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Edited Transcript of ALI.PS earnings conference call or presentation 14-Feb-20 6:00am GMT

·50 mins read

Q4 2019 Ayala Land Inc Earnings Call Paranaque Feb 25, 2020 (Thomson StreetEvents) -- Edited Transcript of Ayala Land Inc earnings conference call or presentation Friday, February 14, 2020 at 6:00:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Augusto Cesar D. Bengzon Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer * Bernard Vincent Olmedo Dy Ayala Land, Inc. - President, CEO & Director * Jennylle S. Tupaz Ayala Land, Inc. - VP & Head of Ayala Malls * Michael Anthony L. Garcia Ayala Land, Inc. - Head for Investor Communications & Compliance Division ================================================================================ Conference Call Participants ================================================================================ * Carl Sy Deutsche Bank AG, Research Division - Research Analyst * Cristina S. Ulang First Metro Investment Corporation, Research Division - VP & Department Head of Research * Jason Yeo Goldman Sachs Group Inc., Research Division - Equity Analyst * Kervin Laurence Sisayan Macquarie Research - Analyst * R. J. Aguirre UBS Investment Bank, Research Division - Associate Director and Research Analyst * Utkarsh Rastogi HSBC, Research Division - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Michael Anthony L. Garcia, Ayala Land, Inc. - Head for Investor Communications & Compliance Division [1] -------------------------------------------------------------------------------- Okay. Ladies and gentlemen, good afternoon. Welcome to Ayala Malls Manila Bay Cinema 9, and welcome to our full year 2019 briefing. Joining us on the line are 9 callers. And we'd like to remind everyone that the presentation is available for download at ir.ayalaland.com.ph. And to start off, let me introduce our panel led by our President and CEO, Mr. Bobby Dy; his Chief Financial Officer, Mr. Augusto Bengzon; and Group Head of our Residential Business, Mr. Robert Lao. And to start the presentation, let me turn over the floor to Mr. Bengzon. -------------------------------------------------------------------------------- Augusto Cesar D. Bengzon, Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer [2] -------------------------------------------------------------------------------- Good afternoon. And before I start with the presentation, I'd like to call up our mall's Head, Yeng Tupaz, so that she can describe this beautiful facility that we've built. This is our largest -- single-largest small opening to-date. And given that it's a Valentine -- it's Valentine's Day, perhaps she can tell you where you can go in this beautiful mall. -------------------------------------------------------------------------------- Jennylle S. Tupaz, Ayala Land, Inc. - VP & Head of Ayala Malls [3] -------------------------------------------------------------------------------- So good afternoon, everyone, and Happy Valentine's. Welcome to Ayala Malls Manila Bay. As Mr. Bengzon mentioned, this is our biggest mall to date. We opened this in September last year. It's 160,000 square meters of GLA. So after the analyst briefing, I'd like to invite all of you to explore the mall. So today, we're in Cinema 9. This is our regular cinema, 170 seats. So we have a total of 10 cinemas, so 8 are like this. We have 2 special ones, the A-Giant cinema. The A-Giant screen has a screen that's twice as big as this, okay? So that's in Cinema 7. And then we have our My Cinema. It's our most intimate (foreign language). So we have 80 La-Z-Boy seats there. So you can watch a movie after. Today, we've opened about 412 merchant spaces. So after this, you can dive in over 146 dining establishments and shop in 266 retail stores. So we have our special zones here in Manila Bay. So we're on the fifth floor today. (foreign language) the fourth level, we have Japan Town. On the third floor, we have Korea Town and our biggest time zone to-date, 2,100 square meters. You can find them at the third floor. And then on the second floor, we have our Filipino Zone. If you're looking to walk the mall later, have some fresh air to breathe, we have a 1-hectare Central Garden and therein, you will find 3 art installations representing Luzon, Visayas and Mindanao. So for Mindanao, we have the Cloud 9 installation by Ann Pamintuan. That's a nod to Siargao. And then we have the Special Boulders by Vito Selma, representing the different provinces of Visayas. And then, we also have Mike Cacnio's palay-inspired art installation just by the garden. So there's an amphitheater there. If you're looking to exercise and hit your 15,000 steps for today, we have 47 hectares of space here. So you can go from the basement, third floor, all the way up to the fifth floor. Okay. As you exit. So if you drove your car today, we -- so we're -- it's dry run for us. We have an intelligent parking system in place, which we will open by March. So if you took your car today, it took a picture of your license plate. So just make sure you remember your license plate and your conduction sticker. So as you exit, we have 13 pay stations. All you need to do is encode your license plate, and you have 30 minutes to exit the mall. The boom would just automatically open. So with that, please enjoy Ayala Malls Manila Bay. For the meantime, let's listen to our briefing. Thank you. -------------------------------------------------------------------------------- Augusto Cesar D. Bengzon, Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer [4] -------------------------------------------------------------------------------- And that parking is free? The parking is free? -------------------------------------------------------------------------------- Jennylle S. Tupaz, Ayala Land, Inc. - VP & Head of Ayala Malls [5] -------------------------------------------------------------------------------- Yes. The parking is free. -------------------------------------------------------------------------------- Augusto Cesar D. Bengzon, Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer [6] -------------------------------------------------------------------------------- Good afternoon. I'll start off with our financial and operating statistics before I give you an update on the Land Bank. And we'll have a special section. We'll provide you with an update on the AREIT, which we hope to list by the end of March. That being the first REIT in the Philippines. So our key messages are as follows. Ayala Land's net income grew by 13% to PHP 33.2 billion, while total revenues grew by 2% to PHP 168.8 billion in 2019. Our property development revenues reached PHP 117.6 billion supported by office and commercial and industrial lot sales, while commercial leasing revenues rose by 13% to PHP 39.3 billion, fueled by the higher contribution of our new leasing assets. We introduced 3 new estates and successfully launched PHP 158.9 billion worth of property development projects, surpassing our initial estimate of PHP 130 billion. Meanwhile, our leasing portfolio continued to expand with malls and offices totaling 2.1 million and 1.2 million square meters of gross leasable space, respectively. And our hotels and resorts portfolio now has 3,705 rooms. Finally, our CapEx amounted to PHP 109 billion to support the buildup of residential and leasing projects in 2019. The company advanced steadily in 2019 as net income grew by 13 point -- 13% to PHP 33.2 billion. Total revenues grew by 2% to PHP 168.8 billion, primarily driven by real estate revenues, which grew by 2% to PHP 165.7 billion, supported by office and commercial and industrial lot sales, further fueled by the higher contribution of our new leasing assets. Interest and other income came in at PHP 3.1 billion, 10% lower than 2018, as we recognized a onetime gain on the sale of one of our Malaysian subsidiaries. Equity net earnings of associates and JVs and joint ventures totaled PHP 966 million, 29% higher, as FBDC companies more than doubled their revenues due to commercial lot sales and the strong performance of their leasing assets in BGC, namely One Bonifacio High Street and the Alveo High Street South Corporate Plaza Retail section. Ortigas Holdings also contributed to growth, posting a 29% jump in revenues from property sales and leasing. Interest and investment income amounted to PHP 930 million, 15% lower than last year, owing to lower interest income from short-term investments. Other income, composed mainly of marketing and management fees from our joint ventures, among others, amounted to PHP 1.2 billion, 25% lower than 2018, as this carried that onetime sale transaction of our Malaysian subsidiary, MCT. Total expenses stood at PHP 118 billion, 3% lower as real estate expenses were controlled and decreased by 5% to PHP 95.8 billion. Our general and administrative expenses totaled PHP 