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Edited Transcript of RLC.PS earnings conference call or presentation 7-May-20 8:00am GMT

Q1 2020 Robinsons Land Corp Earnings Call

Pasig May 12, 2020 (Thomson StreetEvents) -- Edited Transcript of Robinsons Land Corp earnings conference call or presentation Thursday, May 7, 2020 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Frederick Go

Robinsons Land Corporation - President and CEO

* Kerwin Tan

Robinsons Land Corporation - CFO

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Conference Call Participants

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* German de la Paz

Abacus Securities Corporation - Analyst

* Carl Sy

Deutsche Regis Partners, Inc. - Analyst

* Jelline Gaza

JPMorgan Securities - Analyst

* Danielo Picache

Credit Suisse - Analyst

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Presentation

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Operator [1]

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Welcome to the RLC first-quarter CY2020 estimate call. Joining us today from RLC are Mr. Frederick Go, President; and the rest of the RLC Investor Relations team. At the end of the presentation, there will be a question-and-answer-session. Thank you.

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Unidentified Company Representative [2]

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Thank you for joining Robinsons Land Corporation's earnings call. Kindly allow us to take you through our unaudited financial results for the first quarter of 2020 ending March 31; discuss the performance of each of our business units; and conclude with updates on our growth plans and future strategies.

RLC continues to have a solid, diversified, and dynamic portfolio with presence in five major sectors that drive the Philippine economy. First, in the retail segment, we are able to capture domestic consumption in our 52 malls across the country. Second, in the growing IT business part of management sector, we continue to be a leading office space provider through our 23 office developments and three work.able centers. Third, we take part in the tourism industry through our diversified hospitality portfolio that consists of 20 properties. Fourth, we service the demand for homes with over 100 residential projects. And lastly, we are now part of the emerging logistics industry through our industrial facilities.

Benefiting from a well diversified business model, we continue to register strong cash flows and execute on our revenue stream diversification strategy. In the first quarter, the development portfolio took the largest share of revenues, EBITDA, EBIT, and net income, as we transition to a new accounting recognition of residential sales. Nevertheless, our investment portfolio continued to generate high-quality recurring revenue streams coming from our malls, offices, hotels, and industrial leasing business, and accounted for 42% of revenues, 55% of EBITDA, 44% of EBIT, and 40% of net income.

RLC continued to have robust balance sheet and sound capitalization, with total assets at PHP194.8 billion, and total shareholders' equity of PHP103.7 billion as of March 2020. Earnings per share posted at PHP0.64, while the Company's debt levels remain to be well-managed, with net gearing ratio of only 38%. Last March 16, 2020, (inaudible) Luzon and other areas in the Philippines were placed on the enhanced community quarantine to curb the spread of the COVID-19 pandemic. We have felt the most impact on our mall and hotel operations. Nonetheless, our broad business footprint and diversified revenue stream helped cushion the blow of this unprecedented event on the Company.

In the first quarter of 2020, despite the slowdown in our mall and hotel operations, the steady performance of our office business and the adoption of new accounting policy for our residential division resulted in a significant 70% growth in consolidated revenues to PHP11.6 billion. This drove a 59% surge in EBITDA to PHP6 billion, lifting EBIT by 82% to PHP4.7 billion. RLC finished the quarter with a remarkable 82% increase in net income to PHP3.3 billion.

With public health and safety in mind, and in full cooperation with the government, we have temporarily closed our malls in the two areas that are being occupied by tenants providing essential services such as the supermarkets, banks, pharmacies, and spaces occupied by BPOs. And we have waived rental for nonoperational tenants during the ECQ. In addition, our

Tacloban mall was closed in the first quarter for ongoing repairs due to last year's fire incident. And revenues from [Altus] Property Ventures, Inc. had been deconsolidated as a result of last year's property dividend distribution.

As a result, mall revenues, which accounted for 25% of total Company revenues, dropped by 8% to PHP2.9 billion in the first quarter of 2020. In spite of this, EBITDA was down by only 1% at PHP2.1 billion, owing to the implementation of some cost-saving measures. Additional depreciation from new malls opened in 2019, however, dropped the EBIT by 5% to PHP1.1 billion.

As of March 2020, we remain to be the second-largest mall operator in the country with 52 malls, nine of which are within Metro Manila, while 43 are situated in growing urban areas nationwide. Total gross floor area was approximately 3 million square meters, and total leasable space was 1.5 million square meters with over 9,000 retailers for a systemwide occupancy rate of 95%.

