Rockwell Land eyes more commercial developments to counter condo revenue cycle

MANILA, Philippines (UPDATED) – Rockwell Land, the property arm of the Lopez family, is looking to increase its presence in commercial leasing in a bid to counter the cyclical nature of selling residential properties.

Though lucrative, one major drawback of residential properties is that once a new condominium is completed and fully turned over, the developer makes little to no more revenue from it. This means that a developer has to constantly build more to generate revenue.

Residential properties are also more vulnerable to market dips than commercial properties.

"We want to bring up our commercial developments because we want to increase our recurring revenues. It's a good strategy to counter the cyclical nature of the residential business," said Rockwell Land chief financial officer Ellen Almodiel following the firm's stockholders' meeting on Wednesday, May 31.

Rockwell Land has just come through such a cycle, as its president Nestor Padilla pointed out in the minutes of last year's stockholders meeting that was approved during the 2017 meeting.

"While the market slowed down in 2012, we continued our sales momentum through to 2014 but this dropped in 2015," he said.

This year, 3 of the 5 Rockwell Land projects up for completion focus on commercial leasing.

These include the Sheridan Business Center in Mandaluyong, its second business center, which is set to add 48,000 square meters (sqm) of leasable space to its existing office space portfolio of around 100,000 sqm.

There's also the Santolan Town Plaza, with 5 floors of office space and 2 floors of retail space that will add 20,000 sqm of leasing space.

Finally, the developer is set to complete the expansion of its flagship Power Plant Mall by Christmas, which wlll add another 5,000 sqm of leasable space.

Rockwell Land also expects to complete the construction of its first Aruga hotel in Rockwell Center, featuring 200 rooms, in 2019.

Beyond the horizon, it plans to build its first resort in Punta Engano in Mactan, Cebu, with construction to start next year and completion expected by 2021.

Almodiel said recurring revenue was up 17% last year, accounting for P1.2 billion or roughly 36% of the firm's total P3.4 billion in earnings before interest, tax, depreciation, and amortization (EBITDA).

"We will increase it to about 40% of EBITDA once 3 commercial developments in progress are completed and then once we've gotten stable occupancies and once the hotel [revenue] kicks in," she added.

Luxury sector heating up

The shift in strategy toward more recurring revenues also comes as more and more players are entering the high-end residential property market, Rockwell Land's forte.

For instance, SM Development Corporation, which has long dominated the mid-range segment, announced plans earlier this year to venture into luxury developments.

Ayala Land, meanwhile, is already an established player in the field and its luxury brand Ayala Land Premier booked P8.1 billion in sales in the 1st quarter of 2017 alone.

Closer to home, Century Properties' Century City sits just a kilometer away from the Rockwell Center and it is building high-end developments just across the river from Rockwell Land's current major residential condominium project, Proscenium, in Makati City.

The good news for Rockwell Land is that market indications show there is still plenty to go around for now.

"We've been anticipating more competition but so far we haven't been feeling a slowdown. In fact even until this month, the interest in [Rockwell Land] projects is still very high," Almodiel said.

"The luxury residential market has grown compared to the same period last year. For this year alone, Proscenium sales grew 137% compared to Q1 of 2016 and we're seeing record prices also in terms of price per sqm. We're already selling at P280,000 per sqm and some units have gone to as much as P300,000 per sqm," she added.

Strong sales of Proscenium units, which are projected to be turned over to residents beginning 2018, as well as The Grove in Pasig City have pushed reservation sales up 56% to P2.4 billion in the 1st quarter of 2017.

This in turn has fueled a net income for the 1st quarter of 2017 that is up by 51% to P516 million, compared to the P342 million booked in the first 3 months of last year.

Beyond Proscenium, the firm also plans to launch a 3-tower high-rise development called The Arton this July in Quezon City. The property will cover 1.9 hectares of land and feature 80% open space.

To facilitate this development as well as the commercial projects in the pipeline, Rockwell Land upped its capital expenditure this year to P14 billion. – Rappler.com

Editor's Note: A previous version of the story said Rockwell Land's reservation sales dropped by 37% in 2016. Rockwell Land recorded P11.8 billion in reservation sales in 2016, which is up 45% from its 2015 reservation sales figure of P8.1 billion. Our apologies for the error.