Earnings Call: Q2 2024

Aug 9, 2024

Ladies and gentlemen, good afternoon to everyone. I am Ron Rodrigo, head of investor relations, and I will be your moderator today. A warm welcome to our first half analyst briefing. Joining us today is Mr. Lance Gokongwei, chairman, president, and CEO of Robinsons Land Corporation. Mr. Faraday Go, executive vice president and general manager of malls division. Mr. Kerwin Tan, our CFO. For the IR team, we have today Ms. Sheila Francisco, our controller, Mr. Matthias J. Raymundo, AVP, financial planning and analysis, Ms. Doreen Aluge, senior director, business development, residential, and Mr. James Reynard Arco, director, business development, office division. Presenting us today is Mr. Kerwin Tan and Mr. Ramon Rivero, head of corporate strategy and sustainability. After the presentation, we will open the briefing for the Q&A session. Thank you. Mr. Kerwin, you may start. Good afternoon. We are pleased to share our unaudited financial results for the first half of the calendar year 2024. We will delve into operational highlights, including our CapEx spending, provide updates on our ESG initiatives, share the successes of our block placement, and conclude with our growth plans and future strategies. RLC has achieved remarkable growth in the first half of 2024, with net income attributable to equity holders of the parent company reaching an impressive PHP 7.25 billion. This outstanding performance is primarily driven by our malls, hotels, and logistics segments, further augmented by a one-time gain on the reclassification of our investment in GoTyme. Even when excluding this gain, our net income still reflects a robust 9% year-on-year increase. Furthermore, the consolidated EBITDA and EBIT margins have improved to 57% and 44% respectively, compared to the same period last year. Our investment portfolio showcases strong revenue generation across all segments. The mall segment experienced a notable 12% revenue growth, while our office segment saw a 6% increase. The hospitality segment achieved phenomenal growth, surging by 42%, and our logistics segment continued its upward trajectory with a remarkable 31% revenue increase. In the residential segment, we achieved net pre-sales of PHP 5.5 billion in the second quarter, making a significant improvement over the first quarter. These exceptional results underscore RLC's unwavering commitment to excellence in strategic expansion, positioning us for continued success in the future. As of the end of the first half of 2024, RLC boasts a diverse and robust asset portfolio that includes 54 operational lifestyle centers, 132 residential developments, 32 office developments, 29 mixed-use developments, 26 hotels, 10 work.able centers, and 10 industrial facilities. Now, let us turn to the financial performance highlights. RLC maintains a strong financial position with total assets at PHP 248.5 billion, which includes approximately PHP 9.4 billion in cash and cash equivalents. Shareholders' equity stands at PHP 153.9 billion, reflecting a solid capital base and financial stability. As of June 30, 2024, our total outstanding debt is at PHP 53.2 billion, resulting in a prudent net debt-to-equity ratio of 30%. Earnings per share has reached PHP 1.50 per share, a 29% increase from the same period last year. Excluding the one-time gain, earnings per share is at PHP 1.35 per share, at 55% of full year calendar year 2023. Furthermore, the net book value per share as of end of the first half is at PHP 30.24 per share, indicating that the company's intrinsic value significantly exceeds its market capitalization. Overall, RLC's robust financial standings, durable capital structure, and notable earnings growth underscore our resilience and exemplary management practices, thereby enhancing shareholder confidence and market positioning. For the first half ended June 30, 2024, year-on-year, RLC witnessed a 9% increase in consolidated revenues totaling PHP 21.33 billion, primarily driven by the strong performances of our investment portfolio. As a result, overall EBITDA rose by 12%, ending at PHP 12.22 billion. The increase in EBITDA outpaced revenue growth due to higher EBITDA margins, resulting from lower power charges for malls and offices, the absence of pre-operating expenses for our Westin and Fili hotels, and from higher share in net income from our joint ventures. EBIT grew even more significantly by 14%, reaching PHP 9.44 billion, benefiting from slower increase in depreciation. Net income attributable to the parent