Financial Highlights

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

Review of 1H 2017 operations vs 1H 2016

Ayala Land, Inc. (ALI or “the Company”) generated a net income after tax (attributable to equity holders of ALI) of P11.51 billion in the first six months of 2017, 18% higher than P9.74 billion posted in the same period in 2016. Consolidated revenues reached P64.53 billion, 18% higher than P54.76 billion posted in the same period last year. Revenues from Real Estate increased by 18% to P60.52 billion driven by the strong performance of the Property Development, Commercial Leasing and Services businesses during the period.

The ratio of General and Administrative Expenses (GAE) to revenues improved further to 5.5% from 6.0% while the Earnings before Interest and Taxes (EBIT) margin stood unchanged at 31%.

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, and office spaces, as well as commercial and industrial lots.

Total revenues from Property Development amounted to P44.30 billion, 32% higher than P33.66 billion in the same period in 2016.

Residential. Revenues from the sale of residential lots and units reached P36.77 billion, 27% higher than P28.97 billion posted in the same period last year, driven by bookings and project completion across all residential brands.

Ayala Land Premier (ALP) posted a 33% growth in bookings while revenues reached P10.14 billion, 11% lower than P11.35 billion last year as majority of new bookings came from projects with lower completion.

Alveo posted revenues of P13.14 billion, 82% higher than P7.23 billion last year from bookings of Ardia in Vermosa, Imus, Cavite and significant completion of existing projects such as Montala in Alviera, Pampanga, Kroma in Makati, Two Maridien and Verve Residences 2 in Bonifacio Global City, Taguig and Mondia in Nuvali, Sta Rosa, Laguna.

Avida registered revenues of P9.75 billion, 23% higher than P7.91 billion last year driven by higher bookings and the completion progress of Asten Tower 1 and 2 in Makati, Vita Tower 3 in Vertis North, Quezon City, The Montane, Avida Tower Verte, Avida Towers The Turf and Avida Towers BGC 34th Tower 2 in Bonifacio Global City, Taguig and Riala Tower 3 in Cebu.

Amaia generated revenues of P2.65 billion, 71% higher than P1.55 billion from higher bookings and completion progress of Steps Nuvali Parkway, Skies Shaw in Mandaluyong, Skies Avenida in Manila and Steps Alabang in Muntinlupa. BellaVita meanwhile posted a 9% growth in bookings while revenues reached P255 million, 12% lower than P290 million last year mainly due lower completion of sold projects.

Residential Gross Profit (GP) margins of horizontal projects improved to 44% from 42% due to higher margins from Vermosa projects such as The Courtyards and Ardia and Montala in Alviera while gross profit margins of vertical developments slightly decreased to 35% from 36% due to mix of sold units.

Office for Sale. Revenues from the sale of office spaces reached P4.19 billion, 36% higher than P3.09 billion in 2016 driven by bookings from Alveo’s High Street South Corporate Plaza 2 and Alveo Financial Tower and Avida’s Capital House and One Park Drive. Gross profit margins of offices for sale increased to 40% from 39% driven by higher margins from High Street South Corporate Plaza Towers 1 and 2 and Alveo Park Triangle Tower.

Commercial and Industrial Lots. Revenues from the sale of commercial and industrial lots reached P3.34 billion, almost a double in growth from P1.60 billion last year driven by lot sales in Vermosa and Naic, Cavite and Arca South Taguig. Gross profit margins of Commercial and Industrial lots decreased to 33% from 56% due to the higher contribution of lower margin industrial lots in Cavite and commercial lots in Arca and Vermosa.

Reservation sales reached P61.37 billion, 11% higher than P55.12 billion last year, translating to an average of P10.2 billion in monthly sales while net booked sales registered at P40.51 billion, 22% higher than P33.34 billion last year.

Commercial Leasing This includes the Company’s Shopping Centers and Office Leasing as well as Hotels and Resorts operations.

Total revenues from commercial leasing amounted to P14.17 billion, 11% higher than P12.76 billion last year.

Shopping Centers. Revenues from Shopping Centers reached P7.85 billion, 12% higher than P6.98 billion last year due to the contribution of newly opened Malls The 30th, Tutuban Center, UPTC.

Shopping Centers EBITDA margin decreased to 66% from 68% due to lower margins from newly opened malls.

The average monthly mall lease rate registered at P1,106 per square meter while same mall rental growth is at 5%. The average occupancy rate for all malls is at 91% while the occupancy rate for stable malls is at 97%. Total gross leasable area (GLA) of Shopping Centers registered at 1.66 million square meters as of June 30, 2017 with the opening of Ayala Malls Vertis North in Quezon City with a total GLA of 40 thousand square meters.

