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

Good day and thank you for standing by. Welcome to the Neinor Homes guidance update and webcast. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, José Cravo, Head of Capital Markets and Investor Relations. Please go ahead.

Thank you. Hi, good evening, everyone. My name is José Cravo, and I'm the Head of Investor Relations at Neinor Homes. As communicated to the market regulator today, we are presenting a financial guidance update for the years '26 to '28. As usual, we are here with Jordi Argemí, our CFO, and Mario Lapiedra Vivanco, our CIO and Deputy CEO. Jordi will start the presentation with the key highlights. Then, on Section 2, Mario will explain the highlights of our asset rotation strategy and how we are recycling equity into Neinor Asset Management. Then, on Section 3, Jordi will go into detail on the new guidance. And on Section 4, we'll finish with key takeaways. After the presentation, there will be a Q&A session to answer any questions you may have. Now I hand over the presentation to our CFO, Jordi Argemí.

Thank you, José, and good evening, everyone. In April, at our AGM, we gave you our guidance for the years 2026 and 2027. It was the first month of the conflict in the Middle East, and we were in the beginning of [ AEDAS ] integration. We set those targets knowing that the backdrop would be complex, and it has been. Energy, inflation, interest rates, and geopolitical noise. In the meantime, Spanish residential has remained resilient. Demand held, prices held, the shortage is still there. 6 months later, here is the result with this presentation. Let me announce 4 big messages. First, faster asset rotation, €260 million signed year to date, 17% above GAV, which basically means our valuation is conservative. The last and new deal is the €110 million sold to a new joint venture with Orion. It includes the land that we didn't need until 2028 to 2030. We take the value today, keep a stake and earn the fees. It's clearly accretive. Second message, a smart capital allocation. More than €100 million is already back at work in Neinor Asset Management business line. And with it, we have secured more than €60 million in fees. Third message, a quality upgrade until 2028. We reiterate 2026. We lift 2027 towards the high end. For the first time, we give you visibility on 2028. All this while delivering a return on equity of close to 20% in both years, 2027 and 2028. We don't like to talk about future upsides. We execute and we come to the market with results. Fourth and last message, accelerated shareholder remuneration. €555 million in distribution over the past 4 years. And the same figure, €555 million for the next 2 years. That represents more than 30% of current market cap, while we are deleveraging the company at the same time. Mario will now take you through the investment strategy update, the assets we sold, how we are recycling that equity, and how that impacts the returns. Mario, please.

