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Edited Transcript of ALI.PS earnings conference call or presentation 5-Aug-19 6:00am GMT

Q2 2019 Ayala Land Inc Earnings Call

Makati Aug 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Ayala Land Inc earnings conference call or presentation Monday, August 5, 2019 at 6:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Anna Maria Margarita Bautista Dy

Ayala Land, Inc. - Group Head of Strategic Landbank Management & Senior VP

* Augusto Cesar D. Bengzon

Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer

* Bernard Vincent Olmedo Dy

Ayala Land, Inc. - President, CEO & Director

* Jose Emmanuel H. Jalandoni

Ayala Land, Inc. - Group Head of Commercial Business & Senior VP

* Michael Anthony L. Garcia

Ayala Land, Inc. - Head for Investor Communications & Compliance Division

* Robert S. Lao

Ayala Land, Inc. - Senior VP, Group Head of Residential Business Group & Group Head of Central Land Acquisition Unit

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Conference Call Participants

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* Carl Sy

Deutsche Bank AG, Research Division - Research Analyst

* Jeffrey Lucero

RCBC Securities, Inc., Research Division - Research Analyst

* Julian Tarrobago;ATR Asset Management;Analyst

* Wilson W. Ng

Morgan Stanley, Research Division - VP

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Presentation

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Michael Anthony L. Garcia, Ayala Land, Inc. - Head for Investor Communications & Compliance Division [1]

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Ladies and gentlemen, good afternoon. Welcome to Ayala Land's briefing on its results in the first half of 2019. Joining us on the line are 6 callers, and we'd like to remind everyone that copies of the presentation is available on the website, ir.ayalaland.com.ph. And of course, allow me to acknowledge our panel led by our President and CEO, Mr. Bobby Dy; our Chief Financial Officer, Mr. Augusto Bengzon; Head of our Commercial Leasing Business, Mr. Junie Jalandoni; and Head of our Residential Business Group, Mr. Robert Lao.

And to start the presentation, let me turn over the floor to Mr. Bengzon.

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Augusto Cesar D. Bengzon, Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer [2]

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Good Afternoon, ladies and gentlemen. Thank you for joining us today, and welcome to our newly opened set of residences of the Ayala North Exchange, our first service apartment offering under our homegrown Seda brand.

I hope you enjoyed the view of Manila Bay, by the pool side, as you entered the lobby. If you didn't, take your time later, take some photos. We encourage the millennials in our audience to take photos around the hotel and share this on social media. Allow me to present the results of our performance for the first half of 2019 and provide some information on our existing land bank.

Our key messages for this afternoon are as follows: Ayala Land's net income rose 12% to PHP 15.2 billion, while total revenues increased 4% to PHP 83.2 billion in the first half of 2019. Property Development revenues reached PHP 58.9 billion, supported by the office-for-sale segment, which grew more than twofold to PHP 10.1 billion. This was complemented by the Commercial Leasing revenues, which posted a 16% growth to PHP 18.6 billion.

Our CapEx in the first half of 2019 reached PHP 49.5 billion to support our residential developments as well as our leasing asset buildup. And 80% of the company's land bank is strategically concentrated in Central Luzon, Mega Manila and the CALABARZON, where these 3 regions collectively account for close to 2/3 of the country's gross domestic product.

The positive macroeconomic environment in the first half of the year provided the growth platform for the company. Total revenues increased by 4% to PHP 83.2 billion. This was mainly driven by real estate revenues, which grew by 4% to PHP 81.9 billion, supported by contributions from offices for sale, which grew more than twofold, and commercial and industrial lots sales. And this was complemented by the strong top line growth of our Commercial Leasing businesses.

Interest and other income registered at PHP 1.3 billion, a 29% decline from the higher base in the first half of 2018, wherein a onetime gain on the sale of our Malaysian subsidiary's One City properties was recognized.

