Instone Real Estate Group SE (INS) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Instone Real Estate Group SE Full Year 2024 Results Conference Call. I am Youssef, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or for broadcast. At this time, it's my pleasure to hand over to Burkhard Sawazki, Head of IR and Capital Market Communication & Strategy. Please go ahead.

Thank you. Good morning, everyone. I would like to welcome you all to our full year '24 earnings call. Our CEO, Kruno Crepulja; and our CFO, David Dreyfus, will walk you through our presentation and give you an update on our current business performance and our new outlook. As usual, this will be followed by a Q&A session. With this, I would like to hand over directly to Kruno.

Hello, everyone, and thank you for joining our Q4 earnings call. I think the very important message is that we have once again achieved all our goals in a still challenging market environment. We actually saw very strong Q4 sales momentum, especially in the retail business with both private investors and owner occupiers, and we also managed to sign several institutional deals. As a result, we sold a volume of more than EUR 170 million in the fourth quarter, which has been our strongest quarter since Q4 '21. We view this as a clear confirmation that the market recovery is continuing. We currently see especially strong momentum from buy-to-let investors. At the beginning of the year, we launched the marketing and presales process of 3 projects, 1 in Duisburg, close to the border of Düsseldorf, 1 in Frankfurt and 1 close to Stuttgart. All of these projects are perfectly tailored to the promotion scheme from the Growth Opportunities Act. The feedback we are currently getting from the market is really very encouraging. Looking at the institutional market, we achieved the signing of 1 larger and also 3 smaller deals in Q4 '24, mainly with cooperatives and also a foundation. We are very happy with the result, but we don't want to overstate this. Overall, the institutional market is still in rather difficult shape. Many customers are still very cautious. Our discussions with our institutional customers suggest that we can only expect a more pronounced recovery in the second half of the year. The current uncertain macro environment also contributes to this. Another major achievement in the last 12 months was that we were able to further strengthen our balance sheet. We have a strong cash position of almost EUR 270 million and also very low financial gearing with an LTC ratio of only 10.5%. This puts us in a very good position when it comes to taking advantage of attractive growth opportunities at the trough of the cycle. Let's now take a brief look at our financial KPIs for the full year 2024. We reached adjusted revenues of EUR 527.2 million, fully in line with expectations. Our gross margin remains at a high level of 22.6%, which was even slightly better than anticipated. We continue to view our margin as perhaps the best indicator of our operational excellence and leading profitability. We believe that this reflects the quality of our project portfolio and our cost leadership with our in-house construction management. Our adjusted earnings after tax amounted to EUR 36.9 million, a result which is in the upper half of our guided range. On the back of a strong Q4, our sales increased by more than 56% to EUR 330.2 million compared to 2023. In the current market environment, this is also a result which we can be very satisfied with. Based on the result we have achieved and our communicated payout ratio of 30%, we are proposing a dividend of EUR 0.26 per share to the next AGM. We believe that we have passed the bottom of the cycle, although revenue and earnings in our business will follow with a certain time lag. We, therefore, plan that the dividend of EUR 0.26 should also mark a floor for 2025. For the current full year 2025, we expect a continued dynamic sales recovery as the key lead indicator of our business. We assume that demand will continue to rise significantly, but that it will still remain below precrisis levels. Accordingly, we expect sales to reach a level of more than EUR 500 million in 2025. We again expect revenue in the range of EUR 500 million to EUR 600 million in 2025, although we are entering the year with a lower backlog of presales compared to the previous year. We expect a sustained very healthy gross margin of around 23% and adjusted earnings after taxes in the ballpark of EUR 25 million to EUR 35 million. A key reason for the expected moderate decrease in the bottom line result is the release of capitalized interest costs with the start of sales of new projects. We expect that the continued sales recovery will translate into rising earnings in 2026 and beyond. We have, of course, all noticed the recent spike in volatility on the bond markets as a result of the potential investment programs planned by the new German government. We cannot yet assess how the risk of sustainable higher interest rates and, on the other hand, improved growth prospects will affect our business. We have not yet been able to recognize any meaningful effects, at least not to date. We have had a significant increase in reservations since the beginning of the year, which has not changed materially due to the recent rise in interest rates, but we have still seen a few cancellations due to rising uncertainty. We continue to closely monitor the market and its implications for our business. Moving on to Slide 4 in our presentation. Our sales ratio on the upper chart illustrates the sound sales performance of our retail fourth quarter. The most important customer group are the buy-to-let investors. Overall, our single unit sales increased by some 82% compared to the previous year's trough levels. The steady upward trend over the last 2 years, including the typical seasonal effects, is also shown on the chart at the bottom. The development of the sales ratio also demonstrates that we saw the typical seasonal effects at the beginning of the year with a traditionally weaker seasonality. However, in recent weeks, we have again seen a nice pickup in demand. While we have already seen a certain positive impact from the promotional scheme of the Growth Opportunities Act in 2024, we are now starting to see much stronger effects. We launched the sales