Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Neinor Homes SA (NNRHF, Financial) reported strong fundamentals in the Spanish residential sector, with positive macroeconomic indicators.
- The company has achieved significant visibility for results over the next two years, with plans to distribute EUR325 million.
- The joint venture with Octopus Real Estate has already met its five-year target, indicating strong interest and potential in the senior living sector.
- Neinor Homes SA (NNRHF) recorded EUR182 million in revenues, EUR22 million in EBITDA, and EUR12 million in adjusted net income for the first half of 2024.
- The company maintains a conservative loan-to-value ratio of 14%, indicating strong financial health and low leverage.
Negative Points
- The Spanish housing market continues to face a significant supply-demand imbalance, with new house construction lagging behind household formation.
- Despite positive financial results, the company faces challenges in maintaining high gross margins amid fluctuating construction costs.
- The company’s strategy involves significant capital tied up in dividends, which may limit flexibility for new acquisitions.
- The build-to-rent project divestment resulted in a EUR5 million negative impact on EBITDA, highlighting potential risks in asset sales.
- The company’s future growth is heavily reliant on the continued strength of the Spanish economy and private consumption, which may be subject to external economic pressures.
Q & A Highlights
Q&A Highlights from Neinor Homes SA (NNRHF) Q2 2024 Earnings Call
Q: Regarding the build-to-sell JVs, what margins do you expect to obtain from this division? When do you expect the first deliveries from these JVs to take place?
A: (Mario Vivanco, Chief Investment Officer) For our partners, we expect a blended net IRR between 15% and 18%. For Neinor, it is higher, above 25% IRR and a 2x multiple. The first deliveries are expected potentially by the end of the year.
Q: Could you give more details on the senior living joint venture? Have you acquired the land plots? What can we assume for CapEx and rents per unit?
A: (Mario Vivanco, Chief Investment Officer) We have signed the agreement but have not yet deployed the capital. Details on CapEx and rents will be provided potentially by the end of the year. Returns for both the partner and us are expected to be higher due to the opportunistic nature of the investment.
Q: What gross margins for the build-to-sell business do you plan to reach for full year '24 and '26?
A: (Jordi Argemi Garcia, Deputy CEO and CFO) We are maintaining our guidance of 24% gross margins for the build-to-sell business.
Q: What are your expectations for construction starts in the second half of the year for the core build-to-sell business?
A: (Borja Vergara, CEO) We have already launched around 25% of the projects for 2026 and expect to start construction on another 25%-30% during the summer. The remaining launches will occur in the second half of the year and early 2025.
Q: Can you provide guidance on land investments for JVs and your own balance sheet this year?
A: (Mario Vivanco, Chief Investment Officer) We are flexible and will pursue the best opportunities. JVs are currently a priority, but we will invest in our own balance sheet if it offers better returns.
Q: Could you explain the high finance revenues of EUR15.8 million in your financial statements?
A: (Jordi Argemi Garcia, Deputy CEO and CFO) The positive impact includes EUR2 million from treasury management, EUR2 million from equity tax instruments, and EUR1.6 million from interest from tax authorities. Additionally, a debtor agreement with the City Hall of Alboraya contributed positively.
Q: What is your view on the sustainability of private consumption in Spain and its impact on the housing market?
A: (Borja Vergara, CEO) We see strong market fundamentals with a significant housing deficit. The Spanish economy is growing well, and we do not expect a major financial crisis or increased unemployment, making the market very safe.
Q: What is the pre-sales coverage for the coming years?
A: (Mario Vivanco, Chief Investment Officer) For 2024, we have over 80% coverage, aiming for 90%-95% by year-end. For 2025, we have around 40% coverage, targeting 60%-65% by year-end. For 2026, we have 15% coverage, aiming for 30%-35% by the end of 2024.
Q: Do you expect to continue closing co-investment deals in the coming months and years?
A: (Mario Vivanco, Chief Investment Officer) Yes, we are focused on deploying equity. Last year, we invested close to EUR150 million and have closed deals for almost 400 units. We will continue to focus on both individual deals and portfolios in the second half of the year.
Q: Can you provide a reference for dividends for '24, '25, and '26?
A: (Jordi Argemi Garcia, Deputy CEO and CFO) The guidance is EUR200 million for 2024, EUR125 million for 2025, and EUR70-75 million for 2026. We aim to pay dividends between December and the following 4-5 months, and we may accelerate payments if we generate more cash.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