We continue to operate our office buildings, and some of our office tenants remain operational, even during the ECQ. This, together with the success of our leasing activities for new developments -- namely Cyber Sigma, Cyberscape Gamma, Zeta Tower, and Giga Tower -- and rental escalations in existing office buildings contributed to the sustained strong performance of our office business. Accounting for 12% of total Company revenues, the office buildings division recorded a significant 27% hike in revenues at PHP1.4 billion in the first quarter. EBITDA and EBIT accelerated by 34% and 42% to PHP1.2 billion and PHP1 billion, respectively. As of March 2020, our office portfolio had 23 operational sites in strategic locations with a total net leasable area of 592,000 square meters with total leased space of 98%.

With its customer-first approach, our office buildings division recognized the need to adjust the growing demand for flexible workspaces. Hence, in 2018, we launched our very own flexible office space brand called work.able. Derived from the words work and enabler, work.able offers flexible workspace solution such as service -- private offices, hotdesks, meeting rooms, and event spaces to startup companies, freelancers, multinational corporations looking for alternative or extra office space requirement for their seasonal manpower requirements as part of its business continuity plans, and other clients with build-to-suit office space requirements.

Our maiden site, situated in Ortigas Center, Pasig City, was launched also in 2018 with 55 seats. Last year, we opened our third site in the Exxa & Zeta Towers in Bridgetowne with 277 seats. Occupancy rates posted at 95% and 82%, respectively.

The hospitality and leisure industry is suffering the most immediate repercussions of the COVID-19 pandemic. As of March 2020, most of our properties had to close down temporarily because of the ECQ. Only five of our 20 hotels were operational during this period to serve customers from the BPO industry and long-staying guests. With a massive contraction in demand, and limited operations, our hotel revenues fell by 10% to PHP468 million in the first quarter, accounting for 4% of total Company revenues. EBITDA plunged by 51% to PHP81 million, on the back of fixed overhead costs. One additional depreciation from hotels opened in 2019 resulted a negative EBIT of PHP24 million.

We have some important changes in our residential business this year. In the first quarter of 2020, we started to recognize revenues based on a buyer's equity threshold of 10% from the previous 15% as a result of a change in accounting treatment. Apart from the new accounting treatment being the standard industry practice, it is our intention to make our financial statements more timely, and reflective of actual performance over time. As a result, realized revenues more than doubled to PHP6.7 billion compared to previous year, while EBITDA and EBIT more than tripled to PHP2.6 billion each.

On the business side, we will be making significant strategic changes in response of customer needs and market dynamics. We are merging our three existing vertical residential groupings -- namely Luxuria, Residences, and Communities -- into a single brand called RLC Residences. We believe that a single brand will allow us to optimize our resources and give us greater market recognition to become a bigger player in the residential space. It shall also provide internal focus on the value proposition of our residential business by delivering one seamless experience to all of our customers across all channels and markets. Our singular purpose will be to build beautiful resident homes that our stakeholders will be proud of.

In the meantime, our first-quarter net [take-up] sales increased minimally by 4% to PHP3.9 billion.

These next two slides show the condominium projects we launched in the first quarter, namely the Sapphire Bloc South tower, located in Ortigas Center; and Sierra Valley Gardens 1 and 2, located in our Sierra Valley estate in Cainta, Rizal. The combined sales of value of these projects is approximately PHP10 billion. We are pleased to share that sales take-up across all of our three new projects are quite remarkable, providing us a good indicator of our robust demand for new homes in [well] master-planned communities.

Formalized in 2016, the industrial and integrated developments division continues to be a reliable, steady source of new revenue streams. In the first quarter of 2020, these revenues reached PHP51 million, up by 73% versus same period last year, due to the opening of a new industrial facility in Calamba, Laguna. EBITDA ended at PHP11 million, where depreciation from the aforementioned new industrial facility dropped EBIT to negative PHP2 million. As of March 2020, total leasable space has reached 77,000 square meters with locations in Sucat, Muntinlupa and in Calamba, Laguna. Systemwide occupancy rate was 100%.

Apart from lease revenues, IID likewise recognizes developmental revenues from the sale of commercial lots. In the first quarter, IID recognized PHP45 million pertaining to a portion of the gain on sale of land to Shang Robinsons Properties, Inc., EBITDA and EBIT ended at PHP39 million each.

2019 marked the successful sellout and completion of residential condominium units in Phase 1 of our Chengdu project in China. In the first quarter of 2020, we are pleased to share that we have secured the license to sell for townhouse units in Phase 1 and some of the condominium units in Phase 2. We will recognize revenues from our Chengdu project after completely satisfying regulatory requirements for the turnover of the units to the individual buyers.

