I.

COMPANY BACKGROUND

Ayala Land, Inc. (ALI) was incorporated in June 30, 1988 and is the real estate arm of the
Ayala Corporation. The company is known as the leading, most diversified and fully integrated
property developer in the Philippines. It became public through an initial public offering (IPO)
on Makati and Manila Stock Exchange in July 1991. ALI is well-known for large scale, master
planned, mixed-use and sustainable communities.

The company is the only full-line real estate developer in the Philippines with a major
presence in all sectors of the industry. It is present in industrial estates, residential and office
condominiums, house and lots, commercial and industrial lots, shopping centres, factory
buildings and warehouses, and hotel and resorts. With over 11,600 hectaresof land bank, ALI is
present in 57 growth centers across the country. The company has more than 100 subsidiaries
of which the notable ones include Alveo, Avida, and Amaia. It has proven track record that
includes the development of Makati Central Business District, Ayala Alabang, Bonifacio Global
City, Cebu Park District, and NUVALI.

ALI’s Vision and Mission

Our vision is to enhance our standing and reputation as the Philippines’ leading real
estate developer, and to be a strong partner in nation-building.
By developing integrated, master planned, and sustainable mixed-use communities in
vibrant growth centers all over the country, we strive to continually elevate the quality of life for
all of our customers.
We shall be a responsible corporate citizen and act with integrity, foresight, and
prudence.
We shall empower our employees to deliver products that exceed our customers’
expectations and build long-term value for our shareholders.
FINANCIAL ANALYSIS

Cash level covers capital expenditures

The company’s cash increases by 14% from
2017 to 2018 as shown in Figure 2. Its sound cash
level enables the company to support its investment
in capital expenditures (CAPEX) worth Php 110.1
billion and is supplemented by debt financing from
banks and capital markets.
Credit risk management
The company’s fixed to floating rate ratio of 89:11in 2018 and 85:15 in 2017 has lessened the
company’s exposure
SOURCE: 2018 to changes in interest rates. They also have strong credit policies and
Annual Report

continuous monitoring of their exposure to credit risk.

 Productivity of assets marks earnings
The company continues to exhibit increasing ROE
for the previous years. Total asset turnover is also
improving, as the company continue to effectively
employ its assets to generate revenue.

II. INDUSTRY ANALYSIS

Real estate industry in the Philippines has grown

robustly over the past decades and has shown
continues growth for the following years as
forecasted by JLL brought by the upward trend in
the property market in 2018. The industry is in the
growth stage of the industry cycle as manifested
by the improving income of the industry’s top
players and by the declining vacancy rates. Based on a report by Inquirer, vacancy rates in
the country is 7% for office space and 3.7% for retail space. Vacancy rate is expected to
further decline as forecasted by Colliers International.
As reported by the Philippine Statistics Authority (PSA), there are around 5065 property
companies operating in the Philippines as of 2016. This list is composing of holding
companies and individual companies engaged in buying, selling, renting and leasing and
operating apartment buildings and non-residential establishments. Out of these 5065
companies, there are thirty-eight (38) listed companies or companies which are publicly
traded in the market, as per the Philippine Stock Exchange Property Index.
 Demand for the property market, as reported by
Leechiu Property Consultants, is driven by rising urban
population, growth in BPO, and remittances from
Overseas Filipino Workers (OFW). Furthermore, Colliers
International stated that there would be more
residential projects carried out due to improved road
networks and expansion of airports in major urban
SOURCE: Colliers International
areas. Although there would be lesser office launches due to lower BPO companies demand,
there will be higher demand for flexible office spaces for freelancers in the Philippines.
Industrial parks are also foreseen to raise industrial lease rates in areas in Luzon (Cavite, Laguna
and Batangas).
Real estate industry contributed about 3.2% on 2017 GDP. It also drives the Foreign Direst
Investments (FDI). As the data from BSP showed, FDI grew about 31% driven by real estate,
manufacturing and other sectors. It is shown in the resulted of the survey conducted by Santos
Knight Frank and I.T. & Business Process, that availability of infrastructure is one of the factors
affecting choice of location. Moreover, flexible office leases will further benefit the diverse
profile of office tenants that requires flexible workspace such as start-up law firms and
freelancers.

III. Financial Market Outlook

Short Term View (Market Rates)

Ayala Land, Inc. (ALI) was formerly the real estate division of Ayala Corporation and was
incorporated on June 30, 1988 to focus on the development of its existing real estate assets. In
July 1991, the Company became publicly-listed through an initial public offering of its primary
and secondary shares on the Makati and Manila Stock Exchanges.
ALI is engaged in the planning and development of large scale, integrated estates having a mix
of use for the sale of residential lots and buildings, office buildings and commercial and
industrial lots, leasing of commercial and office spaces and the development, operation and
management of hotels and resorts. The Company also develops commercial and industrial parks
and is also engaged in property management, construction and other businesses like retail and
healthcare.