Equity and net earnings of associates and JVs contributed PHP 567 million, 38% higher than the previous period, mainly as our Ortigas subsidiary more than doubled its earnings to PHP 254 million, reflecting the sustained momentum of its property sales and leasing operations. In addition, our BGC companies registered higher earnings from our leasing assets in the Bonifacio Global City.

Interest and investment income also increased, posting a 16% growth, mainly due to higher interest income from short-term investments. Other income, composed mainly of marketing and management fees from our joint ventures, among others, amounted to PHP 294 million. This was 72% lower than the high base in 2018, attributable to that onetime sale transaction of assets by our Malaysian subsidiary. Total expenses stood at PHP 59.4 billion, a tepid increase from last year's PHP 58.8 billion as we successfully managed real estate expenses, which were maintained at PHP 49 billion.

General and administrative expenses totaled PHP 4.4 billion, a 3% increase from the first half of 2018 as we controlled the increase of overhead costs. This allowed us to maintain our GAE ratio at 5.3% and improve our EBIT margin further to 35.3% from 33.2%. Interest expense, financing and other charges came in at PHP 5.8 billion, 10% higher due to the increased outstanding debt and accompanying financing expenses.

Netting out expenses from revenues, income before tax stood at PHP 23.8 billion, 10% higher than the previous period. Our provision for income tax amounted to PHP 6.3 billion, a 9% increase, in line with higher earnings, but with a lower effective income tax rate of 26.5% compared to 26.8% in the previous period. As a result, income before noncontrolling interest registered at PHP 17.5 billion, 11% more than the first half of 2018. Netting out noncontrolling interest of PHP 2.4 billion, net income attributable to ALI Equity holders grew by 12% to PHP 15.2 billion.

Strong Commercial Leasing growth combined with revenues from the sale of offices and commercial and industrial lots enabled us to deliver modest top line growth. Revenues from Property Development amounted to PHP 58.9 billion, a slight growth from the previous period. This growth was driven by the office-for-sale segment, which grew more than twofold to PHP 10.1 billion, and commercial and industrial lots sales, which grew by 11% to PHP 4.3 billion. However, this was offset by lower Residential revenues due to the full sellout and completion of our blockbuster projects in ALP and Alveo.

For ALP, a decline of 22% to PHP 13.9 billion and Alveo, 26% lower to PHP 10.3 billion. As you know, ALP and Alveo compose 58% of our Residential revenues during the period. For ALP, the projects that were sold out were: The Courtyards [facing and] Vermosa, The Suites at BGC and Arbor Lanes Tower 2 at Arca South. While for Alveo: Ardia at Vermosa, Montala, Alviera and The Veranda Phase 1 and 2 at Arca South. These were the blockbuster projects that have been completely sold out. Meanwhile, Avida and Amaia continued to exhibit growth from the contribution of their ongoing projects. Avida's revenues jumped by 28% to PHP 13.6 billion, while Amaia increased by 19% to PHP 3.7 billion. In total, all Residential brands, including BellaVita, generated PHP 41.9 billion in revenues, 9% lower than the prior period. MCT is also consolidated under Residential revenues. In the first half of 2019, it generated PHP 2.6 billion, 37% lower than the first half of 2018 due to the full sellout of their projects in Cybersouth in the Klang Valley, Malaysia. As a result, revenues from our 5 Residential brands and MCT reached a total of PHP 44.5 billion, 11% (sic) [lower] than the previous period. Nevertheless, revenues from the sale of office spaces supported our Residential revenues as it grew more than twofold, amounting to PHP 10.1 billion, from the completion progress as well as new bookings from Alveo Financial Tower, High Street South and Park Triangle Corporate Plazas. We, likewise, experienced an uplift from commercial and industrial lots, which grew by 11%, contributing PHP 4.3 billion from lot sales in Vermosa, Evo City and Alviera.

