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Hello, good morning, and welcome to the Metrovacesa results presentation for the third quarter of 2021. The slides of this presentation have been released to the market earlier this morning and they are available through the CNMV website as well as the company website. We have also sent it by email to our usual distribution list for analysts and investors. My name is Juan Carlos Calvo. I'm Director of Strategy and Investor Relations. And together with me are the main speakers today. As usual, our Chief Executive Officer, Jorge Perez de Leza and our Chief Financial Officer, Borja Tejada. At the end of this presentation, we will take questions from the audio conference call as well as those and online through the webcast platform or through other -- any other channels.I now pass the word to our CEO. Jorge?
Thank you, Juan Carlos, and good morning, everyone, and welcome to our results presentation. I will go through the deck of slides. I'm going to Page #5. I think we have this quarter, 3 very straightforward highlights. First one is that we continue capturing the recovery in demand that was very positive since the beginning of the year. And this is translating into record high units sold in the third quarter and accumulated in the year and that where and we'll see the detailed accelerating new launches and construction starts. This has resulted also in our full year cash flow target that will be exceeded and in fact, the target of EUR 100 million plus that we had for the year has already been met in the first 9 months, underpinned by the increase in deliveries and also with improving margins as we'll see later as well as land sales. And finally, these results following our policy of cash flow distribution on an interim dividend, and this will be the second dividend in this year of EUR 60 million or approximately EUR 0.3955 per share that will be paid in December of this year, subject obviously to extraordinary shareholder meeting that the Board will recall shortly. Moving on to a little bit more detail. On Page #7, you have the key operational data snapshot that we normally present. Let me skip this slide and jump into the details of this slide in the subsequent pages. If we move to the Page #8 on the residential presales, basically, we've sold in the 9 1st months, 1,500 -- close to 1,550 units, which is almost doubling the figure of last year and breaking record sales for us. The 3-quarter presales includes this year 208 BTR units that we signed with AEW in July that we announced, obviously, at that point in time. And these BTR figures are comparable to last year that we had also another deal of 203 units. What we see is that the demand remains solid in most markets with the use of seasonability in the summer and that foreign demand is recovering, but we still see it below its full potential. So that means that when that fully recovers, sales figures should also improve. Looking at the absorption rates in the third quarter, what we see is that we are above, let's say, our figure -- usual good figure of 3% or 3.3%, which means that you would sell a whole development in approximately 3 years. We're now at 3.7%, which is a good figure. And then if we calculate it on a different way, just looking at the denominator on unsold units, that would be 25.4%. So very healthy figures and in line what we are seeing of demand recovery. Talking about deliveries, we've delivered more units than last year and with higher gross margin. In total, 1,079 units are already delivered with 434 in the third quarter. Good ASP, close to 300,000 units -- sorry, EUR 3,000 per house in the 9 months and EUR 324,000 in the third quarter. This translates into EUR 316 million of revenues, which is a significant increase compared to last year. The gross margin, as I mentioned at the beginning, improving, and we are now in the 9 months in the 22%, which is the low 20s that we've always said that there will be our recurrent gross margin and with 25% in the third quarter, which is a result of the mix of products of projects being delivered in this specific quarter. Also, our visibility for the coming quarters keeps on improving and the target for the fiscal -- for the full year, sorry, that we mentioned 1,300 to 1,700 as a range. It's already achieved. I think there's a type of here where it is 72% on the low range, it should say 83% on the low range. So I think the low range is obviously very achievable. And I would say that we are now looking at the mid-range, midrange plus. More than 500 units are presold and in delivery phase and the expectations for the coming year will be higher and we'll give more details in the -- when we present results at the beginning of next year but higher than the deliveries of this year. In terms of operational activity, we are ramping up. And this year, again, due to the good market situation, we are increasing our activity. And we have now a backlog of -- a sales backlog of 3,034 units, which is an increase of 20% -- almost 20% compared to the beginning of the year with a good average net price of EUR 284,000 per house. And then we have more than 70% coverage or potential 2022 deliveries, which I said will be higher than the deliveries of 2021 and with a healthy mix of 79% in contracts