D.M. Wenceslao & Associates, Incorporated (DMW) Earnings Call Transcript & Summary

Good afternoon, everyone. Thank you all for joining us today. And for those on the line, thank you for joining the call. The press release has been issued this morning and the corresponding presentation slides have been uploaded on our website under Investor Relations and Presentations. So with me today is Buds Wenceslao, to my left, is our CEO; and to my right is our CFO, Heherson Asiddao. What will happen is I'll present, first, operating and -- points of focus, and development pipeline will be tackled by our CEO and the operating and financial highlights by our CFO. If you have any questions, we'll open the floor to questions after the presentation. Okay. So on Slide 3, you know that we always like to start the presentation by presenting the total land holdings inside of Aseana, so we're all on the same page. So this is the most recent data as of today, and I'd like to summarize everything that has happened over the year. So throughout 2019, although the last presentation that we did in October is the same as this as updated, but I'd like to point the total land holdings is 569,359. The movement during the year is a total 6,918 and this is already net of what we have disclosed back October of the total land holdings of 2,202 square meters. So on the middle chart is the land used and allocated for development. The movement from this is Pixel Residences. We've shared with you that we started the handover of the Pixel Residences starting October of last year. So that from previously tagged as pipeline projects, it has moved to completed properties, which has increased the landholdings by 1,761 from pipeline to now completed properties. And land leased is a total of 158,079 square meters from 155,418 last year. So last October, we've shared with you some land leases that we have entered into that includes Caltex, 7-Eleven and 10K. And some movement here is that a portion of 10K has expired in December. So this is net of everything that has been transacted in 2019. So that the total is 158,079. Land allocated for pipeline projects. So I've mentioned that from pipeline projects, we have moved Pixel Residences to completed properties, so this has declined to 55,008 square meters. And then we still have roads and right-of-way of 14,000. So that brings us to remaining land reserves of 303,836 and that is from 313,415 square meters. So just a recap of our strategy. We've shared before that we have allocated 10,000 square meters for future sales. And again, we have done the land sale last year of 2,202 square meters. So that brings us to 7,798 square meters in less than 5 years for land sale. And then land allocated for future leases of a total of 20,103 square meters and unallocated land of 275,935 square meters. On Page 4, what we have previously shown on Page 3, so this is a summation of the valuation of properties inside of Aseana City. I'd like to give the breakdown for the details of each. Okay. Total land holdings of 569,359 is translated to a valuation of all the completed pipeline properties, remaining land reserves and land currently leased to a total of PHP 209 billion -- or PHP 210 billion, and this is up from -- up 30% from the valuation last year. So the composition is, if you want a breakdown of the completed properties, this is condensed in this chart. So that's -- the completed properties is a total leasable and saleable floor area of 98,000. So this already includes Pixel Residences, which we have classified now as completed from previously pipeline. So the valuation of all the completed properties is PHP 19 billion, so that's [indiscernible] with this, so that's PHP 19 billion. And then pipeline properties, this is valued on an as is, where is basis, is a total of 402,000 square meters. So we will be building 402,000 square meters from hereon. This has been recalibrated from the previous design. So for those following us closely, you'll see that Aseana Five and Six -- formerly Aseana Five and Six from 120,000 to now 155,000 square meters. So that the total valuation of all the pipeline properties is PHP 21 billion. So that's also there as pipeline properties of PHP 21 billion. So again, to summarize. Total valuation inside of Aseana is a total of PHP 210 billion. Now if we were to translate this on a valuation for the land reserves, total land reserves of the holding is 303,836 square meters. So that is valued at 111 -- or PHP 112 billion and this will translate to a per-square meter valuation of PHP 368,507. So that if we include -- just again land currently leased and land remaining reserves because land leases go back to us after the term, so essentially that is still land. If we combine the land leased and land