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Edited Transcript of RLC.PS earnings conference call or presentation 5-Nov-19 8:00am GMT

Q3 2019 Robinsons Land Corp Earnings Call

Pasig Nov 17, 2019 (Thomson StreetEvents) -- Edited Transcript of Robinsons Land Corp earnings conference call or presentation Tuesday, November 5, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Frederick D. Go

Robinsons Land Corporation - President, CEO & Director

* Kerwin Max S. Tan

Robinsons Land Corporation - CFO

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Conference Call Participants

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* Carl Sy

Deutsche Bank AG, Research Division - Research Analyst

* Chia Jiun Yang;AGF Management Limited

* Jason T. Escartin

PAPA Securities Corporation, Research Division - Equity Investment Analyst

* Jelline E. Gaza

JP Morgan Chase & Co, Research Division - Analyst

* Kervin Laurence Sisayan

Macquarie Research - Analyst

* Wilson W. Ng

Morgan Stanley, Research Division - VP

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Presentation

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Operator [1]

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Welcome to Robinsons Land Corporation's Third Quarter Calendar Year 2019 Quarterly Call. Joining us today from Robinsons Land Corporation are Mr. Frederick Go, President; and the rest of the RLC Investor Relations team. (Operator Instructions)

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Unidentified Company Representative, [2]

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Good afternoon. Thank you for joining Robinsons Land Corporation's earnings call. Allow us to take you through our unaudited financial results for the third quarter of 2019 ending September, further discuss the performance of each of our business units and conclude by updating you on our growth plans and future strategy.

We continue to strengthen our business portfolio and expand our product offerings that are anchored in the main drivers of the Philippine economy. As of September, our malls division consisting of 52 lifestyle centers nationwide continues to capture domestic consumption and provides us with strong cash flow and recurring income year-on-year.

Our office portfolio comprising of 21 office developments continues to capitalize on the growing demand for office spaces from the IT-BPM industry and traditional companies alike. Our Residential business now spans across 76 residential condominium projects and 38 housing subdivisions, coming off of historical high levels of presales and project launches in 2018. With 20 hotel properties, our Hotels and Resorts Division is poised for growth with a booming tourism industry. Lastly, we continue to build communities within our 19 mixed-use developments.

We continue to execute on our revenue stream diversification strategy that is driven by the performance of our investment and development portfolios. Our investment portfolio generates high-quality recurring revenue stream from our malls, offices, hotels and warehousing business, which accounted for [48%] of revenues, 72% of EBITDA, 63% of EBIT and 62% of net income. The balance was from the performance of the development portfolio consisting of the 4 residential brands, the property sales arm of the Industrial and Integrated Developments Division or IID and from our China projects.

Our financial position remains solid, with total assets at PHP 176.1 billion and shareholders' equity at PHP 98.2 billion as of September 2019. Earnings per share grew to PHP 1.41 per share, which is almost the same level as the full year's EPS in 2017, owing to the increase in company's profitability. On the other hand, net debt-to-equity ratio slightly inched to 40%, arising from the availment of additional short-term loans in the third quarter on the back of higher CapEx spend.

Now let us go over to the financial highlights. RLC continues to deliver strong earnings for the first 9 months of the year, with net income accelerating by 12% to PHP 7.31 billion on the back of double-digit growth in revenues, EBITDA and EBIT. We are pleased to report that apart from the solid performance of our core Philippine businesses, we have booked in the third quarter earnings from our China projects following the completion of Phase 1. With this, revenues grew remarkably well by 40% to PHP 31.18 billion year-on-year, notwithstanding a high revenue baseline. Recall that in the same quarter last year, we booked revenues from the sale of land to Shang Robinsons Properties, Inc., amounting to PHP 2.11 billion.

In terms of revenue contribution, the Malls Division continued to take up the lion's share at 31%, followed by our China project at 20%, the Residential Division at 23%, the Office Buildings Division at 11%, the Hotels Division at 6% and IID at 1%.

