Metrovacesa S.A. (MVC) Earnings Call Transcript
October 25, 2023
Earnings Call Speaker Segments
Hello. Good morning, and welcome to this webcast of Metrovacesa trading update for the third quarter of 2023. My name is Juan Carlos Calvo. I'm Director of Strategy and Investor Relations. And today, we also have with us, as usual, Jorge de Leza, CEO of Metrovacesa; and Borja Tejada, Chief Financial Officer. We are going to present an overview of our activity and key developments during the first 9 months of the year. The advice of this presentation have been released to the market 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. At the end of this presentation, there will be a question-and-answer session. [Operator Instructions] If you are participating via webcast, you can type your question directly in the webcast platform, and we will read it out in the conference call -- in the webcast. Now I hand it over to our CEO, to start with the presentation. Please, Jorge.
Thank you, Juan Carlos, and good morning, everyone, and welcome to our quarterly results presentation. Let me jump directly into Page #5 in order to comment on some highlights of the quarter or on the 9 months of the year 2023. In regards to the market context, we still see that housing demand is holding up nicely. We had a good tone in the residential market despite the higher mortgage rates that we keep seeing in the financial market and also a volatile macro context. This translates also into a solid operational performance for Metrovacesa, with the third quarter being our strongest quarter so far in terms of pre-sales this year with a significant increase as compared to 2022 despite also the usual seasonality, which for the third quarter, given that the summer seen some of the month tends to be slower. Our backlog continues to increase, we have a 13% increase versus December of 2022 and also with an average higher price of close to 3%. The construction starts, as we commented on last year as -- on the last quarter, sorry, has come to a strong figure in the quarter with almost 1,000 units starting construction and now with a total of a little bit over 1,500 in the programs, sorry, in the 3 quarters. Finally, land sales, we signed -- we see still interest both in residential and also in commercial that we commented last quarter as well that we started to see some interest and some movement in that market. And so the binding contracts are gradually transforming into material sales as expected. Finally, in terms of our financials, we announced that a new dividend will be paid or may be subject to approval in the shareholders' meeting next month. And if approved, it will be paid at the end of December. We confirm our cash flow targets of between EUR 100 million and EUR 150 million of cash flow generation. The proposed dividend release of EUR 0.33 per share or less EUR 50 million in absolute terms. And then this will be also the result of a strong deliveries in the fourth quarter as we again gave guidance at the beginning of the year. Nice as well that our gross development margins are holding up in the -- always within the guidance that we gave in the low 20s, but this quarter being stronger a little bit on the higher side of that lower 20s. Moving on to Page #8. I jumped #7 as it's a summary of things that I will in touch in more detail in the subsequent pages. In terms of presales, we sold in the quarter of 1% for -- sorry, in the 3 quarters, 1,402 units, which is a 5% increase with an average selling price of EUR 317,000 per unit. As I commented before, the third quarter has been the strongest in -- so far in 2023, which is a good result and shows that the market is behaving resiliently despite all the macroeconomic uncertainty and interest rates going up. That translates into our monthly absorption rate of close to 2.5%, which is a healthy figure and very similar to what we have had in the previous -- in the previous quarters. So that's a figure that allows us to have a good visibility on what we will be delivering not just this year but in following years. Going into Page #9. In terms of deliveries, we are on track to meet our full year targets, which were between 1,000, 600 and 2,000 units. We've delivered so far close to 1,000 units with a gross margin of 22.4%. And an average selling price of close to EUR 300,000, which is a nice increase to 13% compared to last year. A highlight of the quarter is that we delivered 2 BTR projects in Mallorca amounting for a total of 204 units and more of those will come before the end of the year. As I mentioned before, we do have a high concentration of deliveries in the fourth quarter, but this is not new. This we knew from the beginning. The good thing about it is that we -- as of September, we have more than 800 units already sold and built, just pending delivery on the final steps of the delivery process, getting all the permits, et cetera. In terms of the operational activity in Page #10, I think we show here solid figures in terms of our -- on the next coming years in terms of deliveries. And if we look at the presales coverage, obviously, for this year, we are close to 100% or even at 100%. 