Megaworld Corporation (MEG) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to the first quarter financial and operating results briefing of Megaworld Corporation for 2025. I am JC Najera, and I'll be your moderator for today's session. And before we dive into the presentation, I'd like first to introduce to you our esteemed panelists who will provide valuable insights into the group's performance and answer any queries you may have. Joining us today are Ms. Cleofe Albiso, Managing Director, Megaworld Hotels & Resorts.

Good afternoon, everyone.

Mr. Roland Tiongson, first Vice President, Megaworld Premier Offices.

Good afternoon.

Mr. Graham Coates, first Vice President, Megaworld Lifestyle Malls.

Good afternoon.

And Mr. Andy Dela Cruz, Investor Relations Officer of Megaworld Corporation and our presenter for today's session.

Afternoon.

We encourage everyone to actively participate in today's briefing. [Operator Instructions] At this juncture, I will now hand the floor over to Sir Andy, who will present the group's performance for the first quarter of 2025. Sir Andy?

Thank you, Karl. Hi, everyone. Good afternoon again. Thank you for joining us for Megaworld's first quarter 2025 results briefing. Now I'd like to start this presentation with an update on Megaworld's financial performance for the period. So Megaworld's consolidated revenues increased by double digits by 11% to PHP 20.9 billion. This strong performance was driven by a broad-based growth across all our business segments, namely real estate, leasing, which is office and malls, and of course, our hotel segment. Our gross profit margin for our residential and real estate segment expanded by 30 basis points year-on-year to 50.2% this quarter. That reflects better pricing strategies and, of course, continued cost efficiencies from our management. Now net income, as a result, rose by a faster 16% to PHP 5.1 billion. This is on the back of these margin expansions. And for the quarter, Megaworld saw some PHP 211 million in ForEx gains on its dollar-denominated bonds. This is compared to the previous year of PHP 176 million in unrealized ForEx losses. Now accounting for these, our core income expanded to PHP 4.9 billion, which is up by a healthy 7% year-on-year. Of our PHP 20.9 billion consolidated revenues in the first quarter of this year, real estate sales continue to account for a majority at around 63% of total revenues. Office rentals contributed around 18%, followed by mall rentals at 8% and then hotel operations at around 7%. Real estate sales grew by a healthy 8% to PHP 13.1 billion, fueled by healthy market demand and, of course, accelerated project completions. Office rentals rose by 17% to PHP 3.7 billion. This is driven by rent escalations, positive rental reversions and the addition of a new asset that started income generation last year, underscoring our resilience in a challenging market and reaffirming our position as one of the top landlords in the office segment. Now mall rentals also increased by 11% to PHP 1.7 billion as an improved tenant mix and the full recovery of foot traffic resulted in higher tenant sales this quarter. Hotel operations continued its strong growth this 2025, up 27% to PHP 1.4 billion as average room rates continue to improve sharply and as we added new room keys from Grand Westside Hotel last year. Now we continue to maintain a strong and healthy balance sheet. As of end March 2025, our gross debt stands at around PHP 105 billion with 81% comprising of bank loans. Of our total debt, 68% is on a floating interest rate, while 32% is fixed. So this ensures our flexibility in our financing. Now, of our debt, 62% is denominated in the local currency, while 38% is U.S. dollar-denominated. Our net debt-to-equity ratio is at a very healthy 31%, a bit lower quarter-on-quarter, reflecting our prudent financial management and stability. For the quarter, we have spent some PHP 10.1 billion in capital expenditures with 97% directed towards project development and the remaining for land acquisition. Next, I'd like to discuss operating updates during the first quarter of 2025. Now this slide just reiterates an overview of the geographical footprint of Megaworld. Our developments span over 5,500 hectares across the country, and we continue to build and launch more. Again, in 2024 alone, we reached 35 townships in our portfolio, and we launched 4 townships, the Lialto Beach and Golf Estate, San Benito Private Estates, Ilocandia Coastown and the Upper Central in Cagayan De Oro. Now let me highlight one of our most exciting green initiatives in Capital Town Pampanga, which is the Rain Water Park, and this officially opened to the public early this year, early last month, I believe, and this is the first