Neinor Homes, S.A. (HOME) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Neinor Homes Full Year 2024 Results Presentation. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jose Cravo. Please go ahead.

Hi. Good morning, everyone. My name is Jose Cravo, and I'm the Head of Investor Relations at Neinor Homes. Today, we are going to go through our results of the fiscal year 2024. As usual, we are here with Borja de Garcia-Egotxeaga our CEO; and Jordi Argemi, our Deputy CEO and CFO. We'll start the presentation with the key highlights of the year. Then we will update and review the fundamentals of the Spanish residential sector on the Section 2. On Section #3, Jordi will review the financial performance for the year '24 and the progress we have made in the different objectives of the strategic plan. And then Borja will finish with the key conclusions. After the presentation, there will be a Q&A session to answer any questions you may have. Now I'll hand over the presentation to our CEO, Borja Garcigoiara.

Thank you, Jose. Okay. Thank you, Jose. I would like to start this presentation with 4 key messages. The first is that in the spite of many different market challenges that have happened during the last years, we have been always fulfilling our guidance to capital markets. My second comment is that the year 2024 was a record year for the commercialization activity. And looking to the evolution until February, we foresee an even brighter outlook for 2025. Third, on our equity efficient strategy, during the last months, we have significantly accelerated the ramp-up of Neinor Asset Management through the joint venture with Habitat. In just 2 years, we are managing a portfolio of more than 6,000 units. And finally, I will note that today, we are in a perfect context to grow, and we are seeing exciting investment opportunities in assets, portfolios and companies. Our objective is to invest between EUR 100 million to EUR 200 million. This is more than 3x what we did last year and still target opportunistic annual returns above 20%. Please follow me to the next slide so that we can see a summary of the key figures. In this slide, you can see a snapshot of our 2024 results. Firstly, I would like to highlight the growth in all the key operating metrics, land bank, units under construction and order book. This performance is explained by the positive evolution of Neinor Home's portfolio, but also the ramp-up of the asset management business. On the financial side, we have recorded a net income of EUR 69 million with strong margins and cash flow generation. In terms of leverage, we have finished the year with a conservative loan-to-value of 16%. Please follow me to the next slide so that we can review our performance in the past 6 years. In this slide, you can see the accumulated deliveries, EBITDA and net income since 2019 as well as the figures from 2024. In total, over the last 6 years, we have delivered more than 13,000 units to our clients with industry-leading margins and generating more than $750 million EBITDA and more than EUR 500 million of net income. On 2024, we have delivered more than 2,200 units, of which nearly 1,900 were from Neinor's portfolio. In terms of EBITDA, we have reported a bit of 2% to EBITDA and 6% on net income. Please follow me to the next slide. During 2024, we have managed sales of more than 2,600 units for a total of EUR 840 million. Furthermore, we have finished the year with a record order book with 3,600 units that is worth nearly EUR 1.3 billion in future revenues. The pace of sales has now recovered the post-pandemic levels closer to 6%, and we keep passing for house price increases. In 2024 alone, we have captured EUR 50 million of additional revenues as we were able to get higher prices than estimated. As I said in the beginning, 2025 has started on a strong foot with 350 units sold in just 6 weeks. Here, I would like to highlight a particularly strong performance of Neinor's more affordable product with unbeatable prices between EUR 200,000 and EUR 250,000, 45 minutes away from the center of Madrid. Please let's go to the next slide. In terms of margins, as I said in the beginning, we see a bright outlook as we expect house prices to keep growing, while construction costs should remain under control with 2%, 3% annual cost inflation. Please follow me to the next slide to review the profile of Neinor's client as we often have questions regarding affordability. In terms of profile, the vast majority of our clients is Spanish, older than 35 years and with a household income of around EUR 90,000. In terms of financing, around 30% to 40% bought in cash and those that use leverage take around 65% loan-to-value. Applying standard mortgage conditions, it means our clients have an effort rate of nearly 20% with a monthly payment of around EUR 1,000 out of EUR 5,000 available income. The barrier to entry in the Spanish market is the equity a client needs to have between 20% to 25% of the house price in savings to buy the standard apartment. But once they have this equity, the effort rate in Spain is well below the average FO rate in Europe, and this is very important for the quality of our order book. Please follow me to the next slide so that we can review our equity-efficient strategy. In this slide, we would like to remind you of the rationale to start our asset management business. In a nutshell, this model brings 2 advantages to Neinor. First, it improves the returns as we typically make 50% to 60% EBITDA margin through the fee business while reducing the equity contribution. Second, it allows the company to draw capital from private markets, diversifying our sources of capital and giving us a strong tool to grow the company. For the co-investors, it is also a beneficial relationship as they leverage Neinor platform to generate very attractive risk-adjusted returns. The evidence of this win-win proposition is that in just 2 years, we have raised EUR 1.2 billion, of which EUR 750 million are already invested. Even though we are not committing to a particular target on the scale of this business, we feel very comfortable that in the coming years, we will keep growing Neinor's asset management business. Please follow me to the next slide. Other than the asset management business, we are also working in different initiatives to accelerate growth and to improve shareholder returns. One example is the crystallization of Neinor's strategic land bank with more than 3,000 units by year-end. The first example of this is [indiscernible] Rentals, 240 units in the city of Madrid that we sold to our joint venture with AXA. [indiscernible] is a development in [indiscernible] of nearly 400 units that is currently undergoing into the last stages of the urban permitting, and we are currently exploring ways in which we could accelerate value for shareholders. Carrilles is a macro development in the municipality of Alcobendas, north of Madrid, where we have a significant portfolio to build free and protected housing. Alboraya to develop 400 houses in a prime location in front of the sea and 15 minutes away from the city center of Valencia was an NPL that came from Quabit's portfolio. And finally, last year, we have been able to reach an agreement with the municipality, and now we are starting to work on the urban planning. In the coming years, we expect that these assets will have a significant earnings impact on our P&L, optimized and productive assets in our balance sheet, which will improve shareholder returns. Please follow me to the next chapter on the Spanish resi fundamentals. In this section, we provide an update on the perspectives for the economy and residential sector fundamentals, reiterating our view that Spain is one of the safest residential markets worldwide. I will not go through all the slides and charts, and I'll just leave you with some key ideas. Please follow me to Slide #13. First, on GDP, the Spanish economy has been outperforming other European economies for the past few years, and this will continue to be the case in 2025 and '26. Behind this trend, there is a healthy job market where employment continues to grow and unemployment to decrease. Household savings rates went up again in the year '24 and consumer confidence has improved ground recovering the post-pandemic levels. While interest rates are on a downward path, affordability is set to improve, which should accelerate private consumption. Please follow me to Slide #23, where we review the evolution of residential fundamentals. Since the pandemic, population and household has accelerated and grew faster in Spain than other countries, providing a boost to housing demand as we can see by the accumulated figures on the left side of the chart. In the coming 5 years, population is expected to grow even faster. New housing production is expected to increase a little bit, around 20,000, maybe 30,000 units per year, but it will be still very far away from the needs, further increasing the housing shortage. Now I hand over the presentation to Jordi to review the financial results.

