Megaworld Corporation (MEG) Earnings Call Transcript & Summary

Hello. Hello, everyone. Good morning. Good morning, and welcome to the Full Year 2022 Results Briefing of Megaworld Corporation. So firstly, I'd like to introduce and welcome our panelists who are with us today. So joining us, we have Mr. Kevin Tan, Chief Strategy Officer of Megaworld Corporation; Mr. Noli Hernandez, Senior Vice President for Sales and Marketing; Mr. Roland Tiongson, First Vice President, Megaworld Premier Offices; Mr. Graham Coates, First Vice President for Megaworld's Lifestyle Malls; Ms. Cleofe Albiso, Managing Director for Megaworld Hotels and Resorts, Ms. Caroline Kabigting, Investor Relations Officer for AGI; and Mr. Andy Dela Cruz, our Investor Relations Officer for Megaworld and will be [indiscernible] for today.

Good morning.

So before we formally begin, let us hear first from Mr. Kevin Tan to deliver his opening remarks.

Yes. Good morning to everyone, and thank you for being here with us today. So we're very excited to share with you updates of our performance in 2022. It's been a good year for us, definitely surpassing expectations in terms of our earnings, surpassing consensus as well, and I think we are here to somewhat celebrate a few of our accomplishments and share with you. For example, with regards to our occupancy both in our Office segment and our Mall segment, we have reached higher than industry standard occupancy. We've also hit a record sales [ fees ] of record for the last 3 years, and I think record [ fee ] sales as well among our peers. One of the things that I would like to say is that our business model and targets were -- sort of 80% of our sales actually come from the middle-upper segment or upper segment. Most of our sales actually come from Megaworld, and Global-Estate Resorts Inc. accounts for 80%. And this particular market segment is quite resilient to rising interest rates, and at the same time, this market also has the cash and the capital to invest in properties and take full advantage of inflation or property price increases. And this is the reason why we believe that this year will be another banner year for us. First and foremost, in the Residential side, we have set quite a large pre-sales target. Also, but more importantly, we are planning to turn over about 3,600 units this year from over about 22 projects and the value of this 3,600 units is around PHP 28 billion to PHP 30 billion in value. So that's going to be quite -- it's going to be quite a busy year for us as our most construction and projects are now in full swing. For the Hotels, I was told we are actually delivering, and you will see in the report later on with our VP, I think, we are going to deliver about more than 2,000 new hotel rooms. This will bring our new hotel inventory up to 6,577 rooms from our existing 4,490 rooms. Hotel occupancy has been also slowly going up. We're seeing high occupancy in some of our hotels, even post-pandemic. Average room rates as well have been increasing, and this year, we really look forward to a big travel rebound now that China has reopened, and that new policies on things like visa on arrival and even tax refunds are now being formulated as we speak and might be passed this year. On the Office segment, this year, we're going to be planning a turnover, global, of 124,000 square meters of office spaces. Again, this will bring us to more than 1.5 million square meters already. Again, the office space has always been a growth driver for us, and this year will be another stellar year, I believe. There is still strong demands from -- still from the business process outsourcing industry despite new pronounced movements of policy changes. There is still a lot of value to our PEZA-accredited townships, and as we open in new areas as well, this has become quite attractive for our office tenants who are really looking to diversify their presence all over the country. After COVID struck, I think there's some newfound importance to being sort of spread out all over, and that's why our geographical distribution is actually of an advantage to most of our clients who are looking to kind of sort of mitigate risk by being in a number of places. For our Mall segment, we have -- actually, our sales are pretty much back to pre-pandemic on most. For some, they have actually grown, most especially on the F&B side. And F&B is actually a very big component of our Mall business, which more or less about 40% of our leasable area. We were always very focused on the F&B side as well as the Entertainment F&B segment, and that's -- those are the segments that are growing fastest right now. We are hitting also 90% occupancy. We should be -- our target is to hit about 95% this year. Rental rates also has been back already to pre-pandemic rates, concessions have also been removed starting last quarter last year. On our townships, we are -- the townships that we have launched. We've launched 2 townships last year, and previously, we have launched another 2 [indiscernible]. And I'd like to say that the Paragua, Newcoast in Palawan and Northwin City are doing very, very well. I think the areas where we have decided to expand that in have proven to be quite strategic areas for both our investors and our buyers, and the initial products that we have launched in these developments have all been sold out. And today, we are hoping to catch constructing them, so it's -- the cycle has been a little bit -- has been different. We've been selling them out before we go to even -- broke ground on some of these projects. And so that's why, again, we are -- it really abodes -- it really adds to our optimism. We have also been launching innovative products. I think our township is a platform for us to launch innovative products. For example, in Northwin we launched our first condominium tower. And that's, I think, the first condominium or the first of its kind of any product in that region. In Paragua or in San Vicente, we launched a condotel. Again, first of its kind in that region. So we don't -- our townships allow us to really become very innovative with our product launches, and I think these bets are really proving to be the right bets. So this year, we're launching about 3, at least 3 more townships. I'd like to say officially 3, but we might fast-track the launches of another 1 or 2. This brings our townships to around 35. The one thing to note about the townships, especially the ones that we have already started to develop, is the ecosystem that we have been able to create within these townships, as you will see later, the captive market that's being created as well. And that is -- that creates a lot of opportunities for the company. We're seeing a lot of new trends, or at least able to spot new trends in community building because -- firsthand because we are -- we create and we run a lot of these townships ourselves. And that enables the company to innovate its products and enable the company to create new features, and generally move far ahead and faster. One thing to note about our townships is that at least 30% of the land is retained by the company for the long haul, meaning we tend to sell condominiums, lots, but we'll always return -- retain about 30% of that, and that will always be company-owned. And that 30% is for our rental income properties, offices, hotels, malls. And I think if you look at in the past, even other developers, the intrinsic value of the company is really on the areas where they retain. And so that's really our model. We usually do that for all of our 30-plus townships. And recurring income is a very important source for us now, especially pre-pandemic. So this year, I think we can expect about PHP 20 billion in rental income and about PHP 130 billion of pre-sales. We are gunning to go back to pre-pandemic levels already by this year. Last year, as I mentioned, while we're almost there, but this year, we are going back to that level. And last but not the least, I guess just a bit worth mentioning is that our stock price right now is currently admittedly trading at a huge discount to NAV. We believe that this is driven [ undervalue ], obviously. But I think that fundamentally, this -- our company is very strong, and we believe that the growth is there. And with the amount of properties that we have in our land bank, I think this ensures a very stable expansion plan for us, a very stable expansion or growth moving forward. So I think if anything, this is a great thing for investors to invest in Megaworld at this point, given the growth potential of the company and all the assets that it currently has. With that being said, I'd like to thank you again for being here, and I'd like to turn you over now to Andy for more of our good news -- more of the good news.