of its kind in the region. It's an eco park where sustainability meets leisure. Designed not really just as an open space or a green space but also as a functional stormwater management system. The park transforms rainfall into a scenic landscape complete with walking paths and water features. We think it's a refreshing escape for the community and really a clear example of how Megaworld is integrating future-forward urban design into our townships. Now moving on to our real estate segment. This slide shows the resilience of our gross profit margins in real estate development, which has shown steady improvement over the past 5 years. In the first quarter of 2025, Megaworld achieved a 50.2% GPM on its real estate development, higher by 30 basis points year-on-year. Consequently, our gross profit improved by a faster 9% to PHP 6.6 billion. Now these results really emphasize the effectiveness of our pricing strategies and disciplined cost management. Our real estate sales mix also highlights the continued strength of our upper middle to high-end projects, which make up 83% of total sales. This segment is primarily supported by our Megaworld and Global Estate brands. Meanwhile, our economic to mid-income category served by Empire East, SunTrust Properties and Stateland brands contributes the remaining 17% of real estate sales. Now in terms of location, Metro Manila accounted for 58% of RES with the remaining 42% coming from provincial areas, showcasing our expanding footprint across the country. By classification, vertical developments continue to be the largest chunk at 74% of our sales, while horizontal developments account for the remaining 26%. Moving on to our reservation sales. Reservation sales for the first quarter of this year reached PHP 26.9 billion with a balanced distribution between Metro Manila and provincial markets at 52% and 48%, respectively. Now, the figure reflects a decline of over 20% year-on-year, but the softer start is largely due to the timing of launches. Most of our new inventory this year is slated for a lease in the second half. We deliberately front-loaded fewer projects in the first half of this year as part of our ongoing strategy to first clear out inventory and optimize pricing. Now, the first quarter of 2024 of last year was also when we enjoyed strong reservation sales from almost PHP 50 billion worth of launches since the second half of 2023. Now our residential developments for this year in the Taguig townships, Arcovia in Pasig, Baytown Palawan and Mactan Newtown, among others, were the top locations for demand during the quarter. Now, while local demand remains robust, our international sales continue to be a strong contributor, accounting for 21% of reservation sales. Our international sales offices continue to drive growth by again reaching overseas Filipino workers and professionals. Now, by segment, demand remains concentrated in the upper mid- to high-end market, which comprises 84% of our reservation sales. Meanwhile, vertical developments continue to dominate our portfolio, accounting for 85% of our reservation sales, while horizontal offerings captured the remaining 15%. So the sales mix is consistent with our focus on integrated vertical communities in key growth areas. Next slide, please. For the quarter, we launched only 1 project, that is Grand Marina Esplanade in the Hamptons Caliraya Laguna. So the project has 20 lots spread across over 14,000 square meters of salable area with an average selling price of PHP 40,000 per square meter. The project is expected to turn over by 2024. Okay. Next, I'll move on to discuss the performance of our office segment. Megaworld Premier Offices posted PHP 3.7 billion in office rentals in the first quarter of 2025. That's a 17% growth year-on-year. Our GLA remains same at almost 1.5 million square meters of office space. Now, as of the end of the period, our overall occupancy rate stands at 87%, improving by 100 basis points quarter-on-quarter as we have signed on some new top-tier tenants in Megaworld offices. Now, our weighted average lease expiry, or WALE, remains robust at 3.3 years, also higher quarter-on-quarter as we renewed and signed leases with new tenants of longer maturity. Now, our tenant mix is composed of high-quality tenants with 75% of our lease space occupied by top-tier BPOs and 23% by traditional office tenants. Compared to the previous quarter, we have signed on more traditional or headquarter-type tenants this quarter. Now, Megaworld Premier Offices recorded 104,000 square meters of transactions in the quarter. Of this figure, more than 50,000 square meters are actually new leases, which is the highest we have recorded in a single quarter in over 5 years. Now, for context, we were able