Thank you, Borja. In this section, we will review in further detail the financial results from the year 2024 and also provide an update on the execution of the strategic plan announced 2 years ago. Please follow me to the next slide. In this slide, on the left-hand side, you have 2 columns, one with a forecast for the year and the other with the results reported. Starting with deliveries, you can see almost 2,400 units compared to the 2,000 units guided. As you can see in the highlights, we have 1,500 units of build-to-sell, 350 units of build-to-rent and more than 500 units coming from the asset management business. In regards to revenues, we have closed with EUR 502 million. This figure doesn't include the 351 units build-to-rent sold for around EUR 60 million. As commented many times, the build-to-rent units can be sold either as an asset deal or as a share deal depending on the buyer. In the latest case, where we sell the shares, we can only recognize the margin directly in the P&L, but not the revenues. And this is what has happened. For the like-for-like comparison, you should include this amount as revenues. In regards of EBITDA, we have closed with EUR 102 million, which is 2% above the objective. And this despite the negative margin of around EUR 6 million in the build-to-rent divestment of Alboraya during the first semester. We have been able to offset this impact during the second half. There were several factors contributing to this. First, higher margins associated with a different revenue mix that justify a 29% gross margin versus the 24% target. Second, the positive impact from the acquisition of a 10% stake in Avitat at a 30% discount to net asset value. And third, the profit generated by the JV, mainly Avitat during the fourth quarter, which had an impact immediate in our P&L. On the bottom line, the adjusted net income came in at EUR 69 million or basically 6% above the objective. In terms of cash flow, we have finished the year with a net debt of EUR 238 million, but this already includes the EUR 62 million payment -- dividend payment executed in January of this 2025. Excluding this impact, net debt would have been EUR 176 million, which is exactly in line with the consensus figure by the sell side of EUR 180 million. Finally, I would highlight that the loan-to-value came in at 16%, which is below the 20%, 25% guidance with a positive evolution on the appraisal with a like-for-like revaluation of EUR 130 million. With that said, please follow me to the next slide so that I can provide a quick update on the monetization of Neinor's build-to-rent portfolio. During 2024, we have sold 2 projects, [indiscernible] for approximately EUR 90 million. After these sales, we have 4 assets remaining with a book value of approximately EUR 130 million, and we will look for the best commercialization strategy between selling to retail or to institutional buyers. In 2025, we feel very confident that we will continue to make disposals that will allow us to continue accelerating our shareholder remuneration plan and to optimize our balance sheet. Please follow me to the next slide. On this slide, you have the progress made so far on our shareholder remuneration program. First of all, I would like to announce that we will take to the next AGM the approval of another EUR 125 million. This distribution will be split equally in payments to take place in the coming 12 months. Having said this, we don't have a calendar defined yet. It will be up to the Board to decide. If we consider EUR 62 million payment that we will make in the coming 2 weeks, Neinor should distribute almost EUR 190 million in the next 12 months, which is quite significant. With that said, please for me to the next slide. In terms of liability management, during the year, we took the decision to return to the credit markets. As you know, in October, we have refinanced our corporate debt, which at that point in time stood at EUR 175 million, and we have replaced it by a EUR 325 million green bond. This transaction was important for us and mainly due to 3 reasons, I would say. The first one is that we have been able to reduce the cost of the debt by 60 bps, even though we extended maturities by 4 years. Second, we decided to increase corporate debt by EUR 150 million in order to have the optionality to accelerate our land acquisition program. And third, because we were able to return to the bond market without limitations on our shareholder remuneration program. Now follow me to the next slide so that I can review the status of Neinor's asset management business. On this slide, you have the detail of all JVs signed by Neinor in the last 2 years. In total, as you can see, we have signed commitments with a target investment of EUR 1.2 billion, significantly ahead of the Neinor's 5-year objective that was EUR 500 million. Also, we are extremely proud that so far, we have been able to invest more than EUR 750 million after a record year during 2024. Of this amount, Neinor has contributed with more than EUR 60 million. And in 2025, we have a land acquisition target ranging EUR 100 million and EUR 200 million, and we stand ready to further accelerate this asset management business. So overall, I would like to conclude by reiterating that we are very proud of the progress done in this year 2024 and state that we have good visibility for the coming years. Remember that 1 year ago, we released an uplift to the guidance based on the growth of the asset management business. This uplift implies to increase EBITDA from EUR 100 million to the range of EUR 100 million and EUR 110 million for the years 2026 and 2027. We keep the same guidance, but it is true that it is conservative, and this uplift might occur already in 2025. And regarding the midterm, we can be above that uplift. But we prefer to be conservative today as we have been in the last 6 years. And whenever we see visibility enough, be sure that we will increase again the guidance. With that said, I hand over the presentation back to Borja for conclusions.