Thank you, Jordi. Jordi gave you the headlines. Let me give you the how and why. What you see on page 5 is our asset rotation plan. Bear 1 thing in mind. The value on this page was not made when we rotate. It was made when we bought. In this business, the alpha is in the investment decision. In the regions where we operate, a plot of land is not good or bad. The price you paid for it is what makes it a great investment or a bad 1. Buy well and risk, profitability and capital allocation become a matter of execution, and things start to be more complicated. So I'll read this slide as proof of our investment track record and discipline. This year we have signed €260 million of asset rotation at a 17% premium to appraisal and a 42% gross margin. But why are we rotating assets? First, because we have more value embedded in our land bank than at any point in this company's history, and we are long in land. 6 years of land bank is more than we need. We are taking it to 4. Second, because these transactions are extremely accretive to the business plan. We generate the same profits we had in our business plan assumptions, and we get them 2 to 3 years ahead. We rotate the land at 1.5x cash on cash today. Then we reinvest the equity, earn the management fees, and keep part of the upside risk of the development profits. 3 bites of the same apple. And third, it ticks every box of the company's wider strategy. We de-risk the coming years, we accelerate shareholder returns. We deleverage the company at the same time. Faster turnover, higher return on equity, better capital allocation. Now follow me to the next slide because the story doesn't end here. The previous slide was about asset rotation. This 1 is the investment activity. And they are the same story, because we are starting the circle again. At the same time we are rotating assets through JVs and increasing the asset management business, we are investing in new cherry-picking opportunities in our different living verticals. At Neinor, capital never stops. In Build to Sell, we have closed JV agreements for nearly 2,000 homes, Orion, Stoneshield, [ Ameris ], and a number of Spanish family offices. And on our own balance sheet, 1,000 homes have been acquired with our disciplined granular investment strategy. Here we have created a franchise. The business repeats, the partners return, and it keeps growing. In affordable and flex living, tremendous growth potential, and we are only scratching the surface. This year in affordable agreement with Ares to build more than 500 social homes in Alcobendas, north of Madrid. In fact, the agreement is still in place. With FlexLiving, our platform with Santander Alternative Investment keeps growing. We are working together in an asset in Valencia for another 460 units, taking the portfolio to 1,000. And let's not forget what is already delivered. More than 4,000 homes under the Plan VIVE in Madrid, 1,700 in Barcelona HMB vehicles at different stages of development with the first projects already delivered. On the for sale side, nearly 3,000 homes delivered between affordable and social housing. Add it up and you get close to 8,000 homes. It is by a distance the company that has delivered the most social and affordable housing in this country. And we have done it profitably. And this is just the beginning. With the right framework, the right capital structure, and the right investors, we see room to do much more. Now let's translate the activity into economics for Neinor. The first box is the equity invested €100 million. The second box, the net profit we expect, another €100 million. This represents a 2x net multiple from development profits and management fees. Put it in context. We do 1.5x profit on the land we rotate, and then 2x on the equity we recycle. That is compounding by definition. Money that money makes, makes more money. 4 conclusions. 1, the second reinvestment cycle has already started. Performance has been solid and our co-investors want to deploy more. 2, we are diversifying into the fastest growing segments, affordable and flex. Largely untapped and the addressable market is very significant. 3, origination capacity. We are the leaders in a highly fragmented market and we are known for sourcing the best deals. 4, speed. We rotate capital fast. In less than 12 months we are able to rotate capital and reinvest it. This is what we mean when we say capital never stops in Neinor. To conclude this section, please follow me to the next slide. Let's zoom out now. 2 slides ago we rotated assets. On the previous slide we reinvested the equity. This slide is the engine behind both, Neinor Asset Management. 4 years ago we created it. It was €50 million and a good idea. Today it is more than €1.5 billion of investment alongside our partners. In the strategic plan, we committed to €500 million. We have done 3x that. When we said €500 million, some of you called us ambitious. Next time we will try to be less conservative. Look at who came in. AXA, Orion, Bain Capital, Santander, Ares, King Street, Stoneshield, new names every year. All names coming back. This is why we call it a franchise. And it is multi-vertical, build to sell, affordable, flex and luxury, different products, different capital, 1 platform. Today, Neinor is the only gateway for institutional investors who want exposure to Spanish residential, 1 of the most attractive allocations out there. This is industrial scale, more than 13,000 homes in the land bank under management. Soon, Neinor Asset Management will be the second largest homebuilder in the country. Second only to Neinor Homes fully owned land business. Builder inside the homebuilder. And the financials reflect that exponential growth. This year alone, we are booking €40 million of revenues in the P&L, while we contracted up to €70 million more. And this is a business that makes 40% to 50% EBITDA margins. More than €150 million in fees are already contracted for the coming years. And on top of the fees, nearly €200 million of our own equities invested in these vehicles. Fees plus profits, paid twice, risked once. This is a runway for growth. As you saw in the previous slide, activity in this part of the business has been extremely high and we think more will come. It is just the beginning. With that, back to Jordi for the guidance.

