Metrovacesa SA

MAD:MVC

Earnings Call Transcript 2022-Q3

[Operator]

Hello, and welcome to today's Metrovacesa 3Q 2022 Results Presentation. My name is Elliot, and I'll be coordinating your call today. [Operator Instructions]

I would now like to hand over to Juan Carlos Calvo, Head of Investor Relations. The floor is yours. Please go ahead.

[Juan Calvo, executive]

Hello, good morning. Welcome to the Metrovacesa results presentation for the third quarter of 2022. 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 send it by e-mail to our usual distribution list for analysts and investors.

My name is Juan Carlos Calvo. I am Director of Strategy and Investor Relations, and the main speakers today will be as usual, Jorge Perez de Leza, Chief Executive Officer; and Borja Tejada, Chief Financial Officer. At the end of this presentation, we will take questions from the audio conference call, as well as those sent online through the webcast platform.

I now hand over to our CEO, Jorge?

[Jorge Perez de Leza Eguiguren, executive]

Thank you, Juan Carlos, and good morning, everyone, and thank you for attending our 9 months conference call.

Let me go directly to Slide #5 and the highlights for these 9 months of 2022. We have had a good operating performance in these first 9 months. And as we will see later the details with growth in deliveries year-on-year of 22% with a solid and stable backlog of presales and a 65% increase in our net profit. We see in the market until now a resilient demand for new housing. And despite some slowdown since April of 2022, what we see is that there is a limited and increasingly more so limited supply, which is creating or even increasing the imbalance between demand and supply and therefore, giving some good conditions to developers that are putting more offer in the market. Nevertheless, we do see increased market uncertainty and therefore, difficult to predict exactly what's going to happen in the future.

We are on track to meet our 2022 operational targets with operational cash flow being our main target of EUR 150 million and also very strong coverage ratios for -- on presales for our 2023 and 2024 deliveries. All combined, we are proposing a dividend of EUR 1.05 per share to be paid at year-end, which is equivalent to a yield of 17.2% as of now, details to come a little bit later.

If we now move to the section of business update, Page #7 is the usual key operational data that I will not go through in this page, but rather later on through the details. And I hand it over now to Juan Carlos to give us a brief update on our view on the sector dynamics.

[Juan Calvo, executive]

Thank you, Jorge. Yes. A few comments about the sector dynamics, looking at the recent statistics data, et cetera, and essentially, we have 3 messages here. One is about the continued imbalance between demand and supply, particularly in the -- in new housing. When you look at the figures about transactions in housing, you can see that year after year in the last few years, we have seen a continued progressing in the volume of transactions. And actually, if we look at the latest point of data, which was probably yesterday and the data was not included in this chart is the number of transactions, as of August with an increase of 20% so far accumulated this year compared to the year before.

Then comparing that with supply, supply has been relatively quiet, muted in the last few years and is not growing. In fact, it is flat versus last year and is lower than it was the year before COVID. So this imbalance between demand and supply is very important to understand that the dynamics of the new housing is certainly relatively solid, and this is something important to bear in mind for the outlook going forward.

Second message is with respect to construction costs and implications, and we have seen some slowdown in construction costs recently, and the impact when you combine that with the evolution of house prices is that this is essentially balancing out one with the other. The impact on gross margins has been or so far is rather limited. We have seen in the last few months some easening of the pressure in construction costs and probably will be reflected in the statistics more acutely in -- in coming months.

But what is true is that the house prices have been going up also and [indiscernible] construction cost is around half of the selling price. So this increase in construction cost has been approximately well accumulated by the increase in housing prices. Both costs and selling prices are very likely to be moderating in the coming months or quarters.

And the third comment here on the market is, as Jorge said in the beginning, the outlook on the future is becoming more uncertain. Obviously, there is a deterioration of the macro expectations with an increase in inflation, increase in [indiscernible] rates, all this context may have an impact. We don't know have -- we don't have a clear picture on how intense that could be. But certainly, we are coming from a period, where the market has been having a good solid dynamics. Back to you, Jorge.

