Good afternoon, everyone. My name is Mike Garcia, Head of Investor Relations. I'd like to warmly welcome all of you to our briefing on Ayala Land's performance for the first quarter of 2023. Whether you're joining us in person here at the Blue Room or the 25th floor of Tower One, or tuning in virtually, we're glad to have you with us today. For those participating virtually, we hope you find the live broadcast connection loud and clear. For those here in person, we invite you to make the most of the opportunity to connect with fellow analysts and our Mancom members after the session.
Joining us are members of Ayala Land's Management Committee, led by our President and CEO, Mr. Bobby Dy; our Chief Operating Officer, Ms. Meean Dy; CFO and Treasurer, Mr. Toti Bengzon; President and CEO of Makati Development Corporation, Mr. Dan Abando; Estate Development Head, Mr. Robert Lao; and President and CEO of Ayala Property Management Corporation, Mr. Laurent Lamasuta. Several other Ayala Land officers are joining us today, including our business unit heads, management team members, and finance group representatives. Please note that the press release and the presentation are available on our investor relations website at ir.ayalaland.com.ph. For questions we may be unable to address during the briefing, we will respond by email as soon as possible. Without further ado, I would like to turn the mic to our CFO, Mr. Toti Bengzon. Thank you.
Good afternoon, everyone.
All right. Allow me to start with the highlights of our first quarter financial performance. We started on a strong note. We delivered solid growth in the first quarter of the year. Our total revenues amounted to PHP 30.9 billion. This is a 26% increase. Additionally, net income posted a significant growth of 42%, reaching PHP 4.5 billion. Our CapEx totaled PHP 19.5 billion to bolster our residential and commercial projects, and we recorded a net gearing ratio of 0.77:1 as we managed our debt and liquidity prudently to support our balance sheet. Turning to segment revenues, our property development segment generated PHP 17.1 billion. This is an 8% increase driven by higher residential completions, bookings, and sales of office units. Despite the prevailing higher interest rate environment, residential demand remained resilient and we recorded PHP 27.7 billion in reservation sales. This is a 15% increase compared to last year.
At the same time, commercial leasing revenues surged by 57% to PHP 10.1 billion from higher occupancy and rental rates. This was buoyed by improving mall tenant sales, steady BPO demand, and travel resurgence. Mall footfall has resumed to pre-COVID levels, and tenant sales are normalizing, reaching 92% of pre-COVID activity. Moving on to our income statement. Real estate revenues came in at PHP 30.1 billion. This is a 24% increase fueled by the strong performance of the residential and commercial leasing segments. Interest and other income for the quarter reached PHP 786 million, more than double the figure recorded in the first quarter of 2022. This growth was attributable to higher equity earnings from unconsolidated associates and joint ventures, as well as our other income line.
Equity and net earnings from associates and JVs surged by 70%, reaching PHP 424 million, driven by higher revenues of our FBDC companies, Ortigas Land, and our joint ventures with the Kuok's in our Ciela subdivision, as well as Eton Properties, the Lucio Tan Group in our Parklinks estate. Interest and investment income for the quarter amounted to PHP 89 million. This is a 130% increase from the same period last year due to higher yields from short-term investments and cash deposits. Other income generated from marketing and management fees from our joint ventures amounted to PHP 273 million. This is a 179% surge year-on-year, and this primarily came from our projects with the Kuok's in Ciela Heights, as I mentioned, with Eton in Parklinks and our BGC companies. Expenses amounted to PHP 24.6 billion.
This is a 26% increase compared to the same period last year due to the normalization of our operations. Real estate expenses came in at PHP 19.4 billion. This is up 35%, while GAE increased by 32% to PHP 2 billion. Our GAE ratio settled at 6.3%. This is slightly higher than 6% in the same quarter last year. Our EBIT margins to the 30.6%. This is lower than the 35.1% recorded in the same quarter last year. The EBIT margin in the first quarter of 2022 was in the higher range of our 30%-35% target. As we recognized the income accretion from the sale of AR, as well as the positive contribution in the shift of ALP's accounting treatment to POC from percentage of collection for marketing and management fees during that period.