to sign on over 130,000 square meters of new leases in the whole of 2024. And with this, Megaworld Premier Offices managed to capture up to 17% market share of the new leases reported in the industry. Meanwhile, our renewal rate for the period stands at 69%, showcasing our strong tenant retention and long-term partnerships with our occupiers. Next, to discuss operating updates of Megaworld Lifestyle Malls. For our Lifestyle Malls, rental income rose by 11% year-on-year to PHP 1.7 billion, driven by higher consumer spending, a full recovery of our foot traffic and strong operational occupancy. Our retail mix also improved towards premium tenants. Now, gross leasable area remains at 517,000 square meters. And while occupancy dipped slightly to 92% as of end March, but this is largely due to timing, and we expect this to improve in the coming quarters as new design leases begin to contribute. Now overall, tenant sales and foot traffic remain robust, providing confidence and optimism for sustained growth ahead. Now, retail performance, as I mentioned, has continued to strengthen this 2025. Average daily tenant sales grew by 7% year-on-year, supported by a 12% increase in average daily foot traffic, which has now grown past 2019 levels. The average daily spend this quarter also rose by 2% to PHP 575. Now, this boost in sales and foot traffic, combined with an occupancy rate of 92%, really has driven the strong results for our malls division. Looking ahead, we aim to further increase operational occupancy and retail mix, which will, in turn, support growth in more rental income. Okay. In the first quarter of 2025, we welcomed over 13,600 square meters of new tenant store openings across our mall portfolio. So notable additions include a major expansion from MC Home Depot in Uptown Bonifacio that brought in nearly 4,600 square meters of home improvement retail space. We also added Re-Q, a Japanese restaurant in Mactan Newtown and a new MR.DIY branch in McKinley Hill. Now these new tenants reflect our continued strategy of enhancing our retail mix with both lifestyle and, of course, essential brands to strengthen foot traffic and improve customer experience across our malls. We're also very excited to share that 2 new Gordon Ramsay restaurant concepts, Gordon Ramsay Fish & Chips and Street Burger are set to open by midyear in Mactan Newtown. This follows the success of Gordon Ramsay's Bar and Grill Restaurant at Newport and marks his continued expansion in Asia after his first visit to Manila. Now, the 2 casual dining spots will be located side by side in our 30-hectare beachfront township in Lapu-Lapu City. These additions are expected to bring new energy to the township, supporting local tourism and community life alongside our hotels, offices and, of course, residential developments and our upcoming convention center in Mactan Newtown. Okay. Now let us now discuss the performance of Megaworld Hotels & Resorts. Our hotel segment continued to achieve impressive growth through revenues reaching PHP 1.4 billion in the quarter, marking a 27% increase year-on-year, still the fastest growing business segment amongst our portfolio. This strong performance is attributed to an improved average daily rate of PHP 4,400, which has grown by 57% year-on-year and, of course, the new room keys that we have added over the past year in Grand Westside Hotel. Now while occupancy softened slightly to 63%, the overall performance still reflects sustained demand from local tourism and a continued shift to higher-yielding segments, as evidenced by our higher ADRs. With more than 5,300 hotel keys in our portfolio, I think we are very well positioned to benefit from further travel recovery and increased consumer spending. Hotel EBITDA margins is held steady at 14%, maintaining last year's levels. And this is despite lower occupancy, which really highlights the improved quality of revenue and disciplined cost management our hotel group is doing as we focus on capturing higher yield segments such as our curated hotel stay packages while remaining operationally efficient. Moving on with the presentation, I will now discuss the various targets and goals we have in place for 2025. This year, just to reiterate, our PHP 50 billion budget for CapEx this 2025, 80% of which is for project development, while the remaining 20% earmarked for land acquisitions. So far, we have spent around 20% of the budget, and we expect this to ramp up as we typically do more catch-up CapEx towards the second half of the year. Now, we remain optimistic in hitting our PHP 130 billion 4-year reservation sales target as it is a matter of launching projects in areas with strong demand, which is still present in today's market. We have some PHP 20 billion