start of 3 new projects this February. All of these projects are perfectly tailored to the new promotion scheme, and they benefit from both the 5% aggressive depreciation in combination with a 5% special depreciation over 4 years for energy-efficient buildings. This allows us for very attractive post-tax returns. The initial market feedback is very positive. We have already signed the first notary contracts, and we have secured a substantial number of reservations. We observed that investor sentiment has improved over the past month. The rising awareness that property prices, especially for new builds in good quality locations, have bottomed out in combination with the rising rents and wages is a key driver for this. Coming to the institutional business. We are very pleased that we were able to close a larger deal with a volume of almost EUR 70 million and also several smaller deals in Q4. We have already been able to sell a subproject of the Grafental project to a foundation. We had acquired the land just a few months earlier. The return on capital is, therefore, very attractive for us. In the Grafental project, we sold the affordable part, benefiting from attractive promotion schemes for the investor. However, it is still fair to say that the institutional market is still quite challenging. The political uncertainty in the run-up to the German general election and also due to the current political discussion around debt finance fiscal programs contribute to this. Our guidance takes into account a broader recovery of the institutional market in H2. We are already in talks with a number of institutional investors with regard to a number of specific projects. On the next slide, we provide a breakdown of our sales and revenues. Despite the successful signing of institutional deals, the share of this customer segment is significantly below pre-crisis levels. A stronger recovery of this customer segment is still the biggest swing factor. In the coming months, however, we expect strongest momentum from the demand from private buy-to-let investors driven by the promotion scheme of the Growth Opportunities Act. On the following Slides 6 and 7, we provide you with an overview of relevant market indicators for our business. An important development in 2024 was certainly the bottoming out of prices for new builds. There are rising indications that prices in metropolitan areas have already passed the trough. In addition, an important value driver for our business, the end of deflationary pressure is also a generally very important factor for the uptick in demand as pressure on buyers has started to rise again. New build apartments remain the first choice for investors also due to the superior rental development. Rising property yields from dynamic rent growth were a main factor for the price stabilization in the market. This ongoing positive rent trend is also confirmed by the recent data provided by Bulwiengesa for the top 7 cities. Recent data even show a further acceleration in the fourth quarter. The positive underlying demand trend is reinforced by decreasing supply and, therefore, rising scarcity of energy-efficient apartments in good quality locations. Over to Slide 7, which illustrates construction price inflation over time. The most recent data from the Federal Statistics Office confirm a continuation of the trend of the last few quarters with a moderate CPI growth. In the fourth quarter, the Q-on-Q price development decreased further. We actually believe that the market is showing a more differentiated picture. According to our own on-the-ground experience, the cost increase is very low, if any. Our explanation would be that there is fiercer competition among construction companies for the limited number of larger residential housing projects in the market. We are clearly benefiting from this. All of our construction projects are on budget. We are convinced that Instone is clearly the cost leader in the industry and our core product with our own construction management and especially with our innovative new product. Against this backdrop, we have started to offer our development services to third parties at very attractive price points while still generating attractive margins. Our subsidiary, nyoo, is currently in several discussions with third parties such as privately and publicly owned housing companies for development on their own land translating into low CapEx requirements for us. Instone's ability to build profitably at low price point via its new product was also the key success factor in closing the recent fast forward institutional deal of the Grafental project in Q4 '24. Moving on to Slide 8. As discussed in previous earnings calls, Instone has weathered the crisis very well based on its strong balance sheet, leading margins and the high presales ratio. The latter has provided a sound basis for earnings and cash flow visibility. To give you just a brief update on this, projects worth EUR 2.8 billion are currently under construction, of which 92% have already been sold. This provides a stable source of future revenues of more than EUR 470 million as well as for secured future cash flows of some EUR 190 million. Over the past 2 years, we have already generated substantial cash flows from these presold projects under construction, as David will highlight on the following slides. As soon as the market reopens more broadly, we will be able to accelerate our sales significantly with an existing land bank with projects that have already obtained building rights of around EUR 1.7 billion. We are currently also very active on the acquisition side in order to significantly increase our medium-term growth profile. We have already closed very attractive acquisitions in 2024, but we were still very selective overall as we still considered the asking prices of many sellers to be too high. The situation has now improved. Our patience is paying off. We are currently among the final bidders for potential project transactions with a sales volume of around EUR 4 billion and have already been able to agree exclusivity for transactions with a GDV of around EUR 500 million. We are, therefore, confident that we will be able to close further attractive acquisitions in the coming months. I would now like to hand over to David for the financial section of the presentation. Thank you.

