. And I invite you to look at our annual report on our website. We're about to come out with our full year 2023 annual report with sustainability reports in the next couple of weeks. And the numbers we are showing you, we'll upload the finalized signed audited financial statements as and when they become available from our auditors, and they'll be available on our Investor Relations website. So thank you very much to all our participants. I appreciate your time. We appreciate your time in following and keeping interest in CLI. So now we look forward to answering and engaging you with some of the questions that we might have in the queue.

So I see 3 in the queue. Clar, could you facilitate that around?

For the first question, this is from Michael Hilado. I think this is for you, Sir Franco. What challenges did the company experience in 2023?

What challenges? Well, in real estate, there are challenges daily. But I guess, what makes the developer great is the organization, is the organization systems, culture. And I'm just glad that in CLI, we have not been complacent there. We've invested in people. We've invested in process improvements. We've invested in professionalism. And that's why these challenges, though they come daily, are addressed. I think that's sometimes what is not highlighted more. But I would say, of course, challenges were common across all players, like higher interest rates. So you can see in our books that interest rates are -- our interest expense grew, because obviously from 4% it now being 7% to 8%. But the good thing about what we do, we're in a real estate selling business, and we're able to manage our margins by also adjusting prices of our units higher or controlling costs. And that's why you see us still performing at 50% gross profit, which reflects in our results. So I would say, in spite of that, growing sales 20%, growing net income double digit is a reflection of how we've managed to overcome the challenges. But I would say, in terms of lacking labor in the VisMin, I would say none. No issues for us, maybe because we're a good payer and good developer. We've never encountered issues. It's more of contractors and suppliers lining up to us wanting our business. In terms of the pandemic-related delays, that's already resolved in 2022. So we've managed to catch up aggressively last year. So I would say, the challenge now is really looking forward to 2024, maintaining a good trajectory in spite of our higher top line. But still, how do we overcome this, organization or people, I believe some are tuning in, continuous improvement in processes, championing digitalization. We are strengthening that part and still being very transparent to the market. That's why I believe our preferred share issuance is getting very warm reception, because we see our sincerity in reinvesting this to create good value. So that's a short answer. I might continue my answer for the next 10 minutes. So that's it, Clar.

Thank you, Sir Franco. For the next question, this is for Sir Grant, funding related. Do you utilize CBS facility? And maybe we could also answer, why did we choose preferred shares?

Yes. Actually, the answer to both, maybe not surprisingly, is kind of in the same vein. Yes, we do use CBS financing facilities. So that answers that question, because they're among several diversified funding sources that we have at our disposal. So obviously, in a business model like ours, we have several valuable assets that we could use in order to generate or in order to source fund. So whether it's a project development loan by [ Land Bank of the Philippines ], whether it's CBS financing, we also tapped the capital markets when we did the IPO, when we did our retail bond 1.5 years ago, and now we're doing preferred shares. We also did private debt and corporate notes. So these are all just, for us, diversified content sources. And having a broad and a diversified funding source allows us -- or its prudent risk management, so that we are not completely dependent on one source of fund and exposes us to refinancing risk, liquidity risk, and any other such financial risk, because we need patient capital. We need capital that will stick with us for, let's say, a housing project, at least 5 years. Capital that will not demand its money banks for 12 years, let's say, for our hotel projects. So you have to mix and match, and you have to find the characteristics of capital that matches your business model and your cash conversion cycle. Now why did we choose preferred shares? Preferred shares are a hybrid, I would say, between equity and debt. And it's that kind of hybrid properties that we thought could work very well in our capital structure, in our balance sheet. So it does give us another funding source off of the capital markets. We have an opportunity to do so. So against a backdrop of an annual CapEx of over PHP 14 billion at this point, really, the amount we're raising, that's good for 4 years and 7 years, at least from its noncallability part, it's really a fraction of what we will need going forward. But again, it does demonstrate for us, and it allows us to establish, having opened these doors, we can come back to tap it. We know how to tap it. There's some familiarity in us, not only in us in terms of executing this transaction, but also in allowing us to a familiar name, a familiar issuer to institutional and retail investors who might be interested in this type of business. So again, these are all different funding sources, and that has its own characteristics and its own profile and its own investor base and risk appetite. And that's why we're going for these types of instruments. Hope that answers your question.

