Earnings Call: Q1 2021

May 17, 2021

Slides

Good day and thank you for standing by. Welcome to the Maynard Homes Q1 2021 Results Presentation. At this time, all participants are in a listen only mode. Please be advised that this conference is being recorded today, Monday 17th of May 2021. I would now like to hand the conference over to the speaker for the day, Mr. Jose Krejvo. Please go ahead. Thank you. Hi, good afternoon, everyone. My name is Jose Gravo, and I'm the Head of Investor Relations at Nynor Homes. We are here today with Boris Garcia Matiaga, our CEO, and we will go over our Q1 2021 results. Georgi Adeyemi, our Deputy CEO and CFO, will not be present today as he was recently a fellow, so congratulations to him. The presentation will be divided in 3 sections. We'll start with Q1 main highlights, then we'll review the operational and financial performance of the business, And finally, we'll move to conclusions and Q and A. With this, I hand over the presentation to our CEO, Jorge Garcia Gutierrez. Thank you, Jose. Good morning, everyone, and thanks for being here. To start, I would like to highlight that the Q1 of 2021 was the strongest quarter ever for NanoHomes. The set of the results that we are presenting today and that we'll deliver going forward is the outcome of Our capacity to correctly read the land market together with a highly disciplined investment strategy through the cycle. Now we are getting out of the pandemic in a much better competitive position as a company and with a stronger sector fundamentals. Let's not forget that moving, improving or buying a new home is an idea that went through every one of us for the last year, at least on a weekly basis. And this new relevance as the most important asset acquired by our Home is We are to state. And it represents a big opportunity for all the players on the residential sector. If we combine this with our exceptional operating capabilities and solid investment strategy, it means we have a bright future in front of us. After this brief introduction, let's move to Slide number 5 to see this quarter highlights. Starting with land acquisitions. Over the past 6 months, we have doubled the size of our land bank, acquiring nearly 10,000 units and investing almost €600,000,000 in biased market conditions. We have done this through a mix of opportunistic and cherry picked deals and with 60% exposure to the regions of Madrid and Barcelona. On operations, We have had the best quarter ever with 7 10 units sold, a 30% year on year growth to which Kwabit is already contributing in a significant manner and above our initial expectations. We now have nearly 3,800 units in our order book and more than €1,000,000,000 in future revenues. Moreover, on the rental portfolio and during the Q1, we have leased an area equivalent to 10% of the total GLA And the release spread was 19%, showing a clear revisionary potential. And finally, on financials. We have doubled results at sales, EBITDA and net income based on delivery growth. We have also paid out 1st dividend of €37,000,000 and post closing, we issued a €300,000,000 bond to restructure Quavit's debt position ahead of the transaction closing. So as you can see, Q1 2021 was a very intense quarter for Nenor Homes in all aspects. Now we will zoom into each one of these Items starting in Slide 6. As mentioned before, in just 6 months, Nynor was able to complete an ambitious land acquisitions plan and bought nearly 10,000 units and invest almost €600,000,000 in a biased market and in an equity efficient way. This strong move is the consequence of the trends that we already saw before COVID and that accelerated afterwards. Please remember that since middle 2018, The company stopped new acquisitions as we could not find the kind of opportunities that we like. Instead, we decided to deleverage decreasing our loan to value from 19% to 8%. This decision is what allowed us to get to this point of the cycle in a position of strength. Year to date, other than Quabit, we have acquired 2,500 units, Cerri Peak, of which 89% are located in the areas of Madrid and Barcelona that we know very well and where we have been delivering houses to our clients over the past 5 years. And more importantly, In some of these plots, we bought land at the same price per square meter than in the past. The remaining 11% of the cherry pick acquisitions are located in Valencia, Bilbao and Malaga, markets that we also know very well. Now please follow me to the next slide to provide you more details on our recent So in Slide 7, you can see an overview of the recent land investments with a split between cherry picked and opportunistic. For the 2,500 cherry picked units, we have committed to our total investment of €235,000,000 and that is more than 50% above our 150 yearly target. Even though we have committed to 2 and €35,000,000 total investment, this amount should be distributed over a 4 year period and only 50% is payable in 2021. At this stage, we have a further €100,000,000 under analysis. With regards to Kwavi, we would like to simply note that we are very close to finalize the merger and this should be announced soon. In the meantime, we would like to note that we believe we have done this merger in the perfect market timing given how strongly demand is proving to be post COVID. Please recall that Quavit's Active product is mostly located in the area of Madrid, Malaga and Costa del Sol, which are the best performing regions year to date. Wabit is the cheapest and most accretive land acquisition we have seen in Spain in the recent history. So now please follow me to Section 2 in the Slide number 9, where we will provide a business update. On the operational snapshot, here we show the operational and financial performance review of Q1 2021 results under the new company structure, which includes, as you know, our 3 business lines: Development, Rental and Residential Services. The rental platform includes only the revenues