Good day, and thank you for standing by. Welcome to the Neinor Homes Q1 2022 results presentation. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during this session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require assistance during the conference, please press star zero. I would now like to hand the conference over to your speaker today, José Cravo. Please go ahead.
Thank you, operator. Hi, good afternoon, everyone. I'm José Cravo, the Head of Investor Relations at Neinor Homes. We are here with Borja Garcia-Egotxeaga, our CEO, and Jordi Argemí, our CFO and Deputy CEO. Today, we will review our first quarter 2022 results. As usual, we will start with the introduction, and then we'll follow with section two and three of the presentation, where we will review the business and financial performance. In section four, we will wrap up with conclusions. After the presentation, we'll hold a Q&A session, and the management team will be available to answer any questions you may have. Now I'll pass the word to our CEO, Borja Garcia-Egotxeaga.
Let me start giving a word of encouragement and hope to the Ukrainian people and saying that from Neinor, we have already activated a series of initiatives to give a very modest and humble contribution, and we will continue to help to the best of our ability. Regarding macro uncertainties, I want to start telling you that after reaching development run rate and successfully integrating COVID, we are very well-positioned to navigate under the current market circumstances. Aside from the macro, residential fundamentals have never been stronger. New houses are the most demanded by clients since they are much more sustainable and efficient than the old ones. Supply is limited as the smaller players find increasing difficulties to start projects.
From a company perspective, the pioneer strategy that Neinor started two years ago, developing a mix of products for build-to-sell and build-to-rent, is being confirmed day by day as the most attractive one in the real estate sector in Spain. Now, please follow me to slide five, where I will comment on first quarter key highlights. My first message is that, once again, we have delivered an excellent set of results in Q1, recording EUR 284 million in revenues and EUR 50 million in EBITDA. You will see in a moment with Jordi Argemí a detailed picture of our great financial situation. The second message is that we are fully on track to meet 2022 guidance, with 88% of our 2022 deliveries already sold and the construction of new developments on time.
During the first quarter, we have sold 500 units with an absorption rate between 6% and 7%. The third message is for margins. Now that we are all facing a heavy inflationary environment, we keep accelerating price increases with a yearly HPA projected of 6% while implementing cost optimization strategies. We should maintain the margins expected in our business plan. The fourth message is that Neinor Rental is a reality that becomes stronger month by month. Today, we have almost 3,200 units in different stages of development, and until December 2023, we expect to deliver more than 1,000 units across 13 projects. Furthermore, from an operational perspective, Hacienda Homes, that you may remember was delivered in 2022.
In 2021 Q4, is 94% occupied just five months after delivery, showing the strength of modern build-to-rent assets versus traditional ones that are not professionally managed, don't have amenities, don't have optimal sizes, and are less energy efficient. In parallel, we see a buoyant investment market with more than EUR 1 billion in deals closed at 3% net yields. This is a clear read-across from these transactions to our platform, and we really believe that investors and analysts are clearly overlooking the value of Neinor Rental. Now, please follow me to slide number six. Here you have a summary of our operational and financial performance with the main KPIs. I will not comment on these numbers at this stage, as we will review them in greater detail through the presentation. Please move to the next section, where we will analyze our business performance.
As I said in the introduction, commercialization environment continues to be very strong due to the strong demand and lack of new housing product. This year, we are increasing prices at a rate of 6% without reducing the velocity of sales and maintaining net absorption rates between 6% and 7%. As commented, our forward sales position is fully satisfactory with 88% and 44% of 2022 and 2023 deliveries already sold. We see a good sales performance across our platform and where the markets with the best behavior are Málaga, Madrid, Guadalajara and the Basque Country. 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. Today, we sit in one of the biggest land banks in Spain with almost 16,000 units.
That represents more than six years of run rate deliveries. We have a conservative loan-to-value and EUR 400 million in cash, which means that we are ready to jump on new acquisitions when they are very accretive for shareholders. We keep, as always, continuous and patiently analyzing the opportunistic Spanish market. As we always say, we will follow a disciplined capital allocation with a balanced approach between new acquisitions, leverage, and shareholder remuneration. Please follow me to slide number 10. Here we have a snapshot of our rental portfolio. Today, we have almost 3,200 units in different stages of development, which include 542 operating, 1,324 under construction, and another 1,330 already launched.
On HMB, the rental collaboration development that Neinor is doing with the public administration in Barcelona area, I would like to highlight that we have begun the phase one and started with the first projects. Furthermore, I would like to mention that Neinor Rental is a reality today, and we are quickly approaching the delivery stage with more than 1,000 units to be delivered until December 2023. The wrap-up of the rental business is fully on track, and we will work to crystallize its value, maximizing shareholders' returns. Now, I will give the word to Jordi so he can review the financial performance of the business.
