The two projects are business deals, so common sense dictates that the revenue sharing structure should be commensurate to how much each business partner invested in the venture.
Documents, however, show that it isn’t the case, as Ayala keeps the lion’s share of profits.
[Full Disclosure: I was a Math Major in the University of the Philippines - Diliman.]
The UP Ayala Technohub
The UP Ayala Technohub partnership basically works like this: UP contributes land, Ayala provides improvements, Ayala leases out property to various tenants, then lease revenues are split between UP and Ayala.
Hence, the next logical question would be how much each one gets.
The UP Ayala Technohub has four components: office space, residential space, hotels, and retail space. Based on the same COA Annual Audit Report, the revenue sharing structure for each of these components, expressed as a ratio of UP’s share to Ayala’s, is as follows:
The UP Ayala Technohub has four components: office space, residential space, hotels, and retail space. Based on the same COA Annual Audit Report, the revenue sharing structure for each of these components, expressed as a ratio of UP’s share to Ayala’s, is as follows:
(1) Office Space – 10:90 for buildings, 15:85 for land
(2) Residential – 5:95
(3) Hotel – 5:95
(4) Retail – 10:90 for buildings, 15:85 for landGiven this, why does UP get only 5- 15% of revenues while Ayala gets the lion’s share?
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| A screenshot of COA's 2018 Annual Audit of the UP System, showing the revenue sharing structure for the UP Ayala Technohub Project. |
The same COA report states that UP has collected a total of Php 1.094 billion [2] from the Technohub Project during the 11 years from 2008 to 2018.
The exact figure, Php 1,093,867,441.43, when divided by 11 years, translates to Php 99,442,494.66 annually or Php 8,286,874.55 monthly.That sounds like a lot of money for UP, but given that the UP leased Ayala 380,630 sqm [3] of UP land, Ayala’s payments to UP amount to a monthly rent of just Php 21.77 per sqm.
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In fairness to Ayala, it developed only 20 hectares during its first phase, and generously assuming that it didn’t expand at all since then, UP’s total collections is basically a monthly rental payment of Php 41.43 per sqm.
We're talking about prime real estate here: Only an idiot would lease out a prime lot in Quezon City for less than Php 50 per sqm.
What is “Fair”?
Recall that UP’s lease revenue share ranges from 5-15% depending on the type of real estate. For ease of computation, let’s give Ayala a headstart by assuming that UP gets the maximum 15% on everything, which makes the revenue sharing structure a uniform 15:85.Recall that UP contributed 380,630 sqm to the venture. Modestly assuming that land along Commonwealth Avenue costs Php 20,000 per square meter in 2006 when the deal was signed, UP’s equity in the partnership would amount to Php 7.61 billion.
Ayala, meanwhile, earmarked for the UP Ayala Technohub “Php 6 billion over the next 5-10 years” [4].
Even if we assume that Ayala shelled out the entire Php 6 billion on the first year, that would still mean, based on the above figures, that the total equity in the entire venture is Php 13.61 billion, with UP providing 56% and Ayala 44%.
If the “capital sharing” is 56:44, then why is the revenue sharing only 15:85 at best?
If you contributed over half of the capital in a business venture, would you be fine with receiving less than a fifth of revenues?
A Disturbing Business Arrangement?
The UP-Ayala revenue sharing structure is especially disturbing on the following grounds:
First, UP’s Real Estate Tax Exemption
UP is exempt from paying real estate taxes [5] based on the Supreme Court decision on UP v City Treasurer. In that case, the City Treasurer of Quezon City said UP was delinquent on Php 107 million in real estate taxes for the years 2009 to 2013 and the first quarter of 2014, or a period of 63 months.This translates to Php 1.7 million worth of monthly real estate tax payments that Ayala could have paid the government if UP wasn’t tax-exempt. That is, Ayala saved Php 4.46 per sqm in tax payments because it partnered with UP.
Despite this, Ayala gives UP just Php 21.77 per sqm on the average, while Ayala’s revenue share ranges from roughly Php 123 to Php 414 per sqm [6], or anywhere from 566 to 1,900% more.
Second, Ayala charges tenants a lot
Some property listings for Ayala Technohub office spaces show Ayala charges tenants a lot of money.
For example, a Php 450,000 is the monthly rent for a 600 sqm office space listing [7], or Php 750 per sqm per month. And there’s even another 2,300 sqm office space for Php 1,495,000 a month [8], or Php 650 per sqm.