Thanks for that, Kevin, and very well said. Again, hi, all. Thanks for making the time to join our call this Monday morning. Maybe let's kick things off with an overview of our financial performance. As you have all seen, we closed the year strong as Megaworld's profit to shareholders in the fourth quarter of 2022 doubled versus the previous quarter as it reached PHP 5.1 billion. Compared to last year, net profit was down by 4%, but only due to the high base effect as we booked some PHP 2.1 billion in tax benefits related to the Create Law in the fourth quarter of 2021. Excluding this, net profit in the quarter would have grown by 59%. This resulted from the -- largely from the 23% year-on-year and 14% quarter-on-quarter growth in consolidated revenues to PHP 17.1 billion. Businesses across the board all registered stellar performances helped by higher completion of its real estate projects, the continued removal of more rent concessions paired with higher tenant sales, improving hotel operations and growing office rentals and occupancy. For the year 2022 our net income was largely flat at PHP 13.5 billion, but excluding the tax benefits last year, that income would have grown by 19% year-on-year. Consolidated revenues similarly accelerated by 17% to PHP 59.5 billion, with double-digit growth across all business segments. During the quarter, we booked some PHP 1.1 billion in ForEx gains, reducing our ForEx losses largely from R&R bonds from PHP 2.8 billion as of the third quarter in 2022 to now only PHP 1.7 billion in ForEx losses as of the end 2022. We're also happy to note that our Residential profit -- gross profit margin have been improving, largely benefiting from a better sales mix. As we have made -- we have sold more commercial lots and horizontal projects in the quarter, real estate gross profit margin reached 51% in the fourth quarter of 2022, higher than the 45% registered last year. For the year, our real estate GP margin ended at 50%, also higher than the 46% registered in 2021. Similarly, our EBITDA margin, excluding ForEx movements, also improved to 44% in 2022 from the 43% recorded last year. Consolidated revenues in 2022 stood at PHP 59.5 billion, again, a strong 17% growth from last year, fueled by strong increases across all business segments. Real estate sales still account for the bulk at 62% of our total revenues, followed by office rentals at 21%. Mall rentals, hotel revenues and other income account for the remainder. And drilling down on a per segment basis, real estate sales grew by 18% to PHP 36.8 billion for the period due to the improvement in construction activity and higher completion rates. In fourth quarter alone, real estate sales grew by 34% year-on-year. Office rentals are up 11% to PHP 12.2 billion as we reach a 92% occupancy rate as of end 2022. That's 200 basis points higher than as of end 2021. We saw increasing transactions from both BPOs and traditional office segments, with 57% of the transactions in 2022 coming from new leases. Rents also continued to increase in line with our contracted escalation rates. Mall rentals, on the other hand, rose by a strong 51% to PHP 3.4 billion as we gradually removed rent concessions up to the end of the year. As of December 2022, we were already charging 90% of normal rent, but tenant sales since the third quarter are also above pre-pandemic levels already. Hotel operations also saw a solid growth of 35% to PHP 2.6 billion as domestic tourism saw a sharp pickup and with MICE activities being one of its key drivers. Hotel revenues already reached the PHP 2.5 billion revenue we recorded in 2019. Moving on to a snapshot of our balance sheet, we ended the period with gross debt amounting to PHP 94.5 billion, over by PHP 6 billion from the previous quarter, of which 52% would be bank loans, 59% of the interest rate is fixed and 38% is U.S. dollar-denominated. Our balance sheet remains strong, and our net debt to equity remains at a healthy 28%. Meanwhile, CapEx spend for 2022 amounted to PHP 46 billion or around 92% of our PHP 50 billion CapEx budget for 2022. 94% of this was spent for property development, while the remaining were used for land acquisitions. We'll now present operating updates from all our business segments, starting with the Real Estate segment. As discussed earlier, our real estate sales increased by 18%. We're happy to announce the strong demand we saw during the third quarter maintain its momentum into the fourth quarter, and reservation sales in 2022 reached a total of PHP 118.9 billion. This exceeded our revised reservation sales target of PHP 110 billion. Project launches for the period stood at PHP 45 billion, also exceeding our PHP 35 billion target for last year. In this slide, we present to you our real estate sales breakdown. Of the PHP 36.8 billion real estate sales in 2022 around 81% is from our upper-middle to high-end projects, which is, as Kevin mentioned, is cared by our Megaworld and Global-Estate brands. These showed a strong 26% growth from last year. And this segment has always held the lion's share of our sales and is largely affected by rising interest rates and inflation. Our economic to mid-income category, which is cared by our Empire East, Suntrust properties and Stateland brands account for the remaining 19% of our real estate sales, roughly 1% lower from the previous year. Moving on to the middle chart, which shows the breakdown of by location. Projects in Taguig, which accounts for 28% of our sales, registered a 27% increase in bookings. Metro Manila excluding Taguig, which account for 46% of sales, saw a growth of 20%. Other zone areas, excluding Metro Manila which accounted for 20% of sales, also went up by 24%. By classification, sale of residential units accounted for 80% of sales, improving by 14% year-on-year. Residential lots, which accounted for 14% of sales, grew by 38%. While commercial lots, which accounted for 6% of sales, increased by 51%. This confirms the improvement in GP margins as we mentioned earlier, backed by