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

Q3 2019 Ayala Land Inc Earnings Call

Makati Nov 19, 2019 (Thomson StreetEvents) -- Edited Transcript of Ayala Land Inc earnings conference call or presentation Tuesday, November 5, 2019 at 6:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Augusto Cesar D. Bengzon

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

* Bernard Vincent Olmedo Dy

Ayala Land, Inc. - President, CEO & Director

* Carol T. Mills

Ayala Land, Inc. - VP & Head of Ayala Land Offices, Inc.

* Jennylle S. Tupaz

Ayala Land, Inc. - VP & Head of Ayala Malls

* 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

* Cristina S. Ulang

First Metro Investment Corporation, Research Division - VP & Department Head of Research

* Jason Yeo

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Jeanette G. Yutan

JP Morgan Chase & Co, Research Division - Head of Philippine Research

* R. J. Aguirre

UBS Investment Bank, Research Division - Associate Director and Research 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, and welcome to Ayala Land's briefing and its results for the first 9 months of 2019. Allow me to introduce our panel led by our President and CEO, Mr. Bobby Dy; Head of our Strategic Land Bank Management Group, Ms. Meann Dy; Head of our Commercial Leasing business, Mr. Junie Jalandoni; Head of our Residential Business Group, Mr. Robert Lao; and our Chief Finance Officer, Mr. Augusto C. Bengzon.

And right now, we have 17 callers on the line, and we'd like to remind everyone that a copy of the material and the press release is available on our website at ir.ayalaland.com.ph.

And I'd like to turn over the floor to Mr. Bengzon to start the presentation.

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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, and thank you for joining us today for our third quarter analyst briefing. On the cover, you'll see Ayala Malls Manila Bay, our largest mall opening, which we inaugurated last month. We were initially intending to hold the briefing there, but we took an informal poll from the analysts, and I think you were concerned about the traffic. In any case, I'll describe the features of that mall later on in the presentation, and hope you do pay a visit to our 160,000 square meters in GLA, largest single opening mall. Thank you.

And let's kick off with our financial and operating results. Our key messages for this afternoon are as follows: Ayala Land's net income grew by 12% to PHP 23.2 billion, while total revenues increased by 2% to PHP 121.7 billion as of September 2019.

Property development revenues reached PHP 85.4 billion, supported by office condos for sale as well as commercial and industrial lot sales. While commercial leasing revenues grew by 16% to PHP 27.6 billion on improving performance from our new leasing assets.

We ramped up our launches in the third quarter, with PHP 37.8 billion worth of residential projects, bringing the total launches for the first 9 months of the year to PHP 57.3 billion. We also launched 2 new estates in October.

Meanwhile, our malls and offices expanded their GLA further to 2.1 million and 1.2 million, respectively, with the opening of Ayala Malls Manila Bay and its BPO tower.

CapEx spend totaled PHP 78.2 billion to support our residential and leasing asset buildup.

Turning to the P&L. Total revenues increased by 2% to PHP 121.7 billion. This was primarily driven by real estate revenues, which grew by 2% to PHP 119.7 billion, supported by office and commercial and industrial lot sales, further boosted by the improving performance of our new leasing assets.

Equity net earnings of associates and JVs contributed PHP 704 million, 16% higher than the previous period, mainly as Ortigas Holdings reflected strong momentum in its property sales and leasing operations, and combined with the higher earnings of our FBDC companies, mainly as a result of the healthy performance of our leasing assets in BGC, namely One Bonifacio High Street and the Corporate Plaza retail.

Interest and investment income amounted to PHP 581 million, a 7% decline, reflecting lower cash balances and consequently, lower interest income from our short-term investments. Other income amounted to PHP 723 million, 27% lower than 2018. As you may recall, in 2018, we reflected a onetime sale transaction of assets by MCT Berhad, hence, the higher base effect in 2018.

Total expenses stood at PHP 85.8 billion, slightly lower than last year's PHP 86.9 billion, as real estate expenses decreased by 4% to PHP 70.5 billion. General and administrative expenses amounted to PHP 6.2 billion, a 4% increase from the first 9 months of 2018, as we controlled the increase of overhead costs. This enabled us to register a GAE ratio of 5.1% and improve our EBIT margin further to 36.7% from 33.6% last year.

Interest expense, financing and other charges stood at PHP 9.2 billion, 18% higher due to the increased outstanding debt and accompanying financing expenses.

Netting out total expenses from total revenues, income before tax amounted to PHP 35.8 billion, 9% higher than the previous period. Netting out noncontrolling interests of PHP 3.1 billion, net income attributable to ALI Equity Holders grew by 12% to PHP 23.2 billion.

We sustained a modest top line growth with the support of office condos for sale as well as commercial and industrial lot sales, together with the improving performance of our new leasing assets. Revenues from property development amounted to PHP 85.4 billion, a 2% dip from the previous period, mainly as a result of the lower contribution from our Ayala Land Premier and Alveo brands. Office for sale revenues, however, grew by 51% to PHP 11.1 billion, and commercial and industrial lots for sale grew by 16% to PHP 6.5 billion.

