HIAG Immobilien Holding AG (HIAG) Earnings Call Transcript & Summary

Good morning. Welcome to the HIAG Immobilien Holding AG Half Year Results 2026 Telephone Conference and Live Webcast. My name is Sandra, your Chorus Call operator. [Operator Instructions] It is forbidden to record the conference for publication. And now over to you, Marco Feusi , CEO. You have the floor.

[Interpreted] Thank you very much, Sandra, for organizing this and giving the introduction. Good morning, ladies and gentlemen. I would like to warmly welcome you to the presentation of the half year results 2026 of HIAG Immobilien Holding AG. My name is Marco Feusi. I'm joined by our CFO, Stefan Hilber. We are delighted to see so many of you here today. Stefan and I will be guiding you through the key developments of the first half of the year today. As usual, we will be available to answer your questions at the end. HIAG can look back on a very successful half year. We were able to build on our equity of 2025 and once again, achieved a very strong result in the first half of 2026. Our refined strategy is proving effective. We are performing very well operationally. Net profit loss significantly compared with the same period of last year to CHF 85 million. Even excluding revaluation effects that resulted very encouraging recut million. Key drivers were the strong promotional business sales is part of our capital recycling strategy and good progress in our project development in the letting business expected. The rental income fell by 3.3% in the first half of the year due to various property sales Like-for-like rental income, however, increased by 3.8%, and the vacancy rate fell once again to a very low 2.8%. This demonstrates that our portfolio is of high quality that our project developments can be successfully positioned in the market and that our asset management in-house property management are operating very successfully. We have achieved key milestones in our project pipeline. I would particularly like to highlight the successful completion of the Alto project in Zurich-Altstetten in March and the fact that it was fully recouped afterwards. While the development [ frames ] are also progressing according to plan and from the basis for future growth overall, with this half of the year, the success of our direction. We can have a robust balance sheet and effective and high-quality portfolio. We are, therefore, would with confidence to the second half of the year and up in that we will once again be able to achieve a very good result for the full year 2026. That is the discussion of the financial statement figures. I will now hand over to Stefan.