reserves, that's a total of PHP 170 billion, and that will translate to a per-square meter of PHP 365,704. All the valuation was done by Colliers and using different methods that was determined to value each property as deemed appropriate by Colliers, so the details of which we can share with you if you have any questions regarding the valuation. So I've shared with you the land transaction that we did. So a quick recap, this is parcel of land for 2,202 square meters with a total transaction price of PHP 935 million and per-square pricing of 425 square meters -- PHP 425,000 per square meter. I'd like to show you again the movement or the rapid increases in land valuation in Aseana City. So PHP 31,500 was the retained land value back in 2006. So from 2006 to the last land transacted of PHP 425,000, that's an annual growth of 21% per year from 2006. And then from 2008, it's 17%. Why 2008, that was our first year to sell land in Aseana, so that's 17%. And from 2015, when the prices really have gone up more recently is from PHP 125,000 to PHP 425,000, that's an annual growth of 36%. So all the land sale transactions since 2015 is provided on the right-hand chart. I'd like to discuss a few points on the macro fundamentals. On Page 7, as of end -- this is for office on Slide 7. End 2019, this is a study done by Colliers, there's a total land -- total office inventory of almost 12 million square meters in Metro Manila for office inventory. So that by 2022, the forecast is nearly 15 million square meters. So that's roughly 3 million over that 3 years. And Manila Bay or the Bay Area will comprise 20% and Ortigas 20%. So those markets will provide the largest supply for the Metro Manila -- the entire Metro Manila office space. So that's roughly 600,000 for each of the market. You see on the right-hand chart, so that's Bay Area and Ortigas. So that by end of 2022, there will be an increase of 78% in terms of inventory compared to the base of this stock at roughly 800,000 in the Manila Bay. In terms of demand. What we have seen over the years, from 2015 to 2019, on the demand on the left chart, you'd see that there are diversified [indiscernible], which includes the KPOs -- equally the BPOs and KPOs, POGOs and others. Others, being the more traditional ones. In a span of 3 years, the POGOs have really taken up space and become the top driver of office demand in Metro Manila. But also other segments are growing, like others, which are more traditional, and we're also seeing that this year. Although the BPOs have been consistent, but not growing as fast as they did in the last 15 years since 2000. But this -- because of the diversified demand, any softness in any one of the sectors is foreseen as being taken up by the other segments that are growing, especially the traditional offices in Metro Manila, such that, that will support vacancy rate to be manageable at 6% and to have a continued growth rate in lease rates. So that there is an annual rent growth average of 5.6% to roughly PHP 1,200 per square meter by the end of 2022, and that the annual vacancy rate would be at 5.5%. This is, again, one of the lowest in Asia, also one of the lowest in terms of lease rates. You'll see there that the transacted lease rate would range in Makati from PHP 1,000 to PHP 1,860, that's Grade A and premium; and then Fort Bonifacio of PHP 900 to PHP 1,500; and Manila Bay, PHP 800 to PHP 1,400. These are more conservative estimates, which are by Colliers. And you see that other estimates, the likes of Leechiu, would have ranges of PHP 1,300 to PHP 1,500 for Makati Grade A and for Manila Bay of as much as PHP 1,600. The other CBDs, the likes of Quezon City, Alabang and Ortigas, would still have a range of PHP 700 to PHP 850 per square meter. So this slide on Page 8 is for residential. Again, what positions us best is residential and office. You'd see that because of the developable land available in the Manila Bay area, Bay Area will comprise 68% of new supply from 2020 to 2022, again, this is a study done by Colliers, such that there will be an end supply of 41,730 units of condominium space by end 2022. So this Manila Bay area will be bigger than Makati in terms of residential area. So the additional units of 19,300, again, represents roughly 70% of total additional units for those years and that will be coming from Manila Bay. In terms of take-up, Manila Bay has consistently been on the high side, which would have the more comparable or attractive number of units taken up on a monthly basis compared to the other CBDs of Makati, Fort Bonifacio, Ortigas and Alabang. So this translates to strong growth in terms of average residential prices on the right chart. So we'll move on to development pipeline and this will be discussed by Buds, our CEO.

