Business Review

Message from the Company President

Ayala Land had an exceptionally good year in 2010 as the company achieved record financial results and gained significant traction in our “5-10-15” Plan. The company achieved record residential sales and improved occupancy and lease rates across its major properties, which resulted in a record net income after tax of P5.5 billion. This was 35% higher than what was achieved in 2009 and 13% more than the previous record of P4.8 billion reported in 2008.

Consolidated revenues grew to P37.8 billion, 24% higher than the previous year. The company also spent a record P21.0 billion in capital expenditures for the year, 24% higher than in 2009.

OPERATING HIGHLIGHTS AND “FIRSTS”

2010 was the first year in the implementation of our five year plan.
Faced with the challenge to achieve P10.0 billion in earnings and a 15% return on equity within five years (or by 2014), we launched a total of 57 projects all over the country.These had a total investment value of more than P62.0 billion, a level which was unprecedented in the company’s history.

In the residential segment, we launched 10,115 new units worth P49.0 billion and achieved very strong sales take-up across all our residential brands. This was also significant in that it included our initial foray into the economic housing segment through AmaiaScapes in Laguna. While we will continue to focus on our traditional higher-end segments where we have been dominant, we feel that there is also a very attractive opportunity in the more affordable segments. This is where we can have a very positive impact on uplifting the living standards of many more Filipino households and we expect this to contribute more significantly to our residential portfolio in the coming years.

For our commercial leasing portfolio, we started construction on 267,500 square meters of gross leasable area (GLA) in 2010. These included our first neighborhood center in the Ayala Triangle Gardens, a number of strategically located retail centers across the country, and new BPO offices in Cebu, Bacolod, Iloilo and NUVALI. These areas have all been identified as “Next Wave BPO Cities” under the Business Processing Association of the Philippines Roadmap.

With improving prospects for tourism and tourism-related infrastructure development, we also began a strategic build up of our hotels and resorts portfolio in 2010. We launched our first businessman’s hotels in Bonifacio Global City and Davao under our own Kukun brand and completed our acquisition of a 60% stake in the El Nido Resorts in Palawan. We feel that both of these offer significant opportunities for growth in the coming years.

We also expanded into new geographies and began to build our presence in five new growth centers outside Mega Manila—Subic, Baguio, Iloilo, Cagayan de Oro, and Palawan. These are in addition to the expansion in our existing growth centers, all of which are being strengthened either through continued build-out or through redevelopment efforts. We also acquired parcels of land in Fairview in Quezon City, Mandaluyong City and Laguna where we plan to develop future mixed-use communities and provide growth platforms for our businesses.

Finally, we also embarked on our first direct international investment last year. Through an equity joint venture agreementwith an entity owned by the Chinese and Singaporean governments, we are developing 19 residential towers inside Tianjin Eco-City, China. Apart from the prestige of being among the best developers in the region to be part of this new eco-city, the engagement also offers plenty of opportunities for us to learn and adopt best practices in construction management and procurement, which will enable us to be even more efficient in our domestic operations.

A DIFFERENT APPROACH

Our commitment to deliver more products, in more segments, and in more areas around the country is a complex organizational challenge. That we are well on track with respect to our “5-10-15” Plan is a testament to the success of new corporate and process-oriented initiatives that have been implemented over the past 12 months.

Across the organization, we have also been pursuing business transformation initiatives along key areas and processes. We have successfully completed the initial phase of the transformation of our subsidiary Makati Development Corporation into a full service construction, engineering and contracting company. We have also reorganized our hotels and resorts business through the creation of AyalaLand Hotel and Resorts Corporation to provide more focus and define the lines between the operational, developmental and landholding functions of the business. We have also instituted process changes that enable us to make decisions faster, shortened project planning cycles by streamlining building designs and reusing building design-templates where possible, and explored alternative building technologies to lower our costs and increase speed-to-market.

We also continued to integrate and embed sustainability principles and practices in our various projects. One of the areas we have focused on, in partnership with many of our suppliers, is green procurement where our purchasing practices have been recognized with the Green Procurement Practices Award at the Greening the Supply Chain Conference and Exhibit held last year at Bonifacio Global City. Our efforts have also been recognized internationally as One Evotech in NUVALI earned the prestigious Leadership in Energy and Environmental Design (LEED) Green Building Silver Certification for its sustainable location, efficiency in energy and water usage, use of sustainable construction materials and efficient design of its indoor environment.