Our original CapEx budget for the calendar year 2020 was set at PHP27 billion, of which we have already spent PHP5.9 billion during the first quarter. In light of the extended ECQ, we have tentatively reduced our CapEx budget to PHP24 billion, subject to changes in market conditions post-ECQ. We shall continue to monitor recent developments and adjust our CapEx budget accordingly. As of March 31, 2020, our existing land bank in the Philippines totaled 788 hectares with an estimated value of PHP48 billion. We continue to be on the lookout for land bank opportunities nationwide.

Moving on to our future plans and strategies for each of our business units. For our malls division, we plan to increase our footprint by 3% to 1.6 million square meters with the opening of a mall in La Union, with expansion of our business space Dumaguete, and Robinsons Place Antipolo. In the following year, we plan to open Opus, our premium mall in Bridgetowne; and two new malls in Gapan in Nueva Ecija, and in Balayan in Batangas. These three new developments will add 7% to our total leasable space, boosting our mall portfolio to 1.7 million square meters by the end of 2021.

For our office buildings division, we have a robust pipeline in 2020, comprising of four new office developments, namely Delta Tower 2 in Davao; Luisita 3 in Tarlac; Bridgetowne East Campus; and Cyber Omega in Ortigas. These new offices will expand net leasable area by 14% to approximately 676,000 square meters. In 2021, we target to complete Sierra Campus within Sierra Valley, Cybergate Iloilo 1, Cybergate Galleria Cebu, and Cybergate Bacolod. These four office projects will grow net leasable space by 8% to 731,000 square meters.

For our hotels and resorts division, we plan to increase hotel room count by 10% to 3,452 operational rooms in 2020, with the opening of Summit Naga, Go Hotels Naga, and Go Hotels Tuguegarao. In 2021, we intend to add 15% more keys with the opening of Weston Sonata, Summit Gensan, and Go Hotels San Nicolas, to end with 3,957 rooms.

To provide the best possible guest experience, we are doing a refresh of our older Go Hotels and we are also doing renovations in [Con] Plaza and Holiday Inn. RHR's continued evolution story goes beyond the brand refresh of our existing hotel portfolio in our massive organizational buildup. In line with this, we are now creating our very own first five-star homegrown hotel brand called fili Urban Resort, which is envisioned to become an embodiment of true Filipino hospitality. Our mission is to provide exceptional guest experience while enhancing shareholder value and capital yield, and it ties up with our plans to expand our portfolio by building three- to five-star hotel brands of our own.

For our residential division, following our project launches in 2019, we plan to launch about PHP10 billion to PHP20 billion worth of new projects this year. This is to take advantage of the continued demand for Philippine residential condominiums for domestic end buyers and foreign investors. The industrial and integrated developments division will have reached 94,000 square meters in leasable space with the new Calamba warehouse in 2020. Next year, we plan to tap new territories and develop industrial properties within the province of Pampanga, which will boost our portfolio by 69% to 159,000 square meters by 2021.

On top of this, we will continue to engage in the strategic acquisition of vast tracts of land that are optimally located within the government's infrastructure projects to add to our growing number of township estates. Aside from Bridgetowne, we are currently working on two other destination estates, namely Sierra Valley, an 18-hectare property located in Rizal; and Mont Clair, a 200-hectare development in Pampanga. IID will [like us] continue to focus on the exploration of innovative real estate formats, new business ventures, and strategic partnerships in our mixed-use developments to further our earnings.

To support the Company's funding requirements, RLC intends to offer peso-denominated fixed-rate bonds in the aggregate principal amount of PHP10 billion with an oversubscription option of up to PHP10 billion in the coming months, subject to regulatory approvals. The bonds shall be comprised of two series maturing in three years and five years, respectively, with semiannual interest payments. Just recently, PhilRatings has assigned a rating of PRS Aaa with stable outlook for our proposed bond issuance. These is the highest credit rating on PhilRatings' long-term issue credit rating scale. The issue rating took into account the Company's competitive position, health and liquidity, sound capitalization, and solid fundamentals to temper the immediate adverse impact of the ECQ and the COVID-19 pandemic in the short-term, and help recovery in the medium- to long-term.

In the earlier discussions, we have shared how the COVID-19 pandemic had affected our business as of March 31. We would like to share some updates on our operation since then. For our malls division, [last me] first, we have started to slowly reopen malls that are not covered by the ECQ, and we continue to waive rents for nonoperational tenants. For our office buildings division, no rental abatements were granted to BPO clients, and we continue to bill rent in-line with current industry practice. For our hotels and resorts division, 12 out of our 20 hotels are opened with limited operations, with occupancy rates ranging from 60% to 90%. For our residential division, no sales have been officially booked during the ECQ period. Lastly, for IID, both of our industrial facilities remain open and we continue to collect rent.

