Good afternoon, everyone, thank you for joining us today. Welcome to Ayala Land's second quarter briefing. Let me begin by introducing our panel. Meean Dy, President and CEO. Toti Bengzon, CFO and Treasurer. Mike Jugo, Head of the Premium RBG or Residential Business Group. Mariana Zobel de Ayala, Group Head for Leasing and Hospitality. We are also joined today by members of our management committee, Robert Lao, Head of Strategic Growth, New Ventures and Central Land Acquisition, Darwin Salipsip, Group Head of Construction Management, Raquel Cruz, Head of the Core Residential Business Group, and Issa Sagun, Chief Human Resource Officer. We likewise acknowledge the presence of our broader management team. Please note that the press release and presentation materials are available on our investor relations website. For any questions we may not be able to address during the briefing, we will respond via email at the soonest possible time.
At this point, I would like to turn it over to our CFO, Mr. Toti Bengzon, for his presentation.
Good afternoon and welcome to our first half analyst briefing. Allow me to start with our performance highlights. Ayala Land posted a net income of PHP 14.2 billion. This is 8% higher year-on-year, anchored on the strength of our diversified portfolio. Our consolidated revenues reached PHP 83.1 billion on the back of steady property development revenues and healthy leasing operations, which were offset by lower service revenues, mainly from the completion of third-party contracts of MDC and the sale of AirSWIFT in the fourth quarter of last year. Netting out the impact of AirSWIFT's sale in the fourth quarter of 2024, revenues would be on par with last year, while net income would be up 9% year-on-year. Capital expenditures in the first half stood at PHP 40.2 billion. This went to the build-out of our property development projects, leasing and hospitality assets, and our estates.
Our balance sheet remains strong with a net gearing ratio of 0.76:1. Turning to revenues by business segment. Property development revenues was steady at PHP 52.3 billion, as strong commercial and industrial lot revenues and healthy premium segment bookings were slowed down by lower core residential revenues. Our residential revenues for the period stood at PHP 41.3 billion, 5% lower year-on-year. Meanwhile, combined revenues from the sale of estate lots and office condominiums accelerated by 34% to PHP 11 billion on lot sales at Arca South, Circuit Makati, and our new estate in Arillo, as well as some new office for sale bookings. Despite the ongoing renovation works across our malls and hotels, leasing revenues posted its highest first half revenues to date at PHP 23.2 billion. This is a 5% improvement from the previous year.
With the increasing contributions of our core and new malls, shopping center revenues grew by 5% to PHP 11.6 billion. Similarly, office leasing revenues reached PHP 5.9 billion or 5% higher than the prior period, buoyed by healthy single-digit vacancy rates across the portfolio coupled with lease escalations. Our hospitality revenues reached PHP 4.9 billion from the healthy occupancy of operating rooms despite ongoing renovations which led to our closure of about 900 rooms across our portfolio. Our emerging industrial real estate portfolio of warehouses, cold storage, and industrial land for lease contributed PHP 762 million in revenues, 60% higher year-on-year, driven by AREIT's industrial land holdings and our newly opened cold storage facilities in ALLHC.
Our service businesses, composed of construction, property management, and other ancillary services, declined by 30% to PHP 5.9 billion due to the absence of airline revenues from the sale of AirSWIFT and the completion of third-party construction contracts. Our net construction revenues declined by 20% to PHP 4.4 billion, while property management and other ancillary service revenues stood at PHP 1.5 billion. Moving on to the detailed breakdown of our income statement. Real estate revenues reached PHP 81.3 billion. This is a slight 1% decline year-on-year, notwithstanding the extensive reinvention works and lower service revenues. Interest and other income declined by 4% to PHP 1.8 billion, as higher equity earnings from associates and JVs were offset by lower collection of management fees. Our total expenses decelerated by 5% to PHP 61.7 billion, mainly on lower real estate costs. Our real estate expenses totaled PHP 47.5 billion.
This is 10% lower than last year due to the absence of operating expenses from AirSWIFT and the higher contribution of our high-margin horizontal residential lots and estate lots and increased contribution from our higher-margin leasing business. Our GAE, or general and administrative costs, were managed up only 5% year-on-year to PHP 4.8 billion. Our EBIT margin stood at 37%, a 5 percentage point improvement from the 32% last year, and well within our target range of mid-30s. This was on account of our sales mix, with more sales coming from horizontal and commercial and industrial lot products, and higher contribution from our leasing and hospitality assets. Interest expense financing and other charges reached PHP 9.5 billion. This is up 27% year-on-year. This is on account of our AR sale activities, which we front-ended this year.
