ALI (Ayala Land) survives through financing activities as it burns cash on operations

With all the right pedigree, relationships, and resources it has been a breeze for Ayala Land, Inc. (ALI) to weather the COVID-19 pandemic through financing activities.

At the onset of the pandemic, ALI quickly organized the first ever Real Estate Investment Trusts (REIT) in the country to raise funds. The AREIT public offering raised roughly 13 Billion Pesos for ALI.  Back then it was facing around 54 Billion Pesos of debts coming due in the near term.

The effects of COVID-19 pandemic on ALI are very pronounced.  Total revenue for the nine-month period ending September 30, 2020 was only 22.1 Billion Pesos as compared to 63.3 Billion Pesos of last year of the same period.  That would be a decrease of 41.2 Billion Pesos or a 65.1% decrease.

The decrease in revenue heavily impacts cash flow from operations.  For the nine-month period of 2020, ALI used or burned 28 Billion Pesos in its operating activities.

With operations burning cash, ALI survives through financing activities. Foremost of the financing activities is the AREIT public offering that raised ALI around 13 Billion Pesos.  Another financing activity that generated cash for ALI is deposits from customers. Deposits and other noncurrent liabilities generated 12.8 Billion Pesos of cash for ALI. 

Deposits include security deposits from tenants of retail and office spaces and deferred credits arising from sale of real estate properties. Security deposits are equivalent to three (3) to six (6) months’ rent of long-term tenants with non-cancellable leases. This will be refunded to the lessees at the end of the lease term or be applied to the last months’ rentals on the related contracts. Deferred credits pertain to advances from buyers of real estate properties to cover various processing fees including, but not limited to, fees related to transfer of title such as registration fees, documentary taxes and transfer taxes. Payments made by the Group for the processing of title are charged to this account.  Customers’ deposits consist of excess of collections over the recognized receivables based on percentage of completion.

But of course, the biggest financing activity of ALI is borrowing money.  ALI borrowed money to pay borrowed money. During the nine-month period ALI borrowed 172.8 Billion Pesos to pay 173.6 Billion Pesos of borrowed money.  With the right pedigree and relationships, ALI could borrow money at relatively low interests.

Financing skills should come in handy for ALI as ALI is still facing 35.7 Billion Pesos of debts coming due in the near-term.

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Disclaimer and Disclosure: This analysis is an independent viewpoint on publicly traded stocks in the Philippine market. Accuretti Systems Inc. trades stocks in the Philippine market.

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