[Interpreted] Thank you very much, Marco. Good morning, ladies and gentlemen. As you heard, we are able to build on its record year of 2025 and once again achieved a very strong result in the first half of 2026. Operating income more than doubled to just over CHF 159 million A key reason for this are the revaluation effect and income from condominium ownership project in Cham. Accordingly, the associated direct expenses for the condominium projects have also risen. Operating and administrative expenses therefore rose from around CHF 20 million to CHF 52 million. Bottom line was an EBIT of just under CHF 106 million. This represents an increase of around 93% despite the higher volume of sale finance costs rose only slightly due to the favorable interest rates. Tax expenses, on the other hand, reflects a base effect. In the previous year, we were still able to utilize tax costs carryforward. These have now been absorbed and which is why we expect to return to normal tax rate from 2026 onwards. Net profit has rose about 90% to CHF 85 million. It is particularly encouraging that net profit, excluding revaluation gains also went up a significant namely by 80%, around CHF 37 million. These figures resulted in return on equity of 13.3% or 6.0%, excluding regulation effects. In the following slides, I will go into more detail into the key income and expense items. This reconciliation of changes in rental income stores, which had this increases reduced rental income in the first half year. As expected disposal had the greatest negative impact. This resulted in a reduction of rental income of CHF 2.7 million net new lettings and project completion to get the contribution of around CHF 2 million. We were not yet able to produce the impact of the divestment in the first half of the year end income revised by 3.3% to CHF 38 million from an operational perspective. However, the picture is different on a i.e., exclude action tax rental. The completed residential tower in Zurich-Altstetten. The rental income, which are nearing completion, will begin to contribute to early primarily in the second half of the year. We therefore continue to expect a slight increase in rental income for the full year compared with the previous year. The vacancy rate across the entire month again and at 2.8% has reached a new low, excluding the spaces still make in the new commercial development are in winter, the rate would be below 2% is underlined the strength in performance across the rest of the portfolio. the higher property values led self-reduction in the gross yield for the existing properties from 5.3% to 5.1%. However, thanks to low property expense at the next year remains stable at 4.2%. Ever remaining term of the fixed-term tenancy agreement weighted average term remains a solid 6.3 years from the last 10 loads as high as 6.8%. The proposal open-ended leases has risen from 19% and 37%. The main reason for this is the completion of the 149 rent reflected the open and is relative flat. Of the less lease is due to expire in 6% measured rental volume are of a strategic nature due to the mix pages of the development of the remaining leases over 80% have already been renewed. Overall, the rental maturity profile, therefore, remains comfortable. This slide shows the development of a hotel portfolio value over recent years. And on the right, the changes in the first half of 2026. investments in our projects and existing property is totaling around CHF 70 million, together with positive revaluation have more than offset the disposals eroding from the sale of Dominion Ownership and Investment property portfolio of value. That rose to about CHF 2.1 billion. This slide also clearly illustrates how our capital with distraction work. We sell properties at a that is available book value and reinvest perceived in our project pipeline, which internally to further increases in value. In this way, we create additional value whilst maintaining a sound balance on the balance sheet. Here, you can see the revaluation effects in a multiyear comparison. It is noteworthy that the development will deliver a positive contribution to value even in 2023 in an environment of surprising interest rates and contract to higher interest rate at that time, led to write it down in the existing portfolio. In the first half of 2026, the developed business was also the key driver overall. This resulted in revaluation of CHF 53.4 million or 2.6%. Of this, just under CHF 40 million was attributable to the development portfolio, which has appreciated by a net 4.9%. The existing property portfolio increased by around CHF 14 million or 1.1% with the residential sector once again making a significant proportion. This trend shows that our own performance made certain contribution to value creation. The average real discount rate used in external valuations fell by 9 basis points to 3.16%. This trend is in line with the market trends, the lower interest rates and strong investor demand and leading to falling high requirements for property investments. Demand for the owner-occupied flat in the second phase of cost income remains very high. As reporting that 95% of the flats have been authorized combined with construction roles and this resulted in a contribution to earnings of CHF 20.3 million in the first half of the year. The comparison with the previous year is characterized by a one-off effect. You look the atomic relevant minorities, [indiscernible] at the time and consequence profit per record. For the upcoming condominium ownership projects, which we are currently a bit in ending commission, marketing has not yet come. However, this means that we're really able to corresponding income from property development in the future. Excluding direct cost for the condominium ownership income. Operating expenses year-on-year to just CHF 115 million. The previous year's figure but among other things, impacted by the extraordinary renovation of an industrial building in China the current half year profit expenses stood at a very low level accounting for 9% property income as maintenance works our plan for the second half of the year, we expect to see a certain bit effect here. For the year as a whole, we have sped a ratio that is more in line with previous years. The trends of the metal restating business to the Tunnel, which was completed in mid-2025 also had a positive impact. other costs, and particularly staff costs are in line with the previous year and our expectations. Despite continuing growth, our capital structure remains very good. The equity ratio stands at 6.5%, while the net LTV is 39.2%, well below our self-imposed limit of a maximum of 25%. This gives us sufficient financial ability to implement or account pipeline and capitalize on additional growth opportunities and remaining focused on our conservative balance targets. The volume financing increased by CHF 50 million to CHF 80 million in the first half year, we primarily combine 2 financial instruments for our financing, a syndicated with the fertility many covers short-term requirement we use bonds to lock in interest rates over the longer term and ensure a balanced maturity profit, too. At the beginning of the year, we had successfully placed agreement on with EUR100 million maturing in 2033 and carrying a coupon of 1.4%. This extended the average fixed period from 2.2 or its current interest rates, we are able to refinance at very attractive terms in the short and the long term average interest rate paid remained constant at around 1.7% during the reporting period. Yes, it's sustainable initiative met one of Switzerland's leading property companies. We are focusing on 3 areas, but we can make a tangible impact through our portfolio. Firstly, reduction of greenhouse gas emissions. Secondly, tenant satisfaction and thirdly, expansion of our own renewable energy generation. And then expect you can see how we are translating these priorities into concrete measures. Several properties, we are replacing all the gas heating systems with lower carbon alternatives such as district retired, the conversions will take between 2026 and 2027. In addition, we're investing in energy official building in the future with the aim to meet it energy, we limit on for construction missions, although compliance with limit is an ambitious target. We're also seeing a positive trend in tenant satisfaction. This confirms that we are on the right track and that we maintain close path our tenants apply through our in-house property management. We have also made progress in expanding renewable energy. With a few with new for tax system, the total tool capacity has increased to mega what step of this 8. 1 megawatts peak is operated by our joint venture [indiscernible]. I will now hand back to Marco who provide you with further insights into our project developments.