the increased bookings on residential and commercial lots, which by nature has better margins compared to our vertical projects. Now a closer look on our reservation sales in the fourth quarter. In the fourth quarter alone, reservation sales grew by 29% from year ago levels to PHP 33 billion. We ended the year with reservation sales totaling PHP 118.9 billion, up by 49% from 2021 levels. We're proud to say that we actually already reached 80% of our 2019 figures already, and hope to continue the momentum of recovery this 2023. Demand from OFWs and international buyers still account for around 20% of pre-sales figure in the fourth quarter, similar to the third quarter of 2022. Meanwhile, 68% of the demand came from Metro Manila, and vertical developments accounted for 75% of our reservation sales. Our current unsold inventory stands at PHP 85 billion, lower than the PHP 89.8 billion level we had as of in third quarter. Our current book sales stands at PHP 123 billion. We ended the year with PHP 45 billion in launches, that's 61% higher than 2021. Of the figure, 84% are still with the upper-middle to high-end markets, in line with the usual share in our historical launches. 75% of our launches in 2022 are in provincial areas, while 66% of which are vertical projects. Among the projects we launched in the fourth quarter of the year is One Crown Suites in our newly-launched township in Winford Resort Manila. This project is valued at PHP 3 billion. We also launched Vion West last December. The project is valued at PHP 3.2 billion, with current selling price of around 300,000 square meters. That is a 52% increase from the PHP 197,000 per square meters of the first Vion Tower launched back in 2018. For the year 2022, we turned over PHP 57 billion worth of projects with their respective buyers, 97% of which are in our Megaworld and Global-Estate Resorts brands, 61% in Metro Manila and 73% of which are vertical projects. Moving on now to the performance of our Office segment. Office rentals for the period grew by 11% to PHP 12.2 billion, while our GLA remained largely unchanged at 1.4 million square meters. Our occupancy rate stands at 92% as of the end of 2022, that's improving by 200 basis points from year ago levels of 90%. We note that our office unit saw 258,000 square meters in transactions during the year, plus 9% higher year-on-year and accelerated -- accelerating from the 3Q transaction growth of just around 7%. And of which, 57% of these are new leases. Aside from growing BPO transactions, we closed more traditional office tenants, mostly from the SME segments, especially during the second half of the year. In 2022, MPO or Megaworld Premium Offices captured up to 18% of the reported new leases in the market. Our portfolio has always consisted of mostly sticky tenants, with 74% of our occupied space accounted for by BPO tenants, 18% by traditional office tenants. Our share of POGO tenants is currently at 5%, already about 1/3 only of our pre-pandemic POGO exposure of 13%. Our weighted average lease expiry as of end 2022 is at a healthy 3.1 years. And despite the concerns the industry is facing, such as elevated vacancies across Metro Manila, we renewed 91% or more than 120,000 square meters of our expiring leases in 2022. We added Festive Walk business hub in 2022 for our offices that totaled 6,900 square meters of GLA in our Iloilo business by township. And of course, with our growing commitment to sustainability, we reached a new milestone in 2022 as we added 4 more LEED-certified buildings now totaling 17 LEED-certified office buildings. We also added one more IMMUNE-certified building and now have a total of 6 IMMUNE-certified buildings in our portfolio. Now for our Mall segment, mall revenues in 2022 actually saw the strongest growth with a 51% increase to PHP 3.4 billion on improving spend. And as we continue to increase our fixed rent collection as of December, as discussed earlier, we collected about 90% of normal rent. But beginning this January, we already removed all of our rent concessions as we move toward a full recovery of our Mall segment this 2023. We grew our retail GLA by around 5% to 484,000 square meters. Occupancy rate improved by 3 percentage points to 90% as of end 2022 versus 2021. Average daily spend of mall goers continue to grow and grew by 2% in 2022 compared to year ago levels, which is also already around 30% higher than pre-pandemic levels. Total tenant sales in 2022 is already 6% higher than 2019 levels as well. And supermarkets and entertainment tenants were the strongest performers in 2022, and continue to grow beyond 2019 levels. We launched Mckinley fourth quarter 2022, which added 5,200 square meters of GLA, a park owned and managed by EMI as Asia's first and largest outdoor whiskey park, hopes to bring a whole new whiskey experience to patrons through a curated section of whiskey products, along with a wide array of food choices, games and entertainment. Finally, we also launched ArcoVia transport hub in 4Q 2022, which added 16,600 square meters of GLA in our retail portfolio. This caters to provincial buses and complements a location with accessibility and helping flow traffic to the area. Moving on with the Megaworld Hotel & Resorts segment. Hotel revenues in 2022 dropped by 35% year-on-year to end at PHP 2.6 billion already, with a 64% occupancy rate from our 4,700 room keys. Our hotel revenues is already about 2% above pre-pandemic levels already. Aside from improved overall occupancy, our room rates also improved overall, and our best performer in hotel is actually our Twin Lakes Hotel and our Twin Lake townships. Effective pricing strategies during 2022 allowed us for almost roughly doubling of average daily rates versus pre-pandemic levels. Hotel occupancy at our resort also improved due to continued brand-building efforts. Overall, we see hotel revenues to meaningfully exceed 2019 levels already as we already reached it during 2022, and we also continue to focus on improving our occupancy and capturing MICE