[The main] (inaudible) extent of the outbreak's potential material impact on the Company's performance, the execution of our plans and strategies, and our customers and employees. The next slide shows the preventive measures we have taken to mitigate the effects of the COVID-19 pandemic. We believe that the COVID-19 pandemic is, first and foremost, a health crisis with economic consequences. And so the overall safety and well-being of our customers and employees remain to be our top priority. We have implemented sanitary and hygiene measures such as the installation of hand sanitizers in all the entry points to our properties.

We are also doing regular deep disinfection of our properties, especially in high-touch areas such as the elevators, escalators, electronic data (inaudible), and food court tables and chairs. We have made free temporary temperature testing available to our customers using infrared non-contact thermal scanners. (inaudible) corporate policies have been instituted to use digital or online tax forms for corporate communications and visual meetings in order to limit physical contact. New moderating arrangements have also been put in place for employees.

In addition, as early as January, RLC launched information campaigns apprising its stakeholders of the risk of COVID-19 and ways to prevent its transmission. To ensure that our services remain available to all our customers, we have skeletal workforces deployed in various geographical regions that will be operating during the ECQ.

The second [pre DP] and enhance financial flexibility, we have initiated a project prioritization program to manage our CapEx spend. In this program, we have evaluated which projects in our current pipeline shall be continued, deferred, or stopped. Post-ECQ, we shall revisit the different projects as [the closing] (technical difficulty) economy and specific relevant markets.

Lastly, we are already calibrating our reentry strategies and workplace integration, in preparation of business and resumption once the ECQ is lifted. Our main focus is to ensure a safe environment for our customers and employees in order to rebuild the [great place] and business confidence. The Company shall continue to keep abreast of news and guidance from the government, its instrumentalities and health agencies, and incorporate their directives and our recommendations in our business and workplace continuity and resiliency plans.

This concludes our presentation. Operator, we are now ready to take some questions. Thank you very much.

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Questions and Answers

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Operator [1]

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(Operator Instructions). German de la Paz, Abacus Securities.

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German de la Paz, Abacus Securities Corporation - Analyst [2]

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Three questions for me. First is: I understand that there are some tenants will be allowed to operate under the ECQ. May I ask what percentage of the total [mall GLA] will be open under ECQ?

And second question: I just want to ask if there are any updates on whether residential construction can resume under the ECQ?

And, third, I understand that most of the net income growth came from the change in accounting method for the residential segment. May I ask what the net income growth would have been if the change in accounting method was implemented last year, starting last year? Thank you.

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Frederick Go, Robinsons Land Corporation - President and CEO [3]

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Thank you for your three questions. This is Frederick Go. On your first question, we have 11 malls that are open. As you can understand, the situation is extremely fluid; meaning, on a day-to-day basis, it actually changes, which is why on our various calls with the brokers and the banks, we have tried to give a very live update, meaning as of the day of the call, or as of the day before the call, because it changes every time.

Based on the last time we checked -- which is fairly recently, which is yesterday -- each of the malls are slightly different. So we have 11 malls that are open, and roughly -- the lowest percentage that is open is at 30%, and the highest percentage that is open is around 70%. So it is now a range of 30% to 70% across the 11 malls that are open. And as I said, I think that will keep changing as the days go by.

On your second question about residential construction, we are guided now by each locality. The local government units now have a lot of control over their territories, and so we are guided by them. So some local government units are more relaxed, and some local government units are more conservative, so there is no uniform policy that is being implemented across the board. So if I just had to make a very rough estimate, I'd say probably one-third have already resumed construction, but two-thirds have not.

Third on your question about the accounting treatment, the change, can I just answer it this way? Our revenues for the first quarter are up 70%. And without the accounting change, that would be negative 11%. And on a net income after tax basis, it's now up 82%. And without the accounting change, it would be minus 16%. Thank you.

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German de la Paz, Abacus Securities Corporation - Analyst [4]

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All right. Thank you so much.

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Operator [5]

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Carl Sy, Regis Partners.

I actually have even more questions than usual, so please pardon me. On the mall business first, it looks like, for the first quarter of this year, margin -- EBITDA margin is up, and you did mention some cost-saving measures. Could you discuss what those are?

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Frederick Go, Robinsons Land Corporation - President and CEO [6]

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Yes. Very -- to simplify it, if you are talking about the ECQ period, I think we mentioned in our calls repeatedly that there's no cash burn; and, in fact, there's still some positive cash flow because the single biggest expense in running a mall is your power or your air conditioning charges. And obviously, during ECQ, we shut all of that down. And a lot of people didn't have to provide services to us during that period. So that's -- basically there was no cash burn; in fact, some cash flow from all operations during that period.

