Metrovacesa S.A. (MVC) Earnings Call Transcript & Summary

Hello. Good morning. Welcome to the webcast on the trading update for the third quarter of 2024 from Metrovacesa. My name is Juan Carlos Calvo. I'm Director of Corporate Development and Investor Relations. And as usual, we have in the call, Juan Jorge Perez de Leza, CEO of Metrovacesa; and Borja Tejada, CFO. We are going to present an overview of our operating activity for the first 9 months of the year. The slides of this presentation have been released to the market earlier this morning, and they are available through the CNMV website as well as the company website. We have also sent it by e-mail to our usual distribution list for analysts and investors. [Operator Instructions] Now I hand it over to our CEO to start the presentation. Jorge, please.

Thank you very much, and good morning, everybody, and thanks for attending our trading update presentation, quarterly trading update. And I will jump directly into Page #5. And in terms of market perspectives, we see a quite supportive housing market as we have seen in the last quarters, and we think that the situation will continue to be positive with number of transactions gaining traction, not only in secondhand, but especially in the first sales. The lower interest rates that are coming will be an additional tailwind for demand. And we see that the new supply remains insufficient to cover this demand and will continue to be insufficient in a few or a lot of quarters going forward. So positive housing market situation. In terms of our operations, and we'll get into the details a little bit later, we've grown our presales in euros in 15% year-on-year. And this is a reflection of an increase in the number of units, but also an increase in price. Our backlog reaches now a record EUR 1.3 billion, which is a 24% increase compared to December of '23. And our total revenues are close to EUR 280 million for the quarter, including both deliveries as well as land sales. We will propose to our shareholders a dividend of EUR 0.33 per share, close to EUR 50 million in total to be consistent with our remuneration policy of having a couple of distributions per year according to the cash flow that we see at the end of the year. Moving into Page #8, talking about our presales. As I mentioned, we've increased the number of sales by 8.3% in terms of units and 15% in terms of the revenues. This is a reflection of price increase in the year, we see of around 5% so far. And then also, I have to say here that we are in the last quarter, holding the brakes a little bit on sales given the high coverage ratios that we have in the years coming forward. So therefore, for deliveries, especially for deliveries in 2025, where you can see that our coverage ratio is quite high. We are maximizing margin as compared to velocity, okay? In any case, we are in the 2.4%, 2.5% that is our solid absorption rate -- ideal absorption rate for our sales. In terms of deliveries, we are delivering 11% less units, and this is basically a transition quarter, and we are definitely confirming our target for the end of the year to be delivering more than the units that we delivered last year. We are in a few weeks, starting the deliveries of Palmas Altas in Seville, which is a main milestone for us, and that will increase the number of deliveries significantly. And as I said, we have more than 1,000 units that are already sold, completed and which deliveries will come in the coming months. So we will definitely have a busy quarter, but we confirm our targets to deliver more units than last year. In terms of the operational activity in Page 10, as I mentioned before, our sales backlog is 4,057 units, which brings our coverage ratio for 2025 at 81% and 2026 at 58%. So that's why I was saying we are holding the brakes a little bit in terms of maximizing profits for the deliveries of 2025 with a very strong visibility for future deliveries, as I already mentioned. We have close to 5,000 units under construction with 1,100 units started in the first 9 months. And again, we will have a forecast of starting quite a few units from now until the end of the year as well. In commercialization, we have 6,400 units, of which 63% are already sold and with a potential revenue of EUR 2.3 billion. And you can see there our average selling price, which continues to go up with these units that we have in commercialization to EUR 350,000 per unit. In terms of land activity in Page #11, the land sales in P&L are EUR 21.6 million in this quarter, but we do see a growing activity in the land sales, and for the end of the year, we are forecasting that we will be around EUR 65 million to EUR 70 million in terms of land sales and with a sales price very close to our book value. In terms of binding contracts, also increasing EUR 61 million, and that figure will be higher again until the end of the year and will materialize or will show up in the P&L in subsequent years, especially or mainly in 2025. In terms of land purchases, we purchased about 775 units in areas that are attractive with gross margins that are, I would say, attractive and IRRs on the high teens. So far, we've committed EUR 62 million with deferred payments in all the cases, in most cases, and the cash paid so far is EUR 13.5 million in the quarter. Important to say that all these units that we are purchasing, we almost delivered them instantly. So that increases our IRR or improves our IRR. Moving into Page #12. So most recent updates in October, as I mentioned before, so Palmas Altas where, as you know, we have 1,800 units in total. We are starting our deliveries in the first quarter. This is our largest project. We already have 1,300 units in commercialization and more than 20 developments and the target for the year is to deliver between 350 to 400 units in this area. Again, you may have seen recently that we created -- we signed a new JV with Vita, with the Vita Living Group for Oria Campus, the old Clesa factory, in which we will now start the construction. In fact, I think as of today, the construction will start in order to build our second building there, which will be living with 519 rooms for flex living use. And this is in addition to the first JV that we signed and construction is already ongoing and ongoing in a timely manner with almost 600 rooms for student accommodation. So this is slowly bringing all the Oria Innovation campus into a great destination for life sciences hub. In terms of financing as well, we closed in this week a new syndicated loan for EUR 276 million with maturity until the end of 2029 and with a diversified pool of banks, 11 banks in total, 6 domestic and 5 international. Basically, this, I think we saw a window of opportunity to refinance our debt maybe a year ahead, but with good conditions, similar conditions to what we had with a longer term and with a lot of flexibility to the use of funds. And I think this shows a renewed confidence from the pool of banks that we had before and some new banks in refinancing our debt. In terms of P&L, Borja, maybe will comment on Page 13.