Thank you, Jordi. So before we close the presentation, I would like to frame the discussion about the growth potential of the Spanish residential market in the coming years. Since 2014, we have seen far stronger population and household growth than new homes built. This situation has been aggravating year after year. And in the last 10 years, the housing production deficit is more than 1 million homes, which represents more than 10 years of the current gen of production in Spain. So what we expect is that the housing production should continue to increase in the next years in Spain. And in this context, there is a clear structural growth opportunity for Neinor homes. Please follow me to the next slide so that we can review how we have designed our developer model to pursue this growth opportunity. The question we have in front of us is how we can grab the structural growth opportunity that the Spanish market offers. To answer this question, let me finish this presentation highlighting 3 ideas of our business model that we have been optimizing over the last years with the objective to grow this company in a more profitable and sustainable manner. First is our execution track record. In the last 8 years, this company has delivered more than 13,000 new homes and generated $4.5 billion in revenues. Over this period, we have industrialized our business model and made it highly scalable. The second driver is our investment discipline. We have invested more than EUR 3 billion in land and CapEx, and we have generated industry-leading margins across the cycle. The third element that we introduced in 2023 is the asset management business, where Neinor's equity is used in an efficient strategy whose objective is to make sure we make the optimal use of capital so that our industry-leading margins can be transformed into attractive investor returns. So far, as we have said, we are managing EUR 750 million invested, and we are working to crystallize the value of our strategic land bank and making sure new land acquisitions follow an equity-efficient structure. With these 3 elements in place, we foresee to deliver more than 20,000 units in the next 5 years, showing a sustainable and derisked growth for the company, maintaining or increasing our industry-leading margins and with a target to increase shareholder returns to levels of 14% to 15% per year. And now we are ready to take any questions you may have.