activities. In the fourth quarter of 2022, we added 550 room keys with the opening of Belmont Hotel, Mactan in our township in Cebu group, the Mactan Newtown. The average room rate per night in this hotel is at PHP 4,800 per night. As we are seeing renewed demand for MICE activities in 2022, we're confident that we are able to capture these as we have a total of 3,800 seating capacity, over 48 function rooms and convention centers across the country. Here, we have a video showcasing our newly opened Boracay Newcoast Convention Center in our township in Boracay Newcoast. With this, we hope to supply the demand for MICE activities in the area, so as to bring more guests to our hotel. It has 700 seating capacity, and we're excited to further develop our Boracay township and improve our hotel performance in the area. Next, we added 2 more townships in 2022, as Kevin has mentioned, namely the three-hectare Winford Resort Estate in the city of Manila and the 340-hectare Sherwood Hills in Trece Martires, Cavite.We now have a total of 30 townships under our portfolio, covering more than 5,100 hectares of land across the country. And our business model has always been focused on our township-building expertise, with the first-ever contract built in Eastwood City. The land Eastwood City is in -- used to be an old textile mills factory. But as Megaworld bought and developed it, we launched Eastwood City in 1996 and is our first live-work-play community ever. We're also proud to say that this is actually the birthplace of the BPO industry in the Philippines. Now, the 18.5 hectare Eastwood City has a total of 9,000 residential units across 23 buildings. We have 236,000 square meters of office leasable spaces across the 11 PEZA-accredited buildings, 64,000 square meters of retail GLA covering 3 malls and various retail spaces and 138 hotel room keys and function rooms with a max capacity of 500 seats. We have 35,000 residents in the area across our residential homes, 64 persons reporting to work in the offices, and together generate around some PHP 2.6 billion per month in salaries that will help both their families and our economy. Retail malls in Eastwood City also provides easy access to necessities and wants of our more than 30,000 persons daily, that is more than 11 million foot traffic in a year. Our hotel also serves 500 guests per day or over 180,000 guests in a year. All in all, Eastwood City has 130,000 persons enjoying the complete living experience of a township every day. These are the stats that actually drive our vision and why we remain committed to building the country and our business through our township model. Finally, we'd like to give you a breakdown of our projects in the future, starting with this year and beyond. Megaworld will launch 3 townships this year across different areas, 2 in Luzon and 1 in Mindanao. We expect to spend PHP 55 billion in CapEx this 2023, 80% of which will roughly be for our project development, while the remaining will be for land acquisitions. We plan to fund this with the mix of internal-generated cash, and borrowings will be short-term, should the interest rates continue to be on the high side, and we will have an active move to minimize our exposure to foreign currency. This year, we are targeting to launch PHP 60 billion worth of projects across 20 projects to help us reach our PHP 130 billion in reservation sales target. For our Office pipeline, we expect to grow our portfolio by 207,000 GLA -- square meters of GLA or by 15% until 2026. These will be in 5 different townships in Megaworld, namely the Upper East Bacolod, Uptown Bonifacio in Taguig City, Iloilo Business Park, the Capital Town, Pampanga, and Mckinley West as well in Taguig City as well. The largest building is the International Finance Center at 69,000 square meters, which is located at Uptown Bonifacio. This building is now 50% pre-LEED. Beyond this list, we also have future pipelines still in the planning stage. We'd also like to present to you our Mall pipeline. We expect to increase our portfolio GLA by 33% or 159,500 square meters until 2026. The larger portion of our Mall pipeline will be coming online in years 2025 and 2026, which include our Boracay Newcoast beachwalk, the Capital Mall in the Capital Town, Pampanga, and our Highland Mall and Park in Highland City; Cainta, Rizal, among others. Lastly, we are growing our hotel room keys by 3,159 keys or around 67% higher in the next 5 years. Among our pipeline is our largest hotel ever with 1,530 room keys, which is called Grand Westside Hotel in Westside City, Parañaque, which is expected to open this year. We're also expecting to open Chancellor Hotel Boracay with 554 rooms in our Boracay Newcoast township this year as well. Finally, we'd like to end with the following key takeaways from this call. For our Real Estate segment, we saw renewed demand in 2022 for residential units, which all exceeded our targets for the year. We expect the growth to continue well into 2023. For Offices, we improved our occupancy to 92% in 2022 and continue to grow our rent rates in line with the contractual rental escalations. This is despite the headwinds we saw in the Philippine overall office industry. We see rent escalation to continue and vacancies in our portfolio to remain manageable. For our Lifestyle Malls, we saw a surge in rental income driven by higher tenant sales and the removal of rent concessions. This year, we expect revenues to grow beyond 2019 levels as we work to increase our occupancy to hopefully end the year at 94% to 95%, as Kevin has mentioned. As of January, we're also already charging full rent to all of our tenants already. For our Hotels, total revenues in 2022 already reached 2019 levels from a combination of higher occupancies and higher room rates. We expect hotel to continue growth in step with improving outlook for leisure and MICE activities. Thank you. And I'll turn over the call to Jayson, who will moderate our floor, and we're happy to take your questions at this point.

