Good afternoon, everyone. Welcome to Ayala Land's briefing on the results for the first nine months of 2023. I'm Mike Garcia, head of Investor Relations. I'll be your host this afternoon. Joining us on the line are 69 participants, and we'd like to remind everyone that copies of the press release and the presentation are available on our website, ir.ayalaland.com.ph. Likewise, a copy of the recording will be available on the website this afternoon after the briefing. Let me start by recognizing our panel composed by our President and CEO, Ms. Meean Dy. Our Chief Finance Officer and Treasurer, Mr. Toti Bengzon.
Allow me to recognize the presence of the other members of our management committee, Mr. Robert Lao, head of the SH Group. Mr. Dante Abando, President and CEO of Makati Development Corporation. Mr. Laurent Lamasuta, President and CEO of APMC. Miss Mariana Zobel de Ayala, head of the Leasing Hospitality Group. Mr. Mike Jugo, head of the Premium Residential Business Group and President and CEO of Ayala Land Premier and Alveo. Mr. Cal Cruz, head of the Core Residential Business Group and President and CEO of Avida, Amaia, and BellaVita. Last but not least, Miss Isabel Sagun, Chief Human Resources Officer. We'll start off with the financial and operating results presentation by the CFO. Afterwards, we'll hear a few key messages from our CEO, and then we can proceed to the Q&A. To start off, let me turn over the floor to Toti. Thank you.
Thank you, Mike. Good afternoon, everyone, and welcome to our Q3 analyst briefing. Allow me to take you through our financials and operating metrics. First and foremost, the highlights for the first nine months of the year. We maintained a strong growth trend driven by the continuing resilience of the residential market and the vibrant consumer activity despite ongoing macroeconomic headwinds. Total revenues came in at PHP 98.9 billion. This is 15% higher year-on-year, while our net income came in at PHP 18.4 billion. This is 38% year-on-year. Our CapEx for our various residential and commercial projects totaled PHP 57.6 billion, while we sustained a net gearing ratio of 0.75:1, with the support coming from our higher operating cash flows, coupled with prudent management of our debt funding requirements.
Turning to our segment revenues, our property development segment grew by 4% to PHP 57.2 billion, owing to higher residential completion, stable bookings, and office unit sales. Residential revenues grew by 4% to PHP 47.5 billion, while reservation sales increased by 11% year-on-year to PHP 85.9 billion. Commercial leasing segment continues to show strong recovery. Revenues were 32% higher year-on-year to PHP 30.8 billion due to improving occupancy and rents. Shopping center revenues were 40% higher from a year ago, PHP 15.7 billion on account of higher occupancy and rents due to healthy operations. Offices grew by 7% to PHP 8.8 billion due to stable occupancy and higher rents from our solid BPO and corporate tenant base.
Meanwhile, hotel and resort revenues significantly jumped by 62% from last year to PHP 6.3 billion due to higher domestic business travel and local tourist activity, which pushed up occupancy and room rates. Moving on to our income statement. Real estate revenues reached PHP 96.3 billion, a 14% increase from last year, fueled by steady residential bookings and vibrant commercial activity. Interest and other income reached PHP 2.6 billion. This is 25% higher than the previous period. This growth was attributable to higher equity earnings from unconsolidated associates and joint venture companies, income from interest, investments, and other sources. Our equity net earnings from associates and JVs surged by 54% to PHP 1.4 billion, driven by our joint ventures with the Kuok Group in our Ciela subdivision, the FBTC companies, and Ortigas Land. Interest and investment income amounted to PHP 302 million.
This is 24% more than last year due to higher yields from short-term investments and cash deposits. Other income generated coming from marketing and management fees from our JVs amounted to PHP 935 million. This is 2% lower than last year, owing to our Circuit Makati's Samsung Performing Arts Theater's fewer event bookings and sponsorships during the period. Meanwhile, we managed to contain expenses to PHP 72.8 billion. This is a 10% growth year-over-year. Real estate expenses reached PHP 56.5 billion, up 9%, while general and administrative costs increased by 22% to PHP 6.2 billion. Consequently, the GAE ratio settled at 6.3%. Our EBIT margin improved to 36.4%, above our 33% historical average, while interest expense financing and other charges totaled PHP 10 billion. This is 12% more than last year. This reflects higher interest rates on our borrowings, as well as the higher average daily loan balance.