Thanks, Borja. First of all, I would say that we have published strong financial results that places us on track to deliver on our 2022 guidance. In slide 12, you have the performance of each of the two business segments. On development, you can see that we have delivered 866 units, which means 3.5x what we delivered in Q1 of last year. Actually, if you look the last twelve months, total deliveries have been almost 3,500 units, which is another record and shows again our leading position in Spain, as no one in the recent history has delivered as many units as Neinor. As you can see also, total development revenues reach almost EUR 280 million, and the gross margin has been 25%.
As you can see, we have achieved and exceed the margin target, even though the doubts that the market had regarding quality margin last year. Here you have the proof that the acquisition was done at an excellent price, for the shareholders of Neinor, and the purchase price allocation was the correct one. On the rental business, we see a GRI of EUR 1 million, which results from higher occupancy and rents in the service portfolio and the delivery of Hacienda Homes. As Borja commented, this business line is quickly approaching delivery stage, and we will see a significant growth in the coming years. In terms of margins, we continue to increase towards optimized levels, and this should continue to grow in the coming quarters.
Overall, I would say very solid results from both business lines, reflecting the underlying strength of residential fundamentals and also Neinor's execution capacity. Now, if we turn to the next slide, number 13, you will see the summary of the financial results. For Q1, total revenues have been EUR 284 million, which implies a growth of 177%. As committed before, this has been driven by higher volumes. The EBITDA was particularly strong, reaching almost EUR 50 million. Again, if you look at the last 12 months, you will see a total EBITDA of EUR 190 million, a level that has not been seen by a developer on this cycle. At the bottom line, net income has multiplied by three times, reaching EUR 55 million.
Again, if you look at the last 12 months, the net income is EUR 133 million, which implies an attractive return on equity of 16%. In terms of cash flow, even much better. We have transformed EUR 50 million in EBITDA into EUR 134 million of operating cash flow. Remember here that we have always said that quality would imply or would significantly enhance our cash flow generation profile as we bought more or less 7,000 units at an extremely accretive price and reduced our need to buy land in the short term. The consequence of all this is the rapid deleverage of the company, where we reduce the net debt position by EUR 270 million over the last six, seven months.
This implies a net debt reduction of around 50%. Our loan-to-value, also commented by Borja, is only 15%, and this compares to the loan-to-value of 25% that we reported in September of last year, so basically seven months ago. These efforts have been acknowledged by Standard & Poor's, which as you know, has recently upgraded our bond rating to BB-. Last comment from my side. We are very happy to have been awarded the status of the most sustainable developer worldwide for the second year in a row by Sustainalytics. This achievement is a result of the hard work done of the whole team for the last six years, and it shows that ESG is a key strategic priority for the company. It shows also that we can combine profitability with sustainability.
Now, I give back the word to Borja to wrap up and present the key takeaways.
Thank you, Jordi. I would like to conclude with five main messages. First message is that in spite of prevailing uncertainty, we would like to reiterate our guidance for the year 2022. Our forward sales position is very high, and just in the first quarter, we have recorded more than one-third of the annual target EBITDA. Second message is that earnings visibility for 2023 and 2024 is good on both deliveries and margins, and we have not delayed new launches or construction starts. In fact, we are accelerating launches as we see a very strong demand environment. We expect cost tensions to be temporary, and with growing prices, we aim to beat inflation. Third message we would like to reiterate is that build-to-rent is the most attractive investment opportunity in the Spanish residential sector.
We thought this was the case in 2020, and that justified our decision of not selling residential assets under turnkey contracts to institutional buyers, as that will not maximize the value of our land bank. Today, this platform is a reality, and we firmly believe that the intrinsic value of Neinor Rental is currently not reflected in our share price. We will work to crystallize the value of the platform. Fourth message is that we have a proven track record in reading the investment cycle. We are sitting on one of the largest land banks in our history, with 16,000 units that represents more than six years of run-rate deliveries.
We have a conservative loan-to-value, great short and medium-term earnings visibility, and therefore we will maintain a highly disciplined investment approach and stand ready to jump on new acquisitions, provided that these are very accretive for our shareholders. Finally, we will continue to pursue an equity-efficient capital allocation, where shareholder remuneration is a key part of our strategy. We have a cash-rich position of nearly EUR 400 million that justifies our decision to bring forward 2022 ordinary dividend. In the coming months, we will pay EUR 100 million in dividends, and that represents more than 12% yield to our investors. Now we are ready to take any questions you may have. Thank you very much.
Thank you, Borja. Operator, you may now start the Q&A session. We, as usual, start by the phone line.