Turning to Commercial Leasing. Our revenues jumped by 16% to PHP 18.6 billion. Shopping center revenues grew by 12% to PHP 10.3 billion, supported by same mall revenue growth of 11% given the increased contribution from our Ayala Malls Feliz, Circuit Makati and Capitalo Central, supplemented by the strong operations of Glorietta and Greenbelt in Makati and Ayala Center Cebu.

Office revenues surged by 25%, reaching PHP 4.6 billion as newly opened offices in Ayala North Exchange, Vertis North and Circuit Makati gained further traction. Hotel and resorts revenues moved up by 17% to PHP 3.7 billion on strong patronage of Seda Ayala Center Cebu in Seda Lio. In terms of Services, primarily composed of our construction arm, Makati Development Corporation; our property management company, APMC; as well as our power service companies, total revenues amounted to PHP 4.4 billion, 7% higher than last year.

Summing up, our total real estate revenues amounted to PHP 81.9 billion, 4% higher year-on-year. Coupled with interest and other income of PHP 1.3 billion, our total revenues increased by 4% to PHP 83.2 billion in the first half of 2019.

Margins continue to be healthy with strong improvements in some segments, given the project mix. The average gross profit margin of our horizontal residential projects registered at 43%, lower than the previous period due to the sellout of high-margin projects by ALP and Alveo, as I have discussed previously. Meanwhile, vertical projects improved by -- improved to 38% from 36% due to higher margins from Alveo's Orean Place Tower 1, Vertis North, Travertine at Portico in Ortigas, Avida's The Montane in BGC, Sola Towers 1 and 2 into Vertis North and Amaia Skies Cubao Tower 2. The average gross profit margin of offices for sale improved to 44% from 35% as we recognized higher selling prices at the Alveo Financial Tower in Makati and High Street South and Park Triangle Corporate Plaza in BGC.

Gross profit margins from commercial and industrial lots also increased significantly to 52% from 42% due to higher margins from commercial lots sold in Vermosa, Alviera and Evo City. On the leasing front, the EBITDA margin of shopping centers came in at 66%, 2% higher than the previous period as a result of higher rent and occupancy of Ayala Center Cebu, Glorietta and Trinoma. The 91% EBITDA margin of office leasing was sustained, while the overall EBITDA margin of hotels and resorts increased to 33% from 31% due to higher margins from Seda Ayala Center Cebu and Lio. Finally, overall EBITDA margins of the Services business has advanced to 9%.

Our net income mix continues to diversify through our various locations and businesses, enabling us to have more sources with which to achieve sustainable growth. In terms of location, new estates and growth centers contributed 52% of the total, outpacing established estates. This clearly shows growth expanding beyond Metro Manila, driven by improving infrastructure, higher per capita income and a growing middle class. Our recurring or leasing income now accounts for 36% of the bottom line as of the first half of this year.

Moving on to Property Development. Sales reservations remain steady at PHP 72.3 billion. Alveo and Avida fueled the growth in sales reservations, but this was offset by ALP, which did not have sufficient project launches during the period. We faced challenges in meeting our launch targets as the midterm elections caused delays in securing permits. In effect, only 13 projects valued at PHP 19.5 billion went to market in the first half of this year.

Moving forward, we need to ramp up launches in the second half, with the bulk of the projects to be launched within the last 2 quarters of this year. Nonetheless, unbooked revenues increased by PHP 3 billion, reaching a total of PHP 147 billion, and this will be recognized in the next 3 to 4 years based on the percentage-of-completion method.

Local Filipinos continue to drive demand at 70% of total. This was supplemented by sales from overseas Filipinos, which grew by 23%. Sales from other nationalities amounted to 17% of the total but declined by 13% compared to the previous period. Sales to Mainland Chinese buyers declined by 10%, resulting in a lower 44% share among international buyers.