company surged by 25% year-on-year, totaling PHP 7.25 billion for the first half of 2024. This substantial uptick was further bolstered by a one-time gain from the reclassification of our investment in GoTyme and the reduction of RLC's ownership in RCR from 66.14% to 50.05%, following the successful overnight block placement conducted last April 5, 2024. Excluding the impact of this reclassification and decrease in ownership, net income still shows an impressive increase of 12%, fueled by the consistent enhanced operational performance of our malls, hotels, and logistics segment. The 12% increase in net income, however, was slightly slower than the 14% growth in EBIT due to higher interest expense resulting from higher interest rates on long-term loans. In the second quarter, compared to the same quarter last year, revenues remained flat as the strong performance of our investment portfolio was offset by the decrease in the realized revenues from our residential segment. Despite flat revenues, both EBITDA and EBIT decreased by 4% and 3% respectively, due to improved margins from the absence of pre-operating expenses from the mentioned hotels and from the higher net share in the net income of our joint venture partners. Consequently, net income attributable to the parent company increased also by 3%, even with the impact of the decrease in RLC's ownership in RCR. Lastly, comparing the second quarter versus the first quarter of this year, revenues decreased by 7%, primarily due to the lower realized sales of our residential segment. Despite this 7% decline in revenues, EBITDA and EBIT experienced minimal reductions of 1% and 2% respectively. This is largely due to the share in net income of our joint ventures. Net income attributable to the parent company decreased by 22%, mainly due to the one-time gain on our reclassification of our investment in the first quarter and due to the reduction of RLC's ownership in RCR. Without the impact of these transactions, net income attributable to the parent remained relatively stable, with a slight increase of 0.4% despite the revenue decline. This highlights RLC's ability to deliver sustained growth and profitability through strategic initiatives and effective management. In the first half of 2024, the investment portfolio demonstrated substantial growth, which accounted for 74% of our consolidated revenues. These are the malls, offices, hotels and logistics segments. Additionally, we witnessed positive revenue growth from our equity shares in joint ventures and recognition of deferred sales of lot to joint ventures from our destination estate segment. Last April 5, we had a successful block placement of our RLCR stake of 1.7 billion shares to institutional investors amounting to PHP 8.5 billion at PHP 4.92 per share, and holds the record as the single biggest block placement of a Philippine REIT-sponsored company. This is a testament of the confidence entrusted to us by our investors. The block sale will improve RLCR's public float to 49.95%, and we will now infuse yield accretive and high-quality assets to RLCR, which will maximize both RLC and RLCR shareholder value. I now turn it over to Mr. Mon Rivero for the operational highlights per business units. Thank you, Mr. Kerwin Tan, and good afternoon to everyone. The sustained consumer spending and increased occupancy rates drove mall revenues, which rose by an impressive 12% to PHP 8.71 billion, contributing 41% to the consolidated revenues. This upward trajectory resulted in a 16% increase in EBITDA, reaching PHP 5.34 billion and enhanced by lower depreciation, a year-on-year increase in EBIT to PHP 3.68 billion. Robinsons Malls continues to assert itself as the second-largest mall operator in the country, highlighted by its 54 lifestyle centers spanning 1.62 million square meters of leasable space, that's 93% leased out with over 8,400 retailers. Robinsons Offices delivered satisfactory results with revenue growth of 6% to PHP 3.92 billion, accounting for 18% of consolidated revenues. This improvement is primarily due to the increase in occupancy rate to 86% with the expansion of BPO tenants. Its portfolio comprises of 32 high-quality assets that span across 793,000 sq m of prime leasable space. EBITDA for this segment reached PHP 3.12 billion, with EBIT closing at PHP 2.56 billion. Next slide. With strong contributions across all brand segments, Robinsons Hotels and Resorts, or RHR, exceeded previous year revenues by 42% to PHP 2.85 billion. EBITDA and EBIT, which closed at PHP 868 million