Robinsons Land Corporation (RLC) Earnings Call Transcript & Summary

Welcome to Robinsons Land Corporation's analyst briefing for the first 6 months of calendar year 2022. Joining us today from RLC are Mr. Frederick Go, President and Chief Executive Officer; and the rest of the IR team. RLC will give you a presentation on the company's unaudited results for the first 6 months of 2022. At the end of the presentation, there will be a question-and-answer session. We will now proceed with the presentation.

Thank you for joining Robinson Land Corporation's earnings call. We are pleased to share with you the continuation of our recovery path by taking you through our unaudited financial results for the first half ending June 30, 2022, further discuss operational highlights, including our CapEx spending, provide updates on our digital and other initiatives, our growth plans and future strategies, our ESG journey and conclude with an update on our shelf registration and upcoming bond offering. To set the tone, kindly allow us to provide a summary of RLC's performance and operational highlights for the first half. Generating PHP 5.4 billion of net income for the period, profitability continues to improve even without the contribution of Chengdu earning from sales and impact of [indiscernible] in 2021, net income remained above prepandemic levels. Our mall business is on track to full recovery by end of 2022. The residential business improved tremendously quarter-on-quarter, complemented by sales momentum of joint venture projects. There's still no denying the resilience of our industrial and office businesses as they continue to yield stable results. Our Hotels business is recovering strongly, notwithstanding the transition from quarantine business and [indiscernible] preoperating expenses for new hotels. And lastly, our China investment continues to bear fruits with the recognition of revenues from phase 2 and receipts of dividends. Despite [indiscernible] and unprecedented socioeconomic environment, we believe our business is by design, well positioned to deliver value in this climate. We welcome the second half of 2022 with our 85 residential buildings, 52 lifestyle centers, 39 housing subdivisions, 28 office developments, 24 hotels, 21 mixed-use development, standard industrial facilities and workable centers. Turning now to the financial performance highlights, starting with the consolidated performance. As the business transitioned to the lowest COVID-19 alert level, RLC saw a growing sense of optimism and is poised for sustained recovery. Even though this year's results are up against a difficult year-over-year comparison, owing to the high lease effects of the recognition in 2021 of revenues from phase 1 of our China projects and lost sales in our Bridgetowne estates, we are pleased to report that RLC still managed to deliver top line growth of 6% to PHP 27.5 billion in the first 6 months versus the same period last year. The strong performance was driven by the accelerating recovery of our investment portfolio led by the malls and office businesses, mostly by the recognition of higher revenues from phase 2 of our China projects. Margins remained relatively intact with EBITDA EBIT coming in at PHP 9.7 billion and PHP 7.1 billion for a 5% and 6% increase, respectively. Given the significant drop in provision for deferred income tax last year due to the enactment of CREATE, net income in the first half, slightly dipped by 3% to PHP 5.36 billion, but still above prepandemic levels by 34% from PHP 4 billion under the new accounting formats. Removing the impacts of BTE sales in 2021, 2022 first half net income would have accelerated by 41% on the back of a 17% revenue lift, 27% rise in EBIT and 20% jump in EBITDA. Meanwhile, second quarter revenues more than doubled versus a year ago to PHP 20.8 billion and more than threefold compared to the first quarter. On the other hand, second quarter EBITDA of PHP 6 billion was 21% more versus the second quarter 2021 and 60% higher versus first quarter of 2022. EBIT improved by 28% to PHP 4.7 billion compared to last year and by 96% versus the first quarter. RLC finished the second quarter with net income of PHP 3.7 billion, which was 42% better than last year and 109% higher than the first quarter. Led by the company's mall and office businesses, the investment portfolio contributed 38% of total revenues, 65% of overall