Fast-forward to the first quarter of 2023, we did not have any AR sales, which normally adds 1% or 2% to our EBIT margin. We will be having more AR sales in the coming quarters. Interest expense, financing, and other charges totaled PHP 3.2 billion. This is 11% less than the previous year due to the absence of financing activities during the quarter. Deducting expenses from revenues, income before tax grew by 24% to PHP 6.4 billion. This translated to an income tax provision of PHP 1.2 billion, 8% higher year-on-year. As a result, income before non-controlling interests totaled PHP 5.2 billion, 28% more than last year. Netting off the non-controlling interests, which declined by 24% to PHP 677 million, net income attributable to ALI equity holders grew by 42% to PHP 4.5 billion. Residential and our commercial leasing segments fueled our top-line growth.
Property development revenues increased by 8% to PHP 17.1 billion, driven by higher residential completion, bookings, and the sale of office units. Residential revenues reached PHP 14.2 billion. This is a 10% year-on-year improvement on higher completion and net bookings, while office-for-sale revenues registered a 43% growth from last year owing to sales from One Vertis Plaza in Quezon City. Revenues from commercial and industrial lots declined by 19% to PHP 1.8 billion, primarily due to sales timing. We will be selling more commercial lots in the market in the coming quarters. In commercial leasing, revenues surged by 57% to PHP 10 billion from higher occupancy and rental rates, buoyed by improving mall tenant sales, steady BPO demand, and the resurgence in travel. The improvement in mall tenant sales lifted occupancy and rents, which led to a 71% growth in shopping center revenues totaling PHP 5 billion.
The stable demand for office spaces in prime locations supported higher tenancy and rents. This resulted in office revenues growing by 8% to PHP 2.9 billion. Notably, hotel and resort revenues expanded by 164% to PHP 2.2 billion, as occupancy and room rates increased as a result in the increase in travel. Turning to services, composed primarily of MDC, APMC, our power service companies, as well as AirSWIFT, total revenues amounted to PHP 2.9 billion. This is 53% higher than the previous period. MDC posted net construction revenues of PHP 1.5 billion. This is double last year's level owing to the external projects that they've been able to get. Meanwhile, APMC, AirSWIFT, and our power service companies' combined revenues grew by 18% to PHP 1.4 billion, primarily due to higher AirSWIFT patronage as well as parking usage in the car parks managed by APMC.
Summing up the top-line, real estate revenues amounted to PHP 30.1 billion, a 24% growth from last year, with interest and other income of PHP 786 million. Total revenues grew by 26% to PHP 30.9 billion. Turn over and look at the operating statistics of our businesses, starting with property development. Despite the prevailing higher interest rate environment, residential demand remained resilient, and we recorded PHP 27.7 billion in gross reservation sales. This is a 15% increase compared to last year. ALP's Ciela in Carmona, Cavite, Parklinks South Tower in Quezon City, ALP's Arcilo and Avida's Southdale Settings both in Nuvali, and Alveo's The Lattice, also in Parklinks, were the projects that received the most demand during the period. We launched three projects worth close to PHP 9 billion during the quarter.
In terms of mix, 58% of what we launched were horizontal projects from Ayala Land Premier and Amaia, while 42% were vertical projects from Alveo. 22% of our sales reservations, or PHP 6.2 billion, originated from our digital selling channels. Breaking down our sales by nationality, 68% were sold to local Filipinos, 13% higher than last year. Sales to overseas Filipinos were about the same as last year, while sales to other nationalities surged by 61%. Sales to OFs and to other nationalities accounted for 19% and 13% of the total, respectively. On the other nationalities, 63% were sales to Americans, 85% higher year-on-year. Meanwhile, sales to Chinese buyers declined by 20%, comprising less than 1% of our total sales reservations. Moving on to our leasing business, starting with our malls. The improvement in mall tenant sales lifted occupancy and rents.
Our tenant sales now stands at 92% of pre-COVID levels. Total malls GLA stands at 2.1 million sq m, and the average occupancy rate for all our malls is now at 83%. Leased-out rate of our malls' portfolio stands at 89%, with total GLA currently under construction at 243,000 sq m. This year, we will open 44,000 sq m of GLA at One Ayala Avenue and another 43,000 sq m at Ayala Malls Vermosa will be completed. For office leasing, stable demand supported higher tenancy and rents across the entire portfolio. Total GLA stands at 1.4 million sq m with an occupancy rate for all our offices at 89%. Office pipeline stands at 216,000 sq m as we launched new projects to capture demand for new office space.