Okay. Jorge, thank you, and good morning, everyone. Just some key figures. EUR 280 million of revenues equivalent for the development equivalent to EUR 324,000 per unit, meaning 10% higher than the previous year. In terms of gross development margin, 23.6%, exceeding our low 20s that historically we have keep. And for the future, we are targeting to be close to this percentage. Finally, in terms of EBITDA, EUR 11 million for the year-end, once we deliver all units we have in the pipeline will increase in order to fulfill our targets for the year. Now I will hand over to Jorge with closing remarks.

Great. So thank you, Borja. Page 15. As I mentioned before, so sustained favorable market dynamics, and we see that this will last for a few quarters going forward. we do confirm our positive outlook for the year with our targets in terms of cash flow that were between EUR 100 million and EUR 125 million to be on the higher part of the range and as well in terms, as I mentioned, in terms of number of deliveries to be higher than last year and then land sales to be around EUR 65 million to EUR 70 million in the P&L with margins or with sales prices close to book value or margin around zero. With that forecast in mind, we continue with an attractive dividend policy that, as you know, we normally pay an interim dividend in November with the forecast of the cash flow of the year. And therefore, with our forecast to meet the targeted cash flow for the year, we are going to propose to the shareholders' meeting to be carried on in November 19, a dividend of around EUR 50 million, EUR 0.33 per share shall be paid around the end of December when approved. And that will bring the total figure of the dividend in 2024 to EUR 105 million, which will be a yield of around 8.5%. And with that, I conclude our short trading update.

Thank you, Jorge. We are now ready to start question and answer session starting with our participants in the conference call. [Operator Instructions] We have the first question from the analyst, Ignacio Dominguez from JB Capital.

I have 2 questions. First, could you give us more color on investor appetite for commercial land? Do you continue to see an improvement in demand? And my second question is on guidance. Do you still expect to reach the EUR 100 million to EUR 125 million cash flow guidance by year-end?

Good morning. Ignacio, Jorge here. So commercial land, yes, we -- in fact, the fourth quarter is being already very positive in terms of interest and potential transactions. So I think if everything goes as it has started, it will materialize in the next months in transactions being signed in terms of private contracts and then public bids a few months later. So absolutely, yes. And I would say commercial land in different fashions, meaning Flex living, obviously, is a favorite now around the living concept, absolutely, but also in other commercial uses where our land is suitable to do that with student housing, data centers or other uses. So we are more positive on that, that we -- for sure than -- at the beginning of the year, but even more positive than we were last quarter. And then in terms of guidance, yes, I think I already said it that in terms of cash flow, $100 million to $125 million that was our target. We will be at the higher end of the range.