Thank you, Kruno. Let me now walk you through our full year 2024 financials in a bit more detail, starting on Page 10. As Kruno has already pointed out, we are pleased that we delivered a very solid set of results and that we have reached all of our financial targets in a still challenging market environment. Fully in line with our expectations, our adjusted revenues are slightly below previous year's level, mainly due to the expected lower construction output. The bulk of the revenues was still derived from presold projects under construction. The share will decrease in 2025, but this is expected to be compensated by a higher contribution from new sales. We have continued to produce high gross margins of 22.6%, which was even a notch better than expected. Our profitability is still a benchmark in our industry, also compared to other listed peers with exposure to German residential developments. As we already flagged in our previous call, there was temporary margin decrease in Q4 due to an expected change in the revenue mix. There was a higher revenue contribution from a Westville subproject with a lower margin as well as from a lower-margin office building, which was part of a larger project. Furthermore, we have sold all remaining units of our projects which were completed in 2024. We do not have any remaining inventory risks from these projects. This is also exceptional in our industry in the current market. Our platform costs decreased despite higher provisions for our LTIP due to a share price increase in 2024. Our underlying staff costs decreased quite substantially by around 11%, clearly showing that our [ measures ] are bearing fruit. Further down in the P&L, we saw a significant decline in our net interest expenses. This was mainly attributable to a lower net debt and the related soaring interest income on our meaningful cash position. As a result, we achieved an adjusted earnings after tax of EUR 36.9 million, in the upper half of our targeted range for 2024. We believe this is a very decent result in the current market. Over to Page 11. Instone during the crisis very much benefited from a high backlog of presold projects, which represented a sound basis for strong and predictable cash flows. We have already collected a large part of this. Due to the generated cash flow, we were able to substantially improve our balance sheet. Our LTC ratio dropped to a very low level of 10.5% at year-end. Despite the lower earnings level, at the trough of the cycle, net debt-to-EBITDA is only at 2.1x. This gives us ample headroom for acquisitions in an environment which we view as a buyer's market for land. Moving to the next slide. The presold projects, as just mentioned, remain a substantial cash generator for Instone. Our strong operating cash flow of more than EUR 100 million in 2024 is shown in the table on the left-hand side. It was the second year in a row where we were able to generate such a high cash flow. Our selective approach on acquisitions was, of course, also a major contributor to this. The cash outflow for land payments was EUR 45 million in '24, of which EUR 27 million relate to land acquisitions from previous years. The 2 projects that we acquired in '24, Lahnwarte in Frankfurt and Grafental in Düsseldorf, are already in the sales process. Indeed, it was just a cash payment of EUR 80 million for the Grafental project in Q4. Hence, I think this shows that we were able to negotiate quite favorable payment terms on those 2 acquisitions. This all leads to Instone's very strong liquidity position of almost EUR 207 million at year-end. Correspondingly, Instone has a significant net cash position on the corporate level. In addition, we have access to revolving credit facilities totaling around EUR 140 million. This comprises a new credit line of EUR 100 million that we signed at year-end. This is once again strong confirmation that we have full access to all relevant debt products in a financing market which is still very challenging for our industry. Instone is really in an exceptional position here. After having signed 2 projects with a GDV of EUR 260 million in '24, we are now in advanced discussions for several new deals in '25. As Kruno has already pointed out, we currently have a substantial acquisition pipeline where we are among the final bidders and an acquisition pipeline with a GDV of more than EUR 500 million under exclusivity. Hence, we have reason to be confident that you can expect the signing of some very promising deals in the coming months. Over to Chart 13, which gives us an overview of our financing structure at year-end. Overall, we have a very balanced maturity profile with low refinancing volumes in individual years, which also contributes to our strong financial profile. Finally, coming to our outlook on Page 13 (sic) [ 14 ]. As already pointed out, and although the uncertainty has somewhat increased recently, we expect the recovery to continue in 2025 with an institutional market which is expected to see a broader recovery in the second half of the year. However, we expect sound momentum in our retail business with tailwinds from our recent sales starts in the coming months. Accordingly, we anticipate a sales volume of more than EUR 500 million in 2025. We again expect revenues in the ballpark of EUR 500 million to EUR 600 million, i.e., the same guidance range as in 2024. Revenue generation in '25 will be supported by the remaining sales from our projects already under construction. We expect a sustained high gross margin of around 23% and a somewhat lower bottom line result, mainly due to the release of capitalized interest with the start of sales of new projects which are scheduled in 2025. We expect the year '25 to mark the trough of the earnings cycle. And therefore, it is our clear intention to keep the dividend for 2025 at least at the level of EUR 0.26 per share. With this, I would like to conclude the presentation and move on to the Q&A session.

