Vista Land’s Proposed Bond Issue Rated PRS Aaa
November 15, 2019

Philippine Rating Services Corporation (PhilRatings) has assigned an Issue Credit Rating of PRS Aaa, with a Stable Outlook, to Vista Land & Lifescapes, Inc.’s (VLL) proposed bond issueamounting to ₱5.0 billion, with an oversubscription option of up to ₱5.0 billion. Net proceeds will be used to partially fund the construction and completion of various malls, redevelopment of existing malls, construction of condominium projects, and for general corporate purposes. The company plans to do a 3-year Shelf Registration of ₱30.0 billion.

PRS Aaa is the highest credit rating on PhilRatings’ long-term issue credit rating scale. Obligations rated PRS Aaa are of the highest quality with minimal credit risk. The obligor’s capacity to meet its financial commitment on the obligation is extremely strong. 

On the other hand, an Outlook is an indication as to the possible direction of any rating change within a one year period, and serves as a further refinement to the assigned credit rating for the guidance of investors, regulators, and the general public. A Stable Outlook is defined as: “The rating is likely to be maintained or to remain unchanged in the next 12 months.”

PhilRatings considered the following key rating factors in the assignment of the rating: a) VLL’s well-diversified portfolio; b) the company’s continuously growing profitability with strong margins and its ability to generate cash flows from operations; and c) the favorable industry outlook, backed by resilient and growing demand.

PhilRatings based its assessment on available information and projections at the time that the rating review was performed. PhilRatings shall continuously monitor developments relating to VLL, and may change the rating and Outlook at any time, should circumstances warrant a change.

Incorporated in 2007, VLL is one of the leading integrated property developers in the Philippines. It offers a wide range of residential products catering to customers across all income segments.The development and sale of the company’s residential projects are operated under Brittany, Camella Homes, Communities Philippines, Crown Asia and Vista Residences. 

In 2015, VLL expanded its portfolio to include the mass market retail mall through the acquisition of Starmalls, Inc. (Starmalls). Starmalls is a major developer, owner and operator of retail malls that target mass market retail consumers in the country. On September 17, 2019, Starmalls was renamed “Vistamalls, Inc.” 

VLL has built over 400,000 homes, 31 malls, 52 commercial centers and seven office buildings. As of September 30, 2019, the company’s projects were distributed in 147 cities and municipalities in 49 provinces throughout the Philippines.

The company’s total consolidated revenues have been growing healthily during the five-year period reviewed from 2014 to 2018, with a compound annual growth rate (CAGR) of 11.9%. The share of rental income to total revenues consistently increased with a CAGR of 42.5%, decreasing the share of real estate revenues. Despite the decline in terms of percentage share, real estate revenues steadily grew, with a CAGR of 9.2%.

Cost of real estate sales and operating expenses have become more manageable through the years, with a CAGR of 8.9%. Given the aforementioned, net income was on an increasing trend for the period, with a CAGR of 13.8%.

Strong margins were maintained from 2014 to 2018. VLL’s gross profit margin averaged at 59.8%, mainly attributable to the relative stability of its expenses.1 Earnings before interest, taxes, depreciation and amortization (EBITDA) and net income margins had a mean of 38.7% and 25.6%, respectively. Margins have also been on a generally increasing trend from 2014 to 2018.Given the steady stream and the performance of its projects, VLL was able to generate positive cash flows from its operations. 

In the first nine months of 2019, VLL generated total consolidated revenues of ₱33.2 billion, higher by 8.8% from the ₱30.5 billion recorded in the same period last year. This was primarily driven by the combined effect of the 6.6% growth in real estate sales, and the 9.1% hike in rental income. Such translated to an 11.6% growth in net income, from ₱8.1 billion in 9M2018 to ₱9.1 billion in 9M2019. Gross and net profit margins were higher at 62.0% and 27.3%, respectively.

The real estate industry is one of the key economic segments that will benefit from the current administration’s “Build, Build, Build” program. This is expected to enhance connectivity and spur more economic opportunities in other key cities across the Philippines. There were, however, issues raised versus the current administration’s “Build, Build, Build” program, as only a few projects were completed out of the original 75 big-ticket projects, halfway into the current administration. Furthermore, a new list of infrastructure projects indicated 91 smaller but more feasible projects instead of the 75 big-ticket projects.

Despite such, Colliers believes that there is a strong demand for residential units. It is expected that Metro Manila’s condominium stock will grow by 19.3% to 141,760 units. Leasing demand likewise remains firm.

 

1 Note: PhilRatings’ calculation of certain ratios may be different from what the company uses and publishes.


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