[Jorge Perez de Leza Eguiguren, executive]

Sure. Moving on to Page #9, on our presales. Basically, in the 9 months, our net presales have been 1,341 units, which is more or less flat compared to last year's build-to-sale sales. And the average monthly absorption ratio, the way we calculate it, which is net sales divided by units under commercialization sold and unsold is 2.6% for 9 months. Any figure around 3% is healthy. So we consider that this is a healthy figure.

Important to highlight is the higher unit prices, 16% increase compared to last year, ASP of EUR 323,000 per house, and this is due to an improved product mix, as well as HPA that we have been implementing in our -- in the portfolio that we have under commercialization, 5% on average during the year 2022.

Moving on to -- into deliveries now. We are on track to meet our full year targets on the range of 1,600 to 2,000. As of September -- end of September, we delivered 1,327 million houses with obviously, 100% of the works completed, more than 95% of the units presold. So we consider that 2022 is almost down.

Again, I think important to highlight here is that the gross margin is stable, 21.2%. Gross margin in line with our expectations and our guidance of being in the low 20s. And for 2023 and 2024, we have a degree of coverage that is better than what we had a year ago for the 2 coming -- for the 2 coming years, and I think this is important to highlight in a maybe more uncertain scenario coming to start with a higher coverage definitely gives us confidence of having good 2023 and good 2024 with 75% presold and 50% presold, respectively.

Talking about operational activity in general, our presales backdrop stays at around 3,050 units. Again, with an average selling price that we -- of EUR 308,000 per house, which is 10% increase versus December. And again, this reflects the HPA that we have been accumulating in our portfolio, a healthy mix between contracts and reservations. And as I mentioned before, giving us a good coverage for the coming years.

The units under construction, where we have now 3,441 units. And if you remember at the -- what we mentioned in the last quarterly call, is that we postponed the construction start of some units given the construction cost situation and the willingness of some construction companies at the beginning of the year to sign fixed price contracts. We refuse to go to open price contracts, and we waited until the end of the year, and we are now in full throttle mode, and we will, by the end of the year, have started more than 2,000 units -- construction of more than 2,000 units. So therefore, reaching again our operational targets for the year in that regard.

Units under commercialization, we have 5,000 -- almost 5,800 units under commercialization with having launched 1,600 units in the first 9 months, of which 53% is already presold. And again, for the -- looking to end the year with more than 2,000 units put -- new units put into -- in commercialization, which will give us a large variety of products to be sold in the coming months.

Finally, the active units, which gives an idea of the level of activity that will come for the -- that we have for the coming years. We have now almost 7,650 units that are active. And we've launched 1,400 in the first 9 months. And again, planning to end the year with 2,000 or slightly above 2,000 units launched in the year.

Moving on to Page #12 and talking about the -- our land under management that we always -- we always touch upon this. We continue, I think, relentlessly the conversion of high-quality land under management into fully permitted. And we -- in this case, we zoom in on Madrid, where we are coming with next product -- project launches that are coming from land that was originally under management, and that has now become ready for launch.

Examples of such products are Mesena 80 in the heart of Madrid; Arpo, which is a very well sought after district in Pozuelo; Los Cerros, which is one of the Southeast development in Madrid, where we have almost 1,600 units and urbanization works have already been started; and then Getafe in -- near the station, the train station, which is, as you all know, a dormitory city, where we have almost 420 units to be launched in next year also. I think slowly, but we are gaining visibility on the transformation of key land plots that as we've always mentioned, our -- is our key land feeder for product launches in the coming years.

Growing in Madrid with more than 900 units to be launched in the next 2 years is obviously a good, let's say, safe auction for difficult times. In aggregate, in the period since our IPO, we've launched about 2.2 -- 2,200 units that were originally non-fully permitted. 2,400 have been transformed and 2,100 units have been sold either via land sales or via residential sales.

Moving on to Page #13 and talking about land monetization. I would say here that we are adapting with flexibility to a more challenging context. Obviously, when things get tougher, I think land market gets also tougher. But nevertheless, as I will explain in more detail with -- we're looking and we're adapting to ways to monetize that land -- that land not only in straight land sales, but also adding value to the land, and therefore, being able to monetize it differently.

In the first 9 months, we've monetized in total EUR 55.2 million, of which EUR 30.2 million are straight land sales and another EUR 25 million is a land corresponding to CLESA, where instead of selling the land, we've opted to go for a turnkey development and therefore, monetizing the land in a different way.

