August 18, 2014

One-off items boost RLC’s 9MFY14 net income

One-off write backs pertaining to previous losses related to last year’s super typhoon boosted Robinsons Land Corp’s (RLC) 9MFY14 (ending Sept 2014) net income by 6% YoY to P3.88b, reversing the 10% decline in 1HFY14. However, net of the P215m in one-off gain in 3QFY14 and the P90.4m in losses booked in 3QFY13, recurring income for the first nine months of its fiscal year actually declined by 2% (-12% in 3QFY14) to P3.67b after gaining 3% in 1HFY14.

This can be traced to the relatively flat revenue growth in residential development business and hotel operations, as well as a slowdown in mall revenues due the ongoing tenant mix rebalancing its high yielding malls. As such, overall revenues grew by just 5% in 9MFY14 after growing 7% in 1HFY14.

Mall revenues grew by 11% in 9MFY14 by 11% YoY, indicating a slowdown (+8%) in 3QFY14 notwithstanding the additional leasable space from the opening of five new malls during the period. RLC has partly attributed the weakness to an ongoing rebalancing of tenant mix in two of its high-yielding malls Robinsons Place Ermita and Robinsons Magnolia by replacing its anchor Robinsons Department Store with other branded boutiques (like H&M) that it deemed appropriate with the target market.

As a result, RLC estimated the impact of the rebalancing to be about 4% of total revenues in 3QFY14 and 3% in 9MFY14. It hopes to ease the impact with the opening of two new malls before the end of its fiscal year. Mall EBITDA has also come under pressure with the closure of Robinsons Tacloban. This should ease going forward as the mall has reopened last month.

Office leasing income recovered in 3QFY14 by growing 7% YoY after being relatively flat in 1HFY14. The improvement can be traced to rental reversions. However, takeout in the two new BPO office buildings completed in March this year has remained sluggish with only 46% of the leasable space in Cybergate Alpha and 69% of Cybergate Beta having been signed with prospective tenants. While the company expects to fully lease out Beta before yearend, it might take longer for Alpha to be complete leased out.

Residential revenues were flat in 9MFY14 after declining 4% in 3QFY14 on lower sales takeout and progress completion. These are also coming off a high base in the previous year. RLC has no plans to accelerate its project launches, keeping this to just P6b-8b worth of projects yearly.

Meanwhile, the hotel operations fell 9% in 3QFY14 and 1% in 9MFY14 on lower occupancy rates in the Holiday Inn and Summit brands that offset the strong performance of goHotel. The company anticipates that goHotel will remain the driver in this business segment.

RLC is looking to refinance about P10b in maturing debt obligations with lower-cost term loans with longer tenor.

Our take: RLC’s results came below expectations. The 9MFY14 core net income was equivalent to just 69% of full-year forecast (with only a quarter left in its fiscal year to catch up). We expect the company to face challenges in the early months of FY15 with the lingering impact of its tenant mix rebalancing, the slower-than-expected takeup of its two new BPO office buildings, and pressures in the hotel and residential businesses. However, the long-term outlook is becoming brighter with the ongoing development of its mixed-use township Bridgetown on which it is now building another BPO office building with room to start another one.

The company also disclosed that it has just signed a deal with the Bases Conversion Development Authority for the construction of a BPO office building in the Bonifacio Global City. The new building will add 60,000 in leasable space and is set for completion in three years. Barring any problems in leasing out these additional office building units, they can provide additional boost to RLC’s recurring income base.

The company should also benefit from the ramped-up operations of the 7 new malls it has opened in the past nine months. Lastly, it should also enjoy lower interest expenses arising from the refinancing of maturing obligations. Until then, however, we expect the disappointing results to weigh on the company’s share price. – WealthSec