Thank you, Sir Andy, for the presentation. Thank you as well, Sir Kevin, for the opening remarks, sir. So we will now open the floor for questions. So we will first start with the questions we received by email, then after, we'll entertain questions from those who would like to use the Raise Hand option as well as the Q&A box. So we'll read out the questions first per business unit, starting with the Real Estate segment. So we received questions for [indiscernible]. The question reads, Megaworld's currently leading in reservation sales despite higher interest rates. What factors could be driving this? Maybe we can get [indiscernible] from Sir Noli?

Well, thank you. While there's obviously a lot of -- there's an interplay of a lot of factors, and most of these factors that are being cited for this would mostly be economic now, but I think a larger factor would be the demographic factor. As we have seen in the past years, there has been a steady influx of more and more production from our female segment of population, and that accounts for almost 50% of our production for -- especially last year. So while whereas before, before the pandemic, the lion's share of our sales come from mostly male buyers, we're seeing a lot of female buyers close to breaching the 50% mark for all our sales. So that's a telling indication that as more and more or a bigger and bigger proportion of our population is able to have the purchasing power, we are going to be seeing this activity from the sector going forward. So another thing that has helped us is the influx of younger people into the pool of potential buyers. Our customer base is growing, and that is -- we're seeing a lot of very young people that are able to afford our price points. So aside from the economic factors, I think it will be very useful to look at the demographic factors as well.