Thank you, Stefan. I now move to the site development and give you an update on our key projects. First of all, all our projects are progressing according to plan. And I mean, within our cost and schedule targets. A particular milestone with the company completion of the Alto in Zurich-Altstetten. Just a few weeks after completion, all 149 and all commercial spaces have been met. This confirms the feel of our site development in well-connected locations. The ongoing project in Cham also [ Fone ] and Meyrin are also progressing well. We anticipate further investments of around CHF 80 million for these projects unless we expect additional rental income of around CHF 10.5 million added to this are the sales proceeds from the owner of the pipes of at least CHF 154 million. From today's perspective, the outstanding development profit from this short-term project spend around CHF 50 million. We expect the medium-term projects to be completed by the end of 2028 and during 2029. For the sell side invention, we received planning decisions from the city for the first phase pricing, same rental on a flight, legally binding plan in commissions, I expected issued in the coming months. So that we can start construction. Immediately, we also expect a new permission for the faith base of development comprising around 18 the proximity square meter of commercial space to be branded shortly enable us to commence construction of spring or the property on [indiscernible] in Zurich-Altstetten. A pending application has been submitted 29 owner occupied state. We expect the planning mission decision by the end of the year. Construction is currently scheduled to start in mid-2027. These medium-term projects involve a planned open investment volume of around CHF 198 million. Annual rental income amounts to about CHF 5.2 million. We are targeting receipts of CHF 200 million from the sale of that ownership unit. We anticipate the development gains of around CHF 50 million to CHF 60 million from this project. On the camera side, when we do work and landscaping are currently underway on the common in phase. Two, the first owner occupied said have already been handed over to the buyer. The rental flats will follow in November. [indiscernible] is strong. All 67 rental sets were fully let months before occupancy. Of the 73 owner-occupied plants, only 3 units are currently still available. This marketing success highlights the high demand for housing in transitions and confirms our development strategy. On the Reichhold Hausen campus in Hausen Lupfig, the buildings for Oerlikon are currently in the outfitting phase and over to the tenant that's scheduled through the end of the year. At the same time, the infrastructure works for the GTR data center project to CT with plan in coming months. The compares continuing to e in modern production offices and center users under renovation and conversation of listed issue building the historic materials has been underway since the end of 2025. With this project, we are implementing the final phase of the long-term site development, its are being created. And now with additional studio and commercial spaces, structural work is currently underway. The spaces are due to be available to future residents in summer 2027. In Meyrin, we have signed a lease agreement with not see Switzerland for more than 8 years for new Hive 6 Building. The building is tended to be used as a data spend with a capacity of 12 megawatts consumption began in March 2020, following the work to secure the exationpit. Earthworks are currently underway at over 1 billion share is scheduled for the end of 2027. Project is another important milestone in the development of our site in Meyrin. Now over to our Transactions business. We were also able to successfully implement our capital recycling strategy in the first half of the year. We saw further property that no longer align with our strategy, taking advantage of strong demand. Specifically, through development site in St. Maurice and Aesch, as well as smart properties were sold, which resulted in sales proceeds of CHF 20 million and the gross profit on sales of around CHF 6 million. The sales prices were again significantly higher than the book values at 39%. The last 4.5 years, we have thought over 30 properties generating sales proceed of almost CHF 30 million and thereby achieving a gross profit of around CHF 54 million. the sales prices were on average around 20% above the most recent valuations proved by the external valuer. This in terms of the strong performance of our transaction business not the same time create additional financial flexibility for HIAG's continued profitable growth. As usual, I'm pleased to invite you with a brief view of how sentiment in the Swiss property market. The Swiss economy is very looking in the general stable manner but with moderate grade despite your lytic uncertainties, the low interest rate, population loans and the limited supply of land continue to underpin the property market. In our palette we continue to reserve good to very good demand. The residential market remains is strong. We are also seeing solid letting activity for commercial and logistics space, particularly in well connected locations and in buildings, offering flexible use. In the transaction market, we continue to expect intense competition due to high investor demand. And consequently, stable prices that are likely to rise even further. So we do this means with a disciplined focused on commodity and consistently per our strategy. Given the outlook for the full financial year 2026, we can fully internment and targets communicated in March. We're able to slightly improve our guidance on vacancy rates and development sales for 2026 as a whole, we continue to anticipate a slight increase in rental income compared with the previous year. from next year onwards, we expect rental income to rise significantly in from as the completion of several development projects deliquency rate should remain low at around 3%. And in the second half of the year, we will invest a further CHF 60 million in our ongoing construction contract. Progress on this project is likely to contribute to one end to notice of any consistencies is how many we can develop in quarters, we anticipate that will have been sold by the end of the year, we expect this to contribute CHF 12 million to gross profit in the second half of the year. And now an actual business, we do not plan any further the we are preparing further divestment is the same time, we are continuing to actively explore acquisition opportunities. However, the high demand in the transaction market needs at a few rupees meet our quality and requirements. We remain highly selective and in. In terms of sustainability, we are focusing on the areas outlined by Stefan. Our aim remains to further improve we have already ended in all relevant areas of sustainability. As previously communicated our dividend for the and for September, we will you opening in at the Capital Market Day. As part of our properties, we will showcase different sites and also was look frequent you annex project managers will guide you to the day and provide insights into our business assets. We would be delighted if you could join us. You can simply register using the link you see by e-mail last Monday. In summary, we expect good operating results for all business divisions for the second half of the year as well. We continue to anticipate a positive capital market and at following the results in 2025, we be able to use not outstanding results in 2026. This concludes our presentation. We're looking forward to your question, you can submit them now via Chorus Call.