We didn't have many launches this first half, but some of the key launches, which were sequel projects from Premier and Alveo. ALP's The Courtyards Phase 3B in Vermosa launched last June, value of PHP 1 billion, 21% taken up. And Alveo's Orean Place Tower 2 launched last May, 528 units valued at PHP 7.8 billion, 31% taken up.

Moving on to our leasing business. Starting with our malls. Total malls GLA now stands at 1.91 million square meters with the addition of 8,000 square meters from the opening of the Ayala North Exchange retail area down below last March. Average occupancy rate for all malls is now at 88%, while the occupancy rate of our stable malls is a healthy 94%. Average monthly lease rate remained stable at PHP 1,063 per square meter, while same-mall rental growth remained strong at 11%. For the rest of the year, we look forward to the opening of Ayala Malls Manila Bay and Central Bloc in Cebu, which will open in the third and fourth quarter of the year, respectively.

Ayala Malls Manila Bay, one of our largest malls, will have 160,000 square meters of GLA and it's currently 82% leased out, while Central Bloc in Cebu has 44,000 square meters and is 71% leased out. Total remaining GLA to be completed in this year is 204,000 square meters, while total GLA under construction is 718,000 square meters.

For office leasing, office leasing GLA is now at 1.13 million square meters, with 18,000 square meters added from our Ayala North Exchange BPO last April. Average occupancy for all offices is a strong 93%, while the occupancy rate of stable offices is close to full at 96%. Average monthly lease rate has been stable at PHP 763 per square meter. And for this year, we can look forward to the opening of the Manila Bay BPO in the third quarter of 2019. This is on top of our Manila Bay Mall. And that BPO is 100% leased out to POGO, as you can imagine. And by the fourth quarter of this year, we are also set to open Central Bloc Corporate Center 1 in Cebu, total of 30,000 square meters; and BGC Corporate Center 2, 27,000 square meters. Total GLA estimated to be completed in this year is 75,000 square meters. Total GLA under construction, 406,000 square meters.

For hotels and resorts, we now have a total of 3,490 rooms with the addition of 142 rooms in the addition -- the second tower of Seda BGC, 175 rooms at Circuit Residences Makati, 105 rooms in the Seda Residences, and 50 rooms at Huni in Lio Palawan.

I think what I'd just like to focus on in our hotel portfolio is the average occupancy rate, which is quite strong. Hotels at 71% average, 78% for stable hotels; for our resorts, average of 68%, and 66% for our stable resorts. So overall, hotels and resorts continue to have very, very strong occupancy levels.

Upcoming openings include an additional 188 rooms in the Seda Residences and 200 more rooms at Seda BGC, both targeted in the third quarter of this year. So we currently have a total of 2,589 rooms under construction, of which 388 rooms will be delivered this year.

On to our other leasing formats, namely industrial warehouses and co-living and co-working spaces. For industrial spaces, composed of factory buildings and warehouses, we now operate 175,000 square meters of GLA with the addition of 16,800 square meters in the Laguna Technopark. I believe we are now the largest operator of industrial spaces in the country today. For the flats, we have a total bed count of 2,198 beds between our 2 facilities, 1 in Makati and 1 in BGC. And for Clock In, we have increased our seat count, which now stands at 956 seats, occupying 4,500 square meters of GLA of co-working spaces, with the addition of our facility at The 30th Mall in Pasig with 263 seats. For the rest of the year, we are targeting to open another 426 seats: 357 at this Ayala North Exchange facility and 69 at the Alabang Town Center.

Our balance sheet remains rock solid. Cash and cash equivalents of close to PHP 25 billion. Total debt and stockholders' equity both increased by 6%. Hence, a healthy current ratio at 1.36:1 and the net debt-to-equity ratio of 0.75x.

Our average cost of borrowing has moved up to 5.2% from 4.8% at the end of last year, reflecting the higher interest rates recognized from borrowings secured in the first half of this year. But we should see this peaking already, given that benchmark rates have come down significantly. And we'll be going out to market for additional borrowings in the third quarter at significantly lower rates than what we closed at the start of this year. 85% of our debt is locked in with fixed rates, while 88% of the portfolio is contracted on a long-term basis.