Thank you, Sir Noli, for that. So we'll move on to the question placed regarding the Office segment. So we have a question here that asks, what's been the biggest driver of office take-up for the year? And does it see these factors or reasons continuing to contribute to the growth of offices? Maybe Sir Roland can give us an idea?

Yes, okay. Just like in Residential, Jayson, the opening of the economy, I think is one of the best drivers of our performance last year. As you know, COVID has a big blow and the economy has started to go there, and businesses have returned. Business that have closed during the pandemic have returned already, online. They started to operate, and what we noticed is that there was a growing number of SMEs that were not present in the market before, and that was accounted for the growth.

Thank you, Sir Roland. So we move to the question placed regarding our Malls and Commercial division. So the question here has asked, what other growth prospects do you see in your malls and operations standard outside Metro Manila? Maybe Graham, if you can give us a quick overview?

Thank you, Jayson. Yes. We are -- quite the same sentiment as the Residential and Office. Our growth really came about with the lifting of restrictions, and all our participant tenants really just recovered as well. So we still see that there's still some lag in that area. We feel that our main goal -- our main growth this year will be focused on occupancy, fill in the remaining spaces that we still have in our malls. We have around about 9% or 40,000 square meters that we have still to fill out this year. Our target is to hit 95%, so that's half of that remaining space, and our goal really is to look at all the categories that are expanding. As was mentioned earlier, supermarkets are doing very well, but we're also seeing F&B, tremendous growth. And retail entertainment is another area that we feel that we will maximize our remaining spaces. So we have a lot of plans and innovations in that area as well. But really, what our key priority is to grow with our tenants and expand with the remaining spaces within our properties this year.

Thank you, Sir Graham. So we'll move to the next question for our Hotels. So the question asks, where do you see your hotels overperforming or having an advantage over its competitors for 2023? Miss Cleofe?

Thank you, Jayson. Good morning, everyone. We take leverage in the number of room keys that we have. I think our hotels being higher than the normal-sized hotels of 300. A lot of our properties range from 400 to 500, even 600 room keys give us an advantage. The renewed demand of MICE business gives us organizers that reach out to us whereby their requirement for rooms is about thousands, and we can really be able to address this. And volume strategy will definitely be our way to go. We've shared in the report, we have already leveraged the increase of ADR and occupancy, and I think our key advantage would really be our inventory. So we'll try to hinge on to that and make sure that we are able to take care of the businesses that we have, and make sure that they go back to us and book more of their leisure as well as business travels in the future with Megaworld Hotels and Resorts.

Thank you, Ms. Cleo. So at this juncture, we would now move on to the questions via the attendees using the Raise Hand option. So I see [ Carl ] [indiscernible] raising his hand.

Great. So my first question, which -- looks like Kevin already left. I want to check if I heard correctly, did Kevin say earlier that the rental revenue target for this year is PHP 20 billion?

Sorry, could you repeat that? Or you can just get back to me later.

Kevin is actually still on the call. Kevin?

Yes, sorry. Yes, PHP 20 billion, sorry.

Okay. So that is the target for rental revenue this year?

Yes.

So actually, that's quite substantial growth from last year and even higher than your 2019 numbers as well. And so again, that's going to come mostly from Office, I guess.

Yes, that's right.

And for Office, I was wondering if you have particular areas and geographic areas of strength, and some areas which are weak for you? So let's say you have 8% vacancy as a portfolio, are there particular areas where it's really low single digit, right? And then vacancy and some areas which maybe are high -- I mean, low double-digit vacancy?