The EUR 30.2 million of land sales are split between public deeds signed, and therefore, what is shown in the P&L, and then -- and that is EUR 6 million and then binding sale contracts of EUR 24.2 million. And this binding contracts will become -- will become public deed, and therefore, appear in the P&L, mostly within a year time, some before the end of the year, but most of them in 2023.

And finally, others, which is this EUR 25 million that I mentioned, where we signed in July, a contract with Vita, the U.K. student housing and co-leading operator, a contract for turnkey development of 20,100 square meter building, where the land value is approximately EUR 25 million. So even though it's not a straight land sale is a way to monetize the -- our commercial land in a way that not only gives us more margin, but also defends the value of the -- of that commercial land.

On the right side of the slide, you can see that in total, just giving a picture of the total land sales and land monetization through commercial assets that we've done in the P&L is about 25.8 -- sorry, EUR 258.7 million, which is already on the P&L. And on top of that, we have EUR 11.3 million of residential binding contracts and another EUR 81.7 million to be monetized in commercial assets that will be delivered in the next years.

Okay. And with this, I finish with the business section. And now we move on to the financial overview, and I'll hand it over to Borja Tejada, our CFO.

[Borja Tejada Rendón-Luna, executive]

Thank you, Jorge, and good morning, everyone. Just some key figures, some messages about our figures. 5% rise in total revenues up to EUR 352 million. In terms of margin, 21% of development margin in line with our guidance of low 20s. EUR 34 million of EBITDA. And net profit of EUR 16 million, representing an increase of close to 65% compared with last year.

In terms of net debt in the Slide 16, very solid financial structure with 6% of loan-to-value. In terms of gross debt, EUR 352 million with a cash balance of EUR 287 million, out of which EUR 200 million are unrestricted cash. These figures allow us a dividend distribution in December in order to reach a more efficient capital structure.

Now, I will hand over to Jorge with closing remarks.

[Jorge Perez de Leza Eguiguren, executive]

Thank you, Borja, and moving on to Page #18. So as I mentioned at the beginning, we are very happy and proud to announce a new dividend of EUR 1.05 per share, which is equivalent to EUR 159 million. This is subject to approval on the -- on our general meeting that we -- that has been called for the 29th of November, and the payment to be expected within the year. And the Board of Directors may offer -- may decide to offer the option to receive the payment in cash or in cash and shares combination always at the discretion of the shareholders. So the shareholder may decide to have 100% in cash or a combination.

This represents a dividend yield this payment alone of 17.2% yield on recent company value. And if we add to that, the May payment -- dividend payment that we did, that would represent around 27% yield overall for the year 2022, which I think is obviously unusual, but represents what we have been defending always, which is our committed effort to cash flow generation and remuneration to our shareholders via dividend.

Now moving on to Page #18, I think why this high dividend requires probably in excess of our ordinary policy requires a little bit more of an explanation. And I think the quick question is that on top of our -- the key answer really is that on top of our ordinary distribution, we're moving into a more efficient capital structure, in a moment of the company, where we are more stabilized, where we have a good visibility on our residential deliveries for 2023 and 2024, where land sales, even if weaker come as an upside to cash flow generation. And therefore, we are happy and ready to increase and move to a more efficient capital structure.

Basically, the EUR 1.05 per share is coming or is broken up as follows: EUR 0.55 per share is an extraordinary one-off distribution. And on top of that, EUR 0.5 per share is the normal distribution that we will do, and this figure is coming from doing the simple calculation of free cash flow generation of EUR 150 million times 80% is EUR 120 million. And if you remember that we normally distributed in end of the year and in May of last -- of next year. So EUR 120 million times 60% that were distributed in this time, that is EUR 0.5 per share. Okay.

So the remaining 40% of the free cash flow of generated or to be generated in 2022 will be considered for a subsequent distribution in May of next year. Obviously, as usual, subject to Board and shareholders' approval, final free cash flow generated, market situation, et cetera. So again, just to sum up, EUR 0.55 million extraordinary one-off, EUR 0.5 is 60% of the free cash flow generation, ordinary policy and the remaining 40% to be considered in May next year as usual, as I mentioned, subject to Board and shareholders' approval.

