Financials

MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A) OF FINANCIAL CONDITION AND RESULTS OF OPERATION

Results of Operation as of 1Q 2019 versus 1Q 2019

Ayala Land, Inc. (ALI or “the Company”) posted a net income growth of 12% to P7.32 billion and revenues by 7% to P39.68 billion in the 1^st quarter of 2019, establishing a solid start for the year.

Real estate revenues increased 6% to P37.44 billion, attributed to the sustained performance of its property development business and the surge in commercial leasing revenues.

Earnings before interest and taxes (EBIT) margin for the period registered at 32.6%.

Business Segments

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

Property Development. This includes the sale of residential lots and units, office spaces and commercial and industrial lots and operations of MCT Bhd, Ayala Land’s consolidated subsidiary based in Malaysia. Total revenues from Property Development amounted to P26.1 billion, an increase of 4% from P25.2 billion in the first quarter of 2018.

Residential. Revenues from the sale of residential lots and units and MCT BHd’s operations reached P20.88 billion, a 4% decrease from P21.82 billion in the same period last year as we recognized lower revenues from MCT Bhd due to the full sell-out of its projects in Cybersouth.

AyalaLand Premier (ALP) posted revenues of P5.58 billion, 28% lower than P7.80 billion in the due to lower bookings from The Courtyards in Vermosa, Cavite and lower project completion of Park Central South Tower in Makati City.

Alveo recorded revenues of P4.98 billion, a decline of 18% from P6.06 billion in the previous year as a result of lower bookings from The Sandstone in Pasig City and The Veranda Phases 1 and 2 in Arca South, Taguig City.

Avida meanwhile posted revenues of P7.00 billion, a 53% surge from P4.58 billion attributed to new bookings from Avida Towers Intima Tower 1 in Manila and combined higher bookings and project completion of Avida Northdale Settings in Alviera, Pampanga.

Amaia also gained traction as it reached P2.00 billion in revenues, a 47% growth from P1.36 billion in the same period in 2018 as a result of bookings from Amaia Steps Nuvali Parkway in Laguna and Amaia Skies Cubao Tower 2 in Quezon City. In addition, BellaVita achieved revenues of P211 million, a 9% decline due to lower bookings from its project in Cagayan De Oro, Misamis Oriental.

The average GP (Gross Profit) margin of horizontal projects decreased to 42% from 49% due to sold out inventory of blockbuster ALP and Alveo projects, The Courtyards and Ardia in Vermosa, Cavite while the GP margin of vertical projects improved to 37% from 35% due to higher margins from ALP’s Park Central North Tower, Alveo’s Orean Place Tower 1 and Avida’s Asten Tower 3 and Prime Taft Tower 3.

MCT Bhd recognized a 38% decline in revenues to P1.12 billion from P1.79 billion due to the full sellout of its projects in Cybersouth.

Office for Sale. Revenues from the sale of office spaces more than doubled to P2.85 billion from P1.37 billion driven by the completion progress of the Alveo Financial Tower in Makati CBD and new bookings from One Vertis Plaza at Vertis North in Quezon City. GP margin of offices for sale significantly improved to 38% from 35% due to higher margins arising from cancelled and resold units from the Alveo Financial Tower and High Street South Corporate Centers 1 and 2.

Commercial and Industrial Lots. Revenues from the sale of commercial and industrial lots jumped 17% to P2.34 billion from P2.00 billion due to commercial lot sales at Vermosa in Cavite and Alviera in Pampanga. GP margin improved to 48% from 43% driven by commercial lots in Vermosa, Alviera and Lio and industrial lots in Laguna Technopark.

Sales reservations grew 8% to P34.1 billion from sustained local and overseas Filipino demand.

Commercial Leasing. This includes the operation of Shopping Centers, Office Buildings and Hotels and Resorts. Total revenues from commercial leasing amounted to P9.16 billion, a 19% improvement from P7.71 billion in the 1^st quarter of 2018.

Shopping Centers. Revenues from shopping centers accelerated 14% to P5.10 billion from P4.48 billion due to the contribution of newly opened shopping centers such as Ayala Malls Feliz, Circuit Makati, Capitol Central, Vertis North and Cloverleaf, and the strong performance of Glorietta and Greenbelt malls in Makati City.  EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) margin was maintained at 66%.

The average monthly lease rate registered at P1,063 per square meter (sqm) while same mall rental growth registered at 12%. The average occupancy rate for all malls is 89% while the occupancy rate of stable malls is 95%.

The Company opened the Ayala North Exchange retail area with eight thousand sqm of gross leasable area (GLA). This brings the total Shopping Centers GLA to 1.91 million sqm as of the 1^st quarter of 2019.

Offices. Revenues from office leasing reached P2.15 billion, 27% higher than P1.70 billion in the same period in 2018 on the back of contributions of its newly opened offices such as Ayala North Exchange Towers 1 and 2, Circuit Corporate Center Towers 1 and 2, Vertis North Corporate Center Towers 1 and 2 and Ayala North Exchange Towers 1 and 2. Office leasing EBITDA margin was maintained at 90%.

The average monthly lease rate registered at P752 per square meter. The average occupancy rate for all offices is 92% while the occupancy rate of stable offices is 96%. The total Office Leasing GLA stands at 1.11 million sqm as of the 1^st quarter of 2019.