In terms of revenue growth, our Malls business delivered a solid 10% increase in revenues to PHP 9.70 billion from stable growth of existing malls, contribution of new malls and cinema ticket sales. Revenues from the Office Buildings Division soared by 27% to PHP 3.55 billion owing to a combination of rental escalation and higher renewal leasing in existing offices as well as the contribution of new offices.

The Hotels business generated PHP 1.69 billion in revenue, which was 14% higher than previous year due to the strong performance of some of the existing hotels as well as the contribution of new hotels.

The Residential Division posted a 9% spike in revenues to PHP 7.10 billion, a continued recovery for 2 consecutive quarters.

Lastly, on the IID, we have sold yet again a parcel of land to our third JV company, which has sourced a partial upfront recognition of revenues amounting to PHP 217 million, plus lease revenues from the Sucat warehouse of about PHP 77 million. EBITDA increased by 11% to PHP 14.03 billion while EBIT rose by 12% to PHP 10.44 billion.

Let us turn to our business segments, starting with the Malls Division. Revenues increased by 10% to PHP 9.70 billion year-on-year, which primarily reflected the strong same-mall rental revenue growth of 7%; contribution of 4 new malls which we opened last year, namely Robinsons Place Ormoc, Robinsons Place Pavia, Robinsons Place Tuguegarao and Robinsons Place Valencia, and pickup in cinema ticket sales, which grew by 5% year-on-year. This year, we have opened 1 new mall and soft-opened 1 expansion mall, which also drove revenue growth. We shall give more color on this in the succeeding slide.

Operating expenses grew at a slightly slower pace than revenues, which resulted to EBITDA increasing by 13% to PHP 6.59 billion and EBIT by 19% to PHP 3.93 billion. To date, we have 52 malls located as far north as Ilocos in Luzon and as far south as South Cotabato in Mindanao, cementing RLC as one of the largest mall developers in the Philippines. Our mall footprint spans across 1.57 million square meters of leasable space, which is 6% higher than same period last year. System-wide occupancy rate remains healthy at 94%, and we have over 9,000 retail partners in our malls nationwide.

As mentioned earlier, we have opened 1 new mall and soft-opened 1 mall expansion. Last July, we have successfully opened our 52nd mall named Robinsons Galleria South, which is San Pedro, Laguna's first world-class full-service mall. As our third Galleria-branded mall, this mall has a premium feel with a modern and dynamic architectural design, featuring a gleaming 5-meter high work of art, titled Book Life (sic) [Book of Life], by a Miami-based Fil-Am artist. In keeping with its artsy theme, unique features include IG-worthy art pieces and murals. It is a balanced tenant mix, which includes RLC's food hall brand name, Eat Street, state-of-the-art VIP cinemas, well-curated shops carrying national and international brands and Lingkod Pinoy Center. Testament to the mall's successful opening, in just 2 months, occupancy rate posted at 91%.

On the other hand, we are also pleased to announce we have soft-opened the new wing of our Robinsons Magnolia Mall last September 20. Since opening its doors in 2012, Robinsons Magnolia has been the mall of choice for Manileños due to its wide mall offerings. The new wing is seamlessly connected to the main mall and is comfortably sized. It features new food joints, including a new Starbucks Reserve, a new food court named Public Eatery, state-of-the-art VIP cinemas and various new shopping spots. Grand opening is slated in November.

In the coming months, we target to open the first phase of the expansion of our Robinsons Starmills mall in Pampanga. And in addition, we are currently constructing 2 new malls and 2 mall expansions that will come online next year.

Next is the Office Buildings Division. Growth momentum was sustained with a 27% hike in revenues to PHP 3.55 billion year-on-year. This notable increase was mainly driven by a combination of rental escalation and higher renewal rates in existing offices as well as successful leasing activities in new buildings, namely Cyber Sigma in Taguig, Exxa and Zeta Towers in Quezon City, and Cyberscape Gamma in Pasig City.