So basically, these are the 4 major projects that we're undertaking right now. So Aseana Plaza is now roughly 150,000 square meters. So if you remember the whole prospectus of [ these 3 ] Aseana Five and Six, [indiscernible] [ 150,000 ] square meters [indiscernible] breaking down this year, we're still [indiscernible] right now. Parqal, which is our low-rise, retail, commercial, public space development. This is also currently under construction right now. This is roughly 75,000 -- 70,000 square meters of GFA. MidPark Towers. I'm pretty sure you've heard this is the project we relaunched last year. So that's roughly 669 units, 405,000 square meters. We actually did our first concrete work earlier in the week. 8912 Asean Ave. This is roughly 70,000 square meters. This is under construction and scheduled to come online latter part of this year into early part of next year. So just to show you these developments. This is Parqal, this is 8912, Aseana Three, MidPark, Aseana Five and Six and -- yes. So right now also this is Pixel Towers, which we --- Pixel Residences, which we turn over latter part of this year. This is also -- where we also lease out office space. This is actually our small-rise development in Jupiter street, so this is roughly 4,000 square meters.

Good afternoon. So this is the results of operations of the group for the year ended 2019 versus 2018. In terms of our top line, we were able to grow the company by 63%, that's from PHP 2.152 billion in 2018, up to about PHP 3.513 billion in 2019. The significant change is a change brought about by the increase in our land sales. That's from 1.2 million to about PHP 935 million -- PHP 936 million. Aside from that, there is also an increase in our sale of condominium units, that's about 359% increase from PHP 119 million up to about PHP 548 million. Okay. As discussed to you by Rachelle a while ago, late last year or about the last quarter of last year, we closed the land sale covering about 2,200 square meters of property and that was transacted at about PHP 425,000 per square meter exclusive of value-added tax. It's also notable that last year -- so late last year, we started the turnover of our first residential project, that's Pixel Residences, and that's the reason why we have the ramp-up in our revenues from PHP 119 million to about PHP 548 million. The significant movement for operating expenses pertains mainly to the commissions that we have paid to our agents for the land sale, and at the same time, for our residential projects. As we'll be discussing later, we already collected about PHP 1.1 billion from our MidPark Residences. And also, we have ramped up the collection of the turnover balance for our first residential project, Pixel Residences. Other income, on the other hand, decreased by 12% from PHP 1.2 billion to PHP 1.06 billion. If you will take note, in 2018, we recognized revenue of about PHP 2 billion. PHP 1.2 billion pertaining to the proceeds that we received out of the construction that -- wherein we have closed a certain joint venture with Alphaland. End of -- by third quarter of 2019, the company was able to receive about PHP 850 million out of that. So the significant movement of about -- close to PHP 150 million is brought about by this transaction. In terms of our net profit attributable to the equity holders of the parent company, we are very glad to inform public that we're able to grow our bottom line by 24.2% from PHP 1.9 billion, up to about PHP 2.37 billion. So in terms of the share for our revenue, 56% is coming from our recurring income business. That's land lease, building lease and other revenues related to land leasing and office leasing. Aside from that, because of the land sales that we closed, that comprised 27% of our top line. Sales of condominium units starting to ramp up, that's 16%. Construction contracts is only at about 2%. This is a focus on leasing. So last year, we recognized about PHP 1.958 billion of revenues from leasing. The ramp-up from 2016 to 2019 is from PHP 411 million up to PHP 521 million in 2017. In 2018, that's PHP 936 million. In 2019, that's PHP 980 million. As you can see, there is not much movement in terms of our GP and that's usually hovering around 70%. The main reason for slight decrease for 2018 and 2019 is basically because of the normalization of the costs for our standard rate. So this is still a very high-segment margin for us. Just to focus on our leasing. So for land leasing, Ayala, if you will take note, in terms of our share with respect to the total revenue of the company, is starting to go down because of the other revenues that we are deriving from the other businesses. Before, it used to comprise about 25% in 2017. That's 35% in 2018. In 2019, that's 21% only. In terms of average office rates, there is an increase of about 8% from PHP 749 per square meter to about PHP 811 per square. This is just 2018 figures, ladies and gentlemen. So in terms of the weighted average lease expiry. So end of last year, we still have an average 5.5 years left for our existing lease contracts. For residential. So last year, there's a big increase in our revenues from residential segment that we closed to about PHP 547.7 million. Out of that, PHP 446.5 million came from Pixel Residences and PHP 101 million is -- was recognized from MidPark Towers. Just a focus on Pixel Residences. So Pixel as of the end of last year based on percentage of completion, based on financial percentage of completion, that's 71% completed. We still have, end of the year, about PHP 894 million in unrecognized revenue. As discussed to you a while ago, we have started the turnover of Pixel and we are about to finish the turnover of this project this year. This means that this year, this is due to be recognized as revenue of the company. Just to give you a more focus on our projects. So in terms of revenue contribution, in 2017, residential sales comprised 2% of our top line only. It went up to 16 -- to 6% in 2018. And last year, we're able to hit 16% and this is just because of the majority because of the Pixel Residences. As we have discussed to you before, our next residential project, which is MidPark Residences, is 4x the size of Pixel