and 21% reservations. The units in construction are -- completed are 3,700 units. And I think we've already started new construction of 1,228 units, but more than 800 will actually be started in the fourth quarter, representing that increase in activity that I mentioned. New building permits obtained 1,500 in the first 9 months. And again, that figure to reach around 2,000 by the end of the year, the same with construction completions. So at the end, this gives us increasing visibility for the deliveries in 2022 and 2023. Units under commercialization, we have now 96 projects with a good ASP. As you see there is 200 -- close again to EUR 300,000 and 59% of the total units have already been presold. So summarizing, I think and reiterating the message we are stepping up the activity volumes and we expect to reach around 2,000 units in most metrics at the end of the year, presales, construction starts and new launches. In -- moving on to Page 11 in land and commercial. What we see is that demand for residential land remains solid, and we still see commercial land being weaker. The total land sales in the 9 first months are close to EUR 34 million with close to EUR 20 million already recorded in the P&L, which means public did sign and EUR 14.6 million in private contract, most of which will be actually signing public deed before the end of the year. Several locations in areas, this is coming 100% from residential sales. So these are projects in areas or in sizes that we do not want to develop ourselves and that we are selling to other developers. So noncore residential plots for us. And so as I mentioned, demand for residential land is solid. And on commercial land, we expect revitalization in the coming quarters. In terms of land management and without being exhaustive on the list here, I think we are highlighting Vinival, which is a project that we have in Alboraya, Valencia and Patacona Beach where we obtained the initial approval. And here, we will have 540 units that will be launched in the coming years. And then in the commercial portfolio, Puerto de Somport building was fully completed and currently under commercialization and with increasing number of visits, but still no final -- no deal, no leasing in place. But increasing, as I said, interest. I think Clesa, which will bring us, I think, very good news in the coming quarters. We are progressing in the design of a global master plan that is already finished. And our licensing process is expected to start in the first half of 2022, where in the -- this master plan calls for 4 different buildings in which we will have a mix of uses of student housing, co-living and offices. Moving on to Page #12, and I think just to highlight our continued commitment to quality, ESG and innovation, where we are in terms of employee satisfaction, we keep -- for a second year, we are among the 100 companies that are most like to work for in Spain. We are achieving different ESG awards in Cádiz as well as others that we're not putting here. In terms of quality, Nereidas was named the best project in Andalusia. This is a project in Torremolinos that a lot of you already know fully sold. I think there's 1 unit left and delivered and with excellent margins. Finally, in innovation, we continue to be breaking ground and implementing blockchain technology, for example, now in our BIM design platform and then also working with some municipalities in order to give more traceability to the licensing process, and we're working on a couple of projects here with different municipalities, and we will continue in our, let's say, commitment to those topics in quality, ESG and innovation. And with that, Borja, I hand it now to Borja, our CFO, for the financial overview.
Thank you, Jorge, and good morning, everyone. Main highlights about our financial accounts. Total revenues, more than EUR 335 million, out of which residential deliveries, EUR 316 million, representing more than 5x compared with previous year and EUR 19 million from land sales. In terms of cumulative development gross margin 22%, which means 25% of units delivered during this quarter. Positive EBITDA and net profit. And on top of that, gross free cash flow of EUR 101 million. Concerning our financial debt for KPIs, 7.7% of loan-to-value, more than EUR 300 million of cash and EUR 211 million net debt and around EUR 300 million preapproved development loans for new construction to be signed in the next month. And finally, some additional information about the refinancing of our green syndicated financing. We signed the extension of the loan in July, well ahead of its initial maturity that it was in December 2022. The new maturity is June 2026. Nominal amount increased up to EUR 260 million from EUR 193 million with a very competitive interest rate of 35%. Additionally, we have committed to comply with 3 ESG targets related with energy impact, local job creation and employee training. In summary, just to say that this financing gives us significant financial flexibility given there are no restrictions on dividend or profit and loss covenant, lower repayments linked to land sales from previous 50% up to 10% now and less dependence on developer loans to finance the construction of our projects. Now I will hand over to Jorge with closing remarks.