worth of project launches this year. And while we continue to focus on selling existing inventory and optimizing pricing, the new projects will focus our reservation that will support our reservation sales target in the rest of the year. Now, this will allow us to maintain healthy sales while ensuring that our projects align with evolving market dynamics. Again, Megaworld has always been flexible in adjusting its launch strategy. We can scale up or down based on market opportunities. And should demand accelerate, we are very well positioned to adapt and capture growth as needed. Now we are also on track to launch 2 new townships this year, which will bring our total to 37 townships by end of 2025. This is in line with our long-term strategy of expanding our footprint in both established and emerging growth areas across the country. So by ensuring we are present not only in current growth hubs but also in locations with strong future potential, we're positioning Megaworld to capture demand across various segments and geographies. Now, these new townships, of course, alongside our 35 townships, will serve as catalysts for sustained development and value creation over the long term. As part of our strategic growth, we also aim to expand our leasing portfolio, starting with our office portfolio. We plan to add some 140,000 square meters of GLA by 2026, which is around a 10% increase. These upcoming developments will be located across 5 of our premier townships all outside Metro Manila, underscoring our commitment to broadening our presence in key provincial growth areas. Now looking ahead, we are looking to reach our target of around 2 million square meters of office GLA by 2030. A substantial portion of our upcoming supply, over 70% will be located outside Metro Manila as we continue expanding our footprint in growth cities across Luzon, Visayas and Mindanao. So this regional strategy aligns with evolving preference, of course, of occupiers seeking high quality, while being cost-efficient spaces beyond the capital. So we're also strategically staging our developments to match, of course, market absorption, ensuring we maintain our healthy occupancy levels while providing room for future growth via these new office space additions. Now, we continue to expand our Lifestyle Malls portfolio as well with over 150,000 square meters of GLA in the pipeline until 2026. This includes 6 new malls across key townships ranging from Taguig and Cavite to Pampanga and all the way to Boracay to Cainta. Now these projects support also our goal of reaching 1 million square meters in retail GLA by 2030. Now our Hotels & Resorts divisions is set to add over 3,500 room keys across various strategic locations by 2029. Key projects include Chancellor Hotel Boracay, continued room openings of the North Wing in Grand Westside Hotel, and the upcoming Paragua Sands Hotel in Palawan. Now, the pipeline reflects our commitment to expanding our presence in key tourism and of course, business hubs where MICE activities are very prevalent. So catering to the growing demand for high-quality accommodations in these areas. Now, as we wrap up our discussion, I'd like to highlight the following key takeaways from our performance and outlook for the year ahead. Real estate sales remain healthy, driven by sustained demand across key townships and higher project completions. We expect this momentum to continue, supported by high completion rates and healthy residential market demand. For offices, we saw a very strong growth in the first quarter of 2025 with high tenant retention, positive rental reversions and rent escalations as well, which reinforces Megaworld's position as a leading office landlord. Now, looking ahead, we remain confident, and moving forward, as we continue to adapt to changing office leasing environment, we think performance will remain resilient, supported by strong tenant retention and leasing activities. Our malls division delivered increased rental income as higher operational occupancy foot traffic that has finally grown past 2019 levels and tenant sales all boosted performance. Now this trend is expected to continue towards this year and with sequential improvements in rent driven by a more premium tenant mix and a stronger consumer spending. Now finally, hotels sustained strong revenue growth, supported by higher average daily rates, new room keys and strong local tourism activities. With increasing international tourist arrivals and new room openings, we anticipate further growth in the hotel segment this year. Now overall, we are well positioned to capitalize on market opportunities. And thank you very much, and that ends my presentation. I will give the floor to Karl who will open the floor for questions.