Bloomberg’s BVAL Evaluated Pricing Service provides transparent and highly defensible prices
for fixed income securities across the liquidity spectrum. The key to BVAL’s methodology is its
real-time access to market observations from a wealth of contributed sources. This accumulated
mass of market data is the main driver of an innovative and quantitative approach that first
corroborates market levels on actively traded bonds and then derives a comparable relative
value price for those securities that are less liquid. This methodology aligns with Bloomberg’s
trusted capabilities as the financial industry’s leading analytics platform and source of fixed
income information. In addition to sophisticated algorithms that generate evaluated prices, the
BVAL methodology assigns a BVAL Score based on the amount and consistency of market data
used in our models. This BVAL methodology overview covers government, supranational,
agency and investment-grade corporate bonds for bullet and callable as well as fixed- and
floating-rate structures.

The London Inter-bank Offered Rate (LIBOR) is a benchmark interest rate at which major global
banks lend to one another in the international interbank market for short-term loans.

LIBOR, which stands for London Interbank Offered Rate, serves as a globally accepted key
benchmark interest rate that indicates borrowing costs between banks. The rate is calculated
and published each day by the Intercontinental Exchange (ICE).
Long Term View

The Philippine real estate industry is forecast to maintain its growth and remain resilient in
2019. This is based on research and data gathered by industry leader JLL which reported an
upward trend in the office, residential, retail, and hospitality sectors of the Philippine property
market in 2018.

Office

In 2018, an estimated 1 million square meters of office space was added to the current stock –
whereby 72% of the 9.1 million existing office space has been leased out. Average vacancy of
existing office space remained manageable at 7%. Identified as leading space occupiers as of
the 4Q 2018 are Business Process Outsourcing (BPO), Online Gaming and Flexible Workspace
providers.

Office rents, meanwhile, maintained its growth backed by solid demand- despite construction
delays and headwinds brought forth by interest hikes, delayed Philippine Economic Zone
Authority (PEZA) accreditations on buildings and apprehensions on the Tax Reform for
Acceleration and Inclusion (TRAIN) 2 law. Capital values also gained steadily due to the sound
business environment which continued to buoy investors’ interest.
Residential

Residential condominium supply grew in 2018 with approximately 35,000 units added to the
total existing stock. Overall, total cumulative stock last year reached 338,000 units with majority
of the stock located in Quezon City followed by Makati City and Taguig City.

Strong demand was observed for newly completed residential units and pipeline of projects
from the upper-mid to luxury segments in Makati and Bonifacio Global City (BGC).

The leasing market in Makati Central Business District (CBD) and BGC was mainly driven by the
influx of expatriate employees from BPO and online gaming firms while the sales market was
fueled by the demand from local and foreign high net worth individuals.

In terms of rents, Bay Area, which covers Pasay and Paranaque City, exhibited strong rental
growth owing to the housing requirements of China-based online gaming firms. Meanwhile,
Makati City and Taguig City continued to command the highest rates at Php1,800 and Php1,900
per square meter per month, respectively, due to the stable leasing and sale demand for
residential units in the business hubs of Makati CBD and BGC.

Bangko Sentral ng Pilipinas’ latest residential real estate price in the third quarter of 2018
showed an increase in residential condominium prices in Metro Manila, up 6.4% year-on-year,
suggesting stable demand.

Retail

An estimate of 348,900 sqm of retail space was completed in 2018 with total existing stock
reaching 6.5 million square meters. Average vacancy rates of retail shopping centers remained
low at 3.7% in the 4Q 2018, backed by healthy demand for retail spaces by foreign and local
retailers. The fashion segment led the expansion activity among foreign brands while the F&B
sector drove retail activity of local brands. This sustained entry and expansion of brands drove
positive rental growth of the retail sector.

Forecasts on the office sector remain positive for 2019. On the supply side, a large volume of
office space is anticipated to be added this year while on the demand side, office occupancy
from BPO, online gaming, and flexible workspace firms show optimistic outlook with pre-
commitments on office buildings in the pipeline. Rents are foreseen to have an upward
trajectory due to healthy leasing demand and continued investor interest will prop up capital
values of office developments.

The residential sector is predicted to thrive in 2019 due to the strong demand for upper-mid to
luxury segments with developments’ pre-sold units ranging from 80% to 100%. The residential
leasing market in Makati and BGC is also expected to benefit from the spillover effect of healthy
demand for office spaces from BPO and online gaming firms.

