MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A) OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Results of Operation as of 1Q 2020 versus 1Q 2019
Ayala Land recorded consolidated revenues of P28.40 billion and net income of P4.32 billion, a 28% and 41% decline, from P39.68 billion and P7.32 billion, respectively, reflecting the impact of the COVID-19 Enhanced Community Quarantine (ECQ).
Real Estate revenues, composed of Property Development, Commercial Leasing, and Services revenues, registered at P26.20 billion, a 30% decline from P37.44 billion due to lower bookings, the impact of the Taal volcano eruption, halted construction activities, limited mall operations and the closure of resorts during the ECQ.
Capital expenditures amounted to P21.59 billion, the full year estimate is reduced to P69.82 billion from originally P110.00 billion.
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. Revenues from Property Development contracted by 40% to P15.56 billion from P26.07 billion, mainly due to lower project bookings and the impact of the Taal volcano eruption, aggravated by lower incremental completion as construction activity halted.
Residential. Revenues from the sale of residential lots and units and MCT BHd’s operations declined 42% to P12.12 billion from P20.88 billion.
AyalaLand Premier (ALP) posted revenues of P2.06 billion, 63% lower than P5.58 billion, due to lower bookings of The Suites Residences, Alcoves, Cerilo, and Courtyards Ph3 and lower incremental POC of West Gallery Place, East Gallery Place, and Garden Towers 2.
ALVEO recorded revenues of P2.74 billion, a decline of 45% from P4.98 billion owing to the completion of High Park Tower 1, lower incremental POC of High Park Tower 2 and Park Triangle Residences, and combined lower bookings and incremental POC of Orean Place Tower 1.
Avida meanwhile registered revenues of P4.71 billon, a 33% decrease from P7.00 billion, attributed to the combination of lower bookings and incremental POC of Avida Northdale Settings Alviera, The Montane, and Avida Towers Turf, and lower bookings of Avida Towers Intima T1 and Avida Towers One Union Place T3.
Amaia reached P1.51 billion in revenues, a 24% reduction from P2.00 billion relating to the lower bookings of Skies Cubao T2, Skies Shaw T1, and lower incremental POC of Steps Nuvali Parkway. BellaVita meanwhile recognized revenues of P165 million, 22% less than P211 million because of the lower bookings from projects in Cagayan de Oro and Iloilo.
The average gross profit (GP) margin of horizontal residential projects improved to 45% from 42%, lifted by higher selling prices from ALVEO’s The Greenways, Ardia, and The Residences at Evo City Phase 2, and Avida’s Southfield Settings Nuvali. Meanwhile, the average GP margin for vertical projects improved to 41% from 37% due to higher selling prices of Avida’s Sola Tower 2, Turf Tower 2, and Asten Tower 3, and higher margins from ALVEO’s High Park Tower 2 and Solinea Tower 4.
MCT Bhd recorded a contribution of P938.71 million, 16% lower than P1,116.31 million, due to lack of inventory from its Lakefront and Market Homes projects, and experienced booking cancellations during the period.
Office for Sale. Revenues from the sale of office units dropped by 68% to P921.68 million from P2.85 billion, attributed to the completion of Alveo Financial Tower and Stiles West, and the lower incremental completion of Park Triangle Corporate Plaza. The average GP margin improved slightly to 39% from 38% given the higher selling price of ALP’s One Vertis Plaza.
Commercial and Industrial Lots. Revenues from the sale of commercial and industrial went up 8% to P2.52 billion from P2.34 billion as these are mainly from existing developments such as Arca South, Seagrove, and Laguna Technopark. The average GP margin substantially increased to 67% from 48%, due to higher selling prices of commercial lots sold in Arca South and Alviera.
Sales Reservations. It registered at P24.72 billion, 27% lower, recognizing the impact of the Taal Volcano eruption and the ECQ. Local and overseas Filipinos accounted for 85% of total sales with the balance of 15% accounted for by other nationalities. Sales from local Filipinos which comprise 69% amounted to P17.0 billion, 30% lower than the same period last year while sales from overseas Filipinos which represented 16%, amounted to P4.0 billion, a decline of only 3% year-on-year. Meanwhile, sales to other nationalities amounted to P3.7 billion, a 36% drop, primarily as mainland Chinese buyers, which comprise 41% at P1.5 billion, decreased by 49%.
Project Launches. In the first quarter of 2020, Ayala Land was able to launch four (4) projects with a total value of P4.98 billion. These are Avida Greendale Settings at Alviera in Pampanga, Amaia Steps The Junction Place Aria in Quezon City, Amaia Scapes Cabuyao Series 3 area 2, and Bellavita Alaminos 2, both in Laguna. For the rest of year, the company will not launch any new projects and will utilize the projects launched in 2019 as inventory for sale once the situation normalizes.
Commercial Leasing. This includes the operation of Shopping Centers, Office Buildings and Hotels and Resorts. Total revenues from commercial leasing declined 5% to 8.71 billion from P9.16 billion.
Shopping Centers. Revenues from shopping centers dropped 9% to P4.65 billion from P5.10 billion on the account of a limited operations. EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) margin ended 7 percentage points lower to 59% from 66% due to lower mall revenues and occupancy of newly opened malls. The average occupancy rate for all malls is 88% and 93% for stable malls. Total Malls GLA stands at 2.12 million square meters.