Thank you, Sir Andy, for the comprehensive and insightful presentation. We will now move on to our Q&A part of our session. [Operator Instructions] And our first question live question will come from Jelline.

My first set of questions are more housekeeping. Can you please get the value of unsold inventory, the RFO mix as well as unbooked revenues?

Unsold inventory is PHP 122 billion. RFO is at 35%.

35%. How about unbooked revenues?

Unbooked revenues is at -- wait a moment -- PHP 121 billion.

PHP 121 billion. Okay. Understood. So it looks like unsold inventory declined quarter-on-quarter.

Yes.

Okay. That's good. And second is on the presales. Can you talk more about what you're currently seeing the pulse of buyer sentiment? You said earlier that you're still maintaining PHP 130 billion target and some weakness on the presales is also due to delays on new launches. Can you tell us more what you're seeing on the ground, which locations and income segments are seeing relatively better growth or which ones are challenged?

Thank you, Jelline. So in terms of reservation sales, I think it's important to highlight that, again, there's rhetoric on oversupply situation in the residential market. And we've -- this is largely in Metro Manila. And thankfully, Megaworld has already shifted its focus to provincial areas over the past many years already. So for us, our reservation sales target of PHP 130 billion for this year and our move to deliberately moderate our launches to just PHP 20 billion really reflects our strategy to the current market conditions. Demand remains strong in our provincial townships, and hence, why we are still continuing to expand in our 2 new townships this year will also be outside Metro Manila. And for -- and so that's for provincial townships. And in Metro Manila, demand is still present and very strong in key cities, particularly Taguig City. That's where we are seeing still a lot of demand. I think that is also a factor of the quality and access to all the amenities and the infrastructure in Taguig. Of course, it's nearest to the CBDs as well, near to BGC CBD or even Makati CBD. And maybe the buyers are aware there are less and less projects to be launched in Taguig as land is becoming more scarce. Now for 2025, we plan to launch 7 projects, right, 6 of which will be in provincial locations, and this will allow us to focus on selling existing inventory, optimizing pricing and ensuring our -- offerings remain aligned with evolving buying preferences. Now in terms of buyers preferences, there is more -- again, I think provincial areas, we are relatively okay. We're relatively still very, very strong compared to the previous year. But in Metro Manila, we have to be more selective in launching and, hence, only the PHP 20 billion launched this year. So it's going to be a 2-pronged approach for us this year: provincial expansion, which -- where demand remains strong; and then selective high-value Metro Manila projects for areas with strong demand, such as Taguig.

Do you still have a land bank that's developable in Taguig?

Yes. We still have some more land bank in Uptown and in McKinley Hill in West. Actually, yes, yes, you're right. So Uptown Modern, we only just launched 1 wing so far, and we are still waiting to launch a second wing when the timing is right. So there's still that project upcoming as well.

Understood. Thank you. And then third is on office occupancy. Can you help us explain about the quarter-on-quarter decline despite the year-on-year growth?

I think Sir Roland can answer.

Would you want to take that question?

Jelline, congratulations on your new office. Jelline, we added inventory in the previous quarter. We opened for leasing our Iloilo building, and that affected our occupancy.

Sir, Roland, so it's more like a timing issue, the replacement tenant is under a rent holiday? Is that what it means?

It's more of -- effectively, the Iloilo occupancy went down because of the fresh inventory, and it affected our overall occupancy because of the new building that we completed in the fourth quarter of last year.

Okay. And...

That's around 40,000 square meters.

But was it already contributing into the revenues in fourth quarter?

No. Because you were asking about lower occupancy, right? So the lower occupancy was affected -- was influenced by the higher inventory that we have as of the end of the year. And in terms of revenue, it went up because we had a lot of leases that came actually in the fourth quarter. So yes, it's a matter of timing actually.