[Operator Instructions] Our first question is from [ Folger Wish ] from [ Reichold ].

I have 2 questions. First of all, the project Alto, you mentioned CHF 220 million and 24% more. So what are we talking about?

We have to have cost. We had to have cost we had CHF 24 million was further improvement. And the other costs are due to the market because the rental income was stable. As far we value the development subject according to yield and cost and as far as the development for just concerned that the risk has to be paid from a cash and then we also need an addition on these components probably a bit most very stringent because we were able to complete all these things successful.

I have another questions of the CHF 0.44 million. CHF 102 cash flow indirectly. At the end, only CHF 220 million. What has changed? And why do we have these changes? Are they just calculations of what are they?

Please, could you repeat the question? I didn't quite get it.

What does it have to do with the cash?

So cash flow, in terms of divestments, CHF 102 million are included, yes, and -- and in 2025, you said CHF 200 million. What has changed a part was implemented. We had sales in the first half year the other part went well? This is to say we had other projects which we postponed a bit, but those were investments?

Okay, good. My last question, mortgages. You said CHF 70 million. Do you have an idea how this will go? Will you expect the mortgage? Or will you pay it off? Basically, we would like to finance ourselves in food that we know long need classical mortgages on our properties. We will pay the lot with a bond and also a syndicated credit. And when the time comes, we will decide what we will do. Thank you very much.

[Operator Instructions]. The next question comes from [ Felipe Heron ] of [ Flex KB ].

I have a couple of questions. exact point in time of handing over, I would be interested in that.