Deducting expenses from revenues, income before tax grew by 29% to PHP 26.1 billion. This increase translated to an income tax provision of PHP 5.1 billion. This is 29% higher year-over-year. As a result, income before non-controlling interests totaled PHP 20.9 billion, 28% more than last year. Netting off non-controlling interests, which declined by 14% to PHP 2.5 billion, net income attributable to ALI equity holders grew by 38% to PHP 18.4 billion. Steady residential bookings and vibrant commercial activity fueled higher revenues. Property development revenues reached PHP 57.2 billion. This is 4% higher, driven by higher residential and office for sale completions and stable bookings. Residential revenues reached PHP 47.5 billion, 4% higher, while office for sale revenues registered a 31% growth from last year to PHP 2.8 billion. Meanwhile, revenues from commercial and industrial lots totaled PHP 6.9 billion, 8% lower than last year.
In commercial leasing, revenues were 32% higher year-over-year to PHP 30.8 billion due to improving occupancy and rents. Shopping center revenues reached PHP 15.7 billion. This is 40% better than a year ago. Offices grew 7% to PHP 8.8 billion, primarily on account of the stable occupancy and higher rents from our solid BPO and corporate tenant base, while hotel and resort revenues significantly jumped by 62% to PHP 6.3 billion due to higher domestic business travel and local tourist activity, which pushed up occupancy and room rates. Moving on to our services sector, composed primarily of Makati Development Corporation, APMC, and AirSWIFT. Total revenues amounted to PHP 8.3 billion, 46% higher than the previous period. MDC posted net construction revenues of PHP 4.3 billion. This is 60% higher than last year due to the contribution from our increasing external projects.
APMC-AirSWIFT, as well as our retail electricity supply companies' combined revenues grew by 34% to PHP 3.9 billion due to stable property management fees and higher AirSWIFT patronage. Summing up our top line, real estate revenues of PHP 96.3 billion. This is a 14% growth from last year, coupled with interest and other income of PHP 2.6 billion. Total revenues grew by 15% to PHP 98.9 billion. Turning over to the operating metrics of our business lines, starting with property development. Residential demand remained resilient despite the prevailing high interest rate environment. Our residential sales in the first nine months increased by 11% year-over-year to PHP 85.9 billion. We recorded Q3 sales of PHP 27.6 billion, adding to the PHP 58.3 billion sales we generated in the H1 . Our sales performance for the period translated to average monthly sales reservations of PHP 9.5 billion.
63% of the sales take-up came from vertical projects, while 37% came from horizontal developments. Our in-demand projects, to cite a few, were Alveo's Park East Place in BGC, Ayala Land Premier's Ciela in Carmona, Cavite, Arcilo in Nuvali, Laguna, and the Parklinks South Tower in Quezon City. Excuse me. On the other hand, had the Avida Towers Makati Southpoint. On our buyer profile, 66% were attributable sales to local Filipinos, 12% higher than last year. Sales to overseas Filipinos were up 9%, while sales to other nationalities grew by 11%. On other nationalities, 57% of the sales were to Americans, 3% higher year-over-year, while sales to Chinese buyers comprised only 1% of our total sales. 21% of our sales reservations, or PHP 18 billion, originated from our digital selling channels.
We launched five projects in the Q3 with a combined value of PHP 4.3 billion, namely Ayala Land Premier's Ayala Greenfield Estates, Park Terraces Tranche 2, Andacillo Tranche 5, and Lanewood Hills Batch 3, Avida's first mid-rise condominium offering in Nuvali, Solara Park Storeys, and Amaia Scapes Cabuyao, Sector 4. These developments bring Ayala Land's total launch to 11 projects valued at PHP 36.3 billion in the first nine months of the year, 71% of which were vertical projects and 29% horizontal. With 64% of these located in Metro Manila and the balance of 36% in Southern Luzon. The latest take-up rate of our Park East Place is 40%. We launched our Southmont Estate in Silang, Cavite last September. This is Ayala Land's fifth largest estate following Nuvali, Alviera, Sicogon, and the Makati CBD, bringing our total count to 50 estates nationwide.