I think maybe Roland can chime in. I think that we still have a significant amount of projects in key areas like Fort Bonifacio, which still remains to be the strongest area in terms of office demand. Of course, Iloilo as well is another area that we're seeing very strong demand. In fact, there is an undersupply of office space there. We're having to play catch up. So those are the 2 areas I'd say that we are strategically positioned at, that happens to be some of the strongest areas for demand right now. And so for us, the -- the idea is to grow in new areas as well. We're looking at Cavite for areas of expansion, Pampanga as well, and even Iloilo and also Bacolod because based on the feedback we're getting from our locators, these are the new areas that they would like to expand in. So that's basically the summary of our why -- that's basically a justification why our vacancies are relatively low compared to our -- to the industry, the industry.

And then I ask about the Residential business this time, especially about the fourth quarter performance. Did I -- let me just check if I understand correctly, it looks like the proportion of sales from Metro Manila went up, is that right? So is there -- were there particular projects that were -- that did well? Is it Winford, or somewhere else?

Noli, please go ahead.

Well, we've seen an increase in sales in our BGC projects, specifically Uptown parts. So the BGC area.

Great. And then one more question for me. I'm just not sure, again, if I heard Andy earlier correctly, you mentioned something about ForEx. And again, I might have misheard, are you doing something about hedging or -- yes?

So we always get the question on what we'll do with the expiring bond -- with the expiring bond we have this April, that's $250 million in bond. And we're planning to refinance that again still with dollar, but we're refinancing it using a loan instead. That way we can pre-terminate as soon as the ForEx exchange rates are better. In that way, we're really taking an active decision or active move to really pare down or minimize our exposure to dollar. So that's the strategy we have going forward. And [ Carl ], just to clarify on the PHP 20 billion target. So we're expecting more to go back to 2019 levels already. So that's around more than PHP 6 billion of revenues. Hotels is -- I mean, Office is at PHP 12 billion. So that total encompasses around PHP 18 billion already. With the growth we will see, we're expecting from 2019 levels, we should hope to reach PHP 20 billion in rental revenue this year.

Thank you, [ Carl ], for your questions. So I'll now move and read the questions that we received via the Q&A box. So we have a question here from [ Anita ], she's asking, can you speak to the vacancy levels in the Office -- levels in the office market? How is that affecting the rental [indiscernible] in our properties? Maybe Sir Roland can answer this one?

Sorry, can you repeat that, Jayson? Your audio was not that clear.

Okay, sir. So [ Anita ] is asking on, can you speak to the vacancy levels in Office in the market? And how is that affecting the rental reviews in your properties?

Rental reviews, okay. Well, as reported, our occupancy is relatively high compared to the market. And because of that, whenever there is a rental review, the rental rate either cease or goes up. So fortunately, our occupancy has allowed us to leverage on the rental rates for 2022.

Yes. To add to that, the majority of the vacancies that you're seeing in the market are in areas where we are not in, like the Bay Area, for example, is a big area. I think Makati to a certain extent, Ortigas as well have large vacancy. These are areas we're not in, so we are not generally affected if there are any rental reversion in those areas. We are not -- very mildly affected, as I mentioned, the areas where we're trading at where we're operating like Bonifacio or Iloilo, these are areas where there's super high demand. And that is -- that gives us a bit of leverage as well when we renegotiate or when we renew our leases. So we generally actually increase our leases upon renewal because of where we're located at.

Thank you, Sir Kevin and Sir Roland. So we have a couple of questions here from Mr. [ Roman Delapaz ], so I'll be reading the first -- those questions. He's asking, may I ask how much was ForEx losses for full year 2022 and fourth quarter of 2022 as well as comparable figures for 2021?

[ Roman ]. So in 2022, we ended the year with ForEx losses of PHP 1.7 billion. In fourth quarter, we actually saw a foreign -- ForEx gain of PHP 1.1 billion. In 2021, our ForEx loss for 2021 was at PHP 1.3 billion.

Thank you, Sir Andy. So [ Roman Delapaz's ] next question is, may I ask for mall [indiscernible] traffic as of January-Feb -- January to February?

Yes. We've continued to see our mall traffic improve. From the last quarter of 2022, we are seeing a significant jump even in January and February. We are already at 20% higher than what we were achieving in the last quarter, so this is quite high. This is actually a very significant jump because traditionally, the last quarter of 2022 would be a high level. So we're already seeing our levels at the November 2022 level, so that's what gives us a lot of confidence going forward, that the mall traffic now has really got back to the levels that we wanted to. So yes, we feel that we have a very good momentum and outflow traffic.