The sound macroeconomic environment of the Philippines is likely to support the retail market
in 2019, with retailers taking advantage of the rising disposable income of Filipinos. The
relaxation of the Trade Liberalization Act of the Philippines may increase foreign investments
coming to the Philippines because of the lower paid-up capital requirement. The government’s
discussions on the actualization of the Real Estate Investment Trust (REIT) law may also
encourage more investment in the retail market.

IV. Opportunities and Threats

OPPORTUNITES

 Rise in population and consumption as an opportunity

Population is projected to grow to 110million by 2020 according to world population review.
The Philippines has one of the youngest populations in the Southeast Asia with a median age of
24 years and is considered as a major economic advantage for it is within the most economically
active age. Household consumption grows at 5.6% in Q2 of 2019 as reported by the PSA.
 Growing tourism boosts demand for hotels
In 2018, international tourist arrivals in the Philippines grew 7.7 percent to 7.1 million as
reported by Philstar. Target tourist arrival for 2019 is 8.2 million as set by the Department of
Tourism (DOT). With the government’s aggressive tourism campaign through the DOT, the
tourism industry will continue to attract large investments into the country.
 ASEAN Integration
With the opening of borders of the regional countries in Asia, the companies are now able to
tap international market as the integration makes movements of goods, labor and capital more
accessible.

 Stable Interest Rates

The BSP keeps the interest rate steady at 4.75% benchmark borrowing that leads to property
market’s improvement and sustainability, and a higher purchasing power of the buyer in
property acquisition or development activities financed through loans.

THREATS

 Natural Calamities

The geographic set up of the Philippines poses threat for natural calamities. The country is
vulnerable to natural disasters like typhoons and earthquakes. Recently, the country has
been exposed to this threat more frequently; this may cause damage to real estate products
which entails additional cost for rehabilitation.

 Political Instability

There can be no guarantee that the Administration would be able to sustain investor and
business confidence. On a report published by Inquirer, it is cited that one of the sentiments
of foreign investors is the domestic political issues. Furthermore, there is no assurance that
the future administrations will adopt economic policies conducive to sustaining economic
growth.

 Future Laws and Regulations

Real estate industry is faced with various laws to comply with in terms of protection to the
environment and human health and safety. Furthermore, there will be more laws to be
 amended with the anticipation of the ASEAN integration in terms of foreign land ownerships
in the country.

V. Strengths and Weaknesses

STRENGTHS

 Proven trust record in the industry

With 3 decades of experience, Ayala Land is a widely trusted brand in Philippine real estate and
recognized for its highly diversified portfolio and full vertical integration of its projects. The
company is also the top player in terms of real estate revenue with Php 155B in 2018.This allows
the company to gain a competitive advantage over other industry players and create a potent
barrier for new entrants.

 Aggressive expansion
The company has been aggressive in expanding its existing land bank from 9,852 ha in 2016 to
11,624 ha in 2018. The company actively establishes its presence in several identified growth
centres across the country. Ayala Land is looking in the direction of where new roads, rail and
airport projects will be to set up its new residential developments while utilizing its existing land
bank.

 Extended Business Lines

ALI is now working in various products and services such as residential developments,
commercial leasing, hotels and resorts, construction and property management. In which the
residential segment is also catering on different clusters for luxury, upscale, middle-income,
economic and socialize housing. One of its new business line - hotels and resorts paved its way
from the growing tourism in the country. This segment development is built in consideration
with the environment and local communities.

WEAKNESSES
  High Amount of Accounts Receivable
Since the company deals with real estate, not all profit translates to cash instantly. Ayala Land’s
sales turn to high volume of receivables. Historical performance of the company shows that
receivables are growing due to higher bookings.

 High Real Estate Cost and Expenses

ALI’s real estate cost continues to increase over the years and taken up almost 40% of its gross
revenue while direct operating expenses took 20%. Growth in these expenses is correlated with
the growth in revenues as well as incremental project completions from residential and leasing
business.

