MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A) OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Review of 1H 2018 operations vs 1H 2017
Ayala Land, Inc. (ALI or “the Company”) generated a net income after tax (attributable to equity holders of ALI) of P13.54 billion in the first six months of 2018, 18% higher than P11.51 billion posted in the same period in 2017. Consolidated revenues reached P80.39 billion, 25% higher than P64.53 billion, driven mainly by real estate revenues which increased by 25% to P75.84 billion due to the strong performance of property development and the healthy contribution of commercial leasing.
The ratio of General and Administrative Expenses (GAE) to revenues improved further to 5.3% from 5.5% while the Earnings before Interest and Taxes (EBIT) margin was maintained at 31%.
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.
Total revenues from Property Development amounted to P55.65 billion, 27% higher than P43.74 billion in the same period in 2017.
Residential. Revenues from the sale of residential lots and units reached P47.70 billion, 32% higher than P36.21 billion in the same period last year, driven by new bookings and project completion across the residential brands.
Ayala Land Premier (ALP) posted revenues of P15.52 billion, a robust growth of 49% from P10.41 billion last year due to higher bookings from The Courtyards (Phase 3) in Vermosa, Cavite, Park Central (North Tower) in Makati, and Cerilo (Phase 3) in Nuvali, Laguna, and the higher completion progress of The Suites in BGC, Taguig.
Alveo registered revenues of P13.96 billion, 6% higher than P13.14 billion last year due to bookings from Orean Place in Vertis North, Quezon City, Travertine at Portico, Ortigas, and The Stiles Enterprise (East Tower) in Circuit Makati, and the higher completion progress of Park Triangle Corporate Plaza in BGC and The Residences at Evo City, Cavite.
Avida generated P10.56 billion in revenues, 8% higher than P9.75 billion last year due to higher bookings from Avida Towers Sola (Tower 2) in Vertis North, Avida Towers Altura (Tower 2) in South Park District, Alabang, and Avida Towers Prime Taft (Tower 3) in Pasay City and the higher completion progress of Avida Towers Sola (Tower 1) in Vertis North.
Amaia posted revenues of P3.10 billion, 17% higher than P2.65 billion last year from higher bookings and the completion progress of Amaia Skies Shaw, Mandaluyong, Amaia Skies Cubao (Tower 2), Quezon City, Amaia Steps Alabang, and Amaia Scapes General Trias, Cavite. BellaVita meanwhile increased revenues to P516 million, a growth of more than two-fold from P255 million last year due to higher bookings and the completion progress of projects in Cagayan de Oro, Cabanatuan and Iloilo.
Lastly, MCT Bhd, ALI’s equity investment in Malaysia, recognized revenues of P4.04 billion from sales and the completion progress of its projects in Cybersouth, an integrated development in Southern Klang Valley, and Lakefront, a residential project in Cyberjaya.
The average residential gross profit (GP) margin of horizontal projects improved to 46% from 44% due to the contribution of ALP’s The Courtyards (Phase 3) in Vermosa, Alveo’s Mondia in Nuvali and Ardia in Vermosa while the average GP margin of vertical developments slightly improved to 36% from 35%.
Office for Sale. Revenues from the sale of office spaces reached P4.09 billion, 2% lower than P4.19 billion in the same period last year due to lower take up as a result of limited inventory. The average GP margin of offices for sale is 35%, lower than 40% previously, recognizing higher project costs from Alveo’s Park Triangle Tower and Park Triangle Corporate Plaza in BGC.
Commercial and Industrial Lots. Revenues from the sale of commercial and industrial lots reached P3.87 billion, 16% higher than P3.34 billion in the same period last year due to commercial lot sales in Arca South, Taguig, Azuela Cove in Davao, and Ayala North Point in Negros Occidental, and increased industrial lot sales in Alviera, Pampanga and Cavite Technopark in Naic. The average GP margin of commercial and industrial lots increased to 42% from 33% as a result of higher margins from the said projects.
Sales reservations reached P71.98 billion, 17% higher than P61.37 billion in the same period last year, equivalent to an average monthly take-up of P12.00 billion. Net booked sales registered at P50.44 billion, 25% higher than P40.51 billion previously.
Commercial Leasing. This involves the operation of shopping centers, office buildings and hotels and resorts.
Total revenues from commercial leasing amounted to P16.90 billion, 15% higher than P14.74 billion in the same period in 2017.
Shopping Centers. Revenues from shopping centers reached P9.26 billion, 12% higher than P8.25 billion previously due to the higher contribution of Vertis North and Cloverleaf, both in Quezon City and The 30th and Feliz, both in Pasig, the improved average rent of UP Town Center in Quezon City, and the strong performance of Greenbelt in Makati. EBITDA margin registered slightly lower at 64% from 66% due to the lower occupancy of newly opened malls.
The average monthly mall lease rate registered at P1,060 per square meter while same mall rental growth is at 4%. The average occupancy rate for all malls is 89% while the occupancy rate for stable malls is 94%. Total gross leasable area (GLA) of shopping centers registered at 1.75 million square meters as of June 2018.
Offices. Revenues from office leasing reached P3.71 billion, 20% higher than P3.09 billion last year due to the contribution of Vertis North Corporate Center 1, The 30th Corporate Center, Circuit BPO Tower 2, the improved average rent of BPO offices in UP North in Quezon City and higher occupancy of Ayala Center Cebu Tower. EBITDA margin registered at 91%, unchanged from the previous period.