We spent a total of PHP 49.5 billion in CapEx during the first half. 45% was spent on the completion of Residential projects, 21% on the completion of Commercial Leasing projects, 9% for land acquisition, 17% for estate development and 8% for other investments.

Moving on to our land bank. We are breaking down our land bank for the first time in this format, a total of 11,624 hectares. This is what we declared in our 17-A. So this land bank is as of the end of last year. So going forward, we'll disclose this probably once or twice a year. 11,624. At the end of last year, we did add some more this year. But as you can see, if I can point you to the table on the right-hand side, 56% of our land bank is now unlocked in estates. We have 26 estates across the country, accounting for 6,507 hectares. Outside of estates or those that we have yet to turn into estates and develop in future, we have 5,117 hectares or 44% of last year's total.

Now on the left-hand side, we've listed the 26 estates that we've opened and where we've started to develop. And we've listed the remaining developable hectares in column 2 as well as the efficiency that you can apply, and the last column would be the total salable area. So we can have a separate discussion on that later on.

Okay. In any case, the land bank, 80% is located in Central Luzon, Metro (sic) [Mega] Manila and CALABARZON, where 2/3 of our GDP is created. If we add our land bank in Palawan, which is technically considered part of Luzon, that's 87%. So we are overweight in these contiguous areas.

So to summarize our performance for the first half of the year. Net income rose by 12% to PHP 15.2 billion. Revenues increased by 4% to PHP 83.2 billion. Property Development revenues reached PHP 58.9 billion, supported by the office-for-sale segment, which grew more than twofold to PHP 10 billion, complemented by Commercial Leasing revenues, which posted a 16% growth to PHP 18.6 billion. CapEx for the first half reached PHP 49.5 billion, about -- this is about 40% of our budgeted CapEx for the year. So expect us to be spending more in the latter half, aligned also together with the ramp-up in our launches, in our Residential launches. And finally, 80% of the land bank is strategically concentrated in Central Luzon, Mega Manila and CALABARZON.

That ends our presentation. We can now open the floor to questions. Thank you.

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Questions and Answers

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Operator [1]

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It's first question from Julian.

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Julian Tarrobago;ATR Asset Management;Analyst, [2]

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First of all, congrats on still managing double-digit earnings growth despite the drop in Residential revenue. So naturally, I'll cut to the chase. Outside of increased launches in the second half. Could you say specific -- or could you identify specifically factors that should -- or that support recovery in Residential sales? That's my first question.

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Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [3]

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Well, the -- as you know, the market continues to be strong. If you look at what the industry has been reporting. I think what you could say is the market remains robust. Now in our case, I think, first half, we were flat, primarily, as we've said, is because of the lack of inventory. So we intend to step up our launches in the second half of the year and therefore, hopefully, be able to catch up with our growth rate aspirations.

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Julian Tarrobago;ATR Asset Management;Analyst, [4]

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So launches will be the main driver for the second half?

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Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [5]

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Right now, yes, our inventory level is quite low. I think we're about 10, 10.5 months. So we hope that in the second half, we'll be able to -- as I mentioned, step up the increase our inventory level to be able to meet the market demand that we're seeing. Again, you look at it, it's the whole industry. You can look at how the other industry players have been servicing the demand in the market, and I think it continues to be quite strong.

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Julian Tarrobago;ATR Asset Management;Analyst, [6]

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What would you think are the biggest challenges to that happening in terms of these launches driving a recovery or a surge in 2H '19 resi?

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Robert S. Lao, Ayala Land, Inc. - Senior VP, Group Head of Residential Business Group & Group Head of Central Land Acquisition Unit [7]

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I think there's nothing special. We just need at least 12 to 15 months of planning. And what happened last year, there was a surge in launches also in the second half of last year (inaudible) so we need to catch up. I think the critical thing there is -- we have the land. So it just -- we just need time to plan and get the permits.

