The radical change in the strategy of the real estate developer Neinor Homes to optimize its balance sheet and recover ground on the stock market is paying off 19 months after it was launched. His change towards a model that prioritizes co-investment and shareholder remuneration It is marking the pace of the large companies born after the bursting of the brick bubble that, in recent years, have not been able to grow significantly as they are listed at very significant discounts on the net value of their assets, that is, being undervalued by the market.
Almost a decade after its birth —after the purchase by the American fund Lone Star of the former Kutxabank real estate agency—, the developer has reoriented its business towards a model of co-investment or delegated promotion for third parties, a formula with which it wants to diversify its sources of capital, achieve efficient growth and improve shareholder returns.
The company, which went public in March 2017, becoming the first listing in a decade for a real estate developer in Europe, seeks to increase its potential at all costs and, to this end, has positioned itself as the reference partner for international investors. “We are the vehicle so that whoever wants to invest in real estate [inmobiliario] In Spain I can do it. We go around the world saying: we are Neinor, we do this, you give me the money and we turn it into the product you want, from affordable or protected housing to senior living [complejos para mayores]”. With these words, the company’s CEO, Borja García-Egotxeaga, illustrates the core of its co-investment program, one of the essential legs of the strategic plan (2023-2027) that guides the company. The objective of the co-investment is to use fewer own resources for the acquisition of land, although it is complementary to the direct investment made by the developer.
This is how García-Egotxeaga justifies the shift: “There is a lot of interest in investing in real estate in Spain, but not through listed companies and, therefore, we designed a co-investment policy. “Those who do not want to enter by buying shares, which is the way in which funds obtain profitability, can enter through another window.” And he adds: “The capital must be complemented so that it wants to stay.”
In just over a year and a half, the company has more than doubled its co-investment goals. Its business plan contemplated investing 1,000 million euros in new land acquisitions until 2027, of which 500 million would be contributed by the company —He has just bought a land with his own funds in Córdoba for 21 million— and the rest by partners.
The co-investment agreements already total 1,200 million euros, of which 800 have been executed. “We have the capacity to continue growing,” indicates the CEO of this platform, whose majority shareholders are Stoneshield, the Orion fund and the Israeli-based manager. Adar. Although it has met the schedule, the market and Neinor itself assume new alliances until 2027. “We continue studying operations, there are places where we would like to enter with more force,” says García-Egotxeaga.
The Basque manager refers, among other segments, to the build to rent (houses for rent) and construction of affordable housing in collaboration with the central government and regional and local Administrations to alleviate the housing crisis that Spain is suffering. “We hope to be able to find investors who want to bet on the affordable product that does not have much profitability, but is super safe. It has to be attractive to capital because, otherwise, the competitions remain deserted,” says García-Egotxeaga, in favor of creating “a national pact for housing.”
Neinor has signed six co-investment agreements with partners such as AXA IM Alts, Orion Capital, Urbanitae, Avenue Capital and Octopus Real Estate to develop homes for sale (build to selll), for rent and complexes for seniors. The last alliance, one of the most relevant in the sector this year, has been the purchase of 10% of the developer Habitat from Bain Capital for 31 million of euros in September. It is the latest example of Neinor’s ambition to take advantage of all growth opportunities. The two companies have signed a management contract, under which Neinor, a minority partner, will manage Habitat’s portfolio of real estate assets, in addition to its resources and personnel. In exchange, you will receive commissions for the management.
The portfolio, which remains under the ownership and control of Habitat, is made up of ongoing projects and land with the capacity to develop 8,000 homes which, at the end of 2023, was valued at nearly 700 million euros. “It is a very imaginative operation, very new, I think it marks a path for what is going to happen in the coming years in the world of the big developers in Spain,” adds the company director, who foresees a general reduction of its business by 2024 and 2025years in which the strategic plan contemplates a net profit of 65 million euros, compared to 90 million in 2023. The delivery of homes will also decrease to 2,000 annually, compared to 2,559 homes last year.
The gap is closed
The other leg on which the strategic plan is based is an ambitious distribution of dividends, of 600 million until 2027, with which to compensate shareholders for the low performance of the share price in recent years. By 2024, it will distribute 200 million.
In view of the evolution on the Stock Market, the market has approved Neinor’s roadmap, for which it has refinanced its corporate debt up to 200 million (leverage ratio of 20%-25%). The company, with a capitalization of 1,127 million, is now experiencing one of the best stock market moments after the latest movements: its shares have recorded a revaluation that exceeds 41% since the beginning of the year and places the price close to 15 euros, levels not seen before since 2018, although still well below the 16.46 euros at which it made its debut on the Stock Market. It is listed at a slight discount of 6% compared to the NAV or net asset value (15.79 euros per share at the end of the first half). “I hope that we can trade above the NAV because we generate value from our assets,” says García-Egotxeaga, who is optimistic about the macroeconomic and sectoral outlook for the coming months.
In fact, from Renta 4 they talk about tailwinds for investment in platforms like Neinor. “They have healthy leverage levels, professional management teams and offer attractive returns via dividends. They are benefiting from the housing deficit, the good levels of pre-sales, the ability to raise prices and a current environment of rate cuts,” says Javier Díaz, an analyst at Renta 4. And he adds: “we will see many more co-investment agreements between promoters and funds than large corporate operations.”