9.4 billion, a 3% increase as overhead costs were controlled and moved in line with inflation. This enabled us to register a GAE ratio of 5.5% and improve our EBIT margin to 37.4% from 33.3% previously. Interest expense, financing and other charges stood at PHP 12.8 billion, an 18% hike, due to increased outstanding debt and accompanying financing charges. Netting out expenses from revenues, income before tax came in at PHP 37.5 billion, 13% higher than last year. Our provision for income taxes amounted to PHP 13.3 billion, an 11% increase, in line with higher earnings, but we sustained an effective income tax rate of 26%. Netting out noncontrolling interest from our consolidated subsidiaries with partners, which grew by 9% to PHP 4.3 billion, net income attributable to ALI equity holders grew by 13% to PHP 33.2 billion. Moving on to revenues. Our top line grew modestly, with the support of office and commercial and industrial lot sales and the higher contribution of our new leasing assets. Revenues from property development amounted to PHP 117.6 billion, a 2% dip from 2018, mainly as the residential decline -- residential segment declined 8% to PHP 93.2 billion. Residential revenues declined due to the lower contributions from our top brands as most of their vertical projects, recognized in 2019, were already booked during prior periods and are currently near completion. It is worth noting that the projects contributing to 2019 revenues were mainly launched in 2016 valued at PHP 62 billion. This is lower compared to 2018, which sourced revenues from projects launched in 2015 amounting to PHP 78 billion. Our MCT subsidiary in Malaysia is also consolidated under residential revenues. It generated PHP 6.7 billion in 2019, 13% lower than the prior year due to the full sellout of their projects in Cyber South in Malaysia. As a result, result -- revenues from our 5 residential brands and MCT reached PHP 93.2 billion, 8% lower than the previous period. Nonetheless, our office for sale revenues grew by 15% to PHP 13.1 billion, while revenues from commercial and industrial lots increased 46% to PHP 11.3 billion. Office for sale continued to accelerate due to the completion progress and new bookings from Alveo High Street South Corporate Plaza, our Park Triangle Corporate Plaza and Alveo Financial Tower. We likewise experienced an uplift from commercial and industrial lots, which grew by 46%, contributing PHP 11.3 billion in lot sales from Altaraza, Vermosa, Nuvali and Broadfield. In commercial leasing, our revenues jumped by 13% to PHP 39.3 billion. Shopping center revenues grew by 11% to PHP 22 billion, supported by same mall revenue growth of 8%, given the increased contribution of our new malls such as Ayala Malls Feliz, Capitol Central and Circuit Makati. Office revenues increased by 12%, reaching PHP 9.7 billion, as new (inaudible) in Ayala North Exchange, Vertis North and Circuit Makati continue to improve performance. Meanwhile, our hotels and resorts revenues moved by 19% to PHP 7.6 billion on strong patronage of our Seda Ayala Center Cebu and Seda Lio Hotels. In terms of services primarily composed of MDC, our construction company and APMC, our property management company, together with our power service companies, total revenues came in at PHP 8.8 billion, 15% higher than 2018. Summing all of this up, our total real estate revenues amounted to PHP 165.7 billion, 2% higher year-on-year, coupled with interest and other income of PHP 3.1 billion. Total revenues increased by 2% to PHP 168.8 billion in 2019. Our project -- our product margins continue to be healthy and continue to boost bottom line growth. The average gross profit margin of our horizontal residential projects slightly improved to 45%. Meanwhile, the average gross profit margin of our vertical projects improved to 39% from 34%, due to higher margins from our Ayala Land Premier Park Central South Tower, Garden Towers 2 and East Gallery Place. While Alveo's Orean Place Tower 1, Celadon and Travertine, and Avida's Tower -- Towers Sola Tower 2, also improved our margins. In terms of office for sale, the average GP margin significantly increased to 43% due to the improved margins coming from Alveo High Street South Corporate Plaza, Alveo Park Triangle Towers and the Alveo Financial Tower. Gross profit margins of our commercial and industrial lots also substantially increased to 62% from 50%, due to higher margins of commercial lots sold in Nuvali, Arca South, Altaraza and Broadfield. On the shopping front, our shopping center sustained an EBITDA margin of 66%. Office leasing registered an EBITDA margin of 90%, slightly lower than 2018, while the average EBITDA margin of hotels and resorts increased to 32% from 29%, due to higher occupancy and revenue per available room of Seda Ayala Center Cebu and Seda Lio. Lastly, overall EBIT -- the margins of our services business remains steady at 10%. In 2019, our new estates continued to contribute a higher share to our net income, to our bottom line. Also, it's worthy to note that our recurring income outpaced the growth of development income. New estates contributed 58% to the bottom line, coming from 54% last year, as our new estates accelerate in buildup and density. Meanwhile, the share of recurring income stands at 34%. Worth noting is its compounded average growth of 25% since 2013 has outpaced the 17% growth of development income during the same period. Moving on to property development. Gross sales, sales reservations grew by 3% to PHP 145.9 billion as we launched projects worth PHP 158.9 billion, surpassing our initial estimate of PHP 130 billion. Alveo and Avida fueled the growth in sales reservations. In the fourth quarter of 2019 alone, we launched PHP 100 billion worth of projects. And combined with the PHP 58 billion worth of launches in the first month of 2019, we exceeded our budget of PHP 130 billion. This has brought our inventory level -- our residential inventory level to 16.6 months' worth, which gives us more than enough supply in our pipeline for this year. Local and overseas Filipinos continue to dominate demand for Ayala Land projects. Local Filipinos accounted for 71%, while overseas Filipinos accounted for 13% of total sales. Sales to other nationalities came in at 16%, and this actually declined by 10% compared to 2018, primarily as Mainland Chinese buyers, which comprised the bulk -- you see a decline in Mainland Chinese buyers by 22%. So local Filipinos -- or Filipinos, both local and our -- OFWs, account for 84% of our total residential sales. Unbooked revenues increased by PHP 10 billion from 2018, reaching a total of PHP 152 billion. This will be recognized in the next 3 to 4 years, based on our percentage of completion. In terms of our key launches. We introduced 3 new estates, Alveo's Broadfield, The Junction Place and Crescendo. This brings us to a total of 29 estates nationwide. Broadfield is a 120-hectare mixed-use development under the Alveo brand, gated in Biñan, Laguna, right at the heart of South Luzon's thriving residential leisure, industrial and manufacturing center. It's 4 kilometers away from Nuvali and is easily accessible from the SLEX through Governor's Drive and the Santa Rosa-Tagaytay Road. It is poised to benefit from the completion of CALAX, and the planned Cavite-Tagaytay-Batangas Expressway. The project is also adjacent to De La Salle University's Laguna Campus. 80 hectares of Broadfield is dedicated for mixed use and commercial users, while 40 hectares has been allotted for residential-gated communities. Phase 1 of the project covers 36.6 hectares. Tranche 1, comprised of 35 commercial lots, were made available for sale with an average price of PHP 185 million per lot, translating to PHP 105,000 per square meter. And since its launch in October, it has already sold PHP 3.1 billion worth of commercial lots. Meanwhile, Junction Place is strategically located between Quirino Highway and Tandang Sora Avenue in Quezon City. This 11-hectare pocket urban development strengthens our footprint in Quezon City, following the success of Vertis North and Cloverleaf. This estate will be anchored by an Amaya development, which will cater to the emerging economic segment. The Junction Place will also be anchored by a community center and a Walter Mart Mall. Total investment for this project is PHP 8 billion. And it will have a transport hub and UV Express terminal, which will be built to further boost the estate's connectivity to other areas in Metro Manila. Since its launch, The Junction Place has already sold close to PHP 0.5 billion worth of commercial lots. Finally, Crescendo, our first estate in Tarlac, will feature a 30-hectare downtown area to complement the current commercial center. This 290-hectare estate is only 3 kilometers away from the SCTEX-Luisita Exit, 6 kilometers from McArthur Highway and 15 kilometers from the New Clark City. It