UP Ayala Technohub has a gross leasable area [9] of 156,708.75 sqm. Generously assuming a constant office space vacancy rate of 16% in Quezon City[10], and modestly assuming a monthly rent of Php 650 per sqm, then the UP Ayala Technohub must be collecting around Php 85.6 million in monthly rentals for office space alone, 10 percent of which (UP’s share) is Php 8.56 million.
This doesn’t look very different from the Php 8.29 million UP gets monthly per the COA report, but the gross leasable area Ayala provided is based only on Buildings A to O [11]. This doesn’t include revenues from (1) the four-storey Building P with 2,660 sqm per floor [12] and (2) the 120-guestroom, six-storey Microtel [13].
Given this, is Ayala Land accurately reporting revenues or is it under-declaring revenues in order to pay UP less?
Remember that COA audits UP but COA doesn't audit Ayala.
For example, a Php 450,000 is the monthly rent for a 600 sqm office space listing [7], or Php 750 per sqm per month. And there’s even another 2,300 sqm office space for Php 1,495,000 a month [8], or Php 650 per sqm.
UP Ayala Technohub has a gross leasable area [9] of 156,708.75 sqm. Generously assuming a constant office space vacancy rate of 16% in Quezon City[10], and modestly assuming a monthly rent of Php 650 per sqm, then the UP Ayala Technohub must be collecting around Php 85.6 million in monthly rentals for office space alone, 10 percent of which (UP’s share) is Php 8.56 million.
This doesn’t look very different from the Php 8.29 million UP gets monthly per the COA report, but the gross leasable area Ayala provided is based only on Buildings A to O [11]. This doesn’t include revenues from (1) the four-storey Building P with 2,660 sqm per floor [12] and (2) the 120-guestroom, six-storey Microtel [13].
Given this, is Ayala Land accurately reporting revenues or is it under-declaring revenues in order to pay UP less?
Remember that COA audits UP but COA doesn't audit Ayala.
Third, something fishy about the UP Board
It’s bad enough that UP apparently receives a pittance from the Ayala deal but to make it worse, Ayala’s payments even come late or not all.
For example, COA in 2014 chided UP Diliman chancellor Michael Tan for the university’s “laxity” and “leniency” in enforcing the UP-Ayala Technohub Contract after Ayala had P76 million in unpaid rent and P3.06 million in penalties [14].
To make matters even worse, the UP Board is not even giving UP Diliman its rightful share of what little revenue UP receives from Technohub.
The UP Board of Regents in 2012 approved a 60-40 Income Sharing Scheme between the UP System and UP Diliman, but COA said the Board has so far failed to issue proper guidelines to turn this scheme into reality [15].
The UP System has so far failed to remit to UP Diliman over Php 287 million in revenues from the Technohub deal and COA said it “had no definite schedule or plan as to when they should remit the share of UP Diliman” [16].
Had the UP System given UP Diliman its rightful share, then UP Diliman would’ve been able to fund important projects like desperately needed building renovations and maintenance outlays.
To make matters even worse, the UP Board is not even giving UP Diliman its rightful share of what little revenue UP receives from Technohub.
The UP Board of Regents in 2012 approved a 60-40 Income Sharing Scheme between the UP System and UP Diliman, but COA said the Board has so far failed to issue proper guidelines to turn this scheme into reality [15].
The UP System has so far failed to remit to UP Diliman over Php 287 million in revenues from the Technohub deal and COA said it “had no definite schedule or plan as to when they should remit the share of UP Diliman” [16].
Had the UP System given UP Diliman its rightful share, then UP Diliman would’ve been able to fund important projects like desperately needed building renovations and maintenance outlays.
The Bottom-line
Much like the notaries Ayala-owned Manila Water’s concession deal, it seems the government also got the shorter end of the stick in as far as the UP Ayala Technohub project.The UP Ayala Technohub as an Ayala charity project: it is, instead, a full-fledged for-profit business venture.
While I agree that UP Diliman’s vast landowning on the far side of Commonwealth Avenue is largely grassland prior to the Ayala Project, it’s grassland in the middle of Quezon City where land is extremely scarce and infrastructure is far more available than most areas in the country.
Moreover, the single biggest challenge facing businesses, especially those that heavily rely on Science, Technology, Engineering, and Mathematics (STEM), is finding quality talent for its workforce.
But that’s not really problem for those in Technohub because job applicants are literally situated JUST ACROSS THE ROAD, i.e. UP Diliman, one of the country’s top universities.
With that said, why did UP enter a deal that just pays them peanuts?
[1] Commission on Audit. Annual Audit Report – University of the Philippines System – Observations and Recommendations. 2018. pages 173 to 175.