[Operator Instructions]. Our first question comes from the line of Ignacio Dominguez from JB Capital.

I have 2. Firstly, regarding the outlook for full year '25, could you provide more visibility on what you expect in terms of core build-to-sell deliveries and fully owned development revenues? And my second question is what about gross development margins? Do you still expect to reach 24% for blended build-to-sell and build-to-rent in full year '25, '26?

I'll take this one. We can give further details there. But in general, remember that our guidance is clear since the last 2 years that we said that we are going to deliver EUR 100 million EBITDA. We don't care that much on the product mix. What matters to us is that we make the profit and also that we generate the cash to distribute the dividend and also to keep at the loan-to-value ranging 20% to 30%. This is our metric that we have in our head. Further details on this. Well, in revenues, it will depend again on the build-to-rent divestment that you know that we have a kind of EUR 130 million to be invested hopefully, in the coming couple of years, we will see. So depending if it's asset deal or share deal will affect that top line that is the revenues, as I have explained in the results of 2024, but we should be in the range of EUR 600 million and EUR 700 million revenues. Units we don't focus so much because it depends on the product mix of those units, even in the build-to-sell. For example, this year 2025, we have Santa Clara, which is a big plot in Madrid that ASP is like 1.3 million each unit. So we don't need so that much units to get to those revenues. It will depend.

We'll now move to our next question. Our next question comes from the line of Manuel Martin from ODDO BHF.

Two or 3 questions from my side, please. Sorry, technical problems here, so I couldn't listen to your complete answer when it comes to the guidance. As you don't have a slide with the guidance in the presentation, can I ask you to remind me again the outlook for 2025. Was that EUR 100 million EBITDA and EUR 600 million revenues? Or did I got that wrongly due to technical problems?

No, no, don't worry, exactly. What I said is that the official guidance was EUR 100 million. That the revenues would range EUR 600 million and EUR 700 million, but this will depend on the product mix, the build-to-rent investment, how they are recorded. If it's an asset deal will affect, obviously, and also that the loan-to-value should be between 20% and 30% and hopefully in the high part of the range. And all this with the dividend distribution that we keep the guidance of EUR 125 million. This is the official guidance. Other thing is that in the call, I said at the end of my speech that this is conservative because in the last 12 months, we released an uplift for the years of 2026, 2027 to increase EBITDA from this EUR 100 a range of EUR 100 million to EUR 110 million. What I have said is that it's we are overachieving our metrics in the last couple of years, and it's possible that we also anticipate at some point in time that uplift to this year to 2025. So there is an upside risk there that we don't make it official, but can be there on the table.

