Analysts question ALI's 'high' acquisition cost

By Miguel R. Camus, BusinessMirror

Posted at Aug 15 2012 07:56 AM | Updated as of Aug 15 2012 08:49 PM

MANILA, Philippines - Ayala Land Inc. (ALI) scored a victory on Tuesday after submitting an aggressive winning bid for the 74-hectare Food Terminal Inc. (FTI) property but some analysts are questioning both the "high" acquisition cost and its implications for pending investments such as the offer to buy into the Ortigas family's holding firm.

ALI offered P24.33 billion for FTI, beating out two other bidders, Robinsons Land Corp. and Empire East Land Holdings, which offered P14.66 billion and P11.25 billion, respectively. ALI's offer is more than double the P10.2 billion floor price the government set for FTI, which has gone through several failed bids in the past.

"If the bid discrepancy is too far, it might be a mistake for ALI. Right now, it comes out too overpriced but it depends on their master plan," Joseph Roxas, president of stock brokerage firm Eagle Equities Inc., said in a phone interview.

The property comes out roughly P32,800 per square meter, which ALI said in a statement on Tuesday was acquired at a "significant discount" to land values in Makati City and Bonifacio Global City, its other major business district developments.

"“The property will be the southern gateway into Metro Manila, similar to our Vertis North, our northern gateway development,” ALI chief finance officer Jaime Ysmael said in the statement.

But not all players were concerned about the valuation. David Leechiu, who heads top property consultant Jones Lang LaSalle Leechiu, called it a "very good deal."

He said this transaction differs since FTI becomes fully owned by ALI, which typically enters into joint venture deals for its projects. This is the case in Bonifacio Global City, a partnership with the Campos family and the government, and Vertis North, which it is developing with the National Housing Authority.

"It's a solid deal as this will be one of the few properties that ALI is involved in where it has full ownership meaning they can realize the full potential of the asset. With the same amount of effort they get the maximum return," Leechiu said in a phone interview.

ALI also gains control of a new business district, adding to its roster of similarly massive developments across Metro Manila and Cebu City, through an affiliate. "The brand power of ALI goes a long way," Leechiu said.

The FTI acquisition also raises questions on the financing for pending acquisitions like the plan to acquire OCLP Holdings, the Oritgas family's flagship property firm with over 55 hectares of prime Metro Manila land, a second analyst said. OCLP Holdings is also being eyed by rival SM Group.

For FTI, ALI is expected to pay P19.46 billion in "upfront cash" in 60 days. It recently raised P13.6 billion in an overnight equity sale and at least P10 billion in bonds. Part of those proceeds are also expected to finance a P37 billion capital spending plan, which excludes new acquisitions.

Roxas said ALI will likely need to raise added funds to support new investments. ALI officials did not immediately respond to requests for comment on its financing plans. ALI declined 1.5 percent to P23 per share, underperforming the local benchmark index which declined 0.11 percent.