We sold about PHP 10 billion of AR in the first half of this year. Last year, our AR sales happened in the second half. The AR sales, as you know, when we discount the portfolio, the interest expense is recognized upfront. The discount rate that we got on our AR sale this year is about 6%. That's cheaper than if we were to borrow from the banks or from the debt capital markets. Deducting expenses from revenues, income before tax grew by 9% to PHP 21.3 billion. This increase translated to an income tax provision of PHP 4.2 billion, 8% higher year-on-year, and this translated to an average tax rate of 19.6%. Income before non-controlling interests totaled PHP 17.2 billion, 9% more than last year.
Netting off our non-controlling interests from JVs and associates, which grew by 16% to PHP 3 billion, net income attributable to ALI equity holders grew by 8% to PHP 14.2 billion. Turning to our revenue breakdown by business segment. Steady property development revenues supported by positive leasing revenues despite accelerated reinvention works. Property development business achieved revenues of PHP 52.3 billion, steady versus last year. Breaking this down, residential revenues dipped by 5% to PHP 41.3 billion, mainly driven by higher bookings from the premium segment, which grew by 6%, but weighed down by lower bookings of the core segment, down 17%. Revenues from commercial and industrial lots accelerated by 42% to PHP 9.1 billion, driven by our lot sales in Arca South, Circuit Makati, and our new estate in Cebu, Arillo. Office-for-sale revenues grew 5% year-on-year to PHP 1.9 billion on new bookings recorded during the period.
Revenues from our leasing and hospitality business reached its highest first half mark to date, even with reinvention works. We saw revenues of PHP 23.2 billion, a 5% improvement year-on-year. Shopping center revenues increased by 5% to PHP 11.6 billion on the growing contributions from our new and stable malls and higher rents. Our office leasing revenue similarly grew by 5% to PHP 5.9 billion, buoyed by single-digit vacancies across the portfolio, coupled with lease escalation. Hospitality contributed PHP 4.9 billion in revenues. This is a slight 1% decline, despite the closure of almost 20% of the portfolio as we renovate close to 900 rooms. Industrial real estate revenues climbed by 60% to PHP 762 million, driven by ALI's industrial land and our newly opened cold storage facilities. As a note, without the reinvention works to our four flagship malls and five hospitality assets, leasing and hospitality revenues would have grown by 10% year-on-year.
Our service businesses, composed mainly of construction, property management, and ancillary services, declined by 30% to PHP 5.9 billion. MDC's net construction revenues dipped by 20% to PHP 4.4 billion as our main data center project with ePLDT has been completed. Property management revenues combined with other ancillary services revenues declined by 50% to PHP 1.5 billion due to the absence of airline revenues as we sold AirSWIFT last year. Summing up the top line, real estate revenues amounted to PHP 81.3 billion, 1% lower from last year, with interest and other income of PHP 1.8 billion, total revenues reached PHP 83.1 billion. Our margins remain stable and within our investment targets. We've communicated many times that our target GP margins for horizontal would be in the mid-40s. We're right there at 46%. Vertical GP margins, we target mid-30s. We've moved it up. It moved up to 40%.
Commercial industrial lots are relatively volatile, 60% or 61% is quite good, while our office-for-sale GP margins came in at 49%. EBITDA margins similarly for our leasing assets. Leasing and hospitality assets are within our guidelines. Shopping centers at 62%, office at 90%. Hotels and resorts slightly lower this year because of the lower available rooms coupled with our renovation works. Dry warehouse came in at 75% and cold storage at 27%. This is lower than our targets, mainly due to the stabilization on our newly opened facilities. Service margins at 7% is within our investment guidelines. Allow me now to discuss the operating performance of our businesses, starting with property development. Total property development sales reservations reached PHP 73.7 billion. This is 3% lower year-on-year, led by the take-up for commercial and industrial lots, which rose by 7% to PHP 8 billion.
