Raul Alonzo B.

Arellano IV
BA 115 THX
December 11, 2015
Bonus Paper
Ayala Land, Inc.
I. Company Overview
Ayala Land, Inc. (ALI) is the largest property developer in the Philippines. A subsidiary of
Ayala Corporation, Ayala Land was separately established in 1988 and was incorporated in the
Philippine Stock Exchange in 1991, beginning with its class “B” common shares being listed in
the Makati and Manila Stock Exchanges. In 1997, the company’s common class “A” and
common class “B” shares were declassified into common shares, as approved by the Securities
and Exchange Commission.
Ayala Land started out only as a real estate division of Ayala Corp., but soon was
independently organized for the company to improve on the focus on the real estate business.
Its operations lie in property development, commercial leasing, and other services such as
shopping centers, and health care facilities. The company also strategically invests in other
companies for additional income (eg. Malaysian property developer MCT Bhd).
Being the leading property developer in the country, Ayala Land capitalizes on prime
commercial spots all over the country, managing over 8000 hectares of land to offer a
diversified collection of properties to cater to numerous economic centers and communities.
Currently, the company has numerous holdings for subsidiaries and affiliates. ALI mainly
has 5 operational divisions which contribute to its diversified business. The residential
developments include Ayala Land Premier, Alveo Land, Avida Land, Amaia Land, BellaVita, as
well as other projects and community centers such as subdivsions. Its commercial and business
centers include Ayala Malls, business centers, and their strategic landbank management, which
mainly concerns the areas like Bonifacio Global City and the Makati Central Business District.
Aside from this, Ayala Land also has holdings in Visayas & Mindanao, an example of which
would be the Cebu Business and IT parks. The company also engages in construction and
property management. Lastly, the Ayala Land Hotels & Resorts, Corp. is managed under the
Hotels and Leisure arm of the company.
Ayala Land’s corporate structure can be seen in Appendix A and B, which include the
affiliates and subsidiaries mentioned.

II. Scope and Objectives

The scope of this paper includes the financial performance of the company in the recent
year. It will assess the profitability and solvency of the company. The industry and the economy
that surrounds the company will also be analyzed. The financial ratios of Ayala Land and its
consolidated financial reports will be used as a basis for evaluating the success of the company
in recent times. Furthermore, for the financial ratio analysis, ratios from years 2010-2014 will be
used to assess the company.
The objectives of this paper are to assess the financial ratios of the company, evaluate its
performance, and recommend a course of action with regards to Ayala Land.

III. Economic and Industry Study

The Philippines has been enjoying a steady economic growth from the past four years, with
an average GDP growth rate of 6.2% from 2010-2014, making it one of the fastest growing
economies in Southeast Asia. In 2015, the second quarter saw a slight decrease in the GDP
growth rate of 5.6%, but is expected to rise to around 6.5% by the end of the year. Forecasts
say that for the next two years, the GDP growth rate may experience a slight increase, ranging
from 6.3-6.4%, according to the Asian Development Bank. Aside from this, the inflation rate
dropped to 1.2%. These positive figures signal an overall economic growth for the country,
which have affected the real estate industry and the property market for the better. Investments
in the property market have been increasing, especially in the outsourcing business. The
economic achievements have contributed well to the growth of the industry and the market.
The demand for real estate and other establishments in urban areas has been increasing,
and forecasted to increase in the coming years. With the latest statistics (2010) stating that
almost 48% of the population resides in urban areas, companies that operate in property
management market must meet the population’s demands for residential areas, centers for
recreation and business. According to the Bangko Sentral ng Pilipinas (BSP), residential real
estate loans increased by 25.9% in the first quarter of 2015, indicating a strong demand for
residential units in the metro.
The services sector (e.g. BPO) has also been a driving factor for the increase in the
country’s GDP growth in 2014, making up approximately 57% of the growth. This sector’s
increase in demand called for more investments in service companies and property
developments all over the country, but most especially in Metro Manila. Aside from this, the
growth in tourism also signals the increase in the demand for hotels and retail establishments to
accommodate guests, which calls for another wave of property developments to be made.

IV. Financial and Business Results

Ayala Land, Inc. posted a steady growth in the first half of 2015 with the net income
increasing by 19%, from P7.05 billion to P8.39 billion, compared from the same six months from
the previous year. Revenues were 10% higher than the previous year at a high of P50.61 billion,
mainly caused by its real estate businesses.
The different business segments of Ayala Land contributed to its performance in the first half
of the year. In property development, revenues reached P31.85 billion, and as compared to the
previous year’s revenue of P29.30 billion, increased by 9%. This was driven by the sale of
commercial and industrial lots, residential units, and office spaces. The numerous companies
under the property development, such as Ayala Land Premier, contributed to the sterling
increase in revenues. Ayala Land Premier reached P10.82 billion in revenues, an increase of
16% from the 2014. Amaia, a vital player in the expansion of Ayala Land for the future, also
showed a 23% increase in its revenues, from P1.44 billion to P1.77 billion, indicating its growth.
Meanwhile, the sales of office spaces’ gross profit margin slightly increased from 38% to 39%.
On the other hand the gross profit margins of the sale of commercial and industrial spaces was
on a slight decline of 49%, compared to 51% in the last year.
Under Commercial Leasing was the hotels and resorts operations, shopping centers,
and office leasing. Revenues from this division were posted at P11.40 billion, and as compared
to last year’s 10.36 billion, increased by 10%. Shopping Centers revenues accounted for almost
53% of total revenues from Commercial Leasing, with a P6.01 billion figure. The EBITDA
margins of the three (shopping centers, office leasing, hotels & resorts) all increased to 67%,
88%, and 30% respectively.
The services division of Ayala Land includes the Construction and Property Management
companies such as the Ayala Property Management Corporation and the Makati Development
Corporation. Revenues posted from this division reached P19.90 billion, which is a staggering
increase of 37% from 14.57 billion of the previous year. Construction accounted for 96% of this
revenue, due to an increase in projects from Ayala Land.
The total expenses of Ayala Land, Inc. was reported as P37.5 billion, mainly caused by the
increase of expenses in the Real Estate and Hotels, which amounted to P30.98 billion. The
General and Administrative Expenses (GAE) to revenues ratio lowered down to 6.3%, posting a
positive effect. GAE increased only by small margin of 5%. Ayala Land, Inc. also posted a total
of P41.10 billion for capital expenditures, mostly under construction of projects, and the rest for
acquisition of land.
In terms of equity in net earnings, a loss of P81 million was observed in the first half of 2015.
This was due to a decrease in earnings, especially in the Fort Bonifacio Development
Corporation. There was an increase in costs of business start ups, as well as a decrease in
inventory of commercially-used lots. On the other hand, Interest, Investment, and Other Income
was reported to be P3.3 billion, due to an increase in interest rates in sales and payments.
V. Financial Ratios