will be anchored by a 32-hectare industrial park, a school by Don Bosco Technical Institute and an Avida community. We have committed PHP 8 billion -- PHP 18 billion, rather for the development of this estate, of which PHP 5.5 billion will be spent within the first 5 years. As of December 2019, we have already sold PHP 0.5 billion worth of industrial lots. Our key launches from Ayala Land Premier include: Andacillo, located in Nuvali, a total of 188 lots valued at PHP 3 billion, 17 -- 76% has been taken up; The Courtyards Phase 4 at Vermosa, Cavite, 71 lots valued at PHP 1.5 billion, 72% has been taken up; ALP's Parklinks South Tower, launched in October, 345 units with a value of PHP 14.2 billion, 8% of which has been taken up; and Gardencourt Residences in Arca South, launched last December, with 364 units valued at PHP 14 billion, 19% has been taken up. For Alveo. Parkford Suites in Legaspi Village, this is the front of the Legaspi Park. 163 units valued at 80 --PHP 8.2 billion, 22% taken up. Average selling price of PHP 375,000 per square meter. Mergent Residences, along Makati Avenue, 358 units worth PHP 5.1 billion, 41% taken up. Average selling price of PHP 281,000 per square meter. The Lattice at Parklinks valued at PHP 8.8 billion, of which 14% has been taken up; and Sentrove at Cloverleaf, PHP 7.3 billion worth, 12% taken up. Both projects were launched in November. The Lattice is selling at PHP 253,000 per square meter, while Sentrove is selling at PHP 231,000 per square meter. For Avida. We have Vireo Towers Tower 3 at Arca South, launched last August, 551 units valued at PHP 2.2 billion. More than half, 57%, has been taken up; while Ardane Tower 1 at the Southpark District, launched just last November, valued at PHP 3.4 billion. 13% has been taken up. For Amaia. Amaia Series Phase 1 at Vermosa launched in January of 2019. Value of PHP 2.7 billion, 28% taken up. Amaia Skies Shaw Tower 2 in Mandaluyong City, launched only in September. PHP 4.9 billion, 36% taken up. And Amaia Skies Avenida Tower 2 in Manila. PHP 4.1 billion, 9% taken up. Just for your info, Series Vermosa was priced at PHP 72,000 per square meter, Skies at Shaw was at PHP 156,000 per square meter and Skies Avenida at PHP 161,000 per square meter. In terms of office for sale. We launched Alveo's Cerca Enterprise Plaza in Alabang last September. 343 units valued at PHP 8.3 billion. So far, 7% has been taken up, selling price at PHP 245,000 per square meter. So in summary, we launched a total of 48 projects worth PHP 159 billion. 47% of that value comes from Alveo's launches, 28% from ALP and 15% from Avida. 69% is composed of vertical projects, 16% horizontal, 10% commercial and 5% office for sale. About 2/3 of these launches were located in Metro Manila, 27% in Luzon. Moving on to our leasing business, starting with our malls. Average occupancy for all malls is at 88%, while the occupancy rate for our stable malls is healthy at 93%. Same-mall rental growth remains strong. It registered 8%, driven by Ayala Malls Feliz, Capitol Central and Circuit Makati. Total malls GLA stands at 2.12 million square meters. We added a total of 213,000 square meters this year -- last year, rather, with the opening of Ayala North Exchange Retail, Ayala Malls Manila Bay and Ayala Malls Central Block. For 2020, we look forward to the opening of Ayala Triangle Gardens Retail. This is the Ayala Triangle, Ayala Malls Vermosa, both of which have a combined gross leasable area of 43,000 square meters. We currently have a total of 517,000 square meters under construction. For office leasing. Our total office leasing GLA is now at 1.17 million square meters, with 70,000 square meters added last year from the completion of Ayala North Exchange BPO, Manila Bay BPO Tower and the Central Block Corporate Center in Cebu. Our average occupancy for all our offices is 96%, while the occupancy rate of our stable offices is at 97%. This year, we can look forward to the opening of BGC Corporate Center 2, Central Bloc Corporate Center 2 and Ayala Triangle Tower 2, with a total of 130,000 square meters of gross leasable space. Total GLA under construction stands at 358,000 square meters. For hotels and resorts. We now have a total of 3,705 rooms. Our average occupancy rate remains at healthy levels. Our hotels registered occupancy at 70% and 63% for our resorts. For our stable hotels, it's running at 78%, and 63% for our stable resorts. Clearly, we saw the occupancy levels normalized last year given the reopening of Boracay. Upcoming openings this year include 214 rooms at Seda Central Block Cebu and 206 rooms in Seda Nuvali. We currently have a total of 2,311 rooms under construction. Turning to our new leasing formats, namely industrial warehouses and co-living and co-working spaces. For industrial spaces, composed of factory buildings and warehouses, we continue to have 175,000 square meters of GLA. This was an increase from the 137,000 square meters that we had at the start of 2019. For the flats, we now have 2,044 beds between Makati -- our Makati and BGC facilities. This is close to 3x more than what we started with in 2019. And for Clock In, similarly, we increased our seat count to 1,404 seats. That's close to 3x or over 3x the number of seats we had at the start of 2019. Our balance sheet continues to support our growth plans. Cash stood at PHP 21.5 billion. Our total debt increased by 13%, while stockholders' equity grew by 10%. Our current ratio is at 1.2x, while our net gearing remains very manageable at 0.78x. We continue to take advantage of the lower interest rate environment in 2019, securing the best available rates to manage our debt and strengthen our funding capability. We were able to manage the increase in interest rates. As you may recall, we started 2019 with relatively high rates. We were able to manage our average cost of debt to about 5.18%. 90% of our debt is locked in, in fixed rates, while 91% is on a long-term basis. We spent a total of 100 point -- PHP 108 billion in CapEx to support the buildup of our residential and leasing projects. As you can see in the breakdown, 40% went to our residential projects, 26% to commercial leasing projects, 17% for land acquisition, 14% for estate development and 5% for other investments. Moving on to our land bank. We ended the year with a total of 12,192 hectares as we continue to expand the reach across the country, so this was a growth of close to 600 hectares from the start of -- or the end of 2018. To provide you with more granularity, 56% of our land bank is located within our mixed-use states, while the balance of 44% are outside of estates or may soon be converted into estates. Geographically, majority of our land bank is located within Luzon and concentrated in the rapidly growing contiguous areas of Central Luzon, Metro Manila and Calabarzon, and these 3 contiguous regions account for 83% of our total land bank. 10% of the land bank is in Visayas and the balance of [7] % is in Mindanao. So to summarize our performance in 2019. Net income grew by 13%. Revenues, up by 2% to PHP 168.8 billion. Property development revenues reached PHP 117.6 billion, supported by office and commercial and industrial lot sales, while commercial leasing revenues grew by 13% to PHP 39.3 billion, fueled by the higher contribution from our new leasing formats. We introduced 3 new estates, launched PHP 158.9 billion worth of property development projects, much more than our initial estimate of PHP 130 billion. Our leasing portfolio continues to grow, with malls and offices now totaling 2.1 million and 1.2 million square meters of gross leasing space, respectively. While our hotels and resorts portfolio continues to grow, now with 3,700 keys. Lastly, CapEx amounted to PHP 109 billion to support the buildup of our residential and leasing projects. We'd now like to proceed. Before we open this up to Q&A, we'd like to give you some more flavor of the AREIT. This is the REIT that we hope to list on the stock exchange, hopefully by the end of March. So to give that update, I'll turn you over to the Investor Relations Head of both ALI and AREIT, Mike Garcia. -------------------------------------------------------------------------------- Michael Anthony L. Garcia, Ayala Land, Inc. - Head for Investor Communications & Compliance Division [7] -------------------------------------------------------------------------------- Thank you. Here's a summary of the key terms of the offer. The price is up to PHP 30.05 per share, up to 479 million shares. 