Thank you, Borja. And again, I think, quite straightforward closing remarks. Stepping up in -- on our activity volumes. And as I mentioned before, we expect to reach close to 2,000 units in the full year in most activity metrics. And with an efficient developer platform already fully operational with around 200 employees by year-end, which in cash flow generation, I think we -- management is fully focused on our cash flow generation. And housing development alone is already very rich when we are now in years of delivery, delivery, delivery and increasing delivery, I would say. And with a high conversion ratio on the residential development of circa 30%, which this means that at current delivery levels a 10% yield, dividend yield on current prices. And as volumes -- delivery volumes increase, that figure should actually be higher. And on top of that, we have the land sales that will represent an extra cash flow complement in the next -- in the coming years. That translates into a new dividend that the Board proposes and will be subject to the extraordinary shareholders' meeting of EUR 60 million. This is an interim payment on the back of the strong cash flow generated in 9 months and already meeting the full year target of EUR 100 million. And I think splitting the payment into throughout the year is what we've always mentioned and under normal market share consumption circumstances, et cetera, is what the goal of the company is. And then the total full year dividend based on the free cash flow of -- generated in 2029 -- 2021 will be decided at the beginning of next year and following our policy of distributing more than 80% of the free cash flow generated. And with that, I finish our results presentation.
Thank you, Jorge. I think this is time for us to take questions from the audience. So operator, please, can you take the questions on the conference call.
[Operator Instructions] We have a question from Florent Laroche from ODDO BHF.
This is Florent Laroche-Joubert from ODDO BHF. I would have maybe 3 questions. So maybe first question on the property development activity in residential. So what can we expect for next year in terms of evolution in gross margin. So can we say that the gross margin of 22% is a good benchmark for next year? And in terms of expectations, in volume for next year, so can we say that a target of 1,700. So that means the high range of your target this year could we see as a minimum? So that would be my first question. And my second question would be on land sites. So we have heard that in Spain, you are in a discussion with the new housing law. And in this context, are you comfortable to accelerate land sites with prices that will be still close to the current book value?
Thank you, Florent, and Jorge speaking. So answering your questions. I think on the first one on the development -- residential development activity, yes, a gross margin of, as we've always mentioned, of the low 20s, so 22% would be there is what we expect. And we always say low 20s because depending on the specific quarter, we have a range that, as you can see, there are projects that are below 20% and projects that are on 25% or above 25%. So I think something between 20%, 22%, 23% is where we should be in the coming quarters or in the coming years, I would say, because we look at the projects that are currently under sale and this is projects for the next -- not just the next year but delivery in the next 2, 3 years, and that's where we are. Your second subquestions out of this, which was where the volumes, I think we mentioned will be more specific, I think, when we give targets for next year in the next call. But yes, we already mentioned that, that the deliveries in the next couple of years will be higher than this year. And when you said the minimum of 1,700 since reasonable to be, but we will be more specific as I said, next -- at the beginning of next year. Then on the second question, which is the new housing law, I mean that's -- we can take hours discussing that. But I think our stance on this right now is I think there are 2 -- as you all know, 2 main, let's say, blocks in the new law. One is regarding rental. And the second one is regarding development. I think on the rental activity and how that will impact in our case, which is mainly in our strategy of BTR turnkey development, we will see -- this represents to us, as we've always said, between -- around 15% of the gross sales. And I think we should be able to maintain that, but we need to analyze more specifically which areas the law at the end keeps affecting or not, but I would say low impact. On the part of residential development and how the -- at the end, the public -- percentage of public housing affects, I think I would -- we would need a few more days to analyze in detail what it means. Really, I think what -- I mean in the short term, in the coming years, it will have no impact really because these are projects that are already launched in the couple -- in the next 2 years. We already launched really under sales and no impact even in the third year. In the midterm, we -- I think we would shift the worry to say that this will at the end of the day, for the sector, it means and for the country, less employment, more restriction in housing supply at the end of the day, and that is not good news, obviously. But we will come back later when we know more details. So what we are loving for at least right now is to have more clarity on what these 30% means, how public housing, how is that implemented and you know, so that at the end, we can have a better assessment of the impact.