This reflects, I think, our strong balance sheet and cash flow profile. And while it still keeps us in a pro-forma LTV, which is 12%, that is still prudent. We consider lower than the peers in -- not only in Spain, but in Continental Europe. And we still continue our policy of future distribution of 80% of our cash flow generation, now considering obviously subject to a target LTV range of between 15% and 20%, which may be reached in future years. So we will never surpass a figure that is above what is reasonable -- a reasonable LTV at any point of time.

And finally, moving on to Page #20, as closing remarks, I think we were seeing a good progress on targets and strategy. But nevertheless, we are all moving into rough or entering what we call rough waters and basically the increased uncertainty, deteriorating macro context is still has unclear impact. I'm sure many of you will ask me later, and I will probably send back the question to you because I think we're all kind of struggling to understand the implications.

Nevertheless, we believe that in the situation that the company is at in terms of -- we are very well positioned to manage the current context. We've done so in the past with the COVID, and I think we're better now than in that situation with again, a platform that is delivering now for -- in many quarters in a row with a strong balance sheet with coverage for the coming years, that are -- that is good.

And therefore, we are maintaining launches for now, which means that we are activating new units, and we're also starting construction, as I mentioned before, of more than 2,000 units in the year, which reflects the -- first of all, that those construction starts are covered with sales and that are still selling and that we believe that at the end of the day, the market will react back at some point, and then, we will be back to business as usual.

And obviously, we will be flexible to adapt. I think if anything, we've demonstrated in the last couple of years is that we're flexible to accelerate or to hit the brakes if necessary. But as of today, we don't see that necessary.

And finally, just to reiterate myself a little bit more, but we are delivering on our very attractive dividend policy, and we will continue to do so.

And with that, I would finish and I hand it over to Juan Carlos.

[Juan Calvo, executive]

Thank you, Jorge. We are now ready to take questions from the audience. We will start questions from the audio conference call and then later from the webcast. So operator, are there any questions?

[Operator]

[Operator Instructions] Our first question comes from Sofia Barallat from Caixabank.

[Sofia Barallat Bourgeois, analyst]

So first, just to confirm that, I think you were pretty clear, but just to confirm that I got the message correctly. So despite having this EUR 1.05 dividend announced today, an extraordinary component, you are still planning on paying a final dividend on 2022 earnings after the full year 2022 accounts are closed. And then also, if I may, on land sales, as you mentioned in your presentation, you have some softening of the demand both for commercial and residential land, given the tougher macro conditions. So here, I don't know if you could provide an update of your guidance for land sales for the year, how much of the -- those 24 million land sales in binding contracts, we will see booked in the P&L in 2024 -- 2022.

And then finally, with the increase in interest rates and probably also in labor cost, where do you see your gross margin in 2023, '24 and maybe '25, if possible?

[Jorge Perez de Leza Eguiguren, executive]

Good morning, Sofia, Jorge speaking. Thanks for your questions. On the first one, full year '22 dividend, yes, we -- I do confirm that our intention, as of today is aside of the one-off extraordinary dividend is to continue distributing payment -- the dividend with a payment in November and a payment in May of next year based on the free cash flow generated for -- on the year, and then the split between November and May being between 40% to 60% in each of them.

That means that the -- like we have done other years, at the end of the year, we will calculate the final cash flow and then subject to the Board decision and shareholders' decision and with normal current conditions, we would -- have another distribution in May. As we have done in other years, I think except in May of 2020 that due to the COVID, the Board decided to put the dividend on hold. But as of today, that is the idea. Okay.

In terms of land sales and the guidance for the year, I think for me, important is the guidance of EUR 150 million cash flow. And with the current level of deliveries and the current level of sales and the cash coming from those sales no matter if they are public deed or private contract, we hit that target of EUR 150 million and therefore, distribute that EUR 120 million -- 80% of the EUR 150 million, which is EUR 120 million. For next year guidance, we will provide that in our next quarterly call at the beginning of the year, as we usually do so.