We experienced an uplift from our commercial and industrial lots, which grew by 16%, contributing PHP 6.5 billion from lot sales in Altaraza, Vermosa, Nuvali and Evo City.

Moving on to commercial leasing. Revenues jumped by 16% to PHP 27.6 billion. Shopping center revenues grew by 11% to PHP 15 billion, supported by same mall revenue growth of 10%, given the increased contribution of our new malls such as Ayala Malls Feliz, Circuit Makati and Capitol Central. Office revenue surged by 26%, reaching PHP 7.2 billion, as new offices in Ayala North Exchange, Vertis North and Circuit Makati continue improving their performance.

Hotel and resorts revenues moved up by 17% to PHP 5.4 billion, on strong patronage of our Ayala Center Cebu and Seda Lio.

In terms of services, primarily composed of our construction business, MDC, Makati Development Corporation and our property management business, Ayala Property Management Corporation, this grew by 8% to PHP 6.6 billion. For MDC, net construction revenues totaled PHP 2.5 billion, an increase of 24%, reflecting higher revenues from external contracts. APMC and the power service companies, meanwhile, registered revenues of PHP 4.1 billion.

So total real estate revenues came in at PHP 119.7 billion. Coupled with interest income of PHP 2 billion, total revenues increased by 2% to PHP 121.7 billion for the first 9 months of 2019.

Margins continue to be healthy, with strong improvements in some segments, given the project mix. So the average gross profit margin of horizontal residential projects was sustained at 43%. Meanwhile, vertical projects improved to 39% due to higher margins coming from ALP and Alveo projects as well as some of the Avida residential projects.

The average gross profit margin of offices for sale improved to 39% from 35% due to improved margins of Alveo's office condos for sale and ALP's first office condo for sale, One Vertis Plaza at Vertis North. GP margins from commercial and industrial lots also increased significantly to 60% from 44% due to higher margins from our commercial lots sold in Altaraza, Evo City, Nuvali and Alviera.

On the leasing front, the EBITDA margin of shopping centers came in at 67%, 2% higher than the previous period as a result of higher occupancy of Ayala Malls Vertis North, Feliz, Circuit Makati, Marikina and Cloverleaf. The EBITDA margin of office leasing was sustained at 90%, while the overall EBITDA margin of hotels and resorts increased to 32% from 29% due to higher occupancy and the revenue per available room of Seda in Ayala Center Cebu and Lio. Finally, overall EBITDA margins of the service businesses advanced slightly to 10%.

Moving on to property development. Sales reservations were steady at PHP 108.5 billion. Alveo and Avida fueled the growth in sales reservation, but was slightly offset by ALP, Ayala Land Premier, which did not have sufficient project launches during the period.

To date, we have launched PHP 57.3 billion worth of projects. In the third quarter alone, we were able to launch 17 projects worth PHP 37.8 billion. We remain fairly confident that we will deliver on our estimated target of PHP 130 billion in launches for 2019.

In terms of sales reservations breakdown by nationality and unbooked revenues. Sales from other nationalities amounted to 16% of the total, but this was a decline of 18% from the previous period. Local Filipinos continue to drive demand, at 70% of the total. This was supplemented by sales from overseas Filipinos amounting to 14%. Noteworthy is that overseas Filipino sales grew by 19% year-on-year.

Unbooked revenues increased by PHP 9 billion, reaching a total of a PHP 151 billion. This is an all-time high for the company, and this will be recognized in the next 3 to 4 years based on the percentage of completion method.

In terms of our key launches, last October, we launched our Broadfield estate. This is a 120-hectare mixed-use development under the Alveo brand located in Binan, Laguna, right at the heart of South Luzon's thriving residential, leisure, industrial and manufacturing centers. Broadfield is 4 kilometers from Nuvali, easily accessible from the SLEx through Governors Drive and the Santa Rosa Tagaytay Road. Moreover, it is poised to benefit from the completion of the CALAx and the planned Cavite-Tagaytay-Batangas Expressway. The project is also adjacent to the existing De La Salle University Laguna campus. 80 hectares of Broadfield will be dedicated for commercial uses, while 40 hectares has been allotted for 2 residential gated communities, namely the and Aveia.

Phase 1 of the commercial side, of the commercial project covers 36.6 hectares. Tranche one, comprised of 35 commercial lots, were initially made available for sale, with an average price of PHP 185 million per lot, translating to a selling price of PHP 105,000 per square meter. On its launch date, PHP 2.8 billion worth of commercial lots were sold. We expect Phase 1 to be completed by 2023.

Also last month, Ayala Land launched The Junction Place, a strategically located estate 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. The Junction Place will be anchored by a community center and a WalterMart mall.

Total investments for this project will amount to PHP 8 billion, of which PHP 500 million will be allocated for land development, including the construction of a 4-lane road connecting Quirino Highway and Tandang Sora Avenue. In addition, we will build a transport hub and UV Express terminal to further boost the estate's connectivity with other areas in Metro Manila. Since its launch, The Junction Place has sold close to PHP 0.5 billion worth of commercial lots.