and PHP 454 million respectively, have both significantly grown by 96% and 243% year-on-year, respectively. To date, RHR is continuously expanding its portfolio, spanning across its four brand segments, which consist of 26 hotel properties with 4,243 room keys across its multi-branded portfolio. Net sales take-up for the first half reached PHP 6.20 billion, showing a decline from the same period last year, but marking a significant improvement from the first quarter. On the other hand, realized revenues are down by 10% year-over-year to PHP 4.86 billion. The decline is primarily due to the timing of revenue recognition stemming from the low net sales in 2020, a period significantly affected by the pandemic. RLC Residences launched Mira Tower One, located in Cubao, Quezon City, with 539 units and a sales value of PHP 4.40 billion. Mira is born from a commitment to crafting homes that resonate with the needs and aspirations of residents and their future families. Seamlessly integrating Nordic aesthetics with expansive open spaces, this development sets a new standard for growth-enabling spaces in the city, designed as a family-centric community near key establishments, transport hubs, CBDs and hospitals. In the first half, industrial leasing revenue surged by 31%, driven by the full-period contribution of the new facility in Calamba, with EBITDA and EBIT increasing to PHP 351 million and PHP 271 million, respectively. Under Robinsons Destination Estates, we recorded PHP 571 million in revenues from land sales to joint venture entities for the first half of 2024. EBITDA and EBIT landed at PHP 345 million and PHP 343 million respectively. For the first half of 2024, RLC has strategically invested PHP 12.14 billion in capital expenditures for the development of malls, offices, hotels, warehouse facilities, acquisition of land, and construction of residential projects for its local operations. To support our expansive growth plans, our land bank now covers over 832 hectares with estimated value of about PHP 158 billion as of June 2024, of which approximately PHP 60 billion or 38% is attributable to the land bank value of our destination estates. Allow me to highlight RLC's diverse ESG initiatives. Showcasing leadership in solar energy with 24 Robinsons Malls generating 31 MW nationwide, equivalent to 6.7 million kWh of clean energy and avoiding over 4,795 metric tons of carbon dioxide, akin to planting 79,000 trees. Additionally, seven office developments are LEED or EDGE certified. All Robinsons Malls conserve wastewater, with 29 featuring rainwater collection and 15 using recycled water. Water-efficient fixtures are installed in restrooms to further decrease consumption. We focus on giving back to communities with our Robinsons Land Foundation, Inc. To date, RLC has conducted relief operations in Butuan, Cebu, Tagum, and Palawan. Most recently, we conducted relief operations for Typhoon Carina in Malabon, San Pedro, Laguna and Nueva Ecija. For community development, we are active in the livelihood programs through our Love Livelihood Carts and Entrep Corner. Finally, we continue to support schools through our Brigada Eskwela program. We have a long-standing commitment to good corporate governance and stewardship. We have adopted an anti-bribery and anti-corruption policy to uphold appropriate ethical and responsible business conduct. Moreover, RLC has duly complied with the registration process of the Anti-Money Laundering Council pursuant to the Anti-Money Laundering Act. We look ahead to the opening of our premier upscale lifestyle center in Bridgetowne Destination Estate. Last July, we have unveiled Opus Mall to the public. In 2025, we will be adding 46,000 sq m of gross leasable area attributed to the expansion of our existing malls in Dumaguete and Bacolod, the redevelopment of our mall in Manila, and the completion of new malls in Pagadian and Caloocan. For offices, we have completed this year GBF Center 1, while Iloilo 3 will be in the second half of the year, which will increase office leasable space by 11% to 825,000 sq m. In 2025, we will be completing GBF Center 2, which will expand our office portfolio to almost 900,000 sq m of gross leasable space. For the logistics update, we have completed RLC Ciera Two. Two new warehouses, RLX Calamba 2C and RLX San Fernando 2 are expected to be completed this year, adding 294,000 sq m of leasable space by year-end. In 2025, we will complete 3 more logistics facilities, bringing the total to 15 logistics assets and increasing the