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Carl Sy, Deutsche Regis Partners, Inc. - Analyst [7]

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So to clarify, because -- sorry, where I'm coming from is -- so I understand (multiple speakers)

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Frederick Go, Robinsons Land Corporation - President and CEO [8]

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Sorry. You are coming from the other 2.5 months?

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Carl Sy, Deutsche Regis Partners, Inc. - Analyst [9]

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No, no. I guess for the entire first quarter, margins still managed to go up, right? So that's a comparison (multiple speakers) first quarter last year.

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Frederick Go, Robinsons Land Corporation - President and CEO [10]

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Yes, sorry, sorry, sorry, sorry. Okay, I got your question now, Carl. Yes, our mall operations people have been really on the ball, I think, for the last probably six quarters or more. If you recall back in 2017, 2018, our -- we had the opposite effect. Our mall operating costs were going up. So we instituted a lot of changes in the mall organization. Our Executive Vice President, Faraday Go, actually spent a lot of his time on running the mall operations. And I think he and his team were able to really cut down a lot of the mall operating expenses, a lot of the unnecessary expenses, if I may call it that. And so we were able to improve our margins in the mall business.

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Carl Sy, Deutsche Regis Partners, Inc. - Analyst [11]

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And to clarify, as well, as you said, there was a period where -- for most of the period, actually, most of first quarter -- operations were more or less normal, and then ECQ happened. To clarify, we should not expect this level of margin during the ECQ period. Would that be fair?

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Frederick Go, Robinsons Land Corporation - President and CEO [12]

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Wow. I think, right now, it's very hard to comment on this ECQ period, because I think we don't have a very clear picture.

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Carl Sy, Deutsche Regis Partners, Inc. - Analyst [13]

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Okay. Perhaps something else. For the essential services, how -- let's -- not necessarily for this year, but let's say 2019, how much of space do they occupy of the malls, or how much of revenue do they contribute?

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Frederick Go, Robinsons Land Corporation - President and CEO [14]

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I can answer you the revenue: it's about 15%.

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Carl Sy, Deutsche Regis Partners, Inc. - Analyst [15]

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About 15% of revenue? Okay.

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Frederick Go, Robinsons Land Corporation - President and CEO [16]

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Yes.

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Carl Sy, Deutsche Regis Partners, Inc. - Analyst [17]

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And then perhaps for the office side this time, you -- I think of the four office buildings due this year, I think three are in Metro Manila. Correct me if I'm wrong: these are all PEZA accredited?

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Frederick Go, Robinsons Land Corporation - President and CEO [18]

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The ones in Metro Manila should be.

[Kay], correct me if I'm wrong, but they should be.

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Unidentified Company Representative [19]

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For 2020, except for Bridgetowne East campus, because it's part of the Bridgetowne East, that's the only one that's not PEZA registered. And Robinsons Luisita 3 is currently being secured for -- the PEZA is currently being secured as well.

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Frederick Go, Robinsons Land Corporation - President and CEO [20]

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Yes. I think to answer your question, Carl, it's East Campus that's not PEZA accredited, but all the others should be.

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Carl Sy, Deutsche Regis Partners, Inc. - Analyst [21]

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Okay. And you have 85,000 square meters due for completion this year. May I ask how much has been pre-leased? Even a rough number would be fine.

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Unidentified Company Representative [22]

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Yes, Carl. Actually, for all 85,000 or 84,000, around 42% is already pre-leased. So Bridgetowne East is 100%. Luisita, as well, is 100% pre-leased. Delta is about 41%, and Omega about 10%.

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Carl Sy, Deutsche Regis Partners, Inc. - Analyst [23]

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Okay. And -- so let's say, during the ECQ period -- a few parts here. First, are you still seeing actual, let's say, new transactions? Is anyone signing up? Have any of your tenants -- let's say somebody signed up before; is anyone asking for a rent reduction, including your existing tenants across your existing buildings? Is anyone asking for some sort of rent discount or something? You did mention that for BPOs, as well, that you are not -- I think you are not granting rent discounts. But I think maybe you have a 10% of the portfolio which isn't BPO. What are you doing for them, if anything is different?

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Frederick Go, Robinsons Land Corporation - President and CEO [24]

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Yes, I think as part of the normal practice in the leasing business, everybody asks you for discounts, regardless of ECQ or no ECQ. But you correctly mentioned that we are not granting discounts to BPOs. And you are also right that there is a small portion of our -- of this buildings business that is non-BPO. And those, some of them may be granted rental discounts, especially if they are not operational.

