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

Good day, and thank you for standing by. Welcome to Neinor Homes' First Half 2020 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 first 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 first half results of the fiscal year 2022. As usual, we are here with our CEO, Borja Garcia-Egotxeaga; and Jordi Argemi, our Deputy CEO and CFO. We will start the presentation with the key highlights of the semester. Then we will review the operational and financial performance of the business, and we shall finish with the main takeaways. 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 Garcia-Egotxeaga.

Thank you, Jose. My first message today is that, once again, we have published an excellent set of results recording almost 1,200 houses delivered, EUR 400 million in revenues, EUR 60 million EBITDA and almost EUR 40 million of net income in the first semester of this year. Moreover, until July, between dividends and buybacks, we have distributed EUR 120 million to our shareholders, implying a 13% yield, one of the highest in Spain and across Europe. The second message is that we are fully on track to meet this year's guidance with 96% sales coverage for '22 and 100% of the construction sites to be finished by the month of September. We don't expect any delays in our construction sites. The third message is on the development business, where we keep successfully managing the pace of sales through higher prices. During the second quarter, our net absorption rate stood up at 6.7%, the highest figure of the last 12 months. The cost increases in our construction sites are being offset with the HPA of our sales, so we can reiterate the margins expected in our business plan. Finally, my fourth message is on our rental platform, where we currently have more than 3,600 units in different stages of development that will generate more than EUR 40 million in rents once stabilized. We are quickly approaching the delivery stage and over the next 18 months, we shall deliver more than 1,200 units. In our [indiscernible] portfolio, we have seen an extraordinary commercialization performance with our first build-to-rent project Hacienda Homes, that today is at 98% occupancy, while the Sardes portfolio is 97%. In the meantime, as we have communicated to the market, we continue in the search for the best way to crystallize the value of this business. Now follow me to Slide #6. Here, you have a summary of our main operational and financial KPIs. Let me just highlight that after the best first semester ever in the company, delivering nearly 1,200 units, we have 9,000 units already active and nearly 5,500 units under construction. These are amongst the highest operational figures we have ever reported at Neinor and give us plenty of confidence of future earnings visibility for the year's '22, '23 and '24. Please move to the next section where we will analyze our business performance. As I said in introduction, commercialization environment continues to be very strong. In spite of macro uncertainties and price increases, we have had our best quarter in a year showing the superior quality of Neinor's product, it's better than average affordability and a generalized lack of new home products in the markets where we operate. Year-to-date, the strongest region in terms of sales has been [indiscernible] and Guadalajara, a strategic market for Neinor that is performing well ahead of our best expectations. Moving to next slide on acquisitions. As we have always said, Neinor follows a very disciplined and opportunistic investment strategy, and we have a proven track record in reading the cycle. After having a best year in '21, this year, we haven't closed any new transactions so far, as we believe better opportunities are likely to come in the second semester and in 2023. Instead, we have focused on shareholder remuneration and approved the fourth buyback plan of the company since 2021. This year, we have invested another EUR 20 million in our own land bank, and this is the cheapest land that we can buy at this stage. Please follow me to Slide #10. Here, we have a snapshot of our rental portfolio. As you can see, we have made a significant progress, and today, we have 3,650 units in different stages of development, with CapEx fully financed and that should generate a stabilized income of more than EUR 40 million. In the next 18 months, we will see a significant step-up in the delivery score with more than 1,200 units to hit the market. Also, I would like to highlight that the Phase 1 of the most prime rental portfolio of the city of Barcelona at [indiscernible] has been launched with 638 units across 6 buildings in prime areas of the city. On Slide 11, you can see the financial performance of the portfolio. On Sardes, please note that even though we have 97% occupancy, we continue to increase passing GRI as new contracts are coming with significantly higher rents of 16%. Please note also that the Sky Homes that is 1,230 units in Valencia will be delivered in the fourth quarter, and we will be delighted and proud if you accept our invitation for an asset tour during the fourth quarter. Now I will hand over the presentation to Jordi to review the financial performance.