Thank you, Mario. In my view, guidance is about trust. You trust the numbers because you trust the people who deliver it. So, before going into the numbers, let me tell you why you can trust this team. A team that has delivered on every single metric for the last 7 years and will continue to do so. There is uncertainty out there. Yes, there is. In the first half results, you were concerned about affordability, cost inflation and margins. We have answered the 3 of them with proof points, not promises. We have a record forward sales position for the years 2026 and 2027. But also we come here with good visibility for 2028. On cost inflation, we have turnkey contracts on more than 70% of 2028 deliveries. Costs are locked. Our interest rate risk is hedged above 3%. And also, we have been able to accelerate the asset rotation target of €400 million. I would say that today we have ticks on all the boxes. We also know that Neinor just went through the biggest integration in our history. The operational size of this company has multiplied by 2.5x in a single year. But the reality is that the integration is going faster than promised. Until now, I have covered the concepts. Now let me go into numbers and details. First 1, guidance for 2026 is confirmed. The closing of this portfolio gives us the visibility to confirm targets regardless of Euribor. Second, guidance for 2027 is raised. We now expect EBITDA ranging €260 million and €280 million, which means an increase of €20 million. Still, this increase doesn't flow directly to net income as we also have to consider slightly higher financial costs due to the Euribor increase from 2% to 3%. From this level onwards, as commented before, it's completely hedged. As a result, today we expect to be on the higher part of the range, between €160 million and €170 million of net income. It is important to put this in perspective. Last year, net income was €70 million. This year it will range €120 million and €140 million. Next year, €160 million and €170 million. Basically, we are more than doubling net income in only 2 years. Third message, we are already committing to targets for 2028. Ahead of our usual cycle, we expect margins to remain steady and 2028 should be broadly similar to 2027. We can do this because our visibility is strong. This is not a simple forecast. It is a portfolio with good level of pre-sales and most is already with cranes. I would actually say that we are currently managing upside risks. Now, let's shift the focus to the uplift on our shareholder remuneration policy. In 2026, we have increased the distributions by 12%, the inclusion of the share buyback program. All remuneration has already been executed, except for the last payment of €18 million that will be paid in this December. In 2027, the faster asset rotation and visibility allows us to anticipate €140 million during the first semester. It will be paid through 2 payments of €70 million each, 1 expected by February and another 1 in the second quarter. Combined implies an anticipation of 60% of the annual target of €250 million committed for next year, 2027. And finally, in 2028 we are expecting to distribute a similar dividend, between €200 million and €250 million. But here remember that the key word is flexibility, as we always prioritize compounding growth opportunities. Now, on the balance sheet. Net debt for 2026 is unchanged, ranging €1 billion and €1.1 billion, after absorbing a €50 million buyback program that was not in the AGM guidance. And remember that it considers the €250 million of cash outflows in dividends, more than what the sell side was assuming. In 2027, we now expect a narrower range of €800 million and €850 million, which compares with almost €900 million in the consensus. And for 2028, we are announcing a target of €550 million to €650 million, which implies a very significant decrease on the net debt and also clearly below the consensus that was above €700 million. With these levels of debt, it means that the net debt of the company will be again a 2x or 2.5x EBITDA multiple, a value that is completely in line with the levels prior to [ AEDAS ] acquisition. So, as you can see, this represents a quality guidance upgrade. My final comment on this slide is that with the business plan, de-risked, we are now working on the upsides. Always first we execute, then we communicate. Now follow me to the next slide. Our shareholder remuneration strategy is a clear demonstration of our cash flow generation capacity. Track record first. Since March '23, distribution plus share price appreciation have delivered a 34% annual total shareholder return. In those 3.5 years, we have distributed €555 million. Now we reload. Over the next 2 years, we will distribute the same €555 million. That means a €5.71 per share, a 35% yield on today's price. As I commented before, the next distributions are €80 million this December, €70 million in February, and €70 million in the second quarter. Now, follow me to the next slide for the key takeaways from today. Let me close with 4 takeaways. The first 2 are about what is still coming. The third is about the future mindset. And the fourth is about why all this matters. As you can see in the presentation, the first 1 is that the asset rotation is not finished. It is €260 million signed, that is 65% of the €400 million target. This in only 9 months and the rest is not a hope, up to €100 million is already being worked on. The second takeaway is that the same applies for the Neinor Asset Management Business Line. We see more potential coming. But as I have said many times throughout the presentation, first we execute, then we communicate. The third 1, changing the focus. For the last 6 months, most of our conversations with you were about risk, pre-sales, cost inflation, leverage, integration. Today, we believe those risks are well covered, and the business plan is de-risked until 2028. This should allow us to spend more time on the upside risks. That means further asset rotation, new joint ventures, margin expansion, structure our financial costs. Our focus is shifting from managing risk to managing the upside. And fourth and last 1, the long term of this company. Spain needs to build 1 million homes and we are part of the solution. Our model is proven every single year above, despite cost inflation, increase in the interest rates, but the biggest inflation in our history. Our capital allocation also works. Since 2023, less equity per euro of growth, partners alongside us and fees on top. As Mario said, a franchise. It is Neinor, a proven model, a capital allocation that works and a structural growth with a -- Thank you very much for your attention. Now we will take your questions.

[Operator Instructions] We will begin with questions from the phone lines and the first question is from [ Max Michen ] from JB Capital. Please go ahead.

The first 1 is on 2028 EBITDA guidance. I was wondering if you could give us some more detail on your assumptions for deliveries, average sales price and margins. That would be super useful. And the second question on shareholder remuneration, we think of cash dividends versus share buybacks in the case of Neinor.

Regarding the 2028 guidance, regarding more the operational guidance, you can see that we have a similar level that we are projecting for 2027. Basically, that means units ranging 5,000 to 7,000 units, an EBITDA that implies €260 million to €280 million, with that €20 million now, above the target that we set in 2027, and regarding net income, exactly what we are promising for next year 2027, that is ranging €160 million to €170 million, that in other words, implies the higher part of the range now that we gave when we did the divestment transaction. All okay. And regarding the remuneration policy, normally, you know that we go with dividends to the market. But as we have demonstrated in the last months, if we see that the stock price goes down for reasons that we are, we don't see fundamentals, that there are no fundamental reasons behind on the micro, from macro of Spain or specifically of Neinor, you know that we jump and we do some share buyback program. So we will monitor in the near future all this, but in principle it's cash distributed, but we take care always on the share price.

Thank you. We will now take the next question. This is from Mariano Miguel from Alantra. Please go ahead.