EBITDA, 52% of consolidated EBIT as well as 52% of net income. The balance was from the development portfolio, mainly driven by the recognition of earnings from phase 2 of our China project. RLC's financial position remained strong with total assets of PHP 211 billion, which includes cash of about PHP 8 billion. Shareholders' equity landed at PHP 131 billion net of about PHP 2 billion of treasury shares from the company's buyback program, which commenced in November last year. We have a well managed debt portfolio with 100% lock-in fixed rates. Total debt outstanding as of June 2022 ended at PHP 46.3 billion, translating to 30% net debt equity ratio. Earnings per share was at PHP 0.91 per share already at 59% of 2021 EPS with 6 more months to ago. Moving on to the performance of each of our business units, starting with Robinsons malls. In both consumer spending and retail sales, [indiscernible] to PHP 5.7 billion accounting for 21% of consolidated revenues. EBITDA jumped 45% to PHP 2.9 billion while EBIT quadrupled to PHP 1.1 billion year-on-year on the back of percentage growth in depreciation spend. On a current basis, Robinsons malls garnered revenues of PHP 3 billion, 57% higher than the second quarter last year and 14% more than the first quarter this year. Robinsons malls continues to assert itself as the second largest mall operator in the country highlighted by 52 lifestyle centers, spanning 1.6 million square meters of the leasable space that's 91% leased out by over 8,000 retailers. We are pleased with the recovery trajectory of our mall operating fundamentals in the first half with operational GLA at 83%, number of operational tenants at 88% and total -- and footfall at an impressive 85% of pre-COVID levels. This speak volumes as far as the fundamental strength of our mall portfolio that is very much consumption-driven. We are excited to share that we have expanded Robinsons Place Antipolo's GLA by 40%. And furthermore, we have opened the new wing last May 2022 in time for the summer season when foot traffic is at its highest in the area. Robinsons offices delivered stable top line results, with a 12% growth in revenues to PHP 3.6 billion in the first half, accounting for 30% of consolidated revenues. The stable performance is primarily driven with the strength of its portfolio consisting of 28 quality office developments, spanning across 688,000 square meters of leasable space in strategic locations, bolstered by the successful leasing activities in new buildings, named Cyber Omega in Ortigas Center, Cybergate Iloilo 1 and Bridgetowne East Campus One. EBITDA rose 80% to PHP 3.1 billion, while EBIT grew 21% to PHP 2.6 billion. To serve the continuing demand for flexible workspaces, we have opened a new workable sites in Cyber Omega located in Ortigas, Pasig City. These new sites has 80 seats, which brings our total workable offering to 1,900 seats to date. [indiscernible] by the ease of travel restrictions and the reopening of the country's tourist destinations, Robinsons Hotels and Resorts exceeded 2021 revenues by 53% to PHP 806 million. On the other hand, preoperating expenses weighed on EBITDA and EBIT, which flows at PHP 43 million and [indiscernible] respectively. Excluding preoperating expenses, EBITDA would have grown by 14% year-on-year while the decline in EBIT would have only been 8%. To date, RHR remains the largest hotel operator, developer in the Philippines in terms of number of hotel properties with its 24 hotels in a continuously expanding multi-branded portfolio. Laying the groundwork for the anticipated resurgence of the tourism sector, RHR completed Go Hotels Plus Naga, Go Hotels Plus Tuguegarao and Summit Hotel Naga in the first half, bringing total room keys to 3,300 rooms. Go Hotels Plus is RLC's updated essential value hotel brand showcasing contemporary designs. New project launches rates with combined net sales take-up of RLC residences and Robinsons Homes by 9% to PHP 6 billion in the first half, represented by the red and blue bar graphs. This high single-digit growth was driven by a 7% improvement in net sales pickup in the second quarter at PHP 3.1 billion. Meanwhile, net sales take-up from joint venture projects with Hong Kong Land, Shangri-la and DMCI, represented by the yellow bar graphs, outperformed the previous year by 47% to PHP 5.1 billion. Net sales take-up in the second quarter was particularly