MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A) OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Results of Operation as of 9M 2020 versus 9M 2019
Ayala Land recorded consolidated revenues of P63.32 billion and a net income of P6.37 billion, a 48% and 73% decline, from P121.66 billion and P23.21 billion, respectively, due to the impact of COVID-19 on business operations. In the third quarter alone, the company registered P22.1 billion in revenues, a 73% improvement from the second quarter while net income in the third quarter reached P1.8 billion, a substantial advancement of almost nine-fold compared to only P197 million in the second quarter as government restrictions started to ease.
Real Estate revenues, composed of Property Development, Commercial Leasing, and Services registered at P55.58 billion, a 51% decline from P113.36 billion due to lower project bookings and limited construction activity, combined with restricted mall and hotel operations and closure of resorts during the quarantine period.
Capital expenditures amounted to P45.28 billion, representing 65% 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 P34.26 billion, a 57% drop from P79.15 billion due to lower project bookings and limited construction activity.
Residential. Revenues from the sale of residential lots and units and MCT Bhd’s operations declined 54% to P28.40 billion from P62.05 billion.
AyalaLand Premier (ALP) posted revenues of P6.03 billion, 65% lower than P17.32 billion, due to lower bookings in West Gallery Place, Alcoves, Cerilo, Park Central South Tower, Arbor Lanes Tower 3 and lower incremental POC of Garden Towers 2.
ALVEO recorded revenues of P5.48 billion, a decline of 60% from P13.57 billion owing to lower incremental percentage completion (POC) of its projects such as High Park Tower 2 at Vertis North, Park Triangle Residences at BGC and The Residences at Evo City Phase 1, and lower bookings from Orean Place Tower 1 at Vertis North and Travertine at Portico.
Avida meanwhile registered revenues of P10.13 billon, a 51% decrease from P20.63 billion, attributed to lower bookings from projects such as The Montane at BGC, Avida Northdale Settings Alviera, Avida Towers Sola 1 at Vertis North, Avida Towers Prime Taft 3, Avida Towers Turf 1 at BGC, Avida Towers Intima in Manila, and Avida Towers Asten 3 in Makati City.
Amaia reached P3.46 billion in revenues, a 37% reduction from P5.51 billion relating to the lower bookings of Skies Cubao Tower 2, Skies Shaw Tower 1, Skies Avenida Tower 1, Skies Sta. Mesa, and Steps Sucat. BellaVita meanwhile recognized revenues of P463.71 million, 44% less than P822.48 million because of lower bookings of projects in Lipa and Lian Batangas, and Iloilo.
MCT Bhd contributed P2.84 billion in revenues, a 32% decline from P4.20 billion, as demand from its Market Homes segment was offset by lower sales from projects in Lakefront Residences and Cybersouth as inventory is almost sold out and construction was suspended in the 2nd quarter under Malaysia’s movement control order (MCO).
Office for Sale. Revenues from the sale of office units dropped by 81% to P2.01 billion from P10.61 billion, attributed to lower bookings owing to limited inventory and the lower incremental completion of Park Triangle Corporate Plaza at BGC and Alveo Financial Tower at Makati CBD.
Commercial and Industrial Lots. Revenues from the sale of commercial and industrial decelerated by 41% to P3.85 billion from P6.49 billion mainly due to slower take-up of inventory at Alviera and limited inventory in Altaraza.
Sales Reservations. Due to limited selling activity during the quarantine, sales reservations for the first nine months of the year amounted to P60.81 billion, 44% lower than the same period in 2019. Sales started to improve in the third quarter of 2020, totaling P22.5 billion. Compared to sales reservations in the second quarter of P13.6 billion wherein quarantine was strictest, sales reservations improved by 66%. This is seen as a positive indication of demand picking up amid the current uncertain environment.
Local and overseas Filipinos accounted for 88% of total sales with the balance of 12% from other nationalities. Sales from local Filipinos which comprise 72%, amounted to P43.5 billion, 43% lower year-on-year, while sales from overseas Filipinos represented 16% of the total, amounting to P9.9 billion, 33% lower than the same period last year. Meanwhile, sales to other nationalities amounted to P7.4 billion, a 57% drop, primarily as sales to mainland Chinese buyers, which comprise 32% at P2.4 billion, decreased by 66%.
Project Launches. With improving demand in the third quarter, three (3) sequel projects were launched amounting to P2.19 billion. These are Andacillo Phase 3A in Nuvali, Laguna, Amaia Scapes Series 4A in Sta. Maria, Bulacan and Bellavita Alaminos 2. Combined with the projects launched in the first quarter of 2020, the value of launched projects for the year totaled P7.17 billion.