total gross leasable space by 19% to 349,000 sq m. Lastly, Robinsons Hotels and Resorts is expected to complete NUSTAR Hotel, our foray in the ultra-luxury segment. This will be located in NUSTAR Resort and Casino, Cebu. With this, our room keys shall grow by 5% to 4,466 rooms this year. This ends our presentation. Thank you. Thank you, Mr. Kerwin and Ramon for the presentation. Some housekeeping rules for the Q&A session. To ask a question, please use the raise hand, and also the Q&A box chat. When your name is called upon to ask a question, please state your name before proceeding with the question. Thank you for your cooperation. Again, to ask your question, you may do a raise hand or type it in the Q&A box. Okay, let's proceed first to the Q&A box. The first question is from Paolo Gabriel Garcia: Can you provide more color on the first half mall foot traffic, how it has been relative to last year in the first quarter 2023? Can you also elaborate on average consumer spend or tenant sales? And also, are we seeing more strength in casual dining, food and bev, and also on retail? Mr. Farr? Yes. The foot traffic for the first half 2024 is up more than 20% from the first half 2023. On the average consumer spending or tenant sales, tenant sales remains to be higher if we're comparing second quarter 2024 versus second quarter 2023. Tenant sales is up by more than 12%. Yes, casual dining F&B is definitely the best performing segment among the different categories of the mall, together with amusement services and athleisure. They're all doing well right now. Thank you, Mr. Farr. Next question on the chat box is from Renz Alvarado of CLSA. Number one question: Could you share the average take-up rate of the existing residential project, both on RLC Residences and JV? Did the company experience any significant sales cancellation during the quarter? Zar, can you answer the first question? Okay, for our launches last year, the following are the sales take-up. For Le Pont Residences, we are already 82% sold. Sierra Valley Gardens is 89% sold. Mantawi Residences Tower 1 is 59%, while Woodsville Crest third building is already 40% sold. Thank you, Zar. For the JVs, generally, Aurelia is already at 88% sold. Haraya Tower One is 60% sold, and then Sonora is at 55%. Velaris Tower One is at 88%, and Velaris Tower Two at 45%. Okay, thank you. Second question from Renz is, how much of the unbooked revenue of the latest, and should we see revenue bookings in the next few quarters? Mr. Kerwin? Hi. The unbooked revenues for our residential is at PHP 53 billion. For the revenue bookings in the next few quarters, we will realize the pre-sales of last 2020 is at PHP 7.3 billion. However, note that in 2021, our pre-sales number has increased by 50%, so we would expect this to be booked in the early parts of 2025. The next question is from Marco Maullon of BDO Securities. The first question is, how much of your office GLA are in the provinces? That's the first question. Then second question is, let's first answer the first question from James. Hi, Marco. For office GLA in the province, around 17%. Thank you, James. The second question is, can you talk about project launches so far in the third quarter? Should we see a catch-up in the coming months? Zar? Okay. Due to a very successful performance of our launches, in 3Q, we actually launched 2 more projects. That's Le Pont Residences and MIRA Tower Two. Together with MIRA Tower 1, actually. Okay. There's an anonymous question about CapEx. Is RLC on track to achieve its 2024 CapEx target for 2023? Yes. We are on track. In the first half, our CapEx is already at PHP 12 billion. The second question is, will the proceeds from the recent block placement be directed towards financing CapEx and debt financing activities? Yes. That is required per REIT law. All proceeds shall be directed to CapEx activities. The third question is, are there any plans to raise additional funds through a bond issuance by the fourth quarter 2024? I think at this point, depending on where we see interest rates, we may just do short-term borrowing to fill in any gaps and then do a bond, depending on where we see interest rates, perhaps earlier next year. The next question from Carl C. How much of the same mall revenue growth is in second half of 2024? Yeah, it's about 20%. Second question is, how much is the value of unsold residential inventory? Please split between standalone project and JV project. For RLC Residences, it is PHP 27 billion, while for JVs, it's PHP 22 billion. Thank you, Zar. Again, if you have question, you can raise hand or type it in the chat box. Another question from Renz. Hi, another question is on hotel segment. What drove the sequential uptrend in the hotel revenue? Did the company raise hotel room rates? And how is the hotel occupancy rate compared to last year? Jay? Hi, Renz. Good afternoon. This is Jay. I'll answer your question regarding hotels. With regard to the driver of the group for the second quarter of 2024, it's primarily driven because of higher occupancy. Your second question, did the company raise hotel room rates? The answer is no. It's flattish. It's around the same levels. The third question, how is the occupancy rate compared a year ago, quarter ago, and in 2019? The second quarter occupancy is higher than last year, than previous quarter, and than 2019. Thank you. Thank you, Jay. Question from Rafael Mendoza of Maybank. Just wanted to confirm RLC's mall and office infusion into RCR announced last June. Is it still on track to be completed within the year? If so, just confirming if my understanding is correct. That since dividends from the infused assets shall be accrued to RCR beginning April 2024, subject to regulatory approvals, this should result in a higher dividends in the fourth quarter this year compared to the first three quarters. Mr. Kerwin? For the RLC's mall and office infusions into RCR, we have submitted all pertinent documents to various regulators for approval, and we should be on track to have. Hopefully, this will be approved by the second half of 2024. As for the dividends, that is subject to approval, accrue to RCR beginning April 2024. Q4 dividends will be naturally higher due to the infusions. As for the retroactive revenues, once approved, this is subject to a special board approval for which we will declare special dividends. Thank you, Mr. Kerwin. From Carl C. again. Is the Fort Bonifacio JV announced already part of the land bank as of the second quarter? The answer there is not yet. From Trevor Kwong. What is the expected impact of the POGO ban on the residential sales outlook? Is the pre-sales momentum improving, stable, or deteriorating? There is actually no impact of the POGO ban for the residential sales outlook, because for the first half of 2024, we did not get new sales coming from the Chinese buyers. On pre-sales momentum, we already see an improving momentum already for resi pre-sales. Thank you, Zar. From Raymond Franco of Abacus Securities. Can you break down the mall foot traffic growth between first quarter and second quarter of this year? Can you also do the same for mall's tenant sales? The second question is, profit growth was concentrated in the first quarter, while second quarter net income was actually flat on a recurring basis. What was the difference in Q2 compared to Q1? For the first question, Mr. Go will answer the question. Yeah, for the foot traffic, actually it's stable, it's consistent. First quarter and second quarter is up by about 20%. Same with the tenant sales. It's doing about 11% first quarter, second quarter. It varies per month, but it's about that percentage. Second question is for Mr. Kerwin. For the second question, the difference between Q2 and Q1 is actually the EBITDA margins. EBITDA margins actually improved to 58% from 56% in the first quarter. Okay. Sorry. On the last question, what was different? Okay. The difference also is the lower share in the parent company due to our recent block placement. The ownership of RLC and RCR went down from 66% to 50.05%. Thanks. The recognition of our residential segment. There's a lower recognition for the second quarter of 2023. Thank you, Mr. Tan. From David Granville of NT Asset. Please provide color on Opus Mall in terms of bookings, occupancy, current and year-end expectation, and initial foot traffic since opening. How is this comparing to the management expectation? Mr. Go? Yes. The lease occupancy for committed spaces of Opus is at 85%. 85% is lease occupancy, and we expect by the end of the year, 80% would be operational by then. Yep. Foot traffic. Right now it's about 25,000 people a day, basically. This meets management expectations. Thank you, Mr. Farr. Now we're going to the raised hand. We're going to Mr. Carl C. You can ask your question. Good afternoon. Let me just check first if you can hear me. Yes, we can hear you. Great. I'll ask a little bit. It was mentioned earlier regarding the POGO ban. Let me confirm. It was mentioned there are no sales to Chinese, and you don't have any unsold inventory or residential projects in the Manila Bay area. Do you have any land bank in the area? We do have a land bank, recently acquired. We acquired the property of the Cherry Lodge beside our Ermita Mall. No? Ermita Mall. Yeah. Okay. May I ask if that's in the hectares? Is it more than five hectares? More than 10? Is that something you can disclose? Yeah. What is it? 4 or 5 thousand? It's about close to 5 thousand. 