Offices. Revenues from office leasing increased 15% to P2.47 billion from P2.15 billion given the sustained operations of BPO and HQ buildings. Office leasing EBITDA margin registered at 89%, a slight dip from 90%. The average occupancy rate for all offices is 94% and 96% for stable offices. Total office leasing GLA is at 1.17 million square meters.
Hotels and Resorts. Revenues from hotels and resorts ended 17% lower to P1.59 billion from P1.91 billion with the closure of resorts and lower average occupancy of hotels due to travel bans. As a result, the overall EBITDA margin of hotels and resorts declined 11 percentage points to 23% from 34%. The average occupancy for all hotels was 53% and 60% for stable hotels. Meanwhile, the average occupancy for all resorts stood at 54% and 53% for stable resorts. Occupancy has declined at the onset of the 2020 given the imposition of travels bans due to COVID-19. Hotels and resorts have a total of 3,979 room, with the addition of 274 new rooms; 143 from Seda Central Bloc, 78 from Seda Residences Ayala North Exchange and 53 from the expansion of Seda BGC.
The hotels and resorts business manages 660 hotel rooms in its international brand segment—312 from Fairmont Hotel and Raffles Residences and 348 from Holiday Inn & Suites, both of which are in the Ayala Center, Makati CBD.
There are now have 11 Seda Hotels, operating 2,641 rooms—Atria, Iloilo (152 rooms); BGC, Taguig (521); 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); Ayala Center Cebu (301); Seda Residences Ayala North Exchange (293) and Seda Central Bloc (143); and Circuit Corporate Residences (255).
El Nido Resorts operates 193 rooms from its four island resorts—Pangulasian, Lagen, Miniloc, and Apulit. The Lio Tourism Estate currently has 152 rooms under its Bed and Breakfast (B&B) and Dormitel offerings, while the Sicogon Tourism Estate in Iloilo currently has 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 amounted to P1.93 billion, 13% lower than P2.21 billion as construction activity halted since the start of the ECQ, coupled with the decreased passengers and flight cancellations of AirSWIFT due to the travel ban and the COVID-19 pandemic.
Construction. Net construction revenues totaled P644.57 million, 19% lower than P792.20 million.
Property Management and Others. APMC, power services companies and AirSWIFT registered revenues of P1.28 billion, 9% less than P1.42 billion.
Blended EBITDA margins of the Services segment slightly declined to 8% from 9%.
Equity in Net Earnings of Investees, Interest, Fees, Investment and Other Income
Equity in net earnings of associates and JVs totaled P271.68 million, 3% higher than P263.18 million as FBDC companies posted a 3% growth in revenues to P144.28 million from P135.59 million, due to higher leasing revenues from One Bonifacio High Street and ALVEO High Street South Corporate Plaza Retail.
Meanwhile, interest and investment income amounted to P1.82 billion, 4% lower than P1.89 billion, owing to lower balances and lower yields from short term investments.
Other income (composed mainly of marketing and management fees from joint ventures, among others) amounted to P108.22 million, 22% more than P88.61 million, driven mainly by higher management fees from FBDC companies which amounted to P46.96 million.
Total expenses stood at P21.52 billion, 24% lower than P28.47 billion, on the account of real estate expenses which decreased by 32% to P16.03 billion from P23.49 billion as a result of limited operations.
General and administrative expenses totaled P2.10 billion, a 5% increase from P1.99 billion in overhead costs. This resulted to a GAE ratio of 7.4% and an EBIT margin of 31.8%.
Interest expense, financing and other charges totaled P3.39 billion, a 14% increase from P2.99 billion due to higher interest expense attributed to a higher loan balance. The average cost of debt registered at 5.0%, lower than 5.2% at the end of 2019. Of the total debt, 82% is locked-in with fixed rates, while 85% is contracted on a long-term basis.
Capital expenditures reached P21.59 billion in the first quarter of 2020, mainly for residential developments, followed by commercial leasing assets. 45% was spent on residential projects, 23% on commercial projects, 14% for land acquisition, 14% for the development of estates and 4% for other purposes. The full year capex estimate was reduced to P69.82 billion from our original estimate of P110 billion.
The Company’s balance sheet is solidly positioned to ensure financial sustainability during the crisis.
Cash and cash equivalents, including short-term investments and UITF investments classified as FVPL, stood at P23.22 billion resulting in a current ratio of 1.37:1.
Total borrowings registered at P230.70 billion which translated to a debt-to-equity ratio of 0.95:1 and a net debt-to-equity ratio of 0.85:1.
Return on equity was at 8.21% as of March 31, 2020.
Project and Capital Expenditures
|End-March 2020||End-December 2019|
|Current ratio 1||1.37:1||1.30:1|
|Debt-to-equity ratio 2||0.95:1||0.87:1|
|Net debt-to-equity ratio 3||0.85:1||0.78:1|
|Return on assets 4||2.82%||5.43%|
|Return on equity 5||8.21%||16.66%|
|Asset to Equity ratio 6||2.95:1||2.94:1|
|Interest Rate Coverage Ratio 7||3.82||6.27|
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 2020.