70% will be offered to institutional buyers, 20% the trading participants and 10% to local small investors. It also provides for an over-allotment option of up to 24 million secondary shares. Post offer, the public float will be 49%. The offer is valued at PHP 14 billion, without the over-allotment option and PHP 15 billion, assuming full exercise. The estimated market cap, post the offer, is up to PHP 31 billion, to be listed with the PSE with a ticker symbol AREIT. The lockup period is 180 days, and 90% of the proceeds will be used to acquire Teleperformance Cebu and 10% for our general corporate purposes. The indicative period -- offer period is between March 11 to 17, 2020, with BPI Capital as the sole issue manager, sole book runner and lead underwriter. Let me give you a brief history of AREIT. AREIT was formerly One Dela Rosa Property Development, Inc., which was a company vehicle that developed Solaris One. This building is one of the pioneer BPO facilities in the country, when the BPO industry was just beginning in the Philippines. It is located along Dela Rosa Street in Makati and was completed in 2008. 10 years later, on October 2018, AREIT purchased Ayala North Exchange from Ayala Land. This is the first [stack] commercial used development by Ayala Land, which consists of a 3-level retail podium, 2 office towers and a service department on top of the office buildings. NE is located along Ayala Avenue corner Salcedo and Amorsolo Streets. With these 2 buildings, ODR, or One Dela Rosa, amended its Articles of Incorporation and By-Laws, consistent with the REIT regulations. Subsequently, it's name was changed to AREIT. Early this year, AREIT leased McKinley Exchange Corporate Center from Ayala Land, and also signed a Memorandum of Agreement with ALI to acquire a fourth asset, Teleperformance Cebu. This brings the AREIT portfolio to 3 buildings in Makati and 1 in Cebu within the year. Today, AREIT is a company that provides stable yield and opportunities for growth. Its assets are all prime Grade A commercial properties with strong tenant demand. Backed by Ayala Land, it is governed by an experienced management team with a long track record in real estate. Now it has a total of 153,000 square meters of GLA across 3 properties in Makati. This will grow further to 171,000 square meters with the acquisition of Teleperformance Cebu. Average occupancy is 98% with a diversified tenant base, totaling 67 locators across different segments: BPOs, traditional headquarters, service apartments and retail. Its revenues are locked-in through long-term leases ranging from 5 to 10 years. And as of September 2019, revenues reached PHP 1.1 billion and an EBITDA of over PHP 1 billion, a significant growth from 2018 with the addition of assets. Please note that this is reflective of only 9 months income, without the contribution of the third and the fourth assets. AREIT's portfolio consists of Grade A PEZA-accredited properties in Makati. First is Solaris One, a 24-storey building completed in 2008, with 46,700 square meters of GLA. It is 96% leased and has Shell Shared Services and ANZ Global Services as its anchor office tenants. Second is Ayala North Exchange, completed in 2019, with a total GLA of 95,500 square meters. It is 99% leased, housing key tenants such as Concentrix, Oracle NetSuite, BPI and Seda Service Residences. And third is McKinley Exchange, located at the corner of EDSA and McKinley Road, a very prime spot adjacent to the Ayala MRT station. Completed in 2014, this property has 10,687 square meters, fully leased out the Telus International and some amenity retail formats at the ground floor. Outlined are the gross revenues of the 3 properties as of 2018 and September 2019, and their respective land lease periods ranging from 33 to 44 years. Solaris One is valued at PHP 15.8 billion, Ayala North Exchange at PHP 9.1 billion and McKinley Exchange at PHP 1.7 billion based on the third-party appraisal report dated January 24, 2020. And to expand AREIT's building portfolio, it will acquire from Ayala Land, the fourth property, Teleperformance Cebu. The addition of Teleperformance Cebu to the portfolio will increase AREIT's gross leasable area by 11.7% or 171,000 square meters in total. And we believe this transaction shows Ayala Land's commitment to support AREIT over the long term. All the properties provide stable recurring income and steady inflation hedge dividends. This is evidenced by its dividend distributions and net income in the past 4 years, including its stable occupancy rates. Added to this, the lease terms support stability of cash flows and rent revenues. The typical lease period of the office properties range from 5 to 10 years, as I mentioned earlier, with rental rates reviewed periodically based on the current market, and is escalated annually at an average rate of 3% to 5%. Lease renewals are based on a fair market value as long as it is not lower or higher than 10% of the rate in the previous year. In addition, steep penalties are incorporated in the event of a pretermination. And we believe these terms provide AREIT a resilient rental revenue base. At the same time, the long-term lease terms enable AREIT to build long-term relationships with its tenants. Over time, AREIT has established a diversified tenant base of high-quality shared services and outsourcing businesses, comprise 59%; service apartments by Seda Residences, 18%; banking and finance, primarily BPI, comprise 7%; and 16% from other tenants. With rental escalation built in to current committed leases, lease renewals at higher rates, the full lease-out of Ayala North Exchange and McKinley Exchange, the addition of Teleperformance Cebu and other high-quality assets over time, AREIT's revenues will grow significantly, providing the company with the ability to increase dividends in the long term. AREIT is properly structured in order to implement its strategies. After the IPO, the public will own 49% of AREIT, while ALI will remain control of 51%. This provides enough room for Ayala Land to infuse more assets for the future growth of AREIT. Working closely with Ayala Land, AREIT engages the services of the fund and property management companies, which are both wholly owned subsidiaries of Ayala Land. These companies, composed of ALI personnel, have the track record to manage and grow the fund and operations of AREIT. For the financial highlights. We are showing actual results of operations of AREIT for the full year 2016, 2017 and 2018. For additional information, we are showing partial results for year-to-date September 2018 and 2019. These figures reflect only the operations of the first 2 properties, Solaris and Ayala North Exchange, and does not reflect income from McKinley Exchange and Teleperformance Cebu. From 2017 to 2018, growth was driven by the acquisition of Ayala North Exchange. This resulted to an increase in available GLA by approximately more than 200% and an increase in total assets from PHP 1.99 billion in 2017 to PHP 11.58 billion in 2018. In 2018, Solaris contributed 83% of AREIT's total revenues and 82% of AREIT's net operating income. Solaris had a higher contribution than Ayala North Exchange since ANE was not yet fully operational in 2018. However, with the addition of ANE in the portfolio, this resulted to a 24% increase in revenues, from PHP 698 million in 2017 to PHP 865 million in 2018, a 28% increase in EBITDA, from PHP 605 million in 2017 to PHP 774 million in 2018. And as of year-to-date September, EBITDA already reached PHP 1 billion. ANE's contribution-to-date accounts for 53% of total revenues and 47% of net operating income. And ANE's contribution is expected to increase further, following its completion in the third quarter of 2019. So clearly, AREIT has produced solid financials in the past years, as evidenced by its healthy financial ratios. EBITDA margin has improved from 85% in 2016 to 89% in 2018. Net income margins are also stable and are consistently above 60% since 2016. Liquidity ratios are also favorable, with a minimum current ratio of 3.5x from December 2016 to September 2019. AREIT has not incurred debt, resulting to an asset-to-equity ratio of 1:1 as of end September 2019. And lastly, in terms of time lines. From our submission of the prospectus last Feb 7, we hope to receive the SEC's Clearance on Feb 20. Afterwards, we are looking at February 26 to secure the approval of the PSE. On March 6 is the pricing date. If the SEC issues the permit to sell by March 9 or 10, the offer period can commence on March 11 to 17. Afterwards is the settlement period. And should there be no delays into our timetable, we hope to list AREIT by end of March 2020. Thank you very much. And with that, we'd like to open the floor for questions. From -- first from our live audience. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Carl Sy, Deutsche Bank AG, Research Division - Research Analyst [1] -------------------------------------------------------------------------------- Thank you. Good afternoon, and Happy Valentine's Day. I'd like to ask a number of items. I'll start with the Residential segment. Launches were very strong in the fourth quarter, but presales were -- relative to the third quarter, I think, just a little up, but -- so not as much as the launches. Could you tell us how the January sales are doing, not necessarily an exact figure? -------------------------------------------------------------------------------- Augusto Cesar D. Bengzon, Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer [2] -------------------------------------------------------------------------------- Yes. We're highly focused on last year's results. As you know, we don't give a guidance for the quarter. But let me just -- I guess, just make a comment. January, in general, as you know, probably was a little bit more difficult primarily because of the Taal explosion, which basically affected our properties in the south and then, with the COVIN-19. So January, in general, I think, was a more challenging month than compared to last year. -------------------------------------------------------------------------------- Carl Sy, Deutsche Bank AG, Research Division - Research Analyst [3] -------------------------------------------------------------------------------- Understand. And on -- as you said, the residential projects in the south, could you tell us how much Nuvali contributed to 2019 presales? -------------------------------------------------------------------------------- Augusto Cesar D. Bengzon, Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer [4] -------------------------------------------------------------------------------- What I can provide you, Carl, is the launches that we did last year, primarily around Nuvali. That was about 3% of the total. So maybe the -- what would be good -- the statistic that you probably want to look at is in terms of the -- how much we launched in the southern region, which potentially was affected by Taal, so at 18%. -------------------------------------------------------------------------------- Carl Sy, Deutsche Bank AG, Research Division - Research Analyst [5] -------------------------------------------------------------------------------- Sorry. 18% of launches? -------------------------------------------------------------------------------- Augusto Cesar D. Bengzon, Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer [6] -------------------------------------------------------------------------------- 18%. That's the southern side, including Nuvali and a small portion in Tagaytay. -------------------------------------------------------------------------------- Carl Sy, Deutsche Bank AG, Research Division - Research Analyst [7] -------------------------------------------------------------------------------- Regarding your office division this time. Could you tell us, let's say, as of end 2019, for the 130,000 square meters due this year, what was the pre-leasing level? -------------------------------------------------------------------------------- Augusto Cesar D. Bengzon, Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer [8] -------------------------------------------------------------------------------- It's -- pre leases. For what's due, coming up this year? -------------------------------------------------------------------------------- Carl Sy, Deutsche Bank AG, Research Division - Research Analyst [9] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Augusto Cesar D. Bengzon, Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer [10] -------------------------------------------------------------------------------- It's healthy. Yes. -------------------------------------------------------------------------------- Michael Anthony L. Garcia, Ayala Land, Inc. - Head for Investor Communications & Compliance Division [11] -------------------------------------------------------------------------------- Yes, RJ? -------------------------------------------------------------------------------- R. J. Aguirre, UBS Investment Bank, Research Division - Associate Director and Research Analyst [12] -------------------------------------------------------------------------------- In relation to Carl's earlier questions on Residential launches. So fourth quarter, you did almost PHP 100 billion of launches. And seeing from the presentation on the residential and office spaces, it's -- it adds up to about PHP 60 billion in value. Would you say that the PHP 40 billion came from the 3 new estates, the PHP 40 billion balance? I just want to get a sense of the projects that are launched in fourth quarter, yes. So based from the presentation slides earlier, the project launches on residential added up to about PHP 60 billion. So is the risk coming from the 3 new estates or other that are -- other additionals? -------------------------------------------------------------------------------- Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [13] -------------------------------------------------------------------------------- No. I don't think that 3 new estates accounted for the bulk of it. In fact, the PHP 159 billion, I think Toti had a chart a while ago. The bulk of that really still comes from residential -- from our residential group, primarily on the development side. I mean we look at the estates, what we typically look at are just basically the commercial and industrial lots. So that wouldn't be the bulk of the PHP 159 billion that we launched last year. So primarily on the residential side. That's why if you look at the inventory level, as Toti mentioned a while ago, that's now gone up. I think we're about maybe 10, 11 months. Now we're at about 16 months worth of inventory. -------------------------------------------------------------------------------- R. J. Aguirre, UBS Investment Bank, Research Division - Associate Director and Research Analyst [14] -------------------------------------------------------------------------------- Actually, in relation to what you said, the 16.5 months worth of inventory, does that mean that we're going to see a lot less launches this year? Or... -------------------------------------------------------------------------------- Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [15] -------------------------------------------------------------------------------- It depends. Right now, we're programming about PHP 125 billion, but depends on what happens during the year with the capacity to be able to increase that or depending on how sales go, reduce it. So it just depends. It's too early to tell. But capacity-wise, if the market continues to be strong, then we have the ability to wrap that up for you. But for now, we're looking maybe at about PHP 125 billion in launches for the year. -------------------------------------------------------------------------------- R. J. Aguirre, UBS Investment Bank, Research Division - Associate Director and Research Analyst [16] -------------------------------------------------------------------------------- Same goes for CapEx? -------------------------------------------------------------------------------- Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [17] -------------------------------------------------------------------------------- Yes. CapEx will be at a fairly similar level that -- what you've seen this year. So if you look at it over the last maybe 5, 6 years, in the 2014, 2015, 2016, 2017 period, we were at about, maybe at the PHP 80 billion mark. And then beginning 2018, we're now the PHP 110 billion or so. So I do expect that for the next year or so. -------------------------------------------------------------------------------- R. J. Aguirre, UBS Investment Bank, Research Division - Associate Director and Research Analyst [18] -------------------------------------------------------------------------------- Okay. Bobby, my next questions are with regard AREIT. And I'd just like to know the rationale of the group by not including the land on the asset? And how did you determine the lease for AREIT to Ayala Land? The lease terms? -------------------------------------------------------------------------------- Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [19] -------------------------------------------------------------------------------- Well, the land, particularly Makati land, we're not including because the valuation is going to completely change if land were included. So that's why for the Makati assets, we intentionally excluded the land to make sure that the yields continue to be attractive. But for some of the other infusion, like Teleperformance in Cebu, when we do that, that's going to include the land parcel. And then your second question was? Sorry. -------------------------------------------------------------------------------- R. J. Aguirre, UBS Investment Bank, Research Division - Associate Director and Research Analyst [20] -------------------------------------------------------------------------------- The land lease to the -- those 3 assets. -------------------------------------------------------------------------------- Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [21] -------------------------------------------------------------------------------- Basically, that's