robust, soaring 70% to PHP 3.2 billion. On the other hand, the performance gap in the first half versus the previous year continues to narrow with realized revenues down to now only 11% to PHP 4.2 billion. EBITDA and EBIT likewise only fell by 14% and 15%, respectively. This turnaround is attributable to improved second quarter results with RLC residences and Robinsons homes achieving a 97% uptick in BLS revenues on the account of higher full equity sales and lower cancellations. EBITDA and EBIT were better by 154% and 161%, respectively. In the first half, RLC launched 3 new residential projects worth approximately PHP 6 billion mainly AmiSa Private Residences Tower D, Sierra Valley Gardens building 3, and Woodsville Crest Pine building. With a strong performance in the first half, RLC continues to make significant strides in JV projects, registering healthy sales take-up across all 3 projects. Just a little over 2 years from launch date, Aurelia is already 68% sold, Velaris at 54%, and Sonora at 40%. We made important progress in our pursuit of becoming more even in the digital space, and we have completed 7 industrial facilities to date, and we are just starting to scale with most of the upside opportunities still ahead of us. In the first half, we more than doubled our industrial leasing revenues, EBITDA and EBIT relative to last year to PHP 259 million, PHP 229 million and PHP 155 million, respectively. And this is mainly attributable to the full year contribution of industrial facilities to complete the last year in Sucat and in Pampanga. Under Robinsons integrated developments, we are pleased to report that we have completed the interchange exit near Montclair near Clark Freeport Zone. We have also launched Sierra Valley residential projects and leased all retail space in Sierra Valley. Furthermore, we have started the land development in Bridgetowne East. Meanwhile, PHP 256 million of revenues from the sale of parcels of land to joint venture entities were acquired in the first half. EBITDA and EBIT landed at PHP 142 million and PHP 140 million respectively. The significant prior year revenues, EBITDA and EBIT include earnings from the sale of land in Bridgetowne East to our JVs with Shangri-la and Hong Kong land. Our China investment continues to bear fruits. And in the second quarter, we are pleased to share that we have officially booked revenues from Phase 2 following the completion of development and handover activities amounting to PHP 12.7 billion. EBITDA and EBIT both clocked in at PHP 1.7 billion each. In addition, we got back almost all of our USD 225 million of invested capital. Furthermore, we are happy to share that we have also received dividends amounting to USD 24 million. For the first half, RLC spent PHP 12.5 billion in capital expenditures for the development of malls, offices, hotels, warehouse facilities, acquisition of land and construction of its residential projects for its local operations. This is equivalent to 49% of RLC's PHP 25.5 billion CapEx budget for the fourth year. We wish also to update everyone that RLC has already reinvested about 76%, of which PHP 22.7 of IPO proceeds in accordance with its reinvestment plan. To support RLC's expansive growth plans, land bank now spans across more than 800 hectares with a value of about PHP 133 billion. Two sides of which is attributable to the land bank value of our destination estates. We continue to build sustainable communities that espouse the live-work-play-inspire lifestyle. Currently, our destination portfolio is composed of the 31 hectare Bridgetowne, spanning the board of Quezon City and Pasig City, the 18 hectare Sierra Valley located in Cainta, Rizal and the 200 hectare Montclair located in Pampanga. By way of update, RLC hosted 2 international sports events in Bridgetowne in partnership with Pilipinas Obstacle Sports Federation. The first one was a world obstacles Ninja World Cup #1; and the second one was the Modern Pentathlon. Bridgetowne's expansive spaces and roads make it conducive to all those sports. Moreover, Bridgetowne recently unveiled a 20-storey sculpture called Victor beside its landmark bridge. Moving on, we are positioning ourselves for the future by expanding our digital footprint and investing in various initiatives. Leveraging the reach of our strong omnichannel platform, we have introduced innovative advertising and multiple campaigns for Robinsons