Southmont is positioned as an elevated modern suburb with direct access to the CALAX through the Silang East Interchange. It will also host a 3-hectare sports club and Chiang Kai Shek College. The estate will have an initial development cost of PHP 12 billion, with 69% of the estate dedicated for residential developments, 11% for commercial use, 20% for institutional locators, common areas, and flex lots. We target to sell commercial lots by the Q2 of 2024 with lot sizes of about 1,000 sq m with an indicative price of PHP 75,000 per sq m. Moving on to our leasing business, starting with our malls. Improving occupancy and rents boosted our revenues. Our total malls GLA stands at 2.1 million sq m. The average occupancy rate for all malls is 84%, while the lease-out rate is 91%.
Total GLA under construction is 243,000 sq m and our CEO will announce the additional pipeline of malls. For this year, we look forward to the opening of our One Ayala Mall. This is One Ayala Avenue, 44,000 sq m of gross leasable space, and the first phase of our Ayala Malls Vermosa, 5,000 sq m out of a total of 43,000 sq m. We look forward to opening these by next month. For office leasing, stable tenancy and higher rental rates drove the segment's growth. Total GLA stands at 1.4 million sq m. The occupancy rate is at 89% with a pipeline of 215,000 sq m. Our CEO will announce our additional pipeline. We look forward to opening a headquarter building, One Ayala Avenue South Tower, by next month. This is the third office tower of the mixed-use development, and this will cater to headquarter-type tenants.
As far as our GLA tenancy breakdown is concerned, BPOs occupy 73% of our portfolio, 11% by headquarter-type tenants, 4% by co-working spaces, and 2% POGOs. For hotels and resorts, the increased business and tourist activity in the country raised our occupancy and room rates. We have a total of 4,358 rooms in our portfolio, and occupancy and room rates have improved significantly. The average occupancy for all hotels was at 67%, while for resorts, it was at 42%. This is up by 11 and 14 percentage points, respectively, year-over-year. Total hotels and resort rooms in the pipeline stands at 1,186 rooms. During the quarter, we opened the first 230 rooms at Seda Manila Bay, and we are targeting to complete the remaining 120 rooms of this 350-room facility by end of this year.
We've spent approximately 66% of our CapEx budget for the year, PHP 57.6 billion for the first nine months, 54% of which went to the completion of residential projects, 9% on our commercial leasing projects, broken down 5% malls, 3% offices, and 2% hotels and resorts, 18% on continuing land acquisition payments, 17% on estate development, and 2% for other purposes. We have a well-managed debt portfolio, 84% locked in fixed rates, an average borrowing cost of 4.9%, and an average maturity of 4.6 years. 93% of our debt is locked in long-term tenors. Our balance sheet. Net gearing is stable at 0.75:1. Cash stood at PHP 12.1 billion. Our total borrowings of PHP 248.9 billion is a 5% increase from the end of 2022. Stockholders' equity of PHP 314 billion is 7% higher year to date. Current ratio is healthy at 1.78:1. Total debt to equity of 0.79.
Interest coverage ratio is 4.4x , well within the investment grade metric of three to six times. Just to summarize our performance for the first nine months of the year, our strong growth trend continued. The total revenues of PHP 98.9 billion, 15% higher year-over-year. The bottom line grew by 38% to PHP 18.4 billion. CapEx pretty much on track. We've spent 67% of our budget, so we've spent PHP 57.6 billion. Net gearing ratio stands at 0.75:1. In terms of our segment revenues, PHP 57.2 billion generated by property development. This is 4% higher. Commercial leasing revenues of PHP 30.8 billion, 32% higher year-over-year. Allow me to turn over the floor to our President and CEO, Meean Dy, for her key messages.
Hello. Thank you, Toti. Just a few messages for this afternoon. Number one, consumer sentiment continues to be optimistic despite some macroeconomic headwinds. Amidst this background, we are very happy to announce that Ayala Land posted a net income growth of 38% to PHP 18.4 billion, almost in line with our full year 2022 performance. We will continue to leverage our key capabilities to take advantage of high-value market opportunities and continue to invest in quality and growth. We are welcoming new members of our senior management to boost our organizational capabilities and strengthen our market position. As you all know, we have had our challenges as far as our macroeconomics are concerned. A 25 basis point off-cycle rate hike, as well as lower than expected Q2 GDP performance of 4.3% in growth.