Key launches from Ayala Land Premier include our newest project in Nuvali, Laguna, Andacillo, 188 units valued at PHP 3 billion, of which 93% has been taken up. The Courtyards Phase 4 at Vermosa, Cavite, 71 units valued at PHP 1.5 billion, 40% taken up.

Just as a note, Andacillo is selling at an average price of PHP 31,000 per square meter, while The Courtyards is selling at an average price of PHP 39,000 per square meter.

Residential projects launched under the Alveo brand include Patio Suites Tower 2, 222 units valued at PHP 3.3 billion, of which 12% has been taken up, and the recently launched signature project Parkford Suites in Legaspi Village. This is in Legaspi Village, Makati City fronting the Legaspi active park, 163 units valued at PHP 8.2 billion, 19% taken up. Just for reference, Patio Suites 2 is selling at an average price of PHP 221,000 per square meter, while Parkwood Suites is at PHP 370,000 per square meter.

For Avida, Serin East Tower 3 in Tagaytay launched last July, 472 units valued at PHP 2.4 billion, of which 12% has been taken up; and Avida Towers Vireo Tower 3 at Arca South, 551 units valued at PHP 2.2 billion, 55% taken up. Serin East is selling at an average price of PHP 160,000 per square meter, while Vireo Tower 3 is at PHP 212,000 per square meter.

Turning to our office for sale projects. Alveo's Circa Enterprise Plaza in Alabang was launched last September, with 343 units valued at PHP 8.3 billion. 7% has been taken up. Circa is selling at an average price of PHP 245,000 per square meter.

Turning to our leasing businesses, starting with the malls. Average occupancy rate for all malls is at 89%, while the occupancy rate of our stable malls is at 94%. Our total malls GLA now stands at 2.08 million square meters, with the addition of 161,000 square meters from the opening of Ayala Malls Manila Bay last September. This super regional mall has 5 levels, with a 3,200 square meter sunset garden at the fifth floor roof deck as well as a 1-hectare central garden with sculptures by renowned Philippine artists. It boasts of 10 cinemas with a total seating capacity of 2,846 seats, 2 of which have VIP Sky Lounges. The mall also has 4 specialty zones, which feature distinct Asian cultures, namely the Philippine Village, Korea Town, Chinatown and Japan Town.

Ayala Malls Manila Bays is poised to be the retail destination, where rich Filipino heritage and design meets global lifestyle and brands. Ayala Malls Manila Bay is where cultures come together. 40% of the merchant mix are food and beverage tenants. The mall is currently 30% occupied while the lease out rate is at 85%.

For the rest of the year, we look forward to the opening of Ayala Malls Central Bloc in Cebu, with 44,000 square meters. Ayala Malls Central Bloc Cebu is currently 74% leased out. Our total GLA under construction for our malls portfolio stands at 558,000 square meters.

For office leasing, GLA is now at 1.15 million square meters, with 19,000 square meters added from the completion of the Manila Bay BPO tower last September. The average occupancy for all offices is 95%, while the occupancy rate of stable offices stands at 96%. For the rest of the year, we can look forward to the opening of Central Bloc Corporate Center 1 in Cebu, with 30,000 square meters. Total GLA under construction stands at 388,000 square meters.

For hotels and resorts, we now have a total of 3,618 rooms, with the addition of 90 rooms in Seda BGC, the expansion building, and 38 rooms at Seda Residences Ayala North Exchange. Average occupancy rates remain at healthy levels, hotels at 69% and 62% for resorts, 78% and 62%, respectively, for stable hotels and stable resorts.

Upcoming openings for the remainder of the year include the remaining 150 rooms at Seda Residences Ayala North Exchange and the remaining 110 rooms at Seda BGC. We currently have a total of 2,400 rooms under construction.

Onto our other leasing formats. For industrial spaces, industrial warehouses and factory buildings, we now have a total of 175,000 square meters of GLA. We started the year with 137,000 square meters.

For the flats, we've tripled their capacity from 728 beds at the start of the year to 2,198 beds currently, and for Clock In, close to 3x. We increased our seat count, now at 1,335 seats from the 433 seats at the start of the year.

Our balance sheet remains supportive of our growth plan. Cash and cash equivalents came down to PHP 21.3 billion as we deploy this to our projects. Total debt increased by 7.5%, while stockholders' equity grew by 8.3%. Consequently, our net gearing is at 0.75x, slightly higher than last year's 0.72x.

We continue to take advantage of the lower interest rate environment in the third quarter. Last September, we raised PHP 3 billion in a 5-year bond with a coupon rate of 4.75%. If you will recall in last May, we raised PHP 8 billion of a 7-year bond and the coupon rate was 6.36%.

Tomorrow, we are scheduled to offer our third and final debt capital markets issuance. It's a PHP 10 billion bond with dual tenors, PHP 9 billion due in 2 years with a rate of 4.24%; and PHP 1 billion of a 7.25-year bond at a rate of 4.98%. So these issuances have assisted in lowering our overall cost of borrowing, which now stands at 5.2% from 5.3% previously. As of September, we've locked in 85% of our debt in fixed rates, while 88% are contracted on a long-term basis.