Thank you. As a reminder, if you would like to ask a question, you can do so by pressing star one on your telephone. That's star one to ask a question. Your first question comes from Florent Laroche-Joubert from ODDO BHF.
Hi. Hello, everyone. Thank you for this presentation. I may ask three question, if I may. First question, you said that there is a strong demand in Spain for residential. Why can we consider this demand sustainable in this macro context? My second question would be on the inflation of cost. You expect this inflation to start decreasing from H2. Why can we consider this cost inflation as temporary as a central scenario, and what happens if it is not? My third question would be on the residential platform. I understand that you will crystallize the value.
Does that mean that we have to expect any breaking news in the coming weeks or coming months? Thank you very much.
Okay. Sorry. There'll be some problems with the macro. For the first question, Mario Lapiedra, our Chief Investment Officer, will take it.
Yeah. Now, regarding the demand, and focusing on the new homes demand, our build-to-sell line, we see a strong demand during the first quarter, and we see a sustainable demand for the coming quarters and even years. One, because of the lack of supply.
All the current environment has even increased the difference between the supply and the demand and the concentration effects in our markets are being sustainable. People want to live in the six markets where we are producing homes. Secondly, there is a concept that is affordability that, as you know, it's a KPI that we monitor closely. Our affordability rates for our target demands, it's in the region, it stands in the region of five times multiple gross income to house pricing. That is a very healthy ratio.
That shows that our target demand is in the most resilient part of the clients, and that allow us to see the future with good fundamentals in the medium and long terms.
Regarding the cost inflation, how we see the situation. The résumé that we could say, we began having cost inflation in the construction of our development at the end of last year, in Q4 of 2021. This was basically due to the end of the pandemic. As you know, there were tensions with the supply of some materials and the commercial routes.
This inflation that was supposed to be over during the second quarter of this year, this exception disappeared when the war in Ukraine started, pushing a very big increase in the energy cost and affecting basically some raw materials, basically, in our case, metallic raw materials, aluminum, steel and so on. During the last weeks, we are already seeing how the pressure on costs is decreasing as it is expected. There are several reasons for that. One, in the local market in Spain is that there are some constructions from smaller players that are not starting. Looking more into the international level, we have a decrease in consumption of raw materials in the China construction that, as you know, is the biggest consumer of raw materials in the world.
This is pulling down, since some months, the pressure on prices of raw materials. The expectation that we have is that during the second half of the year we will not have a bigger increase in raw materials. We don't expect either that there is going to be a big decrease since the energy costs are going to remain expensive. Therefore, this is the expectations that we have today. Basically, what we have is we expect that we will close the year with a total cost of construction of around 10%. That is more or less the rate that we are having today, comparing year-on-year.
Regarding the third question, about the rental platform crystallization, you know that we said to the markets some weeks ago that we're going to work to crystallize its value. As I've said during my presentation, we don't see that the value of this platform is being translated to the value of our shares. We think that we have a very important investment in the rental platform. That it's been a platform that is working with a lot of success, as we have said, with the delivery of some developments, like as in the homes and the rents that we are having in the portfolio that we already have operating.
Since we are going to deliver a lot of rental units in the upcoming months, simply what we are analyzing is the different options that the company may have to crystallize this value for our shareholders without any decision still being taken.
Okay. Thank you very much.
Thank you. As a reminder, if you do wish to ask a question via the phone lines, please press star one on your telephone. Your next question comes from Jonathan Kownator from GS. Please go ahead.
Good afternoon. Thank you for taking my questions. I was just following up on margins and the environment you're describing. We appreciate and agree with you, there seems to be a supply constraint environment and demand is resilient. Now, if we look at your order book ASP, which is obviously dragged down by Quabit, it's now going down even further, EUR 266K. How is that going to impact margins given that construction costs are increasing? In the short term, are you expecting some margin pressure from that order book? Because it doesn't seem to be reflecting the inflation environment that you're describing from a pricing perspective. Thanks.
Good morning. Well, as I have said, we are working with this scenario of cost inflation of around 10% for the year. As we have said also in the presentation, we are capturing a little bit more than 6% HPA on a yearly basis. Considering these numbers that we are working with, we don't expect to have a change in the margins. We think that the cost increase will be fully offset with the price increase. In fact, the situation for us in the construction and in the development sector is not so different as other situations that we have lived in the year 2017 and 2018. That, if you remember, we were reporting cost increases of about 8%. The reason was very different then because of labor costs.