Amidst this, there have also been some opportunities: a manageable unemployment level, a continued strength in our BPO industry, consumers continue to be optimistic, and housing prices continue to pick up with a 14% increase in the residential real estate price index as of the Q2 of this year. As Toti has already gone into so much detail, you know that the performance was a 38% increase as of the Q3 . Property development continued with its recovery, with revenues growing 4% year-on-year to PHP 57.2 billion. Residential and office for sale revenues grew by 5% to PHP 50.3 billion, with our premium brands ALP and Alveo accounting for 62% of the revenue. Sales reservations grew to 11%, and with inventory levels now at 20 months, we have an aggressive Q4 launch schedule to offer new inventories to the market.
I will go into this in the next slide. The commercial leasing business revenues are 32% higher year-on-year to PHP 30.8 billion from continued improvements in occupancy levels across all our leasing businesses. Mall foot traffic is now back to pre-pandemic level, and average rental rates per square meter for malls and per room for hotels are back to pre-pandemic levels, while that of offices is even higher by 20% compared to 2019. We will leverage our key capabilities to take advantage of our high-value market opportunities. We will lean on our horizontal projects and premium brands to grow the development business. In the Q4 of this year, we will launch PHP 53 billion worth of property development projects, which would be our largest quarter launch since 2019.
85% of the upcoming launches are from the estates and the premium brands, except for 1 ALP Signature project in Makati, all other launches are outside Metro Manila and horizontal. We introduced two new estates so far this year, with two more this Q4 , with a total of 854 hectares. Batangas Technopark and Southmont in Silang, Cavite have already been launched, and for the rest of the year, we will launch Arillo in Nasugbu, Batangas, and Centrala in Angeles, Pampanga. The reinvention of the first batch of flagship malls, Glorietta, Greenbelt, TriNoma, and Ayala Center Cebu. Our flagship malls account for more than 30% of our retail GLA, and works will now begin for this first batch on the Q1 of 2024, and for completion in 2026. Our malls continue to grow with over 500,000 GLA in the pipeline on top of the 243,000 under construction.
Selective expansion of our commercial leasing portfolio in select sites. We will be adding 205,000 sq m of GLA in the pipeline, bringing our total office pipeline to 511,000 sq m. We will maintain AREIT's dominant position and infuse PHP 10 billion to PHP 15 billion in assets in 2023. The construction of the 276-room five-star Mandarin Oriental, Manila in Makati will start in Q1 of 2024, or will restart on the Q1 of 2024. We are welcoming new members of our senior management, headed, of course, by Mariana Zobel de Ayala, who will be heading the Leasing and Hospitality business of Ayala Land. Carissa Feria-Darre, who will become the Head of Strategy and Transformation. Isabel Sagun, who is the Chief Human Resources Officer. Jeremy Sy, Brand Experience and Strategy, and Roscoe Pineda, Chief Information Officer. We welcome the new members of our management team to Ayala Land.
Thank you very much.
Thank you very much, Meean and Toti. We can open the floor for questions. We now have 133 attendees on the line, and we'd like to remind everyone that if you have any questions, just raise your hand and we can unmute your line.
Go ahead, Carl.
Can take the first question from Mr. Carl See.
Good afternoon. I have a number of questions actually, mostly related to the results first. With respect to the Q3 in particular, it looks like operating margin rose quite substantially, both quarter-over-quarter and year-over-year. From what I can tell, the highest operating margin you've had in over five years. Could you give us an idea of how this happened? Why were expenses so low for the Q3 ? Was this a blip or was it something?
Carl, if you're looking at EBIT margins, we did approximate our EBIT margin in 2019, about 40%. A couple of things. We saw some improvement and you'll be seeing this more and more equity net earnings in our JV companies. That's growing. Particularly, you'll see a growth coming from our joint venture with the Kuok's as we sell properties in Ciela, which is going to be an estate. I'm not sure I can say the name just yet, but that will be a fairly big project. It will be an estate. We'll be recognizing more revenues coming from that project. We also will start seeing more revenues coming from our JV with the Lucio Tan Group in Parklinks. As you know, we're building a couple of residential condominiums there, and we're also going to establish a very high-end mall in that area.
That did add some additional margin. Under other income, we're also collecting marketing and management fees, again, related to these JV costs.
I see.
Quite a bit of pickup we're recognizing from those JV costs.
