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FINANCIAL AND OPERATING HIGHLIGHTS

Management’s Discussion and Analysis of Financial Condition and Results of Operation

RESULTS OF OPERATIONS:
For the nine months ended 30 September 2017 and 2016

Rockwell Land Corporation (“the Company”) registered Php10,712 million in consolidated revenues, higher by 36% from last year’s Php7,881 million. Sale of Condominium Units, including accretion of interest income, account for 86% of total revenues.

Total EBITDA reached Php2,715 million, 16% higher than last year’s Php2,333 million primarily driven by the residential segment. Overall EBITDA margin registered at 25% of total revenues, which is lower compared to last year’s 30%. Residential development, commercial development and hotel contributed 63%, 35% and 2% to the total EBITDA, respectively.

Net income after tax registered at Php1,593 million, a growth of 31% from last year’s Php1,216 million. NIAT margin is at 15%, same with last year.

Business Segments

Residential Development generated Php9,399 million, contributing 88% of the total revenues for the period. Bulk of the revenues came from the sale of condominium units, including accretion from interest income.


EBITDA from this segment amounted to Php1,708 million, 19% higher than the same period last year at Php1,430 million due to higher presales and substantial completion from Proscenium.

Commercial Development revenues amounted to Php1,057 million, 11% higher than 2016’s Php954 million. This segment contributed 10% of total revenues excluding the share in the joint venture (RBC). The share in the joint venture is reported as “Share in Net Losses (Income) in JV” under Other Income (Expenses).


Retail Operations generated revenues of Php683 million, accounting for 6% of total revenues. Retail operations include retail leasing, interest income and other mall revenues. Cinema Operations also generated Php160 million which is 1% of total revenues. Cinema operations include Cinema ticket, snackbar sales and other cinema revenues. Office operations generated Php214 million which is equivalent to 2% of the total revenues. Office operations include sale, leasing and other revenues.


The segment’s EBITDA amounted to Php948 million, higher by 11% from the same period last year.


The total revenues used as basis for the EBITDA margin excludes gross revenues from the joint venture as the latter is reported net of all other income and expenses under “Share in Net Losses (Income) in JV”. Share in net income in the joint venture contributes 7% to the Company’s total EBITDA.

Hotel Operations contributed 2% of the total revenues. Both revenues and EBITDA is slightly up from Php253 to Php255 million, and Php52 to Php59 million respectively.

Costs and Expenses

Cost of real estate and selling amounted to Php7,271 million. The cost of real estate and selling to total revenue ratio is at 68%, higher than last year’s 63%, due to substantial completion of Proscenium project. Selling expenses amounted to Php639 million which is higher by 26% due to higher sales commissions and marketing expenses.

General and administrative expenses (G&A) amounted to Php1,288 million, higher by 13% from the same period last year. The increase was mainly attributable to higher taxes and licenses, depreciation and manpower costs.

Interest Expense amounted to Php169 million, lower by 49% than last year’s Php329 million. The decrease was mainly due to higher capitalized interest. The average interest rate of the Company’s consolidated debt is at 5.09%.

Share in Net Income (Losses) in JV realized share in net income of RBC amounting to Php200 million, 4% increase from last year’s income of Php192 million. Occupancy rate is at 100% compared to 98% rate of same period last year. It generated gross revenues of Php516 million which is 3% higher than last year’s Php499 million. At its 70% share, the Company generated revenues of Php361 million and share in net income of Php200 million. The share in net income is reported net of taxes and represents the Company’s share in the operations generated by RBC.

Project and capital expenditures

The Company spent a total of Php8,877 million for project and capital expenditures for the past nine months of 2017, 20% higher than last year’s Php7,432 million. The expenditures consist mostly of development costs for Proscenium, RBC Sheridan and The Vantage projects.

Financial Condition

The Company’s total assets as of September 30, 2017 amounted to Php44,637 million, which increased by Php4,202 million from 2016’s yearend amount of Php40,435 million. On the other hand, total liabilities amounted to Php27,731 million, higher than 2016’s Php24,759 million. The movement in total assets was mainly due to increases in Investment Property and Land Held for Future Development, while the increase in total liabilities was mainly from additional borrowings.

