MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A) OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Results of Operation as of 1H 2020 versus 1H 2019
Ayala Land recorded consolidated revenues of P41.20 billion and net income of P4.52 billion, a 50% and 70% decline, from P83.22 billion and P15.16 billion, respectively, due to the impact of COVID-19 on business operations.
Real Estate revenues, composed of Property Development, Commercial Leasing, and Services registered at P36.14 billion, a 54% decline from P78.60 billion due to lower project bookings and suspended construction activity, combined with restricted mall and hotel operations and closure of resorts during the quarantine period.
Capital expenditures amounted to P34.84 billion, 50% of the revised full-year budget of P69.82 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 amounted to P20.64 billion, a 63% drop from P55.60 billion, mainly due to lower project bookings and suspended construction activity.
Residential. Revenues from the sale of residential lots and units and MCT Bhd’s operations declined 60% to P16.55 billion from P41.46 billion.
AyalaLand Premier (ALP) posted revenues of P2.80 billion, 76% less than P11.55 billion, due to lower incremental completion (POC) of West Gallery Place, Park Central South Tower and Garden Towers 2, and lower bookings in Alcoves.
ALVEO recorded revenues of P3.13 billion, a decline of 68% from P9.69 billion owing to lower incremental POC of High Park Tower 2, Travertine and the Residences at Evo City Phase 1, and lower bookings of Orean Place Tower 1.
Avida meanwhile registered revenues of P6.81 billon, a 49% decrease from P13.43 billion, attributed to lower bookings of Avida Northdale Settings Alviera, Avida Towers Intima T1 and Avida Towers Vireo T1, and lower incremental POC of The Montane, Avida Towers Sola Tower 1 and Avida Towers Turf Tower 1.
Amaia reached P2.25 billion in revenues, a 39% reduction from P3.68 billion relating to the lower bookings of Skies projects Cubao Tower 2, Shaw Tower 1 and Avenida Tower 1, and Steps projects Sucat and Alabang. BellaVita meanwhile recognized revenues of P271.47 million, 47% less than P510.87 million because of lower bookings of projects in Lian Batangas, Alaminos and General Trias.
The average gross profit (GP) margin of horizontal residential projects improved to 46% from 43%, lifted by higher lot prices from ALP’s Ayala Greenfield Estates, ALVEO’s The Residences at Evo City Phase 2 and Ardia at Vermosa Phase 3, and Avida’s Southfield Settings Nuvali. Meanwhile, the average GP margin for vertical projects improved to 42% from 38% due to higher unit prices of Avida’s Sola Tower 2, One Antonio and Asten Tower 3, ALVEO’s Solinea Tower 4 and Amaia Steps Delicia.
MCT Bhd recorded a contribution of P1.28 billion, a 51% decline from P2.61 billion, due to lower sales from its Market Homes and Casawood projects and suspended construction activities following the Malaysian government’s movement control order (MCO) in response to COVID-19.
Office for Sale. Revenues from the sale of office units dropped by 88% to P1.14 billion from P9.84 billion, attributed to the lower incremental completion of Park Triangle Corporate Plaza and Alveo Financial Tower, and lower bookings from Highstreet South Corporate Plaza 2 and Alveo Park Triangle Tower. The average GP margin ended lower at 40% from 44% owing to lower bookings as high margin projects such as HighStreet South Corp Plaza 2, Park Triangle Corp Plaza and Alveo Park Triangle Tower are almost sold out.
Commercial and Industrial Lots. Revenues from the sale of commercial and industrial decelerated by 31% to P2.95 billion from P4.30 billion as fewer lots were sold in Vermosa and Evo City. The average GP margin substantially increased to 69% from 52%, due to higher selling prices of commercial lots sold in Arca South and Nuvali.
Sales Reservations. Due to limited selling activity during the quarantine, sales reservations for the first half of the year amounted to P38.30 billion, 47% lower from last year’s levels. Local and overseas Filipinos accounted for 86% of total sales with the balance of 14% from other nationalities. Sales from local Filipinos which comprise 68% amounted to P26.2 billion, 48% lower than the same period last year while sales from overseas Filipinos which represented 18% of total, amounted to P6.7 billion, a decline 31% year-on-year. Meanwhile, sales to other nationalities amounted to P5.3 billion, a 57% drop, primarily as sales to mainland Chinese buyers, which comprise 38% at P2.0 billion, decreased by 63%.
Project Launches. Consistent with the company’s strategy to maintain financial sustainability during this period, no new residential projects were launched in the second quarter of 2020. 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.
Commercial Leasing. This includes the operation of Shopping Centers, Office Buildings and Hotels and Resorts. Total revenues from commercial leasing declined 31% to P12.86 billion from P18.63 billion.