Okay. The items you mentioned were mostly on the revenue side. I was wondering if there were some cost side measures as well.
GP services.
It's a little bit higher. Our GPs are a bit higher. I think continuous initiatives on cost control have led to a lowering of costs. As you see, our real estate expenses only grew by 9% relative to the top-line growth. It's lower. Yes, some continuing efficiencies and cost management.
Sure. On the residential segment, specifically this time, let's say for reservation sales for the Q3 specifically, it's down 10% quarter-on-quarter. Looking at the bar chart earlier, it looks like that was mostly because of a drop in Alveo. Now, you mentioned that Park East Place, I think is still at 40% sold. I'm quite curious about how you view residential demand right now, because normally you would think BGC project, it actually sold quite well in the Q2 as well. It looks like in 3Q this slowed down. How do you view residential demand right now? And maybe for your commercial lots as well?
Maybe let me answer the overall view, and then I'll transfer this on to Mike to answer specifically about Park East Place. As I mentioned, we have a very strong Q4 launch for residential. The Q3 launch was a little bit weak, admittedly. As you saw, we launched only five projects in the Q3 , but the Q4 will be our biggest quarter since 2019. We continue to be very positive about the residential market in general. You also ask about commercial lot sales. I think, again, we have a good pipeline of lots for booking on the Q4 . Although admittedly, there is some lumpiness to commercial lot sales. There could be some variability just because of the value per transaction when it comes to commercial lot sales.
In general, we remain quite positive as indicated by the more than PHP 50 billion of launches for the remainder of the year. For Park East Place, I'll let Mike answer that.
Thank you, Meean. Carl, regarding the dip that you're calling out in Q3 , it's primarily because every time there's a launch in the quarter, you'll see a surge. Demand has actually been steady for BGC. In fact, for Park East Place, we're able to move an additional, I think, 12 units, and we were able to implement price increases in Q3.
Got it.
Thank you.
If I may ask as well, for the ALP Signature project, may I ask the value of that? Is that something you can reveal already? Not yet?
Well, it's for Q4, maybe we can give you a snippet. It's minimum around PHP 20 billion in terms of takeup, VAT ex.
We've gotten the LTS.
Yeah, we were able to secure the LTS.
We're beginning book build for that.
On the residential revenue side this time. For the Q3 , again, residential revenue or development revenue, I should say, was down year-over-year and quarter-over-quarter. Is this just a timing issue, or did cancellations pick up?
Well, for real estate, I'm not sure if we should look at things quarter-over-quarter. I guess the way we look at it's more important. Let's look at the full year.
I think we're still tracking or we intend to achieve double-digit growth on the property development revenues side. Having said that, there were some cancellations that we recognized. I think this is primarily related to office condominiums for sale. That was something that we had not budgeted for the year, and there was about a little over a billion PHP of that that we recognized in the Q3 . Yes, there was a blip in cancellations. If we look at just residential cancellations, I think we've said it's stabilized. We're looking at it being lower than last year. The office condominium for sale segment, we did recognize 1.5 billion of cancellations in the Q3 .
Got it. For the mall business this time, occupancy is now at 84%, lease outrate 91%. If I'm not mistaken, the lease outrate was already, let's say, 88%, 89% as of Q4 last year. I'm curious, how long does it take for that to become the tenants actually starting operations?
Let me check the lease out rate that we had said, yeah. There are some challenges getting the merchants to open as quickly as we would like them to open. Once we've declared the lease out rate, that's pretty solid. That will become occupied. It's just a matter of time.
Carl, let me just go back to your previous question on the residential sales performance for the quarter. I guess a couple of things. Number one, Toti's right, we're still looking at a double-digit growth year-on-year. Number two, it's a little hard to look at it quarter-on-quarter, and obviously looked at this, and there is a question of the mix of projects that you are recognizing for the year and at what percentage of completion they're in. There's so many variables that go into it on a quarter-on-quarter basis, which is why sometimes it's difficult to draw a conclusion on one quarter. As you can see, sales reservations actually continue to grow and launches continue to grow, which indicates our continued confidence in the growth of the market.
Thank you. Those are all my questions.
Thank you very much, Carl. Thank you, Meean. Thank you, Toti. Just to go back on the question on margins, we did receive a question from Gokul from HSBC, his question was: Can you give me the nine-month EBITDA margin for the commercial segments?