Okay. I understand. But officially, one can quote you with the EUR 100 million EBITDA for 2025.

Correct.

Okay. Then I have a question on the net income. I mean the adjusted net income came in at EUR 68.8 million. And I must confess there were a lot of adjustments, I think, somewhere in the accounting. Do you have a kind of bridge for us where we can see the adjustment how to come from EUR 62 million in the financial statements to the adjusted EUR 68.8 million. I have a rough idea when I have a look at your presentation. But yes, maybe you can help.

I'll give you more color. The big point there is the MIP, okay, which is -- range is EUR 5.5 million when we issued and released our guidance of EUR 100 million 2 years ago, we already said that this excluded the management incentive plans. So what you can see there is basically EUR 5.5 million of management incentive plan. This will end next year. So it was a 3 years plan, okay? And on top of this, there are also around EUR 2 million to EUR 4.5 million of additional cost that relates to the bond issuance that was not contemplated that last year in the ordinary course of business of the company and also the additional growth that we have done in the asset management business. That's why we exclude it because this will create further profit in the future, but obviously, nothing to do with the results of 2024.

Okay. And just 2 other questions, if I may. So do you expect to see somehow less adjustments in the coming years or...

The only adjustment that should happen next year in principle because obviously, what we project is cost of business. So the only adjustment would be the last part of the management incentive plan that as you may know, this depends on the dividend that we distribute to the shareholders and also on the assumption that we achieve the EBITDA officially committed. So this is the only one. Obviously, if we do other deals that are on top of the [indiscernible] business, it's because it's accretive for the company and for the shareholders, and this may imply additional cost of growth. So it's good to have those additional costs that I would say, not from a strategic point of view, but for the future of the company.

Okay. So maybe we see some MIP cost next year?

MIP for sure and can be between EUR 5 million and EUR 6 million, again, depending on the final dividend to be distributed, okay? That is the last moment in the last year, not do we record it.

Okay. Last question, the Spanish population growth, which you put in the window. Do you think it will be mainly coming from migration? Because I think the Spanish woman usually doesn't have so much -- so many children anymore today. And what could that mean for the, let's say, for the quality of migration and the quality of potential buyers?

I'll take this one. Well, you know the growth of population in Spain in the last years is around 700,000 people coming from other countries to Spain. If you look at the rates of employee from last year, Spain created 500,000 new jobs, and this is more or less what's expected for the coming years. And with this, at the end, what we have is what we expect, we take data from the Institute National Statistica from the INE. And in that institute is where all these people that is coming is -- they are taking account which is the final number of households created in Spain. And we are taking this data from this institute and also from the Bank of Spain. And from that data from where we see the power of the growth of the household need in Spain. And these are official numbers. I expect the numbers, of course, because it's always difficult to say what is going to be the increase of population. But the estimation is that we should be making in Spain today only for the migration stuff around 250,000 houses while we have deficit around 1 million of houses that we didn't make during the last years, and this is the gap that the country is saying. It's not proportional to all the cities of the country. This is the need of houses basically concentrated in the big areas where [indiscernible] is active. And this is the rationale why we see that there is a big potential of growth in the coming years for a business like ours.

There are no further audio questions at this time. So I'll hand the call back to Jose for any web questions.

So I'll follow up with the questions on the webcast right now. We have here one question for Mario on land acquisitions. If we can provide more details on the EUR 100 million to EUR 200 million land investment target for the year? And what's the mix between Neinor and joint ventures?

Yes, perfect. Yes, the budget is of equity for Neinor. And depending on the stake on the JVs, it could represent a firepower of roughly EUR 300 million to EUR 450 million for the year. We have been working in different angles. As you know, we have the build-to-sell, the build-to-rent and the senior living profiles, and we have today pipeline of granular acquisitions of around EUR 300 million equity and a pipeline of portfolios of around EUR 1 billion. So we are confident that in the next months, we will be crystallizing the major part of that budget.

Thank you, Mario. And then we have here another question on the EUR 300 million of the pipeline and the analysis, if we can give more details on this one.