Profitability  Industry Median 2014  2013 2012 2011 2010

41.6 36.8
Gross Margin 32.7%  42.4% % 38.7% % 34.0%
33.1 30.5
EBITDA Margin 19.5%  35.9% % 32.1% % 27.3%
28.3 24.2
Operating Margin 18.6%  30.7% % 24.3% % 20.8%
23.3 24.2
Pretax Margin 19.2%  25.1% % 24.3% % 20.8%
24.6 24.5
Effective Tax Rate 25.0%  25.7% % 21.9% % 20.0%
17.5 18.3
Net Margin 13.5%  18.6% % 19.0% % 16.6%

The profitability ratios of Ayala Land, Inc. are shown above. As expected from an increase in
productivity of the different divisions of the company, margins have been increasing for the past
5 years. An increase in the sale of the company is offset by its increasing profits, which
accounts for the total increase in its profitability ratios. The revenue of the company is more than
enough to cover its expenditures. In terms of controlling operating expenses, the company has
not improved significantly, seeing as the Gross Profit margin is increasing slower than the
Operating Margin.
The Net Profit margin has been constant for the past years, and this may be due to a
periodic offset in expenses and revenues. Numerous projects have been undertaken, and the
seasonal revenues of completed projects are becoming equaled by the expenses of new
projects. Nevertheless, the profitability of Ayala Land is well above the industry average,
indicating that it is in fact the leading company in the industry. The margins have an increasing
trend, and based on forecasts, the profitability of this company will not be easily faltered in the
coming years.

Liquidity  Industry Median 2014  2013 2012 2011 2010

Quick Ratio 0.41  0.87 1.02 1.07 1.17 1.23
Current Ratio 1.47  1.22 1.45 1.40 1.65 1.67

The liquidity ratios (quick and current) have been more or less steady, except for a slight dip
in 2014. The dip may be due to an increase in inventory since new projects have been
undertaken by the company. Aside from this, current liabilities may also have increase to
finance the projects in process. Otherwise, the liquidity of the company, especially in the quick
ratio, confirms its ability to settle short-term obligations it may have. The amount of cash it holds
covers most of its expenditures in the short run.

Leverage  Industry Median 2014  2013 2012 2011 2010

Assets/Equity 3.67  3.68 3.35 2.81 2.48 2.14
Debt/Equity 0.58  1.18 1.05 0.84 0.55 0.37

The leverage ratios show an increase in debt and assets of the company. The debt/equity
ratio has been steadily increasing, and this is due to the increase of the debt of the company to
fund its projects. To complement this, an increase in assets is also expected since the
company’s inventories are increasing, as well as the cash. Since Ayala Land is a mature
company, it can handle a high financial leverage.
VI. Conclusion and Recommendation
Based on the financial analysis and the first-half 2015 report of Ayala Land, Inc., it can be
concluded that the company is well on its way to more growth and profitability. Given the
financial environment it currently operates in, as mentioned in the economic industry study, it
will experience more growth, especially in its property management operations.
Unless a drastic change occurs in the company, such as a sudden change in inventory
or if a debt-related problem suddenly presents itself to negatively affect the company’s
business, Ayala Land will continue to increase its profits and perform well in the industry.
Currently, the trend of its financial ratios and financial reports show that it has not experienced a
dip in its performance in the recent years, and it should expected that it will only continue to
expand its operations and gain a larger advantage over its competitors.
It is therefore recommended to invest in Ayala Land Inc., to experience the fruits of its
growth.

References:

- "Ayala Land." Wikipedia. 15 Dec. 2015. Web. 11 Dec. 2015.

<https://en.wikipedia.org/wiki/Ayala_Land>.

- Camus, Miguel. "PH Real Estate Sector to Stay Strong in 2015." Inquirer.net. 25

Feb. 2015. Web. 11 Dec. 2015.

- Taruc, Paolo. "It's 'a Great Time for PH Property Market' - NEDA Chief." CNN

Philippines. 21 Sept. 2015. Web. 11 Dec. 2015.

- Valencia, Rodolfo. "The Outlook for the Philippine Property Market in 2015."

Business Mirror. 11 Feb. 2015. Web. 11 Dec. 2015.

- Ayala Land, Inc. Investor Relations < http://ir.ayalaland.com.ph/Financials.aspx>

Appendix A

Appendix B