Thank you for that, Sir Grant. Actually, I've also received questions from the chat, sir. If you can discuss more about the preferred shares, the use of proceeds?

Okay. The use of proceeds of our preferred shares are listed in detail in our prospectus. But I could tell you that we outlined these proceeds. They're going to go to, for example, the project that we're launching in Butuan this week, Casa Mira Homes in Butuan. We are allocating a good amount from this preferred shares to Mirani Steps that's in Danao in Northern Cebu. That's a project that we launched and we significantly sold out. And we're also going to allocate a good amount, over PHP 700 million, to Velmiro Heights in Consolacion, that's also in North Cebu and that one is substantially sold out. So again, these are projects where our customer base, the market has responded to very positively. So it is really the most, in a way, a boring answer I could give you. What are you going to use the proceeds for? To build houses. In fact, houses that we already sold. So that is the main reason.

Thank you for that Sir Grant. For the next question, this is for Sir Franco from Cris Larano. Could you give us more details on the Luzon project and which other Luzon locations are you planning?

Yes. Yes, thank you, Cris, and I saw you raising your hand also virtually earlier. For Luzon, we cannot fully disclose yet cause we are still finalizing certain sites, but more certain one is our project in Naga City in Camarines Sur. We do hope to develop an initial 2,000 houses there. We feel that Naga City provides very good value for money. We grew by looking at value for money. So projects that have very good cost benefit type of offerings, so that we can offer a very affordable price, but give them good price appreciation, amenities, good finishing. And we saw that, that market, it will be refreshing for Luzon market to have our kind of economic housing there. We're also looking at sites in Laguna, Cavite, even Metro Manila. We have been scouting for the last few months to be quite exact. And definitely, by the first quarterly briefing of the year, 2024, that will be towards the end of April, we will do get back to you guys on more information about our Luzon expansion.

Thank you for that sir. We have another question here from Rastine Mercado, our friend from China Bank. So he noticed that our GPM for the fourth quarter 2023 remains around 50%. And then this was actually sustained quarter-on-quarter. What's driving this? And is this something that you're poised to sustain, that 50%?

Yes. I'll take this one. In fact, it's connected to an earlier question, like what were the challenges of CLI in the business. One challenge was that our margins were under pressure from booming sources. One is the increased cost of capital, which is essentially increased cost of debt. And the other one is the increased input costs of steel and cement, with the inflationary measures, especially the Philippines being in an imported inflation environment. But I think what we were able to do to respond to this is you need to have very dynamic and agile pricing strategies, meaning that while we don't adjust our prices as fast, nor as frequently, let's say, department stores or gas station or restaurants. We do have a very deliberate strategy, and we have a very strong internal analysis and internal process by which when we see halfway through our project -- or not just halfway, but every month, when we review our project's financials, we actually have a project budget monitoring system on a per project basis that gives us visibility on the trajectory of both the cost and the GPM. So we already have a good sense what we might need to do for a project in order to put a GPM even before we finish a project. Of course, when a project is finished, it's too late to do anything on the cost side. And especially if it's fully sold, it's too late to do anything on the revenue side. You're locked in essentially. And in fact, the worse is you could be at the mercy of price fluctuation, of course, while you're locking revenues. But what we've been able to do is have this dynamic process where we look at which projects are threatening or to exceed their budget, on what area or another. And we've been able to respond with more resolute price and product adjustments over the course of time that the market gets absorbed. But it's not just increasing prices, it's also about being able to proactively do value engineering and look at where cost savings might be driven for future expenditures of the project. So there are some tough decisions that may need to be made, but there are very less decisions that need to be made if you're going to choose how to protect your margin. So that's just -- I know it's a broad answer, but without getting into too much details about our process, it really is the work that the team just puts in to monitor every project and every single product using our system.