Yes. Well, I mean, the sourcing, as you know, the core sourcing for the company is still the cherry-picking opportunities in the regions where we are active. Most of these land plots are fully permitted in Madrid, Valencia, Malara and Basque country and where we are in different progress of due diligence or exclusivity with next closings for the coming weeks.

Thank you, Mario. Another question related with investment opportunities. After the deal with Avitat, if we see further consolidation opportunities with the news that some private equities like Castle Lake and Värde are looking to sell?

I mean opportunities are there. We have said that in the last months and actually years. We -- I would say that we are ready to analyze all opportunities that are out there. It's our obligation. Remember that we only look at those opportunities if the returns that we've seen are at 20% IRR and 2x cash on cash. We have a lot of cash today. Actually, you know that we raised the bond to accelerate that land acquisition program. This is because we saw the opportunities there. You can see in our balance sheet how much cash we have. And not only this because you know that with the asset management business, we have a lot of optionality to go through co-investments. So we can go even for large deals. So let's see. There are many things out there. Let's see how we can crystallize it on them during 2025.

Thank you, Jordi. Another one here on land, especially or specifically on the strategic land that we show in the presentation. If we can give more details on how we plan to put in value these assets.

Okay. I take this one, too. Yes, they are part of the G wells that we have in our land bank are assets with extraordinary locations and projects. And the strategy is to start crystallizing them through the asset management business as we did like in [indiscernible] 1 year ago with AXA, so we can create value in the short term, while we keep the optionality and the upside of the mid, long term in these assets. And we are working with them carefully to create real opportunities for the company.

Thank you, Mario. And then one final one for you on the commercialization activity in year '25, how is it evolving and the coverage for the years '25 and '26?

Okay. No, the first 2 months of the year has been very good. We have keep this trend of absorption rate of about 6%. So we feel that the year looks pretty good. And regarding the order book, we have a 70% coverage for 2025, 50% coverage for 2026, and we are starting the coverage of 2027 that as we always do with our disciplined management of the sales cures, we pretend to end the 2025 year with a 30% with the main priority of keep the HPA capture as mantra because we really feel there is much more demand than supply.

Thank you, Mario. Then one question here for Jordi. With regards to the reported EBITDA and the one on the consolidated accounts, if we can explain the difference between...

Jose? I cannot hear you.

Sorry, I'll repeat. On the EBITDA reported in the accounts versus the consolidated, if you can explain the difference.

Sure. There are 3 main adjustments. One is Alboraya that I'm not going to explain it because it was already explained in the first semester. And the other 2 basically relates to the asset management business. One is the results that we have generated in our co-investments that from an accounting point of view, it goes through the financial result. But in reality, this is operational result because we deliver units, and it doesn't matter if it's on balance sheet or through co-investments. This is basically EUR 4 almost EUR 5 million. And this is conservative because we have only included the net income received from the co-investments. To be honest, we should have been excluding the taxes. So the EBITDA should have been even higher. And the second concept and the last one is the PPA that comes from Avitat. Given that we bought Avitat 10% stake at a 30% discount over net asset value, the Avitat has obliged us to recognize partial value there, at least this 30% discount, which is conservative. And this is what we have recognized. This is including EBITDA because this number will not be crystallized in the coming years as we were expected because the PPA implies that we anticipate this margin. This is the difference.

Thank you, Jordi. And then Javier, one final question on the webcast with regards to the build-to-rent portfolio that is pending to be sold, how we are seeing the appetite for these assets?

Yes. We have 2 different type of products. We have the typical build-to-rent brand new that has been the main disposals of the last years, still some in Seville and in Victoria, and we have offers on the table, and we are analyzing them. And then we have the [indiscernible] portfolio that, as you know, it's a stabilized and yielding asset with good financing. And here, the strategy has been to wait a bit until the interest rates gets to lower figures and more competitive offers can be received, and that has been the case. So we are, during this year, analyzing if it is a good momentum also to divest Sardes or we have to keep it a bit more.

Thank you, Mario. With this question, we finish the webcast. And as always, we'll be available to answer any questions you may have. Thank you.

This concludes today's webcast. Thank you for participating. You may now disconnect. Speakers, please stand by.