Results of Operations for the Three Months Ended March 31, 2012  

Ayala Land, Inc. (ALI or “the Company”) sustained its high growth trajectory in the first quarter of 2012 as net income grew by 31% to P2.13 billion from the P1.62 billion posted in the same period last year. Consolidated revenues for the first quarter reached P12.39 billion, 17% higher than the P10.59 billion posted in the same period last year. Revenues from Real Estate and Hotels increased by 18% to P11.77 billion, comprising bulk of consolidated revenues, largely due to the strong performance of all business lines. 

Revenue growth continued to outpace expenses with strong cost-control of project spending and direct operating expenses. The ratio of corporate General and Administrative Expenses (GAE) to revenues declined further to 7.6% from 8.1% last year. With total revenues growing faster than total expenses, net income margin improved to 17% in the first three months of 2012 from 15% in the same period last year.   

Business Segments 

The details of the individual performance of each business segment are discussed as follows: 

Property Development. Property Development, which includes the sale of residential lots and units, as well as the sale of commercial and industrial lots, posted revenues of P7.51 billion in the first three months of 2012, 18% higher than the P6.34 billion reported during the same period in 2011.  

Revenues from the residential segment reached P7.01 billion in the first three months, 21% higher than the same period last year, on the back of a 48% improvement in the value of bookings across the residential brands.  Ayala Land Premier (ALP) posted a revenue growth of 30% year-on-year due to the steady completion and significant bookings from the high-value condominium units in Park Terraces Twin in Makati City and Elaro lots in NUVALI. Avida and Amaia likewise recorded revenue growth of 45% and 55% to P1.70 billion and P257 million, respectively, with higher bookings from the success of recent launches such as Avida Towers Prime Taft, Avida Towers 34^th Street, Avida Towers Centrio, Avida Parkway Settings NUVALI, Amaia Skies P. Tuazon, Amaia Steps Novaliches and AmaiaScapes Cavite. Alveo meanwhile generated P1.76 billion in revenues, 11% lower compared with the first quarter of 2011 due to the completion of Venare in NUVALI and Senta in Makati City in the first quarter of last year with no equivalent completion for Alveo in the first quarter of 2012.  

Sales take-up value for the first three months of the year reached P19.3 billion, equivalent to an average monthly sales take-up of P6.44 billion. This was 49% higher than the record P4.31 billion average monthly sales take-up achieved for the whole of 2011. Residential Gross Profit (GP) margins of horizontal projects improved to 47% from 44% with the price increases in NUVALI projects, while GP margins of vertical developments were stable at 33%. The Company’s four residential brands launched a total of 2,693 units in the first quarter of 2012, with a total sales value of P11.3 billion. 

Revenues from the sale of commercial and industrial lots declined by 11% in the first three months to P499 million due to lower commercial lot sales in NUVALI compared to last year. GP margins however improved to 56% from 50% with significant price increases in the NUVALI commercial lots. 

Commercial Leasing. Commercial Leasing includes the Company’s Shopping Center and Office leasing operations. Total revenues for Commercial Leasing amounted to P2.04 billion during the first three months of 2012, 21% higher than the P1.68 billion recorded in same period last year.  

Revenues from Shopping Centers rose by 27% to P1.39 billion during the first three months of 2012 from P1.10 billion in the first quarter of 2011. The first quarter saw a 7% improvement to P1,114 per square meter in monthly average lease rates brought about by negotiated and programmed rental escalations. Occupied gross leasable area (GLA) also expanded by 9% year-on-year with the opening of Abreeza Mall in Davao City in the second quarter of 2011.  Same-store sales increased by 10% for both building and land leases buoyed by the strong retail environment. Shopping Centers EBITDA margins were maintained at 60% with the improved portfolio performance and the effective management of direct operating expenses despite the continuing impact of redevelopment projects in Ayala Center and Alabang Town Center.    

Revenues from Office leasing operations increased by 11% to P647 million for the first three months of the year, from P583 million in the same period last year. The revenue growth was generated by higher lease rates and occupied GLA for business process outsourcing (BPO) office spaces, which increased by 25% year-on-year (equivalent to 63,558 square meters). Total occupied BPO GLA expanded to 320,793 square meters as of the end of the first quarter, with an average lease-out rate of 86%. Average BPO lease rates increased by 7% year-on-year due to rental escalations in existing buildings. EBITDA margins of the total office portfolio however declined to 78% from 82% as a result of the higher costs associated with the start-up operations of the new BPO buildings.  