going to be the building life. If you look at it, Solaris, I think it has been there for more than 5 years. I think about 7, 8 years already. So that's basically the building life. If we look at the ANE, I think there's about 44 years because it to us about 5 years to construct that project. -------------------------------------------------------------------------------- Michael Anthony L. Garcia, Ayala Land, Inc. - Head for Investor Communications & Compliance Division [22] -------------------------------------------------------------------------------- Thank you, RJ. Any more questions? Ms. Cristina Ulang. -------------------------------------------------------------------------------- Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [23] -------------------------------------------------------------------------------- Sir, just a follow-up on what RJ already asked. Sir, are you able to explain what you mean when you include the land, it will push up the valuation? Can you just elaborate on that? -------------------------------------------------------------------------------- Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [24] -------------------------------------------------------------------------------- Well, the REIT investors look for yield. If we value the land plus the building, basically, that's going to be a much higher valuation as what you've seen. Therefore, it will now push down the yield level, which might not be attractive for these set of investors who are really looking for yield. That's why we did not include the Makati parcels, in particular. And those are also very strategic parcels for us. As you know, we've not been selling any more Makati land in the last few years. -------------------------------------------------------------------------------- Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [25] -------------------------------------------------------------------------------- Sir, what's your assessment of the appetite since -- investor appetite, I mean, since the land is not included and there's some issue with some investors saying that, "Oh, it's REIT, but it doesn't include the land." So it's just... -------------------------------------------------------------------------------- Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [26] -------------------------------------------------------------------------------- From what we've heard so far, very good, actually. The reception has be very good because the yield that will be provided is a very good yield plus the potential upside. As you know, this is an accreting asset. The rentals basically escalate almost every year. Not to mention that it's got 0 debt. So later on, when you actually try to infuse more assets, you could further lever the balance sheet. So if we look at total return, actually looks, I think, fairly attractive to both yield investors and the ones that are looking for some further appreciation. -------------------------------------------------------------------------------- Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [27] -------------------------------------------------------------------------------- Sir, so is it fair to say that the appreciation of the REIT investment would really come from the tenancy, the escalation rate and not from any land value appreciation because there's no land? -------------------------------------------------------------------------------- Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [28] -------------------------------------------------------------------------------- Well, yes. Well, you can assume that because land is not included. So it's really going to be on the rental escalations. -------------------------------------------------------------------------------- Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [29] -------------------------------------------------------------------------------- And also your acquisition, as you mentioned, the tower... -------------------------------------------------------------------------------- Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [30] -------------------------------------------------------------------------------- Additional acquisitions. And again, future infusions does not preclude, does not including the land. It just depends on the valuation. So as I've said, I think the plan right now is for Teleperformance in Cebu to be infused, including the land parcel. That's correct, Mike? -------------------------------------------------------------------------------- Michael Anthony L. Garcia, Ayala Land, Inc. - Head for Investor Communications & Compliance Division [31] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [32] -------------------------------------------------------------------------------- Mike, can I just ask? -------------------------------------------------------------------------------- Michael Anthony L. Garcia, Ayala Land, Inc. - Head for Investor Communications & Compliance Division [33] -------------------------------------------------------------------------------- It's not including... -------------------------------------------------------------------------------- Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [34] -------------------------------------------------------------------------------- Doesn't include, doesn't include? Sorry, Sorry. -------------------------------------------------------------------------------- Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [35] -------------------------------------------------------------------------------- It doesn't? -------------------------------------------------------------------------------- Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [36] -------------------------------------------------------------------------------- Sorry. It doesn't include the land. -------------------------------------------------------------------------------- Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [37] -------------------------------------------------------------------------------- Also... -------------------------------------------------------------------------------- Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [38] -------------------------------------------------------------------------------- It doesn't include the land. Sorry. My apologies. -------------------------------------------------------------------------------- Michael Anthony L. Garcia, Ayala Land, Inc. - Head for Investor Communications & Compliance Division [39] -------------------------------------------------------------------------------- The REIT is a unique asset class and that it's really meant to provide cash flows through the dividends. The appreciation primarily comes from the growth in the dividends that it will be declaring, so that comes from escalations or future acquisitions of additional assets. The land component isn't that important. If you look at the REITs established around the region, most of them are on a leasehold basis. It's the stabilized asset, the income-generating asset that is important to the REIT. So it is the building itself, not so much the land. As a matter fact, REITs are not really encouraged to develop and take risks. I think there's a limit as to how much development business a REIT can undertake. I think only 10% of its total asset value can be dedicated towards development. So the REIT specializes in stabilized income-generating assets. And the other good thing about our REIT is if you look at the underlying lease, the land lease terms, they're quite long, 33 to 44 years. Our understanding is regionally, anything over 20 years is quite good. The lease terms -- the land lease terms, underlying our assets is actually quite long. And as previously mentioned by the CEO, it pretty much coincides with the useful life of the asset, are the building. So again, the important thing to our REIT is the ability to generate cash flow, and that cash flow is generated by the facility or the building. -------------------------------------------------------------------------------- Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [40] -------------------------------------------------------------------------------- Sir, I just read the prospectus, and I noted the lease rate for Ayala North Gate is a bit lower compared to the existing ones in Solaris, like it's PHP 700 per square meter for ANE and PHP 1,300 per square for the BPOs. Sir, am I getting it right that the lease rates at ANE is a lot cheaper than... -------------------------------------------------------------------------------- Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [41] -------------------------------------------------------------------------------- Well, Ayala North Exchange is also a newer facility, so you can expect escalations to kick in. It's at PHP 