Commercial Leasing. This includes the operation of Shopping Centers, Office Buildings and Hotels and Resorts. Total revenues from commercial leasing declined 37% to P17.32 billion from P27.62 billion.
Shopping Centers. Revenues from shopping centers fell 51% to P7.38 billion from P15.02 billion due to the closure of all malls during the enhanced community quarantine and limited operations with low foot traffic upon reopening. Operating GLA is 62% from 61% as of the first half 2020 with foot traffic improving to 30-35% of pre-COVID levels from 20-25% in June 2020. Malls such as Glorietta and Market Market are reaching as high as 50% to 60% of pre-COVID foot traffic. The average occupancy rate for all malls is 85% and 91% for stable malls. Total Malls GLA stands at 2.12 million square meters.
Offices. Revenues from office leasing increased 2% to P7.35 billion from P7.21 billion given the sustained operations of BPO and HQ buildings. 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. BPO operations remained stable during the period.
Hotels and Resorts. Revenues from hotels and resorts ended 52% lower to P2.60 billion from P5.40 billion with the closure of resorts and lower average occupancy of hotels due to travel bans. The average occupancy for all hotels was 42% and 45% for stable hotels. Meanwhile, the average occupancy for all resorts stood at 19% and 18% 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. The hotels and resorts segment ended the first nine months of 2020 with a total of 4,030 rooms in its portfolio.
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 AirSWIFT, the airline for the hotels and resorts in Palawan and Sicogon. Total revenues amounted to P4.00 billion, 39% lower than P6.59 billion due to restricted construction activity, lower power consumption of customers and limited operations of AirSWIFT.
Construction. Net construction revenues totaled P1.62 billion, 36% lower than P2.54 billion.
Property Management and Others. APMC, power services companies and AirSWIFT registered revenues of P2.37 billion, 41% less than P4.05 billion.
Equity in Net Earnings of Investees, Interest, Fees, Investment and Other Income
Equity in net earnings of associates and JVs totaled P527.67 million, 25% lower from P704.02 million as Ortigas Land and FBDC companies posted lower revenues with a combined value of P434.73 million, 48% lower than P831.13 million.
Interest income from real estate sales barely increased, amounting to P6.36 billion from P6.29 billion in 2019. Meanwhile, Interest and investment income declined 50% to P289.86 million from P580.54 million owing to lower cash balances and lower yields.
Other income (composed mainly of marketing and management fees from joint ventures, and unrealized gain on foreign exchange, among others) amounted to P566.70 million, 22% less than P722.56 million, largely as gains were booked in 2019 from the sale of retail shop lots at MCT’s SkyPark One City and the sale of Vertex One Office building in Santa Cruz, Manila to Manila Jockey Club, Inc.
Total expenses stood at P52.87 billion, 38% lower than P85.84 billion as real estate expenses decreased by 49% to P35.59 billion from P69.95 billion as a result of limited operations. General and administrative expenses totaled P5.65 billion, an 8% decline from P6.17 billion. With a lower topline, this resulted to a GAE ratio of 8.9% and an EBIT margin of 27.2%.
Interest expense, financing and other charges, which includes interest expense related to PFRS 16 (Leases) totaled P11.62 billion, a 20% increase from P9.71 billion due to higher interest expense attributed to a higher average loan balance, discounting cost related to the sale of accounts receivables, and higher bank charges related to loan pre-payment. The average cost of debt registered at 4.8%, lower than 5.2% at the end of December 2019. Of the total, 86% is locked in fixed rates, while 90% is contracted for a long-term basis.
Capital expenditures reached P45.28 billion in the first nine months of 2020, mainly for residential developments, followed by commercial leasing assets. 47% was spent on residential projects, 21% on commercial projects, 14% for land acquisition and 15% for the development of estates. The full year capex estimate was reduced to P69.82 billion from the original estimate of P110 billion.
The 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 P18.48 billion resulting in a current ratio of 1.54:1.
Total borrowings registered at P210.21 billion which translated to a debt-to-equity ratio of 0.82:1 and a net debt-to-equity ratio of 0.75:1.
Return on equity was at 3.94% as of September 30, 2020.
Project and Capital Expenditures
|End-September 2020||End-December 2019|
|Current ratio 1||1.54:1||1.30:1|
|Debt-to-equity ratio 2||0.82:1||0.87:1|
|Net debt-to-equity ratio 3||0.75:1||0.78:1|
|Return on assets 4||1.40%||5.43%|
|Return on equity 5||3.94%||16.66%|
|Asset to Equity ratio 6||2.80:1||2.94:1|
|Interest Rate Coverage Ratio 7||2.71||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.