from the operating assets at the PropCo, while Rentagal Antitada is included as part of residential services. Also, please note that operational figures reported on a pro form a basis at the end of March 21, While financial figures are reported for Nenor standalone. So starting with operations. We emphasized the strong commercialization activity with 713 units sold recorded in the quarter leading to another book of 3,920 units and visibility over €1,100,000,000 of future revenues. On the rental business, we highlight That 19% release spread with 3,000 square meters take up that represents 10% of the total portfolio. The vault is short of just 1 year because the existing contracts were all under the previous rental law. And that means that over the coming months, we have an important work to balance of occupancy with rental growth and to maximize the value of this platform. On the Services division, The most important contributor to earnings is still the servicing contract with Cuccia Bank, But we note that we have added the rental OpCo company and 3rd party development, and both these units will start contributing positively for future results. And now I give the word to Jose to go over the financial results. Thank you, Jorge. Here, as Jorge mentioned, we are going to review the quarterly financial performance of Niner Standalone, That is to say, without quality. On this slide on the right, you have the year on year evolution of the main P and L lines, And you see that we have been able to double financials. Growth should continue throughout the rest of the year as we target to increase deliveries by 50%. And this year, you should not expect deliveries to be so concentrated in the last quarter. In terms of the balance sheet, we note Net debt decreases sorry, increases quarter on quarter and that is mostly attributable to a still low level of deliveries, The dividend payment and the acquisition of Sarta's portfolio. Over the next quarters, you will see a further increase in net debt as we integrate quality and continue land acquisitions. Still, we note that the cash position of the company continues strong With nearly €200,000,000 at the end of the quarter, and that was just reinforced with the bond issuance, which we'll review in detail in the next slide. Year to date and especially under the context of the merger with Qualys, we have carried an active liabilities management Through the refinancing of the debt with Sarek in the amount of €56,000,000 and the issuance of €300,000,000 Green Bond. The rationale for the bond issuance ahead of the conclusion of the merger was to lower the cost of private debt that stood between 8% 16%. And this allows us to start generate financial synergies for our shareholders from day 1. Secondly, we took the opportunity to consolidate Kwavi and Nainor corporate debt and extend maturities until 2026. And therefore, we've eliminated any refinancing risk over this period. Until 2026, we don't have any relevant corporate debt maturity. Now I hand over to Huarzah in order to present the final conclusions. Thank you, Jose. So Going to the slide key takeaways. Moving to the conclusions, the key message is that we see a very positive look ahead of us. We are getting out of the crisis much stronger fundamentals, and we have done the correct moves to capitalize on this opportunity. We now are selling more than before as demand has been resilient and new supply continues to be fairly limited in the top 6 regions of Spain. And in addition, we have found less competition on land acquisitions as there are fewer players in the market. And to close, a few messages. 1st, on acquisitions. The key for our business is acquisitions. That determines everything. And we have been very disciplined and opportunistic. We have acquired more than 10,000 units recently, and they have been the most accretive and cheap assets we have seen in the recent times. On top of this, at this stage, we continue to analyze Growth opportunities as we enjoy from a strong balance sheet position and benefit from cash generated with deliveries. 2nd, on operations. On commercialization, it is very clear that the market is strong. April data points are also good and May continues at a high pace. In some developments, we are already increasing prices. Our construction activity is also very solid with new launches and new whips after integrating Quadrant. On the rental side, during the Q2, we are very proud to be delivering our first project at Ennah Homes in Malaga with 150 units. And at the same time, we are expanding our OpCo Rent A Rantitada from Madrid to the other 5 regions of Naimor. And last on financials. Good order book visibility and more than 6,000 units under construction provide us good cash flow visibility, which will allow us once again to meet our yearly guidance. 1 year ago, during the Q1 results presentations of 2020, And while we were all shocked by the COVID, I finished this speech saying that in those challenging times, We felt very confident in our company and that we will be looking at all the end goals to grow our residential platform. 