malls as shown in this slide. From May to July, 2 campaigns for brand and ready for occupancy, our RFO campaigns, were [indiscernible] on ground and online for maximum exposure. For Robinsons Hotels and Resorts, we have launched RHR mobile app with the ultimate goal of improving end-to-end guest experience. Now for the [indiscernible]. Apart from expanding our Antipolo mall, we also target to open Robinsons Place Gapan in Central Luzon and commenced with the Forum redevelopment in 2022. Next year, mall footprint will exceed 1.6 million square meters with the opening of Opus at Robinsons space Pagadian. Opus is a luxury mall, which will [indiscernible] while Robinsons space Pagadian will be located in the vicinity of the city capital and landmarks. We also have a robust pipeline for our office division this year, consisting of the opening or completion of Cybergate Galleria Cebu, Cybergate Bacolod 2 and Cybergate Iloilo 2, which will push net leasable space to 741,000 square meters. Next year, we plan to complete GBF1 located in Metro Manila for a 7% growth in annually to 793,000 square meters. Our logistics and industrial facilities division delivered 167,000 square meters of industrial space last year with the completion of 3 new industrial facilities. And there were no planned completions for this year, but next year, we target to complete another industrial facility in Calamba and in our Sierra Valley destination estate in Cainta, which should propel GLA to about 270,000 square meters. Our residential division successfully launched about PHP 6 billion of residential projects and [indiscernible] PHP 6 billion of net sales in the first half. It is gearing up to launch more projects this year, depending on market conditions and product readiness. Lastly, Robinsons Hotels and Resorts is on chart to deliver an 11% increase in hotel room keys this year with the opening of Summit Naga, Go Hotels Plus Naga and Go Hotels Plus Tuguegarao in the first half slated to open [indiscernible] and the remaining rooms of brand Summit GenSan. In 2023, RHR targets to end the year with over 4,400 rooms with the opening of its second luxury homegrown hotel in Cebu, NUSTAR hotel, it's an international branded hotel, Westin and the remaining rooms of Fili Urban Resort hotels. Pivoting now to our ESG journey. With a strong environmental platform to date, 24 Robinsons malls are harnessing solar power with a total capacity of about 31 megawatt nationwide, which translates 110 million-kilowatt hours of clean energy and over 78,000 metric tons of carbon dioxide avoided. As an advocate of environment-friendly modes of transportation, we have 21 medical-friendly establishments. RLC also experienced other community recycling efforts, including the weekend recycling market, bottles to soil program and the minimized waste, maximize space, decluttering program. Four of our office developments have acquired [indiscernible]. We have held cheap planting activities in a different localities nationwide. All Robinsons malls are designed with the system for wastewater conservation and recovery, and 29 of our malls have rainwater collection systems. Furthermore 15 malls use recycled water for nonpotable use. Aside from this, Robinsons malls and offices installed water efficient fixtures in its restrooms to further boost water consumption in its establishments. The focus on giving back to communities and to date, RLC has already helped more than 5,300 beneficiaries from calamity-stricken communities of our [indiscernible] Tacloban post the Typhoon and the fire incident in Puerto Princesa. [indiscernible] Pinoy transport hubs, local stores, [indiscernible], remain to be pictures of our community development efforts [indiscernible] public school children, and we're helping 10 schools through our [indiscernible] program. There's a longstanding commitment to good corporate governance and stewardship and we have adopted an anti-bribery and anti-corruption policy to uphold appropriate ethical and responsible business conduct. Moreover, RLC has duly complied with the registration process of the Anti-Money Laundering Council pursuant to the Anti-Money Laundering Act. These are just the pictures of the ESG activities that we have done in the first half. Moving on to the second part of our presentation. I would like to turn over the floor to our Chief Financial Lease and Compliance Officer, Mr. Kerwin Tan.