[Operator Instructions] The first question comes from Philipp Kaiser from Warburg Research.

Congrats to the sound operating performance. Just a couple from my side. I would go through them one by one, starting with 2 just for the clarification. With regards to your Slide 5 in the presentation, the revenue mix and your target for this year, the column is just the announced guidance and there is no indication for your expected revenue mix. Is that right?

Yes, Philipp, that is correct. We do not provide guidance on our revenue mix. However, we can say that the previous year sort of indicates directionally also an indication for '25.

Okay. And then could you just quickly remind me, so for this year, you already secured sales worth EUR 300 million. Is it still correct?

That is correct. We have sales this year which are secured, which is close to EUR 300 million, so not fully EUR 300 million. And not sales, sorry, it's revenues, just to be correct.

Yes. Yes, sure. And then with regards to the details in the last quarter, with regards to closing, were all the closings expected in the last quarter or were there any shifts quite asked to get a feeling about the start of this year?

So we had the signings last year, and there are no, let's say, major exit possibilities for the investors. So you can say you don't have this description signing and closing. It's more like signing and then we, of course, have to construct then the project. But there's no exit -- major exit possibility for investors.

Maybe I can just add, Philipp, we made a statement around the payment for those land plots, one of which was paid and, therefore, if you wish, closed in '24; and one of which we were able to push out the payment into Q1 2025 and, therefore, closing, if you wish, only happened with the payment this year, but sort of we get ownership of that land at the time of signing.

Okay. Perfect. Then with regards to the material expansion, so in relation to adjusted revenues, it came down significantly. Can we expect or applicable this ratio for the coming years? Or are there any major changes with regards to different materials?

Can you maybe repeat the question?

Sure. Sure, of course. So the material expenses, so at least in relation to your adjusted revenues, came down significantly compared to the other years, which might be in line with the overall decline in construction materials. Can this ratio be applicable for the coming years? So can we expect, yes, kind of sidewise development of your material expenses? Or do you see anything on the horizon which may increase potential construction materials or even a further decline?

