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

Hello. Good morning, and welcome to the first semester 2025 webcast from Metrovacesa. My name is Juan Carlos Calvo. I am Director of Corporate Development and Investor Relations. And as usual, we have with us Jorge Perez de Leza, CEO of Metrovacesa; and Borja Tejada, Financial Director. We are going to present an overview of our operating activity and the financial results for the first semester of the year 2025. The slides of this presentation have been released to the market earlier this morning, and they are available through the CNMV website and in 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. Please, Jorge.

Thank you, Juan Carlos, and welcome, everyone, to our midyear 2025 results presentation. I will start on Page #5 with some 3 straightforward highlights. And the first one regarding the market, we are with good headwind -- sorry, headwinds -- tailwinds in a market with growing demand. Our operational activity is going as planned, and that will basically mean that we reiterate our guidance for the full year 2025. In terms of demand, as you are probably all aware, the transaction volume continues to increase quarter-over-quarter, and we are reaching record levels now of transactions between first home -- new homes and second homes. And this strong demand is also being supported by growing households' wealth with a 5% average annual growth since 2014. Our revenues -- or going to our operational activity. Our revenues for the semester have been EUR 133 million with 423 units delivered and a gross margin of 22%, and I will elaborate on that a little bit more. Our presales figure is of EUR 310 million with 834 units and a selling price of EUR 371,000, so a 14% increase year-on-year, and we are seeing that figure growth coupled or fueled by the market demand and the market situation. Our sales backlog stands at well over EUR 1 billion now, EUR 1.3 billion, which is an increase of 16% versus December with a total of close to 3,700 units sold with an average price of, again, close to EUR 370,000 per unit. We reiterate our guidance for the year with a higher concentration of deliveries in the second half of the year as it's usual in the industry. And this is well supported by a 96% coverage ratio of sold units in the year and as I will detail a little bit later. And again, I reiterate that our full year guidance remains unchanged. Carlos, I hand it back to you just to give a brief overview of the market again.

Yes. Thank you. Just a few stats on the sector. We see that the market in the last few months has continued to perform well. We've seen an acceleration in in-house prices, now growing at 12% year-on-year. This is the seventh quarter consecutively with an acceleration in the increase of house prices. And also, we have seen an acceleration in the volume of transactions. You can see that in the chart. We are now close to record levels. In the last 12 months, the number of transactions has been close to 700,000. This is similar to the figures we had in the year 2008. And we have actually seen also some acceleration in the volume of new constructed houses, which continues to be a small percentage of the total transactions, but that reflects that when the volume of new construction is growing, this is well absorbed by the market. This demand and prices is well supported by the finances of households. You can see the third chart on the right, where we can see the growing trend of the wealth of the families, be it real estate plus financial assets whereas the financial debt by families has been stable or slightly going down. So this is very much a dual market where, obviously, there are some people with difficulties to access housing when salaries are growing more slowly than house prices. But on the other hand, there is a significant portion of the population or the market where their finances are well supported, and this is supporting sufficiently the housing demand. Obviously, going forward, we can think that -- I mean, there are some locations where prices are already touching some relatively stressed ratios in terms of effort rates. That could indicate that maybe in the future, we could see some slowdown in the rate of growth of prices and volumes, but no sign of weakness, in fact, all the contrary in the recent data in the market. Back to Jorge.