EBITDA was up by 22% to PHP 3.02 billion, while EBIT rose by 24% to PHP 2.42 billion. As of September, we have 21 operational office developments located in key cities and other urban areas. Versus same period last year, net leasable space has grown by 20% to 533,000 square meters. Total leased space was 98% and we remain to be the dominant landlord in the Ortigas CBD and a major office space provider to the IT-BPM industry and traditional [companies] alike.

As scheduled, there were no new office completions in the first 3 quarters of the year. We are, however, gearing up for the completion of 3 new offices as follows: Cybergate Magnolia sits atop the new wing of Robinsons Magnolia mall. This will drive synergy in our Magnolia complex, enabling a steady foot fall in our Magnolia mall and a potential market for our residential projects, The Magnolia Residences. Giga Tower is a PEZA-registered prime office tower located within our Bridgetowne development in Quezon City. It is our fourth office tower in the area, and we are pleased to announce that it is already 90% pre-leased.

Lastly, we are happy to share that we aim to complete in the coming months our second build-to-suit office development in Luisita, Tarlac. It shall be home to a BPO company.

Moving on to the Hotels and Resorts Division. The division delivered strong operational results in the third quarter, effectively reversing the decline recorded in the first 2 quarters. In the first 9 months, revenues grew by 14% to PHP 1.69 billion versus same period last year on the account of the strong performance of Summit Ridge Tagaytay, Summit Magnolia and Summit Galleria Cebu, our Go Hotels branches in Palawan, Bacolod and Lanang-Davao as well as the provincial hotels we opened in 2018, mainly Summit Tacloban and Go Hotels Iligan. Out of 272 rooms of Dusit Thani Mactan Cebu Resort, 145 rooms have already been opened in the third quarter, which also contributed to revenues. In addition, just recently, we have officially opened our Summit Hotel Greenhills.

EBITDA, on the other hand, had recovered and posted a 4% increase to PHP 514 million, while depreciation from the aforementioned new hotels dragged EBIT to PHP 257 million, posting an 18% decline year-on-year. To date, we have 20 hotel properties with 3,001 rooms across all brand segments. Number of keys increased by 11% versus same period last year, and we have 5 franchise Go Hotels under our Go Hotels brand with 963 rooms. System-wide occupancy across all of our 20 hotel properties was 63%.

Last September, we have officially opened our sixth Summit Hotel conveniently nestled in San Juan City and easily accessible by business and leisure travelers in the metro, named Summit Hotel Greenhills. Apart from its elegant modern architecture and interiors, the hotel boasts of 100 well-appointed rooms equipped with premium amenities. It also features its own casual dining restaurant, Café Summit, which is also open to nonhotel guests; a fitness center; and a heated indoor pool with a scenic view of the city's skyline.

With operational efficiency and sustainability at the core geared toward improving customer experience, we have invested in a technology that allows guests to self-check in. We have also shifted away from single-use plastic water bottles and toiletries as part of our sustainability efforts.

As an update on Dusit Thani Mactan Cebu Resort, out of 55 hotels in the Mactan Island, we are pleased to share that it has been voted Top 2 in the TripAdvisor in less than a year from its opening and with more than 100 rooms yet to open, a true testament to the hotel's success.

Next is the Residential Division. Driven by the successful project launches, fueled by strong demand from local and foreign buyers, our net sales take-up posted a significant 42% increase in the first 9 months for a record high of PHP 15.99 billion, surpassing last year's recorded net presales. In the third quarter, we launched SYNC Residences located in Pasig City. This rounded up the number of projects we have launched so far to 4 condominium projects, with a total estimated sales value of about PHP 16 billion. This leaves us with unsold inventory of approximately PHP 14 billion as of September.

