[Vantage Point] Why I’m not panicking over Ayala Land
I have been watching Ayala Land’s market decline with more than academic interest.
The stock is down a third this year and more than 40% over the past 12 months. Now comes another indignity: MSCI Inc. is deleting Ayala Land Inc. (ALI) from its Philippines Standard Index at the close of August 31.
MSCI Inc. (formerly Morgan Stanley Capital International) produces global stock indexes used by investors and fund managers as market benchmarks and guides for investment allocation.
There are reasons to worry. But I still see an important distinction between a falling share price and a collapsing business. The numbers tell me Ayala Land is having a difficult year; they do not yet tell me its underlying economic value has deteriorated by anything approaching the market’s punishment.
Start with the damage. First-half revenues fell 10% to P75 billion, while net income dropped 19% to P11.5 billion. Property-development revenues fell 22% to P41 billion and residential revenues declined 15% to P35.3 billion.
But look at the numbers quarter by quarter. ALI earned P5.4 billion in the first quarter (Q1) and P6.1 billion in the second quarter (Q2), a sequential improvement of 13%. That does not amount to a recovery, but earnings are no longer deteriorating quarter after quarter.
Weak spots
Residential demand is still the weak spot.
First-half reservation sales this year fell 19% to P53.5 billion, while Q2 reservations slipped to P25.6 billion from ₱27.9 billion in Q1. The weakness is hardly ALI’s alone: Philippine Statistics Administration (PSA) data show the value of residential construction nationwide fell 25.8% in June and residential floor area shrank 32.2%, even as non-residential construction value surged 56.4%. I am not declaring that the housing slowdown has bottomed; ALI still has to prove that.
Then there is debt, the intimidating number in the story.
Total borrowings rose to P337.6 billion at end-June from P318 billion at end-2025, while cash and equivalents stood at P17.4 billion, net gearing at 0.80 times and interest coverage at 4.4 times. The debt mix also became less defensive: 83% was long-term and 60% was fixed-rate, versus 90% and 71% at year-end.
Those numbers deserve attention. But one number changes the debt story: ALI says it had already completed 96% of its 2026 refinancing requirements by June 30, leaving only about P1 billion still to refinance this year.
That is why I refuse to look at P337.6 billion of debt in isolation. ALI does not owe P337.6 billion tomorrow. What matters is when obligations mature: whether the company generates enough cash to service them and whether capital markets remain willing to refinance what comes due. For now, Ayala Land has leverage to manage, not a solvency crisis to survive.
My greater concern is cash generation. ALI raised its 2026 capital expenditure (CAPEX) guidance to P60 billion from P50 billion after spending P39.5 billion in the first half. With reservation sales down 19%, every peso deployed now has to earn its keep. If operating cash flow weakens while investment remains heavy, ALI becomes more dependent on external financing.
There is, however, another piece of the capital story.
AREIT disclosed a P17.33-billion property-for-share swap involving four malls and two hotels from ALI and subsidiaries. Sponsored by ALI, AREIT is the first and largest Real Estate Investment Trust in the country, managing a diversified, income-generating portfolio of commercial offices, retail malls, hotels, and industrial land. The transaction would move mature income-producing assets into AREIT in exchange for 462.48 million new shares priced at P37.48 each. It brings no immediate cash, so I would not count it as a solution to ALI’s liquidity problem, but it gives ALI a funding option
Then comes MSCI. Many analysts warned in June that ALI faced a high probability of deletion. On that call, they were right. But predicting index eligibility and determining intrinsic value are different exercises. MSCI tells us ALI’s market capitalization has fallen enough to lose its place; it does not tell us its estates, malls, offices, and hotels have lost a similar proportion of earning power.
What interests me more is what ALI’s parent company, Ayala Corporation, has been doing while the market sells.
Earning power
On August 14, two days after MSCI announced the deletion, the parent bought another 5.45 million ALI shares at an average P15.411 each, or about P84 million. Reuters subsequently reported another 600,000-share purchase at P15.18. The MSCI battle was already lost, yet Ayala kept buying.
That does not prove the parent is right about valuation. But whatever role index defense may initially have played, purchases after deletion stopped being a mechanical tracking rule and now increasingly looks like a capital-allocation decision.
ALI generated P190.2 billion in revenues and P30.6 billion in core earnings in 2025. Simply annualizing first-half 2026 earnings gives about P23 billion, 25% below last year’s core profit. Yet the stock has fallen more than 40% over 12 months.
That comparison does not prove undervaluation. Markets discount the future, not the past. But it frames the question correctly: has ALI’s long-term earning power deteriorated as much as its market value suggests?
So far, I don’t think so. But ALI must earn my patience quarter by quarter. I want reservation sales to stabilize, operating cash flow to strengthen, leverage contained, and Q2’s sequential earnings improvement sustained. I also want to see whether capital recycling through AREIT reduces funding pressure. History earns credibility; future cash flow earns valuation.
That is why I am not panicking over Ayala Land. The debt is larger, reservations are weaker, and MSCI has delivered its verdict. But refinancing is largely done for the year, Q2 earnings improved sequentially, and the parent is still buying after deletion became inevitable.
The forensic question remains whether the business has permanently lost as much value as the market says it has — or whether fear has simply fallen faster than value.
This analysis is based primarily on Ayala Land and Ayala Corp.’s financial statements, investor presentations and PSE disclosures, supplemented by MSCI index announcements and methodology, AREIT disclosures, and PhilRatings reports. Calculations and interpretations are my own. This column is for informational purposes only and is not intended to influence the market or constitute investment advice or a recommendation to buy, sell, or hold any security.
I welcome your views on these and other issues where decisions made in power shape the country’s economic future.
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