March 11, 2014

Key takeaways from the VLL briefing

Vista Land and Lifescapes (VLL) yesterday held an investors’ briefing and the following are the key takeaways:

The company will be resorting to more JV deals to expand land bank and accelerate the use of its existing land bank to increase its capital efficiency. Its existing landbank of 1,888 hectares (as of end-2013, inclusive of share in JV deals) is estimated to support around 10 years’ worth of development based on the average annual usage of around 200 hectares. VLL is hoping to close JV deals involving some 50 hectares of land this year.

Our take: We believe this will be the right track for the company to ensure capital efficiency in the absence of a strong recurring income base to support aggressive land banking. Under JV deals, the company will be prompted to follow a definite timetable for development thus this can ensure immediate deployment of assets and result in higher profitability and better asset utilization.

VLL has launched a new brand Lumina to cater to low-cost and socialized housing. Lumina will offer units priced at between P400,000 and P1.5m/unit with the same gross margins as the other brands.

Our take: We view this positively as this will enable the company to utilize its land assets more efficiently to generate the same margins, cater to a bigger segment of the residential market with stable demand, and comply with law requiring developers to devote 20% of their development projects to socialized housing.

The company is on track on its commercial property development with a view of growing its leasable space from 10,500sqm in 2013 to more than 100,000 sqm in five years. At this pace, it is looking to grow its rental income base from P61m last year to P100m this year and P1b in five years.

Our take: At the current overall annual revenue growth pace of ~20%, the expected P1b recurring revenue base will be equivalent to around 2.4% of total revenues by 2017 from 0.3% in 2013. Given its huge landbank (VLL has the second biggest land bank next to Ayala Land), we believe the company needs to speed up the usage of existing land bank to achieve asset utilization efficiency. Incorporating more community centers in its projects should help not only in expanding its recurring income base to more significant levels but also in promoting better asset utilization.

The company is not concerned with the significant jump in its miscellaneous income from buyer payment forfeiture as this has remained within the average 2%-3% of overall revenues.

Our take: If unchecked, we believe that the rising forfeiture income can be a potential concern with regard to quality of earnings (around 11% of last year’s earnings), implications on the quality of buyer that the company is attracting, and potential implication to inventory management. – WealthSec