900. -------------------------------------------------------------------------------- Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [42] -------------------------------------------------------------------------------- PHP 900? -------------------------------------------------------------------------------- Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [43] -------------------------------------------------------------------------------- PHP 900. -------------------------------------------------------------------------------- Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [44] -------------------------------------------------------------------------------- Sir, and on the revaluation of this finance lease, which gave -- which boosted the P&L by about PHP 400 million lately. So there was a jump in earnings from PHP 500 million to about PHP 1.1 billion. I just want to listen to how is that onetime gain realize. -------------------------------------------------------------------------------- Augusto Cesar D. Bengzon, Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer [45] -------------------------------------------------------------------------------- That's not a onetime gain. That's with the recognition of the -- that's with the inclusion of Ayala North Exchange. That's as a result of the asset infusion that took place. -------------------------------------------------------------------------------- Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [46] -------------------------------------------------------------------------------- Which got reflected in the P&L., so it's a thing that happened only onetime for the last... -------------------------------------------------------------------------------- Augusto Cesar D. Bengzon, Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer [47] -------------------------------------------------------------------------------- Originally, there were only 2 properties that were seeded. If you recall, that would be Solaris One and McKinley Exchange. With the addition of Ayala North Exchange in the latter part of last year, that created the jump in the revenues. -------------------------------------------------------------------------------- Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [48] -------------------------------------------------------------------------------- It has -- the PHP 300 million has nothing to do with the revaluation of a finance lease that I read? -------------------------------------------------------------------------------- Augusto Cesar D. Bengzon, Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer [49] -------------------------------------------------------------------------------- None. -------------------------------------------------------------------------------- Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [50] -------------------------------------------------------------------------------- Nothing like that? -------------------------------------------------------------------------------- Augusto Cesar D. Bengzon, Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer [51] -------------------------------------------------------------------------------- None. -------------------------------------------------------------------------------- Michael Anthony L. Garcia, Ayala Land, Inc. - Head for Investor Communications & Compliance Division [52] -------------------------------------------------------------------------------- Yes. Someone from the back. Kervin Sisayan of Macquarie. -------------------------------------------------------------------------------- Kervin Laurence Sisayan, Macquarie Research - Analyst [53] -------------------------------------------------------------------------------- So thank you for inviting us to your new mall. First question is on the Ayala Land level. When listing the AREIT, are you looking to book maybe a gain on maybe mark-to-market -- mark-to-market value on AREIT on the assets like Solaris One and ANE? -------------------------------------------------------------------------------- Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [54] -------------------------------------------------------------------------------- Obviously, there is a gain, but on account of because we are taking a majority stake in this REIT, that gain is booked on the -- in our equity account, in retained earnings, not on the P&L. So there. Yes, there will be a gain, a significant gain, but it is a balance sheet gain, not a P&L income statement gain. -------------------------------------------------------------------------------- Kervin Laurence Sisayan, Macquarie Research - Analyst [55] -------------------------------------------------------------------------------- On AREIT also, given that you're raising a little bit of cash to acquire Cebu Teleperformance, would the acquisition be subject to VAT? Because it's not, I believe, a transfer of shares? -------------------------------------------------------------------------------- Augusto Cesar D. Bengzon, Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer [56] -------------------------------------------------------------------------------- Transfer of shares may be subject to... -------------------------------------------------------------------------------- Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [57] -------------------------------------------------------------------------------- Which one? Which asset? -------------------------------------------------------------------------------- Kervin Laurence Sisayan, Macquarie Research - Analyst [58] -------------------------------------------------------------------------------- Cebu Teleperformance. So one, you're acquiring -- or AREIT is acquiring from Ayala Land. -------------------------------------------------------------------------------- Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [59] -------------------------------------------------------------------------------- It's -- it will be subject to 40(C)(2). Is it? -------------------------------------------------------------------------------- Kervin Laurence Sisayan, Macquarie Research - Analyst [60] -------------------------------------------------------------------------------- Yes. That's what I'm asking, if it will be subject to 40(C)(2) or not because... -------------------------------------------------------------------------------- Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [61] -------------------------------------------------------------------------------- So it's a tax-free exchange. -------------------------------------------------------------------------------- Kervin Laurence Sisayan, Macquarie Research - Analyst [62] -------------------------------------------------------------------------------- Okay. So you're saying that the acquisition of Cebu Teleperformance would be subject to 40(C)(2), correct? Just to clarify. -------------------------------------------------------------------------------- Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [63] -------------------------------------------------------------------------------- Yes. No VAT. -------------------------------------------------------------------------------- Kervin Laurence Sisayan, Macquarie Research - Analyst [64] -------------------------------------------------------------------------------- Okay. Lastly, on the AREIT again. For further infusions of assets, is there a clause there that every asset that will be put in will be yield-accretive to the minorities? -------------------------------------------------------------------------------- Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [65] -------------------------------------------------------------------------------- Is there? I'm going to consult our BPI -- in the prospectus. Would we have such language? Probably not. -------------------------------------------------------------------------------- Augusto Cesar D. Bengzon, Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer [66] -------------------------------------------------------------------------------- (inaudible) -------------------------------------------------------------------------------- Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [67] -------------------------------------------------------------------------------- No. We wouldn't put that language in. -------------------------------------------------------------------------------- Michael Anthony L. Garcia, Ayala Land, Inc. - Head for Investor Communications & Compliance Division [68] -------------------------------------------------------------------------------- Thank you, Kervin. Any more questions before we open the floor for our callers? Okay. Let's open the floor for our callers. -------------------------------------------------------------------------------- Operator [69] -------------------------------------------------------------------------------- (Operator