We look forward to opening the headquarters building at One Ayala Avenue, this is the third tower of the mixed-use development, in the last quarter of this year. In terms of GLA tenancy, BPOs occupy 73% of our portfolio, 10% by headquarter-type tenants, 4% by co-working spaces, and only 2% remaining for POGOs. For hotels and resorts, the travel resurgence in the country raised our occupancy and room rates. We have a total of 4,038 rooms in our portfolio, while occupancy and room rates have improved significantly. The average occupancy for all hotels was at 69%, and for resorts, it stood at 47%. This is up by 21 and 36 percentage points respectively. Total hotel and resorts rooms in the pipeline stands at 1,500 rooms, while upcoming openings this year include the 350-room Seda Manila Bay, located in the Ayala Malls Manila Bay complex.
Our ancillary leasing formats strengthen the leasing portfolio. AyalaLand Logistics Holdings Corporation now has a GLA of 309,000 sq m for industrial spaces composed of factory buildings and warehouses, complemented by its cold storage facilities under the ALogis Artico brand, which has a total pallet position of 10,300. The total occupancy and lease-out rate of dry warehouses stand at 69% and 77%, respectively, and 93% and 101% for cold storage. For The CityF lats, we have a total bed count of 2,032 beds spread between our facilities at Amorsolo and Sacred Heart in Makati and in BGC, the Fifth Avenue. For Clock In, we have a seat count of 1,400 seats occupying 6,400 sq m of gross leasable co-working space. Total CapEx in the first quarter of the year amounted to PHP 19.5 billion.
We spent 61% on residential projects, 5% on commercial leasing, broken down like 3% on malls, 1% for offices, and 1% on hotels and resorts, 18% on land acquisition, 15% for estate development, and the balance of 1% for other general purposes. We have a well-managed debt position with 84% locked in fixed rates with an average borrowing cost of 4.9% and an average maturity of 4.3 years. We have contracted 91% of our debt currently into long-term tenors. Finally, our balance sheet stands strong. Our net gearing ratio is at 0.77: 1, cash at PHP 12.3 billion. Total borrowings in the first quarter reached PHP 244.5 billion. This is 4% higher from the end of 2022. While stockholders' equity ended at over PHP 300 billion, 2% higher year-on-year.
Our current ratio is at 0.78. As mentioned, our debt to equity ratio stands at 0.77: 1. Meanwhile, our interest coverage ratio is 4.4 x, well within the Standard & Poor's prescribed range of 4x-6x for an investment-grade rated company. Summarizing our performance, we started strong with the top line growing by 26% and the bottom line growing by 42%. CapEx of PHP 19.5 billion, roughly in line with our PHP 85 billion guidance. Net gearing fairly similar to where we ended last year at 0.77:1. On segment revenues, property development grew by 8%, while commercial leasing revenues surged by 57%. Thank you. We can now open the floor to Q&A.
Hello. Thank you, Toti. We now have 126 participants on the line. Again, we would like to remind our participants that you may use the chat box function on the screen, and please remember to state your name and organization to be recognized appropriately. You may also use the raise hand function, and we will unmute your line. Thank you. Okay, the first question comes from Mr. [Berlouen]. Why did other charges decline from 107 quarter-on-quarter? Other charges.
Maybe I'll ask our CFO to answer that question. I think the question refers to the interest fi nancing and other charges. I think the question is why did it decline from PHP 3.5 billion to PHP 3.2 billion?
This was primarily due to the absence of financing activities during the quarter. Primarily, again, the AR discounting that we typically do throughout the year. That's what led to the decline. We did an AR discounting in the previous quarter, in the previous year. This quarter, we didn't have that, but we should have that in the succeeding quarters.
Okay, thank you. The next question comes from Meredith. How are cancellation rates compared to the second half of 2022?
Okay, let me pass on that question to Meean.
Cancellations are beginning to moderate after our cleanup of the accounts last year with the lifting of the Bayanihan Law. We envision, or we expect that for the full year it will be maybe 10%-20% lower than last year.