1 year later, as you can see, this is our reality, and we have fulfilled all of our targets. But far away from relaxing, we will keep working hard to keep creating value for our company and our investors. So thank you very much for your time. And with this, I hand over to Jose so that we can take all your questions. Thank you. Thank you, Arzad. Okay. So operator, you may now start the Q and A session. All right. So your first question comes from the line of Jonathan Kalnathor from Goldman Sachs. Please go ahead, Jonathan. Your line is now open. Hi, good afternoon. Thank you for taking my question. I have three questions, if I may. The first one, can you help us understand how cost inflation is developing at this stage? Were seeing a number of commodities with very high prices. So can you just elaborate on how it's going to impact your business and margin, please, over the next 2 quarters. And second question on guidance. Can you help us understand now That there is fairly high visibility on Quabbitt and you've acquired also further land. How you or number of units is going to develop Beyond 2021? That would be helpful, please. And the last question, based on business mix and these latest long acquisitions. You see when on one end, Corabit has a fairly low ASP and that's what we see in your pipeline currently. But you're also acquiring land in Madrid and Barcelona and have counted €94,000 per unit And a lot of the land is non committed, so it seems a much higher pricing point. So it's a bit of a very wide gap in terms of pricing. So should we expect you to be that opportunistic, some high end and some low end? Or are you going to have Sort of more coherent positioning going forward. Thank you. Okay. Regarding the question About the guidance and about the private acquisition. As we have said, we keep The remaining, the same guidance as we have before the COVID acquisition, and this is basically that We will be delivering a return of 2,500 units this year, what will make an EBITDA of around €150,000,000 It is true that we will deliver some developments that COVID have started, But we will go to the end of the year, and we will be more accurate in this data. Regarding the land exposure to Madrid and Barcelona, the portfolio of Huawei It's very concentrated in the area of Madrid, more than 35% of the land is in the area of the Coral of the Nades. And that doesn't mean that for us Madrid is not one of the best places to invest for land now in Spain. So we keep looking to that market, and we are closing still accretive opportunities there. And regarding your first question, I'm sorry I didn't get it very well. Sorry, the question was on cost inflation and the impact on your business. Okay, go ahead. Yes. Yes. Regarding cost inflation, okay, we today, we are not experimenting still cost inflation. It is true that in the last, we say, weeks, not even months, we are seeing raw materials going higher. So this very slight cost inflation basically because of the price of iron today in the construction, But it's not even representing a 1% increase. I think that we will have to look more to the Last part of this year and maybe to the year 2022, and that cost inflation could come Of the hand of the rehabilitation market in Spain. If the rehabilitation market in Spain experiments a very big growth as the government wants, We may have cost inflation coming from people, from employees' labor, Han. That is always in Spain where you have more problems when you have cost inflation because A lot of construction activity going on at the same time. From the point of view of construction of developers, We don't expect big variations from next year. So I think that we will be still below 100,000 units A year being constructed. So from that point of view, subcontractors should be able to handle with the situation. And as I have said, maybe the situation could be a little bit more difficult because of rehabilitation. As you know, we have some subcontractors that we shared between new construction and rehabilitation. And from there, it could come in 6 months or in a year Some cost inflation that we consider that should be around 3% between 3% 5%. Anyway, We think that this cost inflation will be offset with the increase of house prices that we are seeing as well. As we have said, We have a very active market now in Spain. We are already increasing prices in some of our developments In order not to sell too fast and to increase margin, that, at the end, is our target. So just to summarize, so you said 3% to 5% cost inflation. Was that just for the labor part? Or was that for the entire part? No. We think that we could have between 3% 5% for the whole year 2021. Okay. So that's for 2021 and that's including labor and costs? Yes. Okay. That's helpful. Thank you. And no expectations yet on 2022. Is that too early? Sorry? Would you think that this would be more for 2022? Yes. It should be more for 2022 and it's going to depend very much. The Spanish government wants to invest €5,000,000 in rehabilitation. So more or less, they want to multiply by 3 times the activity in the rehabilitation sector in Spain. We will have to wait and see if this is going to be possible, because at the end, it's going to be private investment for existing houses, The ones who are going to activate this investment in this situation, so we have to wait and see. But if things should go more or less as the Spanish government is planning, Then we expect that we could have some tensions, and we are already working on that in some of the suppliers that work Contractors that work in our developments. Okay. That's helpful. And putting it all together and also going back on the Positioning and loan acquisition questions because I'm not sure you did answer the question. But the question is really what sort of margins should we expect going forward if you have Cost inflation, you're saying that, that may be kind of like cost inflation. Okay. I also had a question of base ASP Because on one hand, Quabit has a very low ASP, and it seems that the land that you're acquiring in Madrid would also have a much higher ASP potentially. So how do we all put that together and reconcile it? Well, regarding the margins, what we expect is that We will keep on the same kind of margins that we are having in Einar above 20%. And regarding the quality of the land of private, It's a slightly different market, the market that quality is used in comparison with a A market that normally Nenor is used. That doesn't mean that in Nenor, we didn't do before as This kind of houses because we have always worked, but in lower quantities with this segment. But Since we have done a very accretive land payment and we are bought with a heavy discount of 75% from NAV, The margins that we expect from the private operation are in the line