MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A) OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Results of Operation as of 9M 2019 versus 9M 2018
Ayala Land, Inc. (ALI or “the Company”) maintained its double-digit bottom line growth trajectory in the first nine months of 2019, advancing 12% to a net income after tax (attributable to equity holders of ALI) of P23.21 billion from 20.77 billion in the same period in 2018.
Total revenues increased by 2% to P121.66 billion. This was mainly driven by real estate revenues which stood at P113.36 billion, supported by office, and commercial and industrial lot sales, further boosted by the improving performance of new leasing assets.
Projects launched in the 3rd quarter of 2019 amounted to P37.77 billion, bringing the total to P57.27 billion for the first nine months of 2019. Meanwhile, malls and offices expanded its gross leasable area (GLA) further to 2.1 million and 1.2 million square meters, respectively, with the opening of Ayala Malls Manila Bay and its BPO Tower.
Lastly, capital expenditures reached P78.19 billion to support residential and leasing asset buildup.
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 in the Philippines and operations of MCT Bhd, Ayala Land’s consolidated subsidiary based in Malaysia.
Revenues from Property Development amounted to P79.15 billion, a 5% dip from the previous period, mainly as the residential segment declined due to the lower contribution of Ayala Land Premier and ALVEO. This offset office-for-sale revenues which grew 55% to P10.61 billion and commercial and industrial lots which increased 16% to P6.49 billion.
Residential: Revenues from the sale of residential lots and units and MCT BHd’s operations reached P62.05 billion, 12% lower than P70.62 billion last year.
Ayala Land Premier (ALP) registered revenues of P17.32 billion, 15% lower than P20.30 billion last year due to full sell out of The Courtyards at Vermosa, Cavite and lower incremental POC from The Suites at BGC, Taguig and Arbor Lanes Tower 2 at Arca South, Taguig as projects are nearing completion.
Alveo recorded revenues of P13.57 billion, a 39% dip compared to P22.12 billion last year primarily driven by the full sell out of Ardia at Vermosa, Cavite in 2018 and lower incremental POC of Verve Residences 1 & 2 at BGC, Taguig and Veranda Phases 1 & 2 at Arca South, Taguig as projects are already nearing completion
Avida posted revenues of P20.63 billion, 23% higher than P16.78 billion last year due to new bookings from Avida Towers Vireo Tower 1 at Arca South, Taguig and Avida Towers Sola Tower 2 at Vertis North, Quezon City and higher bookings and project completion from Avida Northdale Settings at Alviera, Pampanga.
Amaia generated revenues of P5.51 billion, 9% higher than P5.06 billion last year as a result of higher bookings and completion from Amaia Steps Capitol Central in Bacolod, Amaia Steps Nuvali and Amaia Steps Nuvali Parkway in Laguna.
BellaVita meanwhile reached revenues of P822 million, slightly lower from P851 million in the previous year.
The average GP (Gross Profit) margin of horizontal residential projects of 43% was maintained. Meanwhile, vertical projects improved to 39% from 37% due to higher margins from ALP’s Alcoves in Cebu, and West Gallery Place at BGC, ALVEO’s Orean Place Tower 1 at Vertis North, and Avida’s Intima Tower 1 and Prime Taft Tower 3, both in Manila, and Sola Tower 2 at Vertis North.
Meanwhile, MCT Bhd generated P4.20 billion. This is 24% lower than P5.51 billion last year due to the full sell out of its projects in CyberSouth in Klang Valley, Malaysia.
Office for Sale. Revenues from the sale of office spaces continued to accelerate, growing 55% to P10.61 billion, due to completion progress and new bookings from Alveo Financial Tower, High Street South, and Park Triangle Corporate Plazas. The average GP margin of offices for sale increased to 39% from 35% due to the improved margins of High Street South Corporate Plaza Tower 2, ALVEO Park Triangle Towers at BGC, Stiles East at Circuit Makati and One Vertis Plaza at Vertis North.
Commercial and Industrial Lots. Revenues from the sale of commercial and industrial lots grew 16%, contributing P6.49 billion from lot sales in Altaraza, Vermosa, Nuvali and Evo City. Gross profit margins from Commercial and Industrial lots increased significantly to 60% from 44% due to higher margins of commercial lots sold in Altaraza, Evo City, Nuvali and Alviera.
Sales reservations remained steady at P108.51 billion. ALVEO and Avida fueled the growth in sales reservations but was offset by ALP which did not have sufficient project launches during the period. Local Filipinos continue to drive demand at 70% of the total. This was supplemented by sales from Overseas Filipinos which accounted for 14% total and grew 19% year-on-year. Sales from other nationalities amounted to 16% of the total but declined by 18% compared to the previous period. Sales to mainland Chinese buyers declined by 24%, resulting in a lower 41% share on international buyers or 6.5% of total sales reservations.
To date, Ayala Land launched P57.27 billion worth of projects. In the 3rd quarter alone, we launched 17 projects worth P37.77 billion, building on the launches in the 1st half of 2019.