Residences. For Pixel, so we're able to close it out. We launched the project third quarter of 2016, and the same was sold out second quarter of 2017. Again, I would like to take note that in terms of our payment terms for Pixel Residences, this is more flexible for our buyers. But I would like to inform the public that for Pixel Residences, our cancelation rate is still below 1% at this point in time. For MidPark Towers, the total units for that project is about 669 units. So since this project is 4x the size of Pixel Residences, in terms of velocity, actually, [Foreign Language] we launched this late 2018. We're just at the almost second month after 12 months. So we're already 61% of these total 4 towers. So again, we -- to be more conservative, what we did is to tighten up our payment terms, that's 10% spot down payment, 10% payable over a certain period and 80% turnover balance. So that, notwithstanding, we still have a very good sales velocity for this project. So the robust leasing activity reflects high level of sustainability for the company. As discussed to you a while ago, our recurring revenues increased from PHP 1.9 billion to about PHP 1.959 billion. As discussed to you by Buds, we will be expecting our recurring revenue to increase upon the finishing of our next office project, which is the Aseana Three and 8912. In terms of total leasable floor area, it remains the same from 89,914 square meters; period occupancy rate, that's 98% in 2018 and 2019; and land leased area from 155,000 square meters up to about 158,000 square meters in 2019. In terms of our rates. So GP is still very high at 80%, slight decrease from 84% last year. This is maybe just because of the change in revenue mix. As you will take note, we have a higher contribution coming from our residential projects for 2019. Leasing business has a higher GP margin than our residential sales component. That's the reason why we have a decline, slight decline, in terms of our GP margin. Operating profit, that's almost the same, 64%, 65%. EBITDA increased from 70% to 78%. And net profit attributable to the equity holders of the parent company, although in terms of value, that decreased from PHP 1.9 billion to about PHP 2.374 billion, it went down from 89% to 64%. This is due to 2 factors: again, because of the residential component; secondly, it's because of the component of the cash that we received in closing the JV with Alphaland. I have discussed to you a while ago, in 2018, we were able to recognize about 2 -- PHP 1.2 billion without any costs related to that particular closing. And in 2019, we only recognized about PHP 850 million. So debt-to-equity decreased from 29%, 11% and 3%. We were able to -- aside from the fact that our equity base increased because of the net income that we have recorded for this year, again, we also paid some of our loans last year. Return on equity from 18% (sic) [ 14% ] in 2018 to 12% in 2019. Current ratio 1.6x to about 1.5x. And asset-to-equity is almost the same, from 1.6x and 1.56x. In terms of the use of the proceeds of the IPO. At this point in time, we still have about PHP 5.1 billion. We already spent about PHP 2.4 billion mainly for our pipeline projects, that's 1.4 -- PHP 1.7 billion as of the end of the third quarter of last year. Last quarter of last year, we spent about PHP 250 million for the pipeline projects. Land assets and infrastructure development in Aseana City, that's PHP 309 million. And general corporate purposes, that's almost for PHP 261.2 million. So in summary, for 2019, again, the appraised value of priorities in Aseana City is about PHP 210 billion, as discussed to you by Rachelle a while ago. That is 30% higher than the prior year, appraised value as conducted by Colliers. But I would like to reiterate, however, that in terms of per-square basis, our -- or the appraised value is only an average of PHP 368,000 per square meter. And I would like to take note that the last sale that we did within Aseana City is PHP 425,000 per square meter net of VAT. And again, this is a nonprime lot, the PHP 425,000 per square meter versus the appraised value of PHP 368,000 per square meter. In terms of our recurring income, as we have repeatedly informed the public before, we plan to maintain recurring income contribution at about 50% to 60% of our top line. For 2019, we were able hit 56%. The leasing of building showed sustained growth within higher new rates than leases that expired during the year, and consolidated occupancy is about 98%, end of 2019. One of the major potentials of the company and this we expected also for this year, residential sales grew by -- to PHP 547.7 million or 16% of the total revenues from 6% only in 2018. So what's in store for us this year? Recurring income to see increases in occupancy, rent and ancillary revenues from leasing of land and buildings. So we're expecting 8912 preleasing towards the end of this year. And as reported yesterday, we signed the 50-year lease covering close to 40,000 square meters of parcel of land with St. Luke's. In terms of our residential segment, we're expecting to close or recognize about PHP 894 million from this particular project. And again, there will be a ramp-up of revenue coming from our second residential project, which is MidPark Towers.

Do you have any questions? That ends our presentation. If we have any questions from the line?

Yes. I have two questions. Could you remind us, let's say, for MidPark Tower, what was the price per square meter as of the fourth quarter? And say, fourth quarter '19, what was the average price per square meter?

So when we launched MidPark Residences during the fourth quarter of -- last November of 2018 actually, we started at about PHP 230,000 per square meter. Late last year, the price -- the average price was already hovering at about PHP 280,000, PHP 285,000 per square meter.

And again, related to MidPark. When did you launch the first tower, second, third or fourth? I don't think we were [indiscernible]

Yes. Actually, we launched the first tower when we launched the project. So as we are able to sell out each tower, close to selling everything, we have launched the other project, the second tower as well.