of Nynos around 20%. Okay, fair enough. Thank you. Thank you. Your next question comes from the line of Fernando Abbruel from Alanca. Please go ahead. The line is now open. Hi. Thank you very much for taking my questions. I have a couple of them. First on presales, can you provide us any number From presales you've done in April and how is it going in May? Net presales, please. And then my second question is with Regards Coavit, where do you see your net debt adjusted net debt by the end of the year with both the Coavita acquisition and after also the land purchases that you've mentioned in this quarter? Thank you. Okay. I'll pass the word to Mario to talk a little bit about sales, so he can share the evolution of these last 2 months. Mario, go ahead. We have very good numbers. Yes. Well, the Activity in April May has been in the same trend as Q1, I would say. So we forecast to end up the second quarter With similar numbers in terms of gross and net sales for the combined entity. Okay. Thank you, Fernando. I'll take the Jodai here. I'll take the second question on the net debt. So essentially, we reiterate now what we've said in the call of full year results That EBITDA should be around €150,000,000 and that the net debt to be between 2.5x To this level of EBITDA, okay? And then the difference may fluctuate depending on what we end up doing on our net position. Okay. Thank you very much. Just bear in mind that as we said also in the last call that Huawei have a limited contribution to the P and L during this year, but on the EBITDA, okay? And then on cash Well, it should be clearly positive, okay? Okay. Thank you, Jose. Thank you. And gentlemen, that's all the questions over the phone. Please continue. Okay. So now we will shift to the questions asked on the webcast platform. I'll start with the first question for Mario perhaps. He's asking about the developments in which we are increasing prices. Where exactly are the development and by how much are we increasing pricing? Yes. Well, this initial increase of prices are mainly focused in the regions of Magic, Catalonia and Malaga. But I would say that we have also additional developments in specific locations in Basque Country and Valencia That we are also contemplating some price increase. In this first round, we have increased prices average from 1.53%. But as you know, this is a very 1 by 1 Development analysis and also having always in mind the sales pure target that we have That, as you know, in Q1 has been beaten. And by the end of the year, we would like to keep That rhythm is under control, so we maximize the margin for those developments. Okay. Then there is a follow-up question with regards to commercialization about cancellations seen year to date, About whether there are some clients some of our clients facing challenges to get the mortgages from Spanish Bank? No. Well, the cancellation ratio has been very stable, both the Naimor standalone and also the Kuebit and the combined. In terms of numbers, we have had below 1% cancellation rate on the monthly rate In the combined entity, a bit lower on Mainnor and a bit higher on Corvette, but most of that cancellations has come from personal Situations and the typical things, we have not seen any trend of difficulties to access the finance on the current quarters. Then we also have a further question to Borja about if there is or if we are seeing Any supply shortage on materials or labor availability at this stage? No. As I have said before, so far, The activity is even lower than the activity that we should be having in normal situations. I mean, you have to remember that last year, around 25% of the developments that were going to be launched in Spain were stopped. So today, the activity is still not fully recovered from the constructors point of view. In fact, we have many construction companies asking us or requiring us to give them some constructions because They are still not working 100 percent capacity. We expect that during the second half of the year, Maybe the activity starts increasing. What is going on today is a problem of raw materials, mean, it's not a problem from the point of view of supply. It's more a problem from the point of view of prices. Metals are increasing prices very, Very fast in the last months. And therefore, what we are noting today at the construction It's, for instance, the price of iron that may change the cost of the total construction being 1 0.5%, for instance. Okay. Thank you, Borja. Operator, I don't see any further questions. So if there are also no further questions on the phone line, we finish the conference call. Yes, there are no further questions as well over the phone line. Sorry, we have one that came in last minute now on the webcast About asking about the expectations for the delivery wait between quarters And how confident we are about achieving the volume guidance of $2,400 based on our currently weak CapEx position? Well, we feel confident that we will be able to fulfill and to reach The target to reach the targets of this year 2021, we will be finishing more or less 3,000 units, out of which we will deliver 2,500 more or less. Basically, during the first half of this year, we have To deliver 1,000 units, that we will do it, and we can talk about this in the next quarter presentation. For Q3, more or less, we will be finishing another 1,000 for Q4, another 1,000. The CFOs of All these constructions are working good around the planification. In total, what I'm Now it's more or less 28 or 29 developments, and the last CFOs are expected to be by the end of September, Which should be enough in order to have time to make a good deliver. Okay. Thank you, Basa. So we have no further questions. So we're going to wrap it up. And if there's any follow-up, we are happy to take it offline. Many thanks. Thank you. This concludes our conference today. Thank you all for participating. You may all disconnect. Stay safe everyone. Have a good day.