EBITDA margin for commercial. We disclose this full year.
Yes.
Full year. H1 , let me just pull that up. It's been pretty stable. For our malls, the EBITDA margins are at about 60%, 62%, if I'm not mistaken.
Please go back.
Yeah. We'll get back to you on that. The next question is from XT. XT, go ahead.
Hi, good afternoon. My first question is on residential cancellation. I recall H1 was 10% of revenue, right? Can you share what is nine months with or without the office condo?
Cancelations.
Yes. The office condos that we canceled added about 2% to the cancellation rate as measured by rather impact on our residential revenues. It was + 2%. I guess last year we said we had about 10% cancellation in terms of revenue or revenue impact. We are looking at getting our residential cancellation rates about 8% this year without the office.
Got it. Full year, we should expect 8% without office and 10% with.
Yes.
Okay.
Back to the EBITDA margins. We're tracking 65% for shopping centers, 91% for offices, and 31% for hotels and resorts. This is roughly the margins we were seeing in 2019.
Okay, thank you. We hope we answered your question, Gokul. XT, would you have any follow-up questions?
Yes. On 2024, I guess thanks for sharing some of the strategy there. Can you give us the CapEx, where should we be looking at for next year?
We are looking at basically to keep pace with our growth aspirations. CapEx going into next year should be maybe 10%-15% more than where we're going to end this year. We said that we were going to spend about PHP 85 billion. I think we're pretty much on track to PHP 85 billion CapEx for the full year. Going into 2024, I'd say maybe 10% more.
Got it. Thank you. Just one last question on the flagship malls. What's the CapEx there, and also how should that affect rent?
What's the CapEx there, how should it affect rent?
Just to clarify, the question is how much of the CapEx is for the malls?
Yeah. Also how should that affect the mall rent before and after?
In terms of affecting rents. Well, CapEx that we're dedicating today primarily will go to new malls. We expect when we open those malls, the lease rates then will be higher than what we're seeing today. Now, I think we will be dedicating quite a bit of CapEx to the reinvention initiatives that the CEO has mentioned. That's quite a big chunk of change that we're going to be dedicating to upgrading our flagship malls. Now, the expectation there is that we will be able to charge significantly higher rent. The way we green-light these reinvention projects is we look at what kind of incremental rent we'll be able to generate from the renovated premises, and the incremental rent should be pretty much be able to generate and meet the investment hurdles that we set for greenfield projects.
In other words, the CapEx should in effect, be able to pay for itself by way of the increase in rent.
The reinvention is I guess a couple of levels. Number one, obviously improving the spaces. Number two, it's also about optimizing our merchant mix to make sure that I guess we are getting the most appropriate brands and stores for the places that we renovate. The third is with this renovation also to bring up the sales per square meter. The second and the third points should be driving up our rent per square meter and the increment should justify the investments that we will be making for the reinventions.
Thank you, Meean. Thank you, Toti.
Thank you. Thanks, everybody.
Thank you, XT. Any more questions from our callers, from our live participants? Calling for questions from our virtual participants. There's one more here. What is the inventory level currently?
Okay.
We started the year at 24 months. Today, we're at 20 months. To be exact, 19.8 months.
Thank you, Toti. The next question is from Nadilai. Any early guidance for land bank CapEx in 2024?
I guess I will just say we're focused on utilizing and monetizing our existing land bank. Land bank CapEx next year is primarily just going to go towards continuing payments on committed land acquisitions.
Just to align expectations. That's not going to go away for a couple of reasons. Number one, as Toti said, the land we have in our land bank, a lot of those are paid under very favorable installment terms, which just my way of saying that there's still quite a sum that is actually still unpaid. We will be paying that maybe in the next five years. The second is if there are really good land bank opportunities and jewels that come onto the market, then obviously we will take a look at those.
Okay. We have Mr. Wilson [Ng] on the line. Go ahead.
Hi, everyone. Sorry. Just two questions. Maybe firstly on the launch pipeline, PHP 53 billion in the Q4 . Maybe could you share how much of that PHP 53 billion has already been launched so far up to this week in November?
To date, of the PHP 53, we've launched a little over PHP 20 billion. Was that the question?