I think we have to differentiate between the material expenses we have in the balance sheet where, of course, I think for the coming years, as mentioned, we see '25, the trough regarding the revenue recognition. And therefore, we expect in the coming years revenues going up and, of course, the material expenses also will accordingly go up. Regarding the material cost inflation, here, I think we've seen in '24 parts of the materials inflating. As we mentioned, overall, the CPI growth was flat, and this is that construction costs in total stayed flat, and this means that the companies have expected some kind of margin decline. And going forward, I think we also expect for this year that construction costs should stay flat. But the same, I would say, the same situation like further material price inflation compensated by the acceptance of margins going down. And the question, of course, is then how the potential freedom or, let's say, the stop of the war in the Ukraine has an impact or how the infrastructure program could have impact? This is for us difficult to anticipate today because it will come, I would say, over the years. So it won't be a direct immediate impact. But I think that going forward, next years, there could be material price inflation driven by these 2, let's say, impacts, war stopping and the infrastructure program, which is currently discussed today in Bundestag.

Okay. Fully understood. And then you already mentioned this defense and infra program. And apart from potential increase for material prices, do you see probably any other negative impacts maybe with regards to the availability of craftsmen, for example? Any other implications for your business?

So I think overall, the current construction market is suffering. When you look at our part of the market, so building flats and also office buildings, which are using the same source of workers, I think that, of course, if -- and again, I think we think that the order books are still weak of the companies. So hopefully, the infrastructure program is helping many of the midsized companies to, let's say, stay alive. Otherwise, I think for us, it means we will see no cost price inflation. That's our personal, let's say, view of events. After the year, going forward, we will see CPI growth again. And will this be mainly influenced by the Infrastructure Act? I think it's a part of it, but it's not really impacting, let's say, the part of the business we are in. It's partly like schools or others. The whole streets and bridges are not the companies we are working with usually. This will have more an impact on material cost inflation like concrete, et cetera. Here, we have the same source. But overall, I think there will be impact, but I don't expect this to come this year. And you know how long you need in Germany to plan a bridge and streets and et cetera. So it will take some time.

Yes. Yes, absolutely right. Very helpful impact. And my last question, I know uncertainty is still there, and you also mentioned that probably this year is going to be the trough year of revenues. At least trying to look a bit ahead 2026 and beyond, do you already -- it's kind of possible to say when you will hit the EUR 1 billion mark in sales volume would already be 2026 or 2027 or still too uncertain to give it an exact date?

So Philipp, I think we -- generally, our goal is to obviously get back to pre-crisis levels, as you have mentioned, which is sort of the EUR 1 billion sales mark. We hope to get there, and we will have more clarity during the course of this year, but it's still our intention to get there towards '26.

Okay. Perfect. And maybe one follow-up on your strong operating cash flow last year and also the year before. And you already mentioned there are potential acquisitions in the pipeline. So what can we expect for at least this year from your operating cash flow? Any insights would be helpful.

So that heavily depends on the acquisition pipeline. We also have, obviously with the sales start of a lot of the retail product, initially some construction phase where we use cash instead of building cash flow. So this year, the cash flow will look weaker compared to previous years. We will not provide a detailed guidance on cash flow, but it will definitely be weaker.

The next question comes from Andre Remke from Baader Bank.

A couple of questions also from my side. The first question is on the current situation in Germany. There are many moving parts concerning the political framework with today's decision and the upcoming coalition talks, et cetera. What are your view on that? What are your expectation or grasp for your industry? And probably more important, what is the current reaction from institutional investors? Are they stepping back to a kind of wait-and-see modus? This is the first question, please.