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Carl Sy, Deutsche Regis Partners, Inc. - Analyst [25]

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Okay. And is anyone signing up for space during this period? Or have you heard of -- or have any of your tenants asked to reduce space, including the pre-leased space?

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Frederick Go, Robinsons Land Corporation - President and CEO [26]

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I heard anecdotally from [Lichu] and Associates, I heard [David Lichu] was saying that he has a client now looking for additional space. But for our own particular office buildings, I'm not aware of any new sign-ups.

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Carl Sy, Deutsche Regis Partners, Inc. - Analyst [27]

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Okay. Now the residential business this time. How much of your residential sales in the first quarter was from foreigners? Again, a rough number would be fine.

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Unidentified Company Representative [28]

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Hello, Carl. 27% of our buyers are foreigners, for the first quarter 2020.

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Carl Sy, Deutsche Regis Partners, Inc. - Analyst [29]

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(multiple speakers) 2-7.

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Unidentified Company Representative [30]

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2-7. Yes.

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Carl Sy, Deutsche Regis Partners, Inc. - Analyst [31]

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And it could you remind us, what was it in the first quarter 2019? Do you have the first-quarter 2019 number? No?

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Unidentified Company Representative [32]

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It's about 30%.

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Carl Sy, Deutsche Regis Partners, Inc. - Analyst [33]

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30%? Okay. And then what was the unsold inventory number?

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Frederick Go, Robinsons Land Corporation - President and CEO [34]

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(multiple speakers) now we're looking at PHP20 billion. It's at 20.

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Carl Sy, Deutsche Regis Partners, Inc. - Analyst [35]

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PHP20 billion unsold?

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Unidentified Company Representative [36]

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Yes.

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Carl Sy, Deutsche Regis Partners, Inc. - Analyst [37]

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In unsold inventory?

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Frederick Go, Robinsons Land Corporation - President and CEO [38]

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Available for sale (multiple speakers).

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Carl Sy, Deutsche Regis Partners, Inc. - Analyst [39]

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And then, so this round, in the first quarter of this year, your residential margins jumped rather substantially. I think these are the highest margins I've ever seen while covering your stock. And I want to ask, first, why this is the case. And is this something we should -- that which you consider sustainable? I think your margin is almost 40% for the first quarter, for residential.

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Frederick Go, Robinsons Land Corporation - President and CEO [40]

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Yes, I'll have somebody answer the -- yes, go ahead.

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Unidentified Company Representative [41]

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Okay, sir. I'll call the operating expenses of the residential division was relatively lower this year versus last year. So that really pushed EBIT up -- pushed EBIT margin up by 39%. And then in addition to that (multiple speakers) Yes. It's really a function of operating expenses. Compared to revenues, which grew by 241%, operating expenses only grew by 39%.

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Frederick Go, Robinsons Land Corporation - President and CEO [42]

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(multiple speakers) Carl, I'll tell you, and accounting treatment changed (inaudible). Accounting treatment changed, so we recognize now, in the first quarter, a lot of revenues. But the OpEx was basically the same, so it's really a -- you can call it a one-off, Carl.

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Carl Sy, Deutsche Regis Partners, Inc. - Analyst [43]

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Sorry, I guess -- so let me clarify, as well. So I understand the residential revenue part. So it's not because, let's say, there were certain products that happened -- that you happened to recognize which were very high margin, or saw large price increases. So you're saying the EBIT margin is kind of accounting-related as well, is that right?

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Frederick Go, Robinsons Land Corporation - President and CEO [44]

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Yes. I would think so, yes. Because the gross profit margin would jump, yes.

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Carl Sy, Deutsche Regis Partners, Inc. - Analyst [45]

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Okay. And then for China, you mentioned -- sorry, you mentioned the numbers, and let's say high-90s or almost 100% sold. But what was the launch figure in, let's say, billions of pesos or RMB, of the two projects combined?

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Frederick Go, Robinsons Land Corporation - President and CEO [46]

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Anybody have that? I think we can -- getting this back to you an exact number, Carl.

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Carl Sy, Deutsche Regis Partners, Inc. - Analyst [47]

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No problem. Those are all my questions. Yes, thank you.

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Operator [48]

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Jelline Gaza, JPMorgan.

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Jelline Gaza, JPMorgan Securities - Analyst [49]

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I have three questions. First relates to the malls that were recently opened with the transition to ECQ. I'd like to get more color on the experience you've had so far, especially those that have 70% of the total space already reopened. Could you give us an idea on the traffic as a percentage of normal levels? Any shift in consumer behavior that you have observed? And any of the operational challenges that you have encountered? That is my first question. I have two more; do you want me to say it now?