We registered PHP 78.2 billion of capital expenditures as of the third quarter, with 42% going to residential projects; 22% to commercial leasing projects; 17% for land acquisition; 11% for estate development; and 8% for other investments.

For the remainder of the year, we expect to close in on CapEx of between PHP 100 million to PHP 120 billion -- PHP 110 million to PHP 120 billion.

In summary, top line growth of 2%; bottom line growth of 12%; property development revenues reached PHP 85.4 billion; leasing revenues grew by 16% to PHP 27.6 billion. Launches dramatically increased in the third quarter, as we launched PHP 37.8 billion worth of residential projects, bringing the total to PHP 57.3 billion for the first 9 months of 2019. We also launched 2 new estates in October.

Malls and offices expanded their GLA further to 2.1 million and 1.2 million, respectively, and CapEx spend of PHP 78.2 billion to support our residential and leasing asset buildup.

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

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Let's take the questions first from our audience. Yes, Carl Sy.

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Carl Sy, Deutsche Bank AG, Research Division - Research Analyst [2]

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I have a number of questions, but I'd like to start off with the development side of the business. Your launches for the third quarter rose substantially. I just want to check if this was during the tail end of the quarter, that's why presales were still relatively flat. Would that be fair to say?

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Augusto Cesar D. Bengzon, Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer [3]

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Yes.

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Carl Sy, Deutsche Bank AG, Research Division - Research Analyst [4]

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Okay. And for October, can you already give the value of launches?

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Augusto Cesar D. Bengzon, Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer [5]

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Yes. So October, we launched PHP 44 billion, in October.

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Carl Sy, Deutsche Bank AG, Research Division - Research Analyst [6]

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Okay. And then for the revenue side this time. So residential revenue is down 9% for the 9 months. Can you tell us what the Philippine residential revenue number was? Was it up or down or…

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Augusto Cesar D. Bengzon, Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer [7]

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Philippine? No, we don't…

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Carl Sy, Deutsche Bank AG, Research Division - Research Analyst [8]

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Okay. I'll just follow-up on that later. That's fine. With respect to commercial lots this time, the margins rose rather substantially. And I want to ask if this was because of a particular location or did prices across the board go up rather substantially?

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Augusto Cesar D. Bengzon, Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer [9]

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It's lumpy. As you know, we sell commercial lots and depending on the age of that inventory, then the margins will be different. So I don't think it's across the board. We might have sold, I think, a particular parcel in Altaraza that has been with us for quite some time. And therefore, prices have gone up because of the development that we've done. And therefore, the margin for that particular sale was, I guess, higher than our usual margins.

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Carl Sy, Deutsche Bank AG, Research Division - Research Analyst [10]

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Okay. And then for the office leasing division this time.

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Augusto Cesar D. Bengzon, Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer [11]

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Carl, I wouldn't assume that that's going to be the margin moving forward.

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Carl Sy, Deutsche Bank AG, Research Division - Research Analyst [12]

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Okay. With regards to the office leasing division this time. How much do you plan to complete next year? And how much office space, essentially? And can you tell us the pre-leasing level as of, let's say, now?

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Michael Anthony L. Garcia, Ayala Land, Inc. - Head for Investor Communications & Compliance Division [13]

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Carol, do you want to answer that?

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Carol T. Mills, Ayala Land, Inc. - VP & Head of Ayala Land Offices, Inc. [14]

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For office leasing next year, we intend to complete 100,000 square meters of GLA, including Ayala Tower 2 in the Triangle.

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Carl Sy, Deutsche Bank AG, Research Division - Research Analyst [15]

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Okay. And how much is the pre-leasing level, if you already have it?

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Carol T. Mills, Ayala Land, Inc. - VP & Head of Ayala Land Offices, Inc. [16]

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Right now, specific to Tower 2 or overall?

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Carl Sy, Deutsche Bank AG, Research Division - Research Analyst [17]

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For the 100,000.

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Carol T. Mills, Ayala Land, Inc. - VP & Head of Ayala Land Offices, Inc. [18]

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Overall, lease out of office leasing is 95%. For new buildings completed within the last 3 years, it's 94%.

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Michael Anthony L. Garcia, Ayala Land, Inc. - Head for Investor Communications & Compliance Division [19]

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Thank you very much, Carl. I'd like to acknowledge Ms. Carol Mills, Head of our office leasing business. Any more questions?

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Augusto Cesar D. Bengzon, Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer [20]

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I think just to answer your -- I think, Carl, your question was specific to a pre-leasing commitment for, I think, the projects that will be completed next year. So for example, for Tower 2, Carol, we're about 1/3?

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Carol T. Mills, Ayala Land, Inc. - VP & Head of Ayala Land Offices, Inc. [21]

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38%

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Augusto Cesar D. Bengzon, Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer [22]

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About 38% leased out for Tower 2, with basically, about another 9 months or so to completion. And basically, there have been many -- we're working on many inquiries and hope that we'll get to really a significantly leased out building by the time we open in 2020.