We will -- I think the main difficulty there might come -- might be coming more from commercial side, which is coming more from institutional investors, but we are finding angles to add value to those loans and going for, as I mentioned before, BTR or development, which obviously delays a little bit the monetization of the land, but increases the margin. And therefore, in a way, we are not just in a wait-and-see situation, but rather being active in monetizing.

In terms of the increase in interest rates that you mentioned and construction costs, I think 2023, all our -- obviously, all the -- sorry, all the construction is undergoing, was started last year, where the -- all the projects were started last year. And therefore, we know what the cost is for those contracts. In some cases, there have been deviations that have been well offset by the sales increase. And with 75% of those units -- of the units presold probably by the end of the year, 80% or more. We don't see a deterioration of the margins in 2023.

2024, the picture is a little bit similar, and I will -- I cannot be -- I still have to sell 50% of the units. So we do have a visibility on costs because all the projects or have started or will be started in the coming weeks, but we already have the final figure, construction cost figure. And I think that we can still stick to our low 20s guidance. And I cannot be specific between 20% and 22% because that will depend on the end on the 50% remaining sales that we still have, whether we capture more HPA or not. But again, we stick to our guidance of low 20s.

[Operator]

[Operator Instructions] We have no further audio questions. We will now answer the questions received from the webcast. Juan Carlos Calvo, please go ahead.

[Juan Calvo, executive]

Yes. Thank you. Yes. We have several questions through the webcast. Starting with a question from Ignacio Dominguez analyst from JB Capital. I have 2 questions. How is demand behaving in October? What can we expect in the coming months?

And secondly, is the EUR 159 million dividend subject to extraordinary general meeting approval. Is this a final dividend? Or can we expect another dividend based on the cash flow generated in the fourth quarter of the year?

[Jorge Perez de Leza Eguiguren, executive]

Okay. So Jorge speaking again. I think there are 2 questions here. The first one being how is demand for October and how we see the end of the -- the remaining part of the year. I think we've already mentioned that in a way, which is we have seen some weakening of the demand since April. I think in the beginning of the year, since April or even May, I think we hit record figures. So probably was -- demand was too high. And I think now the demand has stabilized at a level, which is lower, but it's still, let's say, acceptable. And probably, this is where it's difficult to predict.

We think that it will stay around those at the same level given that even in worsening macro conditions, the number of commercialization starts in the year is going to be down or is down already by 20% or 30%. So there is less offer in the market. So I -- we still have to see, and I cannot be more specific because it will depend. I think now we have to watch the situation month by month or even week by week and be creative.

We do have -- and I think there was a graph in the presentation similar number of visits that as we had before. It is true that I think the client now is taking a little bit more time in closing because they want to have information for the bank about what kind of -- if they meet affordability criteria, et cetera. But with -- I cannot be unfortunately more specific given the uncertainty. But I can say that we are launching, we are starting construction and depending on how the sales continue in the coming months, we will see how to react.

The second question that was around the dividend payment. I think I was -- I answered to Sofia from Caixa already quite clearly about the breakdown of the dividends. So I think that makes sense.

[Juan Calvo, executive]

Next question from Florent, analyst from ODDO. We understand that the distribution of exceptional dividend is trying to optimize the capital structure. But why is this the right moment to do it, given the uncertainty today on the macro? So why not keeping a low leverage is seen as an advantage?

[Jorge Perez de Leza Eguiguren, executive]

Yes. Low leverage is an advantage. And therefore, we are -- we will be at 12%, and that is an advantage. I think we're well below the peers and what is reasonable and obviously, any NPV covenants that we may have, et cetera, et cetera. So I think we still keep that advantage. But if we remained at 5.9% or even lower, as we deliver more units, I think that advantage turns into a disadvantage for the shareholders.

Let me even give you, I think, a little bit more light on that. I mean we have a cash balance as of September of EUR 287 million, of which EUR 200 million is unrestricted, and this is much more than our normal needs. So 56% if I recall correctly of our annualized revenues. This is not an efficient capital structure, and this is a constant feedback that we have had from our shareholders. So we think that the decision is appropriate, and we still maintain a quite prudent debt structure.