So I'll answer the next 2. Yes. For leasing and hotels, our occupancy rate is trending. I believe we mirror the industry. Hospitality occupancy is growing strong in the 70-plus percent. Well, our retail and offices are trending close to 70 -- high 70% to 80% now, depending on the project. I do believe that we're still in that environment where work from home or face-to-face, but the good thing is you've seen occupancy improving in 2023 versus 2022. I guess this is where CLI is a bit, I'll use the word, inelastic. It's not yet our big contributor, office market. But the good thing is, our new inventory is coming online in the coming months when the market is recovering. And I think that will fare well for our results. And you have target guidance on reservation sales. So I don't think we have a firm number, but of course, we're looking at a double-digit growth in reservation sales. You saw we have PHP 27 billion of new launches, plus sales from existing projects. I am quite confident. I'll throw the challenge to my sales team with Ms. Rose Yulo and her team, and we're confident always with that team.

Thank you, sir. I think this next question can really help with our sales for this year. So last January 1, 2024, BIR has adjusted the VAT exempt threshold for real estate from PHP 3.199 million to PHP 3.6 million. Can the market expect a lot of upside from this development? And can you provide the percentage increase in the GPM [indiscernible]?

Well, I would say even economic housing now, yes. So everything below PHP 3.6 million now or in the PHP 2 million to PHP 3 million range is economic. Modesty aside, VAT threshold or not, I feel our products will be saleable. I believe we're going to do our best to price within the VAT. But even if it's VATable, we'll make sure that we are very innovative with our down payment schemes, timing, such that the buyers will be able to prepare not for their home ownership. So definitely, it's a very good move by our government, because it really gives breathing room to our buyers, especially in the economic segment. But still VAT or no VAT, you still see that housing supply in our -- I think as a country where we launched 100,000 to 200,000 units versus a backlog that's at 7 million to 8 million. So I think VAT or no VAT, there is still a big lack of supply and every buyers are smart to choose good developers that are reliable, that have a good track record. And that's what we're targeting.

I'll add to that also, because it's I think the question about the VAT and it's threshold, and its impact on our results.

Results, yes, go ahead. Yes.

I think the impact is not so much because remember that if -- just to be a little technical here, but I do believe the question deserves the detail. If a sale is VAT exempt, right, then okay, we don't charge VAT. There's no VAT for us to set that we will remit to the BIR. But it also means that the cost that we are spending in order to build that product, so in this case, acquiring the land, buying the steel and the cement, all the furnitures and fixtures, the painting, architectural finishes, the door knobs, through the tiles, all of the VAT from the costs going into that product are also non-claimable. And therefore, this is what we call a disallowed input aspect. So firstly, you don't necessarily get to keep the whole thing, but you apply your margins to it. Second, this is only effective January 1, so comparatively that was the effectivity date on implementing rules and regulations, which means that all of the reservation sales that you have seen so far in 2023 are not affected by this. In fact, all our sales made prior to January 1, 2024, are still under the PHP 3.199 million scheme. So you might see some impact of this going forward starting in probably 2025, 2026 from residential sales we are making today. And then when you start having POC or percentage of completion and collection threshold criteria being met on these 2024 sales, then you might see some of the positive upside from these sales that have newly qualified for VAT exemption. But then once you factor in that, okay, you're going to get extra revenues, but then you're also going to get extra costs because you no longer are able to claim the input, and it's only going up for short. The marginal difference is how many houses for us are we selling between PHP 3.2 million and PHP 3.6 million [Foreign Language]. Above PHP 3.6 million, the whole time it was always VATable. So that marginal difference plus increase in the cost, it's not for all the products. I don't expect it to be a very big difference, but a different nonetheless, and a positive difference.