So I start with the last one. So we have been at the meeting fair recently. And there, this -- the program of the government was clear and also the rise of interest rate we've seen in the market. And what we are facing here, the reaction was like from international investors looking more positive on Germany than the German itself, but this is, I think, a normal reaction. Overall, I think -- and we talk to many institutional buyers. I think that resi investments and here new build resi investments are seen as one of the most attractive areas. And here, let's say, the investors have appetite. Now you mentioned the volatility. I think, of course, this is still there the case because we're seeing a lot of changes in the macro politics. We've seen a lot of discussion and every -- felt every morning opening the newspapers is a new news in the newspaper. But overall, I think when I look prospectively, we strongly believe, looking at the appetite of investors, that there will be deals this year. We have been cautious regarding our guidance for this year. We think that the most activities from institutional buyers will come in the second half. And we've seen also the last year in the last quarter already really good activities here. So we are still optimistic, and I think we had very, very good discussion on the meeting fair. Overall, the situation in Germany, I think when you look at the infrastructure investments, resi is not mentioned directly. We think that we need more housing. That's for all the parties, I think, clear. We will see what brings us in detail the program, and it's really worked out in detail, is there additional money for resi that would be positive, but we haven't calculated with it. So our guidance we made for '25 is looking at the sales activities we've seen in the past, in the last few weeks and months. The ongoing sales start we made have been very positive. So this encourages us in our view. But as said, I think volatility is still there. And if the market is staying as it is today and looking back in the last few weeks, we are confident that our guidance is a realistic scenario for this year.

Okay. Perfect. It brings me to the second question. You mentioned that some institutional sales in the last quarter were supported by, how you call it, favorable promotion schemes. What do you mean by that? And do you expect more to come here? Or other way around, would those transactions not happen without such promotion schemes, whatever it is?

So we have 2 or, let's say, 2 main different schemes, and the social housing scheme is different from city to city, from state to state. But I think 2 main schemes like the depreciation scheme, which is implemented by the Growth Opportunities Act and lasts until '29. And this scheme, of course, gives our private buy-to-let investors really attractive terms to reduce their tax payments. And when you look at the double depreciation possibility by 10% of the investment costs over 4 years and then going down to roughly 3%, but this means 40% in the first 4 years, is really attractive. And it's nothing you can change from day to day. It's a tax law which is due until '29. And the second, let's say, scheme I mentioned was our Grafental project. This is related to subsidized social housing where the EUR 20 billion the government has already implemented relates to this scheme where -- and here, it depends from state to state, from city to city. You get either, let's say, the biggest part of the construction financed with very attractive terms or you can also get some kind of subsidy, which is a lump sum you get per square meter. So -- and this, for Grafental, we have both. And this attracts investors because they are getting to a decent cash-on-cash returns. And over the whole time period, social housing, subsidy housing with attractive terms attracted investors also in the last 2 years. When you look back at our institutional sales, they were always related to a subsidy scheme for social housing.

Okay. Okay. I got it. So there are no special promotion schemes which only belongs to this transaction, but the overall state programs.

Yes, that's true.

Okay. Okay, then I get it. You are expecting sales volume of more than EUR 500 million. Could you split this up in your expectations, at least roughly for the private and the institutional side?

So overall, I think 50% institutional, 50% private. And of the 50% private, I would assume that in total, 30% overall is buy-to-let and 20% owner occupiers with, let's say, the possibility that the buy-to-let investors space will be bigger. So they -- we will see extremely strong appetite from the first 3 sales starts, it could lead to more from the buy-to-let investor side.

Okay. Perfect. And then the last question on your acquisition pipeline or plans, you mentioned the substantial pipeline. Are these advanced projects or we talked in the past about that? Or are there land plots in the pipeline? So what is potentially the mix here? And what could we expect in terms of gross margins in those pipeline projects? Could we apply the, let's say, usual 25%? Is it right to assume?

So starting with the 25%, I would say, yes. Of course, it depends on smaller project, bigger project, building permit already there. So these are the differentiators. But overall, I think 25% is a realistic approach. Regarding -- and this is also important, we have bought 2 projects last year. We wanted to buy more, but the sellers haven't accepted in, let's say, in many of, let's say, the competitions we see in the market haven't accepted the new price reality. And this is now different. So we see that more and more land plots are coming into the market where the seller is expecting, after some push, the new price reality. And here, we have signed exclusivity for more than EUR 500 million. And these are more short-term oriented projects. And then we have also from the EUR 4 billion in total, where we have, let's say -- where we think the -- we see the chance more than 60% to get there, we have different parts, let's say, different types of projects. Also long -- more long-term oriented, but all are like where the master plan has already been started. So it's like more 2 to 3 years' time period we need for getting to the zoning and a big part are more short-term oriented projects. But the major change in comparison to last year is that we are seeing more and more chance in the market for really attractive land for reasonable pricing. And this is the main change in comparison to '24.