Our premium residential sales was steady at PHP 40.6 billion, despite uncertainties on tariffs and the geopolitical tensions in the second quarter. This cushioned our slightly lower core residential sales. We'd like to note that take-up for the period is up 4% quarter-on-quarter to PHP 37.5 billion. This translated to a 4% increase in our average year-to-date monthly gross take-up of PHP 12.3 billion versus our full-year monthly take-up average in 2024 of PHP 11.8 billion. Moving on to the performance of our residential brands. Total residential sales reached PHP 65.7 billion, 4% lower year-on-year, there was a notable sequential quarter-on-quarter improvement of 10%, driven by the strong performance of the core segment. In the second quarter alone, our core segment generated sales of PHP 14.6 billion, up 11% year-on-year and 39% higher than the first quarter of 2025.
By product type, demand for vertical projects improved versus the first quarter, now only 1% lower than 2024, while horizontal sales declined by 8% to PHP 24 billion. In as much as there were no new launches in our Southern Luzon area in the first half. Moreover, demand for our developments in Metro Manila turned positive to PHP 35.3 billion. Sales during the quarter were led by projects Ayala Land Premier's Lorian in Makati. We sold PHP 6.1 billion of the PHP 27 billion launch value. Virendo in Toril, Davao, PHP 2.2 billion, and Avida Towers Ardane in South Park, Alabang, PHP 1.7 billion. We launched a total of five projects worth PHP 40.5 billion during the period, this was primarily driven by PHP 27 billion from the premium segment with our Lorian launch last June.
Our portfolio buyer profile, similar from the previous quarters, 73% of sales were from local Filipinos amounting to PHP 47.7 billion, 3% lower year-on-year. We do see growth from the premium segment buyers. Our sales to overseas Filipinos comprised 15% of the total, a decline of 6% to PHP 10.7 billion, while sales to foreign passport holders ended 8% lower year-on-year, mainly due to the decline in our sales to Chinese buyers. Our continuing decline in sales to Chinese buyers. Moving on to the operating statistics of our leasing and hospitality business group. Higher occupancy and stable occupancy drove our healthy leasing revenues. For malls, we added a total of 13,000 sq m in the second quarter with the opening of one of the phases in our Vermosa Cavite Mall.
Lease out rate is stable at 90%. The pipeline remains at close to 700,000 sq m of GLA under planning or construction to open within the next five years. This year, we expect to open a little under 80,000 sq m of malls GLA. For offices, total GLA is at 1.4 million square meters. We expect to open another 50,000 sq m within the year. The average lease out rate stands at 91%, significantly better than the industry occupancy rate of 80%. For hospitality, total of 4,255 rooms across our hotels and resorts. Average occupancy for all hotels was 67%, 3% better than last year. While for resorts, it was 48%, 44% lower year-on-year. It's good to note that average hotel room rates and resorts were up 9% and 50%, respectively.
As a result, our total RevPAR for hotels improved by 14% to PHP 6,200, while the RevPAR for resorts also increased by 31%. The total number of hotel and resort rooms in the pipeline stand at a bit over 4,000 rooms. For our industrial portfolio, our dry warehouse GLA of close to 380,000 sq m. We opened 47,000 sq m in this first half, while for cold storage, it is now at 31,500 sq m of GLA. We did open 16,000 sq m in this first half of the year.
While our top line reflects a slight decline versus last year, this is primarily due to the sale of AirSWIFT in the fourth quarter of 2024. Excluding this, our revenues would have been flat year-on-year and net income after tax would have grown by 9% year-on-year. Given the persistent headwinds in the Philippine property development sector, these results speak to the strength of our portfolio and the resilience of our underlying businesses. Let me walk you through the key drivers of our performance. Although residential revenues fell 5% year-on-year, we are encouraged by two consecutive quarters of sales take-up growth, pointing to a gradual recovery and ensuring sustainability of longer-term earnings. Average monthly take-up in the first half of the year reached PHP 10.9 billion, up 3% from full year 2024 and 12% higher than the second half of 2024.
Our core segment showed a strong recovery with PHP 14.6 billion in the second quarter sales take-up, a 39% increase over the previous quarter, and sales to overseas Filipinos rose 23% from the first quarter, reflecting the early benefits of our new international sales offices and tactical sales deployments in new locations. We continue to actively manage our inventory, especially in the core segment, ensuring competitiveness through pricing and payment term flexibility. Overall inventory stood at 23 months as of June, impacted by the back-ended soft launch or private selling of our high-value Lorian Residences. Excluding Lorian, inventory would have been 21 months or one month better than in the first quarter. Core segment is down to 17 months, already on par with pre-pandemic levels and below industry average. We are pleased with our progress in this segment and we have gotten to where we want it to be.