Current ratio as of September 30, 2017 decreased to 2.87x from 3.01x as of December 31, 2016. Net debt to equity ratio is at 0.97x as of September 30, 2017, slightly higher than 2016’s yearend ratio of 0.91x.

Causes for any material changes (+/- 5% or more) in the financial statements

Statement of Comprehensive Income Items – 1st Nine Months 2017 vs. 1st Nine Months 2016

45% increase in Sale of condominium units
Primarily due to higher bookings and substantial completion of Proscenium projects.

13% increase in Interest Income
Mainly due to higher interest income accretion arising from Proscenium, Vantage and Edades Suites projects.

12% increase in Lease Income
Mainly due to higher occupancy of 8 Rockwell office and higher average rental rates in retail space.

42% increase in Others
Due to higher revenues from subsidiaries.

50% increase in Cost of Real Estate
Primarily due to higher construction completion for Proscenium.

13% increase in General and administrative expenses
Mainly attributable to higher taxes & licenses, depreciation and manpower costs.

26% increase in Selling expenses
Primarily due to higher sales commissions and marketing expenses.

49% decrease in Interest Expense
Primarily due to higher capitalized interest.

129% decrease in Foreign Exchange Gain
Due to lower collections denominated in in U.S. dollars.

Statement of Financial Position items – September 30, 2017 vs. December 31, 2016

8% increase in Cash and cash equivalents
Primarily due to proceeds of loan borrowing and collection from The Grove project.

10% increase in Trade and other receivables
Mainly due to higher sales bookings from Proscenium.

14% decrease in Land and Development Cost
Mainly due to completion of Proscenium and 32 Sanson Phase 1.

12% increase in Advances to Contractors
Primarily due to down payment to contractors for Edades Suites and Mall Expansion projects.

20% decrease in Condominium Units for Sale
Mainly due to additional sales from The Grove projects.

597% increase in Non-current Trade Receivables
Due to recognition of long-term receivables from completed projects, mostly from The Grove.

17% increase in Property and equipment
Due to transfer of land cost related to Aruga hotel in Makati.

21% increase in Investment Properties
Due to payments for construction in progress for RBC Sheridan, Santolan Town Plaza and Mall Expansion projects.

86% increase in Land Held for Future Development
Due to additional land acquisitions.

12% increase in Current portion of interest-bearing loans and borrowings
Due to reclassification of loans due within the year.

15% increase in Interest-bearing loans and borrowings – net of current portion
Due to additional borrowings drawn within the year.

17% decrease in Pension liability
Due to contribution to plan assets for the first nine months of 2017.

50% increase in Deposits and Other Liabilities
Primarily due to increase in retention payable.

14% increase in Retained Earnings
Due to net income after tax attributable to parent of P1,593 million for the first nine months of 2017, net of dividends declared.

6% decrease in Non-controlling interests
Due to net loss attributable to non-controlling interests of P19 million for the first nine months of 2017.

Key Performance Indicators

As indicatedFor the nine months ended September 30
 20172016
ROA (*)5.0%4.3%
ROE (*)13.0%11.1%
 As of September 30, 2017As of December 31, 2016
Current ratio (x)2.873.01
Debt to equity ratio (x)1.061.03
Net debt to equity Ratio (x)0.970.91
Asset to equity ratio (x)2.642.58
Interest coverage ratio (x)4.714.54


Notes:
(1) ROA [Net Income/Average Total Assets]
(2) ROE [Net Income/ Average Total Equity]
(3) Current ratio [Current assets/Current liabilities]
(4) Debt to equity ratio [Total interest bearing debt / Total Equity]
(5) Net debt to equity ratio [(Total Interest bearing debt)-(Cash and cash equivalents) / Total Equity]
(6) Asset to equity ratio [Total Assets/Total Equity]
(7) Interest coverage ratio [EBITDA/Interest Payments]
* ROA and ROE are annualized figures

Financial and Operating Highlights

FINANCIAL AND OPERATING HIGHLIGHTS

Management’s Discussion and Analysis of Financial Condition and Results of Operation

RESULTS OF OPERATIONS:
For the nine months ended 30 September 2017 and 2016

Rockwell Land Corporation (“the Company”) registered Php10,712 million in consolidated revenues, higher by 36% from last year’s Php7,881 million. Sale of Condominium Units, including accretion of interest income, account for 86% of total revenues.