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Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [8]

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So if there's anything that's not within our direct control, it would be the permitting side, which we -- obviously, we will try to work through the process to make sure that we get our license to sell in all those projects.

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Julian Tarrobago;ATR Asset Management;Analyst, [9]

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Would you have a sense of when most of those permits will be -- are expected to...

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Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [10]

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They'll be spread from July last month till December. So I don't think you'll see lumpiness. I mean, typically, the process happens over time. So we expect that in Q3, things should start to pick up, and then again in Q4.

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Julian Tarrobago;ATR Asset Management;Analyst, [11]

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Sure. Could you talk about how much you launched in July 2019? And what are the expectations for August and September launches?

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Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [12]

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I wanted to talk about is the -- I guess, we had actually mentioned previously the target launch for the year, which is, I think, worth about 100 and -- PHP 130 billion or so. We're still targeting that level of launches for fiscal year 2019.

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Julian Tarrobago;ATR Asset Management;Analyst, [13]

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If it's okay, last 2 questions. What's the [cost ratability] of the Ayala Mall by the bay and -- so there. And then what's the plan for the [8] Ayala Land REITs? Are you planning to upsize at some point? If not, why not? And then lastly, Green Circle, has it been finalized? And because -- I mean, great, you showed the land bank. I mean, that's a first, I think. And obviously, Green Circle is not there. Obviously -- but that's already 11,000 hectares.

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Unidentified Company Representative, [14]

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13.

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Julian Tarrobago;ATR Asset Management;Analyst, [15]

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No, no. This one is 11,000.

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Unidentified Company Representative, [16]

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Oh. I'm sorry.

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Julian Tarrobago;ATR Asset Management;Analyst, [17]

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But Green Circle is another 28,000. What's the -- could you talk about why -- is it delayed? Or is it at risk of not being finalized? Maybe -- I'm just asking because I don't know.

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Jose Emmanuel H. Jalandoni, Ayala Land, Inc. - Group Head of Commercial Business & Senior VP [18]

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On the Green circle, in the last year, we signed an MOU. So it's only now that we're finalizing the JV agreements and that. We're hopeful that we finalize within the year. Okay. On the ALI REIT, we continue to coordinate with our bankers, BPI, who's here, and also the SEC. We are also hopeful that we list within the year.

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Julian Tarrobago;ATR Asset Management;Analyst, [19]

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Any plans to upsize that -- probably -- is it...

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Jose Emmanuel H. Jalandoni, Ayala Land, Inc. - Group Head of Commercial Business & Senior VP [20]

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We'll keep it -- we'll keep the plans as is because [Makati Development plan] at this point. If we need to infuse in the future, we'll just infuse. And then the third one is on Ayala Malls Manila Bay. We're opening in September. So please, maybe the next analyst briefing can be there.

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Michael Anthony L. Garcia, Ayala Land, Inc. - Head for Investor Communications & Compliance Division [21]

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Before we continue, allow me to recognize the presence of Ms. Maria Dy, Head of our Strategic Land Bank Management Group, as part of the panel.

And moving on to the next question, Jeff Lucero from RCBC.

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Jeffrey Lucero, RCBC Securities, Inc., Research Division - Research Analyst [22]

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First of all, sorry, I just wanted to get more details of the Residential sales. Sorry, particularly Residential -- Property Development, Residential sales. And I think in the first quarter, you mentioned that revenue recognition timing to be a factor here. And as I understand, your unbooked revenue actually grew gently by 3%. So is it still a factor, revenue recognition timing? And are we expecting a pickup in the coming quarters?

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Robert S. Lao, Ayala Land, Inc. - Senior VP, Group Head of Residential Business Group & Group Head of Central Land Acquisition Unit [23]

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It will remain the same. We will still have to have a catch-up on the revenue side. So the land book revenues will continue until 2021, I think, until we catch up on the construction side, because the revenue recognition will be coming from the percentage of completion, which would come from the projects launched late last year and this year.