I can also add to that discussion. Jelline, so one of the largest reasons for the uptick in our office revenue, one, yes, we improved our occupancy this quarter, 87%. That's compared to 86% as of end 2024. But year-on-year, it's about the same. But we also turned over IFC, which is 70,000 square meters of new office space in Uptown Bonifacio, which is long term -- yes, yes. Hence, congratulations to your new office. But it's a long-term lease, but it's from you, not me, the naming. But it's a long-term lease, and that began revenue contribution sometime in third quarter of 2024. Although it wasn't still fully contributing in third quarter of 2024. Where we saw full rental contribution was during fourth quarter. And that is why when you look at our quarterly revenues, it's in fourth quarter of 2024 where it started to pick up significantly. It's also a matter of -- because it's a long-term lease with annual escalations also in the contract than the rent -- straight-line adjustments during the first year's impact to revenue recognition would be more.

Next question, we have [ Paul ]. You're acknowledged.

I would like to ask 2 questions about the residential statement. So first is your cancellation rates. Can you provide any color on your -- on Megaworld's cancellation rates during the first quarter of 2025? And how does it compare from the same period last year? So that's my first question.

It's about 5% to 10%. So this depends on a per brand basis. For Megaworld-branded development, it would be closer to 5%. But for our other brands, such as Empire East, SunTrust, it would be closer to 10% or higher. But on average, it's between 5% to 10%. It's similar to the previous years. We only experienced a slightly higher cancellation rates during 2021 and 2022 during the height of the pandemic. When the dust settled, that's when we experienced higher cancellation rates. But ever since 2023, it started improving, bottoming out. 2024, we're back to 2019 levels, and that's -- or normal levels, as we call it. And that's the same for this quarter.

I guess my next question is about your inventory life. Can you provide your inventory life for your residential segment as of 1Q 2025? And are there any targets for Megaworld in terms of your inventory life -- in terms of years?

Yes. So our unsold inventory is about 13 to 14 months based on the latest trajectory during the first quarter of 2025, which is significantly lower compared to industry. I think the industry is somewhere north of 2 years. I think some are even closer to 3 years or 4 years, which, hence, is the fear and the rhetoric amongst consultants of the oversupply situation in the Philippines. But thankfully, our inventory levels are -- we have been prudent in launching post pandemic, very cautious as well of not oversupplying not only the market but especially our own assets, our own townships, that is our promise to our buyers as well. So target-wise, I think when you look at historical levels of inventory for Megaworld, we'd like to hover at around a year's worth of inventory. So we're just right about at that mark.

Next one will come from Carl.

Let me just check if you can hear me first.

Loud and clear, Carl.

I'll start off by asking about promos and discounts on your residential inventory, more so for RFO, I suppose. Could you tell me what sort of promotion discounts you have now? I believe last year was an anniversary year, and so you gave a lot more -- a lot of promos and discounts relative to prior years. What about now?

Now is the same promos that we typically have in terms of a normal year, which is typically just a cash discount of maybe 7% to 10%. And last year, during anniversary year, that was more. I think we -- for some projects, we reached 20% discount for cash payments. But for now, it's below 10% cash discount for -- so it is normal, and hence -- yes, it's normal. I think where we are giving more leniency is like last year, we now have -- for our RFOs, we have more payment options. One payment option will be a 5% downpayment, and then they are asked to pay maybe 10% to 15% over the next 2 years. So that would mean you would reach about 10% equity collection somewhere towards the end of the first year. And the second option would be a 10% downpayment, which would allow us for revenue recognition at the get-go, and then they are allowed -- they can opt to pay 10% over the next 2 to 3 years and then do the bank loan or pay the remaining balance. So those are some of the new options that we have rather than just having a 20% downpayment engine going to the bank directly or having to pay cash for the whole project.

And to clarify, they can move in within maybe a quarter of making that -- let's say, 5% downpayment?

Yes. Correct.

On the office segment this time, so it was mentioned that Iloilo was technically complete. But let's say, for the quarter-on-quarter improvement in occupancy, in what areas did you see those -- the improvement?

Carl, were you referring to Iloilo or overall?

No. So overall, I think the occupancy in the fourth quarter was 86%. It became 87% in the first quarter of this year. So I want to see -- so I'd like to ask where you saw more take-up.