Realized revenues on the other hand was up by 9% to PHP 7.10 billion, which is a continued recovery for 2 consecutive quarters. EBITDA and EBIT both increased by 15% each to PHP 2.22 billion and PHP 2.17 billion, respectively. Our unrealized sales and reservations was approximately PHP 34.40 billion. For our Residential Division, we are currently recognizing revenue based on a buyers' equity threshold of 15%. In our continuous effort to make our financial statements more reflective of the actual performance, effective January 2020, we will be recognizing revenues based on a buyers' equity threshold of 10%. We are doing this because we want to close the gap between presales and revenue recognition. In the current setup, it takes approximately more than 3 years for presales to be recognized as revenues. At 10% buyers' equity threshold, it will take less than 3 years based on our analysis. And also, number two, we wanted to align ourselves in a way the industry recognizes revenue for residential sales.

The next 2 slides show the projects we launched in the third quarter. Under the Communities brand in July, we launched the first of the 4 towers of SYNC Residences. Envisioned to become an urban oasis, SYNC Residences caters to young professionals and early nesters with its closed proximity to BGC, Ortigas and Makati central business districts. It will have retail and commercial components at the ground floor, two floors for the amenities, and an exclusive outdoor lounge at the top floor. Comprising of 1-bedroom and 2-bedroom units, the first tower has an estimated sales value of PHP 2.2 billion.

We are pleased to announce that we have officially launched Aurelia Residences in partnership with Shang Properties, Inc. last September. Standing proud along the McKinley Parkway corner 5th Avenue in Bonifacio Global City, this iconic project combines elements of function and timeless design with its modern architecture, thoughtfully crafted spacious units, floor-to-ceiling windows, expansive open spaces, impressive skyline views, abundant area of resort-style amenities and facilities, and unparalleled access to all important places in the metro. Total estimated sales value is about PHP 33 billion.

We have reservations of about PHP 16 billion, but we look forward to more concrete numbers in the coming months.

Moving on to our last business unit, Industrial and Integrated Developments Division. Revenues posted at PHP 294 million, arising from the partial recognition of the revenue from the sale of land to RLC DMCI Property Ventures, Inc. or RDPVI, amounting to PHP 217 million, and lease revenues from our Sucat warehouse amounting to PHP 77 million. Recall that in the same period last year, we booked revenues from the sale of land to Shang Robinsons Properties, Inc. amounting to PHP 2.11 billion.

As disclosed in the last quarter's call, RDPVI is a 50-50 joint venture company that we formed with DMCI Property -- Project Developers, Inc. to develop, construct, manage and sell a multi-tower residential condominium project in Las Piñas City. Similar to our JV transactions with Shang Properties, Inc. and Hong Kong Land, we were able to create 2 sources of revenues: one, from the sale of land to the JV company, resulting for a land sale profit; and two, some condo sales would be recognized once project development commences.

EBITDA and EBIT posted at PHP 109 million and PHP 91 million, respectively, for the first 9 months.

Last September, we have officially unveiled our first destination estate, Bridgetowne. Kicking things off is the inauguration of a 200-meter landmark bridge that connects not just the 8-hectare property in Quezon City that we own and also our 22-hectare property in Pasig City, but as a public service, it also increases the accessibility between the 2 cities.

The sprawling estate will become home or will be home to residential developments that will cater to a wide range of property owners, BPO and Grade A office buildings, a lifestyle center and a 5-star hotel. It would also have a central park, multiple pocket parks, a school, a hospital and, of course, transport terminal. It will also feature a 60-meter art installation made from marine-grade perforated steel, titled The Victor. More than linking 2 cities, the 30-hectare asset is ambitioned to become a self-sustainable community where everything is within reach.

As an update on our other destination asset, Sierra Valley, Starbucks has already opened. Other potential developments are in the planning stage.