[Operator Instructions] We have another question from Fernando Abril from Alantra.
I have connected a bit late, so I might lose some of your -- some of my questions, so sorry in advance. So I have a few questions. First, it's on the -- so a very strong ASP and gross margins in this quarter. And my question is...
Fernando, can you speak up a little bit? We can hardly hear you.
Yes, sorry. Okay. Can you hear me now better?
Yes, this is better now.
Okay. Sorry. So first, it's on the ASP and gross margins in the quarter. So my question is, should we expect this very strong quarter in Q4? I don't know what levels of margins and ASP should we expect for Q4. Then second question is also on the land sales. So here, you are a bit below the guidance. So what are your impression for the rest of the year? And also, when do you expect any commercial land sale to take place. I don't know if you expect anything for 2022? Or should we expect a bit longer?And then third is on the build-to-rent activity. So you have just mentioned that up until today, you are not seeing -- you are confident with this 15% gross sales as an average midterm, my question is, well, anything expected soon? Are you working on new potential deals or nothing on paper as of today?
Yes. Okay. So on ASP and gross margins, I think we more or less mentioned this, there are several figures in the presentation on ASPs already delivered and then on the backlog and then also on the portfolio under commercialization. I think in all of those, we are between EUR 280,000 to EUR 300,000. So that's in the ballpark where we are. I think gross margins, which was the second question, I think overall, low 20s is our running gross margin of 21%, 22%, depending on the end on the final mix for this year. And I think for the coming years, that's where we should be. So 25% on a quarter like we have this quarter, might happen another quarter. But in the overall of the year, I think we feel more comfortable on saying these low 20s. Second question, which was regarding land sales. I think, as I mentioned in the presentation, residential land sales are doing better than we thought or than we planned. And commercial land sale is were -- basically -- if I had to highlight a weaker spot in these 9 months, that's our weaker spot right now. That doesn't mean it's completely dry. I think there are several conversations interest underway, and this will materialize in -- for sure, in 2022. In 2021, there's only a couple of months. So I would say if something comes in commercial, it will not be one of the big shots that should happen in 2022 -- starting in 2022. And then on the BTR activity, yes, so 15%. I mean you said something is coming. We always have several deals, let's say, in analysis, in different stages of analysis, early analysis or even in due diligence. So we will -- something else will come for sure on that. Our approach is very, very margin oriented. And I think what the positive situation now on the build to sell, I think, gives us more, let's say, more options. So we can -- we are not ready to accept low margins in BTR because we can then dedicate that product to BTS and the BTS will absorb it. So I think more to come for sure. Is it next day, we will see. And just to maybe give you a little bit more flavor on that on -- if you remember at the beginning of the year, we hope to have 5 projects under what we call BTX, which meant to be dedicated either to BTR, if there was interest or to build to sell. And all of those 5, 1 has been actually sold to a fund, so has been transformed into BTR. There is another 1 that will most really end up in BTR in the coming quarters. There is 2 that we've shifted into BTS. And the reason being is that earlier phases in that same area have already been sold and therefore, in order to have more product on BTS, we did that. And what we are doing is launching another 2 projects to be considered into BTX. And the fifth one, we are starting now construction is the 1 in inter nucleus. I believe we are starting construction. We're just spending the license that the technician wasn't holiday what we expected in July, we'll get it now, and then we'll start construction. So I think our strategy of having a mix of product there that we started construction or that are on plan will work. And at the end, even with the new law, we feel that 10% to 20% of our gross sales should still be manageable in the coming years.
Okay. May I just a follow up, please?
Yes, go ahead.