Yes, during the first quarter, most of the take-ups were in Uptown followed by McKinley West, but we also had a take-up in Iloilo. So those were actually some of the areas that have better interest. Eastwood and McKinley also had a lot of interest during the first quarter. So it's essentially well distributed, but the majority came from Uptown.

Got it. And were there areas where you actually lost tenants on a net basis?

Yes. Actually, there was a spillover of pre-terminations of the POGOs who left because of the Executive Board of President Marcos. So we experienced setbacks in those areas.

Could you tell me where that was? Was that Southwoods?

Yes, that's right. No, Southwoods was last quarter, [ not ] this quarter. We had one in Pasay that left. But it's not substantial. It's just in a small building.

Got it. So anyway, to summarize, you're saying you saw more sign-ups in Uptown, in McKinley, Eastwood, and you lost some tenants in Pasay.

Correct.

Got it. And with respect to renewal of contracts, I believe last -- in the fourth quarter, you mentioned some -- there were a few contract renewals at higher rental rates. Did that still happen in the first quarter?

There were more actually that happened with higher rental rates this quarter.

Would you say most of the -- does that mean that more than half the renewals in the first quarter were actually for higher rental rates? Is that what...

I would say so.

Okay. Okay. Yes, I'll ask about the mall division this time. So there was a big -- so there has been a big improvement in mall revenue. And if I'm not mistaken, practically, the floor area is the same number, first quarter '24 and first quarter '25. Should I assume -- does this mean people are spending 15% more in the mall or thereabouts? Is that correct?

Carl, yes, that's a good assumption because what we -- when we look at our KPIs, actually, everything is up. Foot traffic is up, spending is up, and occupancy is up as well. So we're actually maximizing the remaining spaces within our mall. As you said, our leasing rate is around about 92% as we speak. Actually, operational rate is slightly lower than the leasing rate because the leasing rate is always a little bit higher because it's giving you an indication of what new tenants are coming in. But operational, we are really hitting historic highs of around about 90%. So you're right. We're actually becoming more efficient in our leasing operations. And the tenants are doing well as well. So we're seeing a lot of tenants were 7% up in their overall revenue. So all aspects are quite strong at this point. And we expect that to continue in second quarter as we -- as the constructing tenants, the leased-out tenants start to operate or so. So it will follow. As we increase our leasing up to 93%, 94%, hopefully, by the second quarter, operational tenants will also rise as well. So yes, we're quite bullish for the second quarter, and we will hope to maintain that for the remainder of the year.

Got it. And finally, I'll ask about the hotel business. There was a big jump in average room rate. But I'm not sure if that's mostly because of, let's say, Grand Westside, which really is probably -- which has a lot of rooms and might have brought up the average room rates. If I were to strip out the new hotels or, let's say, the hotels completed over the past year or 1.5 years, would the average -- how much would the average room rates be increasing on a per-hotel basis, right, on a same-hotel basis?

Thank you for the question, Carl. Actually, the growth is a result of extensive efforts and a wide range of endeavors and strategy. But 2 things stick out. That's really the attribution to the increase of ADR. And it's not just the addition of the Grand Westside Hotel. In fact, only 7% of total revenue is contributed by -- that's substantial, though. We've been very focused on our -- the balance of volume strategy as well as pricing strategy. We've really been partnering with preferred online travel agencies, so that we can have a good yield on our average daily rate. In the past quarters, we have been very focused on capturing international tourists, but we did realize that even the domestic market can be very capable of packages that will give them hyper-personalized offerings, like we did for our sleep package. There is so much focus on sustainable travel, which we can price higher than our regular room rates. So aside from the additional inventory, the focus on e-commerce and being able to yield and maximize the availability of our suites, we actually added across a number of our hotels, the presidential suite. So our ADR will have a potential to really increase. And in Mactan Newtown, we were also able to create packages that maximize the availability of our leisure amenities with the opening of the Mactan Newtown Beach that allows us to price our rooms well, and the yield of the ADR has been a very good contributor to the growth.