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Jeffrey Lucero, RCBC Securities, Inc., Research Division - Research Analyst [24]

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May I confirm. So as I'm seeing, there will be some slowdown in terms of the construction as compared to last year. Is it because of the stages in the construction side?

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Robert S. Lao, Ayala Land, Inc. - Senior VP, Group Head of Residential Business Group & Group Head of Central Land Acquisition Unit [25]

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It's not really a delay. But it's the first year...

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Jeffrey Lucero, RCBC Securities, Inc., Research Division - Research Analyst [26]

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The starting phase where it's slower.

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Robert S. Lao, Ayala Land, Inc. - Senior VP, Group Head of Residential Business Group & Group Head of Central Land Acquisition Unit [27]

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It's just really slower.

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Jeffrey Lucero, RCBC Securities, Inc., Research Division - Research Analyst [28]

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Okay. My second question is on the same-mall rental growth. You mentioned, it's at 11%. I just wanted to confirm how that was achieved when occupancy rate actually stayed stable at 88%. And then the average mall lease rate at PHP 1,060 is, well, flattish. So how is the 11% same-mall rental growth achieved?

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Augusto Cesar D. Bengzon, Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer [29]

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Primarily through specialty retailing. So a lot of unutilized areas previously, we were able to optimize. So when we say specialty retailing, these are the likes of those kiosks that you see in our corridors. So we've been able to reclaim a number of spaces. So that's added to the same-mall revenue growth.

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Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [30]

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And I think Toti also mentioned a while ago now, in addition to what he said, that we have 3 malls that we opened over the last maybe 2 years. Now when you open a new mall, typically, you have some rental breaks in the beginning. So yes, I think those malls are Circuit, Bacolod, Capitol Center Bacolod and Feliz. So now that they're more stable, you're seeing a pickup in revenue. That's why the same-mall rental sales, aside from what Toti mentioned, picked up to 11%.

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Jeffrey Lucero, RCBC Securities, Inc., Research Division - Research Analyst [31]

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But may I confirm. For it to be considered under the same-mall rental growth, shouldn't the mall be aged by, say, 15 months?

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Augusto Cesar D. Bengzon, Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer [32]

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2 year, 24 months.

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Jeffrey Lucero, RCBC Securities, Inc., Research Division - Research Analyst [33]

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2 years, 24 months. Okay. Lastly, on the POGO, can we ask how much the lease rate was for the BPO tower in Manila Bay? Is it possible to disclose?

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Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [34]

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I don't think it is [possible to disclose].

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Augusto Cesar D. Bengzon, Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer [35]

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[We don't disclose this].

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Jeffrey Lucero, RCBC Securities, Inc., Research Division - Research Analyst [36]

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Okay. And where does this take Ayala Land in terms of the total POGO exposure? I think you have a cap at 10%.

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Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [37]

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About 9%. (inaudible)

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Jeffrey Lucero, RCBC Securities, Inc., Research Division - Research Analyst [38]

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9%. Okay.

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Michael Anthony L. Garcia, Ayala Land, Inc. - Head for Investor Communications & Compliance Division [39]

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The next question is from Carl, Kervin, Danielo, [Janine]. Okay, yes, Carl.

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Carl Sy, Deutsche Bank AG, Research Division - Research Analyst [40]

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To confirm, I believe you are expecting to complete roughly 95,000 square meters of office space this year. How much of that has been leased?

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Anna Maria Margarita Bautista Dy, Ayala Land, Inc. - Group Head of Strategic Landbank Management & Senior VP [41]

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The BGC [leased] is about 50% and the one in Cebu is about [30%].

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Carl Sy, Deutsche Bank AG, Research Division - Research Analyst [42]

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I'm sorry. Could you repeat that. BGC 50%?

