Its operating profit dropped 29 percent as weaker real estate sales pulled down revenues by 25 percent to nearly P3.6 billion, according to the developer’s full-year report, which was released seven months after the deadline.
Even so, the company still posted a modest net income of P1.4 billion, supported by lower costs and small non-operating gains.
The final figure plummeted 99 percent from its P999.7 billion profit thanks to the soaring land estimates in Villar City that were eventually struck down by its external auditor, Punongbayan & Araullo (P&A).
P&A upholds proper accounting
Auditors are more than rubber stamps for their clients paying multimillion-peso fees.
They play a crucial role in independently verifying if financial statements, which are prepared by the corporate client, follow accounting rules.
Details from a Securities and Exchange Commission probe revealed P&A’s pushback against the company’s attempt to inflate the value of land purchased in Villar City for around P5 billion in late 2024 by around 25,000 percent to over P1 trillion.
How auditor addressed the issue
The section of Villar Land’s report showing the independent auditor’s review provides more details on this issue.
P&A, a leading auditing firm and a member of Grant Thornton International, said it was Villar Land’s management that proposed to change the valuation method from the cost model to the fair value model.
This would allow the company to revalue land at current market prices instead of historical cost.
“This proposed change was publicly disclosed and reflected in the unaudited financial information, resulting in a significant revaluation gain,” P&A said.
Before this, Villar Land had hired SEC-accredited third-party appraiser E-Value Philippines, which came up with a P1.3-trillion land estimate, which was later rejected by the external auditor.
“However, following extensive discussions with the external auditors and considering concerns regarding the valuation inputs and assumptions, as well as the need to complete the finalization and release of the consolidated financial statements, management decided to retain the cost model for the 2024 audited consolidated financial statements,” it said.
“This matter was significant to our audit due to its potential impact on the consolidated financial statements, the public nature of the initial announcement, and the need to assess the appropriateness of the accounting policy and related disclosures,” it added.
How does revaluation impact profits?
The P1.3-trillion land value estimate would result in a paper gain, meaning it didn’t come from actual sales or business activity.
Under accounting rules, revaluing newly purchased land allowed the company to book the increase as profit, turning an ordinary year into nearly P1 trillion in earnings even though no cash was made.
There are also tax implications with such a move, which is why Villar Land listed deferred tax liabilities of P334.2 billion when it first revealed the fair value gain spike last March.
This is deferred, meaning the tax is not yet paid and only becomes due if the gains are realized, such as through the sale of the property.
The bottomline
The audited numbers show normalized figures for Villar Land, the former developer of memorial plots that shifted to building out the 3,500-hectare Villar City spanning parts of Metro Manila and Cavite.
The business is slowing down, but so is much of the real estate sector amid weaker economic growth in the third quarter.
The stock price (HVN) is another matter.
Even after Villar Land resumed trading following a six-month suspension and a massive asset write-down, shares still gained 0.17 percent to P2,300 each, maintaining its status as the most richly valued real estate firm at P1.5 trillion — more than five times the size of Ayala Land and three times the size of SM Prime Holdings.
This is not surprising since Villar Land’s public ownership is just above compliance, and the Villar group controls most of the shares.
Buyer caution is warranted since the stock is now trading at roughly 1,000 times last year’s earnings, making it one of the most expensive and illiquid firms to trade.
—Edited by Miguel R. Camus