We are pleased to share with everyone that we have received pre-effective clearance from the SEC last August to raise as much as PHP 15 billion by the initial tranche of our PHP 30 billion shelf registration debt securities program. For the first tranche, we are offering to the public up to PHP 10 million of Series E bonds June 2025 and Series F bonds June 2027 with an oversubscription option of up to PHP 5 billion. Net proceeds from the bonds shall be used to finance our CapEx program until 2024, repayment of maturing debt obligations and for general and corporate purposes. Target offer period is from August 15 to August 19. And listing date is on August 26, 2022. We are currently doing book-building activities and the book is at least 6x oversubscribed. According to the banks for the bond districts this year, we are currently holding a record in terms of the number of oversubscribed. This is a testament of the market confidence with the company.

This ends our presentation. We are now ready to take some questions. Thank you very much.

[Operator Instructions] Our first question comes from the line of Mr. Carl Sy.

I'm Carl Sy of Regis Partners. I'll just check first if you can hear me?

Yes, we can hear you Carl.

Great. So I have a number of questions about the various segments. I'll start off with the mall business. Could you give us some idea of the rental concessions you still granted to tenants as of June? And perhaps you could tell us when you expect to remove all concessions?

I'll answer that for the mall. So until June, we still gave minor concessions for affected tenants. But starting July, we are already charging full rental for the tenant, starting July.

Starting July, full rent. Got it. And then for the residential business this time. So there was a mention that cancellations were lower now than before. Could you give us some idea of the value of cancellations or revenue reversals or yes, or anything really? For both of you, yes.

For the quarter, the cancellations is about PHP 800 million.

So PHP 800 million. And let me clarify, that is the -- is that a revenue reversal number?

Yes, that is a revenue reversal number.

Got it. And what was the unsold inventory as of 2Q?

The unsold inventory as of 2Q is about PHP 23.7 billion.

Okay. And now for the office pre-leasing this time -- I mean, sorry, for the office segment. Could you give me the pre-leasing figures for -- even the aggregate number for the buildings this year?

Sure, Carl. For Cybergate Galleria Cebu, it is 23% leased. Cybergate Bacolod 2, is 24 -- Cybergate Iloilo is 24% leased. So combined, it's about 17%.

Sorry, Sorry, what was the Iloilo number?

Iloilo is 24% leased, Carl.

And I may have missed one. So the numbers I have are 23.4% and 24%. So it's 23% pre-leased, is that fair?

It's 17%.

Yes, sure. I will just ask on the China business this time. Let me just confirm if essentially, all the sold units have been recognized as revenue already? So for China, you can only recognize revenue going forward, if something is sold. If there's nothing -- yes, because all construction is complete, essentially. Is that correct?

That's right.

Our next question comes from Ms. Jelline Gaza.

Hi Jelline, we can't hear you. Can you hear Jelline?

We can't hear Jelline. Maybe we can go first to German, and then we can go back to Jelline, Erica.

Can you hear me?

Yes, German.

Just a few questions on malls. First, just want to ask the reason for the quarter-on-quarter drop in EBITDA margins for malls in Q2? And then second, may I ask for the mall footfall in the month of June? And if you may give us any indications for Q3? Same question as well for operational GLA.

Yes, I'll just answer your first question, and I'll let Faraday answer the subsequent questions. The drop in margin was due to the higher energy prices. We buy most of our energy from Meralco and from RES contracts, which had escalations because of the higher coal prices.

Sorry, the next question could you please repeat it, the last 2 questions.

Yes. All right. Just want to ask for the footfall and operational numbers for the month of June? And if you can give us any indications for Q3?

Okay. The footfall for the month of June is at 88%. Then for July, is at 90%. Yes. Then the other one is the operational GLA. Currently, in July, we're at 87%.

We would now try again Ms. Jelline Gaza. Ms. Jelline, we're still unable to hear your question. Perhaps you may try to chat box. [Operator Instructions] Apologies, ma'am but we're still unable to hear your question.

We have a question from the Q&A box. Can you please remind us how much was the cancellation in previous quarters?

So for the first quarter, the cancellation for the revenue reversals about PHP 1.14 billion.

We have another question from Mr. Carl Sy.

Just checking if you can hear me?

We can hear you, Carl.

Great. So I have some questions more on the outlook this time. So first, on the residential -- let's say, the residential cancellations. They've been coming down for, I think, 2 straight quarters now. So I just want to share also, should we expect this to keep coming down, let's say, of your current outstanding residential customers? Does it look like a smaller and smaller portion is not paying on time or should -- are there still a lot of people not paying on time? Yes. Can you give us some, yes, color on that.