2024, we are at 80% right now of the presales for the deliveries of next year, so a very high ratio. And finally, for 2025, we are about 40% exactly 42%. And even for 2016, we do have some sales already done. So I think that again gives us a good visibility on the cash flow that is coming in the next few years. In terms of construction coverage, as I mentioned before, in 2025 deliveries, which is what we are starting this year, stands now at 70%, more or less of the deliveries of 2025 and towards the end of the year. Remember that we've added about 1,000 new construction units in the third quarter. And then in the fourth quarter, we will see that 30% remaining, again, coming to construction in order to have all the 2025 deliveries already in construction this year. Moving on to Page #11 to talk about land activity or land rotation. We do see some progress on land sales and acquisitions as compared to last quarter, especially on land sales, where in -- we have a total right now of EUR 54.4 million, including sales backlog. The land sales in binding contracts are EUR 41.3 million. What you see in the P&L is only EUR 13.1 million because that is what has already been authorized. Of the EUR 41.3 million, a large chunk of that will also be authorized within the year. And we do see also that in the fourth quarter, we will have additional binding contracts. 72% of those, by the way, are land for commercial use, which reflects the comment that we made last year that we started to see some movement in commercial land. Also in land purchases, we continue with our strategy of mutation, which is to basically sell the land, commercial land in the short term, also the residential land that we're not going to develop -- and then on top of that, we are selectively purchasing making some land purchases as a top-up to complement our land portfolio and also always with commercial -- commercially attractive locations as well as good returns. Main recent purchases that you probably have seen on the press or we have announced our Granada where we acquired close to 200 units in the center, and this is already -- Phase 1 is already launched and almost under starting [dollarization]. We also bought some land in Vinival. This is almost a beach front location in Valencia next to the universities or top -- I would say, the top location in the Valencia area, where we added another 329 units to a land bank that we already own there. And now we are the majority owner -- and this is an area that I would say is going to be a source of very good news for the company in the future and where we are showing all of our power in terms of ESG efforts at the urbanistic space. And finally, another product land in Tenerife, Santa Cruz Tenerife, central location [close courting less], where we bought it in the fourth quarter, and we are already under commercialization with an excellent commercial progress. Moving on to the operating results. I will hand it over to our CFO.
Thank you, Jorge, and Good morning, everyone. Just some key figures about our operating results. In terms of revenues, more than EUR 300 million. In terms of gross development margin, 22.4% and our guidance remains low 20s for the future, as we always inform to over holding. And finally, our EBITDA, close to EUR 30 million compared with EUR 32 million of the previous year, targeting to increase to double for the end of the year. Now I will hand over Jorge with closing remarks.
Thank you, Borja. So to finalize the presentation, I'll confirm again that there is a dividend proposal at the shareholders' meeting of another EUR 0.33 per share, subject to the approval in the meeting that will be held on November 28. And the payment will be then made like we've done in previous years on December -- at the end of December, against paid in reserves and therefore, with no withholding tax. With -- in terms of accumulated dividends with this new payment, we will have paid EUR 522 million in total return to our shareholders since 2019. And also another main point in the agenda is that we will have a change in the Board of Directors, adding one or increasing in one member from 12 to 13 seats, and we will have a new member that has been appointed or proposed by FCC as a significant shareholder of the company. And finally, in closing remarks on Page #15, market trends -- as I mentioned at the beginning, the positive situation, which is holding up in the market. And even if we see some lower figures in second-hand sales for housing, I think like many of you have been following in the recent months, the market for new homes is holding up nicely. Visibility for 2023 until 2025 is, I would say, better than other years. So 80%, like I mentioned, 80% of coverage of sales for next year and 40% for 2026 are excellent ratios. And finally, we will reiterate our full year guidance. And then as we close the year, we will confirm that figure which will be in that range that we gave as guidance. And that would be for the quarter. Thank you very much, and I hand it back to Juan Calvo.
Thank you, Jorge. We are now ready to start the Question-and-Answer Session starting from our participants in the conference call. [Operator Instructions]. We currently have no questions from the audio conference call, but we do have several questions from the webcast. So I'm going to read them here. We have first question coming from [indiscernible] from ODDO BHF. I have 2 questions. One, can you perhaps provide some color on the cancellation rates and whether you are seeing any change in trends in the last couple of months? And second, can you give us some color on the binding contract prices? Do you expect to see similar discounts like the 1 percentage today?