Only 9% of inventory is RFO, down from 12% in quarter one. Cancellations remain stable and at manageable levels, 8% of our revenue unchanged quarter-on-quarter. Combined with improving sales indicators and continued completion of our projects, we expect stronger bookings and revenue recognition in the coming periods. We launched PHP 40 billion worth of projects in the first half of 2025, practically entirely in the premium segment and 20% higher year-on-year. This is already half of our full year PHP 80 billion target. We anticipate a more diversified launch mix in the second half, 2/3 premium, 1/3 core, 2/3 horizontal, 1/3 vertical. Major launches will include a new Avida high-rise in Katipunan, Quezon City, our first non-sequel launch in Metro Manila for Avida since the pandemic. Upscale Alveo condominiums in Alabang and in Arca South.
The formal unveiling of Lorian in October, our next generation premium offering in Makati CBD. This is a 70-story development, a green certified building brought to life by a trio of acclaimed international designers, HB Design for architecture, Joyce Wang for interiors and Tectonix for landscaping. It will feature over half a hectare of resort-like amenities, including multiple pools, dedicated social wellness floors, wine tasting room and private dining, a wellness floor with spa treatment rooms, gym, yoga, Pilates studios. To underscore the elevated living experience in Lorian, the property will be managed by Ayala Land Hospitality. And with a PHP 28 billion value and 388 units, it recorded strong market response in June at nearly 25% of total project value sold at private selling. For our horizontal projects, we look forward to Ayala Land Premier's first residential offering at Broadfield in Laguna, further cementing our presence in Southern Luzon.
We are preparing to launch sequel phases of our horizontal projects at Aéra Heights and Vermosa in Cavite and core offerings in Nuvali, Laguna as well as in Cavite. We will continue to leverage on the strength of our emerging and established estates in the area with holistic and enriching living experiences. Our leasing and hospitality businesses delivered 5% revenue growth. That is despite ongoing renovation works affecting 20% of our malls and 20% of our hotel portfolio. Excluding this, revenues would have grown 10%. Four of our flagship malls undergoing transformation are now 60% complete, and we are on track to open Trinoma and Ayala Center Cebu by the second half of this year and Glorietta and Greenbelt 2 slated for completion in the first half of 2026.
We continue to enhance our tenant mix with global and lifestyle brands such as Alo Yoga in Greenbelt, Anko in Alabang and Trinoma, VIVAIA and JD Sports in Glorietta. We also opened new GLA, 13,000 square meters in Vermosa and another 65,000 sq m across Park Triangle in BGC, Evo City and Arca South later this year. Seda Hotels in BGC, Abreeza, Centrio, and the new Lagen in El Nido will reopen this quarter three after undergoing renovations. Holiday Inn & Suites Makati is set for completion in quarter four. We also recently acquired five-star New World Makati Hotel, adding nearly 600 rooms and further diversifying our hospitality portfolio in the CBD. This property will maintain uninterrupted operations throughout the transition and will be income accretive as early as the second half. We are excited to announce our first partnership with Marriott International to bring Moxy to Circuit Makati.
Moxy is a fresh, energetic hotel brand targeting younger travelers. The 260-room property, it is actually already up, but it will open as Moxy in 2026, and it aligns with Circuit's vision as a vibrant, arts-led cultural and lifestyle hub. Anchored by our 1,500-seat Samsung Performing Arts Theater and the upcoming Contemporary Arts Museum and Gallery, as well as the Artists in Residence program, Moxy is the perfect addition to Makati's Art and Culture District. These efforts support our five-year goal of doubling our room count and elevating our hospitality offerings. We head into the second half of the year with improving momentum and greater confidence in our direction. Our fundamentals remain strong. Our sales indicators continue to strengthen. Inventory levels, particularly in the core segment, are where we want them to be. We will also be launching a diverse slate of new projects to refresh our offerings.