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Frederick Go, Robinsons Land Corporation - President and CEO [50]

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Yes, can we just answer your --? Yes, maybe we'll answer your first question first, if we may. We are practicing a lot of social distancing practices now in the malls, so obviously the traffic is not -- it's nowhere near pre-COVID levels. And we're practicing a lot of the sanitation and check procedure at the entrance desk. Inside the malls, we have required our employees, our third parties, and our tenants' employees to be properly protected with the proper protective equipment, like face shields, face masks, gloves, as the case may be. And obviously there's a lot of sanitation we have to do periodically within the day, inside our shopping malls. So we also had to install a lot of cleaning -- automated cleaning equipment, like in our elevators or in our escalator handrails, things like that. So it's been a whole new way of operating shopping malls.

I tried to look at the data myself across all the malls that have opened, trying to find some pattern or trend. Unfortunately, I couldn't really find one. I think also it's very early days. As you know, we've only been open for a few days, so I think it will be hard to try to create a pattern or a trend at this point.

However, you can see that nonessentials are still a fraction of what they were, pre-COVID levels. And, however, there's some stores that you can see that some people are probably -- been wanting to buy something from them for a long time, so suddenly their sales would surge on the first or second day that they open. So we have to see if that will hold up. But it's really all over the place. I could not establish a pattern or a trend.

(multiple speakers) Maybe have your second question.

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Jelline Gaza, JPMorgan Securities - Analyst [51]

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Yes. Just out of curiosity, which stores have you seen such surge in demand?

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Frederick Go, Robinsons Land Corporation - President and CEO [52]

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There's some -- I saw -- in one (inaudible) I saw a sports store that was like pre-COVID level. And then in another instant, I saw an apparel store. I found it very strange. I couldn't create a pattern in the data I saw.

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Jelline Gaza, JPMorgan Securities - Analyst [53]

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And then just a follow-up, as well, on the first question. In terms of rent, I understand that it will resume once they reopen. But have you encountered several tenants that are requesting from some concessions? And if yes --

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Frederick Go, Robinsons Land Corporation - President and CEO [54]

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Sorry. We are giving concessions. Sorry, sorry. We didn't have to wait for the tenants to request for concessions. Just like how the malls did it during ECQ, the malls voluntarily gave up rent during the entire ECQ period. And by the same token, when we reopened, we didn't have to wait for the tenants to request for rental concessions. We basically granted rental concessions to them. In general, just to simplify the answer, basically half the rent is being charged to the tenants.

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Jelline Gaza, JPMorgan Securities - Analyst [55]

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Understand. Thank you for that. My second question relates to the Chengdu project, as well. Can we get an update on the expected turnover of the units for the Phase 1?

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Frederick Go, Robinsons Land Corporation - President and CEO [56]

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This year. If we ask our China team, they think they can do it by September or October. But [accounting delays] there is quite normal. But their reply to me was actually September-October.

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Jelline Gaza, JPMorgan Securities - Analyst [57]

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Understand. And then lastly on the residential revenue, understand you gave some sense or semblance of what it will -- what will the decline be. How about if we do apply the lower collection threshold for 1Q 2019, our residential revenues and EBIT, do you have the number as well?

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Frederick Go, Robinsons Land Corporation - President and CEO [58]

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I'll have to pass back to our CFO, if they have that data.

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Jelline Gaza, JPMorgan Securities - Analyst [59]

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Sure. I'll just shoot an email and follow up later. Thank you.

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Frederick Go, Robinsons Land Corporation - President and CEO [60]

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(multiple speakers) Kerwin, you have the answer to that, if you would then to answer?

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Kerwin Tan, Robinsons Land Corporation - CFO [61]

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Yes, sir. The collection revenue is lower -- in terms of collections, lower by 75% this year versus last year.

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Frederick Go, Robinsons Land Corporation - President and CEO [62]

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During ECQ, during ECQ.

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Jelline Gaza, JPMorgan Securities - Analyst [63]

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That is useful, but I was (multiple speakers) think about what the residential revenue in the P&L will (multiple speakers)

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Frederick Go, Robinsons Land Corporation - President and CEO [64]

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No, she's asking accounting.

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Jelline Gaza, JPMorgan Securities - Analyst [65]

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Had you applied (multiple speakers) in the last year?

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Frederick Go, Robinsons Land Corporation - President and CEO [66]

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Do you have that, Kerwin? I think, yes, everybody has their own way of analyzing this new accounting policy. The way we analyzed it was, I think, the easiest way to analyze it. We thought was -- we'd just compare what our performance would be without the adjustments. So what I mentioned earlier was that our revenues for the quarter are up 70%. Without the adjustment, it would be minus 11%. And for [niaf] we are up 82%, and without the adjustment would be minus 16%. But I can understand that all the analysts have their own way of looking at the numbers. So if you could all kindly -- probably shoot us an email, then we can compute it the way you want to analyze it. Separately (inaudible) after the call.