Got it. Thanks for that. Maybe a follow-up question would be on the reservation sales numbers. It looks like Q4 is probably in for a bit of a pickup given the launch pipeline. For the full year of this year, what would you consider to be a good kind of outcome for reservation sales growth for this year? Then maybe moving forward next year or even through the cycle longer term, what's the kind of reservation sales growth that Ayala Land hopes to achieve?
We're expecting to grow our sales reservations by mid-teens this year and to continue that on to next year.
Thank you. That's very helpful. Just one last housekeeping question on what's the level of unbooked revenues so far for the quarter?
Pretty stable from the previous quarters. Roughly about PHP 160 billion unbooked revenues so far.
That's very helpful. Thanks. That's all from me.
The next question is from Samin Reza. When do you expect to get back to 2019 net profit after tax margin ROE?
I don't remember 2019 anymore. Well, clearly we are on a strong recovery. I guess the way I would frame the answer is, I think the environment we operated under in 2019 is very different from the environment we're operating under. Leading up to 2019, if you will recall, those were pretty much buoyant. There was quite a buoyant and very strong demand for residential. You saw the influx of mainland Chinese money, and it was reflected in our launch and take-up numbers leading up to 2019. If I recall, we did launch close to PHP160 billion worth. Take-up then for that year was close to PHP140 billion. Okay?
The pandemic happened. What I can say is property development revenues will probably be clocking maybe 60%-70% of where we were in the 2017 to 2019 period. For leasing revenues, we can say that we've pretty much recovered. I think by the end of this year, we can say that in terms of our leasing revenues, we're back to where we were in 2019. We can grow from this base. Similarly, I would say we grow from the base of where we end our property development revenues this year, and we will be growing. I think the aspiration is given a fairly healthy economic environment. We've said that we would like to see our financials our bottom line grow. We'd like to double that in the next five years. That implies a 15% growth year-on-year.
Again, that is going to be contingent on how supportive the environment is. As the rule of thumb, the way we look at it is we look at GDP growth, and we will aspire to grow at least two times that number.
Maybe just to summarize that where we are in our growth journey, so to speak. This is really what we're seeing as the new baseline for us. We're starting to get very comfortable with the situation that we are operating in. As far as our leasing business is concerned, as I mentioned earlier, we're now really thinking of how to grow that pipeline. As mentioned earlier, we have a 500,000 sq m pipeline now for our office, another 800,000 for our malls business, and we continue to look for opportunities in the next four years that we can pursue. As far as our hotels business is concerned, we're also now thinking of how to double our number of rooms. As far as leasing is concerned, very comfortable, and we're aggressively pursuing the growth.
As far as residential is concerned, clearly, there continue to remain some challenges, some headwinds, and we are capitalizing on segments of the market which we feel are more resilient, which we feel are really our more natural strengths and differentiation, which is why we're leaning on our premium brands and doing quite a bit of horizontal using up our land bank. We feel like we're comfortable in growing our take-up by mid-teens year-on-year. That's really how we are planning to move the business forward now. We remain very in tune with what's happening to the market. If things change, then we will adapt accordingly. For now, that is how we view things for our property development and our leasing business.
The next question is: Any impact from the recent rate hike?
I guess rate hike is always something that we keep an eye on. I think the signals have been that it will be stabilizing from here, and if that's the case, then it should be something that our customers and our market can adapt to. Clearly, if it goes drastically the other way, then we would have to reassess our strategy. With this one-off rate hike, and for so long as things are stable, then I think we're okay. Our customers will be okay. As far as our own borrowing costs are concerned, I think we've had a very well-managed balance sheet, and the impact on our own borrowing costs have been, I would say, rather manageable.
Okay. The next question is from Ms. Grace Gabrita of Metrobank Trust. How much AR sales were booked as of nine months 2023? AR sales. Was it six? Six. Six.
PHP 6 billion.
From Mr. Richard Lanyada: What's the reason behind the margin expansion in Q2 and Q3? Cost of real estate as percentage of real estate revenues has been going down from 67% in the Q3 2022 to 65% in the Q4 2022, then 58% in Q2 2023, and now 55% in Q3 2023. Real estate revenues. Real estate revenues. What's the reason behind the margin expansion in Q2 and Q3 ? The cost of real estate as percentage of real estate revenues has been going down from 67% in Q3 2022 to 65% in Q4 2022, then 58% in the Q2 2023, and now 55% in the Q3, so real estate expenses.