Yes. Thank you, Juan Carlos. Going to Page #9, our operational activity. We see that our pipeline continues to grow and with a high visibility supporting our -- for a target figure of around 2,000 units per year of run rate. We have a sales backlog of 3,000 -- close to 3,700 units. And as I mentioned before, with an average selling price that keeps growing and it stands now at EUR 365,000 per house. Of this sales backlog, 83% is actually formalized in private contracts with on payments and the rest being reservations. We have 4,400 units under construction with close to 700 units that we've started in the second -- sorry, in the first half of the year and again, consistent with our run rate of around 2,000 units per year. And then in commercialization, we are close to 6,100 units, of which 61% is actually sold. 750 units launched to the market in the first half and a potential revenue of EUR 2.3 billion at an ASP of close to EUR 380,000 per unit. So you can really see the progression of EUR 365 million on the sales backlog, on the new sales, EUR 371 million. And then finally, in commercialization, close to EUR 380 million. So that represents or implies that we are following the trend in the market of increasing prices. The commercialization mix, Seville is 23%. This is mainly due to Palmas Altas, Isla Natura being our star project in the last couple of years. And this will -- this mix will eventually change, and we will have an increase going forward in Madrid, Barcelona and Valencia or all our non-fully permitted land is coming into commercialization in the next couple of years. In terms of presales, as I mentioned at the beginning, we've sold -- we've presold 834 units in the 2 quarters. And we are prioritizing price over volume. Some of you may think, well, is this a low figure. Actually, the way I view it is that this is good news. And it's probably even, I would say, maybe a high figure because if you think about the coverage ratio that we have right now, we are in a position that we need to maximize or we are going to maximize margin rather than selling. We need to sell 4% of units for the remaining part of the year, assuming that we deliver between 1,750, 2,000. Let's take the higher part of the range. If we were to deliver 2,000, we would need to sell 4% of that, which is 80 units in the remaining 6 months to deliver the targeted figure. Even thinking about deliveries of 2026 and 2027, I would say that we are now at 80% -- yes, 80% of coverage of 2026. So I would say we really don't need to sell any more units of the 2026 deliveries. And of 2027, if we were to finish the year with, let's say, 50% coverage, that would mean 10% over 2,200 units. So if I add up all that, we really need to manage the sales appropriately because we're not in a hurry to sell units here. In terms of deliveries, so we have delivered 423 units, and we will comply with our full year guidance, which is to be in a figure in the range of what we delivered last year and representing together with land sales, EUR 150 million cash flow generation. If I take this, just to give more visibility, this 423 units, we can add another 750 that are already with the works finished and sold. And on top of that, we will have final work certificate of between 800 to 900 units in the -- within the third quarter that are subject to be delivered in the year as well. So good coverage in terms of construction as well in order to meet the target. And again, with a very high visibility, as I mentioned before, for the coming years, 80% in 2026, which is already a figure that probably 80% is good enough or even high for the end of the year to be there and 40% in 2027. So quite comfortable in terms of coverage for the deliveries, not only this year, but in the coming years as well. In terms of land activity, moving on to Page #12. In the P&L revenues, you will just see EUR 1.8 million in P&L in this first half of the year. However, the target for the remaining part of the year is to have a figure that is much, much higher than that. We have -- and this is supported by a backlog of binding contracts already signed of EUR 100 million, part of which will actually materialize for -- on being authorized and therefore, show up in the P&L in the second half of the year. And then also some other good pipeline on the works that will mean additional private contracts in the year and then authorizations in 2026 and 2027. In terms of land acquisition, we continue with what we call our top-up strategy, which is in combination of the fully permitted land, but -- plus the non-fully permitted that becomes fully permitted and subject to launch and a few additional 100 units per year of purchases. We've -- in order to reach that run rate of around 2,000 units per year. We've purchased so far 360 units with a committed investment of around EUR 38 million. We've purchased units in Los Cerros in Madrid that was publicly announced, also in Valencia and at the end, in areas where demand is strong and where we see margins that are -- gross margins that are within or higher than our targeted figure of being closer to 25% rather than 20%. In terms of our commercial portfolio, Page #13, we continue full steam ahead with our 2 developments in ORIA Innovation Campus, the student residence and the flex living that we are co-developing with Vita with the first student residence with 585 rooms being on track to be delivered in 2026, 52% work in progress right now and the flex living almost at what we call [ Cota Ferros ] or ground level and then to be delivered in 2027. The 2 additional projected buildings, the 40,000 square meters, which could be used for offices or flex living or PBSA, smaller part of 6,300 square meters. We have ongoing conversations with interested partners or parties, and we will announce something probably soon on that regard. In terms of selling land activity, I think of the EUR 100 million signed in private contracts in total land sales, EUR 54 million of that is actually commercial land. What I would say is that the added flexibility towards office use that has been possible in some cases because the urbanistic parameters already allow it or in other cases, regional, let's say, regional urbanistic flexibility has been brought into place. We have been -- we are having mainly conversations in that office land use around flex living or PBSA, and that's why we are seeing increased liquidity for that commercial portfolio. Finally, in the Puerto de Somport office, where we have our JV with Tishman Speyer in Las Tablas in Madrid, we've reached 75% occupancy rate, and we are in advanced conversations for an additional 12% take-up. So basically, very close to reaching full capacity of the building in the coming months. So again, good news. Moving on to Page #14. I mean this is -- reflects our ESG strategy. Let me probably emphasize on the environment part that we are -- 100% of our launches in the last year and then going forward are AA energy efficiency and also with a goal of having a primary energy demand that is at least 10% below nearly zero energy buildings as the best environmental practices in the market guide us towards. We are on top of that, measuring in the activity or the carbon footprint or the activity life cycle in 100% of our buildings. And we are basically complying or, in fact, even going higher than the minimum legal requirements in waste management control processes and recycling of our waste in our construction works. In terms of governance, I would also like to highlight that according to the S&P Global Sustainability Index, we were rated as being in the top 93% percentile last year according to their audit of our ESG policy. And with that, I hand it over to Borja, our CFO, for the financial overview.