As Borja said at the beginning, we have published another set of strong financial results that puts us fully on track to deliver on our guidance for this year 2022. Now on Slide 13, you have a summary of the key financial figures of this semester as well as the last 12 months. As you can see, top line grew 19% year-on-year to almost EUR 390 million, and this is due to a mix of higher development revenues, but also lower services due to the termination of the servicing contract with Kutxabank. At EBITDA level, we have reached EUR 60 million in the semester, and this means 3% above last year. And this, remember, despite the servicing contract ended. The EUR 60 million basically implies a 40% of the annual objective, which, as you know, ranges EUR 140 million and EUR 160 million. So I would say that we feel very comfortable to reach once again, the annual target. Regarding net income, we have reached EUR 40 million. And basically, this is the same result of last year if we exclude the margin coming from the built-to-rent Hacienda [indiscernible] . This year, the built-to-rent margin will come in the second semester with the delivery of Sky Homes. In terms of net debt position, we have closed with EUR 326 million, which means a reduction of 34%. This implies a net debt-to-EBITDA ratio of 2.2x and a loan-to-value of 19%. In the first semester, the company generated EUR 135 million of operational cash flow, one of the highest figures in our history. And finally, as in the previous quarters, the cash position remains very strong at EUR 300 million. Now if we move to the next slide, we will zoom into the different business lines. The first semester of the development business line has been the best in the history of Neinor with 1,178 units notarized, which basically means a growth of 32%. The [indiscernible] selling price stood at EUR 321,000. And as you can see in the table, this means 8% below the level last year in 2021, but basically, this is due to the product mix effect of having more units from Quabit portfolio. The good thing here is that we are above the guidance that we stated at the beginning of this year. In total, this means development revenues reached EUR 378 million, and this basically means 21% growth. On the rental business line, you can see that GRI that stood at EUR 2.1 million. This basically means that we have doubled the level of last year. And this is thanks to the higher rents, but also the occupancy that has reached more than 90%. As we augmented, the P&L of this business line will grow exponentially over the next quarters as we quickly approach deliveries of 3,000 rental pipeline. So overall, I would conclude saying that solid results from both business lines.

Thank you, Jordi. Let me please now just talk a little bit about the Spanish residential market. The supply of new houses have changed radically in Spain over the last 15 years with a 90% decrease of the production since maximum. Moreover, in reality, in the last 10 years, Spain is producing an average of less than 70% new houses per year. And this is not enough to meet the annual mix estimated between 120,000 and 150,000 of new houses. So the result is that in the last decade, Spain has generated massive deficit of new houses that keeps accumulating and growing. As an example, today, Spain has halved the supply per capita of Germany and 1/3 of France. On leverage, we have seen a significant adjustment not only by banks as families and real estate companies. While cycles shift, what kills the real estate sector is oversupply and overleverage. And today, in Spain, we don't have one or the other. On Slide 18, you can see the evolution of house prices in Spain, which are increasing at mid-high single digit but continue below the 2007 peak. On the other hand, other countries like Germany or U.K. prices have skyrocketed, and the key reason behind this has to do with the stock that the Spanish banks are now much more conservative in their mortgage policies, giving only 70% loan to value. This factor is limiting the demand and pushing lower equity buyers to the rental market. As a result, today, Spain is the fastest growing rental market in Europe, as we can see in Slide 19. This rent is an emerging asset class. And over the next decade, Spain needs to produce 1 million of new rental homes, and this is a huge opportunity for Neinor. And the 2024, there are 200 units to be delivered in exchange and Neinor represents approximately 10% of the total new supply of the market for rental. So now let's move please to takeaways. I would like to conclude today's session by giving you 4 reasons why Neinor has been doing so well in operational terms, why our share price is delivering a 15% total return year-to-date, and why we believe we still have room to go. Reason #1 has to do with fundamentals. The Spanish residential market is today a safe haven worldwide, being undersupplied and under leveraged, while house prices still look very cheap on a historical basis and relative to other countries. Reason #2 is related to our strategy, which is unique in the Spanish residential sector. Our clients have the best affordability ratios, we own a quality land bank, produce an excellent product, and these are the reasons where we keep selling so well. In addition, we own a rental portfolio, which allows us to diversify demand and construction companies really to tackle any problems we may arrive into and avoiding delays. The third reason is our highly disciplined capital allocation policy. We have a conservative loan-to-value of 19% and no refinancing risks until 2026. So far this year, we have halted new acquisitions and accelerated shareholder remuneration instead. And the fourth reason is Neinor's build-to-rent portfolio. As we have disclosed recently, we are currently working on different strategies to crystallize the value of the rental business, which has been overlooked by the market and we expect this to be a very significant catalyst to our share price. So this is it. Now we are ready to take any questions you may have. Thank you very much.

[Operator Instructions] Your first question comes from the line of Florent Laroche-Joubert from ODDO.