Next, we would like to update you on our China projects. In the third quarter, we have recorded PHP 8.84 billion in revenues, representing 100% of the residential condominium component of Phase 1. EBITDA and EBIT posted at PHP 1.57 billion, respectively. We are currency working on securing the license to sell for the remaining components of Phase 1, such as the townhouses, shopping malls, clubhouses and car parks as well as the land for sale for Phase 2. Phase 2 would also have the same components as Phase 1, and construction activities are already ongoing.

To date, we have spent approximately CNY 1.9 billion or approximately PHP 14 billion for our China projects, including land acquisition costs of CNY 1.4 billion or approximately PHP 10 billion. Our CapEx spend on Philippine operations shall be discussed in the next slide.

We have spent PHP 18.69 billion of our CapEx budget for our Philippine operations. More than 60% was spent on the investment portfolio for the construction and the development of our malls, offices, hotels and warehouse properties. The balance was spent on the development of our build-and-sell properties, new investments and land acquisitions.

On the other hand, land bank area in the Philippines now totals 795 hectares, including land under joint venture agreements, with total estimated market value of about PHP 47.4 billion. 47% of that pertains to land in Metro Manila, owing to higher property prices in CBDs and key cities.

RLC is currently finalizing ongoing negotiations on the acquisition of various properties, and we continue to scout for land bank opportunities nationwide.

Moving on to our future plans and strategies for each business unit. For the Malls Division this year, we plan to increase GLA by 4% to end 2019 at 1.57 million square meters by opening Robinsons Galleria South located in Laguna and by completing the expansion of Robinsons Magnolia as well as the first phase of Robinsons Starmills expansion. As mentioned, we have already opened Robinsons Galleria South and soft-opened Robinsons Magnolia expansion. In 2020, we plan to further increase GLA by 5% to 1.64 million square meters by opening malls in La Union and Gapan and by expanding Robinsons Place Dumaguete and Robinsons Place Antipolo.

For our Office Buildings Division, we target to complete 3 new office developments this year, which will increase NLA by 13% to 592,000 square meters. These new offices are Cybergate Magnolia, Giga Tower, and our second office development in Luisita, Tarlac. By next year, we plan to further grow NLA by 14% to 677,000 square meters, with the completion of Cybergate Galleria in Cebu; the said office development in Luisita, Tarlac; Omega in Ortigas, Pasig City; and Delta Tower 2 in Davao.

For our Hotels and Resorts Division, we have already opened Dusit Thani Mactan Cebu Resort and Summit Hotel Greenhills, which combined, increased the number of keys by 14% to 3,108 rooms. We plan to open Summet Hotel Naga next year, together with our fourth international-branded hotel, Westin Hotel; Go Hotel Naga; and Go Hotel Tuguegarao, which altogether will boost hotel room count by 18% to 3,675 rooms.

For our Residential Division, with the successful launch of 4 RLC projects in the first 9 months and the launch of Aurelia Residences under our partnership with Shang, we shall be evaluating market conditions and product readiness on possible additional project launches in the coming months.

This year for IID, we target to complete and turn over our second warehouse facility in Calamba, Laguna, and another warehouse facility within our Sierra Valley township located in Cainta, which will add more than double our warehouse facility to 77,000 square meters. For 2020, we plan to breach the 100,000 square meter mark by expanding our existing warehouses in Sucat and in Calamba, Laguna.

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) The first question we have is from the line of Carl Sy.

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

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I actually have a number of questions. I'll start with the Residential segment. Could you tell us first the sales to foreigners in the 9 months?

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Unidentified Company Representative, [3]

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Sales to foreigners is 49%.

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

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Can you repeat that?

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Unidentified Company Representative, [5]

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49% in the first 9 months.

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

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In the first 9 months. And then you also mentioned Aurelia. I'm not sure if I understand this. The reservation already added up to PHP 15 billion, 1-5, out of the PHP 30-something billion. Now let me clarify. By reservation, you mean someone paid a reservation fee, so it's the equivalent of a net sales take-up?