Let me see if I understand this, right? So Grand Westside, as you said, didn't contribute that much. But anyway, so the average room rate went up 50-plus percent, right? So on items you mentioned, I would have expected occupancy to go up, but you're saying they also brought up the average room rate. And I guess, partly, if I understand correctly, you're saying it's also because you are able to lease out -- yes, let's say, lease out the presidential suite of the various hotels more, and that brings up the average room rate. Is that part of the reason why? Because...

The ADR is -- the increase of ADR is really a result as well of our -- the balance of the pricing strategy and the volume strategy. If you see, Carl, our hotels, we have 500, in average, in terms of room inventory. So in the past years, we have been very focused on volume strategy where we tried to capture MICE and group businesses that are actually very low rated. For the third and fourth quarter of 2024 as well as for the first quarter, we have been very focused on really improving ADR because we've seen that it is really giving us the spike of the growth where we are able to maximize the packages and the preferred partnerships where we offer room rates that are higher than usual with the experiential packages that we're able to offer to our guests, given the amenities that have increasingly been added to the townships of Megaworld that are quite maturing, like the likes of Mactan Newtown. So our packages are priced higher instead of just giving -- or targeting the volume were really creating a strategy to increase the price, to improve our ADR because we're seeing that despite the dip of international arrivals, we're able to maximize and optimize the pricing.

Got it. And I guess, let's say, as a retail traveler, would I -- would it be, as an example, if I were to go to Agoda or Booking.com, I would see a higher rate now than before. So is that one of the avenues whereas versus, let's say, a more traditional travel agency trying to get MICE events?

We created partnerships for preferred online travel agencies as well where -- and we assisted in creating availability of prices that are beyond our usual. If you see, there are online travel agencies that really offer very low. But we've got allocations we've tried to streamline. If, for example -- case in point, if you talk about Agoda, they are really one of the lowest online, but their allocation would just be 10 hotel rooms at a certain level and a certain price where they sell it at the baseline of say, PHP 3,000. The next tier of allocation for them will be priced at PHP 4,000. So once people actually ask where to purchase where they can get cheaper, it really depends because we have partnered with online travel agencies where we can maximize our ADR strategy and our pricing strategy card.

Since no more hands have been raised at this moment, we will now proceed with other questions submitted to us via the Q&A box. We have a question here from Marco that reads: Are there immediate plans to pay down U.S. dollar debt? Given Philippine pesos trend, what foreign exchange rate are you looking at to consider reducing exposure to U.S. dollar? I think, Sir Andy can answer this.

Thank you, Marco. So we still continue to actively monitor the exchange rate, right, and its impact to our financial position. So currently, our strategy is either to pay down or refinance our dollar debt when the U.S. dollar and peso ForEx rate is favorable or hedging it completely. So in 2024, our $250 million expiring bond was actually refinanced with a $200 million bank loan, and we paid down $50 million in cash. And just to reiterate, the bank loan of about $200 million back then is fully hedged in 2024 with a cross-currency swap. So in summary, around $200 million of Megaworld's $550 million gross dollar exposure in debt is fully hedged through that cross-currency swap. So we both -- we locked in both principal and interest payments in Philippine peso. So that effectively reduces a lot of our ForEx exposure already during 2024. And it's now just the remaining $350 million that is unhedged, which relates to our U.S. dollar bonds. That is due in 2027. Now given the promising strength of the peso recently, definitely, we are, again, actively evaluating our options to at least reduce or manage this exposure moving forward. So yes.

Thank you, Sir Andy. And it seems that we have already exhausted our time allotted for this session. As we conclude, we would like to express our sincerest gratitude to everyone for participating in this briefing. Should you have any question, please do not hesitate to reach out to us via e-mail. Stay safe, and we look forward to engaging with you again soon. Goodbye, everyone.

Thank you.

Thank you.

Bye, everyone.

Thank you.