Thank you, Jorge, and good morning, everyone. Concerning our profit and loss account, some key figures. EUR 133 million of total revenues, an average selling price of EUR 110,000 per unit. Gross development margin up to 22% according to our guideline of low 20s, even though for the year-end, this percentage will be higher. In terms of EBITDA, EUR 5 million and recurring pretax profit, minus EUR 3.5 million. With reference to free cash flow, as always, more than EUR 15 million of gross operating cash flow as of the end of June, well on track for reaching our guidance and -- guided target for the operating cash flow at the end of the year. In terms of net debt, the company has very good access to financing, as always, at a very competitive price, 4.8% as average 15.9% of loan-to-value, a comfortable ratio, in line with the sector average and with our reference of 15% to 20%. Nevertheless, increasing in order to optimize the capital structure of the company and the higher CapEx in ongoing developments. EUR 440 million gross debt and a little bit more than EUR 400 million in net. Relevant to mention that the company has not any relevant maturity up to 2029. Finally, to conclude and about our asset appraisal, EUR 256 billion of GAV, out of which 85% represents our residential portfolio and 15% the commercial one. Positive growth of 4.1% like-for-like compared with December 2024 with an increase of more than 5% in our residential portfolio and a slight decrease of 2% in commercial one. In terms of NAV, EUR 13.27 per share after the distribution of EUR 0.46 of dividends in May. Ex dividends would have represented an increase of 3.6%. Now I will hand over to Jorge with closing remarks.

Thank you, Borja. Moving to Page #21 and then conclusions or closing remarks, I would say that we still continue to see solid foundations on demand. We do, as I mentioned, have growing pipeline and visibility, supporting our 2,000 unit run rate. And finally, I would again reemphasize that we confirm our guidance for the full year 2025 with EUR 150 million operating cash flow and support it even though that the semester has -- we would consider it as a transition semester, the supporting figures in terms of units sold or presold in terms of construction finishes within time to be delivered. And finally, a solid pipeline of land sales that will be finalized or authorized in the year, we are comfortable with the guidance. Thank you very much.

Thank you, Jorge. We are now ready to start the question-and-answer session. We will start taking the questions from our participants in the conference call. [Operator Instructions] First question for our conference call is from Ignacio Dominguez from JB Capital.

I have 2 on land sales. Firstly, out of the EUR 99 million binding contracts signed for land sales, how much do you expect to be formalized by year-end? And my second question is, given the 10% reported gross margin on land sales in the first half, what margin can we expect for the land sales expected to be formalized in the second half?

Ignacio, thanks. This is Jorge. Thank you for the question. On the first one, I would say north of EUR 70 million. And the second one, if you can repeat it because I didn't catch it.

Yes. My second question is that given the 10% reported gross margin on land sales in the first half, what margin can we expect for the land sales expected to be formalized in the second half?

I would say we don't normally give that figure, but I would say between 0% and 5%.

We don't have more questions from the audio conference call. We now read some questions from the webcast. We have a question from an investor asking about what is the expectation about gross margin for the year 2025, considering the 22% reported in the first semester that is similar to the 22% reported in the full year 2024. So what is your expectation for the full year.

So I think we've reiterated our guidance from the beginning of the year. That is we are going to be closer to 20% to the mid-20s, so 25% than in the mid of the range. So I would say it's definitely more than 22%. And let's say that 24% would be a reasonable figure. And then at the end, we -- obviously, 96% of the units are sold. So it will just depend on the mix that we deliver at the end between projects because we do have some projects like Mesena in Madrid or the second tower in Malaga or on other projects in Costa del Sol that have higher gross margin. And then at the end, depending on the mix, we will end up closer or a little bit. But I would say 24% is a reasonable -- a very reasonable assumption.

Okay. Another question from investors about -- looking at the net result of the first semester, do you expect the full year to be with a positive net profit?

Yes. The answer is yes, higher than last year.

Okay. One final question is about land sales during the first semester. How do you see the demand for land, both residential and commercial and expectations for the rest of the year.

I think -- I mean, I briefly mentioned or gave [Foreign Language], say the word in English right now. But I would say in commercial, what we are seeing is that the Demand for office land use is still dormant. It doesn't really exist. However, the possibility of additional land uses or asset class uses in office land and mainly flex living and PBSA has opened a liquidity window like no other. And in some cases, even data centers. So I would say that office use, no, but alternative uses are what is driving our commercial land sales in the recent deals and also going forward. In terms of residential land, I mean, we are basically running out of land, resi land for sale. We're still selling, let's say, those kind of developments that we don't want to develop ourselves either because they are too small or they are in a region where we are not present and we don't see attractiveness or volume enough to actually develop there. But there is definitely activity, and we even see a pickup of activity in smaller cities and smaller towns. So I think we kept talking about Tier 1, 2 years ago, then Tier 2 came. And I would say that now even Tier 3 or 2.5, as I like to call them, are cities with activity where we are seeing land sales. And in some cases, if the project is big enough, we actually even take the decision to develop ourselves.

Thank you. That concludes the question-and-answer session. We have no more questions. So this will conclude the presentation from Metrovacesa on the first semester 2025. The Investor Relations team will be available to take any follow-up questions that you may have. We thank you for your participation, and we look forward to meeting you again next time. Thank you. Good-bye.