Answer that, Carl, let's just divide the whole set into 2 subsets. Historical subset, which we define to be all those cancellations that were built up over the 2.5 years of the pandemic. If you're referring to that, then yes, we are expecting that to slow down, however, continue for maybe the next 2 quarters. And hopefully, after the next 2 quarters we will be done and over with the so-called historical subset of cancellations. For the future, it's probably too early to tell, but we're now experiencing record sales. So very good sales for our residential business seems to be coming in now. And if the longer-term history remains intact with higher sales, come higher cancellations as a ratio. So that might happen. But if your question is whether we're seeing higher cancellations more than the usual prepandemic, then the answer is no.

Got it. And on the office segment this time. So again, so some BPOs have previously said that they would implement work from home, which to me should imply that at least some BPO firms will -- or might reduce office space. I was wondering if these -- I understand last time, I asked this as well, but I wonder if now, have any of your BPO tenants said anything about reducing office space, at least when their contract expires?

No more. I think all those who wanted to jump ship have already jumped ship. So right now, we're signing up more leases, both in old buildings and new buildings. So we don't see that happening in our portfolio at least. However, I guess, the net effect of that is, for example, if the aggregate demand for office space would have been, for example, 100,000 square meters in, say, 20 -- for a certain period of time, say, 2022, if there's 30% work from home, then theoretically, maybe that demand would drop to somewhere between 70,000 to 99,000 because of the -- because of some work-from-home or work-from-anywhere situation. But what we see is that the BPO industry continues to grow. And as far as we're concerned, we didn't see any more cancellations or intend to leave us in the last 3 months.

Got it. And on, let's say, the office rental rates. So what -- I understand, of course, in your case, your vacancy rates are actually quite low. But for the industry, they're in the high teens. And for a number of the consultants, office brokers do say that some rental rates in large part would be, let's say, 20-something percent lower than 2019 levels. I was wondering if any of your -- for any of your tenants, if on contract renewal, you now have negative rental versions?

I don't have any specific knowledge of specific rental reversions. But I think to say that the rental rates will soften is a fair statement. I think that with growth tempered and still some supply coming in or some available taken spaces in the supply market, I think it would be quite fair to expect rental rates not to be on the up and up, no. However, right now, our revenues are up 12%. Our EBITDA is up 18%. Our EBIT's up 21%. But I reckon there must be some rental reversion there that's lower. Sorry, I don't -- I'm not watching it on a lease per lease basis. Yes.

From the Q&A box, a question from Ms. Jelline Gaza. The outlook on cancellations has already been answered. Your other question, what drove strong residential revenues in 2Q? And is this sustainable?

Well, we never try to predict whether -- our residential business is growing, dropping or remaining steady. We've always maintained for the last 30 years that the residential business is an unpredictable business. So it's hard for us to try to make a prediction. But we did experienced some very good sales from the market in 2Q and the early part of 3Q. I'd like to blow our own horn, but it's partly true. I think our residential organization is trying to put in a lot of new departments, beef up the sales force, try to be more customer-centric. I'd like to think that those are the reasons for the better sales, but you're never quite sure.

Follow-up question from Mr. Jelline Gaza. First follow-up question is what is the Chengdu net income contribution in peso value? And what -- when do you expect to achieve 100% operational GLA?

For the Chengdu Projects, the net income contribution is 21%. The value is PHP 1.1 billion.

The 100% recovery of the shopping mall business, well, we're hopeful that by the end of the year towards Christmas of this year, everything should really be back to normal for the shopping center business.

Question from Ms. Wendy Estacio Cruz. Which income segment buyers and which projects, vertical or horizontal, is mostly comprising the residential sales cancellations?

I don't know if we have that number.

We will just get back to you separately on that question.

A follow-up question from Ms. Wendy. Could you provide the office tenant profile, BPO, traditional and others comparing first half versus last year and versus the same period in 2019?

We have been always largely occupied by BPO tenants. So for the first half, it's about 65%. And then in terms of the other tenants, we -- our Pogo exposure is below 2% and then the rest are traditional office speakers. Pre-pandemic, we have been hitting about 70%, 75% for BPO locators.