Okay. So okay, just one thing is with regard to BTS demand, underlying demand. So what are you seeing in terms of presales, so there has been a decrease quarter-on-quarter due to seasonality. What do you expect for Q4? And I don't know what are your views on this huge increase in demand since the very beginning of the year, what do you expect for the next few quarters? Should this strong growth remain? Or I don't know, what the trends that are you seeing right now?
Well I think we mentioned that 2,000 units targeted in most metrics seems or close to 2,000, up and down -- up or down is something that we feel comfortable right now with what we're seeing. So that means sales is obviously one of the key metrics, if not the key metric. So I think that's where we should be at the end of the year, close to 2,000, which is a significant increase to where we stood at the beginning of the year in our belief for the market. And I think that should be replicated in the coming years. And then what we need to see is, I think that the situation in the market now is that there is a limited offer. So is there like an expansive demand, what I think is that what is happening is that there is a limited offer and that is, at the end, matching the demand in a way that big developers helps us in maintaining prices and stepping up in volumes. So -- and I think that will continue in the coming quarters, for sure. So that 2,000 units at the end of the year, we should be able to at least replicate that.
Operator, any more questions from the conference call?
We have no further audio questions.
Okay. So I will -- we have received several questions from the webcast platform, from analysts and from investors. So starting with the first one, we have 3 questions from the analyst of Deutsche Bank, Michael Kuhn. First one, how do you see the current situation about building material costs, the price inflation and availability, any major supply chain issues?
So Michael, I think we -- there's obviously a lot of talking and based on not just perception, but what is the supply chain in other industries as well, that restrictions are coming and that should, in a way, translate into higher construction costs or potential deliveries -- or potential delays in construction term. The reality is that as of today, we are not seeing that Metrovacesa and some of our peers that we usually talk about these issues. And I think the recent tenders that we are doing for the 800 units construction starts that I mentioned for the fourth quarter, is that we are right on the budget that we planned months ago. Maybe in some areas, you see some 1%, 2% increase. But in others, you actually are below what you planned. So overall, we are still okay right now. That doesn't mean that it's not coming, that it may come, but as we mentioned, I think, in the last quarter, the potential impact is not something that is going to decrease margins significantly. I think part of -- first of all, is our policy is to work with big construction companies and that obviously has a strategy, has an impact in -- a small impact in margin per se because you're working normally with the higher out -- the better companies are a little bit more expensive. But that these companies, these bigger companies are able to absorb also better the construction material increase. So that doesn't -- let's say, there was a 2%, 3%, 5% increase in construction cost. That doesn't mean that they will pass it all to us. And then part of it also will be offset with increasing prices. So as of today, no impact in the coming quarters, I think there will be a limited impact. And the same in terms of delays. I mean we are monitoring now very closely, not just the advance, but also the left plan. So what is the planning for the, let's say, in the construction delivery, and we're also controlling the supply management. So meaning on the copy material, that means on the purchasing plan of the different materials, whether the material is already on the site or not because that is an early sign of what could be delayed. Again, working with big construction companies, what we have seen in this convey is that they have -- they have made repurchases of materials, anticipating themselves to potential delays. So as of today, we're covered. That means that we're fully covered, I don't know. I think obviously, this is a world thing. It's not something that is small and there may be impact coming later. But what we see as of today, no impact.
Okay. From the same analyst, we have another question, which is about the current demand situation in Spain, taking -- I mean your view about the current situation in Spain, taking into account the general economic activity, consumer confidence and residential demand, and if we have seen any impact from the COVID situation recently?
I will start with the last one. I think COVID situation is good right now. I'm not an expert on this. But what we see in terms of new places, et cetera, so what it translates into the daily life is that most people are back to work. And then in residential development or residential sales, people are coming to the sales office. People are buying whatever they save during the pandemic, during the confinement, they're using it to buy. So I think in that sense, as of today, no worries. Then on the residential market as a whole, I think I've already mentioned that. I think we are on a sweet spot in the sense that at the end, the offer is limited right now. I mean we are -- let's see where the year finishes, but with 80,000 units, let's say, is that the final number of deliveries for the industry and the number of construction licenses, et cetera, that is a very low figure. And I think if it continues that way, it means that we will have this protection in prices and raising volumes.