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Michael Anthony L. Garcia, Ayala Land, Inc. - Head for Investor Communications & Compliance Division [23]

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Any more questions? Yes, RJ Aguirre, UBS.

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R. J. Aguirre, UBS Investment Bank, Research Division - Associate Director and Research Analyst [24]

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A couple of questions on the resi side of the business. I just wanted to know some detail about pricing, average selling price for the year compared to last year, how it increased and by how much. I just want to compare in terms of volume as well.

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Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [25]

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That's a bit hard, RJ, because in effect it depends on the particular location. In general, nationally, I think what you're seeing is for our projects, you're looking at anywhere from 5% to maybe 7% increase, but there may be particular areas wherein you're seeing a higher level of price increases.

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R. J. Aguirre, UBS Investment Bank, Research Division - Associate Director and Research Analyst [26]

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So with pre-sales being flat, would you say that volume is actually down?

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Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [27]

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Yes, yes. I mean because of the price inflation, yes, that's correct.

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R. J. Aguirre, UBS Investment Bank, Research Division - Associate Director and Research Analyst [28]

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Okay. Another question on inventory. How much years' worth or however you value that currently, versus the previous quarter or last year?

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Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [29]

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We have about -- today, about 14 -- 13 months' worth of inventory.

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R. J. Aguirre, UBS Investment Bank, Research Division - Associate Director and Research Analyst [30]

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Which is an improvement from less than a year?

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Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [31]

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Yes, yes. Yes, particularly because we launched quite a bit of product towards the latter part of Q3. Then again in October, as I mentioned, we launched about PHP 44 billion worth. So we're down to about 13 months' worth of inventory.

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Michael Anthony L. Garcia, Ayala Land, Inc. - Head for Investor Communications & Compliance Division [32]

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Thank you, RJ. Yes. One question from Ms. Cristina Ulang.

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Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [33]

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Sir, just curious about your view on the interest rate outlook and how it affects the affordability. Specifically, the REIT project also how does it -- what's the benefit on the REIT project? Any update on the REIT plan?

And then secondly, your guidance on the GLA target for next year for malls and you already mentioned office and for the project launches for residential, will it be like 1 30 also? And would the target inventory be the same?

And how do you view the overall outlook for next year, property overall?

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Augusto Cesar D. Bengzon, Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer [34]

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I'll address your first question on the interest rate outlook. We believe it remains supportive of the property sector. In other words, rates will continue to stay at these levels, and it seems like there even may be a bias for interest rates to come down.

As far as our business is concerned, in terms of corporate borrowings, we've successfully been able to raise funding this year at significantly lower rates than late last year and even the first quarter of this year. Equally important would be mortgage rates, which our residential buyers avail of, particularly in the Avida and Amaia segment. The mortgage banks continue to be quite competitive chasing the mortgage market. We see rates to be stable with a downward bias as well for mortgage rates, particularly on the 5-year tenor and below. So today, we've seen some mortgage banks pricing 5-year fixed-rate mortgages at 6%. So it's approaching the all-time lows that we saw, I think, 2 years back.

For the REIT, I'll turn it over to Mr. Jalandoni.

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Jose Emmanuel H. Jalandoni, Ayala Land, Inc. - Group Head of Commercial Business & Senior VP [35]

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For the REIT, the SEC is getting comments on the IRR, so the process is ongoing. And I understand that they hope to complete receiving the comments within November.

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Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [36]

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Sir, when do you see it actually moving?

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Jose Emmanuel H. Jalandoni, Ayala Land, Inc. - Group Head of Commercial Business & Senior VP [37]

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It's moving. It's moving.

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Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [38]

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Meaning in terms of the full provision, anything more -- because it's in the process. It seems to be in the processing stage, and you don't really have the company there.

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Jose Emmanuel H. Jalandoni, Ayala Land, Inc. - Group Head of Commercial Business & Senior VP [39]

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I understand from the SEC that they would like to complete within the year or early next year.

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Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [40]

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So you'll see yourself there in the business already when? Second half of next year or first half?

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Jose Emmanuel H. Jalandoni, Ayala Land, Inc. - Group Head of Commercial Business & Senior VP [41]

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We're targeting first quarter of next year.

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Augusto Cesar D. Bengzon, Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer [42]

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For the GLA on office, it's around 135,000 for next year. For the malls, it's 35,000 in Vermosa and 5,000 in -- 8,000 in -- around 43,000 for next year for the malls.

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Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [43]

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And for office, it was mentioned at 100. Sir, would you say that you are as aggressive as 2 years ago or where are you in your stage of like bullishness on the sector? Are you tempering your aggressive -- are you more aggressive? Are you less aggressive? Or are you more cautious? Where are we actually in -- you actually in the cycle?

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Jose Emmanuel H. Jalandoni, Ayala Land, Inc. - Group Head of Commercial Business & Senior VP [44]

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Maybe you could take a look at our CapEx, and we continue to basically register record CapEx levels. And we don't expect that to change next year.