It's Jorge, I will take your questions. I think in terms of cancellations, negligible, so a few units in -- when going from contract to an authorization of the units. We do perhaps see in some developments that it takes a few days more. So it's not -- we're not talking about a large period of time, but a few days more for their clients to close the mortgage probably because they're shopping around better and also because they are negotiating regulations. But again, I would say cancellations are negligible, just a few units so far in the 1,000 units delivered. In terms of the binding contracts, I imagine that you're referring to land sales as far as we go in the third quarter, so far, we are more or less at book value. In fact, in the third quarter, I would say it was slightly positive. But let's say, that our aim, as I mentioned at the beginning, is to rotate land, which means both in commercial as well as in the residential, we don't want to develop, and we should expect to do that in terms of close to book value or even below that. And we will -- I think if you ask me, do you prefer a slightly positive margin or velocity in sales, I would say, I prefer velocity.
Thank you. Second question we have, we have from the analysts, Mariano Miguel from Banco Santander. 3 questions from my side. Number one, pre-sales momentum continued in 3 quarter with 494 units sold. Are you expecting these quarterly volumes into the next 12 months? Could you give us some more granularity on the sales coverage for the '23, '25 deliveries maybe with the rest later or? No. Okay. I read them now. Okay. Second, on the commercial land bank, any potential new projects on the pipeline you might be working at. Any news on the Clesa project? And number 3, online investments, we read this week about the potential big purchase in [Los Toros], Madrid, -- can you give us some more color on it?
Okay. Thanks, Maria. Those are four questions, may take even longer than the presentation itself, but I'll try to go for it. So the 12 months -- the future 12-month sales or going forward, I think we don't have a crystal ball, unfortunately. So I would probably just stick to the fourth quarter and to say that so far, October is strong as well. And in terms of presales already booked. And I would say that in terms of leads and contracts, it's also a normal month. So therefore, what we see so far in the fourth quarter looks okay as well. Given the uncertainty, I mean, in just the political context, the macro context as well as interest rates that will likely hold up for a little bit longer, then it's difficult to say. I think difficult to say. What I would say is that if employment holds up, then we're in business. And then also if -- we will see how the mortgages continue to be -- they continue to be as attractive. I mean we're seeing in the market now very, very attractive mortgage packages for clients with some mortgages being below 3% at fixed rate for 30 years. So if that still holds, then we're okay. If that changes, we'll see. So we have to take it quarter-by-quarter. Sales -- visibility on sales on '23 to '25 deliveries. I believe I already said 100% sold for '23, 80% for '24 and 40% for '25. Then on the commercial part as well as Oria, [Teresa], we call it now Oria Innovation Campus. I think, again, in commercial, we do land sales or Turnkey solutions or JVs. I would say that land sales without giving more specifics on the risk pipeline that will materialize in the next coming quarters. If it's not in the fourth quarter, then it will be later, but there is pipeline to sell land. And then in Turnkey, in commercial, as we mentioned previously, we already signed with Vita a deal for the Turnkey solution of student housing building in Oria, and we are working on a second deal that will hopefully materialize in the next coming weeks, and we will announce it as it comes. And finally, in Los Toros, we didn't mention it here because it's something that has come on the fourth quarter after 30th of September. This is not yet a closed transaction, but we are the finalists that it has been announced in the press. And what I would say about this acquisition, which may seem like a large piece of land for Metrovacesa, given that we know we don't need the land. Nevertheless, we saw it as a unique opportunity in the Madrid market, which is, as you know, I would say the #1 market in Madrid and strategically is, I think, is a very good fit for Madrid, for Metrovacesa, sorry. Me being a shareholder, I would say -- I mean, I would tell you that I prefer the returns that this land is going to give me than the dividends that we would have -- the extra bit of dividend that we would have given if we haven't purchased this. So I think from a return point of view, it's a great opportunity. Also, I mean, I think that, again, Madrid is whenever you find a good opportunity Madrid, you just have to go for it. And this shows that we are here for the long term and that we will have a combination -- a good combination between dividend distribution, but also not letting opportunities like this go by.