Okay. Thank you, Meean. The next question comes from Wilson Ng, Morgan Stanley. Why have development revenues fallen around 20% quarter-on-quarter, and do you expect it to remain or improve in the coming quarters?
Maybe, Toti, you could pick that up.
Thank you for the question, Wilson. As you know, our financial performance, typically, revenues as well as the bottom line, there's sort of a timing effect, and typically it increases as the year wears on. We do expect further improvement in the succeeding quarters.
Thank you, Toti. We hope that answers your question, Wilson. The next question comes from Marco Mauleon. Can you discuss margin trends on property development and commercial leasing?
On margin, I think it's fairly flat. Obviously, it's hard to look at it on a quarter-on-quarter basis. When you look at it over a longer period of time, you've seen how our margins have held, both in terms of the residential business as well as the commercial businesses. This quarter, if there are slight differences, that should basically average out towards close to what we were doing last year. The way we've been pricing our product is we're holding our margins. If there's inflationary pressure on the cost, we could gradually increase the price of our products.
If I may add, on the residential side, we continue to manage our margins as we've communicated in the past and as what we've shown for vertical projects, target margins would be in the mid-30s. For horizontal projects, it's in the mid-40s. We do continue to see those kinds of margins on the residential side. For commercial industrial lots, the margins there are fairly healthy, and that can range from anywhere in between 50%-70%.
Thank you, Toti. We have Ms. Wendy Estacio from CLSA. She raised her hand. Go ahead, Wendy.
Hi, good afternoon. Thanks for the, I remember you guided the launches of about PHP 110 billion-PHP 130 billion for full year 2023. Just getting some indication from you, given that you launched PHP 8.6 billion in the first quarter, do you expect a ramp-up or a catch up for the next quarters? That's my first question. Thank you.
The answer is yes. If you look at, again, our profile, typically, our launches are towards more on the second half of the year rather than the first half. If you also remember, we actually launched quite a number of projects in the fourth quarter of last year. We still do have inventory to be able to service the demand that we're seeing in the market. Based on the reservation sales that we're seeing, based on the trend, we feel fairly good about the prospects of launching the number that we had actually committed, which is about, I think, PHP 110 billion for the year.
Thanks for that one. My second question is on the inventory. Can you provide how many months worth of sales are the inventory as of first quarter?
Okay. [inaudible] Meean.
We're holding steady at 24 months worth of inventory.
All right. Thank you.
Thank you, Wendy. In line with that, we received a question from Ms. Joan dela Cruz. Can you give us a profile of the inventory geographically by brand? Second question is, are you keeping the full year new launch target?
I think I already mentioned the second question. The answer is yes. The guidance that we provided, which is about PHP 110 billion, so we're sticking to that. On the first question, I'll pass it on to Meean.
In terms of inventory, we have higher inventories in our vertical than in our horizontal. That's also why, I guess, when we take a look at our launches, we're very conscious of how much inventory is out there, though we will be ready with PHP 110 billion-PHP 130 billion. We will launch if it makes sense given the inventory levels we have at that particular trade area. Do you have those?
In terms of the inventory, 31% is horizontal and 69% is vertical, of which less than 15% would be in the Visayas and Mindanao region. Everything else, about 85%, would be in our core areas of Mega Manila, Calabarzon, and Central Luzon.
Thank you, Meean and Toti. We hope that answers your question, Joan. Just let us know if you have any follow-up questions. The next question comes from Mr. Gilbert Lopez of Macquarie. Can you give more information on the previously disclosed four new large estates that will form the PHP 110 billion launches level for the full year?
Okay. Maybe I could pass that on to Robert Lao, the Head of our Estates.
We will launch one in Batangas, San Jose del Monte, Bulacan, and Davao.
Just to add, I think you've seen the launch of Batangas Technopark, which we did about a month ago. We're going to be launching an estate in the next month or so in Davao. The rest will be for the balance of the year.
Okay. We received a follow-up question from Ms. Joan dela Cruz. How much of the unsold inventory is RFO?
10%.
Thank you, Toti. From Ms. Felicia Barus of Citi. How much is your unbooked revenue as of the first quarter of 2023?