The next question comes from Thomas Rothaeusler from Deutsche Bank.

A couple of questions. The first one is on your guidance. Just wondering if your guidance would have been more upbeat if you wouldn't have seen the recent rate hike? And maybe also on that, I mean, by when do you expect to have more color on the impact on sales activity from higher rates?

So Thomas, thank you for your question. We effectively have a guidance of more than EUR 500 million that we have set prior to the rate hike that has happened. And we feel, based on what we have also mentioned and what we have seen on the ground over the past weeks, that we feel still confident that, that is the right level. Obviously, we hope to outperform if rates move a bit again in our favor and the set EUR 500 million limit.

And just wondering, I mean, if you look at the most recent dynamics in your sales activity, let's say, in the last 2, 3 weeks, I guess it's still tough to assess the impact of the higher rates because it only happened like the last 10 days or so. Therefore, I'm wondering, I mean, what is your experience also historically? By when -- how quickly can you see the impact on actual sales activity?

I think what is -- Thomas, I think what's also important to mention is we recently started 3 projects for, let's say, the buy-to-let investor space. And we have here generated -- and that's what doubt is saying, which makes us confident, we have made more than 100 reservations where we currently have -- we are following the clients very closely to get to the notary deed. We have already signed contracts. And we have only very, very limited cancellations of the reservation. So what we currently face is clearly that, yes, there is an interest rate inflation. Does it have a major impact on our sales in the projects we are currently ongoing? I would say not really a huge implication. So this is one. And the second is for buy-to-let investors, the interest rate costs could be deducted when we look at overall the income tax scheme. So it's not really impacting in the same way maybe as the owner-occupier business.

Okay. Got it. And also, I mean, coming back on the recent rate hike, I mean, do you think this could impact also the sector overall again with regards to maybe further distressed sales, which actually you could benefit from by maybe even more acquisition opportunities?

I fully agree. I think what we have seen already in the discussion and negotiation that the sellers seen the sun going up again and trying to play like we have time. Now it's different because I think that this further rise in interest rates, I think, pushed them further to make a closing or a signing. I think this helps an acquisition, of course. But overall, again, I think looking through this volatility, I strongly believe that supply-demand imbalance is making its way because the rent price are inflating massively. And the further -- the whole construction activities went down, and this is increasing further the pressure on the market. So overall, I think it's a good market, and we will see prices starting to rise again. And we have to look through this volatility, and that's the way how we look at this market currently.

Okay. And last one is actually on just capitalized interest you've released due to the start of new projects. I mean what is the magnitude roughly what we should consider in your guidance?

So the capitalized interest that is being released is approximately somewhere between EUR 10 million and EUR 15 million.

[Operator Instructions] The next question comes from Manuel Martin, ODDO BHF.

Just one question. I'm looking at the Slide #14 on the guidance. Maybe you can explain again the range of the adjusted earnings after tax, which is lower than in 2024. You explained it already, I think it might have to do with capitalized interest, but maybe you can lead or remind me again how this affects the lower earnings after taxes guidance, please?

Yes. So let me just give you a couple of sentences on how we book our interest. So during the phase presales start, we capitalize interest, and we start releasing those again once we go into the sales start. And as we have a lot of sales starts happening during 2025, you will see those capitalized interest falling into the -- fully into the interest expense line, which increases the interest expense, the total interest expense by the order of magnitude that I've just mentioned before. So effectively, that if you deduct that from the net income level that you have seen in 2024, that gives you the difference between where we were in terms of guidance last year and the guidance that we have given for 2025.

Okay. Okay. No, good hint. I will have a closer look to that.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Burkhard Sawazki for any closing remarks.

Thank you for your participation. If you need further information, please do not hesitate to contact the Instone IR team. Thank you very much. Goodbye.

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