Okay. We have next question coming from Ignacio Dominguez, analyst from JB Capital, actually, several questions. So do you expect any impact from the new potential list of measures from the potential government plans that the -- potential government is planning to implement, like, for example, the reduction in the number of working hours from 40 hours per week to 37.5 without salary reduction. And secondly, there is high visibility for '24 deliveries. Can you provide any guidance for full year '24 in terms of housing units? Can we expect a slight uptick to between 1,800 and 2,000 housing deliveries. What about the increase in public housing, do you see a potential impact on prices as housing supply increases? What share of your buyers leverage up to 80% of the purchase price? Do you think the ICO guarantees for young adults will keep boosting demand for your products? And finally, what kind of average interest rates do your clients get on mortgages in the most recent sales? And how does it compare with the beginning of the year?
Okay. You guys today didn't want to talk on growth even [Okay, then we move the screen there because I didn't write data]. I will start, Jorge here on the government plans and the reduction of working hours, this is something very preliminary so I'm just not going to comment. I would say that for the housing industry as long as employment remains at current levels, or even increasing, that's good news for us. So 2 and a half hours more or less, et cetera. I think in a few years coming and to a segment of the population, it's difficult for me to estimate. I will just -- we keep following the employment rate and household creation and both of those are positive right now. So we will stick to that. In terms of housing units in 2024, I think we'll give guidance as we finish the end of the year. But yes, obviously, we're slowly drifting towards 2000 and beyond that in coming years. So we should see all that activity that you see [indiscernible] in Page #10, you can see all the backlog there in terms of sales, construction, et cetera. So I can give you a good idea of what's in the pipeline and when it will come. But again, we will give more detail on that at -- when we present the full year results. Then in terms of the public housing and how that can impact, I think there is demand for free housing and for 3 segments, I would say, free housing, affordable housing and then public housing well. So I think even if public housing is increased, I mean I would say that that's even good news because I think there's a chunk of the population that needs it. Let me remind you also that we are doing a lot of police housing, I mean, only in [Parmesatas, in Cividatura]. We do have more than right now 350 public housing units in commercialization with excellent commercialization figures, rates. We do have some in [Cataluna] as well, and we will do in Madrid as soon as we are in Los Toros for example. So I think that there's room - the pie is large enough for all those 3 segments that I commented. In terms of the share of the buyers and average up to 80%, I would say the figure is similar to last year, more or less, I would say, around 50% right now, 45%, 50%. It's not an exact figure. We will calculate it at the end of the year, but around that. Big challenge is still equity, 30%, 35% and then the difference we see people leverage is less than 80%, in fact quite lower. The ICO and guarantees for young adults and this is something that we will -- we have been pushing for at the local level and at the regional level, not just as Metrovacesa but also to the association of bigger offers. And we think it's good news. It has worked in other countries and more than -- more -- the health for young people that can access housing there is in the market and the better on. Average interest rates, I'm not -- I don't have the precise figure on the -- what I can say is that what we see in the market, attractive offers is some on fixed rates between 2.4% to 2.9% 30 years, 2.4% to 2.9% at wiped. That's very attractive. And then on variable, we are looking at [indiscernible] plus 0.5%. That's what we're seeing so I think on the fixed rate, a lot of clients are drifting towards that. And again, as long as that holds up great news for the -- and is that it or was there another one?
I think that covers all. Okay. Next question comes from Javier [indiscernible] analyst from [Bestinver] actually, it's probably repeated from a previous question. Is there anything you can say regarding the land acquisition in the news yesterday and Los Toros in Madrid? probably we can take that as already covered. From the same analyst, what are your expectations in terms of appraisals for the end of the year?
I have to be honest, I don't know. I think the residential market is holding up nicely. So should we find land in commercial, we'll have to see, I have more -- that has more volatility right now given to even the longer time that the interest rates will be up, but I have -- we don't have an estimation right now.
Okay. I think we have covered all the questions we have from the website. We still don't have questions from the audio. So from that point of view, I think this -- if there are no more questions, we can conclude the webcast and the conference call. Thank you for listening and joining us for the trading update for the third quarter of 2023 to Metrovacesa. The Investor Relations team, as usual, will be available to take any follow-up questions that you may have. We thank you for your participation, and we hope will meet again next quarter, there will be the full year results in February. Thank you. Goodbye.
Thank you.
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