VI. Proposed Financial Strategies – Ayala Land Inc.

Looking at their current ratio from 2015, 2016 and 2017 they have a stable current ratio
over the years with 2015 having a 1.14 current ratio while slightly moving to 1.12 by 2016 and
1.18 by 2017. However, using this ratio alone on a standalone basis may not be sufficient to
analyze the liquidity position of the company as it relies on the amount of current assets instead
of the quality of the asset.
One of our recommended strategy is for the company to focus on recovering their
outstanding debts. In this way, they may have to chase as many outstanding payments as they
can. This may sound a simple task to do however, this is where most companies have a hard
time of implementing and it is more ideal to source out the debt collection to a third-party
company to somehow speed things up. Prevention is better than cure – one of the best way to
prevent such unpaid invoices is to make it sure that the client you’re dealing with is capable of
making such payments.
Another strategy that Ayala Land Inc. should consider is to offer a price mark down. This
would have to be strategically be worked together between the finance team, sales team and
the marketing team as this will have a huge effect on their sales revenue. Offense is the best
defense --- by increasing the sales volume (with the right price) this will allow the company to
get their ROI quickly and be able to pay their debts or use the funds for new projects. Looking at
their debt equity ratio, the company does not use that much in leveraging potential of debt
financing. As you can see, over the span time of 3 years (2015: 0.87, 2016: 0.93 and 2017: 0.91)
this shows that the company seems to be very conservative in terms of borrowing money which
inhibits them for a possible growth opportunity and mainly rely on increasing profits based on
their existing investments.
Investors also looks at the ROE or Return on Equity. As you can see, for the past 3 years
(2015: 14.7%, 2016: 14.9% and 2017: 16.1%) since sustainable growth rates and dividend
growth rates, can be estimated by using ROE and from the data, the company’s ROE constantly
grows it gives the investors the opportunity to estimate the future of their stocks growth rate
and the growth rate of its dividends.
On the other hand, increasing prices for several business arm would be ideal. For instance,
the unsold condominium units that was placed in the prime area would be a great opportunity
to get an extra revenue. Unsold parking spaces for their condominium units normally has been
priced at 500,000 PHP during the initial offering which would then double after a year or two
upon completion.
By analyzing their ratio on return on assets, the company is maximizing their resources since
they have steadily maintained the ratio on 5% for the year 2015 and 2016 while increasing it to
an extra .1% on 2017 (5.1%) which indicates that the company has been profitable over the
years. It is believed, that the ROA is referred to ROI (return on investment).

VII. Estimated Financial Impact of Proposed Strategies

 First, the proposed strategies that will have a huge effect on their sales revenue is the price
mark down. This will not only affect the company but also all the whole corporation itself. By
increasing the sales volume (with the right price) this will allow the company to get their ROI
quickly and be able to pay their debts or use the funds for new projects. This will respectively
have a financial impact on all foreign exchange transaction when they will proceed with the
price mark down. But on the other hand, this will best suit the company’s problem by analyzing
their ratio on return on assets, the company is maximizing their resources since they have
steadily maintained the ratio on 5% for the year 2015 and 2016 while increasing it to an extra .
1% on 2017 (5.1%) which indicates that the company has been profitable over the years.
Second, to mitigate the impact of the expected rate increases in the coming years, Ayala Land Inc
should increase the pricing of their several business arm. This will help the company achieve

their aggressive growth plans by efficiently allocating capital across our various business lines.
Lastly, with these huge impacts, the company can upgrade their Information Technology
infrastructure to a cloud-based system to provide the company with a more cost-effective solution while
allowing them to access our operational and financial data in a timely manner.

VIII. CONCLUSION
We have concluded that the Philippine Real Estate Industry is one of the best markets in
ASEAN and have a very promising future. As of today, Ayala Land Inc. has been hitting the right
buttons in terms of managing and investing into the right places while also maintaining their
current business model. Considering that the company managed to stay liquid while
maintaining a small debt, this will allow Ayala Land to further invest into opportunities such as
the establishment of the Bulacan Airport, Clark Green City and other projects that will keep the
company name at the top of real estate industry for the years to come.
References:

Ayala Land Inc., 2016 Corporate Annual Report

Ayala Land Inc., 2017 Corporate Annual Report
Ayala Land Inc., 2018 Corporate Annual Report
https://www.philstar.com/business/2019/03/15/1901493/philippines-hotel-sector-attractive-
investments-2019#CuIAmB3b95d8yWUp.99

http://www.colliers.com/-/media/files/marketing
%20reports/colliers_manila_hotel_q2_2018_final.pdf?la=en-gb

https://www.bworldonline.com/consumer-spending-seen-driving-gdp-growth-7/

http://datatopics.worldbank.org/consumption/country/Philippines

https://business.inquirer.net/244559/ph-loses-luster-among-foreign-property-investors

http://www.bsp.gov.ph/monetary/monetary.asp

https://www.colliers.com/-/media/colliers%20quarterly%20manila
%20q4%202018%20office.pdf?la=engb https://www.colliers.com//media/files/colliers
%20quarterly%20manila%20q4%202018%20residential.pdf?la=en-gb

https://business.inquirer.net/263553/the-outlook-of-the-philippine-real-estate-industry-in-
2019#ixzz5wgpMPH7W