A third question from the same analyst asking about the average selling price of the presold units in the period. I will take this one. Actually, the figure is approximately EUR 280,000 per unit. Obviously, that's very much in line with -- very similar to the average of the overall backlog and not far from the overall portfolio under commercialization. So we stick to similar ranges of prices as in other metrics and in previous periods as well.
Passing on to other questions, I will take -- I will read the question from another analyst from Banco Santander, Mariano Miguel. He's asking 2 questions from my side. Given the good momentum of the market, what level of new launches should we expect in the years '22 and 2023? Should it be above the 2,000 units in the guiding? And any comments on the potential implications of the potential new housing law?
I think I more or less already answered these questions. I think the 2,000 for the end of the year is a good sign for where we should be in the next couple of years as a minimum. We will be more specific at the beginning of the year when we finalize the plan. And then we analyze also what is the full potential in cost service already back as well as the market. So I think 2,000 is a good proxy to start with. And the comment on the implications of the new housing law already I mentioned it. I think it's early to assess what I'm more worried in the long term, no worries at all. In the midterm, give us a few more days or months. What we are asking for right now is clarity because it's very vague how the 30% is implemented in terms of public housing in the different areas. And then we will obviously express our concerns big time on what this means in terms of restrictions in the supply coming forward and also in terms of job creation and then in terms of foreign investment at the end where we need more international investment, where we need is more clarity on what this new law means and how it is implemented.
Okay. One question from an investor. Congratulations on the ramping up of deliveries. Can you give us more details on the increase in financial expenses in this quarter accounts?
Okay. Borja speaking. Well, the reason is quite easy to explain. According with the accounting law, we accrue the arrangement fee of the corporate debt during the life of the financing. In this case, given that we anticipated the refinancing of our corporate debt, we have to recognize 2x the cost expected for this year in the profit and loss account instead of the amount initially budgeted for this year and the next year. That's the only reason.
Okay. Now another question from an analyst. But I think probably we have already answered about cost inflation, margins and supply chain, but I would say that this is probably already answered. And another question from an investor. Congratulations on the strong numbers. Several questions. Can you please provide some color on the expected house price appreciation for next year, given the fast absorption rates. Secondly, about the launches in the first 9 months around 1,200. What it means with respect to the [indiscernible] around 2,000. And thirdly, any signs of cost inflation in new tenders?
Well, I think -- thanks, Juan Carlos. On the first one, house price appreciation, I think for -- we will have -- it's very heterogeneous. I think we will have areas where that, let's say, lack of equilibrium between offer and supply -- sorry, between supply and demand is stronger where you can raise prices and other places where that it's not so compromised and therefore, you cannot increase so much. What I would say is that at least inflation. And then beyond that, I'm not -- I wouldn't take a stance of saying it's going to be 4% sustained. I don't -- we don't see that way as of today. Then on the second question, if you can maintain the screen still. Yes, on the launches, I think, as I said for, you will see in the next presentation, the big ramp-up in the last quarter on the deliveries already over many have been launched and more to come, I think, from the time we started the launch, there is a prework of 3 to 6 months, which is not shown in the figures there, but that is something that is already underway and will show up in the next 4Q in Q4 and then in future subsequent quarters as well. And then on the last question, which was about cost inflation. I think we already mentioned that as of today, no signs, something will come. I mean we cannot be all completely isolated from the rest of the world, but nothing that means big impact on margins as of today.
Okay. So we don't have more questions from the webcast. We come back to the operator. If there is any last minute questions from the audio.
[Operator Instructions] We have no further questions.
Okay. So thank you. I think this concludes the results presentation for the third quarter of 2021 of Metrovacesa. As usual, the Investor Relations team will be available to take any followup questions that you may have. Thank you for your participation. We hope to be with you again next quarter. Thank you, and goodbye.