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Frederick D. Go, Robinsons Land Corporation - President, CEO & Director [7]

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I think what we'd like to say now is we understand -- we're not in the driver's seat for this one. We understand that reservations have reached PHP 16 billion, 1-6. I think we don't want to call it a previous level at this point because we don't have exact documentation clarity. So -- but that's what we've been told by our partners. So we expect that in the next 2 months, we will be able to get more clarity from our partners of the exact status of these reservations.

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

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Okay. With respect to the China residential segment, we'll just -- I'll call it Phase 1B and Phase 2, are you so far -- to clarify, you have -- so far have not obtained the license to sell. Is that fair?

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Frederick D. Go, Robinsons Land Corporation - President, CEO & Director [9]

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That's right. That's right.

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

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Okay. With respect to the Office Division this time, you mentioned that -- you did mention by building, right? So Giga is 90% pre-leased too, I believe this is a build-to-suit. What about Magnolia?

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Frederick D. Go, Robinsons Land Corporation - President, CEO & Director [11]

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Yes, Magnolia has been leased out.

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

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Fully leased. Okay.

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Frederick D. Go, Robinsons Land Corporation - President, CEO & Director [13]

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Yes, fully leased.

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Carl Sy, Deutsche Bank AG, Research Division - Research Analyst [14]

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And for 2020, you're going to complete 85,000 square meters. Can you tell us how much has been pre-leased?

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Frederick D. Go, Robinsons Land Corporation - President, CEO & Director [15]

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Sorry, we don't have any number for you there on the 2020 inventory.

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Carl Sy, Deutsche Bank AG, Research Division - Research Analyst [16]

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That's okay. For the Mall business this time, I noticed that in the third quarter specifically, the mall margin went up rather substantially both on a year-on-year and quarter-on-quarter basis. I want to ask if this is just a coincidence, maybe timing of expenses or if there was a very large improvement somewhere?

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Unidentified Company Representative, [17]

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Carl, it's really just the timing of the recording of the expenses. This is not expected to continue in the coming months.

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Operator [18]

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(Operator Instructions) The next question we have is from the line of Jelline Gaza.

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Jelline E. Gaza, JP Morgan Chase & Co, Research Division - Analyst [19]

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I have 2 questions. Just a follow-up on the residential sales take-up mix. May I ask how much is with the Chinese foreign buyers?

And then second, on the Aurelia Residences, what's the current going rate average selling price per square meters from date of launch and currently?

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Unidentified Company Representative, [20]

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On your first question, Jelline, about 33% of the total net sales take-up for the first 9 months was made to Chinese buyers.

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Frederick D. Go, Robinsons Land Corporation - President, CEO & Director [21]

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Okay. On your second question, for Aurelia, please note we're not counting any of the Aurelia sales in our sales take-up numbers that we're giving you, no? So that's probably going to be booked in the fourth quarter or next year already. But the going selling price right now is about PHP 500,000 per square meter [backed in].

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Jelline E. Gaza, JP Morgan Chase & Co, Research Division - Analyst [22]

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Okay. Understand. So just to follow up on that. How do you plan to incorporate the sales take-up from your joint venture projects going forward? Will you be imputing it in your sales take-up that you present quarterly?

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Kerwin Max S. Tan, Robinsons Land Corporation - CFO [23]

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No. The sales take-up is separately. How will it record, the income is below the EBIT line.

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Jelline E. Gaza, JP Morgan Chase & Co, Research Division - Analyst [24]

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Okay. So just to make sure that the sales take-up going forward will be exclusively on Robinsons Land-led projects, at least the one that you report on a quarterly basis.

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Frederick D. Go, Robinsons Land Corporation - President, CEO & Director [25]

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That is correct. We will only report the ones that are under -- purely under Robinsons Land or the ones that Robinsons Land have majority control of. Since the joint venture with Shang is on a 50-50 basis, it will be below the line.