Yeah. It is about PHP 165 billion. It did increase from year-end of 2022.
Thank you, Toti. The next question comes from Diego. Of your current office occupancy, are there still POGO tenants? If so, how many percent of your total leased GLA is being tenanted by POGOs?
I think our slide showed that. There is 1% left.
Thank you. Maybe we could entertain some questions from our live audience. Mr. Miguel Sevidal from Maybank. Go ahead, Sev. Thank you.
Good afternoon. Thank you for the opportunity. Three questions for me. The first is on the malls. Just wanted to ask if there has been any power in terms of escalating the fixed rent component, and has there been any pushback from any of the tenants as far as raising the rental base? I understand from the previous quarters that department stores were kind of the segment lagging behind. Also wanted to check on how the department stores are doing in the first quarter.
Maybe I could pass on that question to our head of malls, Chris Maglanoc.
Pretty much on the rent it has held both on the fixed on the variable. Sorry. There are some merchants who do ask for assistance, but case to case. For departments, sir, I would say they are about 75%-80% of where they were in terms of sales now compared to 2019.
Thank you for that. The next two questions are on residential. I noticed that the pre-sales from the local Filipino buyer base was up 13%. Just wanted to ask which segment or which brands contributed to this and which were the products that they were taking up?
ALP and Alveo were the strongest in the quarter. Avida also. I think that those are the three top brands were really our drivers for the first quarter. Also because the launches were in ALP and Alveo, that helped the performance in the first quarter as well.
These are verticals or horizontals?
In ALP, largely horizontals.
Thanks for that. Lastly is I just wanted to ask for the thoughts of management on where we are in terms of payment terms. Should we expect the payment schemes to tighten and are we still offering stretch payment schemes for the time being for the resi products?
I think ever since last year, we've been tightening our payments on the higher end of the market. If you look at ALP and Alveo, we've started tightening payment schemes back in 2022. I think in the middle income, both Avida and Amaia they're still pretty much where they were last year in terms of the stretch payment terms.
Thank you very much. Those are all my questions.
Thank you, Sevi. The next question we have a follow-up question from Mr. Gilbert Lopez. What drove the contraction in property development EBIT margin of 26% in the first quarter of 2023 versus 38% in the first quarter of 2022?
I think our CFO mentioned a while ago that the target really is from 30%-35% now because there were no AR sales this quarter compared to a year ago, that basically we weren't able to book income for the AR sale, and therefore that caused the contraction of the margin this quarter. As our CFO mentioned, Toti, that we expect that that should basically equalize or level off through the balance of the year as we sell receivables from the second quarter to the fourth quarter.
Thank you, Bobby. Any more questions from our live audience? Yes, Mr. Carl Sy from Regis. Go ahead, Carl.
Good afternoon. I'd like to ask about reservation sales as well. There's been a big increase in sales to foreigners, and even for OFWs as well for the past one year, two years maybe. I'd like to ask if there's any large difference in how you target that market, OFWs and foreigners. Are you doing more road shows relative to pre-COVID or anything? Do you have permanent sales offices abroad?
Yes, definitely, because that market is now about a third of our total gross reservation sales. Ever since the markets opened last year, we've been more aggressive in terms of doing road shows abroad, putting in more resources and manpower into that particular channel.
Did you set up permanent offices abroad, or do you have a permanent broker network abroad?
Not necessarily permanent offices, but definitely expanding our broker networks in the foreign markets. Also tapping newer markets that maybe we weren't so active in the past.
With respect to the sales to Americans, would you say these are mostly people with roots in the Philippines, like a former Filipino or just has relatives in the Philippines?
Yes, I think predominantly Filipino Americans.
What is the product that is popular with these Americans? They account for 11% of your sales, what is strong with the Americans?
Avida, Alveo are the strongest in the U.S.
Thank you.
Thank you, Carl. Any more questions? Yes, Mr. RJ Aguirre from UBS.
Hello. Good afternoon. My question is from your comments on AR sales this year. Can you remind us how much is it last year and any indication on the changes on the possible rates that you're going to pay?