Instructions) We have the first question from the line of Jason Yeo from Goldman Sachs. -------------------------------------------------------------------------------- Jason Yeo, Goldman Sachs Group Inc., Research Division - Equity Analyst [70] -------------------------------------------------------------------------------- I've got three questions. I'll ask it one at a time. Firstly, can you comment on the demand for your ALP and Alveo projects? Said previously, there was some concerns that demand for a higher end of the segment is slowing and also some lack of launches, but it looks like the combined launches for these two segments last year was 14% higher than in 2018. -------------------------------------------------------------------------------- Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [71] -------------------------------------------------------------------------------- Sorry. Can you repeat the question, please? -------------------------------------------------------------------------------- Augusto Cesar D. Bengzon, Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer [72] -------------------------------------------------------------------------------- Demand for high yield (inaudible). -------------------------------------------------------------------------------- Jason Yeo, Goldman Sachs Group Inc., Research Division - Equity Analyst [73] -------------------------------------------------------------------------------- Can you comment on the demand for ALP and Alveo projects? -------------------------------------------------------------------------------- Augusto Cesar D. Bengzon, Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer [74] -------------------------------------------------------------------------------- The demand for high-end is still good. In fourth quarter, majority of the lots has came from Ayala Land Premier and Alveo. And for Ayala Land Premier, as shown by -- in the presentation earlier, Parklinks South did well, Andacillo of ALP did well. For Alveo, Broadfield did well, Mergent Residences did well. Lattice and Sentrove. -------------------------------------------------------------------------------- Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [75] -------------------------------------------------------------------------------- So I guess, Jason, demand across the board from high end to middle income continues to be robust. I think the question moving forward is going to be inventory levels. For example, in Makati, as you know, we've not been launching too many projects on the high end, it's same in Bonifacio Global City, which are significant high-end markets. But the market itself, I think, is fairly, fairly healthy at this point. -------------------------------------------------------------------------------- Jason Yeo, Goldman Sachs Group Inc., Research Division - Equity Analyst [76] -------------------------------------------------------------------------------- Okay. And what about the impact you're seeing so far from the COVID-19 outbreak? I mean how has this impacted things like reservation sales, hotels and even leasing on a malls and office front? -------------------------------------------------------------------------------- Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [77] -------------------------------------------------------------------------------- Well, as I've said, January has been quite challenging, both for the development business, particularly coming from the Taal explosion as well as the earthquakes that happened in Davao, which we do have some significant presence at this point. Now on the nCoV or COVID-19, COVID-19, that has basically affected both our hotels as well as our malls businesses. Foot traffic for our malls system-wide is down about 5% to 10%. On hotels, depending on the location, if there are a lot of business travelers coming from overseas, we've seen a significant drop in terms of occupancy. But I think system-wide, we'll look at about 5% to 10% as well in terms of occupancy. -------------------------------------------------------------------------------- Jason Yeo, Goldman Sachs Group Inc., Research Division - Equity Analyst [78] -------------------------------------------------------------------------------- Okay. Just one last question on AREIT. Can you share what are the NOI cap rates that the valuers use for the portfolio? And also, how did you come about choosing which assets to seed to the REIT? -------------------------------------------------------------------------------- Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [79] -------------------------------------------------------------------------------- I'll answer the second question first. We wanted to make sure we put in prime assets, that's why we actually put in Makati assets and these are very stable and very, I guess, highly desired assets because what we want is to make sure that the first suite here in the Philippines is successful. That we do get good interest, that's why we've actually seeded it with really prime assets. In terms of the valuation, maybe you could ask... -------------------------------------------------------------------------------- Augusto Cesar D. Bengzon, Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer [80] -------------------------------------------------------------------------------- So the valuation, I believe, the -- there was an independent appraisal. And the cap rate that they've utilized is about 5% to 5.5%. So it's got an adjacent -- it's got a 5%, 5.5% handle. I think that's basically what the appraisers as well as what some of the underwriters have said would be cap rate that would be acceptable to get this REIT done successfully. -------------------------------------------------------------------------------- Operator [81] -------------------------------------------------------------------------------- (Operator Instructions) The next question we have is from the line of Utkarsh Rastogi from HSBC. -------------------------------------------------------------------------------- Utkarsh Rastogi, HSBC, Research Division - Analyst [82] -------------------------------------------------------------------------------- This is Utkarsh. Can I just check if the PATMI target of PHP 40 billion is still intact for the company till the end of 2020? -------------------------------------------------------------------------------- Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [83] -------------------------------------------------------------------------------- Well, we continue to push really hard to be able to achieve our PHP 40 billion target. Now with the REIT listing, if we actually take the balance sheet equity adjustment, then I think the PHP 40 billion will be easily achievable. But we decided to take 51%, so there's not going to be any kind of P&L gain. So we're still working on trying to push our core businesses to be able to grow the business still at a fairly healthy pace. Although, as you know, we came in at about 33.2%. To be able to reach PHP 40 billion without the balance sheet adjustment, that's going to be around 20% growth, which could be quite challenging, particularly with the first month or first 1.5 months, with the Taal explosion and the COVID-19 being major challenges. -------------------------------------------------------------------------------- Utkarsh Rastogi, HSBC, Research Division - Analyst [84] -------------------------------------------------------------------------------- Great. And can I check what is the CapEx target for 2020, and the launch target for 2020? -------------------------------------------------------------------------------- Augusto Cesar D. Bengzon, Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer [85] -------------------------------------------------------------------------------- Yes. CapEx, about the same, about PHP 110 billion or so. Launches, as I mentioned a while ago for residential will be around PHP 125 billion is what we're looking at. -------------------------------------------------------------------------------- Operator [86] -------------------------------------------------------------------------------- Again, ladies and gentlemen, there are no further question at this time. Please continue, presenters. -------------------------------------------------------------------------------- Michael Anthony L. Garcia, Ayala Land, Inc. - Head for Investor Communications & Compliance Division [87] -------------------------------------------------------------------------------- Thank you very much. Now maybe we have a few more questions from our audience? Okay. I guess, everyone is cozied up on the sofas. Okay. I guess, with that, we'd like to thank everyone for joining us today. Happy Valentine's Day to you. We have some food downstairs at Food Dose Street, so please do enjoy them all. Thank you.