Total EBITDA reached Php2,715 million, 16% higher than last year’s Php2,333 million primarily driven by the residential segment. Overall EBITDA margin registered at 25% of total revenues, which is lower compared to last year’s 30%. Residential development, commercial development and hotel contributed 63%, 35% and 2% to the total EBITDA, respectively.

Net income after tax registered at Php1,593 million, a growth of 31% from last year’s Php1,216 million. NIAT margin is at 15%, same with last year.

Business Segments

Residential Development generated Php9,399 million, contributing 88% of the total revenues for the period. Bulk of the revenues came from the sale of condominium units, including accretion from interest income.


EBITDA from this segment amounted to Php1,708 million, 19% higher than the same period last year at Php1,430 million due to higher presales and substantial completion from Proscenium.

Commercial Development revenues amounted to Php1,057 million, 11% higher than 2016’s Php954 million. This segment contributed 10% of total revenues excluding the share in the joint venture (RBC). The share in the joint venture is reported as “Share in Net Losses (Income) in JV” under Other Income (Expenses).


Retail Operations generated revenues of Php683 million, accounting for 6% of total revenues. Retail operations include retail leasing, interest income and other mall revenues. Cinema Operations also generated Php160 million which is 1% of total revenues. Cinema operations include Cinema ticket, snackbar sales and other cinema revenues. Office operations generated Php214 million which is equivalent to 2% of the total revenues. Office operations include sale, leasing and other revenues.


The segment’s EBITDA amounted to Php948 million, higher by 11% from the same period last year.


The total revenues used as basis for the EBITDA margin excludes gross revenues from the joint venture as the latter is reported net of all other income and expenses under “Share in Net Losses (Income) in JV”. Share in net income in the joint venture contributes 7% to the Company’s total EBITDA.

Hotel Operations contributed 2% of the total revenues. Both revenues and EBITDA is slightly up from Php253 to Php255 million, and Php52 to Php59 million respectively.

Costs and Expenses

Cost of real estate and selling amounted to Php7,271 million. The cost of real estate and selling to total revenue ratio is at 68%, higher than last year’s 63%, due to substantial completion of Proscenium project. Selling expenses amounted to Php639 million which is higher by 26% due to higher sales commissions and marketing expenses.

General and administrative expenses (G&A) amounted to Php1,288 million, higher by 13% from the same period last year. The increase was mainly attributable to higher taxes and licenses, depreciation and manpower costs.

Interest Expense amounted to Php169 million, lower by 49% than last year’s Php329 million. The decrease was mainly due to higher capitalized interest. The average interest rate of the Company’s consolidated debt is at 5.09%.

Share in Net Income (Losses) in JV realized share in net income of RBC amounting to Php200 million, 4% increase from last year’s income of Php192 million. Occupancy rate is at 100% compared to 98% rate of same period last year. It generated gross revenues of Php516 million which is 3% higher than last year’s Php499 million. At its 70% share, the Company generated revenues of Php361 million and share in net income of Php200 million. The share in net income is reported net of taxes and represents the Company’s share in the operations generated by RBC.

Project and capital expenditures

The Company spent a total of Php8,877 million for project and capital expenditures for the past nine months of 2017, 20% higher than last year’s Php7,432 million. The expenditures consist mostly of development costs for Proscenium, RBC Sheridan and The Vantage projects.

Financial Condition

The Company’s total assets as of September 30, 2017 amounted to Php44,637 million, which increased by Php4,202 million from 2016’s yearend amount of Php40,435 million. On the other hand, total liabilities amounted to Php27,731 million, higher than 2016’s Php24,759 million. The movement in total assets was mainly due to increases in Investment Property and Land Held for Future Development, while the increase in total liabilities was mainly from additional borrowings.