We were able during those years to offset more than 100% that cost inflation also with the price increase of housing. Today, the sense that we have is very similar regarding the construction that we are having with Quabit, basically for more affordable housing in the area of Corredor del Henares. Our construction company is very powerful in that kind of segment. We control costs very closely and so on. I think that we are in quite a normal situation, considering the overall uncertainty and so on. We are right now with huge control of all of our deliveries. One of the biggest risks that a developer may take now during these months is damage in the construction companies that are working for you.
This is something that we have under control. In fact, we already had one company going to bankruptcy, one construction company that was working for two of our developments. That happened two and a half months ago. Those construction sites are being done by Neinor Works. As you know, we have also a small construction company that operates normally between four or five developments per year for the company, and it's always ready to go wherever it's needed. In principle, for us, this is normal situation considering the whole stuff, the uncertainty and so on, but we don't see big changes in margins or operational results for the company.
Okay. Can we be a bit more specific here in terms of numbers, please? Let's start with EUR 266,000 ASP on your order book. Yes, this is what you have signed. What would be the average, you know, size of a flat that this corresponds to in your order book? What is the value, you know, per square meter that you're selling apartments at? What is the current construction price per square meter that you're having to face currently?
Hi, John. José here. We are happy to take those questions, and I can give you the details after the session. When you look at our order book, you need to take into consideration that the percentage of sales or of coverage of Quabit product is very high, okay? So that is bringing down the average selling price.
Yeah.
You put it on the order book. What do we see here and what we've reiterated in February is that the average selling price for the year 2022 should be around EUR 300,000 units. So that. Sorry, EUR 300,000. Which is actually, you know, in the first quarter, you've seen a number that is actually a bit higher than this 300,000 figure, okay? So when you look at the
Okay.
At the order book, please take this into consideration.
Okay. Yeah, very happy to catch up separately just to get the details on the numbers. Thanks.
Thank you. We have no further questions from the phone line, so I'll hand it back to you. Thank you.
Okay. Now we'll take the questions coming from the webcast platform. There are a lot of similar questions, so I will try to, you know, as much as possible to keep them aggregated and not to repeat. Regarding construction, there's one question here for Mario on yield on costs. If we are seeing with the current cost inflation, if we expect any lower yield on costs for the rental portfolio.
No, the point here is that the HPA in sales is very aggressive, but the HPA on rents is even higher. We are seeing increasing demand for rental. The scarcity of new products for rental is even higher than in the build-to-sell, so we are pretty comfortable with the balance between rent increase and cost inflation.
Also, next question is, if under the current environment of cost inflation, we are delaying the beginning of the works on projects and how we are managing this situation?
No. In fact, we are accelerating the launching of projects. It is true that it's an inflationary environment, as we have already said. It is also true that the demand is so strong that we are using the moment to push forward a lot of projects.
Okay. Last one regarding cost inflation, it's about, you know, target margins. We've always said that we are expecting 20% net development margins, if we can confirm that this is still our target for the coming years.
Correct. We confirm.
Next questions will be on with regards to the rental business about the news flow that was in the press recently. The analyst is asking about the different strategies on the crystallization of this platform. If we could elaborate further on the different alternatives and about whether, you know, we see one that we prefer versus the other.
Not really. We cannot give too many details on that since this is internal work for the company. We are working, as you know, with external consultants, analyzing the project. We are just starting, and whenever we have anything to communicate, we will do it. Okay. Operator, on the web, we are okay. Do you have any other questions on the phone?
Yes, we do have another question. Your next question comes from Ignacio Romero from Banco Sabadell. Please go ahead.
Yes. Hello. Thank you. I have a question regarding your views on land prices. You have not bought land in the first quarter, given that you have land for the next six years. Given that construction costs are going up 10%, are you seeing. In your view, is there. I mean, land prices are going down. Is that your view right now? If you could please tell us your views on land prices, please.
Good. I take this one. Generally speaking, I would say that no, because the fundamentals on HPA and cost inflation are shared with most of the sector and in the markets where we operate. There obviously would be other locations in Spain that are suffering a bit more. That is the generalistic view. What we are monitoring is different opportunities, different angles as always with our disciplined approach, having included in our underwritings all the volatility of the costs. In the coming months we have a pipeline that we will keep you posted. If we jump to execute one of those ones. We are ready, and we feel comfortable with our land bank and our situation.
In general, we don't see that land price is going to decrease during the upcoming months. What we think, as the situation is not the best for many developers, is that if they could appear with opportunities, we are ready to go for them.
Okay. Thank you.
Thank you. Operator, I think we don't have any further questions coming from the other line, correct?
No, there are no further questions.
Okay. This concludes the session from today. You know, as always, we stand available to answer any questions, further questions that you may have. Thanks, everyone.
Thank you. That does conclude our conference for today. Thank you all for participating. You may now disconnect.