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Anna Maria Margarita Bautista Dy, Ayala Land, Inc. - Group Head of Strategic Landbank Management & Senior VP [43]

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BGC is 50% and the one in Cebu is about [30%].

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Augusto Cesar D. Bengzon, Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer [44]

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The 1 in Manila Bay is 100%.

Part of the 95,000 includes 18,000 here, which is [100%].

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Carl Sy, Deutsche Bank AG, Research Division - Research Analyst [45]

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100%. And then regarding the profit target of PHP 40 billion next year. So to achieve that target, you need CAGR of high teens for 2019 and 2020. And relating to the Residential segment revenue, as you said, that should pick up 2021. So correct me if I'm wrong, shouldn't that impact -- accelerate as early as, let's say, next year? Related to that, I think you had flat presales 2014/'16, teens growth 2017/'18. So the 11% drop for the first half looks actually low, and I would have thought there would be an acceleration. Is that not the case?

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Robert S. Lao, Ayala Land, Inc. - Senior VP, Group Head of Residential Business Group & Group Head of Central Land Acquisition Unit [46]

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First, on the top line, the properties that we use for office is the same property that we use for Residential. So I think in order to take a look at the Property Development segment, you have to add office and Residential, so it's really flat. It's not negative 11%. But if you take out the office, it's negative 11%. Now I think the growth rate that we're looking at is -- it will still increase next year in terms of revenues, but it will not fully recover the slowdown in revenue recognition. It will continue to increase because the top line will increase in terms of operating reservations and [day count].

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Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [47]

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Just -- so in effect, Carl, there's a little bit of a lag in terms of revenue recognition. As you know, we've had a strong year last year in Residential sales. This year, we're hopeful that we'll be able to catch up in the second half. But the full accounting recognition won't happen overnight because it will follow the construction cycle, which picks up, I think, beginning second or third year of product introduction.

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Michael Anthony L. Garcia, Ayala Land, Inc. - Head for Investor Communications & Compliance Division [48]

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If there are no more questions, let me open first the floor for questions from our callers.

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Operator [49]

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(Operator Instructions) The first question we have on the line of Wilson Ng from Morgan Stanley.

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Wilson W. Ng, Morgan Stanley, Research Division - VP [50]

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Two questions. I think this was asked earlier, but the microphone was a little bit muffled, so sorry if it's a repetition. So firstly is on the launches. How were Residential launches in July? And the second is on the progress in the REIT, whether there's any changes in regards to the REIT and that is on track for launch at the end of this year?

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Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [51]

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On the first question, which was asked a while ago, as we've said, the target for the year remains to be at the PHP 130 billion for Residential launches. So we are continuing to work to be able to introduce those products to the market, given the low inventory that we currently have. For July, it's 19.5...

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Michael Anthony L. Garcia, Ayala Land, Inc. - Head for Investor Communications & Compliance Division [52]

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The other question was on the REIT.

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Jose Emmanuel H. Jalandoni, Ayala Land, Inc. - Group Head of Commercial Business & Senior VP [53]

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On the REIT, like what I said earlier, the plan is the same. We are hopeful to list within the year.

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Wilson W. Ng, Morgan Stanley, Research Division - VP [54]

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Sorry, the microphone is still quite muffled. I can't really hear at all. Maybe I'll reach out to Michael a bit later.

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Michael Anthony L. Garcia, Ayala Land, Inc. - Head for Investor Communications & Compliance Division [55]

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Thank you, Wilson. Apologies on that. Any more questions on the line?

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Operator [56]

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(Operator Instructions)

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Michael Anthony L. Garcia, Ayala Land, Inc. - Head for Investor Communications & Compliance Division [57]

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Any more questions on the floor? Okay. I guess, it gives us more time to enjoy Seda Residences, Ayala North Exchange. And with that, allow me to close our briefing this afternoon. Thank you very much for joining us. We have snacks available on the other side.