Current ratio as of September 30, 2017 decreased to 2.87x from 3.01x as of December 31, 2016. Net debt to equity ratio is at 0.97x as of September 30, 2017, slightly higher than 2016’s yearend ratio of 0.91x.

Causes for any material changes (+/- 5% or more) in the financial statements

Statement of Comprehensive Income Items – 1st Nine Months 2017 vs. 1st Nine Months 2016

45% increase in Sale of condominium units
Primarily due to higher bookings and substantial completion of Proscenium projects.

13% increase in Interest Income
Mainly due to higher interest income accretion arising from Proscenium, Vantage and Edades Suites projects.

12% increase in Lease Income
Mainly due to higher occupancy of 8 Rockwell office and higher average rental rates in retail space.

42% increase in Others
Due to higher revenues from subsidiaries.

50% increase in Cost of Real Estate
Primarily due to higher construction completion for Proscenium.

13% increase in General and administrative expenses
Mainly attributable to higher taxes & licenses, depreciation and manpower costs.

26% increase in Selling expenses
Primarily due to higher sales commissions and marketing expenses.

49% decrease in Interest Expense
Primarily due to higher capitalized interest.

129% decrease in Foreign Exchange Gain
Due to lower collections denominated in in U.S. dollars.

Statement of Financial Position items – September 30, 2017 vs. December 31, 2016

8% increase in Cash and cash equivalents
Primarily due to proceeds of loan borrowing and collection from The Grove project.

10% increase in Trade and other receivables
Mainly due to higher sales bookings from Proscenium.

14% decrease in Land and Development Cost
Mainly due to completion of Proscenium and 32 Sanson Phase 1.

12% increase in Advances to Contractors
Primarily due to down payment to contractors for Edades Suites and Mall Expansion projects.

20% decrease in Condominium Units for Sale
Mainly due to additional sales from The Grove projects.

597% increase in Non-current Trade Receivables
Due to recognition of long-term receivables from completed projects, mostly from The Grove.

17% increase in Property and equipment
Due to transfer of land cost related to Aruga hotel in Makati.

21% increase in Investment Properties
Due to payments for construction in progress for RBC Sheridan, Santolan Town Plaza and Mall Expansion projects.

86% increase in Land Held for Future Development
Due to additional land acquisitions.

12% increase in Current portion of interest-bearing loans and borrowings
Due to reclassification of loans due within the year.

15% increase in Interest-bearing loans and borrowings – net of current portion
Due to additional borrowings drawn within the year.

17% decrease in Pension liability
Due to contribution to plan assets for the first nine months of 2017.

50% increase in Deposits and Other Liabilities
Primarily due to increase in retention payable.

14% increase in Retained Earnings
Due to net income after tax attributable to parent of P1,593 million for the first nine months of 2017, net of dividends declared.

6% decrease in Non-controlling interests
Due to net loss attributable to non-controlling interests of P19 million for the first nine months of 2017.

Key Performance Indicators

As indicatedFor the nine months ended September 30
 20172016
ROA (*)5.0%4.3%
ROE (*)13.0%11.1%
 As of September 30, 2017As of December 31, 2016
Current ratio (x)2.873.01
Debt to equity ratio (x)1.061.03
Net debt to equity Ratio (x)0.970.91
Asset to equity ratio (x)2.642.58
Interest coverage ratio (x)4.714.54


Notes:
(1) ROA [Net Income/Average Total Assets]
(2) ROE [Net Income/ Average Total Equity]
(3) Current ratio [Current assets/Current liabilities]
(4) Debt to equity ratio [Total interest bearing debt / Total Equity]
(5) Net debt to equity ratio [(Total Interest bearing debt)-(Cash and cash equivalents) / Total Equity]
(6) Asset to equity ratio [Total Assets/Total Equity]
(7) Interest coverage ratio [EBITDA/Interest Payments]
* ROA and ROE are annualized figures