I'd like to add to the office sector, and this is a follow-up comment based on Carl's question. There are buildings, Tower 2, as an example, that we don't take FOGOs. So we're getting inquiries from FOGOs, we could basically still bring up the CRP lease, our pre-lease out rates, but intentionally, we've turned down FOGOs in particular buildings. And if you remember, we've said that we were going to cap our exposure at 10%. And we continue to be below that threshold.

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Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [45]

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Sir, last question. I noticed the drop in the overseas buyers, specifically Chinese.

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Augusto Cesar D. Bengzon, Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer [46]

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Overseas?

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Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [47]

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There's a pie chart. I don't know if I got it right, down like 16%. So what's the reason behind? And are you seeing as robust an appetite as before from the overseas buyers?

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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 [48]

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I think the Chinese buyers normally prefer RFO units. Since we're ramping up the launches, they're not there. We are -- most of our inventory are on the pre-sell stage right now.

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Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [49]

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Pre-what, sir? Sorry.

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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 [50]

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Pre-sell stage.

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Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [51]

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And they're not in that, they're looking for RFO?

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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 [52]

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Yes, yes, for investments, yes.

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Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [53]

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Sir, is their demand speculative? Or is it real demand, the Chinese market?

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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 [54]

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Sorry?

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Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [55]

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Is the demand coming from the Chinese market speculative or real demand?

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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 [56]

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Those are real demand, real demand.

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Jose Emmanuel H. Jalandoni, Ayala Land, Inc. - Group Head of Commercial Business & Senior VP [57]

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Based on the number of Chinese nationals that we see around particularly the business districts, we're assuming that there is that, as Robert mentioned, real demand for that particular market segment.

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Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [58]

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And one last, last, super last. Just on the -- sir, there's been rumor, unconfirmed report that so much money are being invested in property by the Chinese, and that this is -- the property is now the preferred investment, not the financial instrument. It's hard assets that's in. Sir, how much truth is in that supposedly grapevine rumor? How much truth do you see in that, that much money is now in real estate and that real estate is the preferred investment now? It's not really financial instruments but hard assets, Philippine hard assets.

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Jose Emmanuel H. Jalandoni, Ayala Land, Inc. - Group Head of Commercial Business & Senior VP [59]

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I can't make a comment on the financial assets. We do see them in the property market. If you look at what has transpired over the last 3 years, from virtually not registering in our radar, now the Chinese account for a significant amount of our pre-selling. I think that is not unique to Ayala Land. I think if you look at the industry, I think a lot of our other peers are actually experiencing the same type of demand from Chinese nationals in particular.

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Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [60]

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Sir, why is your presales flat? Is it a function of your launches and completion?

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Jose Emmanuel H. Jalandoni, Ayala Land, Inc. - Group Head of Commercial Business & Senior VP [61]

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Well, as Robert mentioned, typically, they -- let's say, the Chinese go for near completion or basically ready to occupy units. A lot of our projects were just launched. We don't have much inventory in terms of finished units.

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Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [62]

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And you're going to improve on that to take advantage of -- would that be the logical step?

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Jose Emmanuel H. Jalandoni, Ayala Land, Inc. - Group Head of Commercial Business & Senior VP [63]

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We actually don't actively pursue the Chinese market. I mean obviously, when they're interested to buy, then we basically sell to them as long as we're within the limits of what is allowable, which is a maximum of 40% for a condominium corporation.

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Michael Anthony L. Garcia, Ayala Land, Inc. - Head for Investor Communications & Compliance Division [64]

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Thank you, Tina. Yes, [Jun].

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Unidentified Analyst, [65]

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It was encouraging to hear that launches ramped up in October. Just have a question on the issue of permitting. I think that was part of the situation, if you want to call it that. Do you anticipate this to -- first of all, have you scaled down your expectations for launches for full year? Or has that ramp up in October given you confidence that the full year target is -- in terms of launches is still achievable? And for next year, do you anticipate permitting to continue to be an issue or not?

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Augusto Cesar D. Bengzon, Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer [66]

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I think this year, it was the election period that really slowed down our launches. But for the year, we're targeting PHP 130 billion of launches. And I think the launches are rolling now. So we don't expect anything that could slow the planning and permitting process.

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Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [67]

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Last quarter, [Jun], I answered that question. I said the PHP 130 billion launch target is on, and we're closing in on it. So as of the end of October, we're at PHP 101 billion, so PHP 29 billion more. The target is still there. We're going to go for it.

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Unidentified Analyst, [68]

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Next question is as you near the completion of the 5-year plan, just curious, Bobby, appreciate if you could share your insights on how would you rate yourself, yourselves or yourself, over the last 5 years? And is there a new look to this as you roll over past 2020, how would the next -- appreciate if you could give us some guidance in terms of how would the next 5-year plan or 3-year plan look. What are the factors that you think will be -- aside from economic growth, everyone's talking about economic growth and opportunity, but just curious about what are the nuances you see in terms of the next 5-year plan? How do you -- I wanted to get an appreciation of your vision for the next few years, past the 2020.

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Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [69]

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So on your first question about how we would rate ourselves, I think we should be asking you guys that question.