Again, I mean, you could say why do you take it now and not before? Well, I think I gave some color on that. I think we are already close to our run rate in development activity. We don't need the extra cash to fund things. We have a good outlook on '23 and '24. No significant debt maturities until 2026. And also, I think the time, even if it looks strange, I think we are right on.

[Juan Calvo, executive]

Okay. Next question from Mariano Miguel analyst from Banco Santander. He has 3 questions. First, which part of the demand is showing more resilience, which one is deteriorating faster?

Second, have you noticed an increase on cancellations in recent weeks?

And third, on the Oria project, any news you can share with us?

[Jorge Perez de Leza Eguiguren, executive]

Thank you, Mariano. On the first question, the -- which part of demand is more resilient. I would say that probably second hand -- second hand international buyers is proving -- is proving quite resilient. Also, in what is not second house, second homes, I wouldn't say that there is a clear winner or a clear loser. What we see is different reactions in times. For example, Catalonia reacted sooner with a bit of a slowdown. And however, now it has again reacted and it's coming back to -- to previous reasonable sales.

Palmas Altas in Sevilla has been performing extremely well all the time because it's a new development, where people want to live. And other places are doing a little bit better or little bit worse, but nothing that we can say clear winner or clear loser. I think the uncertainty hits everyone in the same way, except probably the international.

Cancellations in the recent weeks not really anything above normal. I think what we have to watch closely in the coming quarters, all the industry in general is reservations, when reservations turn into contracts because that's when the client is making, first of all, a cash commitment of 10%, plus another 10% during the construction.

And then, let me say, a leap of faith that, that on the conditions that they will get the financing in the future. And I think given the uncertainty, what we hear from our clients is that for them to make to -- to may -- now it's more unclear or more difficulty to be sure. So that's why they're taking longer lead time.

So I think until now, nothing out of the normal in the future, again, with those -- with the uncertainty, we have to watch that closely, and we will adapt, as I said only before to that. And again, I know you would all like me to be much more specific, but with the level of uncertainty, I really want to hand the question back to you and ask you what you think.

And then finally, on the Oria project, we continue on -- as you remember, we signed -- as I mentioned, we signed already one of the first turnkey contracts. We are in advanced negotiation for another one. And then, for the remaining part, we still don't have any negotiations open.

[Juan Calvo, executive]

Okay. Moving to the next one, questions from Daniel Gandoy analyst from JB Capital has several questions. First one, it says that your coverage ratios for '22 and '23 seem to have increased only modestly versus the previous quarter. So is it right to think that most -- many of the presales you have done recently are related to the deliveries of the year 2024. And if that is the case, any reason of why that could be the case?

Secondly, your presales included an increase of 16% in average selling price. Can you explain if there is an improved product mix? And what are the trends behind this improved product mix? Are the new houses larger, location is different, et cetera.

Thirdly, in spite of the uncertainty in the sector, you are planning to have 2,000 units under construction before year-end. Is it fair to say that the strategy and the run rate delivery targets remain roughly unchanged in spite of the uncertainty.

[Jorge Perez de Leza Eguiguren, executive]

Okay. So Jorge, again, speaking. So I think the first question is a little bit detailed to give you the exact answer what -- but let me explain you what we see on the trends. I think the trend that we see is that people are buying houses that are close to delivery. So if they are finished or very close to be finished, they -- there's a bias towards those kind of housing. And why is that? I think because the decline in that case has more certainty about the mortgage that they can get. So in 2024 deliveries, for example, that you're mentioning there, I think the client has to be very sure that they will get a mortgage versus buying a house for 2022.

So we -- I think if you allow me, we are going to look at that mix that you mentioned in more detail because I don't think there is any hidden trade -- any hidden trend there. I would rather think the opposite. In any case, what I think is that the coverage ratios are good for 2023 -- I mean in 2022, when we say more than 95% obviously, it's close to 100% now. So I think in any case, we will come back to you offline, Daniel with -- to see if there is anything specific around that.

The second question, I think the product mix, it depends a lot. I think we have -- though our average, long-term average is probably around EUR 300,000 per house and will be so. Suddenly, there are a couple of years, where you have products like Malaga Towers or some projects in Costa del Sol, where the average unit is EUR 1 million or more, and that throws off the balance a little bit. So I think we've -- the figure to take is that we've increased prices on units under commercialization around 5% in 2022. We obviously quit some in 2021. And then the difference is coming from the mix.