The average monthly office lease rate registered at P742 per square meter. The average occupancy rate of all offices is 89% while the average occupancy rate of stable offices is 95%. Total offices GLA registered at 1.02 million square meters as of June 2018.
Hotels and Resorts. Revenues from hotels and resorts reached P3.93 billion, 16% higher than P3.40 billion last year due to the contribution of Seda Vertis North, Seda Capitol Central in Bacolod, Negros Occidental, and Lio B&Bs in Palawan. Overall revenue-per-available-room (REVPAR) of stable hotels increased by 9% to P4,382 per night while overall REVPAR of stable resorts increased by 15% to P12,095 per night. Overall EBITDA margin improved to 31% from 29% due to improved occupancy across all resorts.
The average hotel room rate per night is P5,625 per night while the average resort room rate per night is P17,001. The average hotel occupancy rate is 78% while resorts registered at 71%. An additional of 19 rooms in Huni, Sicogon Tourism Estate in Iloilo and the remaining 49 rooms in Seda Capitol Central Bacolod were opened to the public in June 2018.
Hotels and resorts currently operate 660 hotel rooms from its internationally branded segment, namely, Fairmont Hotel and Raffles Residences Makati (312) and Holiday Inn & Suites (348) Makati. Seda Hotels operates 1,409 rooms located in Atria in Iloilo (152), BGC in Taguig (179), Centrio in Cagayan de Oro (150), Abreeza in Davao (186), Nuvali in Santa Rosa Laguna (150), Vertis North in Quezon City (438) and Capitol Central in Bacolod (154). Meanwhile, El Nido Resorts operates 193 rooms from its four island resorts, Pangulasian, Lagen, Miniloc and Apulit, while Lio Tourism Estate operates 102 rooms, both in Palawan and Sicogon Tourism Estate in Iloilo operates 45 rooms. Cebu Marriott (301) is undergoing redevelopment and will be branded as Seda Ayala Center Cebu once completed. The total number of rooms in operation registered at 2,409 as of June 2018.
Services. This is composed mainly of the construction business represented by Makati Development Corporation (MDC), property management, represented by Ayala Property Management Corporation (APMC), and power services companies such as Direct Power Services, Inc. (DPSI), Ecozone Power Management, Inc. (EPMI), and Philippine Integrated Energy Solutions, Inc. (PhilEnergy).
Total revenues from the service businesses amounted to P36.76 billion, 8% higher than P33.92 billion in the same period last year.
Construction. MDC generated revenues of P34.61 billion, 8% higher than P32.00 billion last year due to the increased order book of projects from Ayala Land Group.
Property Management. APMC and power services companies registered revenues of P2.15 billion, 12% higher than P1.93 billion previously due to the higher number of managed properties from completed projects.
The overall EBITDA margin of the service businesses registered at 8%, lower than 10% last year.
Equity in Net Earnings of Investees, Interest Fees, Investment and Other Income
Interest and investment income registered at P3.08 billion, 4% higher than P2.96 billion last year due to higher interest income from real estate sales. Equity in net earnings of associates and JVs reached P410 million, a 14% gain from P361 million last year, mainly from the contribution of ALI’s joint-venture with Federal Land to develop Aveia, a residential project by Alveo in Binan, Laguna and the higher net income contribution of other non-consolidated subsidiaries. Meanwhile, other income reached P1.06 billion, a 54% growth from P688 million last year mainly as a result of the sale of MCT Bhd. in One City Properties, an integrated mixed-use development located in USJ 25, Subang Jaya and eCity Hotel located within the said development
Costs and Expenses
Total expenses registered at P58.76 billion, 26% higher than P46.64 billion, mainly due to higher real estate expenses which grew 27% to P49.18 billion from P38.81 billion last year.
GAE reached P4.28 billion, 22% higher than P3.52 billion last year. This resulted in a further improvement of the GAE ratio to 5.3% from 5.5% last year.
Interest expense, financing and other charges registered at P5.31 billion, 23% higher than P4.32 billion as a result of higher rate on additional loan availment and discounting cost due to higher AR sales.
Project and Capital Expenditure
Ayala Land spent a total of P48.4 billion in capital expenditures as of June 2018. 45% was spent on the completion of residential projects, 25% on the completion of commercial leasing projects, 15% for its equity investments, mainly MCT Bhd and Prime Orion Philippines, Inc.,10% for land acquisition and 5% for the estate development.
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 P28.59 billion resulting in a current ratio of 1.19:1.
Total borrowings registered at P182.05 billion which translated to a debt-to-equity ratio of 0.90:1 and a net debt-to-equity ratio of 0.76:1.
Return on Equity registered at 16.4% as of June 30, 2018.
Project and Capital Expenditures
|End-June 2018||End-December 2017|
|Current ratio 1||1.19:1||1.18:1|
|Debt-to-equity ratio 2||0.90:1||0.91:1|
|Net debt-to-equity ratio 3||0.76:1||0.77:1|
|Return on assets 4||5.42%||5.07%|
|Return on equity 5||16.35%||16.09%|
|Asset to Equity ratio 6||2.94:1||2.99:1|
|Interest Rate Coverage Ratio 7||5.95||6.0|
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 2018.