Thank you, Sir Graham, for answering those questions. So we move on to the questions raised by [ Sevi ]. So one of the questions that [ Sevi ] raised is regarding -- unfortunately, we won't be able to answer these questions just yet since we're still finalizing the results. So I'll move on to second question, which is, would you be able to share how much you increased average selling prices for residential units on a blended basis or per segment, either in upscale, middle [indiscernible]? So I'll just repeat that question for clarification. So [ Sevi ] is asking if we would be able to share how much you increased average selling prices of residential [indiscernible]? Maybe Sir Noli can give us [indiscernible].

Did you say average selling price increases, Jayson?

Yes, sir.

On an average, we -- our price increase is between 3% to 5%.

We move on to -- thank you, Sir Noli. So we have other questions here, so we'll move through the Raise Hand option. So I see participants raising their hands. [Operator Instructions] Okay. So while waiting for those who'd like to use the Raise Hand option, we'll ask one more question from the Q&A box. So we have another question raised by Mr. [ Roman Delapaz ]. So what impact are you seeing from the China reopening? So maybe we can get a brief answer from each of the business units regarding this one. So let's start first with our Resi unit, Mr. Noli Hernandez.

Well, we're definitely seeing an uptick of demand from that particular market, but we're still closely observing it. And I think most -- not most, but a lot of our sales generated in BGC had been accounted for specifically last year by the reopening of the China market. But we're expecting more. It's -- we're only at the start of the year, so we're expecting a lot more demand from that particular segment.

Thank you, Sir Noli. From the Office segment, Mr. Roland, maybe you can give us...

Although I must -- excuse me, Jayson. Although I must qualify that I don't think we are going to be seeing so much bullishness that we've seen before the pandemic. Hopefully, this time around, it's going to be a bit more tempered and a bit more nuanced.

Yes. I second that. I don't think it's a big -- it defines steadily our sales performance as it had. Maybe last -- maybe before the pandemic, it was a big factor. But I think this time around, we do not want to depend too much on that market. If it comes, it comes. We will welcome it, but it will not define our -- we don't see that as a big part of our residential revenues. But early to note that right now, I believe a lot of people from China are trying to bring up their money. And when they do, the first thing they will probably do is try to invest in real estate outside China. So I mean, that's not just necessarily Megaworld. That won't just necessarily affect Megaworld, but it's an industry insight, I believe, so yes.

If I may add, Kevin, I think that explains a lot of the stability that we're seeing in our completed and consummated sales. We used to see quite a bigger proportion of cancelations or backouts previously, but we're not seeing that now. So that makes us really hopeful and happy, and cautious at the same time.

Thank you, Sir Noli and Sir Kevin. So we'll move -- are there any other units who would like to share their ideas on the question on what do you plan -- you will be seeing from the China reopening?

Maybe the hotels?

I'll chime in. Specific to the Hotels group, I think reflective of the positioning of the total industry for tourism and hospitality. While in the past 2 years, we did not have the China market available, we really resorted to capturing other markets with the domestic and other international markets that we didn't used to really focus on. While we have not been able to capture them and the ease of the restriction, especially for the quarantine going back to China which definitely affected the leisure business that we used to capture pre-pandemic, we're also hoping to be able to develop other markets that will also help in really creating sustainability in the capture of the business for all our hotels, whether it's leisure or for business travels. But because we also have the advantage of the number of room keys in all our hotels, the questions that most of our online travel agencies from that market has been constant. If there's a need for exclusivity, we are going to be able to afford a dedicated cluster or some levels or floors that's just exclusive to them. Thus, we will be able to cater to this type of market. But we're hoping that we'll be able to fortify the development of the relationships that we're creating with other source markets that we've been working on in the past 2 quarters.

Thank you, Miss Cleo. So I now move on to our last question, so we have here from Mr. [indiscernible]. He asks, may you share your debt management strategy for 2023?

So as discussed earlier, our projects and operations will be funded by a mix of internally-funded cash, generated cash and of course, borrowings. So borrowings in this respect will be short-term in nature should the interest rates continue to be on the high side. We -- the group's interest rate risk management policy has always been to minimize interest rate cash flow exposures to changes in interest rates.

Thank you, Sir Andy. So it looks like we've covered all of our questions, and so this concludes this year's Megaworld's full year 2022 results briefing. Thank you again, everyone, for attending. We hope to see you soon. So if there were any questions that we weren't able to answer, please feel free to e-mail us. Thanks again for joining us.

Thank you.

Thank you, thank you.

Thank you.