May 14, 2014

ALI’s 1Q14 net income up 25% YoY

Ayala Land Inc(ALI, Buy) yesterday announced 1Q14 attributable net income of P3.46b, up 25% YoY. This came on a 19% growth in real estate revenues on continued strong showing of the residential (+36% yoY) and commercial leasing (+29%) businesses. These were, in turn, driven by higher residential bookings and project completion; expansion in leasable area, higher occupancy and average rent for shopping centers and office buildings due to continued rollout; and higher revenue per available room and more hotel rooms offered during the period.

Revenue growth from the core business segments also compensated for the 42% drop in commercial and industrial lot sales to P2.24b in 1Q14 which came on higher base given the lot sales from the FTI property in 1Q13.

Residential sales takeup growth was modest at 9% to P21.3b but this was due to fewer project launches during the period (8 projects in 1Q14 vs. a total of 42 projects in 2H13). Project launches is usually tail-ended for ALI and therefore not indicative of a possible slowdown in revenues going forward. Unbooked revenues from residential presales expanded to P105b as of end-March from P99b in end-2013.

Our take: While the results were generally in line, we highlight the acceleration in the leasing revenue growth: +16% for shopping centers, +49% for office and +47% in hotels and resorts. To put this in context, the growth in ALI’s growth shopping center rental income outpaced the 12% growth posted by SM Prime Holdings during the same period despite both companies registering a similar 7% same-mall sales growth.

Meanwhile, the 49% rise in office revenues came despite just a 3% rise in average rent and 14% expansion in gross leasable space. Most of the new occupants of new BPO leasable space in 1Q13 were still fitting-out their offices and thus were not paying rent.

This explains why the growth in leasable space and average rent were not commensurate to the overall office rental income growth in 1Q14. Meanwhile, residential revenue growth should be sustained on continued progress completion. – WealthSec