It's quarter and quarter.
Yes.
Two percentage points. Well, two percentage points quarter-on-quarter, I guess we don't look at it quarter-on-quarter. Clearly, as I did respond to Carl's earlier question, there's continuing cost management initiatives. That's why we're trying to continue to find ways to lower our real estate expenses, which we did show the growth of real estate expenses was lower than the growth of our real estate revenues. Cost management initiatives continue. Now, is that going to continue going down next quarter? Again, it's a little difficult to look at it quarter-on-quarter. Overall, we look at a yearly target in terms of our margins.
Just on the corporate segment, the question is from Mr. Samin Reza. The question is: How did corporate segment become gross profit positive or GP positive? I guess you were pertaining to the office sector, Samin. We'll get back to that. Let's clarify first. From Raceton: What is the sell-through rate for the five launches in the quarter? For BPO, what are the key sectors driving the growth in BPO demand?
Carol, maybe you can answer the BPO drivers.
Yes. The industry, IBPAP, projected growth of their target is 1 million employees for the next five years at a 7%-8% growth annually in BPO. Revenue drivers are shared services, healthcare, finance, IT, and some third-party services also.
What's the first question?
The first question is, what is the sell-through rate for the five launches in the quarter?
Park East Place was 30%. In the Q3 , Park East Place is now 40%.
40%. Okay.
For the balance, we'll get back to you.
We can get back to you.
We'll get back to you on that.
Yes. Then just a follow-up question from Gokul from HSBC. Inventory levels are 19.8 months. Can we also have the inventory mix?
Inventory mix in terms of horizontal and vertical? In terms of mix, I guess maybe we could just look at by brand. It is roughly about 30% each for ALP, Alveo, and Avida.
Okay, I haven't seen a follow-up from Samin. We could probably get back to him over email. Any final questions from our live audience?
Hi.
Go ahead, Alexa.
Thank you. Just two questions from me. First, have the payment schemes been relaxed for ALI? The second one is, considering the nine months launches, are there updates to the target launches for the year, or is it still at PHP 100 billion? Thank you.
On the payment schemes, for Avida, we are still around one to two years longer than we were pre-pandemic. For the Premium, about one year longer for our verticals for Alveo, and same already for ALP. For the second question was?
On launches if we're.
Launches.
On track for the PHP 100 billion?
The launches for the year 2023, it's expected to be PHP 100 billion. That will include residential launches, estate launches, as well as the launches in Malaysia.
Any more follow-up questions, Alexa? Okay, thank you. Let's have XT for the last question. Go ahead, XT.
Thank you. Just a question on residential. I guess the strategy to shift towards premium and also horizontal projects, how should we expect in terms of its impact on margins, just for residential?
First, horizontal versus vertical. Horizontals typically have a higher margin than verticals. As far as our different brands are concerned, margins are more or less the same across the different brands for vertical projects. I know you'd think that because the price of one brand would be higher than the other brand, and you'd expect margins to be higher. The truth is, the quality, the location, the price of the land is also higher as you go higher end. All told, margins for all the different brands for verticals are more or less the same.
Got it. Given that there's more horizontal on a blended basis, is it fair to assume better margins going forward?
Going into, I think even this year, you will see that probably two-thirds of our launches are now vertical and one-third is horizontal. As you can imagine, the value of one vertical project would probably be equivalent to maybe four or five horizontal projects. We can't just completely move everything to horizontal, and that's dictated by the market. There is, during the pandemic where there was preference for horizontal, and we did supply the market with horizontal projects. Now that the pandemic has abated, you're seeing demand for vertical projects return. That's why we're also launching more vertical projects. The determination on whether to launch vertical or horizontal is market driven. Where is the demand? The demand now, as we see it, is for vertical projects. We're putting in about two-thirds of our launches in vertical, one-third horizontal.
Okay, got it. That's very clear. Thank you.
With that, I guess allow me to conclude our briefing this afternoon. Thank you very much for the engaging discussion. We'd like to remind everyone that copies of the press release, the presentation, and the recording will be available on our website at ir.ayalaland.com.ph. We have some snacks on the back, please do enjoy. Please enjoy the rest of the day. Thank you