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Jelline E. Gaza, JP Morgan Chase & Co, Research Division - Analyst [26]

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Understand. Any updates on the Hong Kong Land joint venture?

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Frederick D. Go, Robinsons Land Corporation - President, CEO & Director [27]

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Yes. The Velaris project, we intend to launch it this month.

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Jelline E. Gaza, JP Morgan Chase & Co, Research Division - Analyst [28]

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Will the positioning -- price positioning be somewhat similar to Aurelia?

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Frederick D. Go, Robinsons Land Corporation - President, CEO & Director [29]

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No, no, no. It's in -- it's not -- well, of course, Aurelia is in the heart of BGC, which is the most expensive inventory today in the country as a grouping, no? Since this will be our first project -- or our second project in the Bridgetowne East estate, it will be priced at the premium, so it will definitely be priced much higher than, say, the Cirrus project that we launched in Bridgetowne East, but definitely very far from the BGC prices.

And I hope you don't mind. I just don't want to preempt the sales launch activities, so we're trying not to disclose too much information until the launch itself, just to make sure that everything we inform you later will be accurate.

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Operator [30]

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We have the next question from the line of Jason Escartin from PAPA Securities.

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Jason T. Escartin, PAPA Securities Corporation, Research Division - Equity Investment Analyst [31]

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Just wanted to follow up on Phase 1B of China. When do you expect to obtain your license to sell and similar to Phase 2? Also, I'm aware that you don't particularly have control over the selling price there, but is there any workable range we could use as an estimate for this?

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Frederick D. Go, Robinsons Land Corporation - President, CEO & Director [32]

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Yes. Actually, your second question is directly linked to the first question. The reason why we are not taking the license to sell is because we're trying to get a better price for our units. So they're both interlinked.

Right now, I would still hope to get the sales permit before the year is over. Our target was always before the year is over. So we're still hoping to get the sales permit at a reasonable price within the next 2 months.

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Operator [33]

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(Operator Instructions) And the next question we have is from the line of Wilson Ng from Morgan Stanley.

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Wilson W. Ng, Morgan Stanley, Research Division - VP [34]

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Two questions, please. First, on China. So for the third quarter, I believe it's PHP 1.6 billion in EBITDA that was recognized. Is that a run rate that we can expect, say, in the fourth quarter and also in the coming quarters?

The second question is on the residential sales take-up. Now given the strong take-up we've seen for the Aurelia JV with Shang, when you look at Robinsons in control of residential projects, how do you see fourth quarter looking? And how do you feel about 2020 next year?

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Frederick D. Go, Robinsons Land Corporation - President, CEO & Director [35]

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Okay. I'll answer both your questions. On the first question, for China, no, you cannot assume that, that will be the run rate for the other components of the project nor for the second phase of the project.

For residential, we're very positive on the fourth quarter of this year, and we're also, likewise, very positive on next year's sales. I think our residential division is seeing a very robust performance because of all the organizational changes that we've put delays over the last recent years. And I think that also we are looking at rebranding in fact our Residential Division next year. We want to make a major push to rebrand our residential condominium projects in particular and -- because this goes alongside our efforts to really build a much larger, stronger Residential Division for RLC.

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Operator [36]

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(Operator Instructions) The next one we have is from the line of Chia Jiun Yang from AGF Asset Management.

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Chia Jiun Yang;AGF Management Limited, [37]

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I have 4 questions. First, why is there a jump in the interest expense?

Second, on your JV, why is there a need for JV developments? What value does your partner bring to the table? Can't you do it yourself?

Third question is on residential recognition. I didn't quite get what you were trying to say just now, seeing that the recognition is based on the threshold of 10% and is now changed to 15%. Can you elaborate more on that and the rationale behind the change?

And the fourth question is that can you talk more about plans for your REIT? Yes, these are the 4 questions I have.