Offices. Revenues from Office Leasing reached P2.93 billion, 14% higher than P2.58 billion last year due to the contribution of new offices such as UP Town Center in Quezon City, Centrio BPO in Cagayan de Oro, and Ayala Center Cebu Corporate Center, and the higher occupancy and average rental rates of existing offices such as One and Two Evotech Towers in Nuvali, and Alabang Town Center BPO in Alabang.

Office Leasing EBITDA margin lightly improved to 91% from 90% due to the better performance of established offices.

The average monthly office lease rates registered at P729 per square meter. The average occupancy rate for all offices is at 87% while the occupancy rate for stable offices is at 97%. Total GLA of Office Leasing registered at 836 thousand square meters as of June 2017.

Hotels and Resorts. Revenues from Hotels and Resorts reached P3.40 billion, 6% higher than P3.19 billion last year. Revenue-per-available-room (REVPAR) of hotels decreased by 11% to P3,548 per night while REVPAR of resorts increased by 4% to P9,470 per night.

Hotels and Resorts EBITDA margin registered at 29%, lower than the 32% posted during the same period last year due to the lower occupancy of its internationally branded hotels in Makati.

The average room rate of hotels is at P5,102 per night while the average room rate of resorts is at P14,368 per night. The average occupancy rate of hotels registered at 70% while resorts registered at 66% during the period.

Hotels and Resorts currently operates 961 hotel rooms from its internationally branded segment; Cebu City Marriott, Fairmont Hotel and Raffles Residences Makati and Holiday Inn & Suites Makati, 1,255 rooms from Seda Hotels located in Atria in Iloilo, BGC in Taguig, Centrio in Cagayan de Oro, Abreeza in Davao, Nuvali in Santa Rosa Laguna and Vertis North in Quezon City, and 213 island resort rooms from El Nido Resorts in Lagen, Miniloc, Apulit and Pangulasian Islands and El Nido Cove, and 42 rooms at Lio Tourism Estate in Palawan and 6 rooms in Sicogon Tourism Estate in Iloilo. The Hotels and Resorts portfolio registered a total of 2,477 rooms as of June 2017 with the opening of Seda Vertis North which has 438 rooms.

Services. This includes the Company’s wholly-owned Construction and Property Management companies, Makati Development Corporation and Ayala Property Management Corporation.

Total revenues from the services business amounted to P32.81 billion, 3% higher than P31.71 billion in 2016.

Construction. Revenues from construction reached P32.00 billion, 3% higher than P30.98 billion from the increase in order book of projects form the Ayala Land Group.

Property Management. Revenues from Property Management registered at P816 million, 12% higher   than P729 million last year.

Blended EBITDA margins of the Services businesses slightly improved to 10% from 9% in the previous year.

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

Equity in net earnings of associates and JVs registered a gain of 35% to P361 million from P267 million last year mainly from the contribution of its various investments while Interest, Investment and Other Income reached P3.65 billion mainly due to higher interest income from installment sales, banks and advances to other companies.

Expenses

Total expenses registered at P46.64 billion, 18% higher than P39.55 billion last year mainly driven by Real Estate and Hotels expenses which grew 20% to P38.81 billion from P32.44 billion last year.

General and Administrative Expenses (GAE) grew by 6% to P3.52 billion from P3.31 billion last year while GAE-to-revenue ratio further improved to 5.5% from 6.0% last year.

Interest Expense, Financing and Other Charges meanwhile registered at P4.32 billion, 13% higher than P3.81 billion, mainly attributed to higher interest expense resulting from a higher average daily loan balance.

Project and Capital Expenditure

Ayala Land spent a total of P41.59 billion for project and capital expenditures as of June 2017. 48% was spent on the completion of residential projects and 33% was spent on commercial leasing projects. 12% was spent on land acquisition, new businesses, services and other investments while 7% was spent on the development of its estates.

Financial Condition

Ayala Land posted a solid balance sheet position in the first six months of 2017 which provides adequate capacity to support its growth plans in the coming years.

Cash and Cash Equivalents stood at P24.55 billion resulting in a current ratio of 1.23:1.

Total Borrowings stood at P162.38 billion as of June 2017 from P159.80 billion as of December 2016. This 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 was at 15.2% as of June 2017.

End-June 2017End-December 2016
Current ratio 11.23:11.12:1
Debt-to-equity ratio 20.90:10.93:1
Net debt-to-equity ratio 30.76:10.79:1
Profitability Ratios:
     Return on assets 44.9%5.0%
     Return on equity 515.2%14.9%
Asset to Equity ratio 63.01:13.11:1
Interest Rate Coverage Ratio 75.85.9

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 Total Net income / average total assets
5 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 2017.