Clar, because it's our full year 2023, we're very happy that there are a lot of questions and we're very happy to continue addressing the questions. Go ahead.

Another question here, sir, is given -- how would the revenue mix be in the next 3 years? And what other segments of the real estate market are you looking at?

Yes. Thank you for that. So as we reported, we'll be over 100,000 square meters in net leasable area in the next 3 years. So we do hope that our recurring -- and in the next 3 years, we'll have most -- no, we'll have the 1,700 hotel rooms online. So we do hope that at least 5% of our recurring income will be finally contributing to top line revenue more, but at least 5%, is that correct, Clar? And that's really healthy with cash flow that will be coming in the business. Now why 5%? Because our real estate sales are just so dynamic, so robust. And we hope that will continue. And eventually, we feel that on a longer term, around the medium term, that recurring income will go above 10%, is the goal. What other segments of real estate market are you looking at? Well, the big segment is the biggest island Luzon. I feel that's a new territory for us. It's going to be a big investment and focus of the company. So we're very excited about that. And to create our presence there would be a big segment. But in terms of industrial warehousing, we're not looking at that. We look at that as lower yield. So we're not so excited about that. So it's really continuing our residential, office, hospitality, mixed-use, and townships offerings. So maybe we're looking at another big township in the near future as well.

This one is for Sir Grant from [ Erwin Miranda ]. What would you say are the three contributors why CLI can [indiscernible] it's real estate competitively while still achieving more almost 50% GPM and all good net income margins and EBITDA?

Well, compared to other developers, well, for one, land is cheaper. So that's already an inherent advantage. And so because a big portion of your cost -- you already have that advantage here, then that's, for me, really one of our biggest contributors that how we are able to maintain gross profit margins. At the same time, by starting to scale up our operations, we're starting to see booming economies in Visayas and Mindanao, Cebu and Davao, we're starting to see the real estate economy start to have critical mass and critical scale, vertically strong. I'm talking about cement factories putting up their infrastructure in and around the Cebu province. I'm talking about steel mills starting to come up in Carmen, right? I believe there's a new steel mill there. So once you have critical mass and you have a certain size, then it feeds on itself and there's a certain momentum by which you can keep your prices down. Now of course, we ride the wave and we try to make sure that we execute our business model while conditions are favorable like this. But that's our main driver there.

Thank you, sir. Maybe one last question before we end. So they're very interested on the selection process of NTT, how the [indiscernible] NTT came about?

Yes, I probably can talk about I believe what is publicly disclosed already with a little more flavor to it. But NTT has actually been looking at the Philippines for the last 10 years, because they look at it globally. They do have a lot of trophy or prime assets, grade A assets in New York, Boston. They do have in Houston as well, somewhere in Texas, Australia. Please look them up and check out there. But I believe it's also them looking for the right partner. As you know, CLI has a lot of very successful joint ventures and that is one track record that is hard to find. I mean, we have successfully completed several joint ventures and given a good return to landowner partners. It's always very special. So they were doing further due diligence, looking at -- but I really was very impressed with their process, very thorough, very meticulous, and it's probably -- it's less than 2-year review process. And I'm just happy that they're here investing not just in CLI or Cebu, but the Philippines. It's for an investment that will help our country and help generate labor. But of course, we're happy they chose CLI. Thank you for that question.

I think that's it. If they have any more questions, they can always reach out to us and email maybe to ir.cebulandmasters.com. Thank you.

Okay. So once again, to our analysts here, to our shareholders, to our supporters, we'd like to thank you for tuning in. It's really our honor to be reporting good news to you. We hope to see you in a few months. Grant and I and Chairman, Joe Soberano, plan to be in Manila for our next briefing. So we hope to see you there. And Grant will pay the bill after the briefing. So congratulations to my team at Cebu Landmasters. Thank you very much and have a prayerful full week ahead. So thank you very everyone.

Thanks everyone, guys.