We are fully committed to maintaining our current trajectory and building on this higher base of product delivery and performance. Our growth expectations for 2011 remain high across all segments and we are optimistic that our residential development, commercial leasing, and hotels and resorts businesses will continue to outperform and gain in market share. We also remain fully committed to continuous innovation in products, building technologies, processes improvements and sustainability as these will be critical to the successful delivery of our financial targets.

Antonino T. Aquino

President and CEO

OPERATIONS REVIEW

Ayala Land Inc. posted a record net income of P5.5 billion in 2010, 35% higher than in 2009. Consolidated revenues reached P37.8 billion, up 24% year-on-year.

Corporate cost control also improved with the continued drop in the ratio of General and Administrative Expenses (GAE) to revenues, from 9% to 8%. This resulted in better net income margin to 14% from 13% the prior year.

Residential revenues contributed the biggest share to total revenues, amounting to P16.6 billion in 2010, 16% higher yearon- year, as the combined value of bookings for all residential brands more than doubled to P24.0 billion. Ayala Land Premier generated revenues of P7.2 billion, up 10% and accounted for 43% of total residential revenues following the strong sales of Park Terraces (Makati) and Serendra West Tower (Bonifacio Global City) condominium units as well as Santierra lots in NUVALI.

Alveo and Avida also posted year-on-year revenue growth of 26% and 15%, respectively, with higher bookings from the success of new launches such as Meranti (BGC) and Venare (NUVALI) for Alveo and Avida Towers Cebu and Alabang for Avida.

Together with newly launched fourth brand Amaia, the company’s four residential brands put a total of 10,115 units into market in 2010, more than three times the total in 2009.

In the leasing business, shopping center revenues amounted to P4.6 billion, 3% higher than the previous year. This was driven by the expansion in occupied gross leasable area (GLA) as the continued ramp-up of MarQuee Mall in Pampanga and the improved occupancy rate at Greenbelt 5 more than offset the closure of Glorietta 1. The impact of higher average occupancy rates across all malls, which rose to 94% from 92% in 2009, was partly tempered by the slight decline in average rental rates due to product mix, with lower lease rates in MarQuee Mall and Glorietta 5 relative to Glorietta 1.

Last year 165,000 square meters of new retaiil GLA broke ground in various areas around the country in line with the expansion of company's shopping center portfolio across a wider geography.

Meanwhile, revenues from the office leasing business amounted to P2.4 billion last year, 21% higher than in 2009. This was driven by the significant increase in occupied business process outsourcing (BPO) office GLA, which increased by 34% year-on-year, as the outlook and demand for BPO space continued to improve. An additional 102,500 square meters of new BPO office GLA were launched last year in anticipation of the improved outlook for the BPO sector.

The completion of BPO buildings in Baguio and Ilolio brought the company’s total available BPO GLA to 272,676 as of end-2010, with an average occupancy rate of 70% compared with 55% a year ago (year-end lease-out rate at 88%). Average BPO lease ratesalso improved due to programmed escalations.

The company’s hotels and resorts operations recorded P1.6 billion in revenues last year—33% higher than in 2009 mainly as a result of the consolidation of the El Nido resort operations in Palawan. With an increase in business travelers and tourist arrivals, blended revenue per available room (REVPAR) for InterContinental Manila and Cebu City Marriott Hotel also improved. Two new businessman’s hotels were also launched in Bonifacio Global City and Davao to take advantage of the increasing number of business travelers into the country.

The Strategic Landbank Management Group (SLMG) and the Visayas-Mindanao group recorded P3.2 billion in revenues last year, 34% higher than in 2009, largely due to overrides on the successful sales performance of Park Terraces in Makati and Santierra in NUVALI, as well as some commercial lot sales in NUVALI.

The company’s construction and property management services generated combined revenues of P7.2 billion in 2010, 94% higher than the P3.7 billion posted the previous year mainly due to strong contribution from third-party construction contracts.

The company spent a total of P20.1 billion for project and capital expenditures last year, 24% higher than prior year. This was mainly for residential development, which accounted for 48% of the total, followed by SLMG and the Visayas-Mindanao group with 17%. Shopping centers and hotels and resorts each spent 14% of the total, while corporate business accounted for the balance of 7%.