In our leasing business, the reinvention of two of our four flagship malls, along with the reopening of four hospitality assets, will be completed in the coming months. We will open 115,000 sq m of additional GLA across our malls and offices, and we'll add close to 600 rooms of New World to our hotel portfolio. This will further enhance our recurring income streams. We remain focused on disciplined execution while delivering transformative growth for our customers, our partners, and our shareholders. We are making impactful, value-creating changes in the business at the fastest time possible while continuing to register year-term growth. Thank you. We're open to questions.
Thank you, Meean. We'll now begin our Q&A session. For our virtual attendees, please submit your questions using the chat box on your screen. Kindly include your name and organization so we can recognize you. Alternatively, you may use the raise hand function. We will unmute your line when it's your turn. Meanwhile, for our in-person attendees, please raise your hand if you have a question, and we'll call on you. Thank you. Carl?
Good afternoon. I'm Carl Sy of Regis Partners. I'd like to ask about the 2Q performance of core reservation sales. It looks like there was a good pickup in the second quarter. I'd like to ask for some more detail. Was it because of new launches? Was it ready for occupancy versus some older projects? Metro Manila versus provincial? Related to that, I'd like to ask, because it improved so much in the second quarter, do you feel like something has changed within the industry, and has your view changed on the core segment?
I'll start with the answer. I'll transfer it on to Raquel Cruz, who heads the core residential. We didn't really have any new launches for the core in the first quarter. This was really focused selling on existing inventory. I think the team was really just focused particularly on inventory that was near RFO. RFO or near RFO. Let me transfer this to Raquel for more insights.
Hello. Okay. Actually, we felt that the market was ready. The market has always been there, but it's really right pricing the units, still offering the pay terms. We gave discounts for some of the projects but made sure that we maintained our margins. We gave as much as 30% discount, but this required actually a 10% down payment. We really went for the quality sales so that we can all sustain the business. I think by doing that, we were able to get firm traction on the customers and how we're going to move forward. This also gives us confidence in launching our products. I think in the second half, we'll be launching three projects in Nuvali and also in Cresendo in Tarlac. The Katipunan, which is again, as Meean mentioned, the first high-rise launch of Avida since the pandemic.
I think this is welcome based on the initial feedback that we're getting. This is actually a welcome project for the core market.
Just to clarify, let's say the 30% discounts, is that significantly for Metro Manila projects, or is that true for provincial as well?
Actually, it was really more for the Metro Manila projects because that's where we saw our RFO and near RFO inventory.
Got it. To clarify, most of the pickup in sales is really Metro Manila near RFO or RFO apartment?
Yes. There was also a lot of pickup on the horizontal, particularly in the estate developments, which we felt the market really appreciated and were willing to pay a little bit of a premium to be able to house themselves and live in that environment.
Would you say for you, does it seem like it's actually easier to sell ready for occupancy than something that's newly launched? Meaning there are people who want to move in quickly, right?
I think for the market, it's also very important, and I think it mattered to them that these units were already ready for occupancy. They were able to move in, especially if they are going to rent or invest. They will be able to already utilize the units. For the horizontal, it's also the same. There were some that were ready for move-in that I think the market also appreciated that they can easily and already enjoy the products that they're going to buy.
I understand. Do you require a 10% down payment for all of these?
For the ones that we gave the discounts, especially for the RFO, near RFO, again, we required the 10% spot payment. Since last year, really aiming for the quality sales. We increased our reservation fees so that we are sure that we're actually capturing the right market so that we are also actually being careful about the cancellations of the [FOBO] which the core market or the core segment had actually experienced in the past few years.
Got it. Thank you.
Thank you.
Thanks, Carl. Any other questions from the floor? Go ahead, Jelline.
Hi, good afternoon. Jelline Gaza from JP Morgan. Just as a quick follow-up on the core discussion. Would you consider that this demand is somewhat a pent-up demand, given that for the first time the buyers are getting offered this 30% discount and for some of your competitors up to 50% discount? How are you seeing the market so far? We're almost a month or so after 3Q. Do you think that this persistent sequential growth in core could be sustained?
The way we see it, even in July, the July sales have really been very promising and strong. We hope that that will continue. As to the market, we felt that they have always been there, except that they were really waiting for the right price, maybe the right pay terms in the right locations. I think those three things is where the core projects were very strong at. The minute that we had right price our units and made ourselves very competitive, they knew that they had the right product to buy.