Shopping Centers. Revenues from shopping centers dropped 43% to P5.84 billion from P10.34 billion on the account of closure of all malls during the enhanced community quarantine and limited operations with low foot traffic upon reopening. EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) margin ended 21 percentage points lower to 45% from 66% due to limited operations and foot traffic during the quarantine. The average occupancy rate for all malls is 86% and 92% for stable malls. Total Malls GLA stands at 2.12 million square meters.
Offices. Revenues from office leasing increased 7% to P4.94 billion from P4.63 billion given the sustained operations of BPO and HQ buildings. Office leasing EBITDA margin registered at 94% from 91% last year. The average occupancy rate for all offices is 95% 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 43% lower to P2.09 billion from P3.67 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 19 percentage points to 14% from 33%. The average occupancy for all hotels was 44% and 49% for stable hotels. Meanwhile, the average occupancy for all resorts stood at 26% and 25% for stable resorts. Occupancy declined at the onset of 2020 given the imposition of travels bans due to COVID-19 and further dropped since the imposition of the quarantine. There were 71 new rooms opened at Seda Central Bloc Cebu in the month of April, however, 20 rooms at El Nido Cove were closed for operations starting in the month of January. With these recent changes, the hotels and resorts segment ended the first half of 2020 with a total of 4,030 rooms.
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 11 Seda Hotels, operating 2,712 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 (214); 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 132 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 P2.6 billion, 40% lower than P4.36 billion due to restricted construction activity, coupled with limited operations and AirSWIFT flight cancellations.
Construction. Net construction revenues totaled P882.99 million, 43% lower than P1,544.41 million.
Property Management and Others. APMC, power services companies and AirSWIFT registered revenues of P1.75 billion, 38% less than P2.82 billion.
Blended EBITDA margins of the Services segment stood at 9%.
Equity in Net Earnings of Investees, Interest, Fees, Investment and Other Income
Equity in net earnings of associates and JVs totaled P346.36 million, a 39% dip from P566.57 million as Ortigas Land and FBDC companies posted lower revenues with a combined value of P350.7 million, 38% lower from P568.42 million.
Interest income from real estate sales amounted to P4.23 billion, 28% higher than P3.31 billion driven by higher sales of trade receivables. Meanwhile, Interest and investment income declined 52% to P220.33 million owing to lower balances and lower yields.
Other income (composed mainly of marketing and management fees from joint ventures, among others) amounted to P264.74 million, 10% less than P294.00 million, largely as gains were booked from the sale of retail shop lots at MCT’s SkyPark One City in 2019.
Total expenses stood at P33.61 billion, 43% lower than P59.39 billion, on account of real estate expenses which decreased by 55% to P22.09 billion from P48.91 billion as a result of limited operations.
General and administrative expenses totaled P3.87 billion, a 13% decrease from P4.43 billion in overhead costs. With a lower topline, this resulted to a GAE ratio of 9.4% and an EBIT margin of 29.4%.
Interest expense, financing and other charges, which includes interest expense related to PFRS 16 (Leases) totaled P7.66 billion, a 27% increase from P6.05 billion due to higher interest expense attributed to a higher loan balance, discounting cost related to the AR sale program, and higher bank charges related to loan pre-payment. The average cost of debt registered at 4.9%, lower than 5.2% at the end of 2019. Of the total debt, 78% is locked-in with fixed rates, while 82% is contracted on a long-term basis.
Capital expenditures reached P34.84 billion in the first half of 2020, mainly for residential developments, followed by commercial leasing assets. 49% was spent on residential projects, 21% on commercial projects, 13% for land acquisition, 14% for the development of estates. The full year capex estimate was reduced to P69.82 billion from the original estimate of P110 billion.
The Company’s balance sheet remains healthy to support the financial and operational requirements during this period.
Cash and cash equivalents, including short-term investments and UITF investments classified as FVPL, stood at P17.44 billion resulting in a current ratio of 1.42:1.
Total borrowings registered at P228.00 billion which translated to a debt-to-equity ratio of 0.94:1 and a net debt-to-equity ratio of 0.87:1.
Return on equity was at 4.29% as of June 30, 2020.
Project and Capital Expenditures
|End-June 2020||End-December 2019|
|Current ratio 1||1.42:1||1.30:1|
|Debt-to-equity ratio 2||0.94:1||0.87:1|
|Net debt-to-equity ratio 3||0.87:1||0.78:1|
|Return on assets 4||1.53%||5.43%|
|Return on equity 5||4.29%||16.66%|
|Asset to Equity ratio 6||2.94:1||2.94:1|
|Interest Rate Coverage Ratio 7||2.74||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.