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Kerwin Max S. Tan, Robinsons Land Corporation - CFO [38]

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Just to answer your question for number one, the jump in interest expense is due to because we already realized revenues from China. So we had to expense out the interest.

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Frederick D. Go, Robinsons Land Corporation - President, CEO & Director [39]

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Yes, the interest expense that we recognize is directly related to our investment in China. Since we borrowed money for that, we have recognized the interest expense along with the revenue of our China investment.

For your second question, why joint ventures? We have explained this to be that strategically for certain parcels of land that Robinsons Land owns, we are entering into joint ventures with very reputable developers in a way to add whenever we think it can add value. For example, like in Bridgetowne, we can develop all the residential condominiums ourselves, but it looked like a very monotonous estate if all the buildings were, shall we say, similar. It's good to have an estate or a city where there are different characters and different concepts put into the estate that makes the estate more interesting. So we think that the joint venture with Hong Kong Land, for example, in the Bridgetowne East estate brings to us that flavor of international quality as well as a different market segment. But please note that so far, we have basically, in our history, 4 joint ventures with other real estate companies, but majority -- a vast majority of all our developments, we have really developed ourselves.

To explain the equity threshold, if you are familiar with most of the real estate companies in the Philippines, most of the real estate companies here recognize revenues after buyers have completed 10% equity. Robinsons Land decided to take a more conservative stance many, many years ago, therefore, leaving us where we are today at a 15% equity before we recognize revenue.

The problem we see with this is there's a disconnect between the time we make the presales and the time we recognize the revenues. So much time passes in between that -- so that the timing of actual sales and the timing of recognizing that sales is quite distant. So we want to bridge that time. And since it is market practice among most of the largest developers here in the Philippines, we decided to be aligned with the industry standard of 10% equity.

On your fourth question about REITs, we are currently studying it, and we continue to observe what the Department of Finance and the Securities and Exchange Commission has to say about this, particularly the Bureau of Internal Revenue. There's still a few issues that we want to make sure are ironed out before we decide on whether we undertake a REIT effort or not.

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Operator [40]

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We have the next question from the line of Kervin Sisayan from Macquarie.

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Kervin Laurence Sisayan, Macquarie Research - Analyst [41]

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Congrats on the results. Just a follow-up question on the resi side. On Chengdu, I understand the EBIT contribution is PHP 1.6 billion. Can you give us a number on maybe the net income contribution of Chengdu?

And also, you mentioned Phase 2 that you hope to get the license to sell in the next 2 months. Can we expect for you to book the actual Phase 2 by next year?

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Frederick D. Go, Robinsons Land Corporation - President, CEO & Director [42]

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Okay. I'll answer your second question first. It's possible that we can book more revenue next year if we get the license to sell soon. I think -- yes, I'd just like to answer it that way.

For your first question, I'll have the finance people give you the answer.

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Kerwin Max S. Tan, Robinsons Land Corporation - CFO [43]

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For China, the net income is [PHP 950 million].

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Kervin Laurence Sisayan, Macquarie Research - Analyst [44]

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Also, on the -- just to clarify, you did mention that the unsold inventory for resi for Philippine project is PHP 16 billion, correct? Just to make sure that I have the number correct -- PHP 14 billion?

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Unidentified Company Representative, [45]

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For resi, PHP 14 billion, 1-4. Yes.

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Kervin Laurence Sisayan, Macquarie Research - Analyst [46]

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Okay. And the launches was about PHP 15 billion?

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Unidentified Company Representative, [47]

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That's correct.

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Operator [48]

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(Operator Instructions) There are no further questions at this time. I would now like to hand the conference back to today's presenters. Please continue.

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Frederick D. Go, Robinsons Land Corporation - President, CEO & Director [49]

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Okay. Thank you very much again for joining us on the third -- for our third quarter, 9-month earnings call. We hope to talk to you again, perhaps 3 months from now.

Thank you again for all your support to Robinsons Land Corporation. Have a good day.

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Operator [50]

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Ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect.