Earnings Call: Q1 2024

May 3, 2024

Ladies and gentlemen, good afternoon. Welcome to our first quarter analyst briefing for 2024. 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, company's Chief Financial Officer, and the rest of the IR team. Today, we'll be sharing with you insights into our strategic progress, financial highlights, and key achievements that have shaped our performance for the first quarter of the year. Presenting with 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 present RLC's unaudited financial results for the first quarter ended March 31st, 2024, including company financials, business segment highlights, updates on ESG activities, future plans, and strategies. Additionally, the board had just approved a cash dividend distribution of PHP 0.65 per share. This marks the highest dividend payout in the company's history. RLC has delivered an outstanding growth in the first quarter of 2024, with net income attributable to equity holders of the parent company reaching an impressive PHP 4.07 billion. This was driven by the contributions from all divisions, bolstered by a one-time gain on the classification of our investment in GoTyme. To elaborate further, our ownership in GoTyme was diluted from 20% to 19%, prompting the need to reclassify the asset from investment in associate to a financial asset at its current market value, which closely aligns with the original cost of the investment. As a result, the reclassification effectively reversed the previously recorded share in net losses of GoTyme, ultimately resulting in a gain on the reclassification. Even when this gain is set aside, our net income still showed a remarkable 21% year-over-year. Furthermore, the consolidated EBITDA reached an all-time high of PHP 6.15 billion for the first quarter. Our diverse business segments have shown commendable top-line performance. The mall segment experienced a 14% increase, while our office business delivered steady results with a 3% increase. The residential business enjoyed a significant surge with a 20% increase in realized revenue. Notably, our hospitality segment skyrocketed by 54%, and our destination estate segment impressively doubled with 112% increase in revenues. These exceptional results underscore RLC's unwavering commitment to excellence and strategic expansion. RLC's diverse and robust asset portfolio as of the end of the first quarter 2024 is comprised of 54 operational lifestyle centers, 131 residential developments, 32 office developments, 29 mixed-use developments, 26 hotels, 10 workable centers, and 10 industrial facilities. Turning now to the financial performance highlights. RLC maintains a robust financial position with total assets at PHP 241.5 billion, including approximately PHP 7.7 billion in cash and cash equivalents. Shareholders' equity is reported at PHP 145.4 billion, reflecting a solid capital base and financial stability. The total outstanding debt as of March 2024 is at PHP 54.6 billion, translating to a 34% net debt-to-equity ratio, which highlights prudent financial management. Earnings per share has reached PHP 0.84, a 58% increase from the same period last year. Moreover, the net book value per share stands at PHP 28.83 per share, suggesting that the company's intrinsic value surpasses its current market valuation. Overall, RLC's strong financial standing, durable capital structure, and notable earnings growth demonstrate resilience and exemplify sound management practices, enhancing shareholder confidence and market positioning. For the first quarter ended March 31st, 2024, RLC saw a notable 19% increase in consolidated revenues, reaching PHP 11.03 billion, driven by strong performances across all divisions. This surge led to a 22% growth in overall EBITDA, which amounted to PHP 6.15 billion and a 28% rise in EBIT to PHP 4.78 billion. Net income for the quarter stood at PHP 4.41 billion, marking a significant 48% improvement over the previous year. This substantial rise in net income was supported by a one-time gain from our reclassification of our investment in GoTyme, alongside continued robust performance across our divisions. Excluding the impact of this reclassification, net income still showed an impressive increase of 21%, fueled by the consistent and enhanced operational performance of all our divisions. This highlights RLC's ability to deliver sustained growth and profitability through strategic innovations and effective management. In the first quarter of 2024, all of our businesses demonstrated substantial growth, notably from the investment portfolio, which accounted for 72% of our consolidated revenues. While the residential division also experienced strong growth, further enhanced by the significant contribution from our equity share in our joint ventures. I will now turn over the presentation to Mr. Ramon Rivero, who will report the operational highlights of our business units. Thank you, Mr. Kerwin Tan, and good afternoon to everyone in the call. Sustained consumer spending and higher occupancy rates drove a 14% increase in mall revenues to PHP 4.45 billion, representing 41% of consolidated revenues. This growth translated into a 19% rise in EBITDA to PHP 2.73 billion and enhanced by lower depreciation, a year-on-year increase in EBIT to PHP 1.91 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 sq m of leasable space that's 93% leased out with over 8,400 retailers. Robinsons Offices delivered stable top-line results with revenue growth of 3% to PHP 1.9 billion, accounting for 17% of consolidated revenues. This stable performance is primarily driven by the strength of its portfolio, comprising of 32 high-quality assets that span across 793,000 sq m of prime leasable space. EBITDA for this segment reached PHP 1.5 billion, with EBIT closing at PHP 1.2 billion. The addition of GBF Center 1, located in Bridgetowne, Pasig City, has expanded our office segment with an additional 52,000 sq m of leasable space. With strong contributions across all brand segments, Robinsons Hotels and Resorts, or RHR, exceeded previous year's revenues by 54% to PHP 1.35 billion. EBITDA and EBIT, which closed at PHP 402 million and PHP 202 million respectively, have both significantly grown by 140% and 770% year-on-year respectively. To date, RHR is continuously expanding its portfolio, spanning across its four brand segments, which consists of 26 hotel properties with 4,243 room keys across its multi-branded portfolio. The decrease in net sales take-up can be attributed to the strategic decision to raise reservation fees in order to better reflect the premium positioning of our brand and attract high-end buyers. This adjustment, along with operational restructuring efforts implemented during the period, has indirectly impacted our sales figures. To optimize synergies and maximize cost efficiencies, we have merged RLC Residences and Robinsons Homes under the brand of RLC Residences. We are confident that this strategic move will drive growth and success in the long term. On the other hand, realized revenues are up by 20% to PHP 2.8 billion year-on-year. Both EBITDA and EBIT grew by 44% and 45% respectively. Both are driven by higher full equity sales and increased contributions from joint ventures. In the first quarter of the year, industrial leasing revenues surged by 40% due to the full year contribution of the new facility in Calamba, with EBITDA and EBIT increasing to PHP 174 million and PHP 134 million respectively. The RLX Taytay 2, our newly completed warehouse in Taytay, Rizal, added 17,000 sq m of leasable space to our portfolio. Under Robinsons Destination Estates, PHP 252 million of revenues from the sale of parcels of land to joint venture entities were recorded in the first quarter. EBITDA and EBIT landed at PHP 149 million and PHP 148 million respectively. For the first quarter of 2024, RLC spent PHP 3.75 billion in capital expenditures for the development of malls, offices, hotels, warehouse facilities, acquisition of land, and construction of its residential projects for our local operations. To support our expansive growth plan, our land bank now covers over 850 hectares with estimated value of about PHP 178 billion as of March 2024, of which approximately PHP 85.5 billion or 48% is attributable to the land bank value of our destination estates. The next two slides are our ESG initiatives and updates for the first quarter. Next slide, please. Now I move on to the future plans. We look ahead to the opening of our premier upscale lifestyle center in Bridgetowne Destination Estate. This year, Robinsons Malls will unveil Opus Mall to the public and will complete the new mall in Pagadian, Zamboanga del Sur, Mindanao. In 2025, we will be adding 23,000 sq m of gross leasable area, all expansion to our existing malls in Dumaguete, Bacolod and Cavite. 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, we have completed RLC Sheridan 2. Two new warehouses are expected to be completed this year, namely RLX Calamba 2C and RLX San Fernando 2, equivalent to 294,000 sq m of leasable space by the end of 2024. In 2025, we will complete our 13th logistics space in Montclair, bringing our total gross leasable space to 315,000 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 Integrated Resort, Cebu. With this, our room keys shall grow by 5% to 4,466 rooms this year. The Board of RLC has approved the distribution of over PHP 3.15 billion in regular cash dividends, equivalent to PHP 0.65 per outstanding common share. This marks the highest declared cash dividend per share in the company's history. Record date is on May 31, 2024, and entitled shareholders will receive their dividends on June 21, 2024. This ends our presentation. Thank you very much. Thank you, Mr. Kerwin Tan and Ramon Rivero. Just some housekeeping rules for the Q&A session. To ask a question, please use the raise hand or the Q&A chat box. When your name is called upon to ask the question, please state your name before proceeding with the query. Let's go first to the Q&A. Here's our first question from Ross Toribio of PEP. Are there still revenues coming from Chengdu projects? The answer there, Ross, is none ready. Another one from Ross. What is the current average of cost of debt? Mr. Kerwin Tan? I answered that question in the chat box. The cost of debt is at 5.56%. Yeah. Average maturity is at 3 years, and the split between fixed and floating rate is at 20% on floating. All the rest are fixed. Thank you, Mr. Kerwin. Again, to ask a question, please use the raise hand, and the Q&A chat box. When your name is called upon, please ask the question. Again, for the Q&A, question from Marco Moleon of BDO. Thank you for the briefing. Were there any residential projects launched in the first quarter? Do you have any target launch value for 2024? Miss Zar? There are no launches in Q1 of 2024. Our earliest launch was actually in April. In terms of target launch value, we have a pipeline of launches. However, it will be dependent on market condition when the actual execution will happen. Thank you, Zar. Again, guys. Okay, let's go now to the raise hands. To Miss Jalene, you may start to ask the question. Hi. Good afternoon. Can you hear me? Yes, we can hear you. Yes, we can hear you. Hi. Thank you for the opportunity. The first question I have is on the residential segment. Can you elaborate on the nature of the change in reservation fees that you have reflected, and also any data on the unsold inventory as of the end of the quarter? In terms of the increase in reservation fees, initially it's somewhere between PHP 50,000-PHP 80,000, depending on the unit type. On the inventory level, we are at PHP 27.6 billion. Okay. Sorry, just to clarify, the 50-80,000 came from what number? Can you also give us an idea about the length of the buyer's equity payment as compared to before the change? The previous reservation fees are between PHP 25-PHP 50,000. The length of the equity period is still the same, depending on the status of the project or the construction period. No change in the length of the period. Okay, understand. My second set of questions is regarding the office segment. Does the 84% occupancy level or lease out rate, and does that already include GBF? Specific to GBF, what's the current leasing level? Thank you. Hi, Jeline. The 84% does include GBF 1. Without GBF 1, from 87% end of 2023, we are now at 88%, so an improvement of 1%. Okay, that's clear. Thank you. Okay. The next question is from RJ Aguirre. RJ? Hello? Can you hear me? Yeah. We can hear you. Thanks, Sean. Thank you for the opportunity. Yeah, some of my questions related to the question earlier about the reservation. What's your current back-out rate? Or is there any write-offs that Robinsons Land has done in the last six months? That's my first one. Hi, RJ. We report numbers on a net basis. Okay. In terms of the actual reservation sales, and in terms of the write-offs or whatever, the back-out rates, what percentage currently is the rate? I'm sorry, RJ. I remember before, like 3%-5%. Is that increasing or decreasing? Just give us some color. It's still the same, but note that we are reporting numbers on a net basis already. I understand. In terms of the ones that you have already discussed in the last couple of years, just want to know if there are increasing back-out rates on the already net sales, pre-sales or reservation sales as you disclosed? From what we see, the rates are approximately the same. Okay, fine. On the launches in fourth quarter and Q1, how does that compare to the previous six months? This is still on residential. The last launch we had was in September 2023, and then no launches after that. The new launch we introduced was actually in April. September 2023 and then April is the last one. April 2024 is the newest launch that we have. This includes the JVs? That's for core projects only. Meaning, RJ, no GBF. Okay. Yep. Understood. In terms of pricing, have you implemented price increases for the existing projects? We usually do the price increases on a regular basis. That would be across all our projects. Okay. Is there a target for pre-sales this year? Given that it's down year-over-year, at least. The target will depend on our market conditions. We don't usually provide specific targets. Okay. All right. Thank you. That's it from me. Thanks, RJ. Next question is from Carl Sy. Carl? Good afternoon. Let me just check if you can hear me. Yes, we can hear you. Good afternoon. I want to check regarding the mentioned increase in reservation fee. Is that only for the core residential business? For your JV projects, is there any equivalent titling, whether higher reservation fee or a shorter payment period? No change in the JV projects in terms of reservation fees. Only the core projects implemented the change. Got it. For the mall business this time, it looks like the depreciation number fell on a year-on-year and quarter-on-quarter basis. For that reason, it looks like EBIT margin jumped a lot and EBIT jumped a lot. I was wondering if this level of margin is what we should expect, or might this normalize in the coming quarters? I guess, Carl, for the EBIT margins, we are in the range of basically 50%-60%. For EBIT, depreciation is down a bit, but we expect it to increase as we realize more depreciation from our new malls. understand. Yeah. I guess, just to make sure I understood your statements earlier about the back-out rate being similar to historical level. The drop in reservation sales for the first quarter is because you raised the reservation fee, it's difficult to get new sales rather than a big jump in cancellations. Is that fair? Do I understand correctly? That is a fair assumption, Carl. Note that there are three reasons why our pre-sales are lower, Carl. Number one is we don't have any launches as of the first quarter of 2024. Then the second, Lee, as mentioned earlier, we merged the two business units, our horizontal and vertical developments. Internally, there's an operations re-engineering. We had to recalibrate some things internally. The third is the higher reservation fee as mentioned earlier. Got it. Those are all of my questions. Thank you. Thank you. Thank you, Carl. Okay, before we proceed with another raised hand, let's go back first to the Q&A. I'll read a question from Henry Chu. Thanks for the briefing. What's the thought around buybacks and what are the rationale behind the pause since year-end 2023? Thanks. Hi, Henry. We believe buybacks are a very efficient way to use capital. Imagine the stock is trading at a 46% discount to book right now. Well, the pause is just a timing issue. We had to allocate some cash for our other projects. Okay. Thank you, Mr. Kerwin Tan. Another question in the Q&A chat box from Ken Groyon of SB Capital. Are there any plans to issue bonds in the third and fourth quarter to finance CapEx? To finance CapEx, we believe there's none. Note we had just concluded a successful blocks placement of our RCR shares from which we raised PHP 8.5 billion. If ever we do raise a bond, it will depend on market conditions. This is basically to refinance our maturing bond in 2025. Thank you. Another one from Mr. Wilson Ng. Could you share how home buyer sentiments and demand has been trending since the start of the year? Zar? We see nothing very significant in terms of possible slowdown or decreased appetite for the market segment. In fact, that gave us the confidence to launch in April our newest project. In terms of take-up of that new project, we are actually 40% sold. Thank you, Zar. Now let's go to Jeline. Jeline, I'll unmute you now. You can ask the question. Thank you. Yeah. Since we're seeing, I think, a lot of interest on the residential segment, you mentioned that the new April launch was well taken up about 40% already. Can you expound on the nature of the project market positioning? Second question, when do you expect the operational restructuring, like merging of the two brands, normalizing or no longer impacting your reservation sales? For the newest project, we call it Mira. This is located in Cubao, Quezon City, basically offering studio one BR and two-bedroom units, catering to the segment of families. That is our target market for this specific project. The operational efficiencies, we expect it to be completed by the second quarter. We expect significant improvement by that time. Yeah. In terms of Mira, what's the current average selling prices per square meter and per unit and total project value, if you have the detail? The project is valued at PHP 4.4 billion. Price per square is at PHP 200,000 per square. Okay, I understand. Okay. With regard to the RCR future asset infusions, what are the current thinking behind future asset injections by management, given current market conditions? Third question is that, with the increase in dividend per share, should we expect that this level is something that's more sustainable going forward? Thank you. Thank you for your question, Jeline. For the RCR infusion, we're thinking of adding malls to the RCR, as we believe that a more diversified pool of assets is more beneficial to RCR. For your next question is for the increased dividend per share As long as the performance continues to improve, we believe that we would be able to sustain these levels of dividend per share payouts. Yeah. Sorry. Just allow me for one last question. On the office space, when do you expect occupancy to normalize, and what's the current rate of rental reversion that you're seeing in the market? Thank you. Hi, Jolene. Sorry, Jolene. Yeah. Go, James. Yeah. Jolene, just to give you some background, though. We obviously see there's some challenges in the office space as well. Pre-pandemic fourth quarter 2019 vacancy levels were at 4.3%. Right now, Colliers is reporting at 19.6%. I think our leasing team is doing well to improve our occupancy, especially this first quarter. Our overall occupancy rate is slightly higher than market without GBF. We're hoping, later on this year, in the next few years, that it starts improving now when everything's normalized. We're still positive with the take-up, especially with our existing tenants. We see expansion going on. We're just hoping for the best. Okay, thank you so much. Okay. There's another question on the Q&A chat box from Herman Dela Paz. How exactly the merger of the two business units under residential business affect the pre-sales in first quarter? Zar, you may want to answer that. We had to iron out some operational systems and strategies so that we maximize on our efficiencies. Then we did some recalibration in terms of our sales also. Since there's basically two different formats in terms of the residential products, we did some realignment in terms of trainings and systems so that everybody's on one page moving forward. Thank you, Zar. Again, if you have question, you can either raise hands or type your question in the Q&A chat box. Oh, there's another one from David. David? Yeah. Can you hear me okay? Yeah, we can hear you, David. Yeah, great. Thanks. Just a quick question on Opus. If I remember correctly, it should have opened towards the end of last year under the original plan. It seems to be quite late. I'm just wondering what's happening, why it seems to be delayed, if I'm correct in that. But also, what's the pre-leasing looking like for Opus as well, and when will it actually open? Thank you. Hi, let me answer that. For Opus right now, the pre-leasing for it is around 83%. For the opening date, last year, we had some challenge with the delivery of some materials, some glass and aluminum materials that needed to be delivered and some tiles that were imported. That's why we had to move the opening date to this year. We're expecting it around July, basically. Thank you, Mr. Faradi. Again, if you want to ask a question, you may either raise hand or use the chat box. If there's none, I would like to give you to Mr. Lance Go Cong Hui for his final remarks. Yeah. Thank you. Yes. Thank you. I think there have been a lot of questions on the residential revenues. Maybe just to elaborate a little bit more. The RLC Residences brand has been on the upswing the last few years as we've tried to move upscale through joint ventures and through the launch of a lot of our flagship projects. We've also invested in terms of marketing, building up our sales force, and just generally doing a better job of focusing on customer pain points. We saw the same opportunity to improve the performance of our Robinsons Homes group, which was rather small. Earlier in the year, we decided to merge both divisions. I think the purpose of that is really to improve the capacity of Robinsons Homes under the better known RLC Residences brand, as well as to, as Char said, standardize our processes, tighten up the ship, and really. We saw, of course, certainly with any change like that, with any merger, there's inevitably some period of time where we're unable to sell as much as we restructured the business. I would say that affected our overall sales a little bit. However, answering the question, the cancellation rates are really a function of previous year sales. No, we're not seeing a substantial increase in cancellation rates. What we're seeing in the first quarter was really more lower sales overall, gross sales. This is really a function, as we said, of the merger, but more because we didn't launch any new products during the year since October, as we try to focus on reducing our RFO balances as well. We also did not have an opportunity to do a lot of international marketing during this time as the team was focused on the restructuring merger between homes and residences. I would note, though, that we think the Q1, in general, is really a one-off. We have resumed marketing activities, product launches in April with the launch of Mira. We've also started to send our teams abroad for more aggressive marketing activities. We expect April gross sales have reverted back to normal rates. We do expect that beginning Q2, Q3, Q4, we should expect to see net sales levels similar to what we had in the previous years on a quarterly basis. I would note, though, that overall, I think the residential market, the amount of growth we're seeing is not as much as previous years. I think there is an effect of higher interest rates and inflation on general demand for large scale investments such as property. In general, we're still very optimistic. We have a good pipeline of new products, and our April sales have reverted back to historical sales over the last couple of years. Our focus will continue to be on improving the RLC Residences brand and also in managing our launching products in a new and timely manner, focusing on customer experience, finally also trying to reduce the amount of ready for occupancy product that we have. Thank you, Mr. Lance. I'm sorry, sir. Yeah. Sorry, yeah. Maybe on the question of buybacks, I think echoing what Kerwin said, I think we still have an open buyback program which the board has approved. I think there's probably an opportune time to restart that sometime in the coming year. As can be seen from the increase in our cash dividend, we're very confident about our ability to sustain and grow our cash flows, particularly from our recurring income streams. Mall segment continues to grow very well. Opus will soft open in July, and Pagadian closer to the end of the year. Office business, we are continuing to gain market share here, although admittedly, the overall market is facing a lot of competition. In many cases, rental reversions compared to 4 or 5 years ago when there was some larger shortage of property, we're seeing reversions which are probably a little bit negative relative to those. I think we still continue to see very bright demand for both hospitality and our logistics businesses. We think our land bank is ready to support our destination estates in the coming years as well as the residential business. Overall, we feel quite good about our business, and I think this is really in our ability to generate increasing earnings while sustaining cash flows. I think this is manifested by the increasing dividends that we are paying out. If there are no further questions, I think that's about it. We look forward to speaking to you again in the next quarter. Thank you, Mr. Lance. Also thank you, everyone for participating. You may now all disconnect.