Inside the boardroom with Ovialand

• Merkado Barkada (MB): From my personal experience, it seems like going public can be a jarring and messy process, especially for family-owned SMEs... like Ovialand [OLI]. Solving so many legacy issues in preparation for an IPO is anxious and draining work. How has your experience been in this regard?

• Pammy Olivares-Vital (POV): We've been building towards this for the past 11 years! I've been focused on constantly improving the business in terms of product, organization, and financial strength. I always knew that an IPO would be on the horizon, but when the plan to IPO actually began to take shape, our company became much more long-term focused. We know where we want to go in the next 3, 5, 10 years, and we've focused on the important things like ensuring we hit desired profit margins, strong financial ratios, organizational readiness, and proper audit procedures, among others. 

• MB: Many firms that I have seen go through the process start with just the most chaotic cap tables that need to be cleaned up before moving forward. So no troubles with shareholdings of distant family members? 

• POV: We've been building towards this for years. Most of this has already been taken care of, long before we ever had our first IPO pitch meeting. Several years ago we created a holding company to consolidate our family's ownership of OLI, so the logistics of a share sale and our resulting cap table are very straightforward! We’ve also adopted a very professional approach from the beginning and had a clear and defined line when it came to the family and the business. So no mingling of funds or using the company for non-business-related transactions!

• MB: We've never had the opportunity to invest in a pure-play mass housing developer before, and it would probably help readers to learn how OLI might be different from the typical condo/township developer. Can you talk us through a high-level view of OLI's business model? 

• POV: Sure! Our model is unique and designed for the emerging and aspirational middle class. We buy bulk land, subdivide into smaller lots, and build beautiful and completely finished homes. Buyers make a downpayment ranging from P80k to P150k, payable in 6 months; at this time, through the use of our technology, the house is ready for move-in. We've already processed the Pag-IBIG housing loan, and the buyer can already move in and start amortizing their investment. This element of time is really a big convenience to our clients and we value this very much. It’s easy to look at many numbers when it comes to reviewing our performance, but one metric we always look at is “How many clients have moved into their new homes?”

• MB: That sounds really fast. Let's say OLI just bought a new 10-hectare lot to develop: how long does it take for OLI to convert this bulk lots into something that generates sales revenue?

• POV: Around 18 months. The first 6 months are spent on planning, licensing, and permits. Then the land development starts. We prepare our casting areas, coordinate with utility providers, accredit our project with Pag-IBIG, and then... viola! We have simplified an extremely complicated business by focusing on the essentials.

• MB: Is there anything about the Pag-IBIG Fund aspect of OLI's model that might be interesting or attractive to investors?

• POV: In our business, we sell 2 things. First, is the house and lot product. This is easy since many Filipinos are still without their own homes and we are entering a generation of more mature and forward-looking Filipinos who want to invest in real estate. The second thing we need to sell is Housing Finance. It is very very rare to find a client who can pay for their house and lot in cash, in full. So hand in hand, we complete the process by having a solid housing finance program. Our clients need access to end-user financing, and Pag-IBIG Fund is able to give our clients as much as 93-95% lean value of the total contract price. They run a well-oiled machine when it comes to processing new loans. This all means that we get paid in full much easier and faster compared to dealing with banks. Pag-IBIG Fund gives us the ability to book loans much quicker, and they provide accessible financing to our clients. This allows us to move more quickly, complete our developments faster, and make new investments with greater confidence. While this allows a lot of opportunity for us as a business, our clients benefit from Pag-IBIG Fund as deeply. Pag-IBIG Fund was created with a mandate to help Filipinos with home ownership, and they are definitely moving towards this.

• MB: Did OLI consider doing this growth phase with debt instead of raising money?

• POV: Yes, we could have done that, but we would rather raise equity and pay 30-40% dividends than accrue interest and service debt. 

• MB: You mentioned that you've been making continual improvements to your business model over the years. What were some of the most material adjustments, and how have these adjustments impacted OLI's profitability?

• POV: When I started with OLI 7 years ago, OLI could only fund and operate one project at a time, and could only build about 10 homes per month. We were making 12-15% profit on each project. We leveled up our model through a joint venture with JJ Atencio (MB: He's the former President and CEO of 8990 Holdings [HOUSE]), and learned through that experience how to build 20-25 homes per month, per project, and at a higher profit. Now we're building faster and making 35-40% profit per project.

• MB: What is OLI planning to do with the IPO proceeds?

• POV: The equity raise will really be to fuel growth. We're targeting to put 40% into land acquisition, 40% into development of current projects, 15% into working capital, and 5% to pay down debt. The thing with real estate, and mass housing, is how huge the required capital is. That said, our YTD performance is on track to grow 100% y/y, even after we spent half of the year in serious lockdown stages. Our 2022 strat planning is underway; we will be making moves next year to establish new areas for OLI, and I am ecstatic for this. We have been training and conditioning ourselves for the anticipated growth that our company will embark on, with or without the IPO.

• MB: One of the major risks that occurred to me was that OLI might be a fantastic regional developer within its own bailiwick, but that it might not be met with the same success as it expands outside into new areas. How does OLI see this risk?

• POV: Market location is something that I monitor super closely. For our developments, 40% of our buyers are coming from outside a 20km radius of the development, with the remaining 60% coming from within 20km of the site. We drilled down on that 40% and found that the location is not necessarily the top indicator when choosing a home, but the home type, amenities, etc. We are the only housing developer offering the premium affordable house and lot unit, with great customer service and upscale communities.

• MB: This is the craziest that I’ve ever seen the capital markets right now, with so many new issuances. As the President of the company, do you feel any added pressure to fast-track the IPO? 

• POV: This IPO journey is the last chapter of our Book 1. Our Book 2 will be an entirely new story to write, as we bring our product to more areas of the country, faster. While it is easy to get distracted with so many things going on, with other developers and other industries, we need to be steadfast and firm with our plans and focus on our story. Our organization believes in our product and our company mission so much and we are solely focused on outdoing ourselves rather than be distracted by other yardsticks (that actually have no effect or relation to what we are doing). But, the thing about opportunity is that no one tells you it's in front of you. You always need to be alert and sensitive, and strike when you receive the right signals. That said, we are making sure that we will be alert to opportunity at all times. With JJ Atencio as a partner in Ovialand, we knew that we could begin our IPO journey and it would be an opportune time to be ready with a war chest when the economies open up post-pandemic.

• MB: Well said! On behalf of hundreds of thousands of MB readers, I want to thank you for letting us step "Inside the Boardroom" with you, and I wish you and your family the best of luck in the new year with the IPO process. I know I'll be watching very closely!

• POV: Thank you for the opportunity to share about Ovialand. I am happy to share with our ka-barkadas about our business and wish all our traders the best in their investment journey! Take care!

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