And finally, in the -- in your question #3, I think we can -- what we can answer is easy to answer is that the number of units launched, the number of construction starts and the number of units started -- starting commercialization is around 2,000 figures, in some cases, a little bit above that. Whether that level of activity remains so as of today, it does. Whether in the coming quarters it remains so, it will depend on the level of presales.

And so as of today, we -- with the levels -- level of coverage that we have and level of presales that we see, we're happy to continue with that. If we need to be slower, we will be slower; if we need to be faster in some developments, we will be faster. So I think in all operational metrics, except sales, I can be very specific in sales. We will see quarter by quarter.

[Juan Calvo, executive]

Okay. Another question from an investor on your build-to-sell sales. Your monthly absorption rate of 2.6%, it implies 38 months on average to steady development. How should we read this? And [ affordability ], what is the average price to income ratio for your typical buyer and what percentage are equity buyers.

[Jorge Perez de Leza Eguiguren, executive]

So the healthy absorption rate is, as I mentioned, around 3%. That means that you sell 3 units every month, and therefore, in 33 months, you sold the whole development. Why do I say that? Because normally, we start commercialization 6 months before starting construction. Then you add 20 months to 24 months. Let's take the midpoint, 22 months of construction, that's 28. Then you take about 3 months to 4 months to delivery. You're around 30 something months and that gives you the exact timing ideally to have sold 90%, 95% of the units up on delivery, and then with the [ tail ], you maximize margin.

38 months is, I would say, within that range. Is 3% better? Yes. Is 2.6% reasonable? Yes, it is. More than reasonable, I would say. Is 4% reasonable? I would say, no. Then that would mean you're selling too fast and therefore, leaving margin. So I think, as I mentioned before, without getting to 2 decimal points, around 3% is okay.

The second question maybe Juan Carlos you can take it.

[Juan Calvo, executive]

Yes. Using some data on our -- with our buyers profile on average, 31% of our buyers buy fully with equity with no debt; and the other 69% are taking a mortgage, not always a mortgage of 80% mortgage loan-to-value, but with a mortgage. And the average price-to-income ratio with our buyers, it is 4.6 years. So this is priced to annual income of the buyers.

Okay. So next question is, again, from one investor. Is this extraordinary dividend in 2022 formally considered as a dividend or capital distribution? Is it subject to withholding tax.

I will take this. The answer -- I mean the dividend, we call it dividend, but formally it is a distribution on [ paid-in ] reserves. The reason is because we don't generate sufficient net earnings to distribute such a figure of dividend. So therefore, it is against [ paid-in ] reserves. Because of that, it is not subject to withholding tax. So gross dividend and net dividend is the same figure.

Another question again from an investor. Are you expecting average selling price to decline?

[Jorge Perez de Leza Eguiguren, executive]

I think we discussed that. No, not really. I think the balance or between supply and demand, I think, will allow us to hold the prices. As Juan Carlos mentioned, we don't see strong HPAs like we've seen in the latter part of 2021 and 2022, but we don't see a decrease either.

[Juan Calvo, executive]

Okay. One further question. I think this will be the last one from the webcast. How many finished unsold units do you have at the end of the third quarter? And do you expect this figure to increase in the future.

Well, we don't have that figure ready for report. Obviously, it is not a substantial figure, but it is not a figure that we generally report.

[Borja Tejada Rendón-Luna, executive]

Nevertheless, as Jorge mentioned previously, 100% of our units to be delivered in 2022 are ready -- are completed, and therefore, it will be delivered in the next month.

[Juan Calvo, executive]

Okay. So this is -- that was the last question from the webcast. Operator, do we have any additional questions from the conference call.

[Operator]

We have no further questions.

[Juan Calvo, executive]

Okay. In that case, we conclude the results presentation for the third quarter 2022 results from Metrovacesa. The Investor Relations team will be available to take any follow-up questions that you may have. Thank you all for your participation, and we hope to speak with you again, next quarter. Thank you. Goodbye.

[Operator]

Today's call is now concluded. I'd like to thank you for your participation. You may now disconnect your lines.