[2] Based on the same COA Report, UP collected a total of Php 1,093,867,441.43 from 2008 to 2018, computed as the sum of Php 872,259,106.16 from Buildings A to J & Microtel and Php 221,608,335.27 from Buildings K to P.
[3] Supreme Court. UP v. City Treasurer of Quezon City. G.R. No. 214044. 19 June 2019.
[4] “… the P6-billion investment of Ayala over the next five to 10 years for the 38-hectare property of the University of the Philippines (UP) into a fully integrated information technology (IT) and IT-enabled services community.”. GMA News. Ayala Land to position Laguna as regional center. 26 December 2006.
[5] Supreme Court. UP v. City Treasurer of Quezon City. G.R. No. 214044. 19 June 2019.
[6] Computed based on (1) UP's revenue share ranging from 5 to 15% so Ayala’s share ranges from 85 to 95%, and (2) UP’s average collection of Php 21.77 per sqm per month.
[7] Lamudi. 200 - 2,000 sqm PEZA office for rent in UP Ayala Technohub, Quezon City. 05 January 2018.
[8] DotProperty. BPO Office Space in UP Technohub- FOR LEASE!. Retrieved 18 January 2020.
[9] Ayala Land. U.P. Ayala Land Technohub. Retrieved 18 January 2020. [Archived Copy: https://archive.is/wip/gpWRr ]
[10] Data shows Quezon City’s vacancy rate highest in 2018 at 16.4%, so rates in previous years are lower. BusinessWorld. Office vacancy rates to reach 7.1% this year. 04 March 2019.
[11] Ayala Land. U.P. Ayala Land Technohub. Retrieved 18 January 2020. [Archived Copy: https://archive.is/wip/gpWRr ].
[12] Colliers International. UP Ayala Technohub Building P. Retrieved 18 January 2020.
[13] Microtel by Windham. Microtel by Wyndham - UP Technohub, Diliman in Quezon City, Philippines. Retrieved 18 January 2020.
[14] Bilyonaryo. Freeloader? Ayala Land racks up over P212M in unpaid rent to UP. 02 February 2016.
[15] Commission on Audit. Annual Audit Report – University of the Philippines System – Observations and Recommendations. 2018. page 172.
[16] 2018 COA Annual Audit. p. 177.
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[2] Based on the same COA Report, UP collected a total of Php 1,093,867,441.43 from 2008 to 2018, computed as the sum of Php 872,259,106.16 from Buildings A to J & Microtel and Php 221,608,335.27 from Buildings K to P.
[3] Supreme Court. UP v. City Treasurer of Quezon City. G.R. No. 214044. 19 June 2019.
[4] “… the P6-billion investment of Ayala over the next five to 10 years for the 38-hectare property of the University of the Philippines (UP) into a fully integrated information technology (IT) and IT-enabled services community.”. GMA News. Ayala Land to position Laguna as regional center. 26 December 2006.
[5] Supreme Court. UP v. City Treasurer of Quezon City. G.R. No. 214044. 19 June 2019.
[6] Computed based on (1) UP's revenue share ranging from 5 to 15% so Ayala’s share ranges from 85 to 95%, and (2) UP’s average collection of Php 21.77 per sqm per month.
[7] Lamudi. 200 - 2,000 sqm PEZA office for rent in UP Ayala Technohub, Quezon City. 05 January 2018.
[8] DotProperty. BPO Office Space in UP Technohub- FOR LEASE!. Retrieved 18 January 2020.
[9] Ayala Land. U.P. Ayala Land Technohub. Retrieved 18 January 2020. [Archived Copy: https://archive.is/wip/gpWRr ]
[10] Data shows Quezon City’s vacancy rate highest in 2018 at 16.4%, so rates in previous years are lower. BusinessWorld. Office vacancy rates to reach 7.1% this year. 04 March 2019.
[11] Ayala Land. U.P. Ayala Land Technohub. Retrieved 18 January 2020. [Archived Copy: https://archive.is/wip/gpWRr ].
[12] Colliers International. UP Ayala Technohub Building P. Retrieved 18 January 2020.
[13] Microtel by Windham. Microtel by Wyndham - UP Technohub, Diliman in Quezon City, Philippines. Retrieved 18 January 2020.
[14] Bilyonaryo. Freeloader? Ayala Land racks up over P212M in unpaid rent to UP. 02 February 2016.
[15] Commission on Audit. Annual Audit Report – University of the Philippines System – Observations and Recommendations. 2018. page 172.
[16] 2018 COA Annual Audit. p. 177.
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