Thank you for-
I think going forward, our challenge is really to make sure we have very strongly located and very well-positioned projects because from here on our launches will obviously be on a pre-sale basis. This will not be RFOs. For example, Katipunan we believe is a very strong product because of the location. We haven't really been there and actually once we launch you'll see that it's a different level of Avida also. We're also upgrading the product that we will bring to the customer to make sure that it's really differentiated from what is available from competition.
Thank you. On the premium segment, we noticed that it's been the good or the relatively strong segment for quite a while. In the second quarter it showed some weakness, even if Lorian was there to help augment the sales. How should we think about your competitors also going into the ultra-luxury segment? How's the current traction with regards to your high-level projects like Park Villas and Parks Place? If you have any updates on that would be appreciated.
Thank you, Jelline. I think on the first question, our view is that premium market continues to be resilient with some areas that are still very strong, horizontal in the south and certain projects. I think we also have to understand even a strong and resilient market can be affected temporarily by external pressures, right? This is actually the context in which we launched Lorian. We launched it in June where if you were just to do a quick search, there was a lot of geopolitical tensions for that particular month. Despite that, we generated sales of more than PHP 6 billion. One thing that I try to do every time we have these launches together with the head of sales of Ayala Land, we try to have conversations with our clients. By far it's really been quite consistent.
They remain to be bullish about the real estate products as a real asset class to beat inflation, et cetera. Every time these external pressures happen, temporary ones, they do move into a wait-and-see type attitude. You should see this in the quarter three, a month after that launch from PHP 6.1 billion, we're actually closer to PHP 7 billion in Lorian. When we looked at really the accounts, these are really people who when we had conversations with them in June during the soft launch, they were sort of maybe not yet. They basically made the call in July to reserve. For Park Villas, closed an additional unit, so we're now at 19 units, so it's 42%. We continue to have workables in the pipeline.
I guess we can imagine deciding on a PHP 600 million investment, it takes a lot of time for people to decide. Regarding other players entering the market, I think it really is a validation of the strategy our CEO set almost three years ago to focus on this market. It's a good sign, but we also believe that there are four things that make us different. Number one is the strength of our brand. Number two, we have not just the largest, but the most diverse land bank and in very strong locations and estates. We do have, I guess it's okay to say this, the most experienced and largest sales team, which matters a lot in this kind of highly competitive environment. Finally, I think it's good that the market is able to see product improvements across the different developers.
I think there's also a difference between selling and delivering. We believe that the track record we've built over the years will give confidence to our buyers. Thank you.
Thank you, Sir Mike. Lastly from me, it's a recurring question from clients. Could you explain how do you keep the margins intact despite the discounting that's needed to stimulate demand, especially for the core market? Thank you.
For the core market, most of the discounts were given to projects that were already, how do I call it? Been in inventory for a while. The prices have already escalated over the years. That's why the margins are still intact despite the discounting, because some of this, we might have launched it maybe five years ago or seven years ago, if they're near RFO.
Thank you.
Hi, can I ask a question? Just some housekeeping question from me. The booking of C&I lots, how long will it take to be seen in terms of percentage completion? I imagine it's slower. No, it's actually faster to book. Can you have a ballpark years that would it take to book those things since it's an important part of your business now?
Depending on the project, it could be as short as one year if it's already done, to maybe three years maximum.
Okay. Thank you for that, Meean. My other question is, just to clarify, the PHP 40.5 billion launched for the first half already includes Lorian, which is PHP 28 billion. Okay. Yeah. Thank you.
Thanks, RJ. Any other questions from the floor? Go ahead, Miguel.
Okay, good afternoon. Miguel Agarao, Philequity Management. For my entire career, Ayala has been unchallenged on the premium segment, and that's why I think everyone's going there because that's where the money's being made. However, my question would revolve around the type of buyer which is being targeted not just by Ayala but by the others. The impression I get, because you were the first to report, is that a lot of the premium segment targeting is towards end user. Has the buyer who buys for investment, the one who is more sensitive to that interest spread between borrowing and lease rate, they were the ones that vanished for many years. From what you see, has this subset of buyers returned, and are they going to you?
Thank you, Miguel, for the question. First of all, you make it sound like my job has been very easy over the years.
I know it's hard.