Thank you very much for this presentation. So I would have maybe 3 questions. So first question, so your monthly absorption rate is the highest on the previous month. How can we explain this? This is my first question. My second question would be, maybe on your project with [indiscernible] business. So you continue to analyze different strategy. Maybe you have some discussion. So is it possible to have maybe more color on that? And maybe on -- any time line, if it's possible. And my third question would be on your outlook for H2, given that we are still maybe in a constrained macro environment. So what are your views?

Okay. We are here with Mario Lapiedra, our chief investment officer, who will take the first 2 questions.

Perfect. Well, regarding the absorption, it demonstrates the good demand that we have in our locations. We have a very healthy ratio in accordance with our peers. We have a lot of launches accumulated in the H2 of this year, that will be delivered in the years 2024 and 2025. So this is why the absorption rate has been so good in this quarter. In the H2, we will stabilize in the region of the 5% to 6%. And in the same time, what we are keeping is our disciplined strategy of HPA maximization, and as you can see in our presentation, we are on track to beat that 6% of HPA that we have for the year. So we are combining both strategies to maximize the return for the company. And regarding the second one, on the rental process. The point we reported is that we have received interest from different investors in our platform, and we are having bilateral conversations with them, understanding and moving forward with different angles, and we will give you notice once we have decisions or formal steps done.

Okay. And regarding the third question a little bit, what should we expect for the second part of the year. Regarding what this is just the company, as I have said in my presentation, the construction sites are almost finished. All the constructions that we have for this year. So now during the summertime, all the constructions will be finished. So in general, for the deliveries of this year, our approach is that we will be on track according to our business plan. The houses that we have to deliver for this year also sold. So from that point of view, we have resales now of more than 90% for the deliveries of this year. So from the point of view of the business of the company, we don't expect any surprise. From the point of view of what's going to happen, okay, we have to wait and see. But we don't expect either inflationary cost construction or the trend that we had to do in the first semester is decreasing. Now what we have seen as cost of the construction that we're reaching between 8% and 10% during the first semester are now decreasing. So we expect that for the new launches that we are making, we will not have surprises either. And regarding the sales of houses, our expectations are also good. We have a very active commercial activity as we have said. And even though the environment of the higher rates of the banks could have a small impact in the business, we don't expect that our demand is going to be affected. So we expect a good second part of the year.

[Operator Instructions] There are currently no further phone questions. I will hand the call back to you.

Thank you, operator. Now we'll go to the webcast platform. We have a couple of questions coming from here. One of them is on the dividend policy. So we paid EUR 100 million of dividends this year. And the question that is being asked is what can we expect as a dividend policy in the coming years?

Okay. I'll take this one. As you know, our general policy of dividend is 50% payout. It's true that we have a lot of cash position this year and therefore we anticipated the EUR 50 million of 2023 to be July, both dividends have been already paid. But this is what we can improve in our business plan, nothing there as of now. What is true is that by end of this year, we will have a strong cash position again, and in that moment it is the Board who will decide what to do with that cash. But no news yet.

Also related with this question in terms of loan-to-value on what can we expect as a peak loan to value for the company?

This is also, again, I mean, our policy was to be close to the 25% on the value, more or less. This is a number that we should be knowing during this year after all the dividend is paid. But obviously, it will depend on the land acquisition program. So if we buy, we should be in those levels, if we postpone just to find what the opportunities are out there in the market, the loan-to-value might decrease.

Then we have a question on the presales coverage for the year '23 and '24 for Mario, if you can tell us what is the coverage that we have right now.

Yes. For the '23, we stand in the 51% as of now. And for 2024, we are at 10%. And the forecast by the end of the year is to reach 30% for 2024.

Thank you, Mario. Then we have a question on land acquisition. I think the fact that we didn't buy any land on the first semester, what is the outlook that we can expect for the second half of the year and the year '23?

Yes. No. As we commented, we are always ready to jump into good opportunities. In the current macro context, we feel that opportunities are going to be more concentrated in the second half of the year and in the coming quarters. And on the contrary, we have a very strong land bank and a very strong business plan to fulfill on operating. So we are comfortable with our strategy, and we will be very disciplined on the returns for our company.

One more question here on the build-to-rent portfolio, just a clarification from the previous one. How much we are expecting to sell of this portfolio if eventually we sell anything?

No, we cannot comment on that information, because it's very sensitive on the number systems that we are having.

Okay. Thank you, Mario. This was the last question coming on the webcast. So operator, unless you have anything on the phone line we shall finish today's session.

There are no questions on the phone line.

Okay. Thank you very much. And as always, we are at your disposal is available for any questions you may have. We can take them on the phone or by email.

Thank you very much.

Thank you. Have a good summer break.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.