Last year, we did about I think it was about PHP 19 billion. This year we're looking roughly at about PHP 15 billion. In terms of the discounting rate it's higher than what we had seen in the previous years. As in the previous years, the discounting cost is still lower than if we were to have borrowed a similar amount for a similar tenor. It's still a very cost-effective way of raising cash while it also has added benefit of defeasing risk, inasmuch as all these ARs are sold on a without recourse basis.
Is the increase in AR sales potentially this year a factor of the higher cost of debt that you have now at 50 basis points, 4.9% for this year I saw in the chart?
We're decreasing the AR sale this year from last year.
Oh, PHP 15 billion into PHP 9 billion?
Yes.
Okay. I'm sorry.
No, from 19 to 15.
19?
Yeah. The cost that you're seeing in the debt portfolio slide, that only calculates on books debt. That reflects loans from our banks as well as indebtedness from the capital markets.
Thank you, Toti. My other question is on retail malls. Can you give some granularity on the performance of the Ayala Bay Area mall in terms of occupancy sales?
Maybe I could pass it on to Chris Maglanoc.
For Ayala Malls Manila Bay, our lease out, there's a big improvement from 2022. We're close to 70%. Landmark, The Anchor, is completing their construction. The supermarket will be open by December this year. The department store maybe the first floor will be opening first quarter in 2024.
Thank you, guys.
Thank you, RJ. Thank you, Chris. Any more questions from our virtual participants? How about from our live audience? Vitex, yes.
I think we saw an earlier note about our earnings are not in line with consensus. I think you've seen it year in, year out, our revenues and NIAT escalate as the year progresses because definitely towards the latter part of the year, our residential sales typically grow. I don't think you can just divide your consensus by four. There is some timing there, okay? Historically, you see our revenues and net income escalating as the quarters roll on.
Thank you for that clarification, Toti. We have one more question from Miss Felicia Barus from Citi. You mentioned earlier that payment in the middle income segment, Avida and Alveo, are still stretched. How many months longer is the stretch?
It's same as the previous years. We estimate that payment schemes on account of the pandemic escalated or have increased by between 18-24 months.
To clarify, it's Avida and Amaia.
It's Avida and Amaia. Thank you, Meean. Any more questions from our live audience? I don't see any more questions from our virtual participants. I guess that concludes our briefing on Ayala Land's performance for the first quarter of 2023. We hope that you found the information. Sorry, there's one more question that came in from Carlos Angelo Temporal. Is there a level of inventory that management would consider as ideal before pushing for the upper end of the target project launches of PHP 130 billion?
Yeah, we've said that we're comfortable having inventory levels of between 18- 24 months. At 24 months, we're at the higher end, but it's still within our comfort level. 18- 24 months is our target.
Before we close off, Mike, maybe just a few comments. We are actually quite pleased and actually encouraged with the Q1 results that we've achieved. When we look at all our business lines, we've basically seen growth from residential to the various commercial leasing businesses, malls, offices, hotels and resorts. As you know, some of these businesses were very badly hit during the pandemic. Now I think we're inching up and really getting close, in some cases have actually exceeded what we saw during the pre-pandemic. Moving forward, we feel confident that as the year progresses, that we'll be able to continue the trajectory that we've achieved in Q1 and hopefully be able to deliver the results that we feel would be meaningful for our company, that will basically register a significant growth from where we were a year ago.
Mike, before we go, I'd just like to thank everybody for participating and joining us in today's briefing.
Yes, sorry, Bobby, if I could just squeeze in one last question from Mr. [ Berlouen] . What are the payment terms now for ALP and Alveo?
We look at it on a per project basis, typically, when you look at an ALP in particular, typically what happens is we are able to collect pretty much the bulk of the cash to basically complete the project while under construction. There's very minimal developer financing that is involved in ALP. In Alveo, there is some developer financing, particularly on the verticals, I think the horizontal pretty much we're able to cover the construction cost with the payment schemes that we have during the construction period.
Thank you. I guess that officially closes our briefing. We don't have any more questions. We hope that you found the information presented informative and valuable. If you have any further questions, please get in touch with us through investorrelations@ayalaland.com.ph. Additionally, a recording of this briefing will be available on our website, ir.ayalaland.com.ph. Once again, thank you for joining us this afternoon. Merienda is served. Have a great day