Commercial Leasing. This involves the operation of shopping centers, office buildings and hotels and resorts. Total revenues from commercial leasing jumped 16% to P27.62 billion.
Shopping Centers. Revenues from shopping grew 11% to P15.02 billion, supported by same mall revenue growth of 10% given the increased contribution of new malls such as Ayala Malls Feliz, Circuit Makati, and Capitol Central. EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) margin registered at 67%, 2 basis points higher than the previous period, as a result of higher occupancy of Ayala Malls Vertis North, Feliz, Circuit Makati, Marikina and Cloverleaf. The average occupancy rate for all malls is at 89% while the occupancy rate of stable malls is at 94%. The total Shopping Centers GLA stands at 2.08 million square meters with the addition of 161 thousand sqm from the opening of Ayala Malls Manila Bay last September 2019.
Offices. Revenues from office leasing surged 26%, reaching P7.21 billion as new offices in Ayala North Exchange, Vertis North, and Circuit Makati continue to improve performance. Office Leasing EBITDA margin registered at 90%. The average occupancy rate for all offices is at 95% and 96% for stable offices. Total office leasing GLA is at 1.15 million square meters, with 19 thousand square meters added from the completion of Manila Bay BPO Tower last September 2019.
Hotels and Resorts. Revenues from Hotels and Resorts revenues moved up 17% to P5.40 billion on strong patronage of Seda Ayala Center Cebu and Lio. Overall EBITDA margin increased to 32% from 29% due to higher occupancy and REVPAR of Seda Ayala Center Cebu and Lio. The average occupancy rate remains at healthy levels – hotels registered at 69% and 62% for resorts, 78% for stable hotels and 62% for stable resorts. The hotels and resorts have a total of 3,618 rooms with the addition of 90 rooms in Seda BGC and 38 rooms at Seda Residences Ayala North Exchange as of September 2019.
To date, 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. We now have 10 Seda Hotels, operating 2,238 rooms: Atria, Iloilo (152), BGC, Taguig (411), 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 (143) and Circuit Corporate Residences (255). Meanwhile, El Nido Resorts operates 193 rooms from its four island resorts: Pangulasian, Lagen, Miniloc and Apulit, and Lio Tourism Estate currently has 194 rooms under its Bed and Breakfast (B&B) and Dormitel offerings and Sicogon Tourism Estate in Iloilo currently has 78 B&B rooms.
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 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). Total revenues amounted to P6.59 billion, 8% higher than last year.
Construction. MDC posted net construction revenues of P2.54 billion, an increase of 24%, reflecting higher revenues from external contracts.
Property Management. APMC and power services companies registered revenues of P4.05 billion.
Blended EBITDA margins of the services business slightly improved to 10% from 9%.
Equity in Net Earnings of Investees, Interest, Fees, Investment and Other Income
Equity in net earnings of associates and JVs contributed P704.02 million, 16% higher than the previous period, mainly as Ortigas Holdings performed extremely well, contributing P380.77 million, a growth of 80%, reflecting the strong momentum of its property sales and leasing operations. This is combined with higher earnings of FBDC companies mainly as a result of the healthy performance of its leasing assets in BGC (One Bonifacio High Street and Corporate Plaza Retail).
Interest and investment income, which includes interest income on real estate sales and accretion, amounted to P6.87 billion, a 38% increase despite lower interest income from short-term investments.
Meanwhile, other income (composed mainly of marketing and management fees from our joint ventures, among others) amounted to P722.56 million, 27% lower than the higher base in 2018 due to the one-time sale transaction of assets by MCT Bhd.
Total expenses stood at P85.84 billion, slightly lower than last year’s P86.87 billion as real estate expenses decreased by 4% to P69.95 billion.
GAE (General and Administrative Expenses) totaled P6.17 billion, a 4% increase from the first nine months of 2018 as we controlled the increase of overhead costs. This enabled us to register a GAE ratio of 5.1% and improve our EBIT margin further to 33.7% from 31.1%.
Interest expense, financing and other charges stood at P9.71 billion, 24% higher, due to the increased outstanding debt and accompanying financing expenses.
Project and Capital Expenditures
Ayala Land spent a total of P78.19 billion in capital expenditures as of September 2019. 42% was spent on residential projects, 22% on commercial leasing projects, 17% for land acquisition, 11% for estate development and 8% for other investments.
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 P21.30 billion as of end September 2019, resulting in a current ratio of 1.30:1.
Total borrowings registered at P201.04 billion which translated to a debt-to-equity ratio of 0.84:1 and a net debt-to-equity ratio of 0.75:1.
Return on Equity registered at 15.8% as of September 30, 2019.
Project and Capital Expenditures
|End-September 2019||End-December 2018|
|Current ratio 1||1.30:1||1.26:1|
|Debt-to-equity ratio 2||0.84:1||0.85:1|
|Net debt-to-equity ratio 3||0.75:1||0.72:1|
|Return on assets 4||5.19%||5.35%|
|Return on equity 5||15.78%||16.52%|
|Asset to Equity ratio 6||2.86:1||3.04:1|
|Interest Rate Coverage Ratio 7||6.30||5.67|
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.