3,000 sq m, sir. Oh, okay. Yeah. Not large. That's it for me on the POGO ban. I just want to ask about the mall margins. I'm still a little confused. First, depreciation went down. Does that mean there are some malls that are fully depreciated already? Specifically just this year or late last year? Yes, there are some malls which are fully depreciated already. Okay. Other than that, EBITDA margin did go up as well. I want to check if this was a timing issue, that maybe there are some expenses that will be booked in second half and then the margin will come down again. Are there some initiatives or is it just the same old revenue growth? Yes. We expect the EBITDA margins to be sustained as long as the power rates also have been lower this year. The past several months has been at a good rate for us. We no longer have the additional cost due to the high coal prices that we experienced last year. Okay. It's actually about electricity prices, the EBITDA margin component of this. Is that right? That's one of the major contributors. Of course, we also have our cost management measures. Also, a lot of our revenue growth now is coming from rent, not from the cinema sales, which has a lower margin for us. Got it. Thank you. Those are all of my questions. Thank you, Carl. Again to the participant, if you have question, you may raise the Hand button and also type it in the chat box. Okay, one more time. Last one. If you have question, raise hand. You can use the Raise Hand button or in the chat box. If there's none, there's no more further question, I will now hand you over to Mr. Lance to give his closing remarks. Thank you for participating in the call. In the first half of this year, all our investment portfolio segments demonstrated outstanding performance, leading to a 9% year-on-year growth in revenues and a remarkable 25% increase in net income, despite a reduction in the parent stake in our REIT. Even without the gain on reclassification of GoTyme, our net income still rose by 9%. Major actions for last quarter were the completion of the overnight block placement of our shares in RCR, the biggest and most successful front sponsor companies. This paves the way for the infusion of 13 assets into RCR as we continue to drive its growth. For malls, mall segments continue to flourish with strong performance. We are particularly excited with the opening of the Opus Mall, emerging as Quezon City's latest premier lifestyle hub with carefully curated blend of upscale global and local brands and innovative retail concepts. Our office segment has seen an increase in occupancy rates from the first quarter with the expansion of our BPO tenants, and we continuously look to expand RCR as we actively progress in the infusion of assets into the REIT. Our residential segment has shown significant improvements of its net sales compared to the previous quarter. Although realized revenues were low due to the timing of revenue recognition stemming from low net sales in 2020, a period significantly affected by the pandemic, we do expect realized sales to increase in 2025 as we begin to recognize pre-sales of 2021, which were 50% higher than our 2020 pre-sales. In the meantime, our joint ventures continue to contribute robustly to our revenues. For our logistics business, RLX, we continue to see strong momentum with full period contributions from new warehouses, and we continue to explore additional warehouse locations as we further expand our logistics portfolio. For the hotel segment, we continue to witness upward trajectory with strong contributions from all brands, driven by increased occupancy and MICE activities, positively impacting both top-line revenue and EBITDA. We eagerly anticipate the opening of additional 223 rooms from our NUSTAR Hotel in the coming quarters. At RLC, we remain committed to maintaining strong performance amidst external challenges and will continue to implement agile strategies to ensure sustained growth in the coming quarters. Thank you for your continued support and participation. Thank you, Mr. Lance. Thank you everyone for the participation. You may all disconnect.