We now move to our next question from Florent Laroche-Joubert from ODDO BHF.

I would have mainly questions for your outlook in 2025. So we can see that you have now maybe a strong visibility for 2025. So could you please tell us, maybe give us more color on what do you expect in terms of evolution of your gross margin for 2025? And how you see the number of deliveries to be maybe for 2025 or 2026?

Yes. In terms of margins, I think I will stick to my message, the usual message of low 20s and the low 20s, as you can see now, is getting further away from the 20%. And so I think we will continue in that path. What we see is that number of -- I mean, the sales prices have increased, and we've sold over 81%. And then the remaining part is what I said before that we were being quite selective in trying to maximize margins. So low 20s and away from the 20%, let's say. And then in terms of guidance of deliveries, we will be more precise when we present the final end of the year results in February. But I would say that -- I think the path is also an increasing path. So this year, we are planning to deliver more than what we did in 2023 and '25 should also be an increase compared to 2024.

Okay. We don't have more questions from the conference call. We now pass to the webcast. First question from the webcast from Javier Diaz, analyst from [indiscernible]. I would like to ask regarding land sales margin in the quarter. Can you explain what happened this third quarter?

Yes, Javier. So Jorge again, I think this quarter reflects a one-off situation, and it does not reflect the reality of our land sales, as I mentioned before, transition quarter. Let's look at the end of the year. It's going to be around EUR 65 million to EUR 70 million in terms of P&L land sales with a sales price very close to book value is what we anticipate now. And in terms of private contracts as well an increasing number with margins that are close to zero.

Okay. Next question from Miguel Medina from Mirabaud. There's 2 questions. One is regarding the regulation in the region of Madrid regarding the potential change of use of commercial land into residential land. Is this really coming into practice in some municipalities in Madrid? And are you aware of any other regional governments working on similar regulatory measures? And second question is regarding deliveries in the area of Palmas Altas in Seville. Are you still expecting between around 350 units deliveries in the region in this year?

Okay. So thanks, Miguel, for the questions. On the first one, in terms of legislation, the Madrid flexibility of use, let's say, regulation that has come -- it's slowly coming into place so far is, I would say, is unique. So we have not seen such a bold move in terms of allowing residential use with some limitations, obviously, in office land or even in office buildings that can be transformed into residential. As you know, the region of Madrid passed this law back in around the summer and then the municipalities had a period of between 2 to 3 months to actually regulate or specify in which areas of the corresponding city, the law could actually be implemented. So meaning which specific areas, which specific plots of lands that were for 100% use of offices could actually be transformed into residential. Residential that has to be basically protected rental residential product that can be changed into free housing in 15 years. The municipality of Madrid has now issued their -- basically results on where they will allow this law to be implemented. And I think it was today that I read some news about some 20,000 units potentially being up for this new regulation. Now that doesn't mean that 20,000 will be done, but 20,000 as far as I read today, is the potential. Let's not forget also that in some areas or in some pieces of land where offices is possible, also living is possible as well. And so we have in those -- in some land that you will -- you may have flex living or co-living alternative, in commercial use and then in some other areas where, let's say, residential use with 15 years of protected housing will be implemented. Unfortunately, we have not seen that in other regions in Spain yet. And when I say yet, basically, I do not anticipate as of today any other places. So no regional government has so far announced that they will look for something like that. And then on the question about Palmas Altas, yes, as you know, well, we have 1,000 -- the total 1,800 units that we have in the area, 1,300 are in commercialization. A very high percentage of that is being sold, and we are starting now the deliveries of the first projects. And yes, the potential for delivery in the next months is around 400 units or even higher if we take the beginning years of next year.

Okay. Thank you. We do not have any more questions from the webcast or the conference call. So I think we can conclude now the session. So this concludes the company presentation for the trading update of the third quarter of 2024 in Metrovacesa. As usual, the Investor Relations team will be available to take any follow-up questions that you may have. And we thank you for your participation, and we look forward to meeting you again next quarter. Thank you. Goodbye.