Hotels and Resorts. Hotels and Resorts currently operates 634 branded hotel rooms between Hotel InterContinental Manila and Cebu City Marriott, and  150 island resort rooms in Lagen, Miniloc and Apulit Island (formerly Club Noah) in the province of Palawan. Revenues of the Hotels and Resorts business improved by 16% to P650 million in the first quarter of 2012 from P560 million in the same period last year largely due to better occupancy rates and REVPAR. Occupancy rates of the two hotels and three resorts were higher by 11 percentage points and 8 percentage points, respectively. REVPAR also improved by 13% to P3,994 for hotels and 51% to P6,327 for resorts. EBITDA margins for Hotels and Resorts, however, slightly declined to 30% from 32% due to the pre-operating expenses of the upcoming Kukun hotels. The Company is currently constructing its first four owner-operated urban lifestyle hotel line called Kukun in Bonifacio Global City, Davao, Cagayan de Oro and NUVALI, two of which are expected to begin operations towards the end of this year.  

Services.  Services, which include the Company’s wholly-owned Construction and Property Management businesses, generated combined revenues (net of inter-company eliminations) of P4.25 billion during the first three months of the year, 58% higher than the P2.69 billion posted in the same period last year. Construction revenues grew by 64% to P3.95 billion due to the higher construction order book from ALI Group projects. Property Management revenues also improved by 7% to P297 million in the first quarter of 2012 from additional carpark management contracts. Blended EBITDA margins for Services slightly declined to 6%. This is however the result of the Company’s deliberate move to focus on internal ALI Group projects in its construction operations.   

Equity in Net Earnings of Investees, Interest, Fees, Investment and Other Income 

Equity in Net Earnings from Investees grew by 91% to P356 million for the first three months of 2012, from P186 million in the same period last year. This resulted from the higher contribution from Fort Bonifacio Development Corporation (FBDC) from its commercial lot sales. Contributing as well were the improved performance of shopping center joint ventures accounted for under the equity method, particularly TriNoma and Alabang Town Center, and affiliates Cebu Holdings, Inc. and Cebu Property Ventures Development Corp. Meanwhile, Interest, Investment and Other income declined by 35% to P265 million largely because there were no one-time gains booked this quarter, compared to the Company’s divestment of its ownership stake in ARCH Capital Management Co., Ltd. in March 2011.  

Expenses 

Total expenses for January to March 2012 amounted to P9.15 billion, 13% more than the P8.12 billion incurred as of end-March 2011.  Cost of Sales from Real Estate and Hotels, which accounted for the bulk of expenses, rose 16% year-on-year amounting to P7.72 billion. GAE grew by 10% to P939 million due to payroll-related expenses but at a slower pace relative to overall revenue growth, allowing the GAE-to-revenue ratio to decline to 7.6% from 8.1% last year. Interest Expense, Financing and Other Charges meanwhile dropped by 20% year-on year to P486 million due to lower financing charges despite the higher level of borrowings. The average cost of the Company’s consolidated debt decreased to 5.7% in the first quarter this year from 6.7% in the same period last year.   

Project and Capital Expenditure 

The Company spent a total of P8.0 billion for project and capital expenditures in the first three months of 2012, 40% more than the P5.7 billion spent during the same period in 2011. The bulk of capital expenditures in the first quarter were spent on residential developments (39% of total), land acquisition (38%), shopping centers (13%), hotels and resorts (6%), with the balance spent on BPO offices and other land development activities in the Company’s strategic landbank areas. The P8.0 billion spent in the first three months represents 22% of the programmed spending for the year. The Company’s target is to spend P37.0 billion in 2012 for the continued rollout of its aggressive growth plans.   

Financial Condition 

The Company’s balance sheet continued to be strong with adequate capacity to carry out its growth plans for 2012 and beyond. Cash and Cash Equivalents stood at Php21.83 billion with a Current Ratio of 1.53: 1. Total Borrowings stood at Php36.53 billion from Php34.53 billion as of December last year, translating to a Debt-to-Equity Ratio of 0.58: 1 and a Net Debt-to-Equity Ratio of 0.23: 1.