By saying we've never been challenged. It's a very good question. It's a fair question. I think one way to answer that is we try our very best to sell to end users as primarily because building communities is about making sure long-lasting relationships, people build houses, people move into condos. There is always that market, especially as affluent families grow. You do also have that investor market, but I don't think we can sort of just classify and put them into certain buckets. It's quite diverse in terms of their own risk appetite, the returns that they expect. What we have seen continuously even now, and that's why we laid out the property development business that way, is investors when they look at investment, they look at a portfolio.
It's not just residential products, whether it's lots or condos that they will hold or they will lease, but they would now look at commercial property, offices for sale. There is that aspect. Condo buyers, Miguel, tend to look at still yield because there is a carrying cost to condos. Generally anyone that would invest in a lot for as long as they can see capital appreciation growth over X period, the decision to invest is quite quick.
Maybe just to add to that, I always look at my buyers as investors, but maybe they're looking for different things. The core is more sensitive to the yield because there's a higher propensity that they borrowed. The premium, they're more relaxed about the yield, but they don't want to see that capital appreciation. I think these are both investors. They're just looking for slightly different things. Maybe what got a little bit gun-shy when interest rates went up are those that are very yield sensitive, because then the yield is lower than the mortgage that they need to pay. I think that's probably the one that will come back to the market when the interest rates start to come down and normalize. Even premium buyers, I think they're also investors. They just look at it from a different lens.
Thank you.
Apologies, we're just encountering some technical difficulties. I think we lost our audio connection to our online participants. We'll just reconnect, and then we can resume.
Yeah. Hi, this is Raffy from Maybank Securities.
Sorry, Raf. We'll just reconnect everyone.
Okay.
We'll resume. Sorry. Yeah, that way. It's okay now. Yeah. The entire briefing is being recorded, and we'll be sharing it after the call, but I think we're back online now. Go ahead, Raf.
Yeah. I just wanted to, I guess, get more color on how demand has been, I guess, again, on the core segment, with regards to the movement of how policy rates have gone from as high as 6.25% to, I think right now it's 5.25%. Have you been seeing on the ground that mortgage rates have been trickling down as well, close to that? I think that's my first question. Yes.
Not as much, no.
Okay.
The decline has not been as much.
Yeah.
I think five years fixed is still at 7%. 6.5% . It's still at 6.5% .
Okay. When do you expect there to be at least some semblance of it going down? Is it a quarter still or?
Your guess is as good as mine. I'm going to guess. Probably if the BSP cuts twice, maybe another 50 basis points, you'll probably see a corresponding reduction in mortgage rates. We track the five-year fixing because that's where the bulk of the buyers who need mortgages flock to. Right now we're looking at 6.5%. Hopefully, if it gets to 6%, you'll start seeing more interest. Definitely if you break 6%, that's really going to be good news for the core market.
Okay. In relation to the demand side for the consumers, are they also quite sensitive to the mortgage rates, or is it really more a matter of the sentiment of how the market's been going? There's been a lot of news that there's been a bottoming out of some sort, which signals positivity for property in general.
Both. The interest rates coming down will help those who are about to get to their lump sum. Because those are the ones who will now have to get a mortgage, right? If the mortgage rate is so high, there'll be a higher propensity for them to just cancel, and obviously nobody wants that. Bringing the reduction in the mortgage rates will be affecting the ones who will be getting a lump sum now or soon. Obviously, the sentiment is a different story, and that's going to affect the ones who are just about to embark on the journey of acquisition, but who will probably not need the lump sum until several years from now.
Okay. I think my last question is in terms of the repeat buyers as your profile. Can you give an estimate as to how much of your buyers are repeat buyers?
It's around 40%. 40% for repeat buyers.
Okay. Thank you.
Thank you. Go ahead, please.
Good afternoon, everyone. I'm Paul from BPI Securities. I have two questions about the residential segment. First, on your core inventory, you mentioned earlier that you have 17 months worth of core inventory. Could you provide us with the profile of your core inventory, like its locations and the brands?
Can we get back to you because I have to study it.
No worries. Thank you. My next question will be about overall cancellation. You've mentioned here that the overall cancellation is at 8%. Could you also provide color or profile about these cancellations? What types of buyers usually cancel?