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Unidentified Analyst, [70]

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You can ask us after.

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Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [71]

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And actually, it's a 7-year plan. As you remember, we rolled it out back in 2014. So we're now on our sixth year. And we continue to push hard to be able to achieve the target that we had basically set forth. And just my own, I guess, personal take on it. If you remember, in 2013, we ended at PHP 11.7 billion, okay, and this year, it looks like we're going to be exceeding, for sure, the PHP 30 billion mark. And if we assume 12, hopefully we're able to exceed that. Then from 2014 to 2019, it would be close to triple in a span of 6 years, okay?

And in terms of the assessment, maybe that's something that you could take a look at in terms of assessing our capability of executing, being able to deliver on high-growth targets.

On the outlook in terms of the next couple of years, as I've said, we continue to go flat out. We're trying to push really hard to be able to achieve the PHP 40 billion target next year. Obviously, given our size and our scale, it gets a little bit more and more challenging as we get to a higher base. But nevertheless, my sense is we'll be able to continue to deliver fairly good growth rates moving forward, maybe not the 20% year-on-year growth that you've seen over the last 10 years. But my sense is we'll probably still be in the double-digit range moving forward.

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Unidentified Analyst, [72]

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The follow-up would be, how would a -- given that outlook and that direction you're taking, would you require any tweaks in terms of the capital structure, capital management?

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Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [73]

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If you're asking me whether there are plans to raise equity, no. If you look at how we manage our balance sheet. Now over the last, in fact, 6 years, we've kept our leverage ratio, net debt to equity, in particular, within the 0.7 to 0.79 range. And because we're able to do that, you could imagine our ability now to be able to service the debt, given that I believe we've more than tripled our recurring income, okay?

So if the opportunity does arise for us to take on, let's say, a huge opportunity that will basically move the company to the next level, we really have the ability even to further lever up the balance sheet. So today, if you ask me, there are no plans to raise additional equity, and our balance sheet has enough capacity to be able to lever up further to take advantage of any new significant opportunity that we see in the market.

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Unidentified Analyst, [74]

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Last question is on -- well, 2 questions. What is the last…

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Augusto Cesar D. Bengzon, Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer [75]

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You will see on the -- on any equity raise at the current level, it's certainly not something we're considering, but -- it's certainly not something we're considering. But we do have our plans to REIT our office portfolio. So if there's any equity raising, it will be at the REIT level. So hopefully, next year, we'll be able to list the first REIT, and that would be a way for us to recycle capital efficiently into new projects.

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Unidentified Analyst, [76]

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Actually, your comment gave birth to another question, which is, are you planning to upsize the REIT portion, because it seems -- I mean absolute terms, significant, but relative to your entire asset size, it's miniscule.

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Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [77]

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For now, we plan to keep the same level of around PHP 30 billion better market capital. And the reason for that is that we want to do it quickly once the IRR is finalized. If we infuse other assets, we'll have to wait to get this asset in the future. It will take time. So what we plan to do is just reap what we have now, as what we deliver the plan and just infuse our assets along the way.

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Unidentified Analyst, [78]

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Last is, what's the CapEx for next year? And -- well, that's it.

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Augusto Cesar D. Bengzon, Ayala Land, Inc. - Senior VP, CFO, Treasurer & Chief Compliance Officer [79]

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We're still finalizing the budget for 2020, but it should be about in the PHP 100 billion range.

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Michael Anthony L. Garcia, Ayala Land, Inc. - Head for Investor Communications & Compliance Division [80]

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Thank you, [Jun]. I have room for one more question before we move on to our callers. Any more questions? Any takers? Yes, Jeanette Yutan from JPMorgan.

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Jeanette G. Yutan, JP Morgan Chase & Co, Research Division - Head of Philippine Research [81]

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I just have 2 questions. One is on the PHP 44 billion launches. Can you give us an idea, like details on where they are, what brands, any big projects out of the PHP 44 billion?

And then my second question is on your retail leasing, specifically the new malls. What's the occupancy rate? How is it doing? How's the gestation?

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Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [82]

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So on your first question, Jeanette, maybe I suggest we wait until the year-end results are in because otherwise, we have nothing to report anymore if we disclose the October launches, but I think suffice it to say, PHP 44 billion, spread all over. There's no, I think, single area that it is concentrated on because our portfolio now is fairly diverse. So I don't think there's anything that is concentrated in one area.

On your second question, maybe I could call on Yeng Tupaz, who basically is the head of our malls, to provide you the perspective of where we are.

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Jennylle S. Tupaz, Ayala Land, Inc. - VP & Head of Ayala Malls [83]

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For the new malls, when we talk about new malls, the malls that we've launched back in 2017, when we compute for our same mall growth. So these are Feliz, Vertis, Cloverleaf and The 30th.

In terms of occupancy, there are varying rates of occupancy, but they range anywhere from, let's say, about 70% to about 90%. So we can just talk about the details later. If you look at the average occupancy for stable malls, we'd be at about 94 -- 89% stable malls, accounting for about 94% occupancy.

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Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [84]

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Jeanette, our guys want to answer the first question. They really want to tell you where we launched those projects. I'm going to let Robert tell you where they are.

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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 [85]

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For ALP, 2 projects, Parkshore in Davao and Parklinks South Tower. For Alveo, 3 projects, Evo City Residential Phase 2, Broadfield and Mergent Residences -- Broadfield in Binan, Mergent Residences in Makati Avenue. For Amaia, Escapes Rizal. I think that's it, all PHP 44 billion.

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Michael Anthony L. Garcia, Ayala Land, Inc. - Head for Investor Communications & Compliance Division [86]

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One last question from Ms. Cristina Ulang.

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Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [87]

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Sir, this is the last times 2. A joke. Sir, can you just give us an idea of what's happening in the BPO sector? Because -- well, there's news that the CITIRA and dependency of CITIRA is affecting the demand for BPO. So what's happening in the BPO? And how's the take-up? I saw the 9,000 square meters. Is that the fully taken up part of the launches? So what's the…

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Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [88]

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We don't see -- well, if you look at our inventory figures, it shows you that the market is still strong. So of course, there's a bit of uncertainty in terms of the tax issues, but we continue to close deals with BPO companies. And maybe because a lot of these BPO companies are captives, meaning they're not there to actually -- they're back of the house of many of these technology companies, so they're not there for profit purposes and tax issues, it's not their priority. So to answer your question, we still close BPO deals regardless, in spite of these tax uncertainties.

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Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [89]

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Sir, is there an allocation as to how much more you're putting up in terms of GLA for dedicated to BPO next year? For the office portfolio, how much or a percentage or growth number?

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Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [90]

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(foreign language)

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Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [91]

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Sir, I'll write them (foreign language)

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Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [92]

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There's 388 -- almost 400,000 under construction.

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Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [93]

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400,000 square meters?

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Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [94]

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(foreign language) So 100,000 a year. Our target is to be around 100,000 a year.

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Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [95]

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And that represents how much of the office? That's 400,000 of the…

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Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [96]

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Right now, we have 1.1 million square meters. So from there, we'll add about 100,000 every year.

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Michael Anthony L. Garcia, Ayala Land, Inc. - Head for Investor Communications & Compliance Division [97]

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Thank you, Tina. And now let's give an opportunity to our callers.

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Operator [98]

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(Operator Instructions) We have a question from the line of Wilson Ng from Morgan Stanley.

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Wilson W. Ng, Morgan Stanley, Research Division - VP [99]

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A couple of questions. Sorry if they are repetitive. I couldn't really hear properly this thing very well, yes. The first question on reservation sales. Could you share a bit on the reason for why they are declining?

Secondly, I think I heard that in October, you launched PHP 44 billion of product and free share for October, how much was reservation sales?

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Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [100]

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Wilson, on your first question on reservation sales, actually, we're flat. We're flat as of year-to-date, September, so at the end of Q3, actually it was not a decline. It's basically flat versus a year ago.

In terms of your -- on your second question about what are the reservation sales for the PHP 44 billion, then now we're really getting to next quarter's report, okay? So that one, I think we will withhold for now. Otherwise, we have nothing to report the next time we meet.

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Wilson W. Ng, Morgan Stanley, Research Division - VP [101]

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All right.

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Michael Anthony L. Garcia, Ayala Land, Inc. - Head for Investor Communications & Compliance Division [102]

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Any more questions, Wilson?

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Operator [103]

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Yes. The next question comes from the line of Jason Yeo from Goldman Sachs.

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Jason Yeo, Goldman Sachs Group Inc., Research Division - Equity Analyst [104]

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I have 2 questions regarding the REIT. The first one, as you mentioned earlier, you have sufficient balance sheet to lever up if you have big opportunities. Can you share how you're thinking of using the proceeds of the asset sales to the REIT?

And the second question is, how are you thinking of the possibility of paying special dividends from some of your capital gains on the REITs?

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Jose Emmanuel H. Jalandoni, Ayala Land, Inc. - Group Head of Commercial Business & Senior VP [105]

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The proceeds of the REIT will have to be used for domestic real estate investment. That's part of the law.

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Bernard Vincent Olmedo Dy, Ayala Land, Inc. - President, CEO & Director [106]

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Jason, on the REIT -- in addition to what Junie had mentioned, that we're going to use that to -- as part of our funding for CapEx next year. So there is no thinking right now of declaring a special dividend just because we had recycled capital. I think we still see a lot of opportunities in the market, and I think that we'll be able to deploy the proceeds coming from the REIT productively.

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Michael Anthony L. Garcia, Ayala Land, Inc. - Head for Investor Communications & Compliance Division [107]

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Thank you, Jason. Any more follow-up questions?

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Operator [108]

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(Operator Instructions) There are no further questions on the line. Please continue.

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Michael Anthony L. Garcia, Ayala Land, Inc. - Head for Investor Communications & Compliance Division [109]

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Thank you. Maybe a few more questions from our audience? Okay then, I guess everyone's hungry. Thank you very much for joining us this afternoon. We have some foods waiting for you at the corner. Thank you.