Hotels and Resorts. Revenues from hotels and resorts reached P1.91 billion, a notable 25% growth from P1.53 billion due to the higher contribution of new Seda hotels in Vertis North, Ayala Center Cebu, and Lio. Average revenue-per-available-room (REVPAR) of all hotels improved by 4% to P3,683 per night while it declined by 4% for resorts to P9,182 per night. Meanwhile REVPAR of stable hotels increased by 5% to P4,366 per night and 4% to P10,481 for stable resorts. Hotels and resorts EBITDA margin improved to 34% from 30% last year higher margins from new Seda hotels in Ayala Center Cebu, Lio, and Vertis North, and better Revenue per Available Room (REVPAR) of existing hotels.

The average room rate of all hotels is P5,200 per night and P13,286 for resorts. Meanwhile the average room rate of stable hotels is P5,435 per night and P14,053 for stable resorts. The average occupancy rate of all hotels and resorts registered at 71% and 69%, respectively, and 80% for stable hotels and 75% for stable resorts.

A total of 45 rooms were added to the portfolio with 35 rooms from Seda Lio and 10 rooms from Huni Sicogon. This brings the total number of rooms in operation to 3,018 as of the 1^st quarter of 2019.

The hotels and resorts business operates 660 hotel rooms from its international brand segment: Fairmont Hotel and Raffles Residences (312) and Holiday Inn & Suites (348), both in Ayala Center, Makati CBD. Seda Hotels operates 1,863 rooms: Atria, Iloilo (152), BGC, Taguig (179), Centrio, Cagayan de Oro (150), Abreeza, Davao (186), Nuvali, Santa Rosa, Laguna (150), Vertis North, Quezon City (438), Capitol Central, Bacolod (154) Lio, Palawan (153) and Ayala Center Cebu (301). Meanwhile, El Nido Resorts operates 193 rooms from its four island resorts: Pangulasian, Lagen, Miniloc and Apulit, and Lio Tourism Estate currently has 144 rooms under its Bed and Breakfast (B&B) and Dormitel offerings and Sicogon Tourism Estate in Iloilo currently operates 78 B&B rooms.

Services. This is composed mainly of the Company’s construction business through Makati Development Corporation (MDC), property management, through Ayala Property Management Corporation (APMC), and other companies engaged in power services such as Direct Power Services, Inc. (DPSI), Ecozone Power Management, Inc. (EPMI), and Philippine Integrated Energy Solutions, Inc. (PhilEnergy) and airline for the hotels and resorts business, AirSWIFT. Total revenues from the Services business declined 25% to P14.17 billion from P19.00 billion generated in the previous year.

Construction. Revenues from Construction was 27% lower, amounting to P12.75 billion from P17.43 billion as it recognized higher completion from projects in the previous period.

Property Management and Others. APMC, power services companies and AirSWIFT registered revenues of P1.42 billion, a 10% decline from P1.57 billion recorded in the same period in 2018 due to lower external retail electricity supply contracts.

Blended EBITDA margins of the Services business slightly improved to 9% from 8%.

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

Equity in net earnings of associates and JVs registered at P263 million, a boost of 58% from P167 million in the same period in 2018 mainly due to the earnings contribution of OCLP Holdings Inc. Meanwhile, interest and investment income grew 61% to P1.89 billion from P1.17 billion due to higher interest income from money market placements and accretion on installment sales. Meanwhile, other income reached P89 million.

Expenses

Total expenses reached P28.47 billion, 7% higher than P26.65 billion incurred last year mainly due to higher real estate expenses which grew 6% to P23.49 billion.

General and administrative expenses (GAE) barely increased to P1.99 billion from P1.97 billion  as expenses and costs were well managed.

Interest expense, financing and other charges registered at P2.99 billion, posting a 15% growth from last year from P2.60 billion as a result of higher interest expense from the higher average daily loan balance. The average cost of debt registered at 5.1%, higher than 4.8% at the end of 2018 as a result of higher interest rates.

Project and Capital Expenditures

Ayala Land spent P22.3 billion in capital expenditures to support the aggressive completion of new projects in its pipeline. 51% was spent on residential projects, 17% on commercial projects, 19% for land acquisition, 12% for the development of estates and 7% for other purposes.

Financial Condition

The Company’s balance sheet continues to be solidly positioned to support its growth plans.

Cash and cash equivalents, including short-term investments and UITF investments classified as FVPL, stood at P22.83 billion resulting in a current ratio of 1.27:1.

Total borrowings registered at P189.97 billion which translated to a debt-to-equity ratio of 0.85:1 and a net debt-to-equity ratio of 0.75:1.

Return on equity was at 15.51% as March 31, 2019.

Project and Capital Expenditures

^{1 Current assets / current liabilities
2 Total debt/ consolidated stockholders’ equity (Total debt includes short-term debt, long-term debt and current portion of long-term debt)
3 Net debt/ consolidated stockholders’ equity (Net debt is total debt less cash and cash equivalents, short term investments and financial assets through fvpl)
4 Annualized Total Net income / average total assets
5 Annualized Net income attributable to equity holders of ALI / average total stockholders’ equity attributable to equity holders of ALI
6 Total Assets /Total stockholders’ equity
7 EBITDA/Interest expense}

There are no events that will trigger direct or contingent financial obligations that are material to the company, including any default or acceleration of an obligation.

There are no material off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relationships of the company with unconsolidated entities or other persons created in 2019.