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Jelline Gaza, JPMorgan Securities - Analyst [67]

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I appreciate that. Thank you.

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Frederick Go, Robinsons Land Corporation - President and CEO [68]

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Thank you, thank you so much. May I just get back to Carl? Carl, your question on the sales number in China, for what we have been disclosing. For the condos, it's PHP8.8 billion in value, and for the townhouse it would be PHP1.5 billion in value. So, combined, that would be about 10 -- a little over PHP10 billion in sales value in Chengdu.

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Operator [69]

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(Operator Instructions). Danielo, Credit Suisse.

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Danielo Picache, Credit Suisse - Analyst [70]

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Just two questions from me. First would be on the residential business, still. In terms of the accounting treatment, right, lowering the milestone from 15% to 10% essentially increased bookable revenues, which it did in the first quarter. But moving into 2Q and for the remainder of the year, would there still technically be more revenues that will be adjusted, based on this change in accounting treatment?

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Frederick Go, Robinsons Land Corporation - President and CEO [71]

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Thank you for your question. All of the adjustments were already done in 1Q. So going forward, it will be [regularized] already at 10%.

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Danielo Picache, Credit Suisse - Analyst [72]

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Okay, got it. And then the second question would be on IID, specifically the development side of the business. If I heard it right, you already realized portions of your land sale with the Shang JV. Just want to double check if the numbers are still current. The realizable land sale is still PHP2.5 billion, is that correct?

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Unidentified Company Representative [73]

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(multiple speakers) That is correct.

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Frederick Go, Robinsons Land Corporation - President and CEO [74]

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Maybe --

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Unidentified Company Representative [75]

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That's right.

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Danielo Picache, Credit Suisse - Analyst [76]

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Okay. And then if I remember it correctly, even the revenues from the condos, which is going to be based on percentage of completion -- that will be booked in IID, right, not in the residential division?

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Frederick Go, Robinsons Land Corporation - President and CEO [77]

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It will be below the line. (multiple speakers)

We'll be booking below the line, right, Kerwin?

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Kerwin Tan, Robinsons Land Corporation - CFO [78]

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No, sir. For the condos, sir, we will book it on the residential division, because sale of condos will be part of our regular business.

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Frederick Go, Robinsons Land Corporation - President and CEO [79]

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Okay, but the land sale will be in IID, the land portion?

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Kerwin Tan, Robinsons Land Corporation - CFO [80]

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Yes, sir.

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Frederick Go, Robinsons Land Corporation - President and CEO [81]

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You have to understand, every time we sell and we collect and we complete the project, we will be booking two kinds of income. One is from the sale of condominium units, our share from the sale of condominium units. So that's part of our regular business of selling condos. And the other part is the recognition of the unrealized gain from the sale of land. So there's [balance two] treatments.

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Danielo Picache, Credit Suisse - Analyst [82]

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Okay, got it. I mean, I'm just trying to look at numbers (technical difficulty) would it include JV entities, right? So at least from a modeling point of view, I'm just trying -- how much of these condo revenues will start trickling into your resi business, or specifically those that are reported in your resi business. So I guess I'm -- the question is that sort of a breakdown, moving forward, once you start to recognize condo revenues from the JV entities.

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Frederick Go, Robinsons Land Corporation - President and CEO [83]

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That's an excellent point you just raised. Our team is on the call, so what we will do, I think, in the next quarter is we'll have a page just on our JVs, just to explain how they will be recognized. Because the covered JV partners have a different way -- as you know, they are all unique, so all of them have their own thinking process or decision-making process of how to recognize this revenue. So we'll have a page in that, and then we'll update you.

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Danielo Picache, Credit Suisse - Analyst [84]

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Got it. Appreciate that. Thanks, everyone.

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Operator [85]

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(Operator Instructions). And there are no further questions. I would like to hand the conference back to presenters today. Thank you.

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Frederick Go, Robinsons Land Corporation - President and CEO [86]

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Yes. Thank you again, everybody in the equity capital markets. Thank you again for joining us and for your untiring support, and for following Robinsons Land all these years, especially during these very challenging times. We truly appreciate your following us, and for your support and confidence. Have a great day, everyone, and stay healthy and stay safe. Thank you.

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Operator [87]

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Thank you. Ladies and gentlemen, that does conclude your conference for today. Thank you for participating. You may all disconnect now. Thank you.