City & Land’s Proposed P400 Million STCPs Rated PRS 2

“City & Land Developers, Incorporated (CLDI) will be issuing P400 million in short-term commercial papers (STCPs). The STCP issue is rated PRS 2.”

A rating of PRS 2 is defined as: “Above average (strong) capability for payment of commercial paper issue on both interest and principal. This is normally evidenced by many characteristics of a PRS 1 credit rating but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variations. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained.”

In arriving at the credit rating, PhilRatings considered the following: CLDI’s strong market position in its chosen niche; consistent income-generating capabilities; the availability of alternative sources of cash to augment existing cash levels, as well as cash from operations, in settling the proposed STCPs; as well as positive prospects for the property development sector in the short-term. In terms of risk areas, PhilRatings considered the still moderately aggressive debt level of the company although we have also noted some improvement in terms of capital structure and debt mix. Debt to capitalization remains quite significant at 38% as of end-December 2005, with the bigger portion of its borrowings being short-term in nature and this increases the possibility of refinancing risk.

CLDI acquires and develops suitable land sites for residential, office, and commercial use. The Cityland Group, of which it is a part, has established a good brand name and track record in the low-price/high-rise and low-price/low-rise segment of the property development market. CLDI was established on June 28, 1988 and thus has 18 years of experience in an industry that has gone through several cycles during the period. Its projects offer “value for money” given their central location, relatively lower prices compared to competition, as well as timely turn-over. Past projects include: City & Land Mega Plaza in the Ortigas Central Business District (CBD) and Vito Cruz Tower II.

In 2005, sales amounted to about P567 million, up by 27% from that for the previous year. Estimated targets for the projected period (2006-2008) appear realistic with one on-going project (i.e. Pacific Regency at Pablo Ocampo Sr. Avenue) and a few other projects still on the drawing board. Net income for 2005 was at P102 million, up by 67% from 2004’s P61 million. Revenues and earnings are projected to grow at a slower pace going forward. It is critical that planned projects at present be launched as scheduled to ensure the attainment of targeted revenues and earnings.

Debt to capitalization has improved from a high of 62% in 2001. As of February 28, 2006, total debt was at P351 million, P160 million of which is long-term, maturing in 2016. To augment the amount of cash generated from operations in 2006-2007 to support its various funding requirements, CLDI may rely on several alternatives: available cash balances, sale of idle properties, sale of existing installment contracts receivables, and availment of its existing unused credit facilities. Going forward, the management of projects, sales, and cash levels will be key as CLDI appears to be at the threshold of expanded operations, and sales and collections must continue to be diligently focused on to ensure healthy cash positions and liquidity.