There's no common profile. The general reasons for canceling are typically it would be when the lump sum is due and they cannot go to a bank or pay for it. Others, it's simple as unfortunately, losing a job or health reasons. Really, the profile is quite diverse. Thank you.
Thank you.
Just to answer your question on the inventory for core, 60% horizontal, 40% vertical. I'll get back to you on the split by geography.
About 50% is in Metro Manila, less than 10% is in Visayas Mindanao. The balance is Luzon.
The cancellations still happen mostly in the core, if that adds insight, because that's where the lump sum is the largest. They're the highest propensity to cancel.
I don't think we have any questions online, but do we have any more questions here? Go ahead, Jelline. Oh, sorry.
Okay. Thank you. Just, Mariana, about the malls business. Can you give us an update, please, on how the renovations have resulted in terms of effective rental rate?
Yeah. We have about 55,000 sq m of GLA that were, I guess, deemed for replacement within last year and this year. We have 16,000 sq m of that already operational. It's showing nearly a 4x increase in sales and a 2x increase in rent. We have another 22,000 sq m expected to open by the second half of the year. I think we've committed to the market that these merchant replacements will result in a 15%-20% uplift. Initial results show that it's been greater than that.
Thank you.
Thank you. Go ahead, Liam. Okay. RJ, did you have any other questions?
Thank you. My first question is actually related to that. In terms of productivity, I think you answered, Mariana, on the 15%-20% uplift. I was just curious about the answer earlier about the core business and the discounts that you've given. It might be quite clear that once prices are lowered, then you have more buyers, right? I understand that you cannot do that for the whole portfolio of inventory. Now currently you have 9% as RFO. In terms of the completion of the next couple of years, what's the RFO blended years would look like? In the next two or three years, would the bulk be there or will it take six years to see RFOs explode to somewhere PHP 100 billion?
I think because we didn't have any launches over the last few years, I think what we're seeing now are really more of the completions. Over the next two to three years, we see completed. There's going to be a lag time, I think, of another two to three years in terms of the RFOs coming back. I think to our CEO's point, that's where it's very important that for the core market, we are able to really leverage off the pre-selling of our current projects, especially those that we will launch. What are we doing about that? Our CEO mentioned we're trying to improve the façade, we're trying to improve the amenities also, upgrade them. We're also looking at providing move-in ready once it's completed. We furnish the unit already, but it's only on certain floors.
We're trying to test that market as well, and hopefully the investors will also come back because they're going to go back to move-in ready units.
Thank you.
Any final questions? Okay, we have one on the line. This is from Nicky Franco of Abacus Securities. Number one, regarding Makati City's rezoning plan, when will it become effective and how will this impact Ayala Land? If the FARs are increased, does this mean the plot owners who sold their air rights in the past, even the distant past, will have additional rights to sell? Regarding Makati City's rezoning plan, when will it become effective and how will this impact Ayala Land? If the FARs are increased, does this mean the plot owners who sold their air rights in the past will have additional rights to sell?
The zoning was already approved. I think it was May 15th. Effectively, all the lots are now mixed use, and then they can go as high as FAR 16.
As to that specific question on whether you can get additional FAR if you've sold in the past, we'll have to check on that. We can get back to them.
Okay.
How will it affect Ayala Land? I think it was really meant, the genesis of this change is because we wanted to encourage redevelopment in Makati, which would be beneficial to everyone who's in Makati. We think that's beneficial to us as well.
Thank you, Meean. Number two, as indicated in the presentation, cost of debt is 5.5%, if I see it right, the highest since 2011. What is the outlook for financing costs in the second half of 2025 and in 2026?
We're looking at ending the year with an average cost of debt of 5.6%.
Final question. Leechiu says that they were surprised at the strength of office leasing in the first half of 2025. Can you give us insights into this sector?
Yeah. I think you saw that we've grown about 5% year-on-year. I think what's really interesting is we mentioned in the first half that we have about 9% of our GLA up for renewal this year. We've actually already secured 70% of that. We have another 20% that are in discussion. I think it speaks more to the strength of our particular portfolio, the locations that we're in.
Okay. If there are no more questions, that concludes our briefing on Ayala Land's performance for the second quarter of 2025. Should you have any further questions, please feel free to reach out to